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.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.
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.
...
"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."
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% |
(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% |
39 comments:
Thanks Money Magazing, now they're going to drive all the idiot investors with their suicidal mortgages off the sinking ship of national RE and onto our listing dingy...
I guess a rising tide really does sink all boats
So much for the 'local market' phenomena that people tout when convenient, but shun when the news is 'rah, rah'....
Too bad the Fed has no intention of making this an easy go for the pedestrian suicidal investor.
I am so glad we debunked that stupid realtor-driven 10,000 Microsoft jobs rumor the other day on this forum.
Am also glad that the Seattle Times articles last Sunday, by their own admission, showed us that this regions' RE prices are already unaffordable, even to those with high-paying jobs.
Time for the lies to end and Puget Sound to get real.
We're going down, along with the rest of the country.
Buyer beware.
In the immortal words of Seattle's beloved defunct Soundgarden...
"...the wreck is going down, get out before you drown..."
Is the Sound Garden really defunct?
Sad sad sad...not a good sign for the city if that's true.
Forecast? What forecast? Just less than 3 weeks ago, these same guys predicted a whopping 1.9% appreciation for Seattle.
http://money.cnn.com/2006/02/03/real_estate/house_price_predictions_for_2006/index.htm
I wonder what has changed since then, may be they are fed by the realtor that MS is going to hire 10,000 employees next year!
Symptomatic of a crumbling market. During the run-up there was never any doubt where we were going: UP.
Now that it's turned, some weeks up. some weeks down.
some sources say up. some say down.
That's all I need to know. We're done for.
Sorry, the link did not work.
http://money.cnn.com/2006/02/03/real_estate/house_price_predictions_for_2006/index.htm
Someone asked where I got the MOM #s. It's all in the MLS data that Tim posted:
NWMLS King County Breakouts
Again, the #s are:
The MOM #s for Seattle are:
Seattle Median Price Res/Condo
April 06 - $410,000
March 06 - $407,000
Feb 06 - $380,000
Jan 06 - $376,995
Eric D.-
Was that 9.6 % Seattle drop back in the late 80's/early 90's or when?
Doesn't that seem like a big drop, considering that RE here was really pretty darn reasonable before '96 or so.
You're right, we may be looking at a substantial loss after this incredible appreciation.
got a question guys, what if this housing boom last another year? would you guys still think you're right for saying what you're saying now?
like I said before, I think everyone agrees this will end, but you guys are implying the balloon with explode within next few months.
Cnn/Money did some really scary RE articles a couple weeks back.
One was something like "Quick! Get Out!"
they've been trying to make up for it this week.
Probably had the NAR at their back with a pistol.
dalas...i think we have about 2 more years of moderate appreciation. Then it will probably go flat with some depreciation in less desirable areas. Slowly incomes will catch back up with inflated housing prices (hopefully!)
I knew the market couldn't sustain itself..but I bought last year anyway for no other reason then that interest rates were super low. We'll probably never see interest rates that low again...so I feel good about locking that in. We're now seeing the rates sky rocketing...I think by the end of the year it'll be hard to get a 30 year fixed for less then 7%. I don't think anyone is predicting rates to go down for a long time...
The risk is will housing prices hold? I think so....but the appreciation has to stop eventually.
'm
"Meshugy". Our new word for "optimism".
betamax, how can you use CA and FL as comparison.
It isn't an accurate prediction for WA, which had relatively modest gain compare to most places.
Betamax is absolutely right. No crystal balls needed. And you don't need to be a "bubble believer".
Just look at all the evidence that's coming in from all directions.
Bad loans, DOM's, price reductions, sales below asking, desperate realtors trolling bubble blogs, desperate homeowners trolling bubble blogs, lenders laid off, home builders stocks plummeting, 100K discounts on new homes, rising foreclosures, markets imploding, major networks warning about the bubble, I could go on and on.
But hey, if you want to believe everything's hunky dory with housing well, that's your perrogative!
And if you want to believe "it's different here", just do that.
And if you want to go out and buy a house in the midst of all this, just go ahead and do that.
Dalas. You are ridiculous if you seriously believe we've had modest price gains in Seattle.
