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Tuesday, April 06, 1982

04.06.2007 - Friday Open Thread

This is your open thread for Friday, April 6, 2007. You may post random links and off-topic discussions here.

Be sure to also check out the forums, and get your word in the user-driven discussions there!

96 comments:

Sven said...

Looks like the spin machine got kicked this morning... Seems to be working pretty well.

http://seattletimes.nwsource.com/html/localnews/2003654112_homesales06m.html

info said...

The recent surge in Seattle home prices are probably at least due to the massive population growth we've seen in the last few years.

Tech-Driven Metro Areas Renew Their Population Gains

Metropolitan Seattle, for instance, which grew by fewer than 20,000 residents from 2002 to 2003, gained more than 55,000 from 2005 to 2006, reaching 3.3 million.

55,000 people in one year....that's a lot of houses to fill!

Thaxter said...

Am visiting Grand Rapids, Mich., and the contrast to Seattle is startling. Every fourth house in the Heritage Hill area seems to be for sale, and every other house has a rental available. I've seen two "sold" signs in the week here and dozens and dozens of for sale signs all over the neighborhoods. Prices are falling, and the once exuberant local economy has lost its momentum. You can buy a beautiful 6 bedroom Victorian or Edwardian mansion here for under $250k easily; in the lesser neighborhoods big old houses go for about $150k. After living in Seattle for so many years and watching the prices go so ridiculously high, it's quite a sobering environment here. The locals seem to be in denial about the state of their housing, having probably bought high, and not sure when the bottom will hit.

Grivetti said...

Good homes stood out in the crowd...

Seattle:
418K
Median home price for March, up 2.7% from a year earlier and 3.2% from the previous month.

Weehoo!!! 2.7% That rawks!!!

How will all those homeowners get to sleep without the gentle chink-chink of their built-in housing ATM trickling out equity?

Well, there's always the money-faires, leaving neatly stacked crisp hundred dollar bills in recently mortgaged homes like the Easter Bunny...

JP said...

I continue to listen in amazement to the local radio spots cheerleading RE, brought to you by the Washington Realtors(tm).

In one ad, the 'b' word is even mentioned, something as follows:

". . . buyers were a bit tenative last year because of news of the RE bubble, and now that people have realized that Seattle is different (or special--I'm serious, they actually said this)and that there is no bubble here, sales have continued to increase and you need to buy now while you can still afford to . . ."

They crammed most of the usual talking points into one 30-second spot, including:

1) There is no bubble
2) Seattle is Special
3) Buy now or be priced out forever

If I didn't know any better I would have thought that I was listening to a parody ad, but no, these people are really drinking in the koolaid.

Anybody else heard any of these radio spots? I have heard two or three different ones so far.

To me, it smells of desperation, like the wheels are about ready to fall off--heck, 2-3 years ago when things were really smoking in the RE market, houses sold themselves and there was no need to run ads like this at all.

Why would they spend $$$ to run these ads if everything is going along just fine?

Hello?

Anybody?

Grivetti said...

From the Rhodester...

Thursday's news that Microsoft is leasing 1.3 million square feet of Bellevue office space, enough to house 4,000 employees, is a near guarantee that Brian Rutherford is correct about home-buying prospects.

Hahahaha! According to lake hills renter (quoting you here, lake hills) as a Microsft employee, she said this...

That's a non-starter as far as increasing (MS officespace) demand goes. The expansion is not to accommodate new hires, it's to alleviate the cramped conditions for employees that already work at MS.

so all those Microsoft employees are just going to up and move from Redmond/environs into Bellevue for the commute?

Gotta give her credit, the Rhodester's more zealous than the Knight's Templar when it comes to cheerleading local RE

Grivetti said...

More Rhodester highlights...

Mortgage rates also have remained near historic lows, making it possible for more people to buy a home.

Yeah, if you have two-pennies to rub together. Considering the girth of new mortgages are still suicide 103%, the new lending standards are going to squigy this into non-existence.

Lennox Scott, chairman of John L. Scott Real Estate, said a shortage of affordably priced homes will keep the local market strong.

Next Stop! Rocket Science!!!

Grivetti said...

sorry lake hills... you a dude or a chick? didn't know, no offense either way...

meshugy said...

Hi everyone,

I was just looking at some specific neighborhood stats.

Ballard (Area 705) had one of the highest appreciation rates for a SFH in all of Seattle

SFH Ballard March 2006: $425
SFH Ballard March 2007: $499

$75K in one year...over 17% appreciation. Pretty amazing...funny to think this time last year everyone on the blog said my house would be worth pennies by 2007.

I actually bought my house in Ballard exactly 2 years ago this month. Let's see if I made a bad investment?

SFH Ballard March 2005: $379
SFH Ballard March 2007: $499

A whopping $120K appreciation in 2 years. 31% appreciation....sounds pretty solid to me.

Let's take a look at Tim's beloved Kenmore. It did even better.


SFH Kenmore March 2006: $445
SFH Kenmore March 2007: $540

$95K in one year....crazy. Over 21% YOY appreciation.

If you look back to 2005 when Tim started this blog you'll see these #s:

SFH Kenmore March 2005: $379
SFH Kenmore March 2007: $540

Tim could have bought a house in Kenmore back in 2005 for $161K less then today...over 42% appreciation. Tim will need to see a 40% drop in prices for his gamble to pay off. Considering Kenmore in currently seeing 21% YOY appreciation, I don't think that's likely.

T,V & Mr.B said...

Here are some things to keep in mind as the Shugy’s of the world keep pumping out the vomit in their projectile fashion. The New Rules for RealEstate. I credit and plagiarized Steve Moyer, a real estate economist for these insights. I summarized them substantially, but the main points to keep in mind are:

1. When it comes to selling your home, it is better to be a year too early than a day too late. Keep that in mind shrugy.

2. The problems that are happening in San Diego, Peoria, or any of the market areas that have seen the fall-out are your problems too. Lenders all over pull back and the media will convey the news, albeit, eventually… and the psyche caries over into all areas.

3. The Fed CANNOT fix the problem. Even if they dropped interest rates to zero, they can’t MAKE lenders lend. And the lenders ARE pulling back, if they are lucky enough not to be of the 40+ already bankrupt or out of business. Nor will the Fed be willing to fix the problem. Their core responsibility is to keep the dollar sound.

