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Friday, September 08, 2006

"An abundance of homes" in Thurston County

Usually the Olympian beats the Seattle rags by a day with their report on the latest monthly housing figures. For some reason, this month the Times, P-I, and everyone else seems to be sitting on their hands, allowing the Olympian to beat them by no fewer than three days with their report of the continued slowdown in Thurston County.

An abundance of homes on the market has turned the once white-hot seller's market into one that is more buyer-friendly, according to South Sound real estate professionals.

Home sales fell 11 percent in August, according to preliminary data released Tuesday by the Olympic Multiple Listing Service.

Higher inventory levels also meant that homes spent more time on the market, according to the MLS.
...
Comparing August-to-August home sales is bound to reflect a significant drop because last year was so robust, said Olympic MLS Manager Jerry Wilkins.

He acknowledged that the housing market is stabilizing.
...
Another factor is the construction of new homes coming on the market that might not be reflected in the Olympic MLS data, said Jim Greene, owner of Greene Realty Group.

Many new homes are sold before they are even listed, he said.

"What's happening is there is an abundance of new construction," Greene said.
Although they don't provide the actual number in the article, listings have increased 94.7% in Thurston, topping 2,000 in August, compared to 1,031 in August 2005. Regarding new construction, they bring up a good point that has been mentioned on this blog a few times recently. With the number of building permits up 43% in King County, it seems that the Seattle area is poised to experience a continued increase in inventory (listed and not) for the forseeable future.

(Rolf Boone, The Olympian, 09.06.2006)

36 comments:

Anonymous said...

Just wait til the days start getting really short around here. I can't imagine a flurry of homebuying in the dark. We've had increasing inventory during the typically strong selling season, it will be interesting to see what happens as we head into Nov-Dec (especially with all the bad news coming in on the national level).

matt said...

I'd say Seattle's in store for a rashing of the condo glut epidemic that's marked the beginning of the end for all other bubble markets in the country...

Is there a need to market condo's here? Why, I say? Doesn't Real-Estate in this town just sell itself, multiple-offers, etcetera? This is the dark-horse. If it was down to SFH, I'd say people like Meshugy have a point about inventory, but you can glut and quickly kill a teetering market with a surge in condo developement...

meshugy said...

We've had increasing inventory during the typically strong selling season, it will be interesting to see what happens as we head into Nov-Dec (especially with all the bad news coming in on the national level).

Actually..that's normal. It happens every year. Inventory spikes during the Spring and Summer. Often peaks between Aug-Oct. Then what's left slowly gets sold off till it bottoms out in late winter. We'll know we have a problem if inventory continues to climb through the winter.

meshugy said...

I'd say Seattle's in store for a rashing of the condo glut epidemic that's marked the beginning of the end for all other bubble markets in the country...

Yeah...the condo thing is a little troublesome. As I mentioned a while back, I met a guy at Zillow and he said they thought the Seattle SFH market would remain robust. But they were worried about condos flooding the market.

However, right now Condos are selling faster and appreciating more then houses. In Aug,condos appreciated over 20%!

Peckhammer said...

Is there a need to market condo's here? Why, I say? Doesn't Real-Estate in this town just sell itself, multiple-offers, etcetera? This is the dark-horse.

The condo market will have so much inventory coming on line in the next two years, that prices will plummet. Too bad for all those schleps that are leaping at the chance to enter the vulcan lottery and putting a deposit down on $500/square foot apartments.

The slowdown began a while ago. The Domain is not selling as expected, nor is the Lumen. Sales are stagnating in some buildings. And let us not forget that some building which have been built as apartments are really meant to be condos. Building the building as aprtments first, holding for 5 or 6 years and then filing a condo declaration is a way for builders to skate past the construction defect statute of limitations. Examples of possibly building with this intention are the Dexter Lake Union, and The Neptune.

synthetik said...

In one month condos' appreciated 20% in Seattle? Where do you get this data from?

meshugy said...

In one month condos' appreciated 20% in Seattle? Where do you get this data from?

NWMLS

Pending KC Condos Median Aug 2006: $263,900

Pending KC Condos Median Aug 2005: $217,900

$46,000 YOY increase = 21.1% increase.

Anonymous said...

Pending KC Condos Median Aug 2006: $263,900

Pending KC Condos Median Aug 2005: $217,900


That would be a 21.1% increase in 12 months. Not the increase that was "in Aug" as you stated.

But perhaps you meant that, and it just didn't come out clearly.

synthetik said...

