Lessons from the Foxhole: A Nevadan Takes a Stab at Seattle’s Real Estate Future

joe salcedo[Editor’s Note: I get asked all the time if people from outside of Seattle can write for Rain City Guide and I always say no… I really like keeping RCG as a “Seattle” thing. However, recently Joe Salcedo of the Reno Real Estate Blog reached out to ask if he could publish a one-time post on RCG about his experiences with the Reno, Nevada market and the insights it might provide to the Seattle community… and I bit. I’ve published the article below. Enjoy! ~Dustin]

In August of 2005, our real estate market crashed.   It’s been five years and we’re slowly trying to get back on our feet.  I’m here to share some of the lessons I’ve learned along the way; the prodigal brother, if you will.

I started with a blank page.  One weekend after, baffled and fascinated and my curiosity violently piqued, here’s what I found out about your market:

  • If you waited until Seattle home prices went down in July 2007 (before you realized the market was having problems), you’re going to be at least one year behind.  Check for other signals. Home prices take too long to reveal itself profitably.

In Feb 2006, less than a year after the Reno real estate market crashed, I called an emergency meeting (coupled with other factors like plunging housing starts and declining home builder stocks) after being greeted by this chart:
Reno Home Resales
Yes, all markets are local but we all came from our mother’s womb.  Like a bearish stock market pulling down three out of four stocks with it – (both weak and strong companies) – majority of real estate markets fall with the general market.   Follow the home builder sector group in the stock market (Investor’s Business Daily tracks it every Monday). Check housing starts and building permitsto see a glimpse of the future:
Housing Starts Chart

  • For potential sellers: Consider cutting your losses short.  If you’re barely making it with house payments (perhaps using borrowed money just to make it) and hoping that the market would change soon, perhaps it’s time to think about making some tough decisions.  Distressed properties tend to pull home prices down further (see: notice of trustee sale graph below.)

If you’re comfortable with your mortgage payment (you bought a house on or before June 2005) and moving is too painful, it’s ok to stay; just know that based on present real estate conditions, it may take a few years before your house will appreciate from the price you bought it.

Percentage Home Price Change

Notice of Trustee Sale by Month Chart

(From SeattleBubble.com)

  • Short sales and foreclosures are like a mysterious disease that defies normal market cause and effect.  Inventory could be down, demand up, but price still down.  This has been happening in our market since 2007.

And like your resident queen, the author has made premature bottom calls by not taking into account the “black swan

Well, at least our market isn’t on the verge of collapsing…

On this gray, dreary January Monday — where the weather isn’t even cold enough for snow in the mountains, at least not those elevations reachable by chair lift — I thought I’d pass along this “glass is half full” insight. First the bad news — which is no surprise at all: home values here in King County are now at 2005 levels, plus sales volume remains significantly depressed (by historical standards, putting aside the risk of a “new normal”). Not good. Sorta like the weather.

On the plus side, though, it could be worse. Much worse. Apparently, the hardest hit markets in the nation (Michigan, Nevada, perhaps others) appear to be heading towards total collapse. Yep, that’s right, values continue to depreciate until they reach… zero (or something in that neighborhood). OUCH! That’s neither a buyer’s nor a seller’s market. Rather, its a market from which everyone should extricate themselves as soon as possible. Run for the exits!

Obviously, this is just an opinion, and undoubtedly there are some rosier viewpoints. But I think this article makes a pretty compelling argument that some parts of the national housing market really will never, ever recover — at least not in the lifetime of a potential buyer or seller.

The Third Bubble …

It has often been said that we have even more of a bubble in real estate agents than we have in real estate prices. In fact we have had three concurrent bubbles – house prices, number of purchases, and number of agents. Unfortunately for the members of the residential real estate sales profession, we are making a lot more ‘progress’ on reducing the first two bubbles than we are on the third bubble.

Last week I went through an exercise of trying to track the growth and reported decline of the number of licensed agents in King County, including metro Seattle and Bellevue, who are members of the Northwest Multiple Listing Service. I had heard that the NWMLS had expected about 25% fallout in 2008. As I got into it, it looked like taking the transaction volumes and median prices at the same time might produce some interesting insights into agent incomes and the desirability of the profession. ( I admit that I considered an alternate title for this post: ‘The Grass Is Not Always Greener…’)

So here’s what I found, using year-end data from published NWMLS statistical reports, but doing my own analysis (and making my own errors – please let me know if you find some or think I missed a point of interpretation).

