Perplexing March Reporting
Let's take a look at our friend Elizabeth Rhodes' more lengthy article in today's Seattle Times, where she paints a picture of a Seattle area real estate market that is still super-hot and doesn't know the meaning of slowdown. I usually try to limit article quotes to just a few paragraphs but this one has so many gems I'm going to have to break my usual rules.
Ann Dickhoff's house purchase typifies a milestone in more ways than one.Where to start? First off, for her "typical" example, she's choosing someone who has no problem plunking down for a $400,000+ house that's not even for them, but for their kid? Maybe I'm just really out of touch with King County, but that doesn't seem at all typical to me. Secondly, is there really still a "buyer frenzy" in King County? Again I direct you to the NWMLS March data. Here are the pertinent figures for March in King County:
Like many other parents of adult children, Dickhoff was afraid her son would be priced out of homeownership in his hometown.
So last month she helped him buy a North Seattle rambler, gulping as she paid $409,000 — or $89,000 more than she shelled out a year earlier for a nicer house half a block away.
In doing so, Dickhoff helped fuel the buyer frenzy that's pushed the median cost of King County single-family homes past $400,000 for the first time.
Still, median prices in some neighborhoods are much higher than that, seriously undercutting affordability and turning the hunt for a moderately priced home into blood sport.
| Listings | Pending Sales | Closed Sales | Sale Price | |||||||||
| '06 | '05 | % chg | '06 | '05 | % chg | '06 | '05 | % chg | '06 | '05 | % chg | |
| Comb: | 6,359 | 6,731 | -5.53% | 4,106 | 4,469 | -8.12% | 3,219 | 3,791 | -15.09% | $365,000 | $324,950 | 12.32% |
| Res: | 5,100 | 5,244 | -2.75% | 3,044 | 3,405 | -10.60% | 2,386 | 2,858 | -16.52% | $405,000 | $362,000 | 11.88% |
| Condo: | 1,259 | 1,487 | -15.33% | 1,062 | 1,064 | -.19% | 833 | 933 | -10.72% | $249,950 | $205,990 | 21.34% |
Ms. Rhodes seems to be talking only about the "Res." figures in her article, so look at those figures in particular. Specifically, check out the double-digit negative numbers in the "Pending Sales" and "Closed Sales" "% change" columns. Despite the fact that the number of listings was down just 2.75%, the number of sales decreased by at least four times that amount. That sure doesn't look like a "buyer frenzy" to me. Moving on.
Dickhoff and her husband, Walton, an administrator for the National Oceanic and Atmospheric Administration, had to pay $320,000 last year to snag a small Greenwood-area bungalow for her mother. "That was our wake-up call," she said, to climbing prices and the possibility that homeownership for her kids was in jeopardy.Did you notice in there how she barely made a passing mention to the fact that first-time buyers making median wages have just 45% of the income necessary to afford a home? Do reporters like Ms. Rhodes not see that as a huge problem? Granted my perspective may be a bit skewed being a potential first-time buyer and all, but doesn't that deserve more than a half-sentence mention in an article like this? Furthermore, did this example family, the Dickhoff's, do any serious research into the current market before jumping in with both feet to buy their kid a house? Seriously, "the market was taking off"?!? Sweetheart, the market took off two years ago, and it's been riding the appreciation wave since, but sooner or later (probably sooner) it is going to land. Maybe it will be a soft landing, but if people like the Dickhoff's truly "typify" the King County home buyer, I'm afraid it'll be rough indeed.
Indeed that's a serious possibility for many residents, according to Washington State University's Center for Real Estate Research. Average-wage workers, in particular, are susceptible to the double whammy of rising house prices and rising interest rates.
In the past year, the average interest rate on a 30-year, fixed-rate loan has climbed half a percentage point to 6.5 percent.
The WSU center's latest affordability index reveals that King County buyers earning median wages have just 80 percent of the income needed to afford a median-priced house. First-time buyers have 45 percent.
In January, Ann Dickhoff, a nurse at Swedish Medical Center, began hunting for a house to buy for son Paul, 21, a cheese maker at Pike Place Market, to live in with roommates. A real-estate agent warned her the first one she bid on would sell for more than its $400,000 list price.
So the Dickhoffs bid $416,000 — and added a $30,000 escalator clause in case a bidding war broke out.
It did, and they lost that house to a $450,000 all-cash offer.
That made clear to her that "the market was taking off, and if we were ever going to buy something for the kids to live in, we'd better make a move."
They quickly did, landing for $409,000 a newly refurbished 1950s three-bedroom with a spacious new garage.
Still, if the market weren't so hot, "we wouldn't even have looked at it," Dickhoff confided. The house is on busy Greenwood Avenue North, and the street noise is significant. Plus a newer townhouse development has consumed its entire backyard.