Where do you live? Prices have doubled and tripled and in some cases quadrupled in the past several years.
You obviously do not know about normal RE apprecition rates.
Lordy, are you in for a surprise when they tumble. It's going to be lot farther than 9 % this time around.
I disagree that if it's that simple, then we won't need economist. Leveling off and dropping off is completely different, single digit appreciation for the next 10 years is very different than balloon imploding.
Everyone singing the same song, what fun is that?
It'll be funny to see you guys still crying "balloon" next year while the rate is hiking, price is steady and you're still renting.
another thing is, all the stories you read in Washington are about these people that are buying 400k houses with 5/1 I/O and 2nd heloc with 0 down.
How about thinking in terms of the abundance of nice houses in Seattle and Eastside that are easily 600k to 800k and plenty of them. You cannot qualify for these loans without stellar credit or strong employment for stated, not to mention the assets for seasoning. There are plenty of smart people in this area, while their investment decisions are up for debate, they are certainly no fools. This is not CA or FL, there are nice jumps in the last couple years, but these aren't insane jumps. Seattle has enough saavy investors and college graduates to let the housing price collapse without a fight.
Just a thought? I am leaning toward a cool down rather than an implosion.
you're funny dukes. you can rent forever and have plenty of money in the bank for all I care. but what does that have anything to do with what I am saying?
Looks like some people have been very taken in by the NAR "cooling" scenario.
Whatever, time will tell. Asset bubbles don't ever "cool" though, as far as I know. But maybe this will be a first!
Dukes, a poster at the REI site has accused you of being "brainwashed by the media" for suggesting that right now may be a bad time to be just getting started in flipping houses. Ha! Very funny.
As if the media has been "all over this story" from the start.
Dalas- Maybe you are not aware of this but Seattle is one of the high percentage places in the nation for "creative" loans.
In fact, that Seattle Times article last Sunday suggested using those loans as a wat to afford unaffordable homes.
So if you really believe that all these 600K houses in Seattle are being bought by people with "stellar credit", etc., maybe that is part of the reason you have so much (misplaced I think) faith in this market.
if the balloon doesn't implode this fall then I will keep on renting... and like duke said... we watch and we wait...
When I see the bubble pop, then I shall buy...
In this market at this point in time, there's still opportunity to make 10-20 percent on a house...
figure on a median house, that's 40-80K before carrying/closing costs...
On a 400K median house there is also an opportunity to lose 50% in a violent crash...
but let's be modest and say appreciation is zero...
the RE investor still has the 6% closing and the carrying cost to contend with...
So for the chance to make no money to 50K in exchange for sleepless nights and worry, I'll pass...
My biggest fear is not that I miss out on equity, I just hate to be upside down on a property... and it could happen...
Meshugy, I wish you all the best... it seems that you're a long term buyer if the interest rate is what made you buy.... in that case why worry...
in 10 years, your house will be worth more than you bought it for... just ignore the appraisals that show a downward trend in between...
it's the REI site
sorry dukes the Seattle REI site
Meshugy, I wish you all the best... it seems that you're a long term buyer if the interest rate is what made you buy.... in that case why worry...
in 10 years, your house will be worth more than you bought it for... just ignore the appraisals that show a downward trend in between...
Thanks Long term. Yes..that's the plan I'm on. The ultra low interest rate was what made it worth it.
However, there has also been huge appreciation since we bought last April. I live in Ballard. The MLS records show the median price of Ballard was 371K in April 2005. This April it shot up to 422K. So on paper we made 51K. I doubt any renters saved that much last year. But, I agree that there is a dark cloud hanging over that kind of appreciation. Some of that could get wiped away in coming years.
Well, I saw your reply Dukes. And of course, it was very reasoned.
But I think that with this bubble, we are out of the material realm and into the religious.
So what are ya gonna do? Only those of little faith can see all sides of the question...
You, Dukes, have been "brainwashed", but they are very clear-headed.
Nobody makes a profit on anything until they sell.
That's just one more fallacy of this whole stupid bubble that normally smart people have eaten right up.
And for God's sake don't take your "profit" and HELOC it out.
Then it's called DEBT.
We're gonna have to write up a whole new English dictionary in this country before this thing's over.