First are three charts to show the Three Bubbles of King County Real Estate:

Second is to show how the growth in number of agents has affected the average number of transactions per agent. A couple of notes on methodology here. For transactions per agent, I split each transaction into two sides, and then just divided the total transaction sides by the number of agents. For the 2009 estimate, I took the business volume for the first four months, through April, and factored it up by the same ratio as the last 8 month of 2008 were to the first 4 months of that year. We’ll get another check on it shortly with the May 2009 data.

(Required disclaimer: Statistics not compiled or published by the Northwest multiple Listing Service)


Note how the average number of transactions per agent have been dropping dramatically as the total number of agents rises and the total number of transactions falls. Total number of agents is only down about 10% so far. Some people expected a far faster fallout rate, including NWMLS in one talk I heard, but the inhibiting question is probably ‘Where would they go for an alternate job in this economy?’ A related article from Inman News appeared in the Times last Sunday – Less Experienced Hands Leaving the Business.

And third is to show how the combination of all three factors plays out in average agent earnings. For nominal earnings, I assumed 2.5% commission on each transaction side – we don’t always get 3%, and we often have to give up a bit here or there to keep everyone happy and on track. The data behind the charts is stored here.


So for the average agent (and I recognize that most clients would prefer to deal with an above average agent), earnings have dropped from a decent professional income to a pretty marginal income. Last year (2008) it was a little over $30,000 – about $15/hr if you work full time, and this year looks worse. How about $10/hr?

I guess the grass really isn’t always greener…

Sellers Leaving The Mess Behind

Cleaning up after yourself is in the contract…

Recently, there seems to be some confusion as to item number 5 of the NWMLS form 22D (optional clauses addendum to the purchase and sale agreement).  Maybe the sellers are deciding that the buyer already got a good deal and they shouldn’t leave the home in decent condition?  ARDELL recently mentioned that some sellers are feeling disenchanted with this market and as a result the houses are not being exhibited in their best light.  This is definitely happening and unfortunately is being carried forward to when the sale closes and home ownership is transferred.

Item #5 on the NWMLS Form 22D:

“Items Left By Seller.Any personal property, fixtures or other items remaining on the Property when possession is transferred to Buyer shall thereupon become the property of Buyer, and may be retained or disposed of as Buyer determines. However, Seller agrees to clean the interiors of any structures and remove all trash, debris, and rubbish on the Property prior to Buyer taking possession.“

Plainly stated: Take all your belongings and clean the property prior to handing over the keys. Clear enough? One would think, but what about when you line item #5 up to item #4 in the very same Form 22D and apply it to a seller who never had their home clean to begin with and had trash all over the place while the home was being shown?

Item #4 of 22D addresses the issue of “Property and Grounds Maintained

Sunday Night Stats – At Bottom

Many buyers are waiting for the $15,000 tax credit for homebuyers in 2009 to be signed into law, as well they should.  This will continue to keep the volume stats down through the month of February as to closings. If the bill is signed by the 16th of February or so, as expected, you will begin to see volume pick up in March. 

The other thing that buyers have been waiting for, are signs that prices are “at bottom”.  While median prices for King County continue to slide as short sales and foreclosures continue to impact sold prices Countywide, we are seeing two emerging trends as to “bottom”.  20% for non-distressed property and almost but not quite 40% for distressed property, more like 37%.

Who determines “bottom” as to prices?  Sellers and real estate agents would love to control prices, but the buyers of homes ultimately control home prices.  While we wouldn’t expect to see prices bottom with continued bad news as to layoffs, buyers are consistently calling the bottom at 20% under peak pricing for non-distressed property.

The odd thing about the stats on this is that it doesn’t seem to matter how long the property is on market.  If it takes the seller 800 days on market to get to 20% under peak prices, the property sells.  If it takes the seller 65 days to get to 20% under peak prices, the property sells.  In several cases when the property gets to 20% under peak prices, there is more than one offer.  BUT rarely do those offers push the price much under the 20% under peak range.

Exception seems to be when the homes sold at peak values did not have remodeled kitchens and baths, but the property sold today does have a remodeled kitchen and baths, and possibly an addition as well.  In those cases, the sales can be as high as 11% to 14% under peak pricing.

Because every neighborhood has a different peak value, and peak MPPSF, you can’t do whole zip codes or a whole County using median statistics.  You have to find the peak price in each neighborhood for each house sold, and calculate the % off peak of the sale.  A tedious chore.

