Bubble-Screening Real Estate Agents

A comment from reader seattle price drop in yesterday's post got me thinking. In discussing what kind of research to do for an impending real estate purchase, spd suggested:

Step 2) Interview several realtors. Do this with an eye to finding out who will be truthful and represent your interests well when the time comes to buy.

I just got back from a talk with a realtor. I walked in off the street, no appointment.

I asked questions like:

• how's the market between this year and last?
• Where do you think this market is going?
• How many people took out ARM's in this area?
• Do you think we're heading for a lot of foreclosures?

Many of us would like to eventually purchase a home, once the market settles down, so the subject of how to select a real estate agent (or whether to go through an agent at all) is definitely a relevant one.

Personally, I've got a black list of people I'll definitely never work with, consisting of the various agents that have emailed me or left comments on here basically telling me how stupid I am not to jump into real estate NOW.

So are you using this interesting time in the market to screen agents for the future when you are ready to buy? What kinds of questions would you suggest asking to separate the wheat from the chaff?

Do Your Market Research

I read the a question and answer in the Everett Herald about researching the market before buying a home, and I couldn't help but feel that the columnist's advice was a little lacking.

Question: I'm attempting to research the housing market, but I don't want to even think about buying for at least a year because I am committed to a one-year lease. How can I efficiently do the research without a real estate agent? I assume most agents would not be interested in working with a client who will not be buying a home for at least a year. I've attended numerous Sunday open houses, but I feel I may be missing valuable properties.

B.G., Bellevue

Answer: You are wise to get to know the local housing market before you make an offer on a house. In real estate, as in most areas of life, knowledge is power. You will not be able to recognize a good deal until you have done your homework.

You are on the right track. At this point in your search, Sunday open houses are the best way to research the market. You should also read the home sale ads in the newspaper every week. After a few weeks of touring homes and scanning ads, you should get to the point where you can drive up to a home and guess its price within $10,000 before setting foot inside.

When you can do that on a consistent basis, you will know that you have a good feel for the market value of homes in your area.

Once you know what a home is likely to sell for, you can quickly recognize a bargain when you see one.

Since the reader apparently isn't in a hurry to buy a house, shouldn't they also spend some time researching whether it is a good time to buy into the market at all? The columnist admits that "the market may be slower by next year," but they fail to address any type of market trend research.

How would you answer B.G. in Bellevue? What kind of research should he be doing to find out for himself whether it really is a good time to buy or if he'd be financially better off renting for a while longer?

(Steve Tytler, Everett Herald, 05.21.2006)

Always Better To Own Vs. Rent?

Most readers of this blog know that renting versus owning right now is almost a no-brainer, and buying real estate in order to rent it out right now is just plain foolish. Now, I haven't been following the commercial real estate market as closely as residential, but I would have a hard time believing that things are drastically different there. But leave it to a company from California to try to convince businesses otherwise:

A California developer of an office complex that will break ground next month in Snoqualmie aims to convince small business owners here that it's better to own their space than to rent one.
...
While the company prefers to call its units "individual business properties," as opposed to condos, the concept behind its Venture Commerce Centers is "almost identical to the residential model," said Berryhill.

"Most people have discovered it's more advantageous to own your own home than to rent," said Berryhill. His company believes the same holds true for business owners.

"If you know you're going to do the same thing for the next five, 10 or 30 years, rather than pay a landlord for 30 years, it makes a heck of a lot more sense to own your own property," Berryhill said.

I'll give them that if you're talking about 20-30 years, then owning is probably better. But buying 5 years from now after prices either drop or "stagnate" would be even better, don't you think?

(Clayton Park, King County Journal, 05.23.2006)

Caskets To Condos

Here's a fun off-beat weekend story. Casket factory to become condo complex?

While the real-estate market is cooling in some parts of the U.S., demand continues to surge in the Seattle area. That has prompted developers to step up their search for properties — even old, abandoned addresses.

The North Coast Casket Factory, a red timber building used to assemble and store caskets for 71 years, was scheduled for demolition until the Port of Everett decided to seek bids from developers.

Now it might become meeting space or artists' live/work lofts as part of a $300 million, 600-condominium redevelopment of the Everett waterfront.

The funny thing is that the article goes on to talk about how demand is still going up and supply is going down compared to a year ago, when in fact we know that the opposite is true. I think the way they get their numbers is by focusing only on downtown Seattle, which is amusing considering that the story is about a casket factory in Everett.

(Pham-Duy Nguyen, Seattle Times, 05.27.2006)

Seattle: Hybrid Cars & Hybrid Real Estate

Is the Seattle real estate market "cyclic," "linear," or "hybrid"? According to the analyst of the day, Seattle is a "hybrid market."

Could the real estate action be shifting to the heartland, the vast swath of middle America that wasn't really touched by the hyperinflationary housing boom?

That's what a new statistical analysis of housing price cycles in 100 major metropolitan areas suggests could be over the horizon. Its author, Christopher L. Cagan, director of research and analytics for First American Real Estate Solutions, examined historical housing price movements and concluded that metropolitan real estate markets can be classified into three behavioral categories
...
Hybrid markets, which have linear, slow-growth characteristics for periods, followed by periods of moderate cyclic-style appreciation. They never boom quite like Florida or California, but they also never need to correct like the more volatile markets either. Cagan includes Chicago, Seattle, Minneapolis-St. Paul, Detroit and Phoenix in this category.
...
Most of the cyclic markets "are at, or have already passed, the peak" of their cycles, he says. Absent unseen economic shocks, the shooting-star markets aren't likely to crash or burn. They're just not likely to see anywhere near the price growth they have gotten used to in the recent past.
...
...if you're in a linear or hybrid market where the local economy is adding jobs and population, who knows? If Cagan is correct, you just might be poised for higher-than-average price gains over the coming few years. Make the most of it.

The unbridled optimism of some of these "analysts" is almost enviable. None of the "shooting-star markets" are "likely to crash or burn"? Nice. I also love how this analyst had to perform a complex "statistical analysis" to place cities into three categories that basically equate to mild, hot, and hot HOT HOT—a task most of us could probably have done just by sitting down with a paper and pencil. Seattle isn't as hot as South Florida or the San Francisco Bay? You don't say.

(Kenneth R. Harney, Washington Post, 05.27.2006)

Even Rent Unaffordable To Thousands

Here's a delightful story for everyone out there that's cheering on huge "price gains" in real estate and rooting for rents to climb.

The King County Housing Authority, which recently reopened its waiting list for rental assistance for poor residents, received 11,778 applications in a two-week period — an all-time high for the agency.

That is a 74 percent increase over the number of applications received when the waiting list was last reopened in June 2002, housing authority officials said.
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Housing officials say the high demand reflects a countywide shortage of affordable housing.
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A recent Seattle P-I analysis revealed that in King and Snohomish counties — the state's most prosperous region — nearly 300,000 people live in poverty even though at least one family member works full time.

"This reflects the hard reality that housing costs continue to significantly surpass incomes, including wages," Norman said.

As long as home prices keep going up and up, everything's dandy, right? I mean, who cares about working class people being able to afford a roof over their heads? Yes, I've talked about this at length in the past, and apparently the problem has only gotten worse since then. Shocking!

