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Wednesday, November 08, 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)

51 comments:

meshugy said...

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"?

Hi Tim...we definitely still have very low inventory. As mentioned in the article, we only have a 2.8 month of supply houses. We need 6 months for a balanced market and 9 months or more for a true buyers market. We're not even close to that yet.

MOM inventory is dropping..the trend is now on the way down which will start to show in the YOY soon as well. I think it's pretty clear the prices will hold and even increase over the next year.

Here's a look at Oct inventory historically:

Our inventory stands at 7865.

That's higher then last year, but below most other years:

Oct 2003: 8127
Oct 2002: 8966
Oct 2001: 8302

As you can see, we have historically low inventory right now. We need to see a much bigger build up for a crash. But, as it always does this time of year, inventory is shrinking. Once Thanksgiving hits there will be hardly anything left.

The Tim said...

Hi Meshugy,

Let's Talk Inventory.

Matthew said...

RE Speak -

Buyers market = The number of crappy, overpriced ramblers you can choose from is growing!

meshugy said...

Hi Tim...your inventory argument assumes ever increasing inventory. However, this months MLS report shows declining MOM inventory. That throws your whole argument into question...how can we achieve a true buyers market with declining inventory? Only a monumental drop in sales would do that.

But look! Not only was inventory down MOM in Oct...but sales were up MOM.

Sept Sales: 2271
Oct Sales: 2440

A 7.5% increase....looks like we're now seeing a trend towards increased sales, lower inventory, and higher prices.

The Tim said...

Meshugy,

Bzzt—you fail reading comprehension. I did not "assume ever increasing inventory." You keep pointing out MOM inventory, when I have only been focusing on YOY inventory, which is much more relevant. As anyone who spends 10 seconds looking at the data can tell, inventory always drops in the last three months of the year. However, even with the MOM drop in inventory that you seem to hold so precious, the YOY inventory increase last month was still higher than the previous months.

Let's play "Spot the Trend."

Month | YOY Inv. Change
Jan-06 | -8.19%
Feb-06 | -4.64%
Mar-06 | -2.75%
Apr-06 | +2.39%
May-06 | +10.20%
Jun-06 | +17.17%
Jul-06 | +19.29%
Aug-06 | +23.91%
Sep-06 | +28.79%
Oct-06 | +30.78%

Ardell DellaLoggia said...

King County Inventory:

Over $1M - 1,025; highest sales in one month 210, expected 105. 8 or 9 month supply

$800,000 to $1M - 585; highest sales in one month 186, expected 100. 5 or 6 month supply

$600,000 to $800,000 - 1,226; highest sales in one month 424, expected 250. 4 or 5 month supply

$400,000 to $600,000 - 2,573; highest sales in one month 1,107, expected 700, 3-4 month supply

$200,000 to $400,000 - 2,939; highest sales in one month 2,225, expected 1,100, 2-3 month supply

Less than $200,000 - 246; highest sales in one month 309, expected 150, less than 2 month supply

All stats for 2005 vs. 2006 closed sales posted on my blog by price range www.SearchingSeattleBlog.com

I'm moving on to doing Eastside only. I expect Kirkland to be the hardest hit on the over $1M inventory. I will separate condos from single family homes by City.

Matthew said...

Meshugy,

Take your Vitamin R and repeat after me:

YOY, YOY, YOY.

Even the pro RE people at the Times quote YOY. MOM tells us nothing. Anyone with even the faintest clue on RE knows that during the fall-winter months very few people put houses on the market and therefore inventory decreases MOM. YOY is much more telling. Yes 2005 was a record year, 2006 tells us that we are returning to normal. The question now is whether or not inventory will climb YOY from 2006 and the bubble will burst, or if inventory will flat-line. Stayed tuned.

meshugy said...

