How Risky is the Seattle market?

Posted on August 1, 2005 by Dustin Luther

A 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

Posted on July 29, 2005 by Dustin Luther

[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.

Flipping Responsibly

Posted on July 22, 2005 by Anna

The 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.)

Fannie Mae Sees Mortgage Risks

Posted on July 13, 2005 by Dustin Luther

If 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…

European Solutions

Posted on June 27, 2005 by Dustin Luther

The Seattle Times ran an interesting commentary discussing how much the central government of Britain has been promoting redevelopment. Without a doubt our government could make vast improvements if they rearranged their priorities. However, I’m not sure enough Americans want to live in these dense “utopias”.

At a recent conference in Seattle, Britain’s Deputy Prime Minister John Prescott…

described the amazingly broad set of activist initiatives that Prime Minister Tony Blair has allowed him to lead and champion — in housing, transportation, recycling abandoned industrial lands, revitalizing towns and using government power to force new malls and megastores back into downtowns.

All of this is rolling forward with tens of billions of pounds invested, pushed with little opposition in a national parliamentary system with few of the checks and balances of the U.S. system.

More links:
The Thames Gateway London Partnership

mortgage update…

Posted on June 23, 2005 by Dustin Luther

Mortgage rates are still quite competitive:

Mortgage rates fell across the board over the past week, mortgage finance firm Freddie Mac said Thursday, suggesting the housing market still has room to grow.

The rate on 30-year, fixed-rate loans averaged 5.57 percent for the week ending Thursday, with an average 0.6 point payable upfront, down from the prior week’s average of 5.63 percent, according to the mortgage finance firm’s survey.

$90 million home sets US property record

Posted on June 21, 2005 by Dustin Luther

Wow!

A 40-acre estate in the Hamptons – the Long Island summer retreat of New York’s rich and famous, has been sold for $US90 million, a new US record for a residential property.

The New York Post cited sources close to the deal as saying the purchase was made by a Swedish industrialist who has rented the estate for the past few summer seasons.

To answer the obvious question… Assuming standard commissions (and this was far from from a standard situation), two real estate agents just earned $2.7 million in commissions!

Cutthroat Competition of Online Brokers Benefits Consumers

Posted on June 17, 2005 by Dustin Luther

A recent study showed that on-line brokers had an extremely high costumer satisfaction levels:

With an average reliability of 99.5 percent, the brokerage industry’s Web site service levels far exceed other industries, Keynote found. In addition, pages that take more than one and a half seconds to download–a time considered first-rate by other online industries–fell well below the standards currently being set by online brokerages.

Have you used an on-line broker? (I have!) I’d be interested in hearing about your experience. Was their service as good as this survey suggests?

Thanks to Garrett French for the background info…

When Lawyers Steal the Escrow

Posted on June 10, 2005 by Dustin Luther

The NY Times has an article today describing the experience of people whose real estate lawyers have been caught stealing their escrow money. The most extreme example they give was from Jay Rosen who would intentionally create problems with the transaction in order to hold onto his client’s escrow money:

A dispute over the home’s title or its certificate of occupancy would stymie the deal, making it impossible for Mr. Rosen to release his clients’ money from an escrow account he controlled. An ancient property-line dispute would rise from the dead. Checks would get delayed. Cash transfers wouldn’t connect.

It was as if money just didn’t want to leave Mr. Rosen’s hands, clients said.

While there will always be a bad apple in the bunch, I’m actually surprised to hear of this problem. (Granted, the article makes a big deal of the problem, but then goes on to say that there were only 100 reported real estate thefts in 2004.)

I’ve yet to hear that this is a problem in Seattle, and considering that the industry relies so heavily on referrals, it would seem the bad apples would be quickly rooted out… However, if you’ve ever been taken advantage of by a local agent, broker or lawyer, I’d be interested to know so that I can adjust my recommendations appropriately.

Lessons learned from riding two real estate cycles

Posted on June 3, 2005 by Dustin Luther

Bill Wendel over at Boston’s Real Estate Cafe has been posting podcasts on his blog for a little while now. The interview from his latest podcast is from a woman who…

..describes lessons learned over last two real estate cycles: first losing money (at least on paper) on a starter condo purchased at the top of the bubble in Philadelphia in the mid-1980’s; then purchasing another home at the bottom of the last cycle; and ultimately hitting the real estate jackpot in Atlantic City.

To hear the podcast, follow the link to his website and then click on the link that says “Real Estate Bubble Audio Time Capsule #2”. That should download it to your machine and then open it to your default mp3 player.

What is podcasting?
In it’s simplest form, podcasting is a recording that is saved in an mp3 format that is made available via the internet. The recordings could either be groups of songs (a la a typical radio station), interviews (a la NPR), simple rants (a la many blogs), or a mix of all the above.

I’ve linked to this podcast, mainly because I’m intrigued by the idea of podcasting. I know that at some point in the future, I’ll give it a try… If you have some ideas for good podcasts (obviously the topic should be related to Seattle real estate), please let me know…. Would it be useful to have a podcast of my impression of featured listings? Are there any major players in Seattle real estate that I should interview? I could probably cover more ground in a two minute podcast than I could in a three paragraph description…

My take is that podcasting the same information that could easily be written about would be a waste of time and bandwidth. Ideally, it would be great to cover topics that can’t easily be conveyed via a written format. I’ll keep thinking about this and would appreciate your ideas.

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