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Wednesday, September 23, 1981

Weekend Open Thread

This is your open thread for the weekend. Please post random links and off-topic discussions here.

36 comments:

meshugy said...

Local homes overvalued, report says

However, local economists don't expect to see a dramatic price drop in the near future. Glenn Crellin, director of the Washington Center for Real Estate at Washington State University, said there probably would be decreases in some price ranges, but not in the overall Bellingham housing market.
"Bellingham, as well as much of the Puget Sound, is returning to a more normal real estate market," Crellin said. "In Bellingham's case, the home prices have risen dramatically, making it appear that homes are overvalued, but the area is following what Seattle and other markets did a few years ago."

meshugy said...

To be honest, as of late, shug's post are starting to be less extremist...

I don't think anything I've ever said is extreme. If you go back, you'll see that I've always said that the boom could not be sustained. I feel the most likely scenario will be a return to normal 3-6% appreciation. In the worst case a few years of flat appreciation.

Poorly timed flips and people who over leveraged with ARMS will get burned...but I feel that while those scenarios will be more likely as the market slows, the vast majority of homeowners will do just fine.

If inventory consistently rises throughout the winter and sales plummet next spring, then we could defintly see some negative appreciation. I still don't think that's likely...but possible. Sales actually went up in August and were only behind 2005 sales by 1% or so. As long as the buyers keep showing up, prices will hold.

StealthBucks said...

OK, I get the whole negative real estate thing that is the theme here. I am not at all convinced we are heading down some 40% but let's say 5 to 15% or if you must insist on more. How does anyone here hope to capitalize on this correction? Is anyone building cash to jump in at some point? Adding money to a mattress? Buying pork bellies? Let's assume the local real estate market is down 10% next year. Any opportunists out there?

Eleua said...

10%? No. That would take us back only one year, which was three years into the boom.

-60-80%, or 1997 prices.

richard said...

Seattle inventory took a big jump overnight. Yesterday 2855, today 2940. "pent-up supply"

S Crow said...

Stealthbucks-

To answer your question.... Yes, there are authentic investor folks out there who are going to buy back in. And, yes, there are people who are saving under the mattress, in the glass jar in the garage or in the hole in the backyard.

Patience pays,sometimes very well. Being frugal always pays.

Eleua said...
This comment has been removed by a blog administrator.
Eleua said...

1. 60-80% discount,

2. PITI+M+H (maintenance + HOA) <28% income @ 12% interest,

3. 2-3X recession era income,
20% down = median savings for fully vetted borrowers,

4. 1997 prices,

5. real estate considered pariah investment by MSM and Lumpenvestoriat,

Take your pick.

synthetik said...

>a few years of flat appreciation

No, that's pretty extreme.

I think Shug is just trying to appear a little more reasonable so he can continue to post. Once indicators are all moving in a steep downward direction he'll probably turn from a rock throwing troll back into a hiding/dormant troll.

Looking around ballard, the homes that go for $425-550 have a real worth feel of $175-225K. Little brown and purple boxes 1200 sq foot boxes. They look like 500-700 sq foot boxes because basements are factored in as well.

Most of the basements I've seen aren't very livable. Great place for Mother-in-law though.

synthetik said...

>how do you capitalize

Even if this down cycle lasts 7-10 years as some are predicting, most of the equity losses will occur in the first 3 years.

So my assertion is that if you buy at some point in the next 2-4 years, you'll get a 30-50% "discount". I'm thinking more along the lines of 99-00' pricing. That home that you buy should be your homestead and purchased with a conventional 15 or 30 year mortgage.

To take full advantage, one might start buying up lots of properties to flip. I don't think flipping makes a lot of sense UNTIL the herd/public mentality switches back to "homes are a good investment again"; which is one of the signals of the beginning of the next peak/rise in real estate.

A safer bet than early flipping inho would be to purchase property for passive/rental income in King County area, during that 2-4 year period of "gloom and doom", after 30%+ depreciation kicks in; making sure you don't overextend yourself with any funky loans. Although, if you WERE to overextend and get creative loans, THIS type of market would be much more ideal than where we are NOW.

Even if we don't see 30% depreciation, we WILL see a market of few interested buyers; after all, people will now believe that real estate is and always will be a bad investment. So in this type of environment it is possible "buy right". While sally soccer mom gets her nice 20% discount coupon, you are bidding on 15-20 distressed properties or more, and add another 15-20% of discount on top of sally.