(Debera Carlton Harrell, Seattle P-I, 05.25.2006)

Update: Speaking of people rooting for rents to climb... Just after I posted this I stumbled upon a relevant post over at the P-I's Seattle Real Estate Professionals blog. Here are some choice quotes:

It's true, Zag11, that rents have not kept up with purchase prices for homes and condos, so rentals represent a better bargain right now — IF you don't count appreciation. And since appreciation isn't guaranteed, it shouldn't be counted when calculating one's monthly expenses.
...
Since the housing market is cyclical and rents are extremely low compared to mortgage payments, that part of the cycle is due for what we laughingly call a "correction." I'm sure you're feeling that your rent needs to be "corrected."
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Say you jump right in and snag that 2k a month condo. As rents begin to rise, your payment starts to seem not-so-out-of-line. Before you know it, your payment starts to seem downright cheap when you see what your friends' newly inflated rent payments are and note that their money goes to line their landlord's pocket, while you've been raising your net worth with every payment.
...
All of this makes now a good time to buy — before rents go up — because housing prices will likely be higher then too. This assumes that it is not excessively burdensome for you to make the seemingly-large-at-the-moment payment. Stretching your budget to buy a home = good. Breaking the bank, putting yourself in financial peril, risking bankruptcy with the slightest decrease in your income = very very not good.

You heard it folks, straight from the real estate professional. Rents are going to experience a 200-300% upward correction "before you know it."

(Susan Ryan, Seattle Real Estate Professionals, 05.24.2006)

Wont Last Long

Check out the listing description for a condo in Redmond, listed at $165,000:

nice clean spacious condo w/territorial view, lots of storage, assigned parking in garage. located near public parking and shopping. gated community w/lots of amenities. new plumbing, new elevator. wont last long at this price.

Setting aside the author's apparent disdain for the Shift key, what I find most amusing is the claim that it "wont last long." According to ZipRealty, this gem of the 70's has been on the market for 75 days. At first I thought that they forgot to type the apostrophe in "won't," but maybe "wont" (see definition 2) is exactly what they meant to type.

Heh.

More Banking Job Shrinkage

More mortgage job losses for Washington State:

Washington Mutual Inc., the nation's largest savings and loan, notified 1,400 workers in Washington and Florida on Tuesday that they will lose their jobs as part of the company's cost-saving strategy.

About 850 workers at the company's call center in the Seattle suburb of Canyon Park were told they will be laid off by the end of July, spokeswoman Darcy Donahoe-Wilmot said.
...
"It's part of our strategy announced last year to move back-office jobs to lower-cost locations," Donahoe-Wilmot said.

I certainly wouldn't call a shifting of employees from one part of the country to another much of a portent of industry trouble, but it still translates to 850 jobs lost in Washington, and at least bears mentioning.

(Associated Press, Seattle P-I, 05.23.2006)

Homeowners To Fund Road Repairs?

What's the solution to Seattle's traffic problems? Well, apparently if you ask the Mayor, the solution is a tax hike... on homeowners.

Since 1998, voters have passed five levies: $117 million for education, $86 million for low-income housing, $72 million for the Seattle Center and community centers, $198 million for parks and $167 million for fire-fighting facilities.

The result is a four-fold increase over the past 10 years in what the average homeowner pays for levies. The owner of the average home in Seattle 10 years ago paid $104 for voter-approved levies. This year, the owner of the average home — assessed at $399,200 — will owe $459.

Today, Mayor Greg Nickels is expected to propose a new levy and other taxes — not for shiny new buildings, but to repair roads and bridges. His citizen advisory committee has suggested a levy of $25 million a year, and Nickels may choose to go higher.

"The need is clear, not only for the routine work of paving streets but also for the bigger projects, such as our aging bridges," Nickels said in his State of the City speech in March when he announced that he would explore a new way to fund repairs.
...
The new road-repair levy would signal a departure from how Seattle has used levies in the past. Previous levies were sold to the voters like Procter & Gamble products — offering something new and improved, such as new parks, fire stations and community centers.

This levy would improve roads but not pay for any new ones. The money would fill potholes, repaint crosswalks, repave roads — in other words, pay for tasks voters have come to expect government to include in its general budget.

Granted, Seattle homeowners seem only too happy to spend far more money than necessary for overpriced real estate and granite countertops—and a few hundred dollars per year isn't going to break anyone's bank. But what is the deal with begging for more money just to do (supposedly) routine maintence? What in the heck are they doing with the general budget?

Nickels said the city needs new money for road repairs to make up for funding that used to come from the state.

I don't quite buy that argument, and as it turns out, neither does the state legislature.

State Senate Transportation Chairwoman Mary Margaret Haugen, D-Camano Island, said she was "aghast" at Nickels' complaints about state funding. In the $8.5 billion gas-tax package the state passed in 2005, Seattle received $2.8 billion for projects like the viaduct and the 520 bridge, and an additional $2 million a year for maintenance, she said.

"The largest share certainly went to Seattle," Haugen said. "That was one of the things that people had heartburn about in the rest of the state."

So, we're getting billions of State dollars for all kinds of fancy projects, but we have to jack up the tax on (already stretched) homeowners to afford to fix potholes? Something just doesn't add up. I could be way off base here, but I can't help picturing Mayor Nickels sitting at his desk with dollar signs in his eyes, thinking about the soaring property "values" in Seattle and wondering just how much more in taxes the populous will tolerate.

This was cross-posted at both Seattle Bubble and Seattle Traffic.

(Sharon Pian Chan, Seattle Times, 05.22.2006)

Video Report: Condo Craze

When you get some time, check out this King 5 video report on the condo craze. Robert Mak kicks off his report by focusing on a 23-story building full of $330,000+ condos going up in Bellingham. On his blog, he explains some of his thinking behind the report.

Don't get me wrong—Bellingham is a beautiful place to live. I've spent a fair amount of leisure time in the area. And no doubt, a 23-story building is going to have some spectacular views of the ocean and mountains. But you have to wonder—can Bellingham support condos from $330,000 to a couple million dollars? The answer apparently is yes—50% are reserved, including the most expensive penthouses.

It's just a sign that the condo craze is everywhere. One expert used the phrase, "a perfect storm." Demand from baby boomers trying to downsize, combined with young, more affluent buyers and investors looking for second homes have really pushed demand from all age groups. But here's what makes some people nervous. Is the condo market overheated? If the market tanks, are you safer investing in a single-family home, where you own a chunk of land? Are people going to get tired of the condo lifestyle after a few years?

Personally, I don't "get" condos. I mean, the monthly mortgage payment on a $330,000 condo (after putting 20% down) would be nearly $1,800. And most condos I've looked at have $200-$300 per month association dues. So why on earth would I spend $2,000+ per month on what is basically a glorified apartment, when I can rent a dang nice apartment for $1,500 or less?

I think that kind of reasoning is probably why condos historically are the first to fall in value when housing falters. Because I think a huge factor that influences people's decision to purchase a condo is the speculation—the thought that when they sell in three years, they'll walk away with $100,000 profit. Take that away, and what is the draw of a condo?

(Robert Mak, Up Front Blog, 05.19.2006)
(Robert Mak, King 5 News (video), 05.19.2006)

Real Estate Agent Boom Slowing

I guess Elizabeth Rhodes must be on vacation or something, because lately all the real estate stories in the Seattle Times have been refreshingly less biased than I've become accustomed to. For instance, take a look at this report from Jane Hodges on the huge increase in the number of real estate agents in our state.

In Washington state, the flight into real-estate mirrors national trends. The number of adults who took courses to qualify for state real-estate licensing tests here has almost quadrupled over the past four years.

In 2001, 1,172 adults completed training; last year, 4,561 did. The number of practicing agents statewide also has nearly doubled from the 22,356 in 2001. At the end of April, 42,712 were working, Department of Licensing data show.

But at a time when mortgage rates are heading north and many prognosticators say the real-estate boom is about to stall, how will all these agents find business?

Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, says the rise in the number of agents in the state isn't surprising. However, it's likely that number will drop as the market cools.

But I thought the market was never going to cool? Aren't we going to see continued wild appreciation from now until the next World War? Well... maybe not quite—and Ms. Hodges actually has the guts to admit it.

Some say the slowdown has begun.

Erin Sullivan, a registrar with Windermere Education in Seattle, said she sees fewer new agents these days.

