Weekend Open Thread
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30 comments:
It's looking as though the fundamentals may be starting readjust. But not by lower home prices, but rather through rising rents. Several more years of rent increases could make actually make some of these high priced homes profitable as rentals.
As home prices cool, rents are heating up
Real-estate experts credit a strong economy, low unemployment, and sky-high home prices that have boxed out many would-be buyers. That's not to mention those who have decided to put off a purchase until the market cools off. "A year ago, people may have expected some upside in house prices, but now they're not so sure," says Sam Chandan, chief economist with REIS Inc., which tracks the national real-estate market. "So people are less willing to pay a premium to be a homeowner and more willing to rent."
Combine that with recent strong employment growth (which typically increases the number of renters), and it's easy to see why vacancy rates have plummeted.
Real-estate economists say the increase may actually be a good sign for home prices, which have risen in some areas to what many say are unsustainable levels. With monthly rents still well below what an equivalent property would cost in monthly mortgage payments, "increases in rental prices [combined with moderating real-estate prices] will help bridge the disconnect and firm up the fundamentals," REIS's Chandan says.
The latest from NAHB:
NAHB REPORTS WIDE STATE-BY-STATE VARIANCES IN LATEST HOUSING FORECASTS
Nationally, housing prices increased by 13.2 percent in 2005, with the strongest gains primarily in states along the East and West coasts. Much slower price increases are forecast nationally in both 2006 and 2007. While housing starts are expected to decline nationally, Idaho, North Carolina, Oklahoma, Washington and Wyoming are all expected to see their total starts increase in 2006.
Home Buyer Flips Property
Near Microsoft Campus
http://www.realestatejournal.com/columnists_com/investorprofiles/20060713-hodges.html
We were looking to buy a year ago and I certainly don't remember seeing houses in this area with asking prices around $266K.
Interesting article from the Washington Post about the effect of stagnant wages on home affordability for first-time buyers.
Also has commentary that the housing market has peaked in the DC-metro area: "He bought his rowhouse in Northeast Washington in 1999 for $139,000, but now comparable houses on his street are selling for $520,000 -- down from $580,000 at the peak of the market, but still very high, he said.
So, basically, even when prices drop, people still can't afford houses, yet they don't keep dropping to the price where everyone can afford them. The article describes this as putting houses "permanently out of reach" for a segment of the population.
That's certainly the way it works in Europe. Is that where we're headed?
I used to buy toys at this store for my son. Another victim of Ballard's prosperity:
Hot market burns local
The price of homes can also have an effect on commercial rates. The average retail space in Ballard is renting at $15 to $24 per square foot. Homes are selling at an average price of $375,000 to $450,000, which is reasonable compared to other Seattle neighborhoods, said Stamolis.
"They go hand in hand," he said. "Home and rental prices in Seattle parallel the price of commercial spaces. As residences get more expensive the businesses tend to cater to that."
Dennis Counts, the leasing agent for the Imagination Toys property, said housing prices have jumped fairly significantly in Ballard, changing the demographics of who moves in. This tends to reflect the types of businesses that open and close, he said.
"Ballard is the new Fremont," said Counts, who manages properties all over Seattle. "It's a terrific market right now. Ballard is no longer the end of the known universe."
jcricket-
Yes, that is where, I believe, we are headed. Nowhere is it written that houses must be affordable to the average wage earning/median family income/etc.
Hmm... hard to fit a word in edge-wise here in the with meshugy and his imaginary friend jcricke, buy to respond...
But what I find interesting here is that you're about as pedestrian an observer of statistics as the average-joe can get. You're looking at correlation and not statistical drivers, there's not a lot of substance in tracking day-to-day MLS listings. Things like foreclosure rates, default rates, etcetera are the real harbingers of a decline.
We've already discussed a significant reason for rising rents, limited apartments due to condo conversions. But if you look at this trend acrosss the country, you'll notice that cities that are about a year or two of Seattle in the bubble-cycle are already starting to revert from condo's back to apts.
Also, if people cannot afford houses, then housing prices MUST come down. People HAVE to sell houses on occasion and if no one buys, the price falls, it must, its economics.
Hmm... hard to fit a word in edge-wise here in the with meshugy and his imaginary friend jcricke, buy to respond...
Look, enough with the supposition that we're the same person. We're not.
For one, I don't look at the market and conclude the same thing as he does.
Two, I would never live in Ballard.
Also, if people cannot afford houses, then housing prices MUST come down. People HAVE to sell houses on occasion and if no one buys, the price falls, it must, its economics.
Only in your extreme example are you correct. No one is saying that if "no one can afford a house" housing prices won't drop. I'm just arguing that home price affordability is not the only factor in creating demand for housing.
