04.02.2007 - Monday Open Thread
This is your open thread for Monday, April 2, 2007. You may post random links and off-topic discussions here.
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30 comments:
I'll be way up in Acme today, so I won't have time to post until later. When I get back tonight, I'll probably post about this story: Average Seattle worker can't afford to live here
Of course, by "live," the P-I means "buy a home."
meep meep.
I get more satisfaction banging my head against the wall than I do trying to educate the sheeple over on the PI forums.
I love it. We believe in efficient markets, except when it comes to housing. There we need gov't intervention to make it "affordable".
Why was it again that the PI is going out of business? oh, yeah. It's irrelevant
I started reading the comments t the PI then realized...I don't care what they think. =P
Nice job with the site plug, Tim. ;)
beat me to it, synthetik....
I can predict the future. When this bubble bursts (and it will, the only true debate is when) all the shuggy's will silently disappear. They never seem to stick around and say "whew, did I get that wrong." :)
A great two-fer in yesterdays Bellingham Herald.
Loan defaults rising locally - http://www.bellinghamherald.com/102/story/52893.html
Home-loan squeeze looms here - http://www.bellinghamherald.com/102/story/52892.html
Tim, I gotta disagree with your comment on the PI soundoff. There are absolutely things that the governmen could/should do to fix this problem:
1) Institute a 100% tax on short-term capital gains on property.
2) Limit total mortgage debt for a property to under 80% of that propery's appraised value (i.e. require a 20% down-payment).
4) Make it illegal to roll sales costs into mortgage debt. Don't allow PMI exceptions for multiple loans.
5) Eliminate the mortgage interest deduction (or at least, eliminate the deduction when no payment to principal is being made).
I agree that the government shouldn't be doing ham-handed things like rent control and low-income housing quotas, but it's wrong to suggest that there's nothing that the government could do to fix this problem.
3) Abolish the Federal Reserve.
MisterBubble -
I like the high capital gains on short term property (maybe not 100%, but definitely punitive), but
I disagree with the rest, especially the bit about requiring a 20% down payment. You're still talking about a country where the savings rate is NEGATIVE. Let's say a house is $300k. Where are people going to get $60k, cash?
I don't want to see government keeping ordinary people from getting houses, because for good or bad, much of the economic growth in this country is accountable to housing (yes, that's part of the problem). I'd just like to see them arrest runaway growth.
"Typical families can afford apartments, but the rent for the average one-bedroom apartment in King County rose 8.5 percent in the past year as vacancies fell 17 percent -- down to 3.9 percent"
Renting costs are starting to creep up. A friend that is renting near UW just had her rent increased to $875 from $800 (for a 1br appt, or 9.375% increase)...and found that similar units had the same increase nearby for like kind units (as she "was" thinking of moving).
Is renting still cheaper, yes (owning costs ~1.5 times), however my condo unit is about 1.25X (for what it costs me to the amt I could rent it for, based on units in our building) since it is within a 5 to 10 minute walk to the heart of downtown Seattle. This should also insulate me (to a greater degree) if housing prices decline...but I dont get it when people talk about housing prices going down, especially since Real Estate always appreciates in Seattle??? (sarcasm)
Does anyone have a 20yr historical price appreciation chart or graph of housing appreciation rates in Seattle. When was the last time that Residential Real Estate in Seattle saw a decline??? It would be very interesting to know…
Financguru -- I don't have the historical data -- but anectdotally, back in the early 80s I remember the standard price for bungalows in Wallingford between 50th and the lake was about $60,000. This seemed like a lot of money to people back then. The house I grew up in on Thackeray Pl. NE sold about five years ago to....a couple that worked for MSFT.
you can get detailed price index info for that time frame from http://www.ofheo.gov/HPIMSA.asp
Enter in the area you looking for and hit submit. The numbers you get back with be annualized appreciation (or depreciation) by quarter.
for Seattle area I see negatives in 1981 and 1982. And really close to it in 1991.
FG -
Using Case Shiller (which is a more accurate estimate of true price changes) Seattle last saw price declines in 1990-1991. That was also the last significant recession in the US.