4. Forget the statistics about home values holding up….they’re not! The number of sales is down considerably and the number of people willing to buy at peak prices have already dropped substantially. While the average may hold up statistically for a time, dunderheads, such as Shrug, willing to pay the average will be fewer and further between.

5.If you do buy now, the next buyer may most likely have a LOT more trouble finding a loan, even IF he/she wants to buy it from you.

6. And finally but maybe most importantly….Do Not listen to NAR, nor the CEOs of Coldwell Banker RE, Countrywide, et.al. It is like walking into a car dealership and asking the salesman if today would be a good day to buy a car.

Lake Hills Renter said...

According to lake hills renter (quoting you here, lake hills)

Quote away, I stand by my words. I don't have official numbers for hiring projections because that's not what I do, but office space is a huge issue on campus right now. Things are extremely cramped, and there are 5 year employees losing their offices to double up. It's becoming a major morale issue. The expansion isn't because of a huge projection of new hires, it's to keep the existing ones from leaving.

As far as who has to make the new commute goes, that's another issue as well. It was definitely suck to change my commute to downtown Bellevue.

sorry lake hills... you a dude or a chick? didn't know, no offense either way...

That would be "dude". No offense taken.

Lionel said...

Anyone with a properly functioning cerebrum should understand that these YOY #'s are completely meaningless. The only data set that's important in understanding the state of the obvious housing bubble is the relationship between median income and median/average home price. If people in Seattle are paying more than 3X their income for their homes, prices will adjust downward. All these other numbers are BS.

meshugy said...

With Spring numbers coming in strong it's probably a good time to review some bubble theories:

Theory 1: Loose lending standards artificially propped up prices.

False: The mortgage industry has undergone complete restructuring and we are still seeing double digit appreciation.

Theory 2: Low interest rates artificially propped up prices.

False: Interest rates have gone up over a point since their 2004/2005 lows yet the market is still strong.

Theory 3: We're 6 months or 1 year behind California. When California sneezes, Seattle catches a cold.

False: A year a go prices were flat in California. Seattle continues to enjoy double digit gains.

I welcome any thoughts as to why these theories didn't pan out.

Lionel said...

Let's see...

Theory 1: Mortgage industry has just now restructured. It wouldn't show up in any numbers yet. Bottom to fall out shortly.

2 - Never herd that theory before, so I'll ignore it.

3 - LA experienced YOY median price increase from 2006 to 2007, so numbers aren't coming down here as yet.

deeplennon said...

False: A year a go prices were flat in California. Seattle continues to enjoy double digit gains.

2.7% is double digit?

Well I guess there is two digits there..

KC, yes, Seattle, no.

Lionel said...

I have to say, the more I read this blog, the more fascinated I am as to the psychological make-up of Shug. Growing up in Socal, I've had the opportunity to witness shallowness on an epic scale, yet I can't think of too many people who are as obsessed with their material worth. I don't get it. What terrible incident occurred in Shug's childhood to spur such childish instincts, a traumatic move perhaps? What would make someone fixated on home and monetary worth and lourding this over others? They're all such intensely childish impulses.

It's amusing to me, because it shows such an incredible contrast to my parents. 40 years ago, they moved from the miserable hole know as Winnipeg to LA. My dad was a resident at UCLA, not exactly raking in the dough, but they wanted a house. They stretched and bought a half-acre of paradise in Rustic Canyon in Pacific Palisades for 40K (probably the equivalent of about 200K today). They didn't buy for an investment, they bought because they thougt it would be a great place to rear their kids. They were right. Now the joint would list for 5 mill or so. The thing is, my mom doesn't care. She still hauls her butt to work 5 days a week, mostly because she doesn't view the value of the house as part of any inherent wealth. It's the place she lives. She doesn't spend a lot of time telling people how much her house is worth (even though it's got to tickle her a little, having come from a tiny speck in Manitoba). Karma has rewarded her pure instinct to be a good parent with a very valuable property. I think karma will not treat Shug so kindly.

T,V & Mr.B said...

“With Spring numbers coming in strong it's probably a good time to review some bubble theories:”

Shrug, First of all, I really think you need to take some comprehension skills classes, along with the PI and Times. Though Median is up, (and this does not reflect true pricing, as discussed and proven in earlier posts) I would hardly state that a Active Listings increase of 33% YOY and Pending Sales down of 11% YOY is a strong spring. Any company I have ever worked for would not call a declining number of sales and fewer buyers a strong period, even if prices increased.

A year ago, California was still saying prices were rising (which they weren’t in reality) and the noticeable collapse there started a year ago. Interest rates are still historically low and the time it takes for the affect of tightening lending standards to be felt is more than 30 days. So keep blowing your hot air...even if it doesn't make any sense.

meshugy said...

KC, yes, Seattle, no.

Actually, if you look at the MLS stats for Seattle (areas 140, 385, 390,700, 705, 710, 701) you'll see that all of them had healthy double digit appreciation, some approaching 20% YOY appreciation.

What dragged the overall stats down is area 390 (the U district) which saw a YOY drop of over 40K. Area 140 (West Seattle) also had a small
drop of 10K YOY. Both those areas have extremely high volume of Townhome sales now, which is causing the median to drop, but not affecting actual home prices.

But don't worry, as this will all change next month. Pending sales for area 390 are shown at a median of 647K, a 12% increase.

FinanceGuru said...

If you look at Tim’s chart from yesterday you can clearly see that there was more inventory in 2001, 2002, & 2003 than there is currently today! How about we take a 3 or 5 year running avg for active listings and compare that to today along with pending sales. Inventory is still below the last several years avg.

If you look at the top chart Tim posted yesterday (% year to year change), it is showing a moving avg of pending sales starting to increase and inventory starting to decline…you can also see that on the second chart as well.

FinanceGuru said...

In Seattle there is not going to be a Real Estate crash until a recession occurs in this region. The economy is still much stronger than the majority of the nation, thus a growing base of people (+55,000 in the last year in the Seattle area) which means more demand for housing (renting and owning) alike.

March employment numbers just came out strong. 180,000 new jobs last month (above the ~142,000 estimate) along with an unemployment rate that dropped 0.1% to 4.4% (below the 4.6% projection). Overall the country is still hiring people, even as the entire economy is starting to moderate (2.5% GDP growth).