Sure, if no one can afford houses, no one will buy them. But if only some can't afford them, and the region/city is a "desirable place to live", prices can still rise as wealthy people keep moving in, and everyone else (middle class, poor) move farther away. See Boston, NY, SF, LA and Washington, DC for examples of the long-term effects of this.
Supply and demand in the housing market is more complex than just the affordability aspect. It reminds me of the discussion of construction costs. Local demand (housing boom/bubble) and short-term spikes (Katrina) are only one factor in construction costs. Regulation, global demand, cost of fuel, etc. contribute equally (if not more) to construction costs. Thus you can't simplify things and say, "when the housing boom ends, construction costs will fall with it".
More evidence that not many condos are getting converted back into rentals in Seattle. There are still too many buyers out there in the current hot market:
Rents could fall as new condos become apartments
Not all renters will get a break. In Seattle, Philadelphia, Los Angeles and Portland, Ore., there's still a supply-demand balance for condos, Marcus & Millichap says.
Check out the article about flipping houses near MS.
The guy bought in Oct 05 for 266K and sold 6 months later for 416K.
This is why I think prices really could fall by 50%.
The gorging has been too fantastical to support long term.
Meshugy, the USA today article is a good example of bad journalism - they're taking 2 separate trends and trying to combine them into one.
The first trend is owners taking an ENTIRE building and converting it to or from condos to apartments.
The second trend is owners taking individual condo units and renting them out.
Clearly, in seattle the conversion trent is still leaning towards condos - but the question is what's happening to these condos once they are sold?
USA today threw out the 25%-40% figure which as far as I can tell is referring to the number of individual units owners choose to put back on the rental market. This is different than (but may include) the number of units developers have switched from condos into apartments.
Bank of England is saying British home prices could go down by 25%.
This is interesting because it's one of the European countries that is pointed out as having slowed in appreciation (soft landing) and then picked up again.
Kind of like the last refuge for RE bulls.
Tightening of world liquidity is going to kill all the RE markets.
The US just got it's timing right.
Link to the BoE article at Housing Panic.
Take a look at the Seattle PI RE blog. It's not surprising that a Loan Officer would come out and shill what have to be the worst sort of home loans ever invented. It's heartening that he at least has the honesty to admit they aren't for everybody, but I have to wonder if they're good even for the ultrawealthy.
Another poster (President of the Mortgage Brokers Association for Responsible Lending) has an interesting post on stated loans. If the mortgage industry is starting to question these exotic, fraudulent loans, perhaps a round of credit tightening is coming soon.
Plymster-
Thanks for the link re stated income loans.
It's exactly the kind of info I've been watching for.
Thankyou for visiting the blog!
And yes, rules need to be enforced to be worth the paper they are written on.
I'll be emailing you for sure.
You might want to put the above letter on "thehousingbubbleblog" site. It gets a ton of readers, more everyday, all of whom are eagerly awaiting a crackdown on the insane lending practises.
Today an "under construction" building burned down in Wallingford. And caught 2 buildings next to it.
Yeah, maybe it was some eco- nut.
But from here on in, I hope the Fire Dept does some serious digging into the loan history and finacial health of these people whose buildings burn.
That would be a great place to start the research.
From my weekly inventory spreadsheet
Date King Co
7-May 7302
15-May 7486
21-May 7665
11-Jun 8099
18-Jun 8154
24-Jun 8352
1-Jul 8417
8-Jul 8758
15-Jul 9057
A 24% increase in inventory during the summer buying season. Must be a lot of buyers.....
BTW...I have often wondered about how much of the recent runup in prices has been done by flippers. I picked 10 homes on the Glover site and EXACTLY half of them were bought within the last 4 years and were now for sale for 150K to 200K more than 4 years ago. While I cannot prove conclusively that these are flippers, I suspect they are. And if my random sample is anywhere close, then the amount of speculation in the Seattle market has been HUGE.
Prices in Seattle have peaked this summer (thanx to CA equity locusts), inventory is building, and Seattle will follow the rest of the country down (with a lag of about a half a year).
Hey Seattle Moose- How about sharing your weekly inventory,etc. with us a little more often?
It's exact;ly the kind of info this blog needs.
Thanks for the observations on flipping too.
The source of Meshugy's first post is Reis. I copied the following from their website (quotes are mine)
Welcome to Reis, Inc., for more than twenty-five years the nation's most trusted provider of "impartial" commercial real estate performance information and analysis at the metro (city), submarket (neighborhood) and property level.
More than 10,000 Commercial Real Estate professionals at more than 500 institutions -- banks, lenders, investment banks, insurance companies, brokerage firms, investors, and developers -- enjoy unrivaled Reis coverage of 80 U.S. metropolitan areas and more than 2,300 submarkets for the office, apartment, retail, and industrial sectors
ahem...I humbly submit that when Reis says they are "impartial" one only has to examine the list of all the organizations who support them. It is not exactly rocket science to see that they are in fact heavily compromised and most probably are just a RE industry mouthpiece.