When Windermere brokers hire new agents, they typically send them to Sullivan's department for in-house training, a practice common at most brokerages.

During much of the past three years, new-agent-training classes have been packed, Sullivan said, with a dozen or so people on wait lists for 48-person classes. Now classes fill up only at the last minute.

"The plateau started a few months ago," Sullivan said.

Even as the public face of Realtors pulls a Baghdad Bob in the face of the inevitable slowdown, the boots on the ground belie their official position. One other tidbit I found interesting in this article was the statistics on real estate agent wages:

NAR reported in August 2005 that the median income of agents with less than two years' experience was only $12,850, while that of agents with six to 10 years' experience was $58,700.

If they're only making just barely over the median wage after 6-10 years of experience, it's no wonder they want so badly for house prices to keep on rising. Although, I believe that is a national statistic, not a local one.

(Jane Hodges, Seattle Times, 05.20.2006)

Affordability Continues Downward Slide

Apparently over at WSU there's a group called the Washington Center for Real Estate Research. Last week they released a report on home sales in the first quarter of 2006 in the state of Washington. Surprise surprise, the report shows that home sales are slowing down in Washington! But as the Associated Press is all too happy to remind us, "prices continued to climb."

There are signs the pace of home sales in Washington is slowing down, but prices continued to climb in the first quarter of 2006, according to the Washington Center for Real Estate Research at Washington State University.
...
The report is produced in conjuction (sic) with Washington Realtors.

[Center director Glenn] Crellin said the raising of interest rates by the Federal Reserve Board is the main reason for the flat statewide market.

But he cautioned that the market appears flat only in comparison to the superheated housing sales of recent years.

"The market remains very strong," he said, especially compared with the rest of the country.
...
Buying a house continues to become more difficult in Washington.

The Housing Affordability Index – which measures the ability of a middle income family to buy a median price home with a 30-year mortgage – slipped further below 100 in the first quarter.

The statewide rate of 93.3 meant that a typical family had only 93 percent of the income required to buy a median-price home. Buyers in seven counties faced index values below 100, with the problem especially big in San Juan, Jefferson and King counties, which had values ranging from 37.1 to 77.1.

The full numbers from the report are available in PDF form directly from the WCRER. In my opinion, the most important bit of the report is the "affordability index," which is described by WCRER as follows:

Affordability index measures ability of typical family to make payments on median price resale home assumes 20% down payment. First time buyer affordability assumes a less expensive home, lower downpayment and lower income.

A score of 100 means that the "typical family" can afford the median home. Take note that the "first time buyer affordability" rating in King County is just 43 percent. Not that this is particularly new information, I just think it needs to get more press. Seattle has basically become a place where only the rich (or those who already own) can afford to buy a home. Apparently the local press doesn't have a problem with that.

The Affordability Index has never really been all that great for first time homebuyers in King County, hovering between about 60 and 70 from the early nineties through about 2003, but ever since then it's just been tanking. Take a look:

Click to enlarge

I created this graph using the WCRER Build Your Own Report tool, which has data for the Washington housing market going back through 1994. For reference, I have overlaid the median home price (red line). You can see that as soon as the median price started shooting up at an abnormal rate, the affordability index began plummeting.

Rah, rah, real estate!

(Nicholas K. Geranios, Associated Press, 05.16.2006)

Seattle: Froth Or No Froth?

As amazing as it may seem to readers here, there are in fact many people that are completely convinced that Seattle is not in a housing / real estate bubble of any kind. Not that our bubble is less extreme than Florida or California, but that all of Seattle's home price gains have been 100% justified, and furthermore that we are likely to see continued strong gains in home prices. With that in mind, I present the following two reports (both in PDF format), which come to very different conclusions about the future of real estate in Seattle. Neither of these are new, but they're quite interesting when compared side-to-side like this.

Our first report is from none other than our favorite organization, the National Association of Realtors®. Surely you already know who the NAR is, but I want to quote from their NAR Overview page anyway: "The core purpose of the NATIONAL ASSOCIATION OF REALTORS® is to help its members become more profitable and successful." This is what their 10 page report, Home Price Analysis for Seattle-Tacoma-Bellevue (published during the third quarter of 2005), pruports to prove:

With home prices rising strongly in most parts of the country, there has been widespread media coverage on the possibility of a housing market bust. A thorough analysis of the Seattle-Tacoma-Bellevue metro market, as detailed below, reveals that there is little danger of this. In fact, the local housing market is in excellent shape with a potential for significant housing equity gains, particularly for homebuyers who plan to remain in their house for the long run.

Furthermore, in a section called "Stress Test," they claim that:

• Price declines in the local market are unlikely according to our stress test.
• The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 10.5% in combination with 3,000 job losses could lead to a price decline.
• Such scenarios are highly unlikely. Most credible forecasts predict the region will create 60,000 to 100,000 jobs over the next 24 months and mortgage rates will hover around 7% by the end of 2006, which bodes well for future price gains.
• Even in the unlikely event of prices declining by 5%, most homeowners will maintain sizable equity build-up in their homes.

But I think my favorite part of their report is the "Additional Discussion Points" section. I believe in political circles they are known as "talking points."

• Home price declines are very rare. In fact, the national median home price has not declined since the Great Depression of the 1930s. Stock market collapses, the OPEC oil crunch, economic recessions, and even wars have not negatively impacted national home prices since the 1930s.
• There have been few times when local prices declined. In nearly all these cases, the price declines were accompanied by sharp prolonged job losses. It is difficult to foresee a price decline in a job creating economy.
• Homes trade far less frequently than financial assets (about one home sale every 7 to 10 years for most homeowners). There are also larger transaction costs associated with selling a home due to the lengthy careful examination demanded by home buyers and sellers. Therefore, home prices are not prone to fluctuations as in the stock market. There are neither panic sells nor margin calls associated with homes.
• Many non-quantifiable factors could be important for this metro market in determining home prices. Access to cultural life, the quality of museums, nearby local and national parks, water views, exclusive neighborhoods, weather, the international airport, city vibrancy, restaurants, and a host of other non-quantifiable factors could have an important influence on the overall pricing.
• There are immense tax benefits to owning a home.

If all of this sounds strangely familiar, it's probably because the local media has been dutifully repeating it nearly every chance they get. Or maybe it's because you spend a lot of time over at the Rain City Guide (I kid, I kid).

Our second report is from HSBC, which in their own words is "one of the largest banking and financial services organisations in the world." Here is the summary paragraph from their 110 page report, A Froth-Finding Mission - Detecting US housing bubbles (published January 2006):

We suggest that about half of the US housing market is frothy and that this 'bubble zone' may be overvalued by as much as 35-40%, after taking into account low interest rates and tax advantages. Current valuations imply a large permanent reduction in the risk premium and/or a sizable step up in future capital gains, not all of which, we think, is justified. The 'bubble zone' accounts for 50% of US GDP, or over USD6trn, nearly the size of the German, French, and UK economies put together. In other words, it’s big. Therefore, when these housing bubbles begin to deflate, it is likely to have substantial macroeconomic consequences.

As you can see, HSBC's report is not focused specifically on our area. However, Seattle does show up rather prominently in their table of "Potential over/undervaluation: cities" (page 6). Coming in at the 12th-most overvalued market, Seattle is rated as 34% overvalued. Doing a little quick math, taking 34% off the 2005 year-end median price for King County of $393,000 comes to $259,380. Along with their (very) detailed report, HSBC has released an incredibly fancy Excel spreadsheet, HomePulse, that allows you to choose specific cities across the country and see a plethora of graphs detailing all the facts and figures that the report was based on.

