November Market Predictions Anyone?

As November draws to a close, would anyone care to venture any guesses as to what the King County MLS numbers for the month will show? Here are my guesses, straight outta left field:

Median Closed Sales Price (Res): $435,000
Median Closed Sales Price (Condo): $260,000
Active Listings (Res): 7,250
Pending Sales (Res): 2,000

If the numbers come out close to those, that would pretty much fall in line with my expectations for the close of this year. YOY listings would be up ~32% and sales down ~14%, while the median price falls back slightly to early summer levels (but up ~12% YOY).

I also predict that if pending sales are in that ballpark, there will be no shortage of claims in the press that the slow sales are "due to the unusually wet weather."

What are your predictions?

Rose-Tinted Listings

I get the feeling that someone at Inman News has been reading Seattle Bubble lately... Check out this story about the misleading descriptions real estate agents sometimes write for properties.

Do you steam when you follow up on a newspaper advertisement for "cozy cottage" and find a falling-down fixer? Can the term "waterfront access" accurately describe a public boat launch three miles away?

Advertisements sometimes are too complimentary and do not accurately describe the property for which they were written. Some homeowners and creative real estate agents, like many people in the sales game, dress up a product prettier than it actually is to lure the largest number of potential buyers — especially when the market has slowed in many neighborhoods.
...
In Washington state, Puget Sound residents are spoiled and often take for granted the number of properties with amenities in this region. The numerous bodies of water coupled with terraced hillsides offer area residents view opportunities not available in most areas of the country.

But don't get carried away if you are a seller attempting to write an ad. A "peekaboo Sound view" should be more than standing on a toilet and cranking your neck to get a glimpse of water through the neighbor's trees in winter.

Now check out this quote (first posted as part of a comment, then in a separate blog post) from one of Seattle Bubble's most vocal prognosticators, Eleua:

"peakaboo view" = in the dead of winter, during a 50 knot gale, you may, if conditions are perfect, be able to use a 500 power telescope from the upper windows in the laundry room, and be able to see more than 1/4 mile for half of a second.

Granted, not exactly the same wording, but Inman's story certainly sounds to me like it was "inspired by" Eleua's "Rosetta Stone."

What's the most egregious example that you have personally seen of an overly-rosy property description?

(Inman News, 11.29.2006)

Sell It In The Slow Season

Story from HeraldNet.com, November 26, 2006

Summer, the prime time for selling a home, was approaching and Jeanne and Eric Mehan wanted to sell fast.

In the rush to sell before fall, the Woodinville couple acted on some bad advice.

Put it on the market, full of clutter, not cleaned, at top price, even if it's not ready, advised their real estate agent. Let's market your home to a flipper, someone who wants to buy it, fix it and resell. Let's see if we get a nibble and you can work on it in the meantime, the agent told them.

Wow, that was some bad advice. Weren't the flippers mostly gone by fall?

The agent took marketing photos of the laundry room with the toilet seat up and dirty clothes piled on the floor - with his cell phone camera.

The Mehans' house got some foot traffic and a few offers for half the $475,000 asking price. Meanwhile, the precious summer season faded. The agent suggested pulling the property off the market and re-listing.

Half of the asking price! Now we're talking...

"At that point I wanted nothing more to do with him. I fired him," Jeanne Mehan said.

Now it was fall and the holidays were around the corner. Could they sell their home quickly during a traditionally soft market?

The months before Christmas are often considered a difficult time to sell a home. Potential buyers are hunkered down for the holidays and sellers don't want to mess with listing a home during those busy months, the thinking goes.

Fewer people are buying single-family homes and condominiums in November, December and January, according to statistics kept by the Northwest Multiple Listing Service.

Pending sales were at their highest last year in June, with 8,896 recorded in King, Snohomish, Pierce and Kitsap counties. By December, sales had dipped to almost half of that, with 4,837 recorded.

That doesn't mean selling is going to be a cakewalk. Houses need to be priced what they're worth, agents need to market homes aggressively and sellers need to be willing to clean and fix problems, Deptuch said.

Buyers are pickier than ever, she said. Buyers expect the walls to be painted and the carpet to be in good shape. They want homes clean and free of clutter. Buyers want to walk into a home and feel like it could be theirs, she said.

The Mehans moved extra belongings into storage and hired professional cleaners. They painted the house in and out, replaced dated garage doors and put in a new lawn. The house got new light fixtures, doors and carpets.

The result: the couple put their house on the market for $429,999. Within a dozen days they received three offers and a sale is pending.

Don't you just love a happy ending?

(Debra Smith, HeraldNet.com, 11.26.2006)

Trend: More Price Reductions for Seattle

From Bubble Markets Inventory Tracking:

Percentage of Reduced Listings Per Market.

Ventura County:
10/22: 51.3%---> 11/18: 50.3%

Sacramento Metro:
1/30: 30.5%---> 10/20: 49.0%---> 11/18: 49.0%

Orange County:
1/30: 22.8%---> 10/20: 45.8%---> 11/18: 45.0%

San Diego County:
1/30: 26.3%---> 10/20: 43.9%---> 11/18: 42.9%

Phoenix Metro:
1/30: 28.0%---> 10/20: 43.2%---> 11/18: 42.2%

Riverside County:
1/30: 27.3%---> 10/20: 40.2%---> 11/18: 39.5%

Las Vegas Metro:
1/30: 21.0%---> 10/20: 40.0%---> 11/18: 39.9%

Los Angeles County:
1/30: 21.8%---> 10/20: 39.6%---> 11/18: 38.8%

Seattle Metro:
1/30: 17.1%---> 10/20: 33.0%---> 11/18: 33.9%

Santa Clara County:
1/30: 13.6%---> 10/20: 30.8%---> 11/18: 32.7%

2006 Price Reduction history in Seattle, showing the clear trend.

11/18: 33.9%
10/20: 33.0%
09/14: 28.1%
08/13: 25.2%
07/13: 24.0%
06/13: 21.8%
05/13: 20.3%
01/30: 17.1%

(data courtesy of ziprealty.com)

WCRER: Affordability Continues To Drop

The Washington Center for Real Estate Research (WCRER)has released their latest affordability statistics. Unsurprisingly, home affordability in King County dropped yet again, reaching a new low of 69.2. Here's your latest graph of WCRER's index since 1994:

Click to enlarge

The decline in affordability from Q2 to Q3 was relatively minor, due to lower interest rates in Q3, combined with a smaller increase in the price of homes than previous quarters.