House #1 – Redmond – peak pricing $249 MPPSF – Home sold at $210 PSF, 16% under peak with a remodeled kitchen of 8 years ago.  The odd thing about this house is that in September through January, this home sat on market at 16% under peak, after first trying only 5% under peak for over 200 days.  Once the market determined the price was not going to reduce further and reach 20% under peak…it sold anyway.  This is not the norm and if the kitchen remodel had been more recent, it may have sold a bit higher and faster.

House #2 – Bellevue – Peak pricing $1.5M – this property sat on market for well over 700 days.  The minute it reached 20% under peak it sold.  This would not seem like a basis in and of itself, for calling bottom at 20% under peak.  But when you see house after house going from not sold to sold when it hits the same price point of 20% under peak, the buyers speak in unison.

House #3 – Peak pricing $1,059,000 – This is a sad one.  More than 4 buyers called this one at 20% under peak at roughly $850,000.  Unfortunately it is a short sale and the lienholder would not approve the sale price at 20% under peak, even with several multiple offers all in the same price range.  How much more proof of value to do need then several buyers in a market like this all calling current value at the same place?  This one will likely go to foreclosure and end up selling for even less than 20% under market.  Still…the buyers called the price of 20% under market the acceptable level.

House #4 – Seattle 98103 – peak pricing $425,000 – Asking price at 20% under market sold – this one was unusual as the opening asking price was 20% under market…it sold immediately…in less than a week.  Doesn’t seem to matter if the seller takes over 700 days or 1 day to get to 20% under market…it still sells either way.  This consistent price point of 20% under peak turning a property from ‘for sale ‘”to “sold”, gives us a price at which buyers determine, bottom has been achieved.

House #5 – Seattle 98115 – peak pricing $800,000 – sold when asking price reduced to 20% under peak.  This is a sad one because the owner started out at well OVER peak pricing.  Hard to believe that someone was thinking prices would actually be going up from mid 2007.  But the end result was consistent with the other properties, and a buyer made an offer when the price was within 20% under peak prices.

There are some houses selling for less than 20% under peak. There are many, many houses for sale with asking prices that are much higher than 20% under peak.  But unless it is a distressed property or an especially miserable location or condition, there are NO houses sitting on market without an offer ,where the seller is asking  20% under peak pricing.

I don’t “call bottom” nor do sellers or any real estate agent.  The buyers call bottom.  And when they consistently respond to an asking price of 20% under peak by bringing an offer…the buyers are calling bottom.  

It’s very hard for a seller to price his house at 20% under peak pricing, even if he bought it 15 years ago for much less that that.  Now it seems equally hard for buyers to see a house at 20% under peak…and pass it by.

“At bottom” has nothing to do with more activity.  “At bottom” does not help real estate agents sell MORE houses, as most sellers are not ready to price at this point that buyers have determined is the price at which they will buy.  When a given price point not only guarantees a sale, but brings multiple offers consistently at the same price point…buyers as a whole determine that “comfort zone” of pricing.  Now sellers collectively have to agree with them…or not.

2009 is the Brightest Year

Last night was “Chinese New Year” and unlike 2008, which was “a blind” year, 2009 is “a bright year”.  Now before you get all excited about this Year of the Ox, let me explain what “bright” means.

Remember the movie “Wait Until Dark”? The fear and damage caused to the blind woman, when simply being touched with a scarf, by her “torturer” in her darkness?  It wasn’t WHAT he was doing…it was that she couldn’t see it coming…couldn’t see who and what it was.  That was 2008.

In the ancient culture  of Chinese New Year, the  “eyes” of the year are on February 4th. The dates that encompass each year are determined by the cycles of the moon. Some years, like 2008 have NO February 4th, and so are blind years.  Others have only foresight, with February 4th in the beginning, but not at  the end.  Some years have only hindsight, with February 4th at the end of the year, but not at the beginning.

2009, which started last night at the first new moon of 2009, has two February 4ths, giving us “the brightest” of years, with both foresight AND hindsight.   The year begins on 1/26 and ends on 2/13 this year, so 2/4 comes around twice. Bright doesn’t mean GOOD, it means if you don’t see it coming…and if you look back at the end of the year and “wish you had” done things differently…then you were choosing to bury your head in the sand, and you refused to see the handwriting on the wall.

  1. Thinking about flipping a house?  Think again.
  2. Thinking low priced home sales all around you, are not going to affect your property’s value? Think again.
  3. Think the real estate market is going to come back to the point where all people with a real estate license can make a decent living?  Think again.
  4. Think Obama is going to turn this market around by the 2nd Quarter? Think again.
  5. Think throwing good money after bad is going to save the economy? Think again.