The Credit Market will create a drag on the market, yet will not completely doom the housing market. Over the last year we have had 12% YOY appreciation (based on the report that came out yesterday, and everyone posted on), however I have stated since last fall that my estimate for 2007 is 5%. If prices are already up 2.7% or 3.2% so far for 2007 (whichever one is right means that prices are still going up…right! ) that people are still buying.

My prediction is that we will not see negative YOY median housing prices in Seattle until a national (or regional) recession (as in two consecutive negative GDP growth).

Deejayoh said...

Argh. Scroogle effed up my account, couldn't post for a while.
Anyone else having issues?

Don't get too excited about the population numbers. 55k new residents is 1.7% growth - 97th in the country, based on an annual survey with huge confidence interval. Slightly above average growth coming on the heels of 5 years of stagnation. Hardly what I would call a fundamental driver of property values.

And I can confirme LHR's comments on the microsoft space acquisition. This is not "new news". Space has been tight for a a while, this will just be spreading out the people who are currently stacked on top of each other on campus.

Denny Retrograde said...

Seattle-related developers switching projects away from condo in other bubbly metros:

Minneapolis: Local boy Don Milliken of 2200 Westlake fame switches from condos to retail (including--heehee --Whole Foods plus--har har--a Best Buy). Spotted this on Housingbubbleblog:
http://tinyurl.com/24x3lm

Portland, slightly old news: Opus NW (currently building luxe highrise condos at 1520 Second here in Seattle) switches Portland tower from condos to apartments, returns 5% deposits to 60 pre-buyers:
http://tinyurl.com/3437v4

S Crow said...

Shug-

I'll respond to the theory's when I get a chance. Busy weekend. I disagree on all three counts, with emphasis on theory #1 & #2, and would enjoy the debate.

To kick it off (slightly OT), I would like to pose a question for everyone to ponder:

Why would people refinance in the traditional old-fashioned sense?

Okay-fine.

Now, ask yourself why people are refinancing in droves over the last two years or so up to the present.

Now, ask another question: Are people refinancing to obtain a better rate? Or, are people refinancing to obtain a better/less cumbersome payment on the mortgage or overall debt load?

Christina said...

s_crow, as someone who did refinance, saving $88K in interest and $27/month P+I at the same time, and is not interested in refinancing again, I'll go with "people refinancing to obtain a better/less cumbersome payment on the mortgage or overall debt load".

Here's a link to some Freddie Mac data about refinancing activity from 1999Q3 to 2006Q4. Note how the refinancing at an amount at least 5% beyond original mortgage went from 34% in 2003 to 87% a scant three years later.

Alan said...

I read a claim recently that $90k was around the 66th percentile for household incomes in Puget Sound based on some survey done by the county. I have no further data and do not know if this is fabricated or not.

The claim continued that only high income people can move to this area now and therefore the income distribution of new residents is high enough to support current housing prices.

I have no data to back this up or refute it, but I thought it was interesting.

BanteringBear said...

"Theory 1: Loose lending standards artificially propped up prices.

False: The mortgage industry has undergone complete restructuring and we are still seeing double digit appreciation."

LOL! Man, I've gotta thank you for the hearty laughs you provide me from time to time. But seriously, do you really believe this tripe you type? I mean, c'mon, a huge percentage of the subprime loans were being funded until the end of March. It's April 6th right now. What kind of smack are you on thinking the new standards would be reflected in the numbers so soon? Unreal.

Alan said...

I should clarify... I interpreted that 66th percentile to mean 66% of households make less than $90k. I think income percentiles are usually done the other way around. Since the mean (50th percentile) is less than $90k that is the only reasonable interpretation.

T,V & Mr.B said...

Shrug,
I certainly respect your musical talent. Berklee College of Music is AWESOME!!!! My daughter attended the conservatory across from you. I would listen to you guys jam on the street and actually own a couple o’ cds of the jazz and jazz rock stuff. Very cool and very impressive. All that being said, your critical thinking skills are a bit off kilter. Your interpretation of where things are at and where they are going is truly, truly Pollyannic and infantile. I am not saying that a smart person cannot disagree with the commentary on this blog, but your eternal optimistic banter on the market conditions is way off base.

Yes, “Median” prices are up….still…as many, many bubbleheads have continuously said that they would be. I am sure that you can understand the irrelevance of “Median” figures when it comes to pricing…If not, go back on the blog and find the pertinent explanations of “Median” or find appropriate explanations on the web.

Median is going to go up for quite a bit and has in San Diego, et al… for quite some time. That does NOT indicate real prices nor can you surmise that the value of your home has increased that much as well. It very well can indicate the exact opposite, that only the higher end homes are selling and probably at reduced prices. Your example of the median being down in a couple of areas due to condo sales, only proves that point. That argument works both ways my friend.

You bought a home….good for you. My advice to you is if you bought it for an investment, sell it now while the prices are still there. If you bought it to live in and create your music in, then great, live there long and happy.

I tease you ‘cause I think it is kinda fun. Yes you have reached cult status on this blog. Mainly because we idiots get caught up into responding to your asinine assumptions on where everything is headed. I imagine that must be fun for you as well. The performer that you are, the attention you receive must feel great, even if it isn’t due to your field.

All the fun aside though Shrug, and in complete seriousness, if you did happen to buy your home for an investment. Then now is the time to sell it. and I mean NOW!!! As I stated earlier today, Better to be a year too early, than a day too late. It is approaching. Please trust me on that. I am not bitter about not buying. I could buy right now with what I sold my home in San Diego for. I simply know better than to do so.

Enough of my diatribe. I hope you take my advice.

Another Tim in Seattle.

meshugy said...

If not, go back on the blog and find the pertinent explanations of “Median” or find appropriate explanations on the web.

Median prices are the best way to gauge a market. Ask any economist...if we only had a few K MOM appreciation you'd have a better argument. But we had a $25K increase in one month! Sorry, you can't hide from that one.

It very well can indicate the exact opposite, that only the higher end homes are selling and probably at reduced prices.

Take a look at the March MLS #s. Very few homes were sold over 500K. The vast majority were sold below $500K making the entry level of the market by far the strongest.

Mainly because we idiots get caught up into responding to your asinine assumptions on where everything is headed.

