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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."
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.
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?
10%? No. That would take us back only one year, which was three years into the boom.
-60-80%, or 1997 prices.
Seattle inventory took a big jump overnight. Yesterday 2855, today 2940. "pent-up supply"
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.
Here's the latest from PMI:
Understanding a Changing Market
They give Seattle a 15.3% chance of price reductions.
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.
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.!
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.
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.
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.
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/
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.
1 in 3 are "dee dee dee"...
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.
"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.
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?
Good blow by blow Synthetik.
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.
Anyone know where I can find mortgage info of a house? Thanks
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.
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...
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.
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