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Thursday, May 25, 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.
...
Housing officials say the high demand reflects a countywide shortage of affordable housing.
...
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."
...
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)

57 comments:

Anonymous said...

I tried to tell a friend of mine, who is a recent home owner, that prices cannot continue to go up the way they have been or else EVERYONE (the middle class) will be priced out unless they take out risky loans.

I gave this example: SO you think houses will continue upwards? What happens when the average price of a home is 750k or a one million? Unless there is a HUGE increase in wages no one will be able to afford housing.

His answer: Blank stare.

biliruben said...

stretching your budget=good. What a twit.

OT: Anyone know where I can find inventory numbers of homes for sale during the early 90s?

christiangustafson said...

Rents are paid in cash, mortgages in credit over time. This is why rents have not risen in this credit bubble; they are tied to real incomes in the real economy. Meanwhile, the credit bubble has bid up RE asset prices beyond all recognition.

Mikhail said...

If rents are currently so "cheap", relative to owning, why then is there so much talk about needing rental subsidies?

In my own experience renting in Bellevue, rents ARE going up, albeit maybe at a smaller rate than the price appreciation for homes.

I think there is some truth to the thinking that owning always pays off if there is a state of perpetual price appreciation. Even in the example (listed earlier in this thread) where every home in the Puget Sound costs at least one million dollars, so long as the houses keep appreciating permanently, there is no reason that wages would have to rise to support prices.

Like I said, if one assumes perpetual price increases, then lenders can give ever sweeter deals, lowering their standards more and more without any risk. So what if they lend $1.5 million to a Starbucks barista making $18,000 a year (with no money down and a 100 year neg-am loan)? The house the barista buys will be worth 50% more in a couple years, allowing them to sell, or cash-out refi.

In fact, in a state of perpetual 15% annual home price appreciations, the banks can just loan out money even if people don't have ANY income. Heck, who needs an income at all if they are guaranteed that their home will appreciate 15% a year in perpetuity?

In short, it is plausible that home prices could continue to appreciate to over one million dollars in the Puget Sound without any increase in jobs, or incomes.

Anonymous said...

Mikhail,

Absolutely!

And if people would just stop slamming their screen doors in the face of the Amway guy, we could all become fabulously wealthy selling their fine line of consumer products!

People just don't *think*, do they?

concerned renter said...

Financial question about risk… blank stare. That’s exactly how this bubble created wealth for stupid people. Requirement: idiots are needed who know nothing about financial risk and are stupid enough to buy things they can’t afford to risk everything in their life. Reward: more than $100K for a few years of simply being stupid. I am now seriously considering to become an idiot… I guess it pays to be one in the US if you look other homebuyers.

Peter Taylor said...

Okay, let me get this straight.

The irony is that many of the condo purchasers are investors looking to rent out their purchase, so they'll have to charge a lot to cover their payments, so rents will rise.

First of all, that's not irony. I suggest Miss Ryan go out and buy a dictionary.

And, like so many other real estate agents, Miss Ryan has an interesting understanding of the law of supply and demand. House and condo prices have risen because of high demand. However, she's also positing that "many" investment condo owners will be looking for renters. Yet, paradoxically, rents will RISE in the face of a large number of condos coming up for rent. Why? Well, it's because it cost a lot to buy that condo. So it doesn't matter what the market will bear when it comes to rents - the owners will "correct" the price of rent to cover their expenses. Yeah, good luck with that.

I agree with you, Christian - you can't get a loan to pay your rent. And if you do, you won't be renting long. And I wish all these investors that own one or two condos good luck competing with all the big property management companies. You know, the companies with huge assets and capital who can squeeze you out of the renters market in no time flat? Yeah, good luck with that too.

meshugy said...

I bought a condo in 98 in Laurelhurst. I bought it out of desperation. Things were completely the opposite of now...it was almost impossible to find a decent place to rent in Seattle then! The dot com boom brought in a huge influx of 20 something entrepreneurs who filled up every rental in Seattle. I tried for a months to get a place, every time there were dozens of others looking at the same rental. It was hopeless....I'd never seen anything like it. However, buying was pretty easy..got a 800 sq.ft condo for 108K. We sold it last year for 225K. So it worked for me....but now if you're choosing between a small condo and a rental, rentals look a lot better. Rents seem pretty cheap to me right now....