Funny, people have been calling my arguments asinine for almost 2 years on this blog. But I'm the one who ended up being right. Prices just kept going up. Attempts to prove a bubble have been futile as the market just kept going strong despite Tim and everyone else's claims. How can that be? You guys underestimated the staggering growth of this area. There's simply too much demand here and supply is at historically lows. the bubble theory is dead at this point.

Most of the real Bears have left....like Seattle Price drop and Dukes split a long time ago. I'm sure the current crop of bears will be gone this time next year when the market will still be happily appreciating.

Comrade Chairman Greenspan said...

"That's a non-starter as far as increasing (MS officespace) demand goes. The expansion is not to accommodate new hires, it's to alleviate the cramped conditions for employees that already work at MS."

Yes, they've literally been carving new offices out of the copy and mail rooms.

Personally the expansion worries me. Companies undergoing expansions right at the end of the boom are an old story, one I experienced personally in 2000.

Did the article mention that inventory is rising much faster than prices? I'll go way out on a limb before reading it and say "no".

JP said...

Argh. Scroogle effed up my account, couldn't post for a while.
Anyone else having issues?


Yes, I couldn't log in with my Blogger account either--had to use my Google one (same deal to post this message--I'm getting the 'Incorrect password' message when I try to use the blogger acct).

Comrade Chairman Greenspan said...

I'll be damned. "While agents and brokers talk about the lack of lower-priced homes, MLS statistics show that the total number of properties for sale has increased significantly over a year ago..."

MisterBubble said...

"Median prices are the best way to gauge a market. Ask any economist."

And they'll tell you that using a single number to describe something as big as a "market" is going to miss important data.

A median is a point estimate of prices, nothing more, nothing less. It may be better than the average as a point estimate, but that isn't saying much.

"if we only had a few K MOM appreciation you'd have a better argument. But we had a $25K increase in one month! Sorry, you can't hide from that one."

Nonsense. At some point, you have to use reason and common sense to interpret data. I don't care how bullish you are on the housing market -- a one-month price increase of $25,000 doesn't make sense. The number may well be correct, but it probably doesn't reflect what's actually going on in the market.

In my job, I use statistical analyses on a daily basis (in any case, I'm guessing that I had a bit more training in statistics than they give at Berklee). If I had the raw sales data in front of me, I could do some very simple tests to tell you if the shift in median sales reflect significant trends. Based on my experience and intuition however, I think this $25k "shift" is due more to sample bias and slowing sales than it is to rising same-property prices.

Deejayoh said...

Yes, I couldn't log in with my Blogger account either--had to use my Google one (same deal to post this message--I'm getting the 'Incorrect password' message when I try to use the blogger acct).

Same problem I am having.

I wish it would lock out the trolls.

MisterBubble said...

Sigh. You're right, grivetti. It's just so damned tempting.

Speaking of fishing, do you ever watch the Deadliest Catch? I think one of those crab boats docks in Ballard. Talk about old-school....

Terry said...

I visit this blog often and I enjoy reading the comments, even shug's. As I read the diverse opinions as to what the future will bring with respect to real estate values there is one over-riding factor that does not seem to get the proper consideration from housing bulls and others. That factor is - AFFORDABILITY.

According to a survey conducted in 2004, the median household income for King, Snohomish, Pierce, Kitsap, and Thurston counties was $45,177. The average household income for these same counties was $57,733. Assuming those numbers have not changed much in the last couple years how can the median income family afford to buy a median priced home of around $400,000? To me this one fact alone is like the elephant sitting in the living room that housing bulls seem to ignore. How can the current real estate market be sustainable, especially after lending standards being restricted as they are now? What am I missing here?

Grivetti said...

Speaking of fishing, do you ever watch the Deadliest Catch?

Yeah, they all of Scandi names too, like Sven, etcetera... old skool. My dad used to work for Alaska Marketers back in the crab heydey of the late 70's... Ballard was a different town and much more endearing IMHO.

The whole Urban Village thing is lame, where they're trying to build community it nukes it, and the townhome ghettos are unsightly, Ballard's full of 'em.

Although the old house I used to live in on 63rd is STILL there... an old Ballard farmhouse from day one...

Deejayoh said...

I visit this blog often and I enjoy reading the comments, even shug's. As I read the diverse opinions as to what the future will bring with respect to real estate values there is one over-riding factor that does not seem to get the proper consideration from housing bulls and others. That factor is - AFFORDABILITY.

On that topic, check out this report

As of 2006, we are the 19th least affordable market in the nation, 36th least affordable IN THE WORLD

rentalbliss said...

According to this Olympia WA is #9 on a list of top 10 foreclosure cities.

http://realestate.yahoo.com/Foreclosures

Just another observation, a friend just purchased a home in marrysville and has just moved in 5 days agao, and just a few days after moving in another home went for sale on the block a little bigger for 4K less than they paid. This is a newer subdivision so all the homes look the same and have the amenities. As well the prior sale to theirs was 2K higher for almost 300 sq ft. less. these are small numbers but put within weeks time frame you see the movement in pricing.

Terry said...

deejayoh,

Great report. Alot of info to digest.

Deejayoh said...

Terry -

Thx. There is an interesting point they make on land use policy, particulary with respect to the Austin vs. Perth comparison.

I think land use policy contributes to the relative affordability of Seattle vs. other US markets - but at the end of the day, most of the other markets that have peaked and are on the way down (LA, SF, NY, Boston) are also classified as having restrictive land use policies so it should not be looked at as providing any halo over seattle (an more than our "great" population growth)

Might be something interesting for Tim to explore if he has the desire :)

Sven said...

Personally, I rationalize this market as a bunch of cars heading over a pass... All cars will hit the top of the pass, but not necessarily at the same speeds or times since not all cars have the same features, engineering, or fuel for that matter. However, all of them will hit the top, have a plateau, and then go down.

Seattle is cresting the pass now....slightly behind the rest of the country. The statistics show clearly that growth is slowing, yet still rising despite the two large elephants sitting on the couch crowding everyone else out (Stricter Lending Standards and Affordability).

It's just a matter of time. It'll be interesting to see how much "inertia" Seattle generates on it's way down. Tacoma is currently gaining steam on it's way down in case anyone has looked at the latest NWMLS stats...