In stark contrast to the NAR report, HSBC found that

Using HomePulse, we find evidence that about half the housing market is 'frothy', even after taking into account the benefits of low mortgage rates and tax advantages. We suspect around 40% of US housing units are frothy, but by value, that proportion rises to about 60%. Annual homeowner costs relative to rent or income are higher than in the late 1980s for the US as a whole and as high as the early 1980s (when mortgage rates were over 16%) for the ‘bubble zone’. As a result, the required capital gains to financially justify buying versus renting have never been higher for many areas.

So there you have it. The heavy hitters come out and argue both sides of the bubble debate, each supposedly analyzing the facts, but coming to completely opposite conclusions. Are both (or either) of these sources trustworthy? I guess that's for you to decide.

(National Association of Realtors®, Q3.2005)
(HSBC, 01.2006)

Emotional Bubble

When discussing a real estate bubble with "non-believers," one subject that often comes up is emotions. Some real estate enthusiasts go so far as to claim that everyone who believes in a bubble is a bitter, scared, renter. On the other end of the spectrum, Marlow Harris of the P-I's Seattle Real Estate Professionals blog is a good example of a real estate enthusiast that is less condescending. Regarding the conversations on Seattle Bubble, she observed:

People are scared. Outraged. And angry. Upset that they can't buy a house or upset that they did.

Certainly there is some truth in her observations, but I'm not sure that she has it entirely right. Are some of us outraged, angry, or upset? Sure. Although (thankfully) the back and forth here is nothing compared to the Craigslist housing forums, there's definitely a degree of anger at just how ridiculous the whole situation has gotten. But scared? Fear is something that I just don't see in the comments here. Most of you don't own a house, so what is there to be afraid of?

Although there are many emotions wrapped up in the bubble debate, I personally believe that most bubble believers base their conclusions on logic and a reasonable assessment of the situation. Of course, for people that are totally wrapped up in real estate, that's a difficult thing to comprehend. Difficult, but perhaps not totally impossible, as demonstrated by another comment from Ms. Harris:

Being the consummate real estate professional that I am (tee-hee!), my first reaction is to run to these folks and offer assistance to help them become proud homeowners. Imagine my surprise to find that many of the people who comment on Seattle Bubble do NOT want to own a home! Or, at least, they don't want to own a home if it means living in a crappy house with a huge mortgage.

In our real estate office, it's constant rah-rah for real estate and we spend hours helping buyers figure out how to get the home of their dreams. So it's just interesting to read another opinion when it comes to owning a home.

If you decide to comment on Marlow's post, please be nice. Unlike some of those in real estate, she is clearly willing do have an open dialog about the issue.

So what's your bubble belief driven by? Are you angry and upset, and just looking for "facts" to fit your perception, or is it the facts that are making you angry? What other emotions do you feel about the bubble?

(Marlow Harris, Seattle Real Estate Professionals, 05.18.2006)

Real Estate Party In Washington!

A number of readers pointed out the latest series of rah, rah, real estate stories from Money Magazine that sing the praises of real estate in Washington State. The gist of the articles is that while the slowdown in real estate is undeniable in most of the country, the crystal ball predicts that a number of areas in Washington State will defy all logic and economic reason and continue to experience double-digit appreciation, so you should totally invest all your money in Washington real estate so you can cash in on the party.

As forecasts for housing price growth have cooled for most of the country, they are calling for booming values in the state of Washington.

For the June issue of MONEY Magazine, Fiserv Lending Solutions and Moody's Economy.com provided forecasts for the coming 12 months for 380 metro areas - they predict that five of the top 10 fastest growers will be in Washington. Ten of the top 17 will be.
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"Although price growth has been steady in Washington, it has not been outstripping the economic fundamentals," says Celia Chen, Director of Housing Economics for Economy.com.

The real estate markets have been pretty much balanced in the Northwest while many others have been sellers-markets for years.

Lennox Scott, who runs John L. Scott real estate, one of the biggest brokers in the Northwest, attributes much of the future market strength in Washington to job growth. "Microsoft announced it's hiring 10,000 more people," he says. "Boeing is hiring. The anomaly of historic low mortgage rates drove prices for the past few years. Job growth will drive them for the next few."

Microsoft and Boeing are driving our stellar job market? Where have I heard that argument before? Oh yeah, four posts ago, that's where. I guess Lennox doesn't read this blog yet.

By their reckoning, the Seattle-Bellevue-Everett region (why so encompassing?) is sitting pretty in position to gain another big 10% in the coming year. That would bring the median house price in King County to roughly $465,000 by April 2007. I suppose it's possible, but my gut feeling tells me that just ain't gonna happen. Of course, I don't even own a crystal ball, so what do I know?

Here are their forecasts for various cities in Washington. "Historical" refers to home appreciation from 2001 to 2005 (an amusing usage of the word "historical"), while "Forecast" is what the crystal ball predicts for June 2006 - June 2007:

Metro	Median Price	Historical	Forecast
Wenatchee	$184,650	38.40%	16.70%
Mount Vernon-Anacortes	$199,947	56.10%	14.50%
Olympia	$198,871	64.50%	13.10%
Yakima	$135,000	23.70%	12.80%
Spokane	$169,000	50.20%	12.40%
Bremerton-Silverdale	$156,353	69.00%	11.50%
Longview	$158,596	36.00%	11.40%
Kennewick-Richland-Pasco	$158,000	29.00%	11.00%
Bellingham	$215,641	83.10%	10.80%
Seattle-Tacoma-Everett	$360,000	49.30%	10.50%
Tacoma	$250,000	53.80%	9.60%

(Les Christie, CNN Money, 05.18.2006)
(Tara Kalwarski, Money Magazine, 05.18.2006)

Update: A reader pointed out in the comments section that a mere eighteen days ago the very same reporter (Les Christie) at the very same news source (CNN Money) presented a forecast from the very same firm (Fiserv Lending Solutions) that was mysteriously very different. In fact, the highest forecasted appreciation for a Washington metro area in the May 1st report is lower than the lowest forecast in today's report. Hmm.

Metro	Median Price	'04 - '05	Forecast
Wenatchee		14.30%	7.30%
Mount Vernon-Anacortes		18.40%	8.70%
Olympia		17.20%	9.00%
Yakima	$141,000	7.10%	5.40%
Spokane	$168,000	17.50%	7.80%
Bremerton-Silverdale		17.70%	7.10%
Longview		12.90%	7.20%
Kennewick-Richland-Pasco	$157,000	3.20%	5.20%
Bellingham		20.00%	5.80%
Seattle-Tacoma-Everett	$308,000	16.30%	1.90%
Tacoma	$210,000	19.10%	1.30%

(Les Christie, CNN Money, 05.01.2006)

Tax Breaks For "Affordable" Rent

Here's an interesting/amusing little blurb from The Stranger:

The city council's housing committee voted May 16 to put off a motion that would grant $1.5 million in tax breaks to a University District developer in exchange for "affordable" rental units that would cost nearly $200 more than the average rent for the neighborhood. The average rent for a one-bedroom apartment is $757, according to local rental analysts Dupre + Scott.

In exchange for the tax break, the developer, Lothlorien Apartments, would make 30 percent of its units "affordable" (that is, costing no more than 30 percent of a renter's monthly income) to renters making up to 70 percent of the Seattle median, or $38,150 for one person. For a one-bedroom, that works out to $1,022 a month.

For most of the Seattle area, "affordable housing" isn't really an issue—as long as you rent. In many neighborhoods rent comes in well below the 30% "affordable" threshold. Before we moved to our current free digs, my wife and I were paying just $850 per month for a nice two-bedroom townhouse in Woodinville, which figured out to under 20% of our monthly income (which consisted of only my paycheck, and was almost exactly at the median). I imagine that there is a need for more "low income" housing, but for people making the median household income down to as low as 60% of the median, there are plenty of "affordable" options.