However, when looking for a house last year, I felt that buying was better. I now have an 1800 sq. ft. house. When I looked for rentals, there were definitely places that would have been significantly less to rent then our current mortgage. However, they were almost always pretty dumpy. It's really hard to find a rental house that's not out dated and not on a busy street and/or sketchy neighborhood. Landlords simply don't remodel houses like owners do. So one of the big advantages of buying for us was the quality of life issue.

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Anonymous said...

That's defintely changing meshugy, I see plenty of houses to rent in Seattle now with plenty of remodelling work done.

There's one very nice house right for rent in Queen Anne with the owner apparantly reduced to living in the basement apartment.

I could be wrong, but somehow I don't think that is what she planned on...

I'm looking for a nice house to rent but am passing on that one. Who would want to live in a house with a "jealous bitter owner" below you?

Anonymous said...

about subsidized housing--

o.k. I know for some it is *essential* and I am *not* talking about that but--

My friend works in a rewarding but very low paying field. He qualifies for subsidized housing.

Well guess what? He rents a very humble apartment in Seattle (650/mo) and does quite well by living entirely within his means. Time and time again he has been told he is "missing out" on a sweet deal by not applying for subsidized rent because he could get a "better place" that way.

Americans live rich beyond compare.

Peter Taylor said...

Meshugy, why didn't you rent out your condo instead of selling it?

Eleua said...

Rents may rise a small amount, but there will not be any significant rent hikes.

WHY?

There is a spec premium built into house prices, but there obviously can't be any spec premium in rents.

I also disagree that homes can keep rising with flat wages. Eventually, the PITI consumes all available income, regardless of interest rates. You still have to pay taxes, buy food, medicine, gas, insurance, auto, rogaine, viagra, cable tv, electricity, water, clothing, Wal-mart Chicom crappola, etc.

This article is nothing more than a thinly veiled attempt to scare renters into houses.

I'm going to hurt myself laughing when this bubble finally bursts.

It took me months to recover when the tech bubble blew. I almost had to be medicated to stop the laughter.

Stupidity only pays for a season. Luck always runs out and stupididty is almost always painful.

Anonymous said...

Interesting article on Chrles Hughes Smith's web blog today.

http://www.oftwominds.com/blogmay06/inflation-housing.html

He points out the obvious which is something most people don't consider:

1) in the BEST case scenario, housing prices will go flat for many years to come

2) you have to factor in inflation into the equation in addition to opportunity cost for the down payement and increased cost of owning vs renting.

If prices were flat for 6 years (not uncommon historically - in fact it has been flat for a decade or more quite often), a flat housing price in nominal terms translates into a 25% loss in real (inflation adjusted) terms. Add to that the fact that your down payment could have been earning interest and the costs of owning over renting and you will easily see a 40-50% decline in value in real terms IN THE BEST CASE SCENARIO. If housing drops 15%, things get uglier fast.

As has been stated before, real estate only works when it keeps rising fairly rapidly (well above the rate of inflation). Sounds like a pyrimid scheme, doesn't it? You must also factor in your interest rate if you intend to hold your house for a long period, since even if your house appreciates at 4% above the rate of inflation and you have a 6.5% interest rate you're losing ground compared with investing that monthly payment elsewhwere where it could earn more.

meshugy said...

peter....it made more sense to roll the equity into a new house. With rents being low, it didn't make sense to rent it. Besides, I'm too busy to deal with being a landlord.

Anonymous said...

Anon 10:49 with the "owner" living in the basement of her beautiful house:

Lord, I cannot tell you how common this is in Seattle right now. I personally know 3 people who "bought" homes but cannot afford to live in them. They are renting their places out, still not quite enough to cover monthly payments, and renting cheap teeny apts. for themselves to live in.

Brings to mind exactly the cover of Harpers a few weeks back- the one with the man carrying a house on his back and title sthg. like "House Serf".