Funny story about Scandi names. I was walking my cousin's dog in Carkeek Park one time when an older gent came walking along the trail and introduced himself as "Odd. That's my name and not my disposition." Dude was a very young 81 and completely full of life. Wonder how's he's weathered the new Ballard...

meshugy said...

A median is a point estimate of prices, nothing more, nothing less.

And a very good one at that, the best we have.

But ultimately you have to get out in the trenches and see what's selling and for how much. If you do that, you'll see prices are skyrocketing.

Here's a few Ballard sales hot of the press. All sold in days with multiple bidders which shot the price over asking.

7537 33rd Ave NW

Asking price: $749
Sold Price: $760

$760K for a 1,700 sq.ft bungalow. Wow!


7558 28TH AVE NW 98117

Asking price: $499
Sold Price: $526

$526K for a 1,300 sq.ft bungalow. Not bad...

7317 EARL AVE NW


Asking price: $700
Sold Price: $705

$705K for a 2170 sq.ft bungalow.

See what I mean? People are fighting over these houses and are willing and able to pay over $700K for a bungalow. Prices are certainly going up and the MLS median is reflecting that accurately.

JP said...

Meshugy,

If anything, the examples you cite are the perfect example of how truly out of whack prices have become.

Remember Pets.com? Or Yahoo?

seattlehotty said...

Terry, a general rule of thumb is that a person can afford a house that is five times their income. Also, singles are much less likely to buy homes than married couples. Given the median income of $45,177 that you cited, a married couple would make $90,354 and could afford a home that is $451,770. That's below the $400,000 median, so I don't think things are significantly out of whack based on this statistic.

T,V & Mr.B said...

Seattle Hotty... WHAAAA????

Mike said...

See what I mean? People are fighting over these houses and are willing and able to pay over $700K for a bungalow.

This indicates multiple bidders? More than likely it's 100% financed with $5K of closing costs rolled into the purchase price.

Back when you could see the deeds of trust on the county website, every home that I checked that sold for 1% to 3% over asking price was 100% financed.

The irony is that as people ran out of cash, and needed to roll in closing costs, that pushed the price of comparable sales up. The sale gets listed, and used as a comp at the total sale price, regardless of how many dollars of loan costs or credits that get rolled in.

The companies that have been lax on appraisals and underwriting - NovaStar, New Century, Fremont, Ageis, and many others are WELL represented in Seattle area purchases and re-fi's.

The same crap that was going on everywhere else is also happening in Seattle. The only difference is that the finance problems don't show up until prices stop appreciating - and there's no more instant equity for people to pay bills with.

Seattle is ok for now, on average - but some homes are going down in value (especially new construction townhomes). Even if your SFH holds value, there are still going to be people here that bought the wrong house, at the wrong time on the wrong street - and they're not going to be able to re-fi their way out of trouble.

meshugy said...

Let's take a look back a year ago:

Tim posted this on April 7,2006

March Sales Figures Roundup

You can run, but you can't hide, Seattle. The real estate slowdown is at your doorstep and you can only deny it entrance for so long.

Well, I guess the bubble DID get denied once again. Because it's now a year later and prices are up 12%. It's gonna take a while to whipe the egg off your face on that one.

biliruben said...

Hotty -

1)That's twice the rule of thumb I'm familiar with.

There is a household income number right there in front of you that shows what the median family makes. No need to make things up.

Deejayoh said...

A median is a point estimate of prices, nothing more, nothing less.

And a very good one at that, the best we have.


Actually, the best metric is the Case-Shiller index. It's considered an accurate enough barometer that it is publicly traded on the CBOT.

Median price as a barometer has a whole lot of issues associated with it that you have pointed out - like the mix of types of houses. In the long run it is probably ok because these things will even out - but I don't read much into it on a month to month basis.

biliruben said...

Shug - you promise you won't disappear when prices turn down, right?

Prices have been flat for 11 months now. Just a few more before you your home needs Viagra.

Deejayoh said...

Terry, a general rule of thumb is that a person can afford a house that is five times their income.

Seattlehotty -

Rule of who's thumb? David Learah?

In the report I linked they defined affordability as follows

"severely unaffordable" >=5.1x median income

"seriously unaffordable" >4.1 <5.0x median income

"affordable" <=3.0x median income

You're not going to build any credibility here with comments like that one.

seattlehotty said...

biliruben, thanks, I read it as a median income for an individual, not for a household total. Then that would put things a bit out of whack. However, I question that figure. I don't know anyone who only makes $45k for an entire household. Even a two teachers would make $100k. Going further, two people working at McDonald's making minimum wage would make $32,988/yr, so am I to believe that the average person only makes 1/3 more than the minimum wage? In this the highest per capita educated city? Something is wrong with the median income figure.

meshugy said...

Prices have been flat for 11 months now.

Uhh...no their not. Prices spiked $25K this month. Much more in certain areas.

Deejayoh said...

I see. if the multiple isn't the issue, the income data must be wrong...

remember there are lots of retired people, burger flippers, and Best Buy clerks out there. Two $11/hr salaries gets you right about to the average.

Mike said...

seattlehotty

Seattle isn't affordable to a couple earning $90K/yr, unless they have substantial savings.

Most couples earning $90K a year are recent college graduates more likely to have student loan debt and a car payment than they are to have $80K cash for a down payment.

A $450K home is affordable, long term, at closer to $130K/yr.

seattlehotty said...

Deejayoh, this rule of thumb is provable by simple mathematics. The average lender will accept a debt-to-income ratio of 36%. Looking at a current mortgage of $500,000 at 6%, the payment would be $3,000/mo, so the loan amount is roughly 167 times the payment.

Debt to income is calculated as follows:

Monthly Debt Payments/Monthly Income

Since we want a ratio of house price to annual income, this formula becomes:

Price/167 / Annual Income/12 = .36

Solving for Price/Annual Income, you get:

167*.36/12 = 5.01.

Therefore, a person can afford a house that's value is five times their annual income. There are several caveats. First, this assumes no other debt, but if you push through the calculations you will see that even an average person with a $500 car payment (a pretty nice car) can still afforde a pretty nice house. Second many lenders are allowing higher than 36% debt-to-income ratios, so this may be a conservative estimate according to current practice.

seattlehotty said...