(Erica C. Barnett, The Stranger, 05.18.2006)

Insecure Realtor Spams Seattle Bubble

As you may be aware, Blogger has a feature that allows an email to be sent to the owner of a blog whenever a comment is made on any post. It's a handy feature that allows me to easily stay on top of the lively discussions that take place on this blog. It also allows me to know instantly when someone is using the comments section as a venue for their worthless spam. While my usual policy is not to delete any comments made to the posts in my blogs, the one exception I make is for spam (I would probably delete excessive profanity as well, but thankfully that has not been an issue here). Requiring you to enter a captcha (the distorted text) every time you comment is a bit of a pain, but it makes it pretty much impossible for spammers to use automated methods to spread their worthless garbage. Plus, the rel=nofollow tag in the code makes comment spamming pointless since search engines won't follow the links anyway. Therefore, usually spam is not much of a problem here.

However, yesterday morning I was quite surprised to find my inbox flooded with over a dozen nearly identical comments—all from the same person—and more flowing by the minute. What was going on? Well, see for yourself in this screenshot of Seattle Bubble comments in my inbox:

Click to enlarge

Tim Dunn, Realtor, decided that a story that classifies Seattle as a "fair value" was so important that he should manually post it 23 times (only 22 are shown, because one more straggler came in after I took this screenshot). I guess that makes him Tim Dunn, Comment Spammer. Well, in case you're reading this now, Mr. Dunn, I want to make this absolutely clear: comment spam is not acceptable.

When people come here and argue opposing positions, that's fine. I don't even mind if the discussions get a little heated sometimes—that's natural. But pasting a link (one that we have already talked about, no less) two dozen times is not a discussion, it's spam.

Because you have abused the open commenting policy, you are no longer welcome here, Tim Dunn, Spammer. If you post again from this point forward, it will be deleted.

Typical Seattle Story

Thanks to reader Dukes for pointing me toward this story. When CNN wanted a typical story about a young couple getting in over their heads with ARMs and HELOCs, where did they turn? Seattle, of course.

Shortly after they were married, Aaron and Lacey Blank, now 25 and 27, wanted just what you'd expect: to buy their first home and start a family.

But like many young couples, the Blanks had trouble scraping together a down payment for a house in pricey Seattle.

By the time they found their three-bedroom, newly built home 40 minutes from downtown last year, they had set aside just $16,000. "We weren't planning to buy a place so soon, but we fell in love with the home and the area," says Lacey, a family therapist.
...
Though Lacey and Aaron, who works in public relations, earn a combined income approaching six figures, their $90,000 in student loans made it hard for them to qualify for a fixed-rate loan.

Their solution amounted to a financial high-wire act.

The Blanks took out a $271,000 interest-only hybrid ARM with a rate of 6.4 percent and monthly payment of $1,440 for five years. To cover the rest, they used a $51,000 variable-rate home-equity line of credit.
...
"I want to build some equity, but we haven't really been making much headway," says Aaron. The rate on their HELOC has already hit 10.6 percent, or another $115 a month. The $1,900 Aaron and Lacey spend on their home loans every month is still manageable, but with their first child due any day, they are understandably nervous.

In theory, the Blanks could see their mortgage rate jump as high as 11.4 percent in 2009. Add in principal payments and a 14 percent rate on their HELOC, and their worst-case scenario is a monthly nut of $3,445.

The solution: Refi with a fixed-rate loan; pay down the HELOC

So let me see if I've got this scheme straight.

• Step 1: Buy a house you can't afford—use suicidal financing if necessary.
• Step 2: Ride the market up until your house has appreciated 25% for no good reason.
• Step 3: Refinance your suicidal 100% loans into a new 80% traditional loan.
• Step 4: Keep riding the gravy train of equity up and up, forever!
• Step 5: Profit!

It's a flawless, can't lose plan! Every one of you should go out and buy a house right away so you too can take advantage of this amazing opportunity.

(Cybele Weisser, CNN Money, 05.17.2006)

Let's Talk Jobs

Let's talk about jobs for a minute. Not the iPod selling, Pixar-owning kind, but the working for a living kind. I'm going to keep this really basic. Jobs make people money. People use money to buy things. One thing that people buy is houses. Therefore, in my opinion, one good indicator of what the housing market is likely to do is what is happening with jobs. Are people in our area making enough money to buy the houses in our area? Are there enough jobs for everyone in our area, or are there not enough? Or perhaps there are more jobs than there are qualified people, so new people are being brought in. Depending on what specific segment of the market you look at, many of these may be true.

What I believe is most useful is to look at overall trends. Incidentally, there happened to be an article about that very topic in this morning's Seattle Times.

Washington added jobs last month, but at a slowing pace, while the increased number of people entering the labor market nudged up the unemployment rate.
...
So far this year, each month since February has seen fewer jobs added than the month before.
...
Despite the slowing pace, job growth continues to run ahead of predictions.

Okay, so our general jobs picture looks pretty good, although the rate of improvement is slowing. So which specific industries are responsible for the most new jobs?

Driven by a sizzling housing market and a resurgence in commercial real estate, the construction industry added 1,100 jobs last month and has grown by 20,000 jobs, or 11.4 percent, over the past year.

In addition, the real-estate sector of the financial-services industry added 800 jobs last month and 1,600 over the past year.

Professional and business services, a motley category that includes everything from architecture to waste disposal, added the most new jobs in April, 1,700.

Aerospace added 400 jobs last month.

It has grown by 6,700 jobs, or 10.3 percent, over the past year.

The strength of the real-estate and aerospace industries particularly benefited the Puget Sound region.

What do you know... construction and real estate are among the leading sources of new jobs, together accounting for 21,600 new jobs in just the past year. Interestingly, while "aerospace" is probably mostly Boeing, one thing I did not see in this article was any mention of the darling of the real estate cheerleaders—Microsoft. Didn't we just see an article yesterday about a humongous Microsoft expansion? Aren't they bringing thousands of high-paying jobs to our area every year? Well, not quite. While the headline shouted Microsoft plans big expansion, the article tells [insert Paul Harvey voice here] the rest of the story.

Overall, Microsoft said in February that it would spend $1 billion to add room for 12,000 employees in 3.1 million square feet of additional space over the next three years. That plan includes the space at Lincoln Square, company spokesman Lou Gellos said Monday. But not all of the space is slated for new hires. Part of the goal is to alleviate overcrowding, Gellos said.

The Lincoln Square lease will also address the fact that Microsoft's sales team is spread across a number of buildings, Gellos said.

"This is really an effort to consolidate and get the whole sales group together in one spot," he said.
...
Microsoft isn't altering its employment projections for the current fiscal year, which ends June 30, Gellos said. The company, which employed 61,000 people as of June 2005, has said it expects to add a total of 4,000 to 5,000 employees worldwide this year, 40 percent of them in the United States, and most of those in the Puget Sound region.

That would be in line with the steady but relatively slow growth that Microsoft has experienced since the 2000 tech bust.

Let's see, 40% of 4,500 is 1,800 new MS jobs in the USA. "Most" could mean as low as 51%, but I'll be generous and assume that 75% of those jobs will be in the Puget Sound. 75% of 1,800 makes a whopping 1,350 new jobs that Microsoft is predicting they will bring to our area in the coming year.

Hey, 1,350 is almost enough to balance out the 1,600 real estate jobs that were created in the last year. Hmm, but what about the 20,000 construction jobs? "But wait," you say. Microsoft hires highly paid professionals. Surely 1 job at Microsoft is the economic equivalent of at least half a dozen construction jobs, right? Well, maybe not quite.

Base compensation has become a bigger issue since the value of Microsoft options fell with its stock. In 2003, the company phased out options and began using smaller stock awards to supplement salaries, ending the era of the fabled Microsoft Millionaire.
...
[Internal Microsoft pay documents] indicate that in Microsoft's current fiscal year ending June 30, the company budgeted for average merit increases of 3.2 percent for workers in technical positions. It also budgeted for a 1.7 percent rise in promotion-related compensation.