WCRER Director Glen Crellin is quoted in the Associated Press article about these latest figures as saying "home ownership depends on the ability to purchase the first home, and too often that is more a dream than a reality." First time buyer affordability in King County also reached a new low, coming in at 38.8 for the quarter. In a "normal" market in King County, first time buyer affordability tends to be in the 60's. If first-time buyers really do get priced out forever, who will existing homeowners sell their homes to when they want to upgrade?

I don't see how this trend can possibly continue for much longer.

(Nicholas K. Geranios, AP via Seattle P-I, 11.22.2006)

Congratulations, You're A Homeowner... Psych!

King 5 News reports on a home-buying scheme that has ensnared at least a few unsuspecting victims:

Imagine buying a home and moving in, only to find out later that the house was never yours at all.

It's a mortgage scheme that's caused financial pain and heartache for many families in Western Washington.

It's a scam so bizarre it's hard to believe anyone could pull it off.
...
How can you possibly buy a house and find out later it's not yours? After studying hundreds of pages of real estate records, e-mails, and phone logs, the KING 5 Investigators have figured it out.

Liza Bautista, a polished mortgage broker, who routinely touts her churchgoing ways, is at the center of it all.

Bautista often tells clients she's a Christian who likes to help people with rocky credit buy their first home.

Mary Pelayo is one of those people.

She saw an ad for Bautista's business that sounded perfect: "Want to buy a house, credit problems? We can help."

"It was awesome," Pelayo said, "until it all started falling apart."

The bombshell that showed something was wrong was name on the mortgage bill, not Pelayo, but Lydia Pagdilao.

Lydia Pagdilao says someone must have forged her signature. The documents show she owns the Pelayo's house, but she says she's never heard of it.
...
Every person whose signature was forged, like Lydia Pagdilao, had given their financial information to Liza Bautista in the past for deals that were legitimate.

Later, when Bautista couldn't get loans for families with credit problems, like the Pelayos, she secretly replaced their paperwork with information she took from clients with good credit.

With the deals pushed through, she collected her commissions.
...
"Shame on them, how can you do this to innocent hard working people?" Pelayo asked. "I mean, it's everybody's dream to own their own home."

Although the article says "it's hard to believe anyone could pull it off," I don't find it hard to believe at all. It's really just a small step beyond the risky (but legal) financial situations that a large number of people are willing to put themselves in so they can "own" a home. I wonder what percentage of people actually read and (mostly) understand the mountains of paperwork that they're required to sign during the home buying process, versus the number of people that just sign whatever the mortgage broker puts in front of them.

I think that as long as people are blindly enthusiastic about getting into a home (whether or not it's the right decision for them at the time), there will be ample opportunity for shysters to pull this kind of garbage.

As an aside, it really pisses me off when people like this call themselves Christian and yet have no qualms with taking advantage of their fellow man. That's about the furthest thing from Jesus' message that I can think of. However, that's a subject for another blog.

(Susannah Frame, King 5 News, 11.20.2006)

An Anecdotal Update (Or Two)

I noticed on my drive home from work one day last week that the for sale signs had come down from in front of the million-dollar new construction on Avondale. Recall that just under a month ago, the price was dropped (again) to $1,275,000.

So did the house sell, or are they just taking it off the market, hoping to re-list with greater success in the spring? As it turns out, the answer is neither one. After getting no bites for six months, despite knocking $450,000 (28%) off the original asking price, the seller decided to fire their agent. The Coldwell Banker signs came down, and over the weekend, shiny new RE/MAX signs were erected.

And just like that, the property now shows up as "New on Market!" Although the asking price is holding steady at $1,275,000, at least they made an effort to make the listing appear new, with all new pictures and an amusing new description.

Old 'n Busted:

Remarkable new construction on 3+ private acres close into redmond. Easy 520 & 405 commute. Soaring ceilings, arches, granite, tile & hdwds. Craftsman wood details throughout. Massive north & south wings. Private master wing w/library, office/workout room, 2 large walk-in closets, w/d hookup. Oversized 990+/- sf garage w/office & full bath. Spectacular waterfall cascading 30' into pond. Gorgeously landscaped w/abundant parking. Property in 2 large tiers. Upper tier could be cleared for horses.

New Hotness:

A warm & elegant tribute to the distinctive northwest craftsman lifestyle! New majestic custom home on over 3 peaceful, close-in acres w/equestrian opp. Featuring glistening hardwoods in sun-filled rooms, arched doorways, library, slab granite, state of the art stainless steel gourmet kitchen-6 burner viking. Open & flowing w/soaring ceilings, greatroom, dining, family~bonus designed for entertaining. Showcase master suite retreat w/fplc, spa bath, dual closets. Caretaker-nanny-ext. Family wing.

Maybe a glistening new description is just what's needed to finally unload this beast.

Also, in case anyone was wondering, apparently home staging isn't enough to move a property that's simply overpriced. The Olympia property that was featured in an article on home staging a month ago is still active on the MLS. So much for that open house bringing "similar results."

Seattle Bubble Stats: Where are the Condos?

The question was asked on my number-crunching post last week of why I do not include condos in most of the statistics that I post here. Since that is a valid question that other people may be wondering as well, I thought I would post the answer where it will gain more visibility.

