Median house price jumps 14% in King County

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cat in windowThe Seattle Times ran an article that tried to dive into why home prices have continued to increase.

In King County last month, the number of sales fell 6 percent as a quarter fewer properties were listed for sale compared with July 2004, the Northwest Multiple Listing Service said yesterday in its July home-sale report. Strong competition for the best among them — again — sent median prices through the roof, up 14 percent in King and Snohomish counties.

I find it especially interesting that a quarter fewer properties were listed this July over one year ago. Even with the substantial increase in properties people are simple not interested in moving. I think this phenomena really gets to the heart of why home prices have increased so substantially… and makes me more confident that were not experiencing a bubble. With a smaller supply of homes in livable urban communities, I’m convinced that the increase is simply a result of an increased demand.

Some sellers are making the move now to take advantage of low mortgage interest rates. But in general, there’s little research into what propels owners to sell.

“We have a lot of good data on why people buy homes, but in terms of why people sell, we don’t ask the question,” said Walter Molony, spokesman for the National Association of Realtors. “We assume it’s a lifestyle choice. Whether it’s the right time, that’s a very individual evaluation.”

In her classes, Pelascini has noted that sellers usually have a concrete reason to sell, but not necessarily one that prompts them to act immediately. That’s particularly true for empty-nesters.

A conversation between Seattle and NY

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sculptures two headsThe stranger had a fun article this week by Mike Daisey where he compares Seattle to New York… It’s not always flattering for Seattle (or NY), but it is definitely a lot of fun to read… There are a bunch of great lines in the article, but this paragraph is the highlight:

If I could bring New York and Seattle to the table and make them learn from each other, I’d wish that New York could pick up some of Seattle’s table manners, and Seattle’s earnest desire for things to turn out well, which is replaced in New York with snark. And in Seattle I’d point to the subway and say, “Learn from this. Consensus isn’t everything—show some spine, suck it up, and learn how to take a punch.” Then we’d have dinner together. New York would be loud and rude all night, and Seattle would say nothing, but go home and blog about New York’s behavior mercilessly and anonymously.

How Risky is the Seattle market?

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Sasha getting ready to jumpA national mortgage company, PMI Group, recently came out with a real interesting study that lists the riskiest housing markets in the US. Interestingly the Seattle market ranked #45 out of 50 largest housing markets and it is the only west coast city that ranks in the bottom 10 riskiest areas. Here’s what they had to say about Seattle:

Seattle, WA has also seen its risk decline considerable. It is now the only West Coast MSA among the ranking’s bottom 10. Employment in the metropolitan division is still down by 80,000, or more than 5%, from its peak in the late 2000, but the labor market is gaining momentum with a growing service sector and information industry. The area’s homes have gained 11% in the market value in the last four quarters, while its Market Risk Index value dropped from 84 to 64.

Digging into the report, it says the risk index uses “information on past house price growth and variables measuring employment and unemployment, as well as local income measures and interest rates.” It’s always good to get some positive numbers on our local market!

Considering how much home prices have gone up recently in the Seattle market, I was surprised at the results of this study… None the less, it is pleasing to read that the area’s economics are so deathly as to dwarf the risk of the higher home prices (at least compared to other cities in the US!).

(via Dean Foust at Hot Property)

UPDATE:
CNN picked the story up today and mentions that Seattle home owners can breathe easy knowing that the Seattle market ranked the safest (least riskiest!) in the West.

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.”

How far is too far to commute?

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[photopress:round_and_round.jpg,thumb,alignright] The most common question I get from people moving to Seattle regards their potential commute… The question typically follows this format:

“How far away from my work can I live and still have a reasonable commute?”

It doesn’t really matter whether the person is planning to work in Downtown Seattle, Downtown Bellevue, the Amazon Campus, or the Microsoft Campus, because a “reasonable commute” is different for each person.

Some people are willing to drive an hour to save money on a home (or be able to afford a home for that matter), while others want a commute that is less than 20 minutes. Across the country (and especially in the Seattle area), the farther you are willing to drive every day, the less you have to pay for a home.

Interestingly, my work as a transportation planning consultant has put me in contact with some very interesting resources. For example, I recently came across these five maps that were put together by the regional government (PSRC) that give a great indication of the average commute:

These maps are great if you know the area you are going to be working (say Downtown Bellevue) AND you know that you are willing to commute a specific distance (say 40 minutes) because then they can help you put a definitive boundary on your home search!

NOTE: These maps are created “topographical-style”. If you are new to this, imagine that the graphic is displaying a huge mountain centered on the point of interest (like Downtown Seattle). If you move anywhere within the first circle (the top of the mountain!), then your commute to Downtown Seattle would be less than 20 minutes. However, the farther out you live, the large the hill you have to climb to get to work. For example, if you were to move to Issaquah, then you could expect about a 40 minute commute to Downtown Seattle.

By the way, the maps are a little dated (they are based on 1997 data), but the commute patterns have not changed much in the last 8 years, so the trends are still pretty accurate.

The same regional model that was used to create this data also spits out data for future years! Wouldn’t it be great to have the same maps for future years (2010, 2020, etc.) so you could gauge how your commute might change? This can be done! And if there is sufficient interest, I’ll put something like this together!

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.

Do you ever Google people?

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Tim PilgrimDo you google people before (or after) you meet them? I’m under the impression that everyone does it, and yet, I feels pings of guilt in admitting it…

Anyway, I sometimes google things related to this site and I was very pleasantly surprised to find that one of our very own contributors received an “Every Day Hero” award from the Red Cross for his quick actions in helping to put out a fire at a home in the University District! Congratulations Tim Pilgrim!

Oh, the things we can learn from google!