Category Archives: General

housing price equals land price + constructions costs plus reasonable profit + mystery component

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[photopress:fire.jpg,thumb,alignright]Slate commentator Steven E. Landsburg ran a great article today with an economists view of high housing prices… I’m very fond of his equation:

  • housing price equals land price + constructions costs plus reasonable profit + mystery component

From an economist point of view, the housing prices seem unreasonable unless you try to quantify the “mystery component” that causes the value of some locations to be so much greater than others… Steven thinks he’s found this mystery component in the “permitting and zoning process”.

When you buy a house, you’re not just paying for the land and construction costs; you’re also paying for a building permit and other costs of compliance. You’ve got to get the permits, pass the zoning and historic preservation boards, ace the environmental impact statement, win over the neighborhood commission, etc.

Instead of blaming a housing price bubble, “it’s ever-expanding zoning laws that get in the way. If you want to lower prices, that’s the bubble you’ve got to burst.”

I really like this view of things as it gives an interesting insight to the high price of homes in desirable cities. However, it begs for a follow up question that is beyond the scope of an economist. If we could, would we want to change zoning laws to keep the price of homes down?

In reality, these zoning laws are quite useful in helping to attract the right kind of development that keeps many of these urban neighborhoods “livable”. The result is higher prices for homes in desirable urban cities like San Francisco (and to a lesser extent Seattle). Is that so bad?

If you’re interested in some more on this topic, City Comforts had an related discussion of how new development are not causing the high prices in Seattle.

What is Zillow up to?

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beach homeI’ve been following a Seattle-based real estate start-up ever since someone left a comment on my site a month ago… So far the details are very limited, but a recent press release (via Seattle Property News), indicates that Zillow has recently added some very impressive names to their board. These include:

  • The former Chief Executive Officer of Expedia, Inc., Erik Blachford was most recently CEO of IAC/InterActiveCorp’s travel division, including online travel businesses Expedia, Hotels.com, Hotwire, Classic Custom Vacations and Interval International. Erik is a graduate of Princeton University and holds a Masters in Business Administration from Columbia University Graduate School of Business.
  • Currently President and Chief Financial Officer of Oracle, Greg Maffei has also served as CFO of Microsoft Corp. Most recently, Greg was Chairman and Chief Executive Officer of 360networks Corp. He is a graduate of Dartmouth College, and holds a Masters in Business Administration from Harvard Business School, where he was a Baker Scholar.
  • Gordon Stephenson is the co-founder and Managing Broker of Real Property Associates (RPA), one of the largest independent real estate brokerages in the Northwest. He oversees more than 40 agents and brokers in their sales activities, and continues to personally represent buyers and sellers. Prior to founding RPA in 1991, Gordon was a Seattle-based Associate Broker with both Prudential MacPhersons and Windermere Real Estate. He is a graduate of Stanford University, with a Bachelor of Arts (AB) in Economics.

Want more? Here are some of my notes with links:

UPDATE:
David Chase seems pretty impressed with the addition of Gordon Stephenson to the Zillow Board. “The lack of knowledge of the idiosyncrasies of the real estate market was a key issue that I thought would impair them (Zillow) — it looks like they are starting to plug that gap.”

Flipping Responsibly

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lambsThe Las Vegas Review Journal reports that some flippers (people who buy and then quickly sell a property with the goal of making a large profit) have filed a class-action lawsuit against a home builder (Pulte) because they’ve lost money!

The crux of the story is that Pulte lowered the price on many of their homes across Las Vegas a few weeks after the flippers purchased homes from Pulte. The result is that the resale value of the homes the flippers had purchased dropped considerably.

Jason Beaver of San Francisco followed some untimely advice from a friend who’d made a hefty profit flipping homes in Las Vegas.

He paid $350,000 for a three-bedroom, 1,500-square-foot new home in the Solera subdivision of Anthem last September, just weeks before the builder, Bloomfield Hills, Mich.-based Pulte Homes, lowered prices in several communities across Las Vegas Valley.

It’s ridiculous of the people to sue Pulte or any of the other home builders. These people bought homes in a highly speculative market. They obviously didn’t do their research to find out a glut of homes were on the market and so they lost a lot of money. It is really hard for me to feel sorry for them.

Via The Housing Bubble 2 (which is currently the most active real estate blog for people anticipating a large correction in housing prices at some point in the future.)