I don't know WHAT these people are really planning for. And I hate to press them on their line of thinking because I feel it is starting to dawn on them that perhaps it was a really stupid, scary idea in the first place.

Moral of the story: If you can't afford to live there, don't buy the house!

meshugy said...

I think the biggest thing to consider about buying right now is interest rates. They are historically very low right now. Not as low as last year...but still low. It's very unlikely that they will go down again, and there's a pretty good chance that by 2007 you'll have to settle for above 7% for a 30 year fixed.

So if you buy now, you get the super low interest rate. Even if prices go flat, over a 5 OR 10 year period the low rate makes a huge difference in how all the math works out. Lower monthly payments..and often hundreds of thousand off the final amortized price. If someone buys the same house as yours 5 years later for the same price, but has to pay 8% interest, then you still saved a lot despite flat appreciation.

So the market is still probably a good deal for long term buyers. For short term or investors it's pretty sketchy.

Incidentally, is anyone here familiar with the Mercer island market? I'm a cyclist and ride around Mercer way all the time. I did it last weekend and there were for sale signs everywhere on Mercer way. Probably 40 or 50...all for multi-million $ places. I've been riding there for years....I don't ever remember seeing so many. Is the high priced market crashing? However, I ride all the way from Ballard and hardly saw any for sale signs in the upper end areas of Ballard, Queen Anne, Wallingford, and especially Madrona. So maybe it's an East side phenomenon.

I just checked inventory and it's been dropping all week in King County and Seattle:

Today:

King County: 7,469
Seattle: 2,129

Monday - May 22

King County: 7,547
Seattle: 2,201

seattle price drop said...

Re Mercer: Sounds like everyone's trying to sell out at the top and take their profits.

The same thing happened in Ravenna one summer several years back. Home prices doubled and the whole neighborhood went up for sale.

Little did those people know that, after that summer, their homes would double in value 2 more times before it was all over.

But I think the folks on Mercer may have timed this one right.

Might as well try to sell for 5 million this year. I've got a feeling those homes will never again be worth 5 mil. Not in their lifetimes anyway. IMHO

Some of them will win that lottery they're hoping for! The lucky few.

Anonymous said...

So if you buy now, you get the super low interest rate. Even if prices go flat, over a 5 OR 10 year period the low rate makes a huge difference in how all the math works out. Lower monthly payments..and often hundreds of thousand off the final amortized price.

This is a silly argument. If the prices of homes hadn't recently experienced a huge run-up in price due to the "super low" interest rates, you'd be correct. Unfortunately, the cheap cost of capital (i.e. "super low" interest rates) has already been factored into housing costs, in the form of more expensive homes.

In fact, we know this is the case, because the various housing affordability indices haven't budged in the last five years, despite skyrocketing home values. In short, people have already spent the savings due to low interest rates, to buy more expensive homes!

biliruben said...

I ride Mercer too, though since I moved north 2 years ago, I haven't been around it.

I do recall thinking the same thing last time I did the Mercer Way curcuit in the summer of 2003. dozens and dozens of for sale signs along the water.

Anonymous said...

renting and housing surge? strong economy...

stagnant rents and skyrocketing housing? bubble economy..

meshugy said...

I do recall thinking the same thing last time I did the Mercer Way curcuit in the summer of 2003. dozens and dozens of for sale signs along the water.

Maybe it's just seasonal....

Also, most of the for sale signs are actually not for houses actually on Mercer way. Every little side street for a mile in either direction uses Mercer way to advertise. Eitherway, it did seem like a lot of for sale signs. A few did have sold signs on them, but not many.

meshugy said...

the cheap cost of capital (i.e. "super low" interest rates) has already been factored into housing costs, in the form of more expensive homes.

That's one possible scenario. Housing prices could drop enough to offset higher interest rates. I think the market is more likely to go flat in most areas. Especially in the core areas of N.Seattle which are gaining value due to higher gas prices/more expensive commutes. If that's the case, it works better to have bought earlier with a lower interest rate.

So far, there has been no real sign of declining prices in Seattle...I think it might happen next year. Probably more like 2008. You could be looking at a 10% interest rate by then...

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Mike said...