If you bought a property in July of 2007…bite the bullet – or stay in it.  Wishing the market is going to get back there soon, is not going to make it happen.

In a “bright” year, you know what to expect and you base your actions accordingly.

  1. Try to get a loan mod, ONLY if you can afford the resultant new payments.
  2. If you see no hope of your income getting back up to anywhere near where it was when you bought the house; let it go to foreclosure, wave goodbye, and reduce your expenses.
  3. If you are a move up buyer, understand the house you buy is also down in price, and reduce the sale price on the one you are selling accordingly.
  4. If you are afraid of losing your job, stop buying toys you don’t need to have, and put 3-6 months of expenses in the bank, just in case.
  5. Recognize that Obama as President means we have the Leadership to help us do what WE need to do…not an Il Salvatore with a magic wand.

It’s a bright year…use it wisely.

Sunday Night Stats – 2008

The charts and graphs will pretty much speak for themselves tonight.

The Median Price Per Square Foot chart above shows medians for each Quarter from 2004 though 2008. You can see the nose dive in prices during the last quarter of 2008.  Popped right through 2006 prices into 2005 year end prices. I expect to see prices come up a bit during the higher volume months of 2009, and then trend back down toward year end.

What are “the higher volume months”?  See the volume graphs below comparing 2008 with 2002.  2002 was the most stable year, prior to zero down loans coming into fashion in late 2003.  There will likely be more late postings for December closings, but the relationship of each piece of the pie is more important than the individual numbers.  “stable market” equals larger slices near the bottom of the circle than at the top and a fairly equivalent ratio.  We did not have that in 2007, but we did in 2008 and likely will see the same in 2009.  2009 will either be fairly similar to 2008 as to volume, or moving a little closer to 2002 volume.  It depends on what happens at the high end of the market.

Current volume is lower than 2002 for two reasons.  One – financing is tighter, as 5% down and 10% down was much easier to get in 2002. Two – financing jumbo loans is very difficult right now, and in 2002 only 412 homes sold for over a million dollars.  In 2008 there are 2,338 homes asking more than a million dollars, of which 942 sold, 79 are pending and 1,317 are for sale as of tonight.

If we do see 4.5% interest rates, I expect many who can, will buy.  But that won’t help the high end as too many people just don’t have the downpayments the lenders are looking for. The year ended up pretty much where I predicted it at $400,000 as to median price, give or take fifty bucks.  Volume was a little lower at 15,700 vs. my prediction of 16,500.

Enjoy the graphs…they speak volumes.

Here is a running list of posts with charts and graphs tracking the market that I have written back to 2006.

Statistics calculated by ARDELL and not compiled or posted by NWMLS (required disclosure)

King County Median prices fall over 10% YOY. Quite frankly, maybe today's Seattle Times headline will help the market.

This has been on my mind for a while, so I’ll throw it out there for people to discuss.  Sometimes a non-agent can introduce topics that the real estate community may be uncomfortable in discussing with their clients.  So, here goes…..

The topic:  Is this lousy news for sellers just the spice to get them to realize that the white- hot markets of 2005-2007 are long gone?

Price reductions have been taking place for sometime.  Months and months.   But, many have been token reductions and the conversations I hear and read on blogs is that,  in some instances, resistance has been fairly strong.

What good does it do when a seller who reduces a price by $3K on a $650,000 listing that has been languishing on the market for months?  If today, after weeks of small incremental reductions, the listing is priced at $550,000, there is no agent on earth representing a buyer that will take it seriously.  Especially after seeing the price reductions go on and on for months.   I don’t know who is torturing who:  the homeowner doing this practice or an agent who can’t pull the plug on the listing?  I’ve heard that not taking a listing is not in the DNA of agents (I’m teasing of course.)

I know of some agents who have broken their backs and have spent a lot of money on listings only for the seller to eventually pull the plug on the listing out of frustration.   And then, (drum roll please) have the $500K+ listing end up renting for under $2000.00/mo.  Any sellers out there understand the rent-to-price ratio relationship over the history of residential real estate?  Now, on the other hand, many of today’s agents have little experience in working through a correction and pricing and marketing a home effectively.  If we are honest, there was not a lot to do in a white-hot market to generate the offer: place the listing on the NWMLS and arrange a time with the seller to accept multiple offers.  I hear some were even nice enough to offer coffee and pastries to the agents sitting in cars outside of a property waiting for their turn to submit their offer.  How times have changed.