The market generally dictates what types of properties you buy and how you use them.

meshugy said...

Here's the latest from PMI:

Understanding a Changing Market

They give Seattle a 15.3% chance of price reductions.

meshugy said...

PMI also shows that Seattle houses are appreciating 1.36% faster then 2005. (See the price Acceleration column). 2005 was defintly not the top...not only are prices much higher in 2006...they are going up even faster then last year. This is 2Q data.

synthetik said...

Dude,

that report is from at MORTGAGE company. No credibility whatsoever.

Back before the MSM decided it was OK to start reporting on the housing crash, people had to draw mostly on their own conclusions (used their EYES and EARS) as well as historial bubble data from Texas, Japan, Florida and other irrational markets.

The arguments against the bubble were tremendous and I won't list them here; however two of the biggies were "no such thing as a nat'l housing bubble because it's never happened before" and "we're different here"

Those arguments as well as all others were proven to have no merit.

Now I'm being told that national housing bubble/crash news has no bearing on the Seattle market. Yet again 'we're different here'

To you sir, I say, if you actually believe after analysis of all other bubble markets that Seattle is somehow different - you have a serious mental impairment.

It's curious to me how so many people can believe so strongly in something they cannot see (i.e., my man JC) yet have no concept or belief in something right before their eyes (i.e., housing bubble, global warming, etc)

synthetik said...

My RENTED view of Rainier looks wonderful this morning.

There's an interesting ring of clouds around the top. That means it's going to rain soon right?

synthetik said...

Times article about keeping up with the Joneses:

Nagging Compulsion

"The neighbors have central air, he said. The people down the street have a landscaper. The couple across the way buy gourmet cheese at Zupan's for $12 a pound. They also use doggie day care, their bathroom is tiled and their wine collection is amazing.

I almost cried myself to sleep on the futon couch.

My parents did their best to inoculate me during childhood against feelings of greed and envy. My father explained that many people who live high on the hog are actually swamped in debt. Or they've saved nothing for old age. He was a tax accountant, so he had some authority on this."

Anonymous said...

M will stop when he senses that there are no more "on the fence " buyers that he can drag in to join him in the mess his life is going to become unless RE keeps appreciating.

BTW, love that term "negative appreciation". Just another twisted illogical term, courtesy of a struggling REIC.

You use their terminology well M.!

Anonymous said...

I rent. I have zero debt and perfect credit. I have six figure income, a six figure retirement account (fully invested in stocks and bonds), and another six figures in a non-retirement account (60% cash/40% stocks). I am now moving non-retirement stock positions to cash and short-term bonds in anticipation of the impending real estate correction.

I could have easily bought into the real estate market over the last several years, but the numbers never worked out to my advantage. Sure, if I would have assumed 5% year-over-year appreciation they would have worked out, but based on historical evidence, 5% has been an unrealistic assumption for the last 3 years or so. Now 5% is even more unrealistic given recent run-ups.

Do I regret not getting into the market in the last two or three years? Not at all. I would have made some paper profits, but paper profits are not real profits. Or, I might have made some real profits, but probably would have invested those back into an inflated real estate market. The net is I just don't consider real estate an investment. I consider housing an expense, and I base my rent vs. buy decisions on minimizing that expense.

When will I buy into the real estate market? Whenever one of these rent-vs-own calculators tells me it makes sense under a set of realistic assumptions. Until then, I'll continue to rent. Renting a recent condo-conversion costs me about $700 less than it would cost me to own, with zero risk.

Now that I mentioned condo conversions, I'll point out that people should notice that the "smart money" in real estate is selling. On Capitol Hill, nearly every apartment building built within the last 15 years is being converted to condos. The owners of these buildings are real estate professionals; their job is to hold apartment buildings and turn a profit from them. They know the market better than anyone, and they are making the decision in droves that there is more profit right now for them to sell the units as condos. Why anyone would want to be on the other side of these "trades" I don't know.

That's my $.02.

sitting pretty said...

Anybody who does not understand the risks involved in buying RE right now (or even in the past 2 years), please read the above post carefully.

It will not help those of you who bought in the past couple years, buy it WILL help those who are considering buying now.

Anonymous said...