Walk on the Wild Side

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Donald Playing the GuitarWhen the local weekly starts making connections between Alan Greenspan and the “electro-clash” and the semi-acoustic/psychedelic “folk” revival, they’ve got my attention!

The idea behind the article is that:

Alan Greenspan has set radically low interest rates in recent years, fueling gonzo speculation of real estate. The subsequent inflation has transformed cities across America and displaced millions of poor people. As a parallel, we have witnessed the rise of two paradigmatic indie-music movements in the last five years: “electro-clash” and its successor, the semi-acoustic/psychedelic “folk” revival—movements based on the absence of space.

I’m bet most of my readers hadn’t seen that connection before The Stranger pointed it out! 🙂

What to look for in your first real estate company

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houseI read a great post the other day about a woman who is looking to become a real estate agent. This inspired me to think of what type of advice would I like to give to aspiring agents, and I’ve come up with these six things to consider in a real estate agency:

1) Broker Compentition. In general, be weary of firms where your broker also acts as an agent. There is enough compentition in the industry so that you shouldn’t have to compete with your broker for a listing.

2) Training. Just about every company will market their wonderful and unique training opertunities. Get the details. Are their classes offered in your office or do you have to travel far? Who’s teaching the classes? How much do they cost? The best real estate agent are always learning new things.

3) Office fees and commission structure. In general, there is a trade off with most agencies. Sometimes the monthy fees are high, but you get to keep a much larger portion of your commission. Other companies have low monthly fees, but take a larger portion of your commissions. Along these lines, office fees might very anywhere from $50 to $1000 for a month. Also, make sure you ask about all the fees. Is there a cost to use the office supplies, like copy machine or fax machines?

4) Office atmosphere. Are there experienced agents around who can give you advice and help you if needed? There will probably be times when your broker will be unavailable… Is there someone else to help you out?

5) Location. Is the office near your home, so you can get there on short notice? Is the office close to the market you want to concentrate on? Is it convenient for your clients?

6) Successful agents. Also know that when you begin, a great way to get clients is by doing open houses. Being part of an office with lots of succesful agents can mean that you can host their open houses when they are too busy. Are their lots of successful agents in the office?

Most importantly, make sure you interview a bunch of real estate companies. Just about every agency has a different feel to it. Interview enough and you are sure to find a company that will suit you. If you are interested in interviewing with Keller Williams, let me know and I can introduce you to the appropriate people!

To help you along, I’ve compiled this list (almost entirely compiled by Seattle Property News with just a few additions by me) that lists the residential real estate agencies in Seattle. The list is not exhaustive, but does include most of the companies that have practicing agents.

If you want to find agents, instead of agencies, the google directory provide a pretty comprehensive list of agents with websites.

Monorail Death Watch

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monorail's green lineInspired by Timothy Noah’s Death Watch (the latest regarding Karl Rove) series on slate, I’m tempted to start something on the Monorail as the whole operation seems to be in a death spiral lately… However, rather than go for the jugular, I’ve decided to give my view on how the monorail’s future became so dire.

After the defeat of Initiative 83 that would have effectively banned the monorail, the project seemed on a high. The monorail supporters (rightfully) saw the overwhelming support as a great sign in that the project could now move forward with the full support of the City (at least at the highest levels of the City government). However, as the negotiations between the sole-bidding contractor and the monorail agency dragged on, support seemed to wane. I heard numerous times from people who said that they were tired of all the delays and their support was waning with each passing day.

The latest crop of news began when the monorail announced on June 3rd that an tentative agreement had been reached with the prime contractor for the (relatively unusual) design, build AND operate contract.

On June 21, more details of the agreement were released to the public. This set into motion a series of articles documenting the total cost of the proposal. The Times has a decent article, while the PI put out sensationalist piece giving the total projects costs as “$11 billion”. This holds the monorail up to a higher standard than any other public project and is really just bad economics. For example, it is like saying the price you paid for your $400,000 home ballooned to $1,200,000 because that is the total amount you will pay over the life of your loan. The worst part of this journalism is that I’ve heard numerous individuals quote this number as if the cost of the monorail jumped from $1.7B to $11B overnight. This type of apples to oranges comparison seems irresponsible of the Seattle PI…

If the monorail fails someday, I would say that a definitely turning point happened around the time of the PI’s “$11 billion” article. After that, the Monorail Board and the City Council members had to start explaining economics in order to justify their positions, and this became a no-win situation. Both the Times and the PI ran articles describing how support was quickly evaporating.