Also disclosed are salary ranges for technical jobs, not including sales and service-related positions. The salaries range from a minimum $25,500 up to a maximum $285,000.

So here's my thesis: Jobs (at least partly) drive housing. The job situation in Washington (and the Seattle area) has been doing pretty well lately. However, a large amount of the job growth has been in housing-related industry. Therefore, when housing slows due to other forces (such as increasing interest rates or higher lending standards), the job market will slow, thus causing housing to slow further. Lastly, high tech jobs—including Microsoft—are not growing at a fast enough rate to rescue us when/if construction and real estate experience a significant slowdown.

Your thoughts?

(Drew DeSilver, Seattle Times, 05.17.2006)
(Todd Bishop, Seattle P-I, 05.16.2006)
(Brier Dudley, Seattle Times, 03.09.2006)

Remembering The Insanity

Marlow Harris of 360 Digest forwarded me this great example of the kind of story you won't be seeing anymore in the coming years.

We were to present our offer the next evening as one of 10 offers (!). I told my realtor that I'd rather pay too much for the house than lose it. We debated how far over list price we needed to go to win the bidding war. We decided on a strategy to just go in with a blank check and I went to the store to buy little pink running shoes for the soon-to-be-born baby girl as a sweetener to the deal.

We gave them a signed contract with the amount line left blank and told the sellers to fill in whatever amount it would take to get the house.

That story happened in 2003. It's hard to believe that the madness lasted as long as it did, but at least it is finally coming to an end.

(Eric, Redfin blog, 05.11.2006)

Prices Slowing, "But Not Here"

You may have seen the generic story in the news yesterday about home prices finally slowing down. What you may not have noticed was that the Seattle Times reprinted the story from Bloomberg News and added their own little gloating bit to it.

Home prices fall in some U.S. cities, but not here

Home prices in the first quarter fell in several U.S. cities for the first time in at least 15 years, more proof that the Federal Reserve is winning its campaign to cool off the housing market, a trade group report says.
...
But 60 metropolitan areas, including Seattle-Tacoma-Bellevue, saw double-digit appreciation. The median price of an existing single-family home in the Seattle area jumped 16.4 percent, to $338,600, from the first quarter of 2005.
...
The pace of home sales in Washington shows signs slowing, but prices continued to climb in the first quarter of this year. About half of Washington's 39 counties reported fewer sales this year than in the first three months of 2005, but "the market remains very strong," said Glenn Crellin, director of the Washington Center for Real Estate Research in Pullman.

Has anyone else here read the Hitchhiker's Guide to the Galaxy books? (Although I enjoyed the movie, the books are still much better.) In the third book, Life, the Universe, and Everything, the main character Arthur happens upon a flying party. Allow me to quote from this brilliant novel:

The mess is extraordinary, and has to be seen to be believed, but
if you don't have any particular need to believe it, then don't go and look, because you won't enjoy it.
...
So other factors come into operation, like when the drink is going to run out.

Now, because of certain things which have happened which seemed like a good idea at the time (and one of the problems with a party which never stops is that all the things which only seem like a good idea at parties continue to seem like good ideas), that point seems still to be a long way off.

One of the things which seemed like a good idea at the time was that the party should fly - not in the normal sense that parties are meant to fly, but literally.

One night, long ago, a band of drunken astro-engineers of the first generation clambered round the building digging this, fixing that, banging very hard on the other and when the sun rose the following morning, it was startled to find itself shining on a building full of happy drunken people which was now floating like a young and uncertain bird over the treetops.

Not only that, but the flying party had also managed to arm itself rather heavily. If they were going to get involved in any petty arguments with wine merchants, they wanted to make sure they had might on their side.

The transition from full-time cocktail party to part-time raiding party came with ease, and did much to add that extra bit of zest and swing to the whole affair which was badly needed at this point because of the enormous number of times that the band had already played all the numbers it knew over the years

They looted, they raided, they held whole cities for ransom for fresh supplies of cheese crackers, avocado dip, spare ribs and wine and spirits, which would now get piped aboard from floating tankers.

The problem of when the drink is going to run out is, however, going to have to be faced one day.

The planet over which they are floating is no longer the planet it was when they first started floating over it.

It is in bad shape.

The problem of when the drink is going to run out is going to have to be faced one day.

(Kathleen M. Howley, Seattle Times, 05.16.2006)

Cable TV Arrives Late To Party

This is rich. A little blurb in the Seattle Times on Saturday pointed out that the cable network HGTV is adding three (or maybe four) new shows focusing on—you guessed it—real estate. Check out the sidebar:

A new HGTV show called "My House is Worth What?" is coming to Seattle to find folks who'd like a free home evaluation — and a TV appearance. Here's what they're looking for:

Energetic homeowners who are:

• Planning to move or refinance.
• Wondering how much value a recent renovation has added.
• Willing to submit a photo of their families, along with their home's exterior and interior.
• Considering using equity to finance a wedding, college education or other milestones.
• Considering major renovations.

Way to be late to the party, guys. It's no wonder they're looking in Seattle, since we've got to be one of the few places left that you can find "energetic homeowners" that are excited about the prospect of "using equity to finance...milestones." I predict that if these shows even last on season, they definitely don't make it past 2007.

(Sandy Dunham, Seattle Times, 05.13.2006)

"Affording" A Home In King County

There's an interesting pair of stories in today's Seattle Times Real Estate section. The first article sings the praises of buying dumpy houses in crime-ridden neighborhoods. (Okay maybe that's an exaggeration.)

Many first-time buyers swiftly learn that if they want to get into a home they'll have to make accommodations.

Although there are several types — buying with friends or others, thinking smaller, driving farther — the most popular are buying fixers and finding cheaper neighborhoods.

There's a particularly interesting number given in the article:

A household of four earning median income in King County can, conservatively, pay $327,180 for a home. But they won't have many options on the single-family home front except along the King County line, said Elizabeth Grebenschikoff, a real-estate agent with Quorum Real Estate Laurelhurst in Seattle.

If you put 20% down ($65,436—tell me, who has that much?) on a $327,180 house, you'll have a mortgage of $261,744. At an interest rate of 6%, the monthly payment on this mortgage would be about $1,570. The median household income in King County is $55,114, or almost $4,600 per month. $1,570 is 34% of that. Again, I would like to point out that "the generally accepted definition of affordability is for a household to pay no more than 30 percent of its annual income on housing." (US Dept. of Housing & Urban Development) So, I don't know where Ms. Hodges pulls that $327,180 number from, or how she can consider it "conservative," but whatever.

The second article focuses primarily on numbers, and leaves me confused as well.

Using conservative lending estimates from the National Association of Realtors, a household would have to bring in $96,428 to buy that $405,000 home — and that's with a 20 percent (or $81,000) down payment. With nothing down, make that $120,535.

Now we're actually using the word "conservative" correctly. $96,428 per year is $8,035 per month. 30 percent of that is $2,410. Monthly payments on the $324,000 mortgage ($405,000-$81,000) would be just under $2,000. So by my calculations, that actually is a conservative estimate. The way I figure, you would "only" need to make $77,000 (and somehow have $81,000 in the bank) to afford the median home in King County. Again, whatever.

While Seattle isn't considered a "bubble" market, the median price of single-family homes in King County has been rising by double digits every year for several years — 11.9 percent (from $362,000 to $405,000) from March 2005 to March 2006 alone.

Median income in King County hasn't risen as quickly as home prices. Last year, median income in King County was $77,900 for a family of four; $63,120 for a two-person household; and $55,230 for singles.