I choose to present this particular dataset for the following reasons:

1) SFH prices tend to be less volatile than condo prices.

Since 2001, the YOY change in SFH median price has ranged from 0.35% (Mar-01) to 20.00% (Oct-05), a total spread of just under 20 points. Condos: -5.21% (Aug-02) to 22.08% (Jul-06), a total spread of over 27 points. The maximum month-to-month change in the SFH YOY figure was a 6.32 point drop (April to May '01), with 10 months experiencing a greater than 5 point change from the previous month. Condos: a 21.54 point jump (Dec-01 to Jan-02), with 19 months experiencing a greater than 5 point change.

2) Consistently quoting SFH figures provides an easy comparison.

The monthly reports in the newspaper often seem to cherry-pick whatever statistic supports the "angle" that they chose to take for the story. By picking one dataset and sticking with it, I feel that I provide the readers with a better baseline for what's really going on.

3) Frankly, I'm just more interested in SFH's.

I make no value judgments regarding any person's choice of whether to buy a condo or a SFH, but for me personally, I'm just not all that interested in condos. That is not to say that a condo buyer and a SFH buyer are "not equal in [my] eyes," or that condo purchases aren't "worthy," just that what goes on in the condo market doesn't interest me as much. That being said, I do have a number of charts of the condo numbers in the Seattle Bubble Spreadsheet, which is always available to anyone who bothers to click the link on the sidebar.

New Number Crunching: Price Breakdowns

With great thanks to Alan (aka PugetHouse), I have added a new weapon to Seattle Bubble's statistical war chest: price breakdowns.* It is fairly common knowledge that although it is the most convenient indicator to discuss, the median sales price does not give a very complete picture of the changing housing market. Price breakdowns, i.e. how many homes sold each month in a given price range, will hopefully give us some additional understanding about what is really going on with home prices.

All the numbers below refer to closed "residential" sales in King County only. As usual, all the data and charts found in this post have been added to the Seattle Bubble Spreadsheet for your number-crunching pleasure.

The NWMLS breaks the data down into 29 different price brackets, but for ease of viewing, I have lumped the figures into the following five price brackets: 0 - <$250k, $250k - <$350k, $350k - <$500k, $500k - <$750k, & $750k & Up. To start off, here's a chart showing the percentage of total monthly sales that each bracket accounted for from 2005 through last month.

Click to enlarge

A particular point of interest is March of this year, when the percentage of homes sold in the $250k - $350k range took a 3.5 point nose-dive (30.5% to 27.0%), while the $500k - $750k range jumped 2.4 points (19.6% to 22.0%) and the $750k & Up range jumped 3.4 points (9.5% to 12.9%).

The most dramatic change was in the up to $250k price range, which plummeted from 22.2% of sales in January 2005 (median: $330,000) to a mere 3.8% in October 2006 (median: $440,000). Also worth noting is the approximate doubling of both the $500k - $750k range (from 12.7% to 25.4%) and the $750k & Up range (from 6.3% to 13.8%).

Here is another way of looking at the data:

Click to enlarge

In this chart, I have plotted the percent change of each category's monthly share from its average share over the previous six months. For example, in the six months prior to January 2006, sales of homes in the 0 - $250k range made up 10.7% of all sales, while in January that range accounted for just 7.9% of sales, so the total share of sales for the 0 - $250k range was 25.8% lower in January 2006 than the previous six months. Since theoretically there should be little to no seasonal affects on the price breakdown percentages, I believe that a six-month average is a good way to look at the trend.

As you can see, the $250k - $350k and $350k - $500k price ranges tend to hold relatively steady, not deviating much more than +/- 10% most months. However, the low end (0 - $250k) has been consistently dropping, most months by over 20% of the previous six-month total. Also interesting is the surge in sales of $500k - $750k and $750k & Up during the spring and summer of this year, with the high end breaking the +20% barrier three times.

What does this all mean? Good question. Obviously if all homes were appreciating equally, we would expect to see the percentage of sales in the lower price ranges steadily decline, and the higher price ranges steadily increase. To some degree, that's what we are seeing here. On the other hand, the theory that an unusually large amount of high-end sales might be skewing the median upward certainly seems defensible, given the sustained spike in the upper two brackets since March.

I don't think this particular piece of the puzzle is enough data to draw any strong conclusions, but I definitely find it interesting.

* Although these statistics were gathered via searches of the NWMLS database, I should include the following disclaimer: Statistics not compiled or published by NWMLS.

The Monthly Payment Buyer

The excellent personal finance blog Get Rich Slowly (highly recommended—one of my daily reads) posted a link yesterday that reminded me of a topic that I've been meaning to post on. As I read the story, titled "Cars affordability: Cheapest since 1980" I couldn't help but think about the stark contrast between the price trends of cars versus real estate. Granted, land does not "wear out" in the way that cars do, so you wouldn't expect real estate today to cost less than in 1980, but there is a similarity in the buying process of each that I've been thinking about lately.

Cars and real estate are similar in that the purchase price is negotiable. Think about the negotiation process that you go through when you buy a car. If you're a smart buyer, you come to the table with a pretty good idea of what the car is worth, and negotiate the price based on that bottom-line. The monthly payment, taxes, fees, dealer extras, and trade-in value are important factors in your total out-of-pocket cost for the car, but they are all secondary to the purchase price of the vehicle. Consider this quote from the Edmunds.com article Confessions of a Car Salesman:

From my commission check it was clear that the minivan couple could have made a better deal and saved several thousand dollars. So where did they go wrong? Well, first of all, they negotiated as monthly payment buyers, rather than bargaining on the purchase price of the vehicle. When you agree to be a "monthly payment buyer" several variables are introduced that are harder to keep track of: the term of the loan can be extended up to 72 months (six years!) without your awareness and the interest rate can be raised. When you bargain on purchase price, it is a cleaner, simpler way of negotiating.