>In Aug,condos appreciated over 20%!


he clearly stated it happened in August. I'm sure at least 3 GF/FB read that and went out and bought a condo.

synthetik said...

20% appreciation in one year does not surprise me. Speculation and excitement in the condo/condo conversion market always signifies the END of a RE up cycle.

The same thing happened in San Diego.

meshugy said...

I meant YOY in August...20% MOM would astronomical! But even in a year it's very, very high.

Anonymous said...

'Building the building as aprtments first, holding for 5 or 6 years and then filing a condo declaration is a way for builders to skate past the construction defect statute of limitations. Examples of possibly building with this intention are the Dexter Lake Union, and The Neptune."

Eeeenteresting...

I have a friend who just moved into the Neptune. I've been inside a few times now, and each time, only one word comes to mind: cheap. For an apartment building where studio units start at over $1,000 a month, they skimped on every conceivable amenity -- metal doorframes, crap cabinets, indoor/outdoor carpeting, bad formica and in-wall electric heaters. It didn't make sense.

But then...it doesn't make sense to build nice apartments when you're going to gut them in five years to make condos, does it?

Anonymous said...

Anon said:

We've had increasing inventory during the typically strong selling season, it will be interesting to see what happens as we head into Nov-Dec.

To which, meshugy replied:

"Actually..that's normal. It happens every year. Inventory spikes during the Spring and Summer. Often peaks between Aug-Oct."

I feel like I'm in an old Folger's commercial: What meshugy didn't tell you, is that pending sales are currently falling year-over-year.

If you look at the supply/demand graph that Tim posted the other day, you'll note that the "traditional" summer increases in inventory have always been coupled to summer increases in pending sales. That's why inventory "traditionally" declines in the winter -- closing summer sales.

Not this year, Baby Blue! This year, we're looking at rising inventory (we're above summer 2000 levels now, trending up), and falling pending sales (which are at 2003 levels, trending down).

Yet another case of Meshugy cherry-picking data to make a rosy picture....

Anonymous said...

"Building the building as aprtments first, holding for 5 or 6 years and then filing a condo declaration is a way for builders to skate past the construction defect statute of limitations."

Good point, thanks for bringing that up.

As someone on Ben's blog pointed out, it may help to buy something that was built near the bottom of a RE downturn, so at least you aren't getting crap that was thrown up to cash in on a mania.

Anonymous said...

It's nice to see that at least ONE paper around here has some journalistic integrity left, rather than being a blatant whore for the RE mafia.

Here's a great writeup on the laughable "buy an overpriced crackerbox and maybe you'll get laid" pitch, for those who haven't seen it yet:

http://www.capitalstool.com/forums/index.php?showtopic=7644

meshugy said...

"traditional" summer increases in inventory have always been coupled to summer increases in pending sales.

However, you have to keep in mind 2005 was the hottest year on record. Sales had to come down and inventory had to go up. But we're still not back to a balanced market. Comparing everything to 2005 will give you the illusion of a tanking market. But if you look at the last 5 years, we're still pretty tight.

plymster said...

Actually, 'shug, I think it's the tightening lending standard rumors, collapsing housing markets across the nation, recession indicators, high national foreclosure rate, local price reductions, AND the sales slippage that is contributing to the illusion of a tanking market.

It's sort of like a deer standing in the road. Those lights, that grill, the roar of the 18-wheeler create the illusion of a semi coming to make deer-paste. It's only once the semi arrives that the deer-paste is made.

Nolaguy said...

Regarding inventory, 'Shug is right: it is very tight right now.

Even though it's up when compared to last year, this summer's inventory numbers are 2nd lowest in the last 7 summers.

The inventory for summer 2000 was very similar to 2006. So let's compare:

2006 Sales for Jun, Jul, Aug: 8537
2000 Sales for Jun, Jul, Aug: 6557

2006-Aug YoY Price: +12.99%
2000-Aug YoY Price: +4.68%

1980 more homes sold this summer than in 2000 with the same inventory. That is significant, IMO.

And look at 2000 price appreciation: Inventory was just as tight as today, but prices did not go up signifcantly YoY. (perhaps the dot.bomb in 2000 kept appreciation lower?)

So what's the difference between 2000 and 2006? We know that population is not a big factor.

I have no proof, but I think wages have been flat.

Perhaps the biggest differences between 2000 and 2006 are interest rates and mortgage products available. (ARMs, I/O, heloc, etc.)

If interest rates go up, and lending standards are increased, then I think that will have a big impact on prices in Seattle. IMO, it's the only thing keeping prices appreciating.

