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Tuesday, August 08, 2006

Even Inman Acknowledges Seattle Slowdown

You know the signs of a slowdown in Seattle must be reaching critical mass when even Inman News is unable to ignore it. (Article becomes subscription-only after today.)

Home sales in western Washington fell for the fifth straight month in July, as year-over-year prices continued their impressive double-digit growth, according to the latest report from the Northwest Multiple Listing Service.

Brokers reported 8,496 sales last month, down 15 percent from a year earlier when 9,999 sales were recorded, according to MLS statistics. Realtors report that the consistently rising inventory has been a major factor in the sales slowdown.

Area-wide there are about 9,000 more listings now than at this time a year ago, NWMLS reported.
...
Although both prices and inventory are up compared to a year ago, J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, emphasized the importance of keeping those figures in perspective.

"One year ago, King County (Seattle) had only 1.7 months supply of housing inventory available; today we have approximately 2.3 months of available inventory," Scott said. "While this represents an increase, we are still well below the national average of five to six months. This is especially true in the markets close to the job centers where competition and demand for homes are still strong, causing prices to continue to appreciate at a steady pace."

D'Ann Jackson, president of the Seattle-King County Association of Realtors and the broker at John L. Scott's Mercer Island office, expects the market will continue to level out. Commenting on the slower sales, she said, "I think buyers who entered the market a little later this spring either bought already or got frustrated with the lack of inventory and multiple offers." Move-up buyers are having difficulty finding the right properties, she observed, noting some are spending more to get "at best something comparable," and others may be waiting until after vacation to resume their search.
Of course, they still managed to slip in a few of the usual qualifiers. I love how they try to explain fewer sales than a year ago by saying that buyers are "frustrated with the lack of inventory," which happens to be significantly higher than it was last year. Also, I wonder if Mr. Scott will ever get tired of the "strong demand around the job centers" line that he's been using rather frequently since May. I know the news outlets won't get tired of quoting it.

Anyway, nobody worry. Our inventory is still "well below the national average," and we're just "leveling out." Sales will pick back up when buyers get back from vacation, or recover from the heatwave... or... something.

(Inman News, 08.08.2006)
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37 comments:

meshugy said...

Anyway, nobody worry. Our inventory is still "well below the national average," and we're just "leveling out." Sales will pick back up when buyers get back from vacation, or recover from the heatwave... or... something.

Hi Tim..if these things aren't true, then what is your assessment? What does the slower sales and higher inventory of July really mean?

matt said...

Came across this map on Zillow, not sure if anyone's seen it yet, but it captures the $$/sq-ft map really well... Also interesting to see how other parts of the country stack up...

Anonymous said...

I checked out the heat maps of other cities. We aren't even close to nose bleed level. Still too much green and blue.

ks_kitsap said...

"Home sales in western Washington fell for the fifth straight month in July"

Huh...is that normal? No worries, because:

"...we are still well below the national average of five to six months"

How does that matter locally? Oh, yeah: Seattle is "less worse" than elsewhere.

Anonymous said...

"I checked out the heat maps of other cities. We aren't even close to nose bleed level. Still too much green and blue."

It doesn't matter what the prices are in other cities. It matters what the prices were in this city, last year (or the year before that, or two years ago, or....)

Said like Mom would say it: If other cities jumped off a bridge, would you jump too?

Anonymous said...

WOW

"In King County, for example, only about 7 percent of the current offerings of single family homes is priced under $300,000: "

Dukes said...

Meshugy, what do you think the "slower sales and higher inventory of July" means?

I am curious as you seem to be the #1 skirt and pompom carrier here.

To me, it is quite obvious. To most, I think it is quite obvious, to you...I am not so sure.

meshugy said...

Meshugy, what do you think the "slower sales and higher inventory of July" means?

Most likely a transition to a balanced market...at worst a flat market. Outlying areas may see bigger drops if things get worse. I think the worst the core areas of Seattle will see is flat appreciation. Some over zealous speculators will get burned...but your average homeowner won't notice much.

Anonymous said...

"Most likely a transition to a balanced market...at worst a flat market. Outlying areas may see bigger drops if things get worse. I think the worst the core areas of Seattle will see is flat appreciation. "

"flat appreciation" sounds like an oxymoron to me. LOL

Anonymous said...

I think the worst the core areas (i.e. Ballard) of Seattle will see is flat appreciation.

Meshugy is as predictable as the rain. A real Liarreah protege....