(Elizabeth Rhodes, Seattle Times, 04.07.2006)
14 comments:
Wow that article is really making a dire picture of the King County market. You are hearing more and more about baby boomers buying houses for their kids. You can bet this isn't just alturism at work, I'm sure the parents expect to be making big profits from the house that they let their kids live in. Maybe this is what is keeping King County going despite surrounding counties slowing down- speculation and investment. I think it's safe to say that sooner or later mommy and daddy are going to get tired of paying little timmys mortgage and those houses will go up for sale..
"Like many other parents of adult children, Dickhoff was afraid her son would be priced out of homeownership in his hometown.
".... really, that afraid? Or was she afraid she'd be priced out of a potentially risky investment? When I was twenty, I think the biggest thing my folks were worried about was that I wasn't spending all my student loan money on beer and concert tickets... but hey, those were more innnocent times I suppose, now 21 year olds are real estate moguls and taxi drivers are stock experts... er... wait a minute..
Why do they always interview real estate agents (and sometimes mortgage brokers) as "the experts" in these articles? They don't ask car salesmen to analyze the economic trends driving the auto industry. What do you think your local GM dealer would say if you asked him if this was a good time to buy a car? I'm guessing the answer would be something like, "there has never been a better time to buy an automobile."
I am continually flabbergasted that not one of these "reporters" is seriously concerned about the state of our economy when professional 2-wage earning households cannot afford a starter home. Seattle ain't New York or LA, folks. This is a working town. Where is this renaissance I keep hearing about, the one that is magically producing sexy high-paying jobs and inundanting the region with fabulously wealthy home buyers? The only people coming to Seattle are refugees from other bubblized no-buy zones like the Bay and Boston, and let me tell you, they're pissed when they get here and find out what's been going on. This can't continue.
Reading the Rain City blog makes me wonder what planet these real estate agents came from. They should be terrified. It's strange, because if they were more cautious in their pricing and in their ra-ra to the press, they might help make the landing a little softer and protect their reputations down the line. But no. They tell us it is quite normal for a grown man to have his mother buy a house for him to share with a bunch of roommates. There aren't enough rich boomer moms out there to bail everybody out--not in Seattle, friends.
I think the realtors ARE scared. We're getting close to the breaking point, and I'm sure that they know it, too.
I've been saying all along that once prices got closer to the $400-500k range, people were going to have to start making some tough choices and more people would start balking. 'Cause that range is maybe $100-200k away from California prices ... that alone will wake some of these folks up. I think the "awakening" has begun, quite frankly.
The realtors know that this can't last. The price of a home in King County is 80% of the price of a home in Los Angeles or San Francisco; you know this can't continue. People put their foot down in every other part of the country and the realtors know that it's only a matter of time before they get the cold shoulder as well.
Meanwhile, you can rent a nice 2bd apartment in the city for under $1000 in many places. Gee, I wonder which is the better deal, renting or buying?
Well, papers like the Seattle Times generate a significant amount of revenue via Real Estate Advertising directly and indirectly (mortgage brokers, developers, retail stores like Home Depot and the like), they know better than to bite the hand that feeds... Which is really the problem with most of our press, they put the interest of making a buck over the interest of informing the citizens.
In all these local puff-pieces there is absolutely no mention of the current drearer state of affairs just beyond our fairy-tail land of 'bubble-proof' Seattle, i.e. infation, negative savings rate, unsustainable consumer debt, the slow creep of mass foreclusers/bankrupcies, the fact that a quarter of all new jobs created since the last recession are directly related to the housing boom. You hear none of this from these people and its a shame.
We may have to leave it to 'The Stranger' to give us some accurate reporting on this subject because the corporate rags in this town will never do it for us.
As someone who came here from the Bay Area last year, I can definitely tell you that Seattle is still **much** cheaper than the Bay Area - it's a lot more than 100-200k cheaper in most areas.
In the bay area, you can't touch a 2000 sq ft house in a good shool district for less than about 1.1M (and in most places, it'll be much more). You can certainly do this in the Seattle area for 600k.
In regards to the Bay comparison, you are correct at the $600K and up level. That kind of money will buy you a lot more house here than in the Bay. But at the starter home level, the gap is much closer (our $400-450K houses would go for $550-650K there). Which I think is interesting. There must be some kind of absolute limit for 1-2 bedrooms that is based on rational economics.
This crazy market can be reduced to 1) people moving up and 2) first-time buyers. As long as real estate stays overpriced, there will always be an opportunity for people to trade up. But the number of #2's (first time buyers) out there is falling, falling, falling. These are the suckers are the bottom of the pyramid scheme. And I think this is where the rubber hits the road, economy-wise. No matter the shenanigans at the top of the food chain, the first-time buyers actually must secure a mortgage based on real things such as their savings and their income. Remember job-based income?
