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Saturday, June 03, 2006

Ask The So-Called Expert

Spotted this one over at Ben Jones' wonderful Housing Bubble Blog:

Question: I'm remodeling a rental home that I plan to sell, but I'm worried that the housing market might go bust before I finish the renovations. Someone suggested I put it on the market before it's finished, but I'm not sure this is a good idea. What do you think?

- Arlene Sund, Seattle, Washington

Answer: I don't think there's any doubt that housing prices have begun to cool down after their torrid run of the past five years. Recent stats from the National Association of Realtors show that the median price for a single-family home in the U.S. fell about 3 percent between the end of last year and the first quarter of this year.

That doesn't mean prices have fallen everywhere. Indeed, they're still rising in many parts of the country, even if not quite as robustly as they were before.

And what really matters is what's going on in your area. So you'll not only want to check out price trends in your city, which you can do by clicking here, but your neighborhood as well, in which case talking to local realtors is probably your best bet.

Aside from getting info about whether selling prices have been trending up or down, you'll want to ask local agents whether the inventory of unsold homes increasing, the number of weeks listings spend on the market before selling is on the rise and whether sellers are having to make price cuts and other concessions to sell.
So, according to this "expert," the best possible resource out there to gauge the direction of your local market is the National Association of Realtors? I find that advice to be questionable at best. I think Arlene would get a much more complete picture if she were to consult... oh, I don't know... maybe this blog? Sure, I'm biased, but I post on all the local market news, I don't just cherry-pick data that supports my bottom line (maybe because I don't have one).

(Walter Updegrave,, 06.02.2006)


S-Crow said...

Overall location and in particular, the micro neighborhood of the subject property is one of the more important aspects to obtaining a quicker than average selling time. I don't think Arlene will have any problem selling her rental if she prices the home well and it's in a sought after area.

Sure, real estate sales activity is more robust in Spring/Summer time than, say, after Thanksgiving. Sellers should watch inventory levels closely and keep a keen eye on our rising interest rate environment, which will influence the urgency of buying activity. But as of now, many homes (in good shape) in the N. and N.W. addresses of Seattle are moving quite well, particularly those under $500K.

There are price reductions occuring, which is something that was essentially absent only a short two to three quarters ago.

S-Crow said...

Further North in my neck of the woods in Snohomish County....

I had a great conversation with the superintendant for Harbour Homes while we were both waiting (almost 2 hrs..grrr) for building permit issues.

They are still quite bullish on the local market. Say's they can't build homes fast enough. They are just opening a new development called "Hill Top" this weekend. It is a 55 home community near Mill Creek. and they have already sold 16.

Anonymous said...

Insights from Paul Kasriel, chief economist of Northern Trust - housing affordability now at 15 year low at a time when housing prices are at 5.9 times median household income vs 2.7 15 years ago - WOW!

Housing Affordability Drops

"The National Association of Realtors released its monthly housing affordability index today. The April reading dropped 3.3 points from March to a level of 108.6 - the lowest since July 1990. Although rising interest rates have played a role in recent months making housing less affordable, it certainly is not the level of interest rates that has brought the April affordability index down to 1990 levels. In April 2006, the commitment rate on a 30-year fixed mortgage was 6.51%; in July 1990, the commitment rate was 10.04%. In April 2006, the median price of an existing single-family home was 5.9 times the median family income; in 1990, it was 2.7 times the median family income. So, the run-up in real estate values relative to income to record highs is the driving force behind the sharp decline in housing affordability. Interest rates are unlikely to plunge in the near term. So, either median family incomes have to rise rapidly or housing prices have to fall rapidly to make housing more affordable again. Although I am not predicting a rapid fall in home prices, I do believe that there is a better chance that home prices will be the factor improving the affordability of housing in the next couple of years rather than rising median family incomes."

synthetik said...

From what I can tell, Seattle will be NO DIFFERENT than other bubble markets around the country. We're just a bit behind here.