More evidence that the media is jumping on the "Real Estate Downturn Story": Money magazine has a new regular feature called "Help! Home for Sale".

Note that at the end of the article, editors are soliciting for people having trouble selling homes so that they can do articles.

Anonymous said...

Here's a small present for you guys since I enjoy reading your posts and thought I should you might enjoy this...

An icon for our times:

http://iamfacingforeclosure.com/

Anonymous said...

Looking at all the numbers, I just can't conceive how dumb you would have to be to buy right now. I mean, it's the biggests financial decision of your life, you'd have to be actively avoiding the evidence around you to think now is the right time to get into the market.

Anonymous said...

1 in 3 are "dee dee dee"...

richard said...

Anyone noticed the increasing number of apartment buildings popping up in the RE lisitngs?

With the way apartment units have appreciated since 2004 it's no wonder that owners want to cash in.

Andy said...

"it's the biggests financial decision of your life, you'd have to be actively avoiding the evidence around you to think now is the right time to get into the market."

I agree 100%. All the indicators say: wait and see. If the market declines a little and goes flat, next year might not be a bad time to buy. If it declines slowly but surely over a longer period, then I for one am going to be renting for the forseeable future. And if it "crashes", whatever that means, then all bets are off, and batten down the hatches, because the economy is going to go with it.
Inflation, and job growth are the 2 wildcards as i see them. If our real inflation rate over the last 5 years was higher than advertised, then some of the value gains we've seen in RE are warranted. If people are moving into the area, then the demand is going up,and that is going to drive real gain as well. Long story short, I believe some of the gain is real, but much of it is speculative. Much more of the latter, than the former if my guess is correct.

Anonymous said...

I think rents will have to reach parity with mortgages before buyers make a commitment to look for a house. I guess prices could drop and some could speculate on a bounce thereafter, but unless a mortgage competes well with rent, buyers are adverse to taking the plunge on a purchase. There is a plausible scenario that some will buy if a 15% price correction happens, thinking that they are probably going to at least break even carrying a mortgage and getting appreciation vs. 'throwing money away with rent'. I mean, you need to spend money to have a roof over your head. The next wave of buyers will look at the house market as a buffer against throwing money away. They will not expect 20% YOY appreciation, but instead just a means to hedge money spent on shelter. The days of making a killing on homes is gone for the time being. From what I have read, houses do not appreciate like blue chip or growth stocks or anything in between. They grow based upon salaries and demand mostly. Maybe they average an annual 5% increase in price. Where would that put us now for prices?

synthetik said...

Real Life example of how a typical couple living in Queen Anne COULD become F@5&ed borrowers by mid-2007.

Mid 30's w/1 Kid, executive makes $135k/year for company selling luxury retail items. Wife makes stays home w/kid.

2001 purchased starter home $347,000 w/20% down and 7 year balloon payment.

2002 refinanced $275,000 @ 5.25% w/5 Year ARM + 2% cap rate, max 11.375%

2003 refinanced $275,000 @ 4.375 w/5 year ARM, same deal as above.

2006 purchased 2nd home before selling first home for $995,000 using TWO loans, 1st mortgage $525,000, 2nd mortgage $271,000 or $796,000. Both fixed 30 year loans.

Current mortgage debt on both properties $1,071,000, approximate payments are $6045 and $1656/mo for both homes, or $7,702/mo.

While they haven't sold the first house, they will put it on the market in 2 months. Assuming the market hasn't tanked by then, they would sell it for about $565K, bringing their debt down to $506,000 on their $1M 3bd house.

Figuring taxes of approx. $7000/year and insurance $1600/year (please correct me on these if wrong on $1M home in Queen Anne), their payment after selling home#1 would be:

$ 4,218.73

Factor in another $500/month in maintenance/repairs, that is:

$ 56,624.76 per year minus approx. $12,500 in tax savings = $ 44024,76

So, using the 30% model, this chap needs to be making $150,000.

What happens when:

1. Housing bubble forces consumer confidence into a tailspin, ppl no longer purchase his retail goods, he loses his job.

2. He has trouble finding work because its' now mid-2007 and we are in a recession, work is hard to find that pays him $135,000/year.