Doesn't any one here know that real estate will never fall in Seattle becuase it's different this time?
It's different this time because:
1) Never have we had so many suicidal loans and credit unworthy homeowners
2) Never have we had #1 with rising interest rates
3) Never have we had the average homeowner so cashed of of the equity in their homes, even if that equity has built up over many years
4) Never have we had such a low savings rate and homeowners so dependent on the equity in their home for retirement
5) Never have we had so much fraud in the mortgage business
6) Never have we had all of the above with a falling dollar, spiking commodities, and expesive oil which are all inflationary
7) Never has the world economy been so synchronized, raising the risks for a global financial crisis, ie, decrease in american consumption impacts Chinese GDP since China's growth is export driven, etc
Yeah, it IS different this time...
the problem is it is the differences that virtually assure a crisis of historical proportions. If it was just a "normal" real estate bear market, a local or multi-focal event in the absence of STRUCTURAL problems, then yeah, things in manyh areas would just go flat and the worst offenders would drop 10-20%. The problem here is that this is a national problem and the structural issues will likely precipitate a US and/or global recession of major proportions. Everyone's counting on nothing else going wrong! I guess most people were'nt alive or too young to remember what a real recession is like and/or have no concept of what happens when stagflation takes root. IF the things that ARE different this time didn't happen I don't think informed readers of this blog would be so negative.
for anybody planning to stay in their house for at least 5 years.. I wouldn't even bother looking at how much the house is worth until a year before selling... it will only make you happy (on paper) and sad (on paper) as things go up and down all the time....
and not to burst any other bubbles... but in my industry (health care)... jobs are super stable and between me and my wife, we are able to save more than 51K a year... they're just not liquid(taxed and pre-tax dollars)
Meshugy if you bought last year... then you're in very good shape... I wasn't ready to buy until this spring (thus my loss)...
Enjoy your home and avoid a HELOC at all costs...
Even if your house appreciates 100K next year, unless you move out of Seattle, you'll be paying more for a new home... in the end it doesn't really matter... until you sell
"Yeah, it IS different this time...
the problem is it is the differences that virtually assure a crisis of historical proportions."
While I think some good points are being made here about the unsustainability of the housing runups - I bought my house 3 years ago and I don't really believe that it's magically worth 150k more than it was when I bought it - some of the posts here (and especially on thehousingbubbleblog) sound very familiar.
I like reading the opinions of people who differ from me. I've read many blogs and forums that explained why the next great depression would be just around the corner, starting with the horrible Y2K problem. The main thing that happens in places like that is that people fight to make the problem as bad as possible. If Fred predicts a 25% drop, Sue has to tell him that he is being optimistic. An economic collapse would finally prove the rightness of their cause and give everyone a means to gloat over the people who don't act like them.
A drop in the prices of housing? Yeah I can see that. A crisis of historical proportions? That's a lot less likely. If the goal of the posters is to try to convince people, it's always best to under predict rather than to have to explain for the next twenty years why the collapse didn't happen.
One way that the drop in prices turns from "Oh well, can't win 'em all" to "crisis" is by encouraging more and more people to buy in at the top using risky loans.
that's why articles such as this Money/CNN article are pretty upsetting. they only encourage the nonsense to go far beyond what it would. Gets a few last suckers in the door.
there are a LOT of gullible people out there.
All you hear is creative funding, but I am sure most of you don't know the underwriting process behind it.
Yes there are shady loan officers out there to get these underqualified borrowers in an expensive house, but they are 99% brokers, which means they don't lend out their own money. Lenders have underwriters, and they are the ones underwriting these loans. You don't meet these people and they don't sell loans. To qualify for 600k loan amount with 0 down, you either have very good credit or at least strong job to support the stated income. Most lenders use salary.com as guideline, and yes they make exceptions, but if you have crappy credit history with no asset in the bank, chances are YOU won't qualify.
There are a lot more to getting a 5/1 interest-only loan with heloc 2nd than you think there is. Though most people probably are living beyond their means, these underwriters are still doing relatively good work.
What if you're an investor? If you have any mortgage on the credit report, they will most likely qualify this new purchase as investment home, which means higher rate, lower CLTV and more requirements. Such is the case it is difficult to accumulate bunch of houses if you have bad credit or weak employment.