Mike, I completely disagree. I bought my current house at $665k on a $110k annual salary and my wife was still in school (i.e., no income and quite a bit of payment). I put $165k down to make the loan $500k. I have found this very affordable and have made double payments on my loan every month since its inception. Granted I have had income increases, but so does the average college graduate that you mention.

Michael said...

Seattlehotty, pray tell, what is that u do making 110k?? Most 100k+ jobs I know won't have time to post messages on blogs....

Deejayoh said...

The average lender will accept a debt-to-income ratio of 36%.

36% has been the maximum, in practice - up until the current debt explosion (which has ended badly, IMHO.)

He asked a question about affordability. You responded with how much a bank would give you if you had no other debt.
I would in no way, shape or form characterize your mathematical exercise as a "rule of thumb" for affordability. It is a practical maximum for lending standards. Different things all together.

Mike said...

This reminds me, a friend of the family had a home up in Grousemont Estates (previous Street of Dreams neighborhood) and they sold it for $500K back in 1993.

The people living in that neighborhood were for the most part independently wealthy. (The friend seemed to know what EVERY neighbor did for a living), so I highly doubt that there were ANY homeowners in that neighborhood paying their mortgages based on an income of under $150K.

Back then, an upscale neighborhood with prices between $500-$750K was inhabited exclusively by doctors, high paid lawyers, Seattle Seahawks and business owners that had done well. (the owner of Gais Bakery liked to park his Ferrari in the driveway on weekends)

Now, the people buying homes in this price range are employees earning less than $150K/yr - and more than likely they drive a Corolla.

Seattlehotty
It would appear that you're spending around 50% of your take home pay on the mortgage - assuming you're still adequately funding retirement accounts.

Jeff said...

I work in the industry and the rule of thumb I have heard from day one is 3xs income.

seattlehotty said...

Just to answer the questions, I am an attorney now, but when I was an engineer at Microsoft I was making just shy of 100k as were most of the people around me.

There are plenty of people around here in that salary range, but you needn't be to fit the median scenario we were discussing. I did on a single income what many have to do on a double income. Two people making $45k make $90k, and $90k affords you a median or better house if you haven't spent all of your time racking up credit card debt and buying the most expensive car you can find. If you have done either of those two things, then it isn't your income keeping you from buying a house, but rather your bad spending habits.

Deejayoh said...

On this one I agree w/SH. My last house, I paid 45% of my income for Mortgage. That was fine, cuz the dirty secret is that the more you make, the more disposable income you have, so you can afford it.

However, that was when I bought the house in 2003. By the time I had sold it in 2006 - it had gone up 35% in value while my salary had gone up maybe 12-15%. Same house, same guy, doing well at work I couldn't have afforded to buy it.

Something about that smells funny.

seattlehotty said...

Deejayoh, good point. I think the debt-to-income formulas are flawed. What would be more accurate is to have a base amount for basic needs, and then a percentage of the salary above this amount considered for debt. For example, subtract off the first $50,000 and say that amount is needed just to live, but then everything above $50,000 allow a debt ratio up to 75%. Here is the resulting overall debt ratio of such a formula at various salaries:

50k = 0
100k = 37.5%
150k = 50%

Basically, the more a person makes, the safer the higher debt-to-income ratios become.

On the flip side of this, I would like to see a median salary figure that only considered likely home buyers. In other words, eliminate everyone who wouldn't buy a home anyway from the figures. For example, if there are 100,000 people in an area making $25,000/yr, they are never going to buy a house (even if houses were cheap), but they are pulling down the median income figure.

Suppose you found out that the median income of likely home buyers in Seattle was $150k? That might change how we view the median home price data.

MisterBubble said...

"I would like to see a median salary figure that only considered likely home buyers....if there are 100,000 people in an area making $25,000/yr, they are never going to buy a house (even if houses were cheap), but they are pulling down the median income figure."

Wow. That's a really dumb idea.

While we're at it, why don't we just define "likely homebuyer" as "someone who makes enough to afford a home". That way, affordability will never be a problem!

Deejayoh said...

Agree that could be the case - but with 60% home ownership, you have to be dipping under the median income with home buyers.

I am not sure where the median is relative to the average - but I'd bet money that it is under because there are relatively fewer high earners than low earners - dragging average up. So if I am right, then you actually have a pretty good tranche of folks making less than the average salary who are currently home owners.

However, that twisted logic is wearing my brain out on a friday afternoon, so I am out of here.

have a good weekend all.

D

MisterBubble said...

And another thing...

"I think the debt-to-income formulas are flawed. What would be more accurate is to have a base amount for basic needs, and then a percentage of the salary above this amount considered for debt."

Logic like this is why our national savings rate is negative.

Once upon a time, people who made decent incomes were generally smart enough to know that they had to save a fixed percentage of their income, if they were to have a chance of retiring and maintaining a similar standard of living. I guess these rules no longer apply, now that the days of the Pretty Pink Appreciation Ponies have arrived.

Let's use that hypothetical $90,000 single person as a case study:

$90,000/12 = $7,500/month income
$7,500 * 70% = $5,250/month after taxes

By traditional standards, that leaves

$5,250 * 30% = $1,575/month for PITI

Question: how much home can you buy in Seattle for $1,575 per month?

(Don't think about it for too long, or your head will explode.)

Alan said...
This comment has been removed by the author.
matthew said...

SeattleH,

Quit while you are ahead. Seriously, sometimes you don't need to think out loud.

seattlehotty said...

misterbubble, a person making $90k does not pay a 30% tax rate. We have a graduated tax system, and a person at that level pays about 14% overall, leaving $6,450/mo take home pay. I also question your use of a 30% debt-to-income ratio which is pretty uncommon at this point, but let's do that and 36%.

30%->$1,935/mo->$323k house
36%->$2,322/mo->$387k house

These figures are of course with zero down payment, and most people buying a house have some down payment either through saving up or family help. Even if they only save $20k, they can buy a median house. Saving up money is easy of course with the ultra low rental rates everyone here likes to brag about. If you make $90k and pay $1,000/mo rent, then you can save up to $5000/mo if you live cheap.

Mike said...

On the flip side of this, I would like to see a median salary figure that only considered likely home buyers.

This data would look the same as the people that DID buy a home recently - since they were by definition people likely to buy a home (we know they did).