Okay on this one I'm going to have to call bull. The most recent figures that I've seen are from 2004, and as I said above, they put the "median household income" at $55,114. How could the median household income be lower than even the median single income quoted above of $55,230? Furthermore, the most recent data (again, 2004) on "median family income" for King County puts it at $71,814, not $77,900. Either the author of this article has seen some new numbers that are quite a bit higher than the 2004 data, or they're just making things up.

Can anyone shed some light on this? Where are these numbers coming from?

(Jane Hodges, Seattle Times, 05.14.2006)
(Jane Hodges, Seattle Times, 05.14.2006)

Anecdotally Speaking

I was cleaning off my desk and I found a full color flier filled with exclamation points!!! It advertises a house down the street (pictured). I picked it up a few weeks ago while out on a walk with my wife and my dog. The house is around 2,300 square feet and sits on over a third of an acre in a relatively "private" setting backing a nice city park. It was listed at $475,000. Given that Kenmore is a fairly desirable neighborhood and that there was nothing obviously wrong with this house, one would expect it to be quickly snatched up in a fury of over-bidding, right?

Well, I headed on over to the Parcel Viewer to look for the official government record of a sale, only to find that the most recent sale listed was in May 2004, when the current owner bought it for $327,000. Hmm, so it hasn't sold yet... is it still on the market? Why yes, yes it is—and according to ZipRealty, it has been languishing on the market for 74 days now. The seller must not be very motivated (or they're counting on the spring selling season to rescue them), because they have only dropped the asking price by $25,000.

I can understand why a dumpy little place stuck between a busy road and a Safeway didn't sell last year. But if the market is "sizzling" as the Seattle Times and P-I make it out to be, why has this house still not sold? Seems to me that either 1) it's got mold, or 2) the market just might not be as hot as it was before.

Before anyone jumps all over me, I'm perfectly aware that this is only one example and doesn't "prove" anything. But it is a typical example of what is going on in the numbers we've been seeing posted in the comments here (thanks Dukes!). Price reductions galore and consistently more "new listings" than "solds" every day. Make of this example what you will.

Growth Management Bubble?

Here's a topic that we haven't discussed much here: Growth Management. Some people argue that aggressive growth management policies are responsible for much of King County's ridiculous run-up in prices. A reader pointed me toward a 2001 article published by a group called the Washington Research Council, in which they argued that King County's growth management had caused housing prices to skyrocket.

As communities develop their visions for the future, they are deciding how much land is needed for their growing populations. Washington State, under the 1990 Growth Management Act, and dozens of cities and counties around the country, have drawn geographical boundaries designed to halt sprawl and concentrate development into urban growth areas (UGAs). By channeling growth into these urban areas, and assuring the appropriate infrastructure is available, government intends to encourage economic development even as it preserves environmental quality.

But early examples of how these policies actually play out in real life demonstrate that growth management can have serious, unintended consequences. It has contributed to increases in land prices and development costs. These, in turn, have driven up new housing prices and placed an upward pressure on prices for existing housing.
...
The debate has also heated up in King County. In line with the state's Growth Management Act, King County established its urban growth boundary in 1994. Combined with soaring job and population growth in the mid to late 1990s, housing prices in the UGA skyrocketed.

Wow, if they thought housing prices had "skyrocketed" in 2001, I can only imagine what the authors of this paper must be thinking now. (Interestingly, a recent blog post at the Washington Research Council—currently on their front page—claims that "...the supply/demand balance will remain tight in this market, and that argues for house prices to remain firm here.") It should be noted however, that the word "bubble" does not appear anywhere in the above article.

Personally, I think that King County entered bubble territory around 2002-2003, and while the Growth Management Act certainly isn't putting any downward pressure on prices, I don't think it is responsible for pushing us into this crazy unaffordable mess. What do you think?

(Washington Research Council, 03.26.2001)

Google Trending The Housing Bubble

Google just released an interesting new feature yesterday: Google Trends. One of the interesting features of Google Trends is that it gives you a list of the top ten cities that have searched the most for whatever terms you put in. Obviously, I decided to try it out with the search term "housing bubble." Here is the resulting graph:

Click to enlarge.

Not surprisingly, interest in a housing bubble seems to have peaked late summer of last year, around the same time that the housing bubble was getting the most news coverage. Also not surprisingly, Seattle doesn't appear in the top ten list of cities searching for "housing bubble" online. Here's the top ten list, as of today:

1. Santa Clara, CA
2. Pleasanton, CA
3. San Jose, CA
4. Rancho Santa Margarita, CA
5. San Diego, CA
6. San Francisco, CA
7. Irvine, CA
8. Reston, VA
9. Washington, DC
10. Sacramento, CA

Actually that's more like a top five list. San Francisco (1, 2, 3, 6), Los Angeles (4, 7), San Diego (5), Washington, DC (8, 9), and Sacramento (10). Apparently people in the greater San Francisco area are more worried about a housing bubble than anyone else in the country—by a pretty wide margin—and Californians in general are the by far the most worried about their precious bubble being burst.

Unfortunately Google Trends only provides the top 10 so we don't have any way of knowing how far down the list Seattle would have come in. I suspect it would have been pretty low. I get the general impression that the thought of a housing bubble hasn't even crossed the minds of most people in our area.

In other Google-related news, does anyone else find it strange that this blog comes in as the #1 result for the search "Seattle bubble" on MSN Search and Yahoo Search, but isn't even in the top 100 on Google? What's with that? I don't know how much good it will do, but Google does provide a quality feedback form that you can complain on if like me, you think that's somewhat bogus.

(Google, 05.10.2006)

Error-Ridden Reporting

Okay this post is going to come across a little harsh, but seriously, I thought professional news outlets were supposed to be, you know, professional. However, they're apparently letting five year old children write real estate news briefs in Federal Way:

Median price of homes hits $519,000

The median price for homes in King County last month was $519,000, a 16 percent increase over the same period a year ago.

Bzzt—wrong. The median price for houses was $419,500, an 18 percent increase over a year ago. The median price of homes (houses + condos) was *achem* "just" $377,000 (up 17%).

According to the Northwest Multiple Listing Service (NMLS(, a residential real-estate organization that tracks the housing market regionally, the median asking price in King County in April 2005 was $447,000.

The correct abbreviation for the Northwest Multiple Listing Service is NWMLS. You know, as in NWMLS.com? Also, the key you were looking for is ")".

In its report on last month's market activity, King County was one of only three counties in western Washington that had fewer houses on the market than it did 12 months ago, according to NMLS.

Bzzt—wrong again. Only two counties had fewer houses on the market in April than they did last year (Cowlitz: -1%, Grant: -2%). However, King County did have slightly fewer homes on the market than last year (-1%), since condo inventory decreased almost 14%.

J. Lennox Scott, chairman of John L. Scott Real Estate, called the job centers in Bellevue and Seattle "the epicenter of sales activity." He added, "We continue to see a quick-action market and a strong surge of buyers, but there simply isn't enough housing supply to meet the demand."

Bellevue (area 530): Pending sales down 13%—closed sales down 40%. Seattle (area 140): Pending sales down 16%, closed sales down 8%. Yeah, those definitely sound like "sales epicenters" to me.

Despite modest increases in mortgage rates, attractive financing, including multiple options for first-time buyers, is sustaining activity, NMLS reported.

Is that, even, a, sentence?

I don't think I've ever seen an article with so many errors, and the whole thing—title included—is only 211 words! I'm no big fan of the real estate reporting in the Seattle papers, but at least their writers passed high school English. You would think with five days to prepare (NWMLS stats were released on Friday), they could have at least gotten the headline correct.

(Federal Way Mirror, 05.10.2006)

Follow The Money

Did you catch this one in Saturday's Seattle Times? For sale by owner? It's no primrose path.