On Mercer Island, I haven't seen a huge increase in inventory, but there's definitely a seasonal kick in effect -- kids are just about to finish school in June. And people moving to/from Mercer Island are all about the kids.

Land on Mercer Island has gone up a lot in the last 6 months. You could buy a good starter/tear-down house in 2005 for $400-500k last year. Now, recent sales are at $600k-700k. There's not a single property (non-condo) on the island below $600k now, and it's been that way since January.

Prices across the board are about 10% below the Clyde Hill/West Bellevue area, so I suspect it hasn't topped out yet.

biliruben said...

If that's the case, it works better to have bought earlier with a lower interest rate.

I'm not sure what you means by "works better", shugy.

If you have 100K lying around, and decided to invest it in a house in 2004, and in 2010 it's the same price, then you are out a butt-load of potential earnings using that 100K, assuming the interest you are paying is a wash vs. the cost of renting (which I realize could go either way).

For instance if you had put it in a CD returning 5%, you would have 134K by 1010. If you had put it in Akamai instead, you would have 200K by 2006.

My point is that your statement is meaningless without a comparison of alternative uses for your money.

If, as I speculate, your house will be worth in 2010 what is was worth in 2001, it becomes even more obviously silly to suggest buying a house "works better" because of low interest rates.

You have to remember also that you can always refinance. I would much rather buy a house at 200K at 10% than 300K at 5%, because you can always get a new loan. The purchase price can't ever be changed.

darth_s said...

IMHO, all the talks about house price up/down now are just pure guesses. The only thing for sure now is that signs of a cooling housing are quite visible across most of the nation. In fact, Greenspan just said a few days ago that the “housing boom is over” now. The next question is how fast/slow and serious/mild the slow down will be. I don’t think any one can have a good grasp on that. Maybe it different this time with all the new financial innovations we have in the mortgage industry like IOs, ARMs, piggy back loans. May be the law of economics will prevail and it is not different after all. Again, listening to hotly debates on this issue, which side do you think is more informative and more objective?
- Bulls: Realtors, Mortgage Lenders, Builders, Real estate investors, etc.
- Bears: Academic/University professors, economists from investment bankers, think tank researchers, financial magazines, etc.
In the case you are not sure, should it be that the Wait and See is the best approach?
- Don’t buy house that you cannot afford or want to live in it for the next 10 years
- Don’t withdraw equity from your house for trivial spending
- Don’t brag about how much your house has appreciated.
- Don’t feel bitter if you are on the sideline now

...

Anonymous said...

"That's one possible scenario. Housing prices could drop enough to offset higher interest rates. I think the market is more likely to go flat in most areas."

You've totally missed my point.

Housing prices have increased dramatically over the last five years -- this is a fact, not a scenario. Over the same period, the housing affordability indices have remained essentially flat -- again, this is a fact.

How does this happen? There are two possibilities:

1) Incomes have risen sharply, and people can afford far more expensive homes. We know that this isn't true.

2) People are taking financing with ever-longer terms to pay for more expensive homes with consistently limited budgets (think "50-year mortgages"). They can do this because interest rates are historically low.

If you buy a house in Seattle today for $500k, it was probably worth only $250k a few years ago. And while your interest rate may be a few percentage points lower today than it was at that time, you've spent the "savings" by taking out a "creative" mortgage on your budget (which could only afford the $250k house on conventional terms). The gain of the "super low" interest rate is completely illusory.

At this point, you get to the anon11:52/biliruben argument -- that even if the market stays flat for the next five years, and your $500k home is worth $500k in 2010, you've still made a phenomenally bad investment. You could put your mortgage payments in a savings account, and you'd do better. If you factor in other expenses (maintenance, insurance, taxes, etc.) you'll quite likely lose money under the rosy, flat-market scenario.

In fact, this is why real estate is a historically bad investment. It's safe, but it doesn't have a very good annualized return, and unlike financial invenstments, you have to pay real money to hold it.

CriticalEater said...

Great blog! Consider me subscribed! I too make a good living and still cannot afford to buy a house anywhere in the Seattle/Bellevue area. In the meantime I'll keep paying $500/mo for rent and saving $$ for a downpayment in the hope that prices level out (fingers crossed)

meshugy said...