Hi Tim,


I don't think comparing today's market to the all time record setting #s of 2005 shows any indication of forthcoming crash. 2005 inventory was so low, and sales were so high...we'd need several years of record inventory surges to get back to a real buyers market. But instead inventory is going back down again....if a crash is coming it's a long, long way off.

Everyone has used CA as crystal ball for Seattle...look what happened there. They had inventory increaes non-stop for over a year. No Fall reduction...but we are having the normal fall reduction in inventory. Like you said, that's what always happens this time of year. So that also tells me that the market is healthy.

SDtoSEA said...

Actually you're wrong about SoCal having rising inventory. Almost of the Cal markets have had the traditional fall slowdown. San Diego #'s below.

01/30: 16,161
02/28: 17,262
03/31: 18,261
04/30: 19,480
05/31: 21,175
06/30: 22,588
07/10: 22,816
07/20: 23,265
07/31: 23,385
08/10: 23,333
08/20: 23,562
08/31: 23,381
09/10: 23,222
09/20: 22,933
09/30: 22,710
10/10: 22,312
10/20: 22,070
10/31: 21,692

meshugy said...

I was talking about last year....i'm pretty sure there was no fall slowdown in places like San Diego.

This year inventory is defintly dropping in many parts of CA.

I was referring to the common theory that we are 6mo to a year behind CA. So last years #s make a better comparison.

silenttimes said...

Does anyone know what the area nos (110, 300, etc) in the king county mls represent?

The Tim said...

silentimes,

Here is a map.

Richard said...

Mesh: I don't think comparing today's market to the all time record setting #s of 2005 shows any indication of forthcoming crash.

You say 2005 wasn't normal, but then you quote 2001, 2002 and 2003 as being better representative of "normal". Did you even live here then?


That's higher then last year, but below most other years:

Oct 2003: 8127
Oct 2002: 8966
Oct 2001: 8302


The total job losses in this region during the "normal" inventory years were staggering. Nearly 70K jobs disappeared.

It's almost as if you're postulating that the inventory numbers are completely independent of the job market and the local economy.

SDtoSEA said...

Meshugy, Here's San Diego inventory from fall of 2005. Enjoy.

07/05: 14,176
08/05: 15,240
09/05: 16,081
10/05: 16,490
11/05: 16,072
12/05: 14,591

The Tim said...

SDtoSEA,

Thanks for bringing that information to the table.

ob said...

FYI, Bellingham, and therefore Whatcom County has been the leading indicator in Washington for this cycle. I know you big city Seattle/King county cats want to think you are the center of the world (jj). But after all the national press Bellingham had as far as being a desirable place to live, prices shot up here faster then anywhere else in the state.

Check out our YOY price appreciation. -8.51%
Booyah, and look out below!

MisterBubble said...

By the way, Meshugy...you seem to be the only one obsessed with short-term inventory and sales comparisons.

The graph that Tim posts allows you to very conveniently compare inventory and sales trends with any year back to 2001.

Have you seen it?

MisterBubble said...

Speaking of...Tim, it might be a good idea to add a couple of traces to that graph with raw inventory and sales numbers. It seems like some of the most vocal bulls don't know how to correctly interpret a graph of rates of change.

dalas said...

perhaps you should look up what YOY means before speaking, mr. bubble.

I like your explaination on the changes in YOY as seasonal.

flopfolder said...

Tim,

I have a spreasheet with Ardell's sales data + graphs. I need to verify that the total numbers match those in the MLS. There is also something wierd with the Million+ category that still needs to be fixed.

Want me to e-mail you a copy for a future post?

The Tim said...

flopfolder,

I'm not sure if it's quite what I'm looking for, but it would definitely be better than nothing. Thanks!

-Tim

flopfolder said...

I kind of agree, as it has no inventory numbers attached, which makes things more difficult to interpret.

meshugy said...

The graph that Tim posts allows you to very conveniently compare inventory and sales trends with any year back to 2001.