From what I can tell, the median homebuyer income in the Seattle area is pretty close to the median family income - but last year it may have dropped a bit below that due to the aggressive lending by banks.

While prices may indicate the median buyers income has increased, the banks lowered their standards for credit and income because there weren't enough qualified buyers at current income levels.

The people I've talked to in mortgage and escrow have said current motgage customers incomes are fairly representative of the median for the area.

I'd like to see some aggregate statistics on this.

Eleua said...

Jeg er norsk-americansk, og bor i Poulsbo. Jeg snakker litt norsk.

Jeg ha et r(ao)d for v(ao)rt troll hebreer hammer, (hun er vondt i ende):

Selge husen.
Drikke en god flaske hvitvin.
Skaffe kjonn ellers rytmisk kjonnsorganer.

-----------------

Er april dag vakker. Jeg vil nyte solen, sj(o/)en, et stor glass (o/)l og r(o/)kelaks. I natt, jeg har stor plan for fru E.

Sk(ao)l Seattle Bubble!

Lykke god terdag og p(ao)ske!

Pegasus said...

It must be Payday Friday on a Holiday Weekend. I just stopped by a bank inside a grocery store and ended standing in line behind twenty others.

As the line curved around there was a REALTOR camped out talking to people in line. I got to hear him use almost every Seattle cliche trying to entice buyers.

I heard "only lucky if you already own because renters are being PRICED OUT soon FOREVER, Seattle is different, amazing job growth here, huge jump in the population, consider yourself lucky if you live here and own, very little land available" and the best; "they are not making anymore land!". I am sure he used more but alas they escape me now.

As his eyes met my mine I politely said "I will bet you that you are not selling real estate by the end of the year". Flustered he asked why. I stated "because every thing you just said is a fabrication".

He decided it was time to get up and go get himself a pop.

SeattleMoose said...

SeattleHotty!!!!

5x income......what the @#$# are you smoking!!!

Try 2.5 nominal with 3x "stretching it". Up until the past couple of years that was always the rule.

Shug....if Ballard is indeed as "hot" as you believe it to be...SELL NOW!!!

Don't try and time it. Better to get out a bit too soon than during the downward spiral when getting out becomes almost impossible. Look at what is already happening at the "front edge" cities in CA, FL, and AZ.

I am on the opposite side of the debate and do not think you are correct, but I respect you for having the guts to stand in and slug it out.

plymster said...

According to The U.S. Census Bureau, the median household income for King County (as of 2003) is $53,414. That's household, as in all potential wage-earners.

Mr. Bubble's thumbnail math is good, but let's try an actual affordability calculator from Washington Mutual.

Assume the following (and this is pretty damn generous):
Monthly Gross Income: $4,451.17
Cash Available: $60,000
Monthly Expenses (ex mortgage): $1,000 (you ride a bike, grow your own food, and make clothes from your kids' hair)

How much can the median household afford? $178,234

If you double the wage, then you get to $435,778.

And this is ONLY if you take out an Interest Only ARM (ie - you're renting from the bank until your rate adjusts, then you're on the street with nothing).

I think that should pretty definitively shut down the "No, it really is affordable. See?" argument.

The Tim said...

misterbubble, a person making $90k does not pay a 30% tax rate. We have a graduated tax system, and a person at that level pays about 14% overall, leaving $6,450/mo take home pay.

SH,

How exactly do you figure only a 14% overall tax rate? I'm in the 25% tax bracket, and my taxes (federal income + SS + Medicare) total just over 17%.

$90,000 was in the 28% bracket for 2006, which means that someone making that much would pay (source):

10% of the first $7,550 = $755 +
15% of the next $23,100 = $3,465 +
25% of the next $43,550 = $10,887 +
28% of the last $15,800 = $4,424

For a grand total of $19,531, totaling 21.7% of their income.

How do you figure just 14%?!?

Mike said...

7537 33rd Ave NW - looks like the buyer may be an investor

7558 28TH AVE NW 98117 - Previous owner took out 4 mortgages on the house since 2002


7317 EARL AVE NW - Piggyback loans, probably 0-down.

Business as usual.

seattlehotty said...

Well, if the WaMu calculator says so it must be true. I ran your same numbers using First Tech's calculator (a local credit union) and it says $334,088. Note that monthly non-debt expenses do not factor into bank's debt-to-income ratio calculations.

People don't like my 5x income figure, but 36% is a debt-to-income ratio that has been in use for borrowers with good credit for 20 years, and I showed you mathematically how it is sound. Does anyone want to use facts and evidence, or is "wow that's too high" a good enough argument nowadays? Seems like exactly what you so harshly accuse Shuggy of to me.

seattlehotty said...

The tim, your tax calculation is missing the standard deduction that the average person would take as well as 401(k) pretax payments. The 14% comes from my actual 2003 tax return when I was making about $95,000.

Eleua said...

36% debt-to-income ratio?

That may be true for total debt (home, auto, cc, and student loans), but PITI should max-out at 28% (if we are going with traditional standards).

$120K/yr can cough up $2800/mo for PITI. At current rates, a $500K home would run $3517/mo.

Too high.

You would need to be in a $477K house to get under 28%, and that assumes you have $95.4K for the down payment.

If your income was $90K (Mercer Isl. median) you could afford a $354K house.

If interest rates were at market levels (8%), that $90K income could now afford $294K.

Enjoy.

SeattleMoose said...

"but 36% is a debt-to-income ratio that has been in use for borrowers with good credit for 20 years,"

Sorry SeattleHottie....I am calling BS on this one.

I have had to obtain loans 4 times in the last 20 years (WA, CA, and TX). During that time I have always made a very good salary and my credit has always been excellent. Each time in negotiations with banks and/or mortgage brokers the TOP ratio was always 33%.

I have no doubt that in the last couple of years that many lenders allowed 5X......and that is exactly the point.

It was precisely this "new math" that got the RE industry into the mess it is in today.

The pets.com mentality that carried over into the RE world is symptomatic of a pervasive "get rich quick" belief system perpetuated by lazy, even criminal elements who can't or won't...build wealth via the only way that works over the long haul...working for it and saving.

You can change the rules all you want. But eventually fundamentals (salary, affordability, prices, etc.) wring out all excesses and manias.