The barrier to entry is becoming a wall -- apparently you need rich parents to lob you over.
Whew, feels good to rant.
I agree that the figures and statements (mostly by realtors) in these articles seem a little exaggerated. However, the reality on the street is that for people looking in N. Seattle (Greenlake, Wallingford, Ballard, Queen Anne, etc), there just ain't much for sale. And what is available is getting overbid almost every time. The only houses sitting are ones that are complete junkers that are way over priced. And often even those still eventually go for over 400K.
We bought a house in Ballard at exactly this time last year and I can say for certain there is at least 30% less inventory available right now. I've been watching the MLS every day for the last couple of months and have seen maybe 4 houses for sale comparable to mine. Last year there were 4 a week that we wanted to look at. I think there really is a serious lack of inventory and that may drive prices even higher in the core Seattle neighborhoods.
Meshugy,
Here's the thing: your perceptions are probably correct. We know that inventory is declining (on average), and in some neighborhoods (such as Ballard, which is still a "starter" neighborhood), things are likely to be worse.
That said, the big, white elephant in the room is that there is no sales frenzy. In fact, the pending and closed sales numbers tell us that there is the opposite of a sales frenzy! What's more, the decline in closed and pending sales is several times larger than the decline in inventory. The one can't explain the other!
So, what's driving the price increases?
That's the million-dollar question. Unfortunately, there are no solid answers. My theory is that inventory is declining because the first-time buyer market is saturated -- we've reached the point where the people who want to buy their first home (at current valuations) have jumped into the bath, and those people aren't going to sell anytime soon. All that's left are the speculators and the Mrs. Dickhoffs, and those are the folks buying into the fall.
Regardless of my theory, it doesn't take a PhD in economics to see the problem with rising prices in a market with declining sales. I think that in six months' time, we'll be calling this the turning point....
-the Other Tim
Nah, what you are missing is that the total inventory and months inventory (active inventory/pending sales) is still dramatically lower than it was even in 2002-2003 (when prices were also appreciating). If months inventory is at 2.0 or lower, it doesn't really matter if the absolute volume is 8% lower than last year. The market is still very tight. Without a change in lending standards or significantly higher rates, it is going to be very tough to see significant price declines. In a supply constrained market like Seattle with good job growth, affordability for first-time buyers is going to be a problem.
Does anyone else find it funny that the woman who is buying her son his house is named Dickhoff?
/apologies
It's probably the start of the baseball season that is keeping sellers too occupied to put their houses up for sale and buyers too busy to go house shopping.
While statistics are a great tool in understanding the market, they lack one very important element. They don't quantify the quality of the properties being sold. I think this may explain why the statistics would leave you to believe a price correction is in order (i.e., small decline in inventory + much bigger decline in pending sales = less competitive market and a price drop).
However, from my observations of open houses and the MLS in NW Seattle, most of what is for sale right now is utter crap. Run down houses on busy streets and/or in undesirable areas.
Much of the 7% gap between pending sales and inventory can possibly be explained by a glut of substandard housing. Sellers of undesirable houses are trying to take advantage of the tight market by getting top dollar for their dumps. I'm seeing it happen all around me. The rental house behind me, which is a total dump, is pending for 380K! Tiny lot, tiny house, out dated everything...mostly likely will be knocked down. Another dump down the street went for 400K and is now undergoing a 100K+ remodel.
But I think a lot of these dumps are so overpriced that even the most irrational buyers are staying away. Hence, the glut in sub-par housing.
Also, there might be a glut forming in the over 600K market. I see a lot of nice places in that range, but I don't know if people are really jumping on them.
Again, this is just a casual observation. But a little more research might find a least some truth to it. I know that it would be very difficult for us to buy the same house right now that we bought in April 05. There's so little to choose from in the 350K-450K range..and what is there is 50K-70K more then we paid last year.
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Everyone, yes EVERYONE up into their late 30's I know that bought in the past 2 years in King County had at minimum 20% of the purchase price covered by their parents - often with a cosign as well.
Apparently, this IS the way houses are bought in this area. Incomes be dammed. Mom and Dad welfare keeps the market strong.
Anon: 08:50:48
Yeah, I like how the boomers are leveraging their retirement on real-estate for their trust-fund children, not only potentially sinking their 21 yo. "I must own a home" college students with their own financial future as well...
I remember I read in the Times Real Estate section a 28 yo girl who wrote a 'how to' guide on buying her first home.
Step number 1: "I recieved a gift from my parents of ~ 40K"
Well, thanks for nuttin' sweatheart. Some of us aren't blessed with mana from heaven, so what about a 7 yr. ARM?
silly
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