"flat appreciation"....classic!

Dukes said...

Meshugy, why do you think that we will not go into outright price declines in Seattle as we are now seeing in other areas?

If supply continues to increase and sales continue to decrease - is that not the text book definition of a scenario to see lower prices?

seattle price drop said...

Today the weather's pretty darn cool again. Sales will probably skyrocket from here on in.

My favorite:

last month, sales were slow because inventory was tight.

this month, sales are slow because there's too much inventory.

whatever, nothing they say makes any sense at all if you try to parse it out logically.

Dukes said...

That is true spd, nothing makes sense when you parse it out.

The foundation of our economic "expansion" was built entirely on easy credit and a willingness to speculate and borrow.

This behavior comes to an end, the party ends, it happens in all investment cycles in every asset class (yes, housing IS an asset class). The hangover from this will be quite bad and we have ringside seats.

Recommendation: stay liquid, short if you understand how - do NOT short if you don't understand how, choose some decent metals stocks because with the pause in rates there is no more impetus for traders to support the US$.

synthetik said...

liquid in 2006=better sleep at night

liquid in 2007=making some incredible value buys

synthetik said...

I can't wait to buy a house in ballard! I might even paint the exterior and MOW my own lawn, unlike my future neighbors evidently....

seattle price drop said...

Speaking of a credit crunch, there was a link on thehousingbubleblog today about MBS's having to be bought back.

Somebody explained that there's a one year guarantee on these junky loans that if they go into default the buyer can return them to the original seller.

So a bunch of them are heading back our way again.

I don't know if this is the first in a long string of what's to come. But it's the first I've heard about it happening and the timing is interesting, considering the one year provision. ie. the top of the market was a year ago this August/Fall in a lot of places so more defaults showing up, hence loans being returned to sender.

This is what I've been waiting for: the secondary buyers saying "No Thanks" to these risky mortgages leading to US banks having to be personally responsible for the loans they make, leading to a total credit crunch.

Thoughts or information anyone?

Dukes said...

spd, I can tell you that Bill Fleckenstein has recently talked in length about shorting or being short the sub-prime lending group.

He thinks that there are many skeletons in that closet but as of yet we just don't know where. By the end of this mess we will know for sure who "has been swimming naked" for sure.

betamax said...

"flat appreciation"....hmmm, don't think that is going to sit well with buyers in the last few years who have eagerly paid absurd amounts in the expectation of greater wealth tomorrow.

Add in RE layoffs and the consumer 'poverty effect' and even your average homeowner might notice...

Wendell said...

Curious how many posters own a house in Seattle and what will they do if home prices drop 20% to 25%?

Peckhammer said...

Curious how many posters own a house in Seattle and what will they do if home prices drop 20% to 25%?

I own a condo, not a house, but I will do absolutely nothing if the price drops -- even if it drops 50%. It's paid for, it has appeciated by 140% since purchase in '98, and I need a place to live.

Anonymous said...

Curious how many posters own a house in Seattle and what will they do if home prices drop 20% to 25%?

Nothing. We're still paying on it, but we hope to never move.

jcricket said...

Same here (no moving). We own a house with a fixed-rate mortgage that's around 25% of our gross income, and save quite comfortably for our other long term goals. The house suits our family very well, in terms of location, layout, amenities, etc - and likely will for the next 20 years (good schools, room to add on if we needed to, shops near by, central location). I'm guessing it's appreciated 100% since 1998 (maybe more?), but we weren't expecting/don't need that level of appreciation for anything, so the level of appreciation doesn't matter for another 10+ years.

Why would I sell because if price has dropped 20-25% and incur 6% in RE commissions, excise taxes, the cost of moving and incur at least two disruptions to my family - one when we move to the rental where we "wait out the market" and stew about the 25% we "lost" and then at least one more when we move from whatever we'd be renting to another house when the market "bottoms". Maybe more if the rents get raised on us, or we're subletting from someone who tries to sell, etc.

Christina said...

Curious how many posters own a house in Seattle and what will they do if home prices drop 20% to 25%?

I own a house in Seattle. If home prices drop 20% to 25% I'll probably either continue to live in the house or move to BC and use the house as a rental property. I don't think I'm going to see a fixed 5% rate again in my lifetime so I might as well keep the house. Maybe I'll laugh at the underwater dolts who recently bought doubly mortgaged or ARMed high-priced properties on the Eastside.

Anonymous said...