We'll probably coast along with 5-8% appreciation through 2006, then have a flat first 4-6 months of 2007 (denial phase). After that, hold on for the ride of your life.

Keep dreaming if you think this will be anything but ugly.

meshugy said...

We'll probably coast along with 5-8% appreciation through 2006, then have a flat first 4-6 months of 2007 (denial phase). After that, hold on for the ride of your life.

That might happen...but it's worth noting that King County had a whopping 17% YOY appreciation last month. We'd have to come down a lot to even get to 8%.


Anonymous said...

How to lowball a seller...

1. Put out lowball offers on multiple homes. If one bites you're ready to start dealing. Chances are if you put in a lowball offer all sellers will return with a number they feel comfortable with. (Which probably won't be close to your price) When they do show them what their neighbor is willing to sell for. There's a good chance when they see the neighbors number they'll try to go lower. This is the reverse of a bidding war. ;-)

2. The second way to lowball a seller requires two buyers working together. The buyer that does not want the house to be lowballed submits a REALLY low offer. What this does is shock the seller into a new realty of what their house is worth. If the seller accepts the offer you "gracefully" try to bow out but, while doing so have buyer number two submit an offer at the same price. The seller will forget about buyer one and sell to buyer two. If the owners don't accept the offer you play with them a little then get out. At this point you "softened" the seller up to accepting a lower offer. This is where buyer two comes in knowing how low the seller will go. ;-)

*The second technique is something only buyers can do together (not agents) and it won't make friends if people find out about what your doing. So don't ever tell people how you got the house for the price you did.

Anonymous said...

Yep, when there is just one even semi negative posting about real estate what happens???

Well, it is MeshugyClause to the rescue. Santa...I mean Meshugy is summering in Ballard, he is the patron saint of the "all is well" crowd.

Each time someone with a brain mentions the obvious, like: Seattle isn't immune to the slowdown that the ENTIRE US is feeling...we have MeshugyClause to the rescue.

He brings glad tidings of real estate appreciating at 17%/month...gee...what is that per year??? Only 204%....WOW we will all be rich.

Run out to stink hole Ballard with 1940-1950 ugly brick pieces of Sh#$ and have a ball everyone. MeshugyClause says it will be a stretch for things to turn around.

This troll should be banned.

Anonymous said...

My bad, not 17%/month, but YOY...that explains it all.

Let's see take 72, divide it by 17 and what do we get? 4.2 years. So, according to the Rule of 72 MeshugyClauses' POS should be doubling in 4.2 years.

Let me see, people in Seattle can't afford to buy homes now. Rates have risen, sales are slowing, wages haven't risen.

Just who does MeshugyClause think will be buying 800K homes in Ballard?

jj said...

Anon 4:43-

thanks for the lowballing tips.

Buyers are going to have to be smart now. No thanks to overpaying for a home that will be depreciating in value for God knows how long.

What was fair on the way up- bidding up- will be fair on the way down- bidding down.

And we've all heard the stories of sleazy lies to get people thinking they were bidding up against other buyers during the run up.

So I see nothing wrong with a bit of falsity on the way down.

Anonymous said...

I feel exactly the same. Meshugy is a blatant troll – He should join the Dunn’s blog instead. Whenever there is a good post showing housing in trouble, he came up with some haphazard story to cheer up the bull crowd. For example, like UCLA Anderson video – Everyone in CA knows that Chris Thornberg is a big housing bear for quite some time and for some (political/financial??) reason, did not want to be too negative in the speech. A good critic of this speech could be found here:

Currently, the main debate in the circle of economists, bankers, fed officials, … is how much and how fast the housing bubble is going to decelerate… In the mean time, Meshugy keeps on praying and hoping that there is a constant supply of fools and suckers to continue to pop up his golden ballard area so that in the case of a correction, he still come out positive…

sue said...

jj & Anon 4:43-

Agree completely, hard ball on the way up, hard ball on the way down.