You can map seattle history using this tool at paperdinero.com
Just click the seattle box
I've got 15 years of historical data on my own house, and it shows about a 5% compounded annual rate of appreciation. Here are the past few sales:
3/01/2005 - $665,000
4/30/1999 - $545,000
5/04/1992 - $348,000
These numbers track almost exactly to a 5% annual rate of return. My house is a penthouse downtown high-rise condo in Seattle, and has been nicely updated through the years. The current Zillow value is $896,500 which would represent a 16% rate of appreciation over the last two years. If we are in a bubble, housing prices would have to stay flat 4 years (or fall) at this point for my house to track the 5% historical rate.
A couple of things come to mind. First, the 5% tracks almost perfectly to the often quoted 4.5% national average annual rate of appreciation. Second, for home prices to appreciate faster than this, it seems that an event needs to occur. One example is the towns in eastern Washington where Microsoft, Yahoo, and Google have been recently buying large chunks of land for new data centers. That is an event and it would make sense for these towns to see property values going up even as high as 50% in the short term.
The question I have for housing bulls is, what event has happened in Seattle in the last 2-4 years that would make Seattle much more special than it was before? My friend at Microsoft tells me they have 12,000 open positions, but 5 years ago when I worked their they had 8,000, so this seems like normal growth to me. Likewise, Boeing is doing well, but has also had good years in the past. I don't see that as an event.
So, if we are not in a bubble, which I am open to the possibility of, what event explains the increase beyond the 15 years of 5% growth that my own house has seen?
One possibility, at least for downtown condos, is the retirement of baby boomers and a new desire to move into the city. When I was young the inner-city was where poor people lived, and it wasn't considered a desirable place to live, but that has changed. I was in Lynnwood visting my wife's family yesterday and noticed 3 houses for sale in a neighborhood of about 40 houses. I asked them why people were moving and they told me that all three had all of their kids out of the house and wanted to move somewhere with lower maintenance (i.e., no yard), and closer to activities like the symphony, theater, and so on. Maybe this is enough of an event, but at this point I'm not convinced either way.
Another possible event, and not a good one, is loose lending, low interest rates, and speculation turned into a new sport. These can only be sustained if new fools are found to buy out the old fools. Those in the know (Warren Buffet for example) seem to agree with this theory.
For now, those here have convinced me enough to be cautious, so I backed out of an offer over the weekend. We will see in a year if I am thankful for the knowledge gained here or kicking myself for missing an opportunity. In the meantime there doesn't seem to be any good place to invest. With a recession on the horizon stocks aren't looking any better than real estate.
oh great.
there is a "consumer bill of rights" that the REIC is now trying to tout.
How altruistic of them.
RCG is talking about it.
Fox guarding the hen house IMO.
My house is a penthouse downtown high-rise condo in Seattle, and has been nicely updated through the years. The current Zillow value is $896,500
I CALL BS.
show me a penthouse (hi rise) in a DT Seattle location listed anywhere near that price.
I know what units in Bay Vista, Grandview, Continental Place and others were selling for in 1993 when I was shopping.
Currently no hi-rise penthouse is under 1M in Seattle unless it is a 1BR and those 1BR's weren't selling for 350k in 1992...not even close.
I'm calling your bluff until you disclose the building you are claiming.
econe, it is in Royal Manor, and there is another there for sale right now (not updated) at under $1M. The MLS for the one for sale is 26198350. It has been on the market for over 100 days, so I don't think it is worth the $998k they are asking, but I would believe 900-950 in the current market.
http://www.paperdinero.com/CSI.aspx?id=CSXR|SEXR&start=1990&stop=2007&yoy=1
Deejayoh - Thanks for the link, its the best one I have seen, as you can compare Seattle to the Composite Index. Helps us see some perspective.
I see that Seattle was tracking the composite closely until 2000, then other cites took off. Currently the 20 city composite is at about 225 and Seattle is about 180 (or about 20% less over the past 6 years). Thus we did not see the vast appreciation other cities did (yes we all know this though).
Since most of the super heated markets started to slow down in mid-2005 and Seattle is starting to show signs of slowing in early 2007, we may be able to avoid much of the negative impact since housing will likely stabilize throughout these markets over the next year or two. Is there a possibility of decline in Seattle, yes, yet most likely will not be the massive 30% that many (renters) are predicting here…oh I mean hoping for, lol.
