Thursday Open Thread
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From the Associated Press:
Home Price Drop Is Largest in 35 Years
The median price of a new home plunged in September by the largest amount in more than 35 years, even as the pace of sales rebounded for a second month.
The Commerce Department reported that the median price for a new home sold in September was $217,100, a drop of 9.7 percent from September 2005. It was the lowest median price for a new home since September 2004 and the sharpest year-over-year decline since December 1970. The weakness in new home prices was even sharper than a 2.5 percent fall in the price of existing homes last month, which had been the biggest drop on record.
The price decline for new homes came while the sales pace picked up, rising by 5.3 percent to a seasonally adjusted annual rate 1.075 million homes. It marked the second consecutive increase in sales following three months of declines.
The declines in prices served to underscore the severity of the correction in the once-booming housing market, which had seen sales of both new and existing homes soar to record levels for five consecutive years, propelled by the lowest mortgage rates in more than four decades.
This year, with mortgage rates rising through midsummer, sales have cooled considerably, with housing expected to trim more than a percentage point from overall growth in the last half of the year.
The debate is whether the slowdown will be enough to push the country into an outright recession. The Federal Reserve, recognizing the weakness in housing, halted a two-year string of interest rate increases in August and left rates unchanged for a third straight meeting on Wednesday.
peckhammer you beat me to the punch! I was just about to post that!!! Funny how sales rebounded despite the fact that prices are plummeting... People buying in at the top of the rollercoster ride, right before it hits the final crest and starts its run back to the bottom.
yeah dude, geesh, Seattle's different and stuff... Anyway, the Japanese or Chinese or some one will bail out Seattle... We're hardly part of the US anyway...
Rhodester headline...
Home Price Drop Is Largest in 35 Years (but not here... of course...*sizzle*)
a drop of 9.7 percent from September 2005
Only 70.3% to go.
I will say that I didn't think this would materialize this quickly. This drop is without the accelerant of rising unemployment, ARM adjustments (in full bloom), and a general sense of panic.
This is just an inventory correction. Wait until the other fear accelerants hit the market.
Going down?
"6.3% drop in building permits" = yikes
The process of applying for building permits implies that existing inventory is being sold at a rate in which the builders can make a profit. In other words, if sales in June are through the roof, you will see lots of applications in July. The actual building will not start until, say, September, and thus demand from June influences starts in September and permits later on.
Having a very large number of housing starts in September combined with a decline in permits implies that while houses are being built to June demand, they are not selling in September to June demand. Thus permit applications drop to September sales levels, and starts begin later...
With that in mind, I can't see how the following quote can possibly be true: "The point of maximum deterioration in housing activity has probably passed," says Jan Hatzius, chief U.S. economist at Goldman Sachs, in an Oct. 20 report.
According to the permits/starts indicators, demand is low. Low demand in September/October generally translates to low demand over the winter. And after that, we have all the ARM/IO loans resetting, and then what will happen?
Spin, spin, sugar, but it won't make the decline any less real or any less painful for many.
Peckhammer & Joe Consumer,
Would you mind posting links and just a paragraph or two of relevant quotes? Posting entire articles tends to clutter up the comment section, and it is also probably a copyright violation.
Thanks.
The point of maximum deterioration in housing activity has probably passed
I am curious...
Just how much of that 9.7% drop occured in the past three months?
How much of the 12 month period was a flat to increasing market?
IOW, were we getting the proverbial "stagnation until incomes catch up" phenomenon during the first six months, and then the market just fell out of bed during the summer?
If so, that means we are just starting to notice an acceleration in the deterioration of home prices.
I think any talk about how the worst decline is over is a bit premature.
We still don't have any real fear and certainly no loathing of housing as an investment - two ingredients that are absolutely necessary for a bottom to occur.
I think the real fireworks will be during next summer, when all the dreams of equity sugarplums dancing in the bulls' heads are dashed. Along with ARM resets, higher interest rates, inflation, and a very fragile stock market, holding an expensive house will turn to panic.
Like I said, 70.3% to go.
Who is still buying? What really perplexes me is that there still seems to be anyone still buying real-estate right now, at all. Prices are still extremely high, so why would any sane person want to buy now that it is generally understood that a downturn is under way?
Clearly SOMEONE is out there buying (including a few of my friends, who'se rationales I don't understand either)!
I was wondering how Seattle compared to other markets in terms of median price performance -where ae we on the curve. I grabbed the data from housetracker.com and plotted a bunch of markets back to March. I wish I could figure out how to post the graph here, but the gist of it is - vs. SF, Boston, LA, SD, Portland, Phx, and Sacto - Seattle, SF and Portland were the only markets that went up over the period, and seem to be "hanging on" better than others. Seems like we are 6, maybe 9 months behind those markets. Maybe I cherry picked the comparisons, but it was interesting to see.
Here is a link to it on my site.
http://deejayohspot.blogspot.com/
Ahh, wait a minute? What's with this article?
Apartment Rent, Demand Is Soaring
But Seattle's special... geez, come on, I thought we're the only ones with 'robust job growth' and all that..