3. He gets job for $90K and wife has to go back to work for $40K job. Kid goes into day care and becomes career criminal (ok, freakonmics proved this won't happen) :P

What he did right:

1. He purchased a conventional loan.

What he did wrong:

1. He bought a house. He should have sold the starter home first, then gone into a rental.

2. he bought a home outside his means. One slip in economy and he's toast.

3. he didnt sell his first home before purchasing the 2nd. If he has trouble selling his 1st home due to the declining market, he's - that's right. TOAST.

Anonymous said...

Good blow by blow Synthetik.

SeattleMoose said...

Date / Listings / Delta / %
07-May / 7302 / /
15-May / 7486 / 184 / 3%
21-May / 7665 / 179 / 5%
11-Jun / 8099 / 434 / 11%
18-Jun / 8154 / 55 / 12%
24-Jun / 8352 / 198 / 14%
01-Jul / 8417 / 65 / 15%
08-Jul / 8758 / 341 / 20%
15-Jul / 9057 / 299 / 24%
22-Jul / 9139 / 82 / 25%
29-Jul / 9044 / -95 / 24%
05-Aug / 9059 / 15 / 24%
12-Aug / 9191 / 132 / 26%
19-Aug / 9348 / 157 / 28%
26-Aug / 9442 / 94 / 29%
02-Sep / 9363 / -79 / 28%
09-Sep / 9597 / 234 / 31%
16-Sep / 9959 / 362 / 36%
21-Sep / 10121/ 162 / 39%

The "upward trend" for KingCo continues......

Source:Bob Glover RE.

synthetik said...

Most overpriced home in Seattle?

7048 19th Ave NW

This Ballard beauty was purchased on December 7, 2005 for $400,000 is zillowing for $468,000 and is now being offered for $799,000.

What a steal.

It's 3/3.5 1720 sqft built in 1914. Zillow shows it was updated in 2006 however it doesn't factor in the upgrades. I'm assuming there must be some upgrades?

Either way, all the other comparables in the area are nowhere near this price tag. In fact, most of the homes in this area in are major disrepair.

64 days on the market. Price reduced yesterday from $825K down to $799K.

Anonymous said...

Anyone know where I can find mortgage info of a house? Thanks

synthetik said...

http://www.metrokc.gov/recelec/records/

meshugy said...

7048 19th Ave NW

Yes...I agree. I've been posting that one for over a month now. I live close to it and watched the transformation from an outdated, but solid craftsman: 7048 19th Ave NW

to a yuppie dream house: 7048 19th Ave NW

I went to both open houses (pre remodel and post remodel.) They did a lot of work...added a whole bedroom...removed the wall between the kitchen and dining room to create one huge space. Tricked out the little house in the back...all very, very nice. But about 200K too much.

That house has become sort of a joke around the neighborhood....people are just astonished at the price tag!

The owners took out at a 200K Heloc on their Queen Anne house to do the work...so I guess they spent 150-200K on all the remodeling. So the house is probably worth 650K...I think that's what they'll get in the end.

WaitinginMarysville said...

"2005 was defintly not the top...not only are prices much higher in 2006...they are going up even faster then last year."

My observation here in Snohomish County is that selling prices are higher this year. The asking prices are beyond rediculous, so a lot of people have to lower their prices to sell. This is the normal progression of a RE bubble; prices continue to rise while inventory is rising. The sellers keep raising the prices, but there are fewer buyers who are willing to pay. I think the top of the market is now or perhaps it topped last month.

cosmos said...

Windermere.com Seattle area search (areas 2, 6, 3, 7, 11, 4, 8 & 9) --> number of homes listed increased by 11.97% from 8/27 to 9/24 (today), including a 2.7% increase from 9/19 to today.

synthetik said...

>7048 19TH NW

Let's make some predictions. Do you have their information from Queen Anne? What type of HELOC did they get?

I predict that they'll keep lowering the price on this puppy, but it'll never be the right price, or enough of a drop for anyone to buy it.

They'll take it off the market at $699K, too greedy to take their lumps. Then, they'll relist it at the worst possible time, when they're desperate.

Just because you put $150K of work into a house doesn't automatically increase the value $150K.

Anonymous said...

synthetik said...
Dude,
that report is from at MORTGAGE company. No credibility whatsoever.

Actually I believe PMI provides mortgage insurance for loans less that 80% LTV. Rates are driven by probability of foreclosure, market conditions etc. I'd think they'd be more prone to be bearish rather than bullish. They insure the lender.