If you think about it, this is exactly what has happened with real estate. The combined forces of super-low interest rates and loose lending practices have turned the vast majority of home buyers into "monthly payment buyers." A recent post by Ardell at RCG titled Beginning the Home Buying Process illustrates this phenomenon (emphasis hers—as usual):

STEP 1: The first step is the most extensive one, as it combines many factors. Home Price, which is determined by monthly payment affordability, cash needed to close, and commission to be paid to the Buyer's Agent.

The first step is to base your home price on your "monthly payment affordability"—exactly the mistake mentioned above by the undercover car salesman that led to overpaying by thousands of dollars on a new car. In my opinion, it's no wonder that home prices have gotten so out of whack with true fundamentals, when the first question someone asks in the home buying process is not "Is this house worth $XXX,000?" but rather "Can I afford $X,000 per month (no matter what kind of financing it takes)?" Obviously a monthly payment must be affordable, but should that really be the sole determining factor in whether a house is worth buying?

The longer this kind of mindset goes on, the more detached the price of real estate becomes from where it "should" be. In a way it pisses me off, because I know that for every person like me that thinks "there's no way that house is worth $500,000!" there are hundreds (probably even thousands) of people that say "if we stretch our budget, we can afford $2,500 per month," and thus the lunacy continues.

At least I know that the madness will end eventually, one way or another.

(Chandler Phillips, Edmunds.com)
(Ardell DellaLoggia, Rain City Real Estate Guide, 09.08.2006)

The Puget Sound "economic" levee: will it hold?

From Business Week:

"St. Louis Fed president William Poole said, according to Bloomberg News. ‘As long as the housing problem remains confined to housing, there’s really nothing the Federal Reserve can or should do.’”

Realistically, I don't think this will be the case. From a business perspective, I'm watching cash flow more intensely than ever. Will it trickle down to my Holiday spending? No question.

Another comment:

"I don't think we've seen the bottom yet, and I don't see anything that says it's going to get significantly better in 2007," said Bob Nardelli, Home Depot's chairman and chief executive officer.

Mr. Nardelli said job losses in the home construction market are the worst he's seen in 35 years, and the pain is starting to spread to the home renovation market.

"The loss of jobs . . . in the home construction market is at unprecedented levels," Mr. Nardelli told analysts on a conference call yesterday. "Home builders [are] basically writing off earnest money and liquidating land. We're starting to see a lot of that unemployment find its way over to the small repair and remodel contractors."

Problems in the housing sector have also begun to affect how consumers spend their money. In October, U.S. retail sales fell at an annual rate of 0.2 per cent -- the third consecutive monthly decline, according to a U.S. Commerce Department report yesterday.

My east coast bureau chief (brother & family from Massachusetts) is coming home for the Thanksgiving break next week. I'll get his housing report.

Is there an "economic" levee built around Puget Sound & vicinity strong enough to withstand the clear real estate correction going on outside our state lines? Or, are there leaks showing up locally? Speaking of leaks... anyone else experience the Snohomish river flooding and shutting down HWY 9 last week? Unbelievable traffic. Took me 1 hour 50 minutes to get my kids to school in Everett.

Spotlight: Condo Flipper in Greenwood

Found on Ziprealty.com: 633 NW 8th St, Ballard/Loyal Heights (98117)

A developer from California has purchased a 1978 six unit apartment complex and began converting to condos in June. They've been working on a unit by unit basis and appear to be close to finishing unit #201, listed 3 days ago.

There's no image posted on ziprealty, but I've posted a satellite shot here. Note the green barn-like pattern on the North face of the structure.

From Ziprealty.com:

Newbury north in greenwood is nearly complete & now selling! Beautifully appointed 2 bed 1.75 bath unit in a cozy 6 unit bldg in a great location near hip 85th & greenwood ave intersection. Stainless appliances, granite countertops, hardwood floors, fireplace, balcony, and designer paint. 10 minute commute to seattle via i-5, or take aurora ave or 15th ave. Walking distance to greenlake; a bike ride away from ballard and u.W. Don't miss out-quality at this price doesn't come along very often!

Records indicate the property was purchased on 06/23/06 for $800,000. Five of the Six units are 2 bed/1.75bt with 950 sq ft, while one unit is a 1/1 and 650 sq ft.

I drove by this unit a few weeks ago and noticed that they were installing cheap vinyl siding over the original 3-story rectangular 1978 concrete stucco. Property Shark lists the property in "average" condition and judging by what I saw, it requires a total overhaul. In addition, the building is 2 doors down from a self car wash and the overall area looks to be in general disrepair.

Let's be generous and say it'll cost $65,000 per unit, not including holding costs or realtor commissions. That would bring the cost of the project to about $1,190,000.

If the developer is able to sell all 5 units at $275,500, and the 1 bedroom unit for $229,000, that would be $1,606,500 - or a profit of $416,500. Not too shabby.

Comparable units for sale in the area:

8354 11TH Ave NW #2, 98117
$ 284,950 (reduced 10/19/06)
939 SqFt, 2bd/1bt
59 Days on Market
MLS# 26156431

8721 2ND Ave NW, 98117
$ 289,900 (reduced 10/19 - Bank Owned)
1370 SqFt, 3bd/2bt
37 Days on Market
MLS# 26169242

4102 Stone Way N, 98117
$ 229,500 (has been relisted)
Condo Conversion 1bd/1bt
Sq Footage not Shown
MLS# 26177048

On the surface it would appear that the pricing is considerably less (under $300,000) than other condos in the area. However, we're talking a conversion here and as the market tightens one could easily assume that buyers are becoming increasingly picky in their decisions. Still, I think he's got a good shot at turning a profit since these units are priced near the KC Median of $259,700. (down slightly from a high of $269,500 in August)

Questions for readers:

How much do you think the actual cost of a full renovation of this unit would be? Is NW 85th/8th Ave in Greenwood a desirable area? Are people willing to purchase a quickly thrown together conversion at these prices? Where can I find comparable units that have already sold in this area? (I'll add them to this post)

It's hip, cozy and has granite countertops! What more could anyone want?

