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17 comments:
Here's a thought on the "special" nature of the Puget Sound area real-estate: if the rest of the nation (i.e. outside of Washington state) experiences a severe housing downturn, is it possible the Seattle area could somehow remain immune?
I ask this because many of the arguments I hear people cite for continued bullish Puget Sound real-estate seem to somehow infer that we are isolated from what happens elsewhere. Even assuming that it's true that housing stock has been kept down here, that speculators didn't play a big role in our market, and that our region never reached the frothy levels seen elsewhere, isn't the Seattle region still going to be impacted by broader national economic trends?
Take the lending market, for example. Most lenders are nation wide these days. Wouldn't a tightening credit standards, due to a massive increase in defaults throughout the rest of the country, impact Seattle too? Or will the lenders treat Seattle "differently" from everywhere else?
Since the lenders have been treating Seattle the SAME as everywhere else on the way up (i.e. offering all the new exotic loans, lowering standards, etc) I don't see why they would all of a sudden start treating us differently as things fall.
And what about Seattle area businesses? Aren't they dependent on the rest of the nation's economic prosperity? What happens if aircraft orders plunge, or computer purchases/upgrades decline?
There would have to be SOME impact on Seattle area businesses if consumers in the rest of the country could no longer extract equity from their homes. Costco might see those flat panel TV sales go down the drain.
In short: even if one accepts many of the arguments as to why Puget Sound real-estate is "different" wouldn't we be impacted in some way if the rest of the nation was hit with a housing crash and recession?
I would love to hear what Meshugy thinks about this. Would Ballard property prices still keep rising if the US, as a whole, slipped into a major recession and property prices in California dropped 50%?
I sometimes wonder if the "Seattle is special" proponents aren't actually the "USA is special and talk of a deep recession is silly" believers at heart. I just find it hard to see how one could believe SIMULTANEOUSLY in Puget Sound "specialness" as well as think the rest of the country is going into a long dark tunnel.
I am sure there will be future dramatic terrorist events that the US will have to deal with, but I have no idea on the timing (it could be another decade, who knows).
However, I really don't think terrorist actions have all that big of a long-term impact on the over-all economy. 9/11 is a good case in point. There was an initial hickup, with drops in travel and stocks, but I don't think the mini-recession of 2001/2002 had anything to do with terror.
The stock market was ALREADY declining from the dot com bubble, and airlines were suffering long before 9/11 came along.
The recession I see coming will be caused by fundamental economic issues (e.g. working off a mass credit binge) rather than any dramatic events that may (or may not) happen.
Not to be too Meshugy here with the repetive posts... but I thought I'd offer this mini-lab on the increasing inventory, diminished buying power (higher interest rates/less affordability), slowing sales, and increasing median with small matrix of numbers.
Basically the point I'm driving home is how you can have increasing medians in a slower market.
------------------------------------
mon1 mon2 mon3 mon4 mon5 mon6 mon7
s300 300 300 300 300 300 300
s350 s350 350 350 350 350 350
s400 s400 s400 400 400 400 400
s450 s450 s450 450 450 450 450
s500 s500 s500 s500 s500 500 500
s550 s550 s550 s550 s550 s550 550
s600 s600 s600 s600 s600 s600 s600
s650 s650 s650 s650 s650 s650 s650
s600 s600 s600 s600 s600 s600 s600
--------------------------------------
A --- -89% -88% -86% -83% -80% -75%
B 500 525 550 575 600 635 650
C --- 100% 50% 67% 75% 80% 83%
KEY:
A = MOM %sales decrease
B = Median Price Sold that Month
C = MOM % Unsold Inventory Increase
s500 = sold house at 500K
300 = unsolde house at 300K
I think it goes without saying a severe national recession will probably hurt Seattle housing. Just depends on the particulars of the recession. As long as we can keep the jobs here, housing will hold.
I graduated from college in the early 90s in Boston...bad time to try and get a job! Boston was hit hard during that recession...and there were heaps of recently minted college grads from the most prestigious schools all fighting over cashier jobs at the local convince store. So I moved to Atlanta...which was actually a boom town during the early 90s. Economically it was a great move...but I had to get out of there after a few years. But it was a good place to weather the recession.
So it's possible for certain cities to buck the national economic trend. But in the end....a huge recession is going to hurt us. Will that happen? I don't know...but as long as we have a mediocre national economy I don't see Seattle housing taking a hit.
Meshugy said: "as long as we have a mediocre national economy I don't see Seattle housing taking a hit"
For what it's worth, my take is that the US (and much of the world) is going to descend into a pretty deep recession (definitely worse than 2001/2002). The global credit explosion over the last few years is going to implode, with prices for ALL bubble assets (e.g. commodities, oil, gold, real-estate, etc) tanking.
Borrowing (and the willingness to lend) has just been EXTRAORDINARY around the world over the last few years. Risk premiums on third world debt, junk bonds, and any other kind of debt have just vanished (just look at the insane lending/borrowing going on for loss-making factories in China, it makes the US bubble look like child's play). This kind of easy money just can't continue, and the problems are coming home to roost.
In such a scenario I don't think Seattle is going to be immune.
Basically the point I'm driving home is how you can have increasing medians in a slower market.