There are too many educated and well off people in this area, this is why all the major lenders have wholesale offices in Seattle area, because it is the best place to lend and very low risk. You can do your check up on Seattle as far as lending practice goes, it is the best in the nation and lenders can do that because historically this has been a very lender-friendly place with low default rates. I just read about World Saving's parent company on Wallstreet journal, they have some amazingly low default rate, and if you're in the lending business you would know that World Savings does ONLY option arm. It was the article regarding Wachovia lookign to acquire its parent company.
Bottom line is this, if you're living in some crappy area and your neighborhood also appreciated because of everywhere else, chances are that is inflated and unlikely to sustain. But if you're living in Bellevue or some well off area, what's there to worry about? Your neighbors aren't going to default, and they certainly won't sell their ONLY home at below what they paid for without struggle.
Everyone knows that this is not the best time to invest in real estate, but what's the argument here? The argument is whether or not you should buy a house to LIVE in, this is why this blog was started in the first place. If you think renting is good, all the power to you, but like I said, if the bubble doesn't exist and the rate continue to climb, good luck renting for the next couple years or more.
Dalas- Interesting that you would choose to praise area lenders at a time when:
_Merit Financial in Kirkland hit the skids,
_Ameriquest closed ALL of it's Puget Sound offices (26 of them I believe?) and
_ WAMU has been letting people go.
anon,
You're referring to brokerage once again. Ameriquest is nationally renown broker for shady loans and fradulant loans. Yes Ameriquest owns some subsidiary that are lenders, but nevertheless they are being sued and the way they does business do not reflect the lenders here. Plus Ameriquest is nationwide and they are currently involved in plenty of lawsuits.
Merit follows the same practice as Ameriquest, let's just call it a wannabe. Seen the movie Boiler Room? Merit does something similar. Get a list of numbers, have a room of high school dropouts or college idiots, give them $10 bucks for every lead they generate off these numbers. Pass them on to the so-called "loan officers" who rarely have any experience and sits there running underwriting engines from subprime lenders. You are praised not for closing the most deals, but for closing the least deals with the biggest returns. They have another department within the building that does credit improvements, if they can't qualify them with these subprime lenders, they send it to this department and few months later they come back and qualify for these ridiculous cashout loans. Also read closely, they do 90+% of refinance, how does that have anything to with the "purchase" market in Seattle?
WAMU has been laying off people since 2004, not because they are downsizing due to slowing market. They laid off 7000 in 2004, that's before the market slowdown, so two has nothing to do with each other. The reason why WAMU is laying off people is because they are coming up with these origination systems that require less people. Each loan goes through 4-5 different hands at WAMU when many other wholesale lenders go through just one or two.
when I am referring to lenders, I am referring to wholesale lenders, which many of them do not hold on to and service their own loans. Thus if they have high default rates and investors are sending them back, they go bankrupt. WAMU is huge here, CWBC is huge here, Bank of America was up here then went down to Portland.
WAMU is one of the most conservative lenders out there, they've just recently offer alt-a loans on their prime side in 2006! So if you think default is high, why on earth would conservative lenders like WAMU go in alt-a market? Defaults lose money for lenders!
oh btw, I don't know the exact number, but I think Merit does more out of state busienss than in-state. they're just here doing business, but they're certainly not serving buyers here. they had a warehouse line where they can make more profits on the side. as far as actual prime lenders, they had less than a handful, and they are BROKERS!
Dalas-
i believe there was an area lender who used to comment on this blog who said that something like 70% of the loans issued in this area were of the "shaky" kind.
proof? don't get confused with subprime lenders, prime lenders and brokerages.
Your sidebar has dropped to the bottom of your blog... probably because someone has posted some really long links (in the comments, making the center column too wide. If you break the long links into two lines it should bring your sidebar back up where it belongs. -Carol
I too noticed the discrepancy in CNNMoney's numbers, and wrote to their managing editor for an explanation. I'll let you know if I get a reply. I've not seen any errata. At the very least, while searching for clues about the discrepancy, I found your blog.
Cheers,
Monte Hayward
rootlet.blogspot.com
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