So what did you expect the "industry" to say...rents are gonna go down?
An interesting article in NewYork Times.
http://www.nytimes.com/2006/07/15/business/15money.html
From my weekly inventory spreadsheet
Date King Co
7-May 7302
15-May 7486
21-May 7665
11-Jun 8099
18-Jun 8154
24-Jun 8352
1-Jul 8417
8-Jul 8758
15-Jul 9057
Moose, your #s don't match the MLS. MLS shows only 6,857 houses in June. Your #s seem way off.
We are still over 50% below normal inventory so we won't see any price declines until inventory more then doubles.
Mesh -
are you are referring to sold price declines?
Because if you are referring to asking price declines, it's happening all the time, including builders.
Meshugy said
"Your #s seem way off."
Fair enough, seeing as I did not explain what I was posting.
Let me be more precise.
I track listings for house/condos/land in King co off the Bob Glover website. I track everything because I want the big picture trend analysis. Condos are gonna play a big role in the meltdown as well as SFHs.
I plan to post my spreadsheet number once a week to show the overall trend.
I track King, Snohomish, Pierce, and Whatcom counties but I will probably only post King unless reqested to add the others.
I track listings for house/condos/land in King co off the Bob Glover website.
I've noticed that you'll get widely varying results depending on what real estate site you use to check the MLS. For example, today Windereme shows 8,635 houses for sale while Zip shows 8,115. Not sure how to account for that difference...but I guess if you're comparing #s only from one site you'll get an indication of a trend. Problem is when you compare to other records, like the official NWMLS reports which always seem to be much lower.
are you are referring to sold price declines?
Sold prices are up about 15%YOY in June.
Has anyone been tracking foreclosures and/or have historical data for King County? Foreclosure.com has 3272 listed (minus FSBO) but I have no idea how that trends or if that is a good source.
So I was driving back from the North Cascades Highway last night, via the scenic route of SR-530, and had forgotten the huge new development at French Creek Road west of Darrington, where they cut down a huge swatch of perfectly nice forest and are replacing it with McMansions. This will accompany a similar development a little farther west from a few years ago.
My question is, who is living in these houses? Surely they aren't communting from Darrington to the metro. Even communiting to Everett would be a very long drive. I find it hard to believe there's enough work in Darrington or surrounding areas to support the salary for these houses.
That leaves rich retirees then? If so, why on earth would someone want to move out of the city or burbs into a country version of the same thing -- a McMansion development? If you want to move to the country, get a house in the country. Don't just replicate what you moved away from.
I'm crious to see how many of these houses in the French Creek area actually sell. They went up very fast, so I can't imagine the quality is that good. The view of the clearcut land can't be very appealing either.
Home Pricing Squeeze article on the Times. A couple of choice quotes:
[If] you look at census data, house prices in Seattle have grown faster than the national average for 50 years, from 1950 to 2000."
and
"In superstar markets, including Seattle, you can tie the price of housing to the incomes of the wealthiest Americans — not just the people who live in those cities right now," he said.
That's his hypothesis, anyway. Ties in with the comments that 30% of the recent buyers at Cal "refugees" as some others have posted. Certainly if California cratered there might be less of these buyers who are so "equity rich". Or, perhaps, more people will get out of CA because it's nicer to live here, even if the equity is a trade "sideways". We have lower all-around tax burdens, less humidity, etc.
Dunno.
Here is quote from a May/05 Seattle Times article (click webpage URL). It is even worse now as prices have risen significantly since "last year" when these numbers were computed.
Quote from article....
"Here's the minimum household income you needed to buy a median-priced home last year in these areas, assuming a 20 percent down payment and a 30-year fixed-rate mortgage at 5.87 percent (the national average for 2005).
Queen Anne: $135,309
Central Bellevue: $129,406
Green Lake: $107,838
W. West Seattle: $104,421
Lake Sammamish: $104,206
East Ballard, Bothell, Central Area: $90,811
Lake City, Beacon Hill: $76,281
Source: Seattle Times analysis of King County assessor's data
Justin Mayo"
end of article quote....
Just to reiterate:
1) These hypothetical incomes were based on 2005 RE prices. 2006 prices are significantly higher
2) Interest rates were based on 2005 interest rates, 2006 is significantly higher.
Conclusion: Yes, house prices were disconnected from affordability in 2005, but it is even more so in 2006.
Take away the flippers with their suicide loans and the CA equity locusts and you have.....real people whose median salary (KingCo) is about $58K and whose salaries for all practical purposes, have not moved since last year.
No bubble here folks...says the ostrich.
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