Hi Matt...the median price is not a perfect metric. But it's by far the best way to get a sense of what the market is doing. I always check it by looking at recent sales (which I just posted in another thread.) If the recent sales are showing underbidding and generally lower prices, then you defintly should question the MLS median prices. However, so far the MLS reports have jived almost perfectly with what I've seen in the county records. The Loyal Heights area of Ballard has seen 70K-100K increase in the past 1.5 years. This was also confirmed by the county assessment which valued my house at 60K more then 2005 (and they think I have 1 less bedroom and bath then I actually have). The county does a very in-depth study to generate these results. So statistical anomalies are much less likely.
So, if we're seeing both rising prices in the county records and big assessment increase from the county assessor, it's a sure bet that the MLS #s are dead on.
If the recent sales are showing underbidding and generally lower prices, then you defintly should question the MLS median prices.
I'm not, I think you're missing my point. I don't doubt at all, that median prices are increasing. My point is that due to higher rates and diminished buying power of the consumer, you're seeing a slowing in the market.
Right now, I think the only people buying are equity refugees from Cali (that well's already drying up) and people shuffling up to bigger homes. I think the 1st time home buyer is a dying breed (temporarily), they're priced out.
My big point is that this is completely unsustainable, especially when you have massive inventory (ala condos) ready and waiting to glut the market.
This dynamic is temporary and will cause a downward pressure on prices across the boards if allowed to carry on.
The big question I was trying to answer, was "how is it possible to see a increased median and a slowing market?"... I'm paraphrasing you here, because this seems to be one of your big talking points.
I was just trying to answer that questions through a simple example.
The big question I was trying to answer, was "how is it possible to see a increased median and a slowing market?"
I think the answer simply that the market has not slowed enough. Remember, when we're talking about "slowing" we are comparing to 2005 which was the hottest market on record. If we have 30% less sales, 30% more invneotry then 2005, we still have a very healthy competitive market skewed towards sellers. There still isn't enough inventory to meet demand. Once we see a 6 month supply of inventory we'll start to see some real slowing of appreciation. Right now we have about 2 months of inventory.
If we have 30% less sales, 30% more invneotry then 2005, we still have a very healthy competitive market skewed towards sellers.
I know Meshugy, but isn't this like taking a snap-shot a few minutes after that iceberg gashed a hole in the Titanic and saying "Its still a healthy ship, look, its well above the waterline and sailing fine!"
But things are changing, ever minutely, and what I'm interested are the reasons why its changing and my point is that its changing for the same reason its changing everywhere else, the dynamic here is the same housing dynamic everywhere there's been price swells due to the national credit-glut.
Now this is the type of discussion I like to see! Thanks for keeping it civil and interesting. And a special thanks to Meshugy for sticking out the previous attacks and presenting a different viewpoint. Even if I think you're wrong. ;)
I know Meshugy, but isn't this like taking a snap-shot a few minutes after that iceberg gashed a hole in the Titanic and saying "Its still a healthy ship, look, its well above the waterline and sailing fine!"
Or maybe calling the slower market of 2006 a crash is like telling someone who came in 2nd in the Tour de France that he's loser because he was 2nd in the world's hardest race. "Even though you beat the other 199 guys in the peleton, you're still a looser because you were 1 minute behind Lance Armstrong!"
I just don't see the desperation here in Seattle that we see elsewhere.
Places likes San Diego, Phoneix, S.Florida, etc. went so much farther then we ever did in terms of skyrocketing appreciation, speculation, and risky loans. We've had some of that....but look at Florida. At one point people were day trading condos!! Some people who took big risks in the Seattle market will get burned...but I still feel your average home buyer will come out OK.
mshugy said: "Places likes San Diego, Phoneix, S.Florida, etc. went so much farther then we ever did in terms of skyrocketing appreciation, speculation, and risky loans."
Really? Some of the articles I saw on the number of exotic loans and homes that claim mortgage deductions (i.e. a sign of speculators) was pretty high in the Seattle area, just a tad behind some of the bubbliest areas. I would love to see data showing that Seattle had fewer exotic loans, or speculative purchases, than elsewhere.
By the way, you don't need a huge growth in bubble prices for there to be problems. Some of the regions suffering right now never saw a big run up in housing prices to begin with.
Just thought, will post if you have not seen it, Susan at the SeattleTimes RE blog considers a 13% drop in sales as strong sales.
Read more in the comments at
http://blog.seattlepi.nwsource.com/realestate/archives/106090.asp
http://tinyurl.com/h3adw
Amit C
I love this.
All the specuvestors, over-eager landlords, and the Great Unwashed that think their ticket to riches is in their homes are getting lulled to sleep with the relatively strong Seattle market.
They are ignoring the warning signs that normally moderate the market inflections. Once the highs have been seen, and people realize they have too much at risk, it will be a stampede for the exits.
I've sold a house in a buyer's market - it sucks.
145 showings over 6 months, nary a negative comment, 8 second-place finishes and one offer. It is one of the most painful experiences you can have. It's one thing if you have a major defect, your house is in a bad location, or you have consistant feedback about what is wrong with the house.
When this is the norm for the PNW, and people are overextended on an "investment" gone bad, it will be beyond fugly.
Owners are going to resent the hell out of kissing the ass of an unctious, low-balling, nit-picky buyer, but there will be NOTHING they can do about it.
The rout will be on.
Eluea,
You need to take care of your health, dude.
Anon,
Whoever you are, you crack me up.
In your mind, you think I'm crazy.
In your heart, you know I'm right.
E
No. I think you are pissed at the entire world and need to take it easy for a while, captain.
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