In addition, the supply of rental housing tightened in the past year as many apartments were converted into condominiums in places like Florida and Southern California. Some of those units are now returning to rental markets at high prices as owners struggle to sell them
Whew... good thing, due to strong job growth there's none of that underwater condo-flipping-conversion going on here. Our markets based on stark fundementals. We've got Microsoft, I don't knwo what the rest of the country's doing.
Ahh... at least I can retreat to the safe little oasis that is the Rhodster
Chalk it up to strong job growth that's attracting newcomers, condominium conversions taking apartments out of the rental pool faster than developers can build
See, our condo-conversions are based purely on supply and demand, no speculation/investment hooey like in SoCal or SoFL... all jobs, see, we are different. We have strong jobs, so stop lumping us in with the rest of the country!
Man, what's with the hate-speech from the national media anyway... why do they hate Seattle?
The most important economic force is job growth, said Rob Kellum, chief operating officer of Suhrco Residential Properties.
"If job growth increases, apartment demand almost immediately increases," Kellum said.
ah... more like it...
The Tim: I sourced the 1/3 of an article I posted, and if anyone was to be sue for copyright violations, it would me or the company that is making this blogspace available.
That said, I will condence and link in the future. I was just so excited about the good news that I nearly wet myself. And in my haste... well... I over-quoted.
During the last recession, sellers of small "reward items" did pretty well. Cosmetics, Starbucks, etc.
I remember hearing a news report on it (here's an article on beauty shops after the recession). The idea was that when you have something positive to celebrate, (like a good day at work, an interview, found a company that will send you a reply to your resume/work inquiry) you'll go get yourself a mocha or a new shade of lipstick, instead of having a nice dinner, or buying a new pair of shoes.
If you look at SBUX, you'll see they did pretty well during the last recession. Of course, I'd imagine that the $4-a-day mocha crowd will cut down this time, and they won't have the expansion capabilities they had last time.
I also looked at Estee Lauder (EL), and they followed the S&P 500, but recovered a bit more quickly. So who can say if the "small rewards" argument holds water.
Also, the Boeing info is actually good news for the region. It basically means that Boeing will pay more people to work on the 787 project to get it off the ground. Further, while it's a short-term hit to stockholders, it's a long-term gain to spend the money up front, rather than to try to short-cut/rush the project, the way Airbus did. As long as the slowdown doesn't take too long, Boeing will be healthier for the expense. Plus, those 787 orders aren't likely to shift to Airbus since they're not really building a competing model of aircraft.
What's more, though the stock price has taken a hit, morale (at least from my tiny view into it) seems to be cruising along just fine.
The housing slowdown will destroy the region's economy. But right now, I'm optimistic (or in denial) about Boeing's future.
Starling,
Do you see any potential hiccups for the PNW economy? Is the wind all at our back?
If the nation-wide Sept-Sept housing numbers are down almost 10%, do you think that the PNW will brave the storm? If so, how so?
If the credit bubble unwinds in an uncontrollable manner, will we be spared, due to our METRONATURAL state of mind?
You talk as if we use a different currency up here, and that our economy isn't integrated with the rest of the great unwashed, who live in the rest of the country.
Often times those that are the last to fall have the most spectacular descents.
Please keep "ringing the bell."
Someone wanted the September sales stats yesterday. Here are some for King County residential housing, which seemed relevant to our discussion Today as well:
9/2005*
New Listings - 4,026
Units sold - 2,914
Avg Sq. Ft. - 2,058
Avg price - $482,369
Med price - $486,508
Price / Sq. Ft - $234
Days on market - 38
9/2006*
New Listings - 3,780
Units sold - 2,203
Avg Sq. Ft. - 2,036
Avg price - $524,663
Med price - $528,172
Price / Sq. Ft - $258
Days on market - 41
There were fewer listings this Sept. than last, but those spent longer on the market before being sold. So both sellers and buyers are more cautious. Thus, fewer houses changed hands. However, the price per square foot went up by around 10%. In my opinion, this means that "the worst" is definitely not over in PNW. The perception that you're getting more house these days for the money did not hold water in Sept. The opposite was in fact true.
Of course, Sept. was the good ol' days when we were all discussing the possibility of a price correction. These days, it's assumed fact that there is a buyers' market. I'll dredge up some October stats to see how that postulation holds up.
*I ran searches Today on sold residentials for the given periods, so that I could find out square footage. These numbers do not match up with the official MLS summary reports.
It's ironic that many of you are spelling the doom of the economy up here, and I have to assume that this tsunami wave will wipe away your jobs as well (or are you special like Seattle is 'special').
I would think that instead of commenting on and on about it, you would be working hard to figure out how you plan your survival when the crash comes.
I'll take a stab at this.
No, I don't think anyone on this forum believes their job is any more special than Seattle real estate. While I can only speak for myself, my guess is there is some anger with the orgy of speculative excess, and the inevitable bust that will follow. That financial black hole will suck many innoscent bystanders into the abyss - people that had nothing to do with the bubble.