Our Town A to Z

Alki - What you will become after your home becomes a boat anchor

Belltown - Experience fine dining while warding off homeless and addicts

Capitol Hill - Enjoy wearing your fauxhawk while calling 9-11

Denny-ile - Denial over the negative appreciation in your recent downtown Seattle condo purchase

Eastside - Close to Microsoft. Location, Location, Location

Fremont - Hippies have been displaced by hipsters

Goldilocks - Seattle RE is not too hot or cold - it's just right!

House poor - A condition many Seattleites may find themselves facing in 2007.

Irrational District - Someone needs to open a pizza joint up in this mug and fast

Jobs - Becoming increasingly scarce in any field related to real estate and other sectors tied to consumer spending starting in 2007

Klondike Gold Rush Museum - History of yet another asset bubble

Lake Washington - It's great if you have the $2M entrance fee

Mudslides - Increasing property values since 1901

Neighborhoods - If you can afford them, Seattle has some nice ones

Occidental Park - see Belltown

Pike Place Market - Much ballyhooed place for bruised fish and pan handling

Queen Anne - In need of a 40% haircut

Renting - A wise alternative to buying in this market. Have a little patience and buy beautiful Queen Anne view homes for pennies on the dollar by 2009.

Sailboat - A great place to live after your house capsizes

Tooth & Nail - How you'll be fighting to make the payments on your 1960's boxy Ballard money pit

Unemployment - What goes up when consumer spending goes down as a result of the housing bust

Vulcan - A company that consistently makes wise investment decisions

Weather - A major draw for the "equity locusts" of California

XXX - A city so liberal it proposes ridiculous laws (4 foot rule)

Y - Why not buy a house today?

Zoning - New zoning laws will finally allow all those Vancouver-like condos to be built downtown, thus cementing our bubble-proof status .

A parody of this post.

God Save the Queen

A Seattle developer says he plans to save two historic apartment buildings by converting the units to condos.

"The trouble with many of these old buildings is it just doesn't pay to keep them up when you've got them as apartments," Ben Rankin, a principal of developer Pioneer Property Group, said while touring the Pittsburgh apartment building last week.

"We can offer things that are priced substantially below the new construction here and have the architectural advantage," Rankin said. "I feel that if there is a real need, it is for inexpensive owned housing in the city."

I'd venture there's a need for inexpensive rentals as well. People don't -need- to own, they want to - but certainly not by 2007 when we'll be deep in the throws of the national housing retrenchment.

On its Web site, Pioneer Property Group says it makes money on niche developments, but also has a "social mission" to "increase the density and supply of urban housing without adverse impact on our architectural heritage or the urban landscape."

"You could build a condo tower on a site that may have a five-story walk-up apartment building now," he said.

Developers are converting the Pittsburgh, a lower Queen Anne apartment building, into condos. But converting an apartment building to condos instead generally brings needed investment in an old building and creates many owners, complicating any subsequent move for demolition, Chaney said. "We think that's not a bad model."

It's not a bad model, it's an insane one. Building a new condo from scratch would take several years, where a condo conversion can be done in a matter of months. Condo conversions usually signal the end of a housing boom cycle as they're seen as a "fast buck" before the Scheiße hits the ventilator.

No matter how you sugar coat it, renters will need to find a new place to live. Worse yet, I predict these units will "repartment" themselves less than one year after they're finished. I have nothing against capitalism and during a "normal" market I can see how this would work. Unfortunately this developer is just going to waste everyone's time.

The condos range from 430 to 750 square feet, costing $239,000 to $370,000. The Pittsburgh will have four small condos selling for about $150,000. That's inexpensive by Seattle standards, but not within the reach of most of the building's renters.

Rankin said he did not see how he could make the condos that affordable in the city. The developers provided all residents with the $500 the state requires in relocation just for low-income tenants and have someone searching out nearby apartment vacancies, he said.

"There still are a lot of buildings out there for rent," Rankin said.

But Michelle Thomas, a community organizer for the Tenants Union of Washington State, said Seattle is losing too many affordable apartments.

"I'm not sure that preserving a building at the cost of preserving apartments that are affordable is that much of a priority," she said.

Sounds wonderful, doesn't it? A kind benefactor swoops down to save a few buildings from ruin, while at the same time providing a much needed service. I will enjoy watching them try to sell these!

(Aubrey Cohen, Seattle P-I, 11.14.2006)

Reader Question: TV News Interview Advice

Here's a question from Doug, a reader our almost-neighboring state of Montana:

Hi Tim (and friends). I've been really enjoying this blog lately. I'm a RE market watcher in Montana, so it's good to see news and real analysis from the Northwest.

I made a little video about my market and, amazingly, a local TV station found it and e-mailed me. They want to do an interview and show parts of the video on their evening news later this month.

Just wondering if you or your readers have any advice on how to come across. The reporter already said she was interested in knowing my motivations for making the video.

Presumably, I'm going to be viewed as a sort of doom-and-gloomer who wants to ruin the party, put developers out of business, and flush our economy (largely based on construction) down the toilet. I think we have some real problems, and I want to point them out without coming across as a jealous renter.

Any ideas, besides wearing kevlar after it airs? Thanks.

(For the record, I am a renter. But honestly, the more I rent the more I enjoy it. Even if I thought it was wise to buy today, I'm not sure I'd give up the flexibility of renting).

Congratulations Doug on being recognized for your work. The video to which Doug is referring can be viewed here. I highly recommend you check it out if you haven't seen it already. Doug lays out the basic facts of his local housing market in a simple, easy-to-follow, and compelling way.