The market was driven up by buyers. It can be taken down by buyers.

Why pay too much?

Silly to drive to Walmart to get 50 cents off for a pair of socks and then overpay by 100's of thousands of dollars for a home.

PepeDaniels said...

synthetik said...
From what I can tell, Seattle will be NO DIFFERENT than other bubble markets around the country. We're just a bit behind here.

You are on the money with this. As I (and others) have said in other threads, it's just behind the curve here time wise. The stories in other parts of the country were the same as what you're hearing here before the slow down.

All of the factors that are cited by others that can have an effect on housing will have some bearing on the market here.

For example,rising oil prices will affect people's budgets - even the ones who bought during the most unnaffordable period in history, even the ones who bought with ARMS and yes, even those who bought in Seattle. These are large market forces not just the local cheese wiz factory laying off people.

Every region has some variation that's hard to predict but to think that San Diego might reasonably see a %30 downward adjustment while Seattle appreciates at %9 or something seems nutty to me.

Anonymous said...

That might happen...but it's worth noting that King County had a whopping 17% YOY appreciation last month. We'd have to come down a lot to even get to 8%.

For most of your posts, I was never sure if you were trolling, but this one is obvious.

17% yoy is 1.3% per month. We'd only need to drop to .7% monthly appreciation to get down to 8% yoy.

Likewise, projecting yearly growth based on one months data is nonsensical. More so since housing is seasonal.

Anonymous said...

Look everybody, let's just accept the fact that Meshugy is right.

RE is going down everywhere in the US except Seattle.

Seattle will be the ONLY area where RE will continue to apppreciate.

Other areas will have short sales, foreclosures, YOY falls. But Seattle will not.

We don't know WHY Seattle will be spared the biggest downturn in history as the rest of the country goes off the cliff.

But Seattle will be spared.

And even if, by some horrible turn of events, the Seattle area does join in in the downturn, we all know that Ballard, the jewel of Seattle, will be safe.

There simply is no such thing as depreciating RE in Ballard. It cannot happen. It will not happen.

And even if Ballard goes down, M's house will not depreciate. It cannot happen. It will not happen.

All of Ballard could go down, but M's house will not. It cannot happen. It will not happen.

The neighbors on both sides will live in 200K homes, but M's home will be 450K this year, 500 K next 600K by 2008, one million by 2010.

He will be living in the most expensive house in the US.

It's gonna be a marvel, a miracle. People will come from all over to see "the house that never depreciated".

Anonymous said...

I like Meshugy, and despise the rest of you who would prefer to censor viewpoints you don't agree with. But Meshugy, you are wrong to suggest that a 17% appreciation rate from May 05-May 06 makes it very difficult to fall to 8% for the calendar year 06. A good chunk of that 17% appreciation took place May 05-Dec 05.

Anonymous said...

Thanks Anon for the clarification. Do not dislike Meshugy per se. Just that his "info" is very skewed, precisely what a mindless RE booster would provide.

17% May '05- Dec '05 is very different from 17% May '05- May '06.

M's much like a typical RE agent in that way.

Which is , I suppose why he is considered by many to be a troll and a nuisance.

meshugy said...

I took a look at the median condo/res prices for king county going back a year:

Apr $377
Mar $365
Feb $344
Jan $352
Dec $355
Nov $350
Oct $355
Sep $349
Aug $349
Jul $340
Jun $355
May $329
Apr $322

What you see is a big increase last Spring, then the median price floated around $350 till Feb. which saw a slight drop. Then we see another big increase this Spring. So it seems like a lot the appreciation did actually happen during the last few months. The rest happened in Spring 05.


Anonymous said...

Meshugy = troll, no two ways about it.

As for the person who despises what some say to Meshugy...who cares...Meshugy's eat crow time will come.

PepeDaniels said...

Anonymous said...
I like Meshugy, and despise the rest of you who would prefer to censor viewpoints you don't agree with.