Yes...I've seen that. Very nice of Tim to put that together. Clearly shows how strong the market is right now....I thought we'd have a lot more inventory by now. But you can clearly see on Tim's data that we're in normal territory.

Matt and Tim have stressed the important of YOY #s. We'll probably see a return to 3%-6% YOY appreciation next year. But it's amazing to see that YOY appreciation is still in the double digits for King County (10.23%). That's very high considering 3% is normal. And it's also up from last month which was only 8.6%. So not only are prices going up...they're going up faster.

Tim, I've been here since 97. Seen a lot of ups and downs in the market. But mostly ups...

MisterBubble said...

Give it a rest, dalas.

You know as well as I do that I never said anything about year-over-year numbers being affected by seasonal trends. I said that it was reasonable to expect that sales and inventory would drop going into the winter, which is entirely true.

Nolaguy said...

The increase in YoY inventory is certainly showing a cooling trend.

But I'm convinced that the Seattle housing bubble will not really "pop" until lending standards are tightened and rates are increased a bit more.

This is a credit bubble. Loose and available credit is the most glaring and obvious change in fundamentals in the run-up in prices over the last 4 years.

IMO, prices will retreat and inventory will skyrocket when you can no longer get a $400k, no-down, IO mortgage with a stated-no income application.

The YoY increases in inventory are most likely due to the recent rises in interest rates - but there are still many Peak Fools that can get mortgages out there...

MisterBubble said...

shugy says:

"Clearly shows how strong the market is right now....I thought we'd have a lot more inventory by now. But you can clearly see on Tim's data that we're in normal territory."

Can I? I guess I have a tough time seeing what the "inventory" is in those graphs, considering that they're not graphs of inventory at all. They're graphs of the change in inventory (are you sure you looked at them closely? Did you read the axis labels?)

Not that you asked, but I see a rate of YOY inventory growth that is higher than it has been since 2000, coupled with YOY declines in sales that are also at post-2000 records. In other words, the absolute numbers of sales and listings may still look "normal," but they're slowing at record rates. I don't think you understand this aspect of the data.

meshugy said...

In other words, the absolute numbers of sales and listings may still look "normal," but they're slowing at record rates. I don't think you understand this aspect of the data.

I see what you mean...but I think it's just an illusion created by last years overheated market. In general terms, a 30% decline from a previous year that had a 100% gain isn't much of a crash. Despite 30% slowdown, you're still coming out ahead of normal.

If what you're saying is true, we should see prices plummeting. They got a bit soft the last two months but then rebounded back to record highs. That tells me the market is still very competitive.

Matthew said...

I tend to agree with Nola... I think the bubble will truly "pop" when foreclosures rise and lenders tighten up

Kaleetan said...

"But I'm convinced that the Seattle housing bubble will not really "pop" until lending standards are tightened and rates are increased a bit more"

Hasn't the bubble already popped?

Thats what i have been told

MisterBubble said...

"I see what you mean...but I think it's just an illusion created by last years overheated market. In general terms, a 30% decline from a previous year that had a 100% gain isn't much of a crash."

I'm willing to concede spirit of your argument, but not the argument itself. Tim's graph is un-normalized, and therfore, it's important to keep an eye on the absolute inventory and sales numbers (which is why I suggested that they be added to the graph).

That said, a drop of 30% relative to a market that has previously doubled is still a larger change than a drop of 15% relative to a market that hasn't previously doubled (i.e. 30% of 200 is 60, whereas 15% of 100 is 15). You can't simply conclude that a large drop is insignificant because it came from a higher place.

"If what you're saying is true, we should see prices plummeting. They got a bit soft the last two months but then rebounded back to record highs. That tells me the market is still very competitive."

Again, I agree with your premise, but not your conclusion. I think that all of the local bears are somewhat puzzled by the continued rise in median prices, despite slowing sales and rising inventory.

