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Friday, May 26, 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)

8 comments:

seattle price drop said...

Mr. Cagan is a nincompoop. OMG how can anyone who puts Phoenix in the "not correcting" category be taken seriously AT ALL?

The fact that he's got Seattle in the same category as Phoenix gives me great hope that we are indeed in for a massive correction.

BTW the Minneapolis market has been tanking since last Fall too, and I hear Chicago is starting to suffer.

biliruben said...

If you read the study:
http://www.firstamres.com/pdf/May18%202006_%20Cagan%20CYCLE%20PAPER_FINAL.pdf it's pretty much a bunch of nonesense.

He arbitrarily decideds to start his trend lines at 1988, ignores inventory, interest rates, inflation and common sense.

This annual appreciation numbers rely dramatically on the start year. As Shiller showed, if you decide to start at the beginning of the century the trend line is virtually flat - housing prices don't increase except to keep pace with inflation.

They pay this guy for this?

OT: is ther a way to insert links and pics in the comments, Tim?

The Tim said...

Links yes, pictures no.

To make a link in a comment, type <a href="http://yourlinkhere.com">here is my link</a>

It will come out looking like this: here is my link

So the code for that link you put could look like this:

If you read <a href="http://www.firstamres.com/pdf/May18%202006_%20Cagan%20CYCLE%20PAPER_FINAL.pdf">the study</a>, it's pretty much...

looks like:

If you read the study, it's pretty much...

S-Crow said...

One of the best commentary's of market shifts (boom to bust) I've come across in many months. Factual & insightful. From an insider/investor active in the market, for the long term.

seattle price drop said...

Great article S Crow.

Comprehensive description of what has happened, is happening and will happen.

Anyone who is wondering about why so many believe RE is through for a while, should give it a read. It'll explain the reasoning in one easy read.

thanks for the link.

Eleua said...

s-crow,

That was a great article.

I think he is too optimistic, as he did not address tougher lending standards, although he considered the atrophy of the REIC, fear, foreclosure, and higher rates.

When we get higher lending standards, many people just will not be eligible for mortgage debt. Today's high rollers will be on tomorrow's black list. I am wondering how anyone could come up with 20% down, if there was no equity to transport.

The return trip will be awe inspiring, to put it mildly. Unfortunately, the US banking system is riding on the RE boom. A bust in the RE market will cause a near-death experience for the US banking system.

Mortgage borrowers of tomorrow will feel like they just got a prostate exam with a beach umbrella.

Anonymous said...

eleua- you are too much

Anonymous said...

and I mean that not in a bad way-