Bili and anon,

My thinking is based on the idea that most people want to own a house eventually. As I mentioned earlier, even though renting can be cheaper, usually there's a big trade off in quality of life. Most folks would rather own...they don't think of their home as an investment in the same way as stocks, etc. You're investing in your quality of life...if all you care about is the $, then rent the crappiest place you can find and you'll "save" a ton of cash. However, most people don't do that...they'd rather keeping buying and selling houses, working their way up to their dream house.

In that context, you save a lot by getting a lower interest rate now instead of waiting. Unless of course their's a huge drop in prices. Personally, I don't think that will happen. But you never know. I felt it was worth the risk to buy.

Seattle bubble theorists believe that the market will crash and they'll be able to get their dream house on Queen Anne, Medina, or wherever for a fraction of what it costs now. I think the median price will eventually come back into line with incomes, but not through a massive drop in current homes. Overtime more inexpensive multi family units will be built in the ever increasingly dense urban areas, and more cheaper single family homes will be built in the outlying areas. I think the high prices for Seattle's core neighborhoods will hold....Seattle's growing up and the close in neighborhoods are now primo real estate. As I mentioned a while back..it's the Manhattanization of Seattle. In my grandparents time working class people could own their own house in Manhattan....but overtime that became impossible for all but the rich. I think we'll see the same thing happen here...

The bubble (easy money, low interest rates) has just exacerbated this trend. Even after the bubble deflates, we'll still see a lot of demand for housing around here...



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Anonymous said...

Meshugy...I see you are still trolling along in here.

Why do people feed Meshugy, the more he is fed the hungrier he gets. He lives in a world of wine and roses, ballard streets are paved with gold, everyone should buy now before interest rates go up.

We can all be like him...please, can I vomit now?

Anonymous said...


If you have 100K lying around, and decided to invest it in a house in 2004, and in 2010 it's the same price, then you are out a butt-load of potential earnings using that 100K, assuming the interest you are paying is a wash vs. the cost of renting (which I realize could go either way).

So I guess that is an argument for an exotic mortgage...you can get into a house now with no money down while also making some $$ on what could have been a down payment. If the house doesn't appreciate in value and you have to sell, at least you'll have that invested money to bail you out. Meanwhile, you will have been able to paint the walls whatever color you like.

;-)

Anonymous said...

Oh...and if you house does appreciate in value while you live in it, the you've just scored double.

;-)

Anonymous said...

I'd rather invest in "quality of life" when the going rate gets cheaper.

For now, quality of life means being able to afford, easily and with no worries whatever my little heart desires because I haven't splurged on a grossly over priced pieced of property that I'm a slave to from here on in.

Oh yeah , nor am I worrying incesssantly about my "investment".

I don't need to keep repeating to myself that the value of my overpriced scary property is going to "flatten" at worst for the next 10 years, like some kind of mantra.

If that's your idea of "quality of life", then yeah, hurry up and lock it in before those interest rates go up.

And keep telling yourself that as interest rates rise, the price of property is going to rise too. Scare yourself so bad that you'll wrap any noose around your neck to buy into this housing market before it's too late.

And do all that with the backdrop of a crashing national housing market.

Anonymous said...

"My thinking is based on the idea that most people want to own a house eventually."

I don't disagree. Even so, it's completely irrational to undertake a lifetime of debt to afford a first home. And with the advent of 50-year mortgages and the like, that's exactly what people are doing.

"Most folks would rather own...they don't think of their home as an investment in the same way as stocks, etc."

Here, I disagree completely. If it's (arguably) irrational to undertake a lifetime of debt to purchase a home, one has to ask why people are doing it.

My answer is that naive investors, stung by the stock bubble of the late 90s, and lured by the siren call of cheap money ("creative" mortgages) see their homes as their nest-egg.

Joe and Jane Sixpack heard that the Joneses just sold their 1930's Craftsman (with 100 grand in deferred maintenance, but shiny new granite countertops!) for double/triple/qudruple their money, and therefore think it's reasonable to sink a half-million dollars into a questionable property. "After all," says Joe, "we're building equity!" Joe thinks he'll be able to sell for double/triple/quadruple his money, too.