That has me hopping mad. For the record, my job will be one of the first to go when the consumer craps all over himself. Capital has been misallocated for the past 7 years towards extending the sugarplum retirement dreams of the Babyboomers, and when the Bubble Economy finally dies, all that misallocated capital will vanish. We will all be worse off than when it started (save BK lawyers and divorce lawyers).
After that, we will have the twin government bailouts of both the REIC and the Boomer retirements. As if starting over wasn't insulting enough...
As to why it is prudent to discuss and comment on this, rather than looking for a job... Perhaps there is some comfort in surrounding yourself with like-minded people, who are all looking for the same thing. Perhaps someone has an idea that will resonate with someone else, and take that person in an entirely different direction. Also, this serves as a touchstone to a reality that is coming, but not yet here. IOW, this is a small community.
Granted, it would be better to all meet on Thursday evenings at a brew-pub and knock back a few and tell stories, or all go to a ballgame, but the internet is convenient for many.
Nope, nobody is special. Unfortunately, nobody is an island either - that's why I'm pissed off.
"Of course the Seattle-based division of Boeing is doing great, but am I just raining on your parade?"
The surge was primarily in orders for aircraft -- the same aircraft that were responsible for the fall-off in prior months -- so it’s not as exciting as the numbers would first suggest.
Speaking of paradoxes, the REIT Index remains white hot, up 30.1% for the year, which I find astounding. With interest rates rising and real estate sagging like grandma's double d's, The real estate industry is either bucking a tremendous headwind, or momentum is simply pushing prices to an inevitable summit from which the slide will deep scars.
Honestly, there are no normal pictures of me, since my wife can't focus a camera. I could take the one from my "official" website, but that one's even worse. Still, I'm glad to provide a little sport.
Synthetik was right about my previous MLS numbers. I had average list prices and sale prices in place of average and median sale prices. SORRY. There is some float to the numbers over time, since some transactions fail, and some agents do lie a tad. Some 2006 numbers changed over the course of Today. Here are the updated y-o-y stats for Sept. & Oct, as of 8pm. In keeping with the PNW trend for 2006, the
number of transactions is slowing y-o-y, but inflation keeps driving along.
The recalculated average/median y-o-y inflations per Sq.Ft. are:
in Sept.--------- 11.0% / 13.7%
for 10/14-10/25-- 19.5% / 17.9%
2005
-------------------------
September
Units sold - 2,941
Avg Sq. Ft. - 2,223*
Avg price - $482,369
Med price - $386,000
Avg price/Sq.Ft - $216.99
Med price/Sq.Ft - $199.48**
Days on market - 38/23***
10/1 - 10/13
Units sold - 874
Avg Sq. Ft. - 2,223
Avg price - $479,418
Med price - $387,250
Avg price/Sq.Ft - $215.66
Med price/Sq.Ft - $205.71
Days on market - 36/21
10/14 - 10/25
Units sold - 969
Avg Sq. Ft. - 2,185
Avg price - $468,652
Med price - $381,000
Avg price/Sq.Ft - $214.49
Med price/Sq.Ft - $198.79
Days on market - 39/22
2006
-------------------------
September
Units sold - 2,208
Avg Sq. Ft. - 2,178
Avg price - $524,448
Med price - $428,750
Avg price/Sq.Ft - $240.79
Med price/Sq.Ft - $226.89
Days on market - 41/26
10/1 - 10/13
Units sold - 781
Avg Sq. Ft. - 2,230
Avg price - $523,779
Med price - $439,900
Avg price/Sq.Ft - $234.88
Med price/Sq.Ft - $228.97
Days on market - 41
10/14 - 10/25
Units sold - 604
Avg Sq. Ft. - 2,265
Avg price - $580,470
Med price - $439,650
Avg price/Sq.Ft - $256.28
Med price/Sq.Ft - $234.28
Days on market - 42/27
* The different MLS stats reports I used give different average square footage. I assumed that the larger value factored out listings with zero sq. ft. and is thus more correct. The MLS stats reports agreed on other values.
** The median of all (price/Sq.Ft.), not (Median Price)/(Median Sq.Ft.). Houses listed with zero Sq.Ft. were not counted.
*** Average days on market / median days on market
I am a centrist myself, including in politics. I have to say though that I don't see a whole lot of extremism here. Sure, there are some doom and gloom predictions of 70% price drops now and then, just as there is the occasional claim of neverending double-digit appreciation, but one of the primary reasons I like this blog is because it is based in very large part on analyzing data, not on emotion or predetermined points of view. Being a bear or a bull does not in itself make you an extremist if you've arrived at your position based on reasoned anaylsis of the data at hand. That said, I agree with almost everything you said.
I also just wanted to say welcome to some of the new faces we've had lately -- more the better IMO, (trolls aside). Joe Consumer's thoughtful posts are definitely off on the right foot. And Pugethouse, I don't care if you're a realtor or not. You've posted data and anaysis and owned up to what seems like an honest mistake. Can't ask for better than that. Welcome to you both, and anyone else I missed.
Thanks, lake hills renter,
I've learned plenty by following along. And now I won't have to hire a focus group for feedback on my image.
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