Sometimes selling your own home is easy, especially in a hot market like Seattle. Sometimes it's tough. Either way, it's work.
...
While FSBOs might look great on the surface, industry experts and those who sold their own homes agree that homeowners need to consider plenty of caveats and potential pitfalls when they think about selling without an agent.

"When people start to pull back the covers on everything involved in selling their own home, they may decide that hiring a professional real-estate agent is the best path after all," said Brett Clifton, co-owner of Personal Real Estate Support Services in Seattle, which provides consumer real-estate information and links buyers with agents.

So you have the Times propping up the notion that real estate in Seattle is hot, HOT, HOT, while simultaneously actively discouraging people from trying to sell homes without a real estate agent—which by the way should be much easier in a red hot market, right?

Just how much advertising revenue does the Seattle Times receive from real estate interests, anyway?

(Terence Finan, Seattle Times, 05.06.2006)

Million Dollar Homes "Worth Every Penny"

Okay now this is just weird. Remember how the Times and P-I articles about April home sales both had an inordinate focus on the sales of really expensive homes? Well guess who else joined the party? The Everett Herald, with a story ironically titled Worth every penny.

The dream of buying a million-dollar home is unattainable for most working families.

Yet 2005 saw a huge increase in luxury home sales throughout the Puget Sound area - including Snohomish County, where 83 homes valued at $1 million or more changed hands. That's up from 23 in 2004.

Whether it's a two-bedroom older rambler on acreage in Arlington or a posh condominium in Edmonds, there is something for everyone in the price range of our dreams - and more people are buying high-end homes than ever.

"I don't necessarily think it's a trend," said Greg Hoff, owner of the Edmonds Windermere Real Estate office. "I would call it just the general housing market."

What used to be a $500,000 home is now a $1 million home in many areas. Although Hoff is always a little surprised when he sees a home sell for seven figures, he's no longer taken aback.

Perhaps Herald writer Christina Harper read the Times and P-I articles the day before and felt that Snohomish County needed similar coverage, perhaps it was a total coincidence, or perhaps "Christina Harper" is yet another pseudonym used by our favorite real estate reporter Elizabeth Rhodes. Who knows.

Whatever the case, one thing that the Herald article amazingly leaves out is the obligatory declaration by a local realtor that "the notion of a bubble is definitely dead."

(Christina Harper, Everett Herald, 05.07.2006)

(Absolute) Inventory vs. Pending Sales

Here's another question from a reader regarding inventory:

I have a question about the "houses on the market" stat that you called the press to task on for not reporting. Is it an absolute measure or a relative measure? Because certainly hundreds of new houses came on the market last year- definitely enough such that the case is that inventory has DECREASED as a % of total homes. It sounds as if you are saying that it's purely an absolute measure, which doesn't seem very helpful to me. And not only have the number of houses increased, but I'm guessing that the population increased also.

Just to make my case using extremes, suppose last year there were 4 million people in the area and 5,000 homes out of, say, 1.5 million total. That would be a "for offer" rate of 3.33%. Now let's say 200,000 net new residents moved into King County, 5,000 net new homes were built, and 5,100 were "for offer". OK, so the "for offer" rate would have increased to 3.38%- a 1.4% increase in listings. But the population has increased 5%. So, when considering all the moving parts, have they really "gone up". I don't know, you tell me.

Yes, the NWMLS figure of "active listings" (inventory) is an absolute measure. Unfortunately figures like "total homes in region X" isn't something that we have available to us, so we can't really know what percentage of "total homes" the "active listings" represents. The reader brings up a good point though, that when compared to factors like total homes and population, an inventory that is holding steady is actually decreasing, and even a slightly increasing abolute inventory is relatively decreasing. However, even though we don't have a "total homes" figure, we do have one useful thing to compare inventory to in order to gauge the market: pending sales.

To try to understand the inventory versus pending sales situation a little better, I created this chart using the NWMLS data for "res only" in King County from 2001 to the present. I plotted the year-to-year percent change in inventory and pending sales. The thin lines are the actual data for each month, and the darker lines are a smoothed average using Excel's polynomial "trend line" function.

Click to enlarge.

Here's what I find interesting about this chart. Around July 2002—arguably around the time that the Seattle market really started to heat up—the trend lines crossed, meaning that pending sales were increasing faster than new listings were being added. That is probably at least one of the reasons behind the extreme ramp-up in prices. However, about halfway through last year the active listings started on the road to recovery, and around December or January the lines crossed again in the opposite direction. Pending sales have been on a steady downward trend since late 2003, but now (absolute) inventory is actually increasing at the same time.

This is what I was referring to when I pointed out the positive numbers in the "% chg. Total actv" column and negative numbers in "% chg Pending sales" column. Despite the lack of statistics on population or total homes, increasing inventory coupled with decreasing sales volume is a clear sign of a slowing market, and it's frankly quite disappointing that the local press is turning a blind eye to it. If this trend continues, there is no possible way that the median price can continue to rise like it has been lately. It's just not economically possible.

What's Behind Seattle's Low Inventory?

Here's an email I received from a reader last week:

Clearly Seattle (and many other cities) are lagging the hottest markets in the housing bubble burst and in Seattle at least one thing that's perpetuating the bubble and keeping prices up is a remarkably low inventory. So the question is: why is inventory so low? The bulls would say it's high demand (new jobs, inflow from CA, etc) combined with low new listings ("Seattle is such a great place to live people don't leave") All this doesn't pass the smell test. I wonder if new listings aren't low because increasingly, more and more people aren't becoming "trapped" in their houses. I'm not just talking of those with exotic mortgages and negative equity or adjustable loans on the verge of resetting here. Normally, in a healthy market, besides those forced to sell (divorce, job loss, etc) there is a lot of "discretionary" selling for many reasons.

I wonder if the discretionary selling isn't now falling because:

1. Rising interest rates reduces discretionary selling since it would force people to buy a new home at newly higher interest rates. Since so many people are maxed out on their current mortgage there's not way they could afford to move without a major "step down".
2. The rapid increase in property values and the concomitant meteoric rise in property taxes means that anyone moving now will immediately "reset" to the current higher tax bill.

It would be interesting to hear why inventory is low from other readers perspectives.

Also, if you refer to the basic math I tried explain to Ardell the RE Agent, you can see that even at a low interest rate, a family with a house that has appreciated will be facing a huge jump in monthly payments if they want to "upgrade" to a slightly nicer house. This is the kind of thing that the local reporters should be looking into and writing the big stories about. So what is the deal with the low inventory—what do you think is the real reason behind it?

Unignorable Slowdown In Tacoma

Surprise, surprise—Barbara Clements of the Tacoma News Tribune reports on a slowing market in Tacoma!

If your home's taking longer to sell, you're not alone.

Home prices are still going up, even though sales have dropped dramatically when compared with 2005.

And now that it's spring – prime home-shopping weather – more for-sale signs are popping up in neighborhoods around the South Sound. (Sellers: Read that as "more competition.")
...
More homes on the market

The Pierce County market has seen a surge of home listings, up 29 percent compared with this time last year.

Fewer transactions

Pending sales, in which offers are made and accepted but not yet closed, dropped by 12 percent last month versus 2005.
...
Local brokers are puzzling over what this means as they look toward the traditional summer selling season. Dick Beeson, MLS director and broker with Windermere Real Estate/Commencement Associates in Tacoma, said the market seems to be "taking a bit of a breath." "We just don't know how big a breath," he added. "We don't know if it's a big gulp or kind of a sigh."

Kudos to Ms. Clements for actually telling the full story of the housing situation in Pierce County. It's only a matter of time before King County starts to see numbers like these. Maybe then our local reporters won't be able to ignore the reality that the slowdown is upon us. Maybe.

(Barbara Clements, Tacoma News Tribune, 05.06.2006)