"it's the Manhattanization of Seattle. In my grandparents time working class people could own their own house in Manhattan."

Are you kidding me? Manhattan has a total area of somewhere around 23 square miles. According to census data, it has a population of 1.54 million people, for a total population density of about 67,000 people per square mile. In 1920, it was far more crowded, with a population density of over 99,000 people per square mile (again, census data). If anything, the relative property values were worse in your grandparents' time.

This is all by way of illustrating the ridiculousness of the comparison: Seattle has a population density of about 6,700 people per square mile, with 270,000 housing units. Manhattan, in contrast, crams its 10-fold larger population into only 800,000 housing units: that's 10 times the population, in only 3 times the homes. And you think that dinky little Seattle is "Manhattanizing"? Get a grip.

I'll grant that Seattle is growing -- slowly -- at the moment, but there's simply no reasonable way that you can justify the 15%-30% year-over-year price increases in Seattle by drawing comparisons to Manhattan.

Anonymous said...

I'd rather invest in "quality of life" when the going rate gets cheaper.

Yes.
And anyone who doesn't think you can have "quality of life" simply because you are renting instead of "owning" really needs to get a serious meme-adjustment.

Anonymous said...

Hmm, re Seattle being the new Manhattan. All I can say is that in '89 my sister was offered her one bedroom on the Upper East side (3rd and 80th) for 30K (yes that's 30). Can you say desperate seller?

Friends bought an absolutely lovely 3 bed on York and 84th for a fraction of what it had cost the previous owners, like 140K or something.

If Manhattan can plummet I do believe Seattle can.

I also think, and maybe this is just my bias, but as far as American cities go, Manhattan is probably the ONLY one that is trully "special"- in that it is unique for what it is.

There are a LOT of people who, if they like living there, simply cannot thrive in any other American city.

Just about all other American cities, while each may have it's slight differences from the next, they are to some extent interchangeable.

So really and trully, if prices can drop in Manhattan (where they LITERALLY are not making any more land), then I am sure they can drop in Seattle, nice as Seattle may be.

Anonymous said...

Brings to mind exactly the cover of Harpers a few weeks back- the one with the man carrying a house on his back and title sthg. like "House Serf".

That cover was brilliant!
(Sad but brilliant)

I liked the truly poignant touch of the kitchen utensils hanging from the side of the house.

The article was cleverly titled 'The New Road to Serfdom' after 'The Road to Serfdom' by the late Nobel Prize winning philosper/economist F.A. Hayek.

Anonymous said...

meshugy said...
Especially in the core areas of N.Seattle which are gaining value due to higher gas prices/more expensive commutes.

I think the "gas price" issue is way overstated. If you drive 1200 miles a month (US average for a car) and get 20 miles per gallon, the cost of your monthly driving has only increased $90 over the past 3 years. $90/month is equivalent to about $13K on the purchase price of a home.

If you're paid $25/hr, the cost of commuting time is FAR greater than the price of the gas you burn during the commute. Commute time hasn't gone up all that much.

Anonymous said...

Add to that the fact that almost without exception everyone within the city limits owns and drives a car on a daily basis anyway simply because the public transport sucks so bad.

Anonymous said...

And we've got no intention of fixing that little white elephant in Seattle!

Boy have we made THAT clear for the past 30 years.

This is going to be a car city for ever. Whether you're driving from Snohomish to downtown or Alki to downtown, you're all on the roads baby in your own personal car.

Probably the only difference is, out in Snoho you've got garage to park in and less chance of it being stolen.

Sorry, the "don't need a car in-city" simply does not fly. Not in this town.

Anonymous said...

Again and again, I believe that Meshugy is a troll with a very narrow point of view and judgment. At this moment, he can still boast and taunt us “bubble” people because he still sees that the wind is still blowing in his way, like the strolls in Miami, San Diego, Las Vegas, etc. did last year. Most of them are quiet now and I believe that some of them flippers are feeling the heat now. In one of his previous post, he stated that he bought his condo out of desperation because he could not find a decent rental place, not because he thought about the pride of ownership… Now, he completely changed the tune…Oh man, oh man. What a pity…

biliruben said...