The great RE "ponzi scheme" is collapsing everywhere. Seattle is just one of the last dominos in the line......

plymster said...

Well, if the WaMu calculator says so it must be true. I ran your same numbers using First Tech's calculator (a local credit union) and it says $334,088.

Seattlehaughty - I used WaMu because they are a major lender with a huge presense in Washington.

First Tech's calculator seems to be set up for different inputs. What interest rate did you assume? because those numbers you quote from First tech only work if you assume 0% interest.

36% is a debt-to-income ratio that has been in use for borrowers with good credit for 20 years

Yes. According to Bankrate.com, this is your TOTAL debt-to-income ratio. They recommend a front-end-ratio (ie, PITI) of 28%.

Does anyone want to use facts and evidence, or is "wow that's too high" a good enough argument nowadays?

I've provided data and links. You've provided hot air and baseless assumptions.

Beat it, troll.

T,V & Mr.B said...

Funny, I know a pretty high up lawyer on banbridge, (was my neighbor) and he is living in a Modular. Albeit, with an icredible view.

MisterBubble said...

"People don't like my 5x income figure, but 36% is a debt-to-income ratio that has been in use for borrowers with good credit for 20 years, and I showed you mathematically how it is sound. Does anyone want to use facts and evidence, or is "wow that's too high" a good enough argument nowadays?"

Funny, I don't see anyone doing that. In fact, I see a lot of calculations suggesting that you're wrong. Maybe you missed those.

I'll admit that I overestimated federal taxes (part of my conservative habits from when I lived in a state with an income tax), but you're still low-balling the value -- the IRS witholding calculator says that our hypothetical single person's 2007 income tax would be $16,868 (18.74%).

So, using my original assumptions:

$90,000 - 16,868 = $73,132 per year.
$73,132 / 12 = $6,094 per month.

which leaves

$6,094 * 0.3 = $1,828 for PITI

By my calculations, a 30-year fixed on a $250,000 home at 6% will run about $1,500 a month for principle and interest. So let's be ridiculously generous, and assume that taxes and interest can be covered in the remaining

$1,828 - $1500 = $328/month

and that our buyer put down 30% on his home. Thus, under these favorable assumptions, our $90,000/year single person can afford, at most, a $360,000 home.

How odd. By my calculations, a well-off single person can only afford 80% of the median King County home. Perhaps I missed the part where this was defined as "affordable" housing....

Eleua said...

Mr. B/Plymster,

Is that 28% PITI ratio based on before tax or after tax income?

I always thought it was on the gross. Is it on the net?

E

S Crow said...

Lenders use gross income, which I've argued is ripe for reform. The actual take home pay plus all the other monthly expenses a routine consumer has, sometimes leaves little for savings.....

Lionel said...

"Nearly one-third of all Oregon mortgages issued in 2005 required interest-only payments, according to the Oregon Center for Public Policy. Those buyers are banking on rising property values to boost equity in their homes.

Many people are taking out negative-amortization loans, in which their loan principal grows rather than shrinks with each payment."

Anyone know if the rate is similar for Washington?

S Crow said...

Wouldn't suprise me one iota. Very close to what our office was seeing in 2005. Interest only is the "30 yr fixed" for today's consumer.

Eric said...

We recently were just about to close on a house in Maple Valley that did not appraise for the selling price. Now after two appraisals it still is not at the sellers asking price. I have never had this happen before. Are other folks seeing the same thing? Are mortgage companies finally getting it?

MisterBubble said...

"I always thought it was on the gross. Is it on the net?"

Traditionally, it's gross income. I agree with s_crow on the matter, however, and do all my calculations from net income.

If you use the gross monthly income in my example, the amount available for PITI is $2,250 (about 37% of net pay -- interesting how similar this number is to hottie's number, no?), which allows for a $471,000 home.

So basically, if you use the traditional lender's guidelines, you can afford slightly more than the median KC home if you make well above the median KC household income.

Again...not affordable (I know that wasn't your point, Eleua. I'm just being didactic.)

T,V & Mr.B said...

Regarding appraisals not meeting the asking price, appraisers no longer are getting the push to match the asking price with all of the scrutiny that is going on. They are begining to be a bit more realistic in their assesments rather than just blindly putting down what they formerly were told to appraise at.

Pegasus said...

T,V & Mr.B .....Declining markets will expose 100 fold the frauds occurring daily in the real estate markets. Most phoney appraisals will go bye-bye thus exposing the previous appraiser. A vicious cycle will ensue.

SLTO Troll said...

eric,

be thankful for honest appraisers... they're saving you money in the long run...

I almost bought another house until I found a great reliable home inspector... found all the stuff and explained to me why they were bad although the seller's agent kept downplaying those defects as minor...

Eleua said...

Mr. B,

I like didactic. It is what I live for.

Either way, things are way outta-whack by any traditional metric. It should be fun watching things get back into whack.

God natt. Fru E er i moro hum(o/)r i kveld. Takk r(o/)dvin.

waitingforseattletocool said...

Meshugy:

SFH Ballard March 2005: $379
SFH Ballard March 2007: $499

Take a typical property in nice quiet neighborhood in Ballard, let's say Salmon Bay.

I find a typical property that sold two years ago this month in that very neighborhood for $430K. I zillow the property and found that the market value when he bought on April 22nd, 2005 was $380K. Look's like the buyer paid $50K more than the zillow value.

Suppose $380K was the actual value and that in the frenzied market that 2005 was, he simply overpaid. Seems a likely scenario given the market at that time. Everything, EVERYTHING was selling with multiple offers. The absorption rate was greater than 70% in Seattle in Spring 2005.

Flash forward to 2007. Typical single family home in Ballard has gone up by $120K (by Meshugy's account). That puts the value based on appreciation only at $500K.

That buyer wants to sell in todays market and he has to pay 10% right off the top for agency (6%), excise tax (2%), and $10K to replace the carpets, paint, the broken dishwasher, some minor roof repairs, and title insurance. Buyer (now seller) walks away with $450K - $430K = $20K, assuming he didn't get a reverse amortization option ARM that increased his debt on the property.

This scenario is not too far fetched is it, Meshugy? Not a bad investment, maybe enough profit to open up an online bookstore, but not as rosy as you portray.

I can give you the address, but I'm sure you are familiar with properties in this are.