I have seen a couple of examples of the substandard work ethic and marketing in my neck of the woods in Snohomish Co:  outrageously poor marketing, only to have another professional agent come to the rescue and have a successful sale.  Good for that agent and good for the seller to recognize when a change is needed.

Will agents bring the Seattle Times clipped article to listing presentations?  When is real estate bad news good for moving sellers in the right direction and getting the market moving?  Perhaps today.  Or, maybe we still have a long way to go in understanding how damaging the excesses of next to zero lending standards will turn out to be and the artificial appreciation it fostered.

PS.  Those who are currently in the market to buy should be in conversations with your loan officers regarding the recent drop in interest rates.   Just today, our office is hearing that there are 30 yr fixed rates at 5.5% at par, some even indicating a small rebate at that rate.  Consult with your loan officer.

Sunday Night Stats – Seattle Real Estate

Median price per square foot for condos sold is starting to fall below 4th quarter of 2006 numbers, and is down 11.8% from peak pricing. 

King County Condos

2004 – 1Q – 1,694 – $188, 2Q 2,636 – $199, 3Q 2,540 – $196, 4Q 2,176 – $195

2005 – 1Q – 2,066 – $198, 2Q 2,925 – $209, 3Q 2,769 – $226, 4Q 2,266 – $224

2006 – 1Q – 1,956 – $242, 2Q 2.748 – $252, 3Q 2,737 – $269, 4Q 2,217 – $278

2007 – 1Q – 2,042 – $295, 2Q 2,862 – $302, 3Q 2,676 – $311, 4Q 1,618 – $294

2008 – 1Q – 1,258 – $299, 2Q 1,535 – $287, 3Q to date 895 – *$274


Active Listings: 3,983 – DOWN 47 – median price $319,950 – MPPSF  asking $307 (Down $3) – DOM 67 (up 2)

In Escrow:  804 –  UP 10- median asking price $289,700  – MPPSF asking $291  – DOM – 53 (up 3)

Sold YTD :  3,710- UP 650 – median list price $289,000 – median sold price  $282,450 – MPPSF – $287 (down $2) DOM 49  

Residential King county

2004 – 1Q 5,650 – $152, 2Q 9,237 – $160, 3Q 8.737 – $163, 4Q 7,467 – $165

2005 – 1Q 6,402 – $173, 2Q 9,093 – $185, 3Q 9,131 – $192, 4Q 7,301 – $195

2006 – 1Q 5,596 – $201, 2Q 8,248 – $214, 3Q 7,771 – $216, 4Q 6,204 – $217

2007 – 1Q 5,304 – $222, 2Q 7,393 – $230, 3Q 7,944 – $229, 4Q 4,301 – $221

2008 – 1Q 3,640 – $219, 2Q 4,676 – $220, 3Q to date 3,106 – *$215

*Residential median price per square foot is down another $2 per square foot since I ran the numbers two weeks ago.  That brings prices back very close to where they were in the 2nd Quarter of 2006.

Some sigificant changes for property in escrow.

In Escrow: 2,429 – DOWN 139- median asking price $409,950 (down $10,000) – DOM 51 (up 3) – MPPSF $197 (down $7)

SOLD YTD: 11.451 –  Actively for sale 12,027 – DOWN 280

Sold Year to Date and currently for sale are getting very close.


Stats not compiled or published by NWMLS. (Required disclosure)

Some agents and loan officers need to just say, "No."

There is a lot about the real estate industry that needs improvement.  But, there are some very stand-up hard working salt-of-the-earth real estate agents and loan officers that are working in a challenging market and who are literally bailing out financially challenged homeowners.  They are making things happen and are doing what they can to make transactions close.

I know it is a challenging market, especially in the outer lying areas outside of Seattle/Bellevue proper and cash flow is tough, but I’m growing VERY tired of LO’s giving broker credits and agents giving up commissions earned for “challenged” borrowers who obviously have a history of financial mistakes.

I say this in the similar tone and voice of Al Pacino in his famous scene in Scent of a Woman:

I know people want transactions to close, but sometimes consumers need to face the consequences of their own decisions.   Loan officers and agents sometimes need to say, “you know what?….enough is enough.  I’m not dipping into my livelihood to bail you out.  Dig yourself out of your own hole.

Don’t blame us for your prior agent selling you an overpriced home.  Don’t blame me as a loan officer for your garbage loan sold to you by a prior mortgage broker.”

If the Bubbleheads want to trash me because I’m part of the real estate industry, so be it.   But, this is the stuff that goes on behind the scenes that agents and loan officers GET NO CREDIT FOR AND SHOULD.