My advice is to be as friendly and positive as possible. It's hard for people to dislike someone who is smiling and comes across as wanting the best for everyone. Also, as you're talking, be aware that most of what you say will be destined for the editing room floor. News programs air soundbites, so you want to be careful about getting into any kind of lengthy explanations of your position, because they almost certainly will take something that you say completely out of context. If something takes more than two sentences to explain, either drop it or think of a shorter way to say it.

So what about all you readers? What advice would you give to Doug? Be constructive please. Insults or off-topic rants will be deleted from this thread.

The Joys Of Condo Ownership

Once in a while, I used to get the crazy idea that it would be fun to own a condo. I was probably attracted to the relatively low price tag (compared to SFHs). However, whenever I looked into it, I was always turned off by the ridiculously expensive Home Owner's Association fees, usually ranging from $250 to as much as $500 per month. "What could be that expensive," I thought... Well, here's a good example of why condo associations frequently have to stockpile so much money: leaky condos and MIA builders.

The owners of 20 Ballard condominiums have fallen victim to the Legislature's good intentions.

The Ballard Square Condominium Owners Association sued the building's developer, Dynasty Construction Co., in 2002, claiming that their recently built homes were riddled with leaks that had caused extensive building damage and asserting that Dynasty failed to meet construction standards.

The problem was, Dynasty was dissolved in 1995, and superior and appeals courts said the owners could not sue a corporation after its demise. But the owners appealed to the state Supreme Court, which heard the case earlier this year.
...
Ballard Square had missed its opportunity. The Supreme Court unanimously dismissed the case.
...
Lara Stack moved into Ballard Square 4 1/2 years ago, several years after leaks were discovered and repaired, and a month before owners found more extensive problems.

"Water was seeping inside the stucco of the building through many different entry points," said Stack, who is the vice president of the association.

Deck structures and wood framing also were starting to rot, she said.
...
In 2000, state Sen. Jeanne Kohl-Welles, D-Seattle, proposed requiring certain guarantees from homebuilders, including five-year protection from defects resulting in water penetration. The bill never got a vote.
...
"I had just been thinking about reintroducing this bill again," she said.

But this is all too late for the residents of Ballard Square, who are spending $1.8 million to fix their building (not to mention legal fees), and are living through renovations that are now halfway done.

"We don't have privacy. There's dust everywhere," Stack said. "We just want to move on and have it complete."

The article discusses the builder tactic of forming an LLC, building the condos, then dissolving the LLC. Apparently this tactic has increased in the past "as the boom hit and [the builders] built so many of the darned things." Under a new state law, condo owners can still sue the LLC for up to three years, but after that you're pretty much out of luck.

Food for thought if you're looking at condos as a way to save you from being priced out forever.

(Aubrey Cohen, Seattle P-I, 11.10.2006)

"The Market is Returning to Normal"

Now that the NWMLS numbers have been released, let's check in with our favorite bubble-fighting dynamic duo, Rhodes & Cohen. If you were expecting them to cheer on the inexplicable increase in prices, you will not be disappointed. This month's unified message: Prices are up, but now is the time to buy! From Ms. Rhodes' article; Home sales drop, not prices.

Prospective homebuyers who've been frustrated by too much competition for too few homes — your time is now.

But don't expect to find widespread price breaks, because home prices are up.

In fact, after four months of either steady or slightly declining prices, King County's median single-family house price rose in October to $440,000, up from $425,000 in September.

The number of houses and condominiums for sale in the central Puget Sound region — King, Snohomish, Pierce and Kitsap counties — was up from 27 to 59 percent last month, compared with a year earlier, according to statistics released Tuesday by the Northwest Multiple Listing Service.

Increasing inventory is giving buyers more clout, said Lennox Scott, chairman and chief executive of John L. Scott Real Estate.

"We're adjusting from a frenzied market back down to a strong market," Scott said. "Buyers have selection."

It's pretty much the kind of booster material we've come to expect out of the Times: a strong focus on price gains and little to no mention of statistics that point to a slowdown.

On the other hand, although Ms. Cohen's article has a similar focus, it comes out a lot more balanced. I don't know if it was intended this way, but the sarcastic tone of the headline pretty much says it all: It's a buyer's market, if buyer's loaded.

More and more home sellers are chasing fewer and fewer buyers, but those who did buy in October paid more than buyers did the month or year before that, according to housing statistics released Tuesday.

The Northwest Multiple Listing Service's October report continued a trend of increasing numbers of homes on the market and fewer sales month over month and year over year. The median home price in the city was $420,000, the same as July's price after two consecutive months of declines and represented the largest year-to-year increase since July.

King County as a whole showed a similar trend, with a slightly smaller increase in inventory, a decline in sales from October 2005 and a slightly higher rise in the median home price.

The price statistics reflect what home shoppers such as Dariush Zand are seeing.

"They keep saying it's a buyers market," he said while looking over a Montlake home last month. "Prices haven't changed. I don't see any reduction."

Zand, who is planning to move back to the area from San Jose, Calif., said prices have declined there.

"California's starting to look like a pretty good deal now," he said. "And it's sunny and 75 (degrees) every day."

Of course, she still managed to throw in a heaping helping of real estate booster talking points, including the recent favorite, "the market is returning to normal."

The statistics show the market is returning to normal, said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

"Yes, the inventory is going up," he said. "It's still sitting lower than it was three years ago."

Buyers now can take time to search out the house they really want, rather than jumping at something that will do, Crellin said.

"Because of the period of frenzied activity, we sort of lost sight of what a normal market looks like and feels like."

Is it possible that while the housing market collapses in the rest of the country, Seattle just "returns to normal"? Sure, anything is possible I suppose. However, with the inventory still increasing YOY at a faster rate every month, and sales still on the decline, I have to wonder what mysterious force is going to stop these trends once the market has become "normal"?