I just bought my first place in Edmonds in late May and planned to stay in it for 2-4 years. I knew I got a deal on the townhouse at 273k for 1500 square feet and only 5 years old, but we got an offer on it Friday for $318,500, so now we are taking our profits and putting it into a house near Martha Lake that we plan to stay in for at least 7-10 years. I do believe we are headed for a slowdown, but since I'll be in a place I want to be in long term, I will wait it out. By the way, in case anyone was wondering we paid $445k for the new place and it is new construction.....I paid a 2% buyers agent commission and sold it myself....

meshugy said...

I don't think I'm going to see a fixed 5% rate again in my lifetime so I might as well keep the house.

That's probably the most important aspect of all this...the prices matter much less then the interest rates.

If you bought a 400K last year with a 30 yr at 5.5%, you pay $2271.16 per month.

Say prices drop next year, and you get the same house at an amazing 60K less. A 30 yr fixed at 7% for 340K is $2,262.03 per month.

So even if prices take a huge plunge, you're not saving any money because you missed the lowest interest rates we'll probably ever see in our lifetimes.

The Dave said...

"Curious how many posters own a house in Seattle and what will they do if home prices drop 20% to 25%?"

If the price of your home dropped 25% then the "money" is lost. The only question is whether that is an indicator of a further drop.

With a 25% drop in market you would probably be near the bottom again. So you are "safer" in that it is unlikely you will lose more. Then maybe things will go back to normal.

As long as you have been in your house for a while a 25% reduction would feel like a much more stable place to be. I could live with it.

Of course newcomers or pwople who have exotic loans may get screwed. But in those case they will not sell their house, the bank will...

matt said...

That's probably the most important aspect of all this...the prices matter much less then the interest rates.

Meshugy, you've seen the light! This is exactly the arguement for why you'd see a potential price drop with increasing interest rates. If you're at the end of the line product-wise (i.e. no creative financing to speak of) and lenders have been forced to sell the traditional products (30 yr. fixed) due to rampant toxic loan defaults, it then brings home prices back to the mercy of household income and the traditional 30%-income fractional number oft-quoted.

This will then create downward pressure on prices to come in line with the long-term mean. Maybe home prices will 'glide' for awhile, ala you're oxymoronic flat appreciation comment, but we've gone sooo high for soo long, there might not be enough moxy to keep it flying for very long...

richard said...

If you bought a 400K last year with a 30 yr at 5.5%, you pay $2271.16 per month.

Say prices drop next year, and you get the same house at an amazing 60K less. A 30 yr fixed at 7% for 340K is $2,262.03 per month.



Payments didn't stay stable on the way up, why would they stabilize on the way down?

You have to realize that one of the main reasons people were willing to pay a greater % of income for a house was because they'd be rewarded with appreciation.

If the appreciation is no longer a given, people will shy away from large mortgage payments - nor will they be (as) willing to put off paying principle and interest.

Eleua said...

Meshugy,

That's probably the most important aspect of all this...the prices matter much less then the interest rates.

If you bought a 400K last year with a 30 yr at 5.5%, you pay $2271.16 per month.

Say prices drop next year, and you get the same house at an amazing 60K less. A 30 yr fixed at 7% for 340K is $2,262.03 per month.

So even if prices take a huge plunge, you're not saving any money because you missed the lowest interest rates we'll probably ever see in our lifetimes.


You are soooooo close to enlightenment, young grasshopper...

You have the right idea, but you have it backwards.

Yes, as interest rates rise, and prices fall (first step of enlightenment), the monthly payment is the same - thus no net savings. However, look at it this way:

Keep raising rates to 9%. Keep the payment the same, and see what happens to the price. You will see that buying the home at a LOWER price (higher rate), and selling at the loss, will result in a smaller loss (greater savings).

Simply put, buying a home at record low interest rates puts you in a position to lose as interest rates rise, whereas buying at higher rates, shields you against the losses that have mountes since interest rates bottomed.

This only matters if you are required to sell at higher interest rates.

When all winds are behind housing, prices are at a peak. If anything changes, or if everything changes, prices can only go down.

Interest rates are the largest player in that equation.

synthetik said...

Bravo eleua, you are exactly correct.

meshugy said...

You are soooooo close to enlightenment, young grasshopper...

Thanks eleua...

However the Seattle market historically has gone flat during times of rising interest rates (late 80s, early 90s.) If you look at Tim's compiled data, you'll see mostly climbing prices from the early 90s on. A flew flat areas, a few MOM losses, but overall a very clear upward trend for almost 15 years.