That said, it doesn't necessarily follow that rising median prices are a result of a "competitive" market -- sales could be falling only at the low end of the market, current inventory could be drastically overpriced (leading to slow sales at higher prices to a smaller pool of buyers), or it could be that the market psychology has yet to turn in a significant way. A "competitive market" is just one explanation amongst many possible realistic explanations.

Kaleetan said...

"Loose and available credit is the most glaring and obvious change in fundamentals in the run-up in prices over the last 4 years."

I totally agree with this statement. What was the root cause of the relaxation of lending standards and the lowering of interest rates? Why did fed hold the rates so low so long. Something happened about 5 years ago, just cant put my finger on it ;)

Matthew said...

I shouldn't say foreclosures "rise" because they are already rising. I mean to say that once they reach epic proportions (coming next year).

Nolaguy said...

Kaleetan,

I just read an article yesterday where a top Fed guy was saying that, in hindsight, the lowering of rates to 40 year lows was a mistake based on 'faulty data'.

Speaking to a group of New York economists last Thursday, Richard W. Fisher acknowledged that some bad data on inflation caused the Fed to hold interest rates too low for too long, fueling the house-price bubble of the last few years.

http://www.philly.com/mld/inquirer/business/15954757.htm

"The Housing Bubble" should morph more into a macro economic discussion, IMO.

dalas said...

dalas said...

Another stat to point out, total new listing YOY on both monthly and YTD are lower this year than last. More sellers panicking to sell, bubble bursting?


MisterBubble said...

Yes, dalas has a point. It's just not the point that he thinks he's making.

It is perfectly reasonable to expect that new listings would decline -- it's nearly winter, after all. Few people want to sell their homes during the holiday season. Fewer want to begin the process in October.


Case and point, "mr. bubble"

dalas said...

Popped? Base on what stat?

Keep dreaming...

Kaleetan said...

"Popped? Base on what stat?
Keep dreaming..."

Dalas
See mondays thread

uptown said...

Just wait until all those condo's hit the market next year. Drive by Seattle's Denny and Belltown areas, then head over to Bellevue. Or just look at the real estate section on the weekend. 2007 is going to be a downer.

dalas said...

KC's October YTD close sales from 1989 to 2006.

1989 17394
1990 16844
1991 14947
1992 17525
1993 16390
1994 17106
1995 15110
1996 16832
1997 18419
1998 19313
1999 20424
2000 19705
2001 19557
2002 19864
2003 24890
2004 26059
2005 27091
2006 23848

Bursting? where?

Nolaguy said...

Dalas,

Who said that a housing buble has "popped" or "burst"?

dalas said...

read above.

Kaleetan said...

synthetik said...
>Has the seattle bubble popped? and Is it a given that it will?

Yes and Yes.

>Synthetic, are you are assuming it will pop ?

It already has "popped".

Mon Nov 06, 02:39:50 PM PST

wreckingbull said...

You guys are just playing word games now. Synthetik has always stated that real estate 'pops' differently than other assets. Perhaps 'pop' is not the best word.

It is more like a sinking ship which is taking on more water than its bilge pumps can move. It is going to be a slow, creaky sinking, with some shorter periods of accelerated movement.

Yes dalas, this is an opinion from someone who is not an 'industry insider'. You can get plenty of those opinions on RCG.

dalas said...

put a time cap on this speculation, and we'll see. unless you guys have plans to call the RE crash of 2011 as the bubble bursting from 2005-2006.

MisterBubble said...

Dalas, quoting me:

"It is perfectly reasonable to expect that new listings would decline -- it's nearly winter, after all. Few people want to sell their homes during the holiday season. Fewer want to begin the process in October."

Yes, dalas, this is an exact quote of the true statement I made yesterday. What's your point?

MisterBubble said...

Actually, dalas, let me take this opportunity to point out a fact that you are again conveniently omitting:

You were wrong.

The "stats" that you included in your post simply aren't true. As such, I was pointing out two unassailable facts:

1) It would be logical for new listings to slow in the winter,

and,

2) It isn't happening.