Nobody's been censored - M posts regularly. I think people are saying that sending out simple blips of info in contrast to bigger more complex signs gets a bit annoying is all.....just my thoughts.

Lake Hills Renter said...

This is apparently the pro/con Meshugy thread, so this may seem off topic. =)

I drove through Maple Valley yesterday on the way to Rainier for the first time in quite a while and I was astounded at the number of new subdivions being built in the south side of town. I can't believe the Maple Valley residents are buying all these houses. Is the commute to Seattle and/or the eastside that easy from there, or are these all just speculator homes? There had to be at least three or four completely new subdivisions in various state of construction. One very large one was fenced off but most lots hadn't started building yet. It will be interesting to see if these houses ever get built, and how they sell.

cosmos said...

Prices of homes are not a predictor of the future. Prices are the current culmination of supply and demand. Demand is affected by a number of factors:
(1) HARD DATA: population; job growth/loss in an area; interest rates; incomes; prices; etc.
(2) PSYCHOLOGY (the factor behind "momentum.")

In a typical economic market, as prices go up, demand goes down - this is called an inverse correlation. In a speculative market (i.e. gambling), all other things being equal, as prices go up, demand goes up; this is what is meant by "momentum." At some point the tide turns, and "momentum" swings the other way. Why and when this happens is one of the hardest things to accurately predict - it's a 100th monkey type of situation. To the degree a market (in this case, housing) is inflated due to speculative influences, to a similar degree it will fall.

If you want to know what the future holds for the housing market, don't look to prices. "Economists scan the horizon from a distance, looking for changes in a city's housing supply and demand. On the supply side, they look at such factors as housing permits (the number of new homes builders say they will create), starts (homes they are beginning to build), closed sales, pending sales (signed contracts), pre-sales (homes sold before a building gets a certificate of occupancy) and inventory (how many homes are available for sale). To gauge demand, they look at job growth, unemployment rates, household formation, in-migration and out-migration (how many people are moving in or out of the area), the number of investors, mortgage applications and the length of time homes are on the market." -- from "Timing the Market for a Condo Purchase" by June Fletcher in the Wall Street Journal's Real Estate Journal, Sept. 2, 2005.

According to analysts at HSBC (one of the largest financial and banking institutions in the world), Seattle's housing prices are estimated to be 34% inflated over normal market prices (i.e. 34% of the pricing is speculative). Here's a link to their report:

cosmos said...

Sorry the link in my post above was truncated. Here is the full link to HSBC report:

(You'll need to type it in as I had to add a space in order for the full link to show in the blog.)

Jackson Wallace said...

For people interested in the macroeconomics that can affect
everything and everyone, including Seattle, look at
Mish's Global Economic Analysis blog.

There you will find educated analysis about the end of global
liquidity, meaning the end of the lending freeforall that started
this insanity in the first place.

Unforuntately, Seattle was still a deal compared to CA only
five years ago, so maybe our pirces will just stay static
if we have steady inflowds of people from other parts of
the country that are sucking up a storm. Whatever happens,
2001-2003 was still a golden times with low rates and average
prices. I'd love to see circumstances return to that point in time,
but pigs dont grow wings. Anything that brings massive price
declines will hurt bad in other ways, so be careful what you wish for.

biliruben said...

Jackson Wallace - I agree Mish's blog is a must-read. I've been reading his contrarian viewpoint for 10 years. Previously he was the anti-Meshugy over at the Fool's boards, touting a crash in the Naz in the late 90s.

He, however, is a deflationary bear, which makes him a contrarian among contrarians. Most bears are hyper-inflationary bears.

He thinks that the economy will grow so unstable that the Fed will have to choose between two evils: hyper-inflation or deflation. They choose deflation because that's the only way they can stay in the game.

I don't quite get why he doesn't think the Fed can just continue to walk their tight-rope like they have, but can you imagine all this debt-load homeowners have taken on, and house is actually declining in value as the dollar becomes more valuable?


This troll should be banned.

Lighten up, Francis.