Man, Meshugy. It looks like you have a fan following you around. At least I can only assume it's the same anon every time.

Just because you disagree with him, doesn't make him a Troll, anon.

Anonymous said...

My wife and I moved here recently from California. Of course, I had been checking RE prices for many months before moving here and it was obvious this was another housing bubble economy.

We're currently renting a place downtown, in a safe area. It's a 2 bedroom with 1200 sq. feet on the 14th floor with amazing views of downtown and Mt. Rainier.

Granted, we're paying a little bit more than we have to, but we're enjoying a higher quality of life. This place would go for $850,000 easily, and with $150K down my payment would still be $2600 MORE per month (without taxes or improvements) at 7%.

In So. Cal, we rented a condo where comparables were running $600,000 for $1700/mo. Our landlord still had his mail delivered to the place. One day I held his monthly mortgage statement letter up to the light (couldn't help myself). To our delight, (no surprise) we found that HIS payment was $1400 more than our rent.

During my entire life I can't remember a time when it made sense to do rentals when they don't even come close to covering your nut.

But this guy was 22 (daddy's money) and a realtor.

He's got a lot to learn about life and investing evidently.

We can afford to buy in this market and pay $5,000/month or put $350,000 down.

But why? We are living well below our means now and enjoying a high quality of life. I can even paint my own walls.

For the first time in my life, renting is obviously better than buying. If I did own a house in this market, I would sell it immediately; cash out and start renting. Purchase BRK.B or BRK.A, wait it out until the fear and panic sets in... then be in a fantastic position to scoop up some amazing deals - with CASH.

SourMash said...

Sorry, the "don't need a car in-city" simply does not fly. Not in this town.

I commute to work every day by bus in the city. If there was a damn bike lane on the arterial between work and house I'd bike.

Our household has one car, and my wife uses it exclusively during the week.

The first two years we lived in Seattle we had no car.

It's possible. (But I agree it's unnecessarily difficult.)

Anonymous said...

My wife and I live in the city. We own one car, but we hardly ever use it as we both work downtown as well. We both can walk to work. If it's raining, we take the bus or a cab.

We use our car on the weekend, but that's about it.

I'm considering getting rid of it and trying that flexcar thing. Anyone have experience with that?

Anonymous said...

Sorry, apologists for Seattle's lousy bus system have no weight with me.

I've lived here for 17 years and do not own a car.

Public transport being what it is, you are basically reduced to walking around your neighbohood. Period.

People who happen to live on a bus line to downtown for work drive me nuts. they rave about the transport just because they can get from where they live to dwntn M-F from 8-5.

That is ALL the bus system in Seattle is good at or designed for.

Not a model of good, or even basically adequate public transport.

The fact that people will rush to defend this largely useless system is PROOF of why it will never develop into anything really useful. IMO

Anonymous said...

For the record, anon 5:59 is not the same as anon 10:29....

SourMash said...

Public transport being what it is, you are basically reduced to walking around your neighbohood. Period.

Point taken. I agree it mostly sucks and I wasn't defending its adequacy.

We need way more options for public transport to make this city livable for people who don't own cars.

Anon 10:19 said...

OK Sourmash, I forgive you!

Just never ever in any small way defend this lousy transport system again OK? LOL!

It's a bus to work and back for those who live on the busline and work downtown M-F, 8-5. If you work Sunday, you're screwed.

It makes me angry cuz this is a big enough town to warrant something decent.

PepeDaniels said...

meshugy said...
Bili and anon,
My thinking is based on the idea that most people want to own a house eventually. As I mentioned earlier, even though renting can be cheaper, usually there's a big trade off in quality of life. Most folks would rather own......


I gotta tell you people here this is the same line of thinking that happened a year ago in S. Florida. You could practically cut and paste the dialogue from threads dealing with S. Florida into these conversations adding name changes.......

South Florida's gonna hold, they stopped making land ya know(insert it's gator locked for Florida), Everyone from California's (insert NY) going to want to escape those higher prices etc. People from the NW will still find Seattle the best alternative etc. (insert Venezuela, Peru etc.) I would say the weather's so much better here except that's just not true.