(Elizabeth Rhodes, Seattle Times, 11.08.2006)
(Aubrey Cohen, Seattle P-I, 11.08.2006)

Inventory Eases (Very) Slightly In October

The NWMLS has posted October statistics. Although residential (excludes condo) inventory did indeed follow its usual October downward course, the decrease of less than 1% of listings was the smallest since at least 2000 (I don't have reliable inventory statistics further back). The YOY increase in inventory stands at almost 31%—a new record—while the YOY decrease in pending sales eased to 10% (from 20% last month).

The statistic that I find most bizarre is the median price of closed residential sales, which increased $15k (3.5%) from last month. The median price has only increased by more than 3% from September to October one other time since 1993—in 1995.

Anyone out there care to venture a guess as to what the heck is going on? Have home buyers in King County all gone 100% mad? What could possibly have driven prices up another $15,000 in one month?

Click to enlarge

P.S. - The Seattle Bubble Spreadsheet has been updated.

Skagit's Housing Market Staying... Strong?

Slowdown denial is in full force up in Skagit County, where in an article titled "Skagit's Housing Market: Staying Strong," a monthly rag called Skagit County Business Pulse has apparently resorted to publishing outright lies.

People will go to great lengths these days to own property, especially packages with added value. Despite the high cost of housing — a 38.3 percent increase in Skagit County alone in the past year — buying activity is up and inventory down.

Bzzt—three lies in one sentence. According to the most recent NWMLS figures, Skagit County home prices were up just 5.27%, sales were down 27%, and listings were up 51% in September vs. a year earlier. August figures are similar.

Skagit home sales have been driven by three principal demand sources, according to Jim Scott, president of the North Puget Sound Association of Realtors and owner of Windermere Real Estate/James Scott Associates in Mount Vernon.

"One is the continued growth of our county’s work force, another is the desirability of our county as a place to live and raise kids, and the third is pressure from tight housing supplies south and north of us," he states. "We value our climate and our culture so much we’re willing to pay a premium to protect and enjoy it."

Inventory in Snohomish County (south of Skagit): up 28% YOY. Inventory in Whatcom County (north of Skagit): up 72% YOY.

According to the latest figures from the 17-county Northwest Multiple Listing Service (NWMLS) in Kirkland, the average price of a home in Skagit County in August was $318,454. That was a drop of 8 percent from July when the mean was $344,440, but considerably above that for the previous August, when it was a mere $230,250.

You might be wondering: "why are they referring to average prices instead of median, and why are they using August numbers, when September statistics have been out for a month?" Well I don't know why they would choose to print average prices, but it is rather convenient that the average they quote is considerably higher than the August median of $270,000. As far as the August vs. September question, the median dropped about $5,500 from August to September, which doesn't really fit well with the title "Staying Strong" subtitle.

Where in many locations around the country the housing boom shows signs of slowing — the so-called “bubble” bursting, as some pundits would have it — sales activity in Skagit County has increased appreciably over one year, from 645 units in August 2005 to 972 in the same month this year, even though pending sales dropped from 259 to 209 in the same period and new listings decreased from 307 to 300.

While they did manage to sneak a little bit of truth into this paragraph (pending sales drop & new listings) the author apparently needs to take a course on how to read the NWMLS report. What the writer refers to as "sales activity" is actually total number of active listings—inventory.

Our real estate reporting here in Seattle usually leaves a lot to be desired, but at least the local papers don't waste our time with completely false data like this. Of course, if they do, rest assured that I'll be here to call them out.

(Skagit County Business Pulse, 11.2006)

Got Bankruptcy?

Realtors buy big ad campaign

‘It’s a great time to buy or sell a home,’ says $40 million marketing push

It might go down as the “Got milk?” moment for the housing sector.

Just as dairy associations, with their widespread ads, have tried to convince Americans of the many benefits of milk, the National Association of Realtors will begin promoting the notion that buying a home is an unalloyed good. Their $40 million campaign boldly declares: “It’s a great time to buy or sell a home.”

The ads will try to counter the drumbeat of dour housing data and news by making the case that historically low interest rates, a large supply of homes on the market and the group’s forecast of rising prices next year make now an ideal time to buy a home.

The campaign, developed by the Most Agency, based in Newport Beach, Calif., starts today with full-page ads in The Wall Street Journal and USA Today. It will make its way into other newspapers, including The New York Times, over the weekend and onto television and radio networks early next year.

“In visiting our local associations and state associations, we were hearing our members saying, ‘We are getting beat up out there,’” said Thomas Stevens, president of the trade group that represents 1.3 million real estate agents and owner of a real estate brokerage firm in the Washington, D.C., area.

“We think we need to tell them that the stars are aligned right now, and the conditions are ideal for buyers,” he added.

Independent economists, however, are somewhat more skeptical. Many predict that sales and prices, as measured by the association, which fell in August and September from a year ago, might decline further because there are too many homes on the market and because the rapid run-up in prices has put home ownership beyond the financial reach of many people.

“You can make the case that prices will rise in areas of the country that did not have a bubble,” said Ethan Harris, chief U.S. economist at Lehman Brothers. But “in the hot markets, I would say you are in for a two- to three-year adjustment in prices, not a collapse but a steady drop in prices.”

So far, prices have not dropped in the Puget Sound area. In September, the median price in Pierce County was up 1.35 percent from a year ago.

Harris recommends that buyers base their purchase decisions on whether they intend to live in an area for a few years, not on the outlook for home prices.

(Vikas Bajaj, The New York Times, 11.03.2006)

A Question Of Affordability

It is generally accepted that the more desirable an area is, the less affordable it is to live there, and specifically, to buy a home. For instance, homes in San Francisco have always been ridiculously expensive—even considering the higher median income there—because it's considered by many to be a highly desirable place to live.

For reference, here are the affordability indices (definition) for a few cities (using county-wide data from City-Data.com) around the country as of the year 2000.

