01.30.2007 - Tuesday Open Thread
This is your open thread for Tuesday, January 30, 2007. Please post random links and off-topic discussions here.
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17 comments:
Major home markets slump continues
Major home markets' slump continues
Boston and Detroit led the way down, according to latest figures from Case Shiller Weiss. Seattle bucks the trend.
The prevailing wisdom, as the times and PI assure, is that the strong job market and limited geography will essentially permanently buck the trend.
Is there evidence that investors from other markets having trouble are shifting resources to Seattle because it is still showing a nice return? Cap rates on rentals are still low here. (See DJC yesterday) If so, how long could that sustain Seattle? It seems to me that it would eventually make Seattle much more volitile in the next five years even though during the first two years, it would continue as a trend bucking Seattle.
Agreed. If investors are indeed moving money into Seattle as other markets dry up, when they eventually decide that the market has peeked here, this market could be much worse than others.
I wonder if those who think there is very little chance of big downturn in Puget Sound real-estate feel that our regional economy is just immune from a possible crash in the rest of the country, or if they don't really believe there will be a crash in more than a couple regions over the next few years?
In other words, do Puget Sound real-estate proponents believe our region is "special", or that the panic over a nation-wide crash is just overdone?
Taking it a little further, what would our friends Financeguru and Shug predict for our region if there WAS a major crash throughout the rest of the nation, with prices dropping an average of 50% (in California, Florida, New England, etc)? If such a thing did come to pass, does Shug think the impact on Seattle would be neglible?
Hey, maybe Puget Sound real-estate is inversly correlated to the rest of the country. Bring on the California crash! It will just make Washington state look that much more attractive to people wanting to escape from the loony boom-bust mentality there. :)
I think people tend to be pretty short sighted. If they do not see a problem on the immediate horizon, they have problems projecting anything other than prosperity in the immediate future.
Real estate seems to be a different animal than Wall Street. Whereas on the street investors seem to always be cognizant of a potential end to a bull run, real estate seems to be different. The thought is that the market never swings the other way, which has clearly been shown to be false. I think investors in RE have learned their lesson, and will be very careful in the next few years. This leads me to believe that the investors in the Seattle region are going to be paying extra close attention to inventory this spring time. If the market starts getting flooded with new houses that aren't moving, I would expect many of them to cash in their earnings now and sit on the sidelines until this thing plays itself out.
Just like any market, their will be those that ride it out too long, and can't sell until it's too late.
if there WAS a major crash throughout the rest of the nation, with prices dropping an average of 50% (in California, Florida, New England, etc)?
If prices in CA dropped 50%, I would move there - and I predict that many Seattle folks who used to live in CA would do the same.
(Why buy a 1946 craftsmen in Ballard for $500k when you could get one in SD for $300k...)
For those that can't connect the dots in this scenario, demand in Seattle would decline - as well as housing prices.
Nolaguy.
Hey, my wife and I are just talking about doing that. I am seeing some nicer homes in San Diego right now....with a pool for less than what you would pay here. Maybe not in Mission Hills area which is where I sold, but a heck of a lot closer than say Bothell to Seattle.
People can talk about jobs all that they want, but more jobs does not automatically create a money supply. When the subprime money dissappears, all of these people with these new jobs will not be able to get a mortgage.
Affordability is key. The best possible scenario is that Seattle stays flat for years until inflation allows affordability to keep up (if you own a home an don't want to lose equity, that is).
Prices in CA went up more than they did here, so they have further down to go too. I don't see a mass migration forming because most people have jobs, families, etc and cannot just uproot for a slightly better deal.
The rest of the nation crashing will affect Seattle too. No more equity locusts will drag the market down eventually.
Mass migration probably won't happen. But it would be possible for the I-5 south to be busier than I-5 north.
I have to think that there are a number of young professionals in Seattle that don't have kids/family and are very mobile.
If "equity locusts" can move from CA to WA in high numbers, I have to think the inverse is true as well if there was a reversal in the cost of living between CA and WA
One interesting thing to note about the Major home markets slump continues article is the 'trend bucking' of BOTH Portland and Seattle, with YOY at 11.6% and 13.0% respectiviely...
hmmm... me's asks.
I'm sure the fact that Portland and Seattle are only 180 miles apart has nothing to do with their appreciation over the rest of the country, right?
IMHO, this speaks directly to the flight-equity seen in California and not the much touted fundementals, the Seattle market is at the tail end of the whip, around 6 months by best estimates here and elsewhere....
We'll see our day of reckoning...
I was waiting for the elevator this morning and overheard two guys talking. One of the guys was discussing how he has had his house on the market for a long time with no offers. The suggestion of the other guy was to "take the house off the market for 30 days and relist it"
I so wanted to interject into the conversation but just sat and listened....
nolaguy: "If prices in CA dropped 50%, I would move there - and I predict that many Seattle folks who used to live in CA would do the same."
Really? If housing prices in California are in a free-fall, having already fallen 50%, I wonder if anyone would really be wanting to buy in that market. The Californian economy would be in the tank, with huge unemployment, and super-high taxes (as the various state and municipal governments went into bankruptcy).
What jobs would a person do moving into the state?
There is always much more enthusiasm buying homes in a rising market, rather than a crashing one.
Well, if I couldn't find work, or the economy was toast, then my hypothetical move to CA would certainly be on hold. ;-)
But, that brings up a good question:
How tied are current housing prices to local economy performance?
IMO, the current appreciation is disconnected from fundamentals like salaries.
Therefore, if prices do indeed go down significantly, does that automatically mean a recession?
According to the BLS, (http://www.bls.gov/cpi/cpifaq.htm#Question_7) the CPI is calculated using rents as opposed to mortgage payments. Has anyone ever bothered to attempt to substitute average mortgage payments into the CPI rather than rents?
Work with me here....
It seems to me that there would be a substantial, if not exponential increase in the figures that we use to determine inflation if those numbers actually accounted for a $3600 per month mortgage for granite countertops and swanky 1 bedroom lofts, instead of comparable square footage at $1000 with less fashionable amenities. Are there any broader implications here?
The CPI is used to calculate Social Security payouts, US Treasury "I" Bond rates, and is the measure Joe Sixpack uses to rate his wages. It is a measure of inflation based on a basket of goods that excludes food, energy, healthcare (to a large extent), and housing (to a large extent). It is also constantly tortured by substitutions (ie: Steak cost too much, so people ate chicken, which cost to much so people ate soy, which cost to much so now we measure the cost of dogfood). It is one manifestation of the Orwellian culture that we live in today, and helps those on top (large businesses and politicos) control the masses. Are those broad enough implications?
I'm not a conspiracy theorist, but the evidence is overwhelming.
Thank you for your list of potential implications. It is difficult to ignore the manipulation that occurs to benefit those who produce the numbers. I found this article pretty interesting if not one of the more "out there" possibilities.
If affordability is key, and inflation is understated, wages will not increase to compensate. Employers need not adjust salaries to explosive inflation because, according to the numbers, there is no problem with inflation.
So what happens?
Looks like subprime lending is on the way out:
Countrywide bracing for borrower's woes
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