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Monday, October 09, 2006

In a Nutshell

True story.

A friend of mine was renting a decent apartment in the Fremont / Greenlake area in early 1994 for $850 per month.

In late 1994 he bought a decent, mid-range house in the same area for $150,000. Over the next 12 years, he didn't do any major remodels, just regular maintenance and a few minor projects here and there.

He just sold the house... for over $500,000. That's 240%+ appreciation in 12 years, an average of about 10.75% per year.

Now he's back to renting a similar quality apartment to what he had in 1994, in the same general area. His monthly rent is $1,150—35% higher than in 1994.

I think that about sums up why I think there is something seriously out of whack with home prices in Seattle.

7 comments:

seattle_slow said...

Yep. Spot on. It's so out of whack, even a monkey can see it.

And yet.... there are still numerous GF's and FB's to be found. Amazing.

But, they are dwindling.


-slow

SourMash said...

Smart friend.

MisterBubble said...

It gets worse, if you consider that rents would probably be lower if property values weren't bubbled like a cheap beer....

SeattleMoose said...

"That's 240%+ appreciation in 12 years, an average of about 10.75% per year."

Guess what? "My dad is bigger than your dad".

Check this out....

3 Bed/2.5 Ba/2190 Ft2
Last Sale price: 01/20/2000:$355,000
Current Zestimate: $1,071,021
Improvements: $45,000

That is over a 268 PERCENT INCREASE in a little less than 7 years. That is 15% avg yearly appreciation over those 7 years.

How could a house almost triple in value in less than 7 years?...Denny Blaine is like a magnet for CA equity locusts. But that spigot has been clamped off almost overnight.

Expect the worst for places like this one. The CA equity locust infestation was a 1 shot offshoot of the bubble. It will not happen again in our lifetime.

PepeDaniels said...

Yes, when property starts getting hot it puts upward pressure on everyone even if they are only in the rental market.

I consider myself someone who prefers to rent for a variety of reasons - it's not perfect but I also honestly don't have the need for property, hassles and so on. Just my perspective is all.

The same thing is happening here as in S. Florida, DC, as well as other "hotspots" around the country. It makes it especially tough on what I'd call average wage earners in the economy.

I had a decent county job in S. Florida and left after a year due to the rapidly rising costs there. It just wasn't worth it. My starting pay (with a college degree) put me $500 bucks/yr over eligibility for low income housing! Thousands of teachers and others in the public sector leave places like that and it has corrosive effect on organizations who provide valuable services to the public but can't keep up with those kinds of rising costs.

I work with a local non-profit organization and know a number of people who are very enthusiastic about their work and making a difference in Seattle. I'm hearing more and more that they're thinking of packing it in and returning to places like Missouri, Arizona and so on. After awhile people feel like it's pointless despite their interest.

My point is that the effect of the bubble really seeps into people's lives who aren't even interested in the market and are basically bystanders in the market..

There seems to be little or no reason in market phenomena like the housing bubble and despite all the cheery talk about making housing right for everyone in Seattle it's not much more convincing than the RE shills in the media that are familiar to everyone.

The out of control "increases" people point out here on the blog are so out of whack with what so many people make it's not funny.

The market will have to reach better equilibrium with people's income. Right now it's a total shell game.

Jen said...

As a long-time, but young Seattle resident, it amusing me how the over-inflation of property is only now seen as affecting the "middle class and thus cause for futher study by official organizations.

I don't want to leave Seattle, but my situation is also similar to pepedaniels' comment below. Per current Seattle.gov income charts my household income (as a single, wage earner/grad student/mom still only puts me in the "60% of the median income earners" of (King County). I grew up here, I'm raising my son in a post WWI three-story, walk-up apartment, and yes, I'm frustrated.

PepeDaniels said...

Jen said...
As a long-time, but young Seattle resident, it amusing me how the over-inflation of property is only now seen as affecting the "middle class and thus cause for futher study by official organizations.


I hear you on this. It's all blurred into one fuzzy blend of media nonsense, but there's always the occasional media spotlight on the "middle income" person (making twice anyone I know mind you!)who's frustrated because they had to move further away than they wanted to to buy into something that sounds like it's wildly over their head anyway.

By the way, I'm not asking for any special treatment on buying, loans etc. My total debt is several hundered dollars and I live within my means and in some ways better than my friends who do own. What makes me crazy is when the rental market I'm trying to live in responsibly (not wracking up debt etc.) goes through the ceiling because real estate has become a chip in someone else's binge trip to the RE poker table.

I've been a life long Democrat but I'm already dreading the day when there's a giant bail out of knuckleheads who will be excused because they overspent on the American Dream, yada yada yada....

It would be one big wash out of responsibility for the RE industry who misled people, buyers who weren't responsible enough to get the facts about how financing works and were horny to go shopping with their new HELOcked lifestyle, the various national and local media outlets for failing to do any real analysis or reporting on this, the politicians who will pander to any and all for the next round of their own personal sucess....

I'm sure I missed others but I can't think of them at the moment!