Seattle Center FountainThen on July 1, the Monorail board rejected the complicated 50-year financing scheme which led to the resignation of Project Executive Director Joel Horn and Board Chairman Tom Weeks. The Seattle Weekly has since written a scathing article about Joel Horn.

Does this mean that the monorail project is dead in Seattle? Not necessarily. The acting director is working hard to attact a new director and sway public opinion back in favor of the monorail. However, the odds are definitely against the monorail at this point.

On Friday (7/15) the editorial board from the Seattle PI, which has generally been a supporter of the monorail, gave an editorial which asks for the final nail to be put in the coffin of the project. (This had the anti-monorail voices over at the Sound Politics blog jumping for joy, or as one writer put it: “Stunned. Encouraged, but stunned.”)

Can’t get enough monorail information? Here’s a list of my resources:

Fannie Mae Sees Mortgage Risks

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sasha flying in yosemiteIf you are interested in more blogs with a real estate focus, BusinessWeek has put together a new blog called Hot Property. The concept is great, and so far, the articles have been quite informative.

Today, they had an interesting article describing a Fannie Mae’s analysis of how many individuals could be hit hard when “adjustable-rate mortgages do what they were born to do–i.e., adjust.”

When taken to the extreme in the form of interest-only loans, adjustable-rate mortgages seem downright dangerous for the novice investor. As I’ve said in the past, I’d be very careful and do my research before getting an interest-only loan…

George Washington, the real estate mogul?

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[photopress:washington_bill.jpg,thumb,alignright]

Revolutionary War general, father of our country, cherry-tree murderer. Many descriptions come to mind when we invoke the name of George Washington.

Real estate mogul isn’t one of them. But it should be.

This fun San Francisco Chronicle column continues…

At the tender age of 15, Washington became a professional land surveyor and cartographer, a short-lived career that would have a long-term influence on his destiny. Among his earliest jobs, he laid out the subdivision plan for Alexandria, Va., adding “urban planner” to his rĂ©sumĂ©. By the time he quit to join the Virginia colonial militia a few years later, he had surveyed some 66,000 acres of land and traversed most of what would become the original 13 United States.

Walking the land seemed to whet his appetite for owning it. He learned to assess property and poured his earnings into buying tracts of land near and far. By the time he was 21, he owned 1,558 acres of land purchased from his earnings as a surveyor. By the time he died, Washington was one of the country’s wealthiest landowners.

monorail image is a negative?

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proposed monorail image Interestingly, when I saw the above image in the Seattle Times today, I thought, “That looks kind of cool.” It was only after I read the article headline (“Monorail foes decry “wall”‘) that I found out that the image was suppose to show how ugly 2nd Avenue would be with the monorail. There are definitely some good reasons to be against a monorail in Seattle, but showing images of a built up downtown environment does not do it for me!

Thanks to City Comfort Blog for pointing this issue out. I probably wouldn’t have thought to blog the obvious contradiction until I read your post.

Good Time to Buy?

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Half Dome Cables ClimbAre you wondering if now is a good time to buy a home? There are so many factors that have gone into the latest housing boom that it can be difficult to gauge whether or not the high prices are here to stay. With that said, today’s Wall Street Journal makes a pretty convincing case that the hot job market in Seattle has led to the rising home prices. (I’m pretty sure this article is only available today before it goes behind a firewall.)

How does the Seattle-area job market look into the future? There are still lots of upsides to the local job market. The WSJ notes that the “area gained more than 45,000 jobs in 2004” with Boeing accounting for “more than 3,700 workers”. In addition, Microsoft has a “20-year plan to add 2.2 million square feet of offices to its 435-acre suburban Redmond campus to accommodate as many as 12,000 new employees.” .

The WSJ also notes that “homes are selling for a premium in some locations along proposed routes for two ambitious transportation projects: a light-rail link and a monorail line that would offer commuters alternatives to cars and buses. There are plans for a 36-story condo tower along the proposed monorail at the historic Pike Place Market.” This analysis from the WSJ agrees with my earlier post about how mass transit has a HUGE positive effect on local property values.