City	Afford.
Houston, TX	204
St. Louis, MO	181
Sioux Falls, SD	176
Phoenix, AZ	147
Miami, FL	121
Seattle, WA	94
Boston, MA	88
San Diego, CA	87
San Francisco, CA	58
New York, NY	20

I think most people would agree that in general, cities that are lower on this list are more desirable. Obviously everyone has different opinions and preferences about what they like in a city. When I say that City A is "more desirable" than City B, I am not making any personal value judgment, but rather all I am saying is that some statistically significant percentage of people would prefer to live in City A if given the choice.

Allow me to lay out the point of this post in a very logical way.

Premise: More desirable = less affordable (and vice versa)
Fact: King County's affordability index dropped 26.7 points 2000—2005.
Fact: The affordability indices of many less-desirable locations were either stagnant or increased from 2000 to 2005.¹
Query: How has King County become 29% more desirable since 2000?

This is a completely serious question. If affordability was dropping nation-wide, then I could buy the argument that massive home price gains are due to "fundamentals." However, that is simply not the case. Huge increases in home prices have been largely limited to cities on the coasts.

If someone would care to make an argument explaining how our area is 29% more desirable now than it was in 2000, I'm all ears. Otherwise, I'm inclined to believe that the 29% affordability drop has more to do with speculation than with "fundamentals."

¹For instance, the affordability index for St. Louis, MO dropped just 4 points from 2000 to 2005 (source), while the index for Houston, TX actually increased 20 points (source).

There's Never Been A Better Time To Buy!

Click to enlarge

Home Staging Tries To Fight Slowing Market

Another sign of the times down in Olympia, where this story posted on October 22nd highlights the difficulties some would-be sellers are having finding interested buyers.

The plan was to buy a steal-of-a-deal house on the east side of Olympia, remodel it and resell it quickly for a tidy profit - pretty much like they do on TV.

But that was 10 months ago, back when South Sound's real estate market seemed almost un stoppable. After nearly four months on the market - and a few painful price reductions - Arle and Elisa Seaton of Tumwater, and their agent Craig Gunn, recently decided to enlist the services of staging professional Karen Nielsen.

Her mission: to bring the vacant, architecturally dated 80-year-old house to life - to help make it look more like a "home" by employing rented furniture, plants and accessories.

"I thought if anything is going to sell this house, that's what's going to do it," said Gunn, who has worked as an agent with Olympia Real Estate for about four years.
...
"Your house is a commodity now," said Sterling Stock, an agent with Windemere Real Estate in Olympia.

"Yeah, you're staying there until it sells, but it's a competition, and you are competing for a limited number of buyers. They're going to compare your house to all of the other houses they're looking at."
...
Earlier this year, Stock hired Nielsen to stage a home that had sat on the market for about four months. It didn't need much work.

"We added some window treatments," he said. "We took out a bunch of their furnishings that just didn't lend itself to showing very well."

The outcome?

"It sold in seven days," Stock said.

The Seatons are hoping for similar results after they host an open house from 2 to 4 p.m. today. The 2,375-square-foot home at 1008 Tullis St. in Olympia is listed for $329,900.

Since the story was posted ten days ago, I was curious to know whether the magic bullet of staging did the trick for the Seatons. Apparently not, since the home is still listed as "active" on the MLS. Bummer.

Unfortunately, I get the feeling that the Seatons (who paid $239k for the home last November) are going to need more help than a staging can offer. The most recent (September) MLS statistics for Thurston County show residential listings up 95% from last year, sales down 17%, and a median sold price up just 2.4% since they purchased the home—essentially stagnant since hitting $250,000 in February. Furthermore, a search of the Thurston County assessor's office shows that just three properties in the neighborhood have sold for more than $300,000 so far this year.

I do think that the business of staging stands to increase as the real estate market continues to slow, but it's definitely not a cure for a house that is just plain overpriced. Incidentally, my wife recently completed the Residential (Interior) Design program at the Art Institute. Maybe she should start her own staging business.

(Lisa Pemberton, The Olympian, 10.22.2006)

Don't Bet On Biotech?

Here's an interesting article that focuses on the influence bio-tech has on Seattle's economy. It's tangentially related to real estate, because of the argument we hear so often that oodles of high-tech jobs are just pouring into Seattle.

In recent years, economic development boosters both in Seattle and on the Eastside have increasingly focused their efforts on attracting biotechnology companies, citing their potential for creating high-paying jobs.

But banking on biotechs can be as risky as betting on dot-coms, or, for that matter, betting on racehorses.

One local stock analyst told the Journal recently that he and his colleagues refer to early stage biotechs as "casinos" because of their 90 percent failure rate.

But conversely they are also referred to as "The Promised Land" by analysts like Paul Latta of McAdams Wright Ragen in Seattle. That's what he calls biotechs that can successfully bring multiple drug products to market because of the profits they generate.

Biotechs that fail to reach the "promised land," however, are bound to either eventually disappear, along with the jobs they provided, or get sold, which often also results in layoffs.
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Despite the long odds facing early stage biotech ventures, industry observers and local economic development boosters say the benefits to the area that those companies provide, even if they are sometimes short-lived, far outweigh any the risks.

"It is worth it," said Maura O'Neill, the former president of Explore Life, a regional economic development group that teamed up with the city of Renton a few years ago in an effort to establish a "Science City" hub for biotechs on land that Boeing was thinking of selling off.
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The good news, O'Neill said, is that many of those soon-to-be-former Icos employees will likely elect to remain in the area and either go to work for other biotech companies, which will strengthen them, or perhaps even start up new biotech ventures.

As long as the Puget Sound region is home to outstanding medical research institutions such as the University of Washington and the Fred Hutchinson Cancer Research Center, it will continue to attract biotech and lifesciences companies, and/or birth new ones, O'Neill said.

I don't personally think that the presence or absence of bio-tech companies in our area is going to be what makes or breaks the real estate market. This article appears to support that opinion. There are people that like to throw that into the debate though, and I thought this article was worth pointing out.

(Clayton Park, King County Journal, 10.29.2006)