The other thing that seems to go hand in hand with this cycle is conversion of apts. to condos. This starts driving prices of available rentals up (again same thing happened in Florida) Now, however, Florida is flattening to put it mildly. "Don't pack your bags just yet!" signs are appearing in apt. complexes in Florida as people were basically starting to say F-you, it's not that special here etc. and leaving.......

Wanna see Seattle in a year? Look at Florida over the last couple of years. It won't be exactly the same anywhere but the economic factors aren't that different.

Every board or thread related to RE in Florida has their meshugy posting as well.

Just my opinion.

sara said...

Pepe-

I am so glad we have somebody posting here who has been through the deja vu cycle.

Thankyou so much for your input.

Friends of mine were driven from their rental last Winter when it converted. They were pretty upset to have to move.

I told them, if it's any consolation, that guy is gonna be screwed when he tries to sell those places.

What is really amazing too is that, even in FLA , San Diego and AZ, etc, with inventories through the roof, there are still optimists who think this is a blip and everything will be ok in the end.

It is refreshing tho to hear some FLA realtors and others admitting in the past week that "it's over". Geez! Finally!!

AMAZING what it took for them to finally see that!

PepeDaniels said...

Sara said:It is refreshing tho to hear some FLA realtors and others admitting in the past week that "it's over". Geez! Finally!!

Yeah, I stay in contact with a former co-worker of mine there. Her husband was a pretty successful realtor there. It was all about how you had to "get into the market!", even though the prices were way over the wages people make there. She just admitted in an email last week that the condo unit they've had on the market since last Fall is......still on the market.

sara said...

So he's a realtor and even HE won't lower the price to sell the darn thing?!

It would be so interesting to find out what his reasonong is for that (unless it's strictly financial of course.)

But at some point, even if finances are stretched, you've got to sell before it gets even worse right?

It'll be fascinating to see how long sellers will hold out for an unreasonable price before they "break".

PepeDaniels said...

sara said...
So he's a realtor and even HE won't lower the price to sell the darn thing?!


Nope, probably advise other's it's time though!!!

RealtorRyan said...

I would like to point out that I did not say rents are going to experience a 200-300% increase. I said: "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." And this was in response to a reader who was considering buying a condo (so I assume he thought he could make the payment) and wondered if it was better to wait since his rent was so cheap right now. My point was that if he waited, the condo was likely to be higher as well.

Yes, the context is part of the meaning.

My advice and views on the rental market would be different if the reader's situation was different situation.

And Biliruben, please note that I said putting oneself in financial peril (like some folks are doing to get into a home) was NOT a good idea. Reaching a bit is necessary for many buyers to get into their first home.

marin_explorer said...

"...Before you know it, your payment starts to seem downright cheap when you see what your friends' newly inflated rent payments"

This has to be one of the most laughingly misleading bits of doublespeak I've ever read. "Dontcha know, house prices are realistic, so if you're still a renter, let me scare you into buying now. Otherwise, kiss your money goodbye" This little fabrication runs counter to expert opinion. Choose the scenario that makes the most sense.

cosmos said...

In response to meshugy's encouraging people to buy at the lower interest rates: Why don't you do the calculations first?

Here's an example -----

Current price: $410,000
Down pmt 10%: $41,000
Interest rate: 6%
Monthly pmt: $2212

Future price (est. 20% drop*): $328,000.
Down pmt: $41,000 (same as above)
Interest rate: 7%
Monthly pmt: $1909
Interest rate: 8%
Monthly pmt: $2105

* The Center for Economic & Policy Research estimates Seattle area home prices are inflated 34% above where they should be based on wage growth, population, etc. So my 20% is conservative.

Anonymous said...

Good info above post- thanks!

Re rents rising. If your landlord wants to raise your rent in Seattle, just tell them your moving. It works.

If they want to raise it for the whole bldg., get togethere with other tenants and if enough agree to move, invite the landlord over and, as a group tell him/her you are all moving because of the increase.

It works. Be civil about it but do it.