Throughout that time interest ranged from a high of 12% to last years low of 5% (30 year fixed). But prices never slid during the rate hikes. Why is that?

I also think that other factors, most notably higher gas prices, will keep demand in the inner city areas very high. If you bought further out, you're much more likely to see a correction.

Eleua said...

Meshugy,

Interest rates have been falling, almost at a steady rate, from '82 to '04. That explains the expanding job market, speculative booms, and rising house prices. Beyond that, the US was the only surviving industrial power after the 40s, and that accounts for much of the boom we have had for the past half-century.

If that trend is in a reversal, and we have two decades of RISING interest rates, you can expect home prices to decline sharply. First, the rising interest rates move more money from the seller to the banker - lower prices. Rising interest rates will likely put a lid on economic growth, and job growth - lower PITI. Rising interest rates are indicitive of higher inflation - more competition of limited budgetary resources, thus lower home prices. Finally, the speculative premium attached to housing will likely vanish, as people fail to see housing as a "fail-safe" investment.

Factor in 77,000,000 Disco-ballers hitting retirement and selling the Garagemahal, and you have recepie for a real estate meltdown - even in Seattle.

I would say, especially in Seattle.

Eleua said...

Here is what I am talking about.

Assume you have $2000/mo to spend on your principal and interest (not tax and insurance).

With 20% down, and a 30y fixed loan, here is what you get.

At historic interest rate lows (4.75%), you get a $479,251 home.

At historic interest rate highs (20%), you get a $149,609 home.

Same payment, same home, different interest rates, different prices.

So, assuming you can actually bracket the interest rate range, it is far better to buy at the higher interest rate than at the lower. Your interest rate risk (the biggest risk, imho) is lower as rates go up. The converse is also true.

Therefore, the riskiest purchase of homes was in the past two years, not back in the early 80s.

Anonymous said...

Curious how many posters own a house in Seattle and what will they do if home prices drop 20% to 25%?

The same thing I'll do if the price goes up 25% -- nothing. I am happy in my home. Sorry to disappoint, but I won't be in a panic.

meshugy said...

Hi Eleua,

Just look at some long term data:

Historical performance of the National Average Contract Mortgage Rate

This show trend back to 1963. Like you said, rates peaked in the early 80s. Also interesting to see that there's been nothing as low as the 2005 rates since the 60s.

Here's some long term adjusted housing data:

Historical Census of Housing Tables

It shows that during the 80s interest rate hikes, the Washington market simply went flat.

1980 Washington Adjusted Median Price $118,600.

1990 Washington Adjusted Median Price 119,300.

Of course, the actual prices went up. According to your logic, the adjusted price should have plummeted during the 80s. But that didn't happen.

I think what you're saying makes sense. It certainly does happen...but I don't think it's a golden rule.

Also, I'd have to do way more research. I don't know how accurate these sources are. But Overall they seem to jive...

Eleua said...

Meshugy,

Other factors can weigh on home prices.

Incomes
Interest rates
Speculative premium
Easy money

If incomes rise (as falling interest rates stoke the economy), people can put a higher dollar amount toward housing.

If people believe that homes are fool-proof investments, people will divert a higher portion of thier income to housing - higher prices.

I would say that the past quarter century has had exactly all of these factors. This latest surge is the Boomers trying to make up for 30 years of paltry savings by hitting a grand slam on their last trip to the plate.

The Western US has had good property price action for decades. That does not mean it will continue to do so.

I'm not arguing that your stats are BS - they are not. I'm just saying that your stats may not be pertinant to the coming economic climate.

Driving down the highway at 90mph and looking in the rear view mirror for guidance is not the safest thing to do - even if it works for a time.

Nice chatting with you.

E

meshugy said...

Other factors can weigh on home prices.

Incomes
Interest rates
Speculative premium
Easy money



No doubt...there are defintly some folks who will get burned. I'm still not convinced of a wholesale slaughter though.

The Western US has had good property price action for decades. That does not mean it will continue to do so.

Yes...but it's interesting to see that California took a hit in real terms.

CA adjusted median 1990: $249,800


CA adjusted median 2000: $211,500

That was during a period of falling interest rates....but there was also some significant job loss which is probably why the prices dropped. That's why I feel Seattle will be OK as long as the jobs are here.

Thanks for the input!

'm