That's why I led off my post with the observation that you weren't making that point that you thought you were making.

Oh...and by the way? It's "case in point."

dalas said...

I don't know why I am responding to someone who obviously cannot comprehend words.

I made comment of YOY, meaning October of 2006 to October of 2005. Slowdowns happen every year, hence the comparison factors in the seasonal change. Therefore by you citing "winter" slowdown, you obviously have no idea what I am talking about.

Case & point once again...I am done with this topic.

PugetHouse said...

nolaguy & ob,

Thanks for the original thoughts!

This thread was in danger of becoming a "YOY(MOM) inventory" mantra. Inventory will not be an advance indicator in our market. It's simply a convenient metric to track. The Bellingham price correction is far more portentious than KC's DEBATABLE inventory trend.

kaleetan,

BULLSEYE! With due respect to matthew & eleua, it looks like foreclosures won't have that much impact. I assumed they would, but found that KC, like US, has little exposure to the negam beast.

Local v. National Market (pdf)
It's an NAR summary, but so what?

% Share of new mortgages -- Local / National
-- (from link, p. 2) --
ARMS (2006 Q1) ------------ 47.0% 28.0%
Mortgages with LTV>90% -- 3.0%* 16.0%
Sub-Prime Mortgages ------ 5.4% 10.1%
Second Home Purchase ----- 9.7% 15.3%
Typical Down-Payment ----- ~25%**
*See also p. 6
**Locally, from p. 9

I have spot-checked the national numbers against the FNMA report. They're seemingly real.

Furthermore;
I fully agree that, given consistent job growth and the timely construction slowdown (link, p. 5), PNW is very sensitive to interest rates.

NAR thinks that an 8.0% interest rate would be enough for depreciation to begin. We'll probably see that number much earlier than we see 6.0 MOS. I think the former magic number would make for much more interesting debate than the latter would.

meshugy said...

1) It would be logical for new listings to slow in the winter,

and,

2) It isn't happening.


Hi Bubbles...new listings have actually slowed significantly. MLS shows


Res New listings Aug: 1,902
Res New listings Sep: 1,826
Res New listings Oct: 1,503

dalas said...

he's just confused between MOM and YOY. I was pointing out stats in YOY, and he was commenting how winter time slowdown is normal (MOM).

a blind fool, I guess it's better to have him on the bubble side than the non-bubble side.

trackbike said...

Can you smell the panic among the bubbleheads? They predicted a year ago that the market here would be in shambles by now. It's not. So they look for every sign of a cooling trend and prop it up as a sign of bubble bursting. Except it's a strawman argument. Almost nobody has ever said that the market was going to continue like it was in 2005. Everybody has said it would slow, or stagnate, or even drop a little. So pointing out that things are not as crazy as they were in 2005 is proving absolutely nothing about a bubble in Seattle.

MisterBubble said...

Dalas,

You're done with this conversation? Great. Considering that you've been spamming the topic in every new thread, I'm not holding my breath.

Meshugy,

Your month-over-month numbers may be correct, but since I cannot verify them (I'm not a realtor, and don't have access to the MLS stats in real time), I'll simply repeat what I said in my original post: I am not surprised to see a decline in new listings going into the winter.

To understand this mess, you have to go back to dalas' original post -- which I attacked for its factual errors:

"Another stat to point out, total new listing YOY on both monthly and YTD are lower this year than last."

As I posted in the Oct MLS report thread, his "stat" was completely fabricated -- new residential listings are actually up year-over-year for the entire NWMLS region, as well as King County. The only number that declined (slightly) was the year-to-date, year-over-year, new listing number for King County.

In other words, this tempest in a teapot is is entirely based on dalas' misrepresentation of a simple, easily verified fact: new listings traditionally decline in the winter, but they're declining more slowly this year than last.

That said, I am truly and thoroughly sick of this discussion, and I intend to ignore any posts on the matter from now on.