My take on this is that any decline in housing prices will have a reduced impact on the Seattle market (because we are special of course). Also since 1987 the largest decline in one year was ~6% in Seattle. Hardly an extremely volatile market.
The construction market in Seattle is one of the top 5 markets in 2007. With all the new buildings going up this will directly increase the number of jobs in downtown Bellevue & Seattle, as workers will fill those nice “new car smell” cubicles. If you build it they will come (wrote this for Mr. Bubble since I believe he commented on it last time).
Since most of the super heated markets started to slow down in mid-2005 and Seattle is starting to show signs of slowing in early 2007, we may be able to avoid much of the negative impact since housing will likely stabilize throughout these markets over the next year or two. Is there a possibility of decline in Seattle, yes, yet most likely will not be the massive 30% that many (renters) are predicting here…oh I mean hoping for, lol.
Agree. We didn't go up so much, so probably not as much downside.
In my case - the reason I'm so interested in the state of the market is because of other reasons, I sold my home in 06/2006. Given the state of euphoria, I decided to wait out the peak and see if I could save myself some dough.
Now with nine months of hindsight, and given that it only takes a little bit of downturn to wipe out much of a 20% downpayment, I am in no way thinking I made the wrong decision!
"we may be able to avoid much of the negative impact since housing will likely stabilize throughout these markets over the next year or two. Is there a possibility of decline in Seattle, yes, yet most likely will not be the massive 30% that many (renters) are predicting here…oh I mean hoping for, lol."
Uh, yeah. Nice speculation. Worth every penny I paid for it.
A more intelligent opinion might suggest that Seattle (experiencing housing market weakness on the front end of a national recession) will have things worse than the cities who started their collapse last year.
How bad will things be if people start losing their cushy WaMu and Boeing jobs as their mortgage rates reset in 2008? That is the nightmare scenario. Don't they teach risk analysis in the Seattle U MBA program?
Uh, yeah. Nice speculation. Worth every penny I paid for it.
A more intelligent opinion might suggest that Seattle (experiencing housing market weakness on the front end of a national recession) will have things worse than the cities who started their collapse last year.
Mr. B -
Not sure how that view is any more or less speculative.
Personally, I think the only thing you can take to the bank is that every market experiences long-term regression to the mean in terms of performance.
So my $0.02 on this is that what goes up, must come down - and what doesn't go up quite as far doesn't have as far to fall (but fall it will!).
We can check back in five years, as I'm in Shiller's camp that this is gonna play out over a long time.
Hey goo-roo.
How come you never include opportunity cost of your down payment in your 'rent vs. own' comps for the Goo-roo-nest.
If I paid $400K cash for a condo which rents for $1500, and my only cost to live there was $500/month (HOA + Tax + Ins), does that make owning only cost 1/3 of renting?
Deejayoh - I put money down on for my condo on 6/27/06 and was bought for $240K, which is now worth ~$265K (or 10.4%, based on units selling in my building and surrounding buildings).
seattlehotty - I live close to your building. That is a good location you have there for sure!
Hmm -
I had a townhome in Madison Valley under contract in August for $530k - They did not finish it in time so I bailed. It is now listed at $484k. You could argue I was going to overpay, and I guess I can only agree... but it seemed completely reasonable at the time.
Now I look at it as having saved $46k in equity, plus I saved another $5k by renting a nicer place for about $900/month less than my after tax mortgage would have been. So net of it is, I am up $50k in 6 months since I should have closed.
Another six months like that, and my $100k down payment is gone.
Patience more often than not will pay handsomely.
Financing is/has played a major role in the meteoric rise in housing prices. Still is for that matter based upon what I've seen over the last three weeks.
S Crow-
How much tightening (if any) have you noticed?
www.housingtracker.net shows that inventory is still climbing, while prices remaining steady.
"Not sure how that view is any more or less speculative."
Of course it's speculation. I never said it wasn't -- I said it was a more intelligent opinion than the one being offered by "guru".
Why? Well, I base my opinion on what the economy is doing now, for starters. "Guru" tends to base his opinions on what the economy did in the past.
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