Inventory to a small extent is playing a role, but easy money is what is driving this bubble.

This is a credit-bubble. If the lending standards and interest rates of 2000 existed today, you would not have 1980 more homes sold in the same time period this summer. Nor the price appreciation. (IMO, of course)

Anonymous said...

nolaguy, you might want to specify where those numbers come from...I count about 1,000 more sales in King County, not 1,980.

Otherwise, I agree completely. You'd have to be blind not to see the effects.

Take another look at (The) Tim's supply/demand plot for King County, but this time, focus on the "pending sales" data, and keep in mind that the prime rate dropped from 9.5% to 5% in 2001, followed by almost a year at 4.75%, followed by a drop to an all-time low of 4% in late 2003 and early 2004 (source).

The rise in King County pending sales correlates almost perfectly with the drop in the prime rate. Inventory doesn't.

dash_point said...

I'd say Seattle's in store for a rashing of the condo glut epidemic that's marked the beginning of the end for all other bubble markets in the country...

Could condos/townhomes have been possibly overbuilt in Seattle (not to mention along 90)? It's happened elsewhere, even "prime" spots like SF. My guess is someday they'll provide cheap housing.

Anonymous said...

Also, for the record...the current prime rate is 8.25%.

This bubble doesn't have long to live.

Nolaguy said...

I got the data from Tim's Seattle_Bubble spreadsheet. The numbers are for SFR's - no condo's. That could be the difference.

The more I look at the data, the more I'm convinced that inventory is a small fundamental in the rise in Seattle prices.

I should clarify: the inventory of "homes" is a small factor.

The inventory of "buyers" certainly is a bigger factor. The low rates, lax lending requirements, and new mortgage products increased the inventory of buyers looking for homes.

Demand was/is certainly up because more people qualify to buy a home, or buy a more expensive home - driving up prices.

We'll see what happens when rates go up and 20% down payment is required again.

Only time will tell...

richard said...

For comparison sake, mortgage interest rates in September 2000 were at 7.9% vs 6.5% today, according to:

http://mortgage-x.com/x/ratesweekly.asp

matt said...

Cheap money increased the demand over the past 5 years, thus the short inventory, now that demand is curbing due to affordability, inventory has to rise... just how far, how quickly is the question.

LoneLibertarian said...

Shug makes some good points. Things are good RIGHT NOW.

BUT, any savvy investor is not looking at right now, he is looking 6 months down the road to see where things are going in order to make moves and position himself.

Those think that the gravy train will continue to run are the ones who will not manuver themselves and in 6 months to a year will be flat on thier ass.

Nolaguy said...

Like Synthetik said, this bubble talk should shift to macroeconomics topics. That will determine what happens in local market:


U.S. stocks fell Thursday after a Federal Reserve official said that a slowing economy may not be enough to prevent further increases in interest rates.

The official, Janet Yellen, president of the Fed Bank of San Francisco, said that inflation remained "uncomfortably high" and policy makers "must have a bias toward further firming."

While the real estate slowdown helped persuade policy makers to keep interest rates at 5.25 percent last month, the Fed has said its next move will be determined by the outlook for inflation and economic growth.

http://www.iht.com/articles/2006/09/07/bloomberg/bxus.php

meshugy said...

BUT, any savvy investor is not looking at right now, he is looking 6 months down the road to see where things are going in order to make moves and position himself.

Yes, hard to say what our future is. I still think it will be much slower but not totally tank. Back to 3-6% appreciation. Some of the hinterlands of KC may actually decline a bit.

Even if prices decline a little, you have to factor in that interest rates are going up and will most likely be over 7% next year. So for those who let 2004, 2005, and most of 2006 go buy without buying, you may have missed the lowest interest rates of our era. Even if the median drops 50K next year, if interest rates are over 7% you're still paying more then someone who bought over the last few years with a much lower rate.

We'll need a really bad crash to make the interest rate savings irrelevant. I just don't see that for Seattle. But what do I know...

Nolaguy said...

I still think it will be much slower but not totally tank. Back to 3-6% appreciation. Some of the hinterlands of KC may actually decline a bit.

Can you tell me *why* you think this? Any data that influences your opinion?

Even if prices decline a little, you have to factor in that interest rates are going up and will most likely be over 7% next year.

So if interest rates go back to 2000 levels, why would prices only decline a "a little".

Let's say you're right, say prices only decline "a little" - why would the median house stay around $400k at 7% interest rates, when in 2000 the median was $236K with roughly the same interest rate?

Are people making 60% more money today?

Do people have $150+k to put down today?

Are we in "a new paradigm"?

Even if the median drops 50K next year, if interest rates are over 7% you're still paying more then someone who bought over the last few years with a much lower rate.

Something to consider is that there are a lot of people who buy based on the purchase price - not the monthly payment.

Would you want to pay 7% on a $250k mortgage, or 5% on a $480k mortgage when the house is only worth $250k?

Because I think THAT is what some people are going to get caught in sometime in late 2007.

richard said...

Here's an interesting bit about Silicon Valley's price weakness despite low inventory:

San Jose home prices fall 6% June to August

``I wouldn't be surprised if we saw a drop in prices of 10 or 15 percent by the end of the year, from the peak,'' said Edwin Resuello, president of the Santa Clara County Association of Realtors, referring to home prices countywide.

In Santa Clara County this week, there's about three months of supply -- far less than the national level


Worth noting that Seattle and the Bay Area have seen similar cumulative appreciation over the past 5 years.

Anonymous said...

"Even if the median drops 50K next year, if interest rates are over 7% you're still paying more then someone who bought over the last few years with a much lower rate."

* If you bought a $500,000 house on a 30-year fixed mortgage at 4%, you would pay about $2,400 a month (P&I), and a total of $359,000 in interest over the life of the loan.

* If you bought that same house when it was only worth $250,000 on the same mortgage (at 7%), you would pay about $1,700 a month, and $349,000 in interest over the life of the loan.

For all you spout off about supply and demand, Shug, you love to ignore the principle when it benefits your arguments. The truth is evident: the "savings" of lower interest rates are nearly completely offset by the rise in market demand that results from increased liquidity.

In layman's terms: the rise in home prices has been driven by historically low interest rates. There's simply no way that interest rates are going to double from their lows, with only a 10% drop in home prices. Isn't. Gonna. Happen.

Anonymous said...

"Shug makes some good points, things are good for right now..."


People! Please look at Tim's appreciation line on this blog!

Appreciation has been going DOWN YOY for several months now.

In August, it took a 3 or 4 % downward leap after going down by one percent per month for many months.

Appreciation is DOWN to 12% from 15 or 16%.

In some circles, that is known as DEpreciation!

So yes, it is absolutely correct to be thinking about where the market will be after 6 more months of depreciation.

Anonymous said...

Appreciation is DOWN to 12% from 15 or 16%.

In some circles, that is known as DEpreciation!


Decreasing rates of appreciation does not equal depreciation. 12% appreciation is indicative of a strong market!

We can all speculate that the market will go to down in a year, but there is no denying that it has not yet gone down today.

I think we will probably see a large slowdown in the spring, but I am fascinated that we do not see a large slowdown now. Where I live (Queen Anne), I see low inventories, few people lowering prices, and prices still skyrocketing. While we may be trending slowly towards sanity, the market here is not currently sane.

So what do people think? Will we see the carnage this spring?

Anonymous said...

Nobody has said that this market is sane yet.

It's got a ways to go before it's sane.

Sit tight.

ALL the news on housing is bad now.

A little bit of local media rah-rah is not going to help the situation.

We are going to witness one of the greatest asset crashes in history.

So put your helmet on and stand off to the sidelines.

The fun's just beginning.

Anonymous said...

Americans have a negative savings rate. The last 5 years have been unprecedented, as more Americans than ever before in history have accessed available credit to make large bets. The higher things went, the looser the bets became and the less people cared about the underlying fundamentals. Sound familiar? It should, it's the dot-com crash all over again.

seattle price drop said...

"Even if the median drops 50K, if interest rates are over 7% you're still paying more than someone who bought in the last few years with a much lower rate".

LOL. Precisely why it is a very stupid idea to buy now or in the near future.

-Interest rates, though still low, are too high to support these prices. The prices have to come down.

- Hopefully by now, with the media FINALLY drawing attention to the hazards of dangerous loans and teaser rates designed to support high prices, people will say "No thankyou" to these bizarre loans that allow people to "rent from the bank for a lifetime" and never REALLY build equity in their property.

Anonymous said...

i have visited olympia many many times in the last two years. i live on the east coast . i have been amazed at this originally quiet area being inundated with noise. dirt bikes are increasing in numbers it seems and are noisier than anything i ever experienced on the east coast. no one seems to care about them on the county roads or county road properties. i was originally thinking of moving or buying in olympia on a county road but would never do it now due to that noise . 5 acres of land is noisier in some areas of olympia than my 50 by 100 foot lot here in new jersey! what happened to poor olympia and the once pristine and quiet that people sought?