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Monday, April 19, 1982

04.19.2007 - Thursday Open Thread

This is your open thread for Thursday, April 19, 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!

56 comments:

meshugy said...

Washington continues to defy national foreclosure trend"

I know this was posted...but it's worth further discussion.

Washington state filings dipped 5.9 percent last month compared with the previous March, RealtyTrac said.

There's been a lot talk here about increasing foreclosures rates, subprime fall out, and FBs. But it seems that Washington, and especially King County have been relatively immune to these problems. King county has only a third the foreclosure rate (.5 per 1000) then the troubled states (1.5 per 1000). Any most of those seem to be condos in S.Seattle, Federal Way, etc. It doesn't look very likely that'd you be able to scoop up dream home on Queen Anne in a foreclosure auction.

So now we have to ask ourselves why we dodged the foreclosure bullet? Again, I think the answer is in a strong local economy, population growth.

I think we're going to see some more record breaking #s in the April MLS report. Houses continue to sell at a brisk pace at ever higher prices.

HomerLoanseeker said...

Seattle joins the $1000 club...



In West, renters pay price for housing slump
By Michael Liedtke
The Associated Press

SAN FRANCISCO -- Fewer home sales are translating into higher apartment rents throughout the western United States, according to data to be released today.

Through March, apartment rents had climbed by at least 4 percent from the previous year in 13 of the 20 major Western markets surveyed each quarter by the Marin County-based research firm RealFacts Inc.
SoCal Computer Recyclers

Renting an average apartment costs at least $1,000 per month in eight of the markets covered by RealFacts. The Seattle market joined the $1,000 club for the first time in March, propelled by a 9.1 percent increase from last year. All the other $1,000 apartment markets are in California.

Christina said...

It doesn't look very likely that'd you be able to scoop up dream home on Queen Anne in a foreclosure auction.

But you can scoop at least two Mercer Island homes at a foreclosure sale, at least according to the Notice of Trustee Sale documents on the King County Website. Mercer Island's kind of a hole though -- during the winter storm it took them five-six days for power to be restored. I don't see the point in paying a premium to live in 'Frontierland.'

One of the Mercer Island homes belonged to a CPA, imagine that!

andymiami said...

King County may have lower foreclosure rates, and they may stay that way when compared to other more problematic areas in the US. However, the credit tightening that is taking place will impact Seattle, reducing the number of available buyers while inventory increases. Below is a link to a recent PIMCO report that I would challenge anyone to argue against...

pimco.com/LeftNav/Global+Markets/Global+Credit+
Perspectives/2007/U.S.+Credit+Perspectives-+5-2007.htm

Dan said...

Christina,

What section of the King County webpage posts those notices? I was not able to find it with the search function...

Thanks in advance!

meshugy said...

The Seattle market joined the $1,000 club for the first time in March, propelled by a 9.1 percent increase from last year. All the other $1,000 apartment markets are in California.

Wow...thanks for the info Homeloan. I didn't realize rents were going up that fast.

Christina said...

Dan, go to Records, click the Records Search button, click accept button to get through the Disclaimer blather, go to records, click Official Public Records.

In the Document Type Drop Down, choose NOTICE OF TRUSTEE SALE.
I typically choose a date range to limit the number of records returned.

In the result set you can click on the document icon to see a scan of the notice.

Dan said...

That is a very interesting tool, although a litte ungainly...like everything the county does.

What would be the best way to seach sales in Seattle proper? Search by parcel number? I don't think there is really any order to those...

The Tim said...

Homeloanseeker,

The 9.1% figure comes from a group called "ReaFacts, Inc." The only information I could find on their website regarding methodology was their pricelist, which indicates that their statistics come from surveying a mere 650 apartment complexes across the entire state.

Considering that a search on ForRent.com returns over 1,000 apartment complexes in just the Greater Seattle area, it would appear that RealFacts' survey suffers from the same shortcomings as Dupree + Scott.

Christina said...

What would be the best way to seach sales in Seattle proper? Search by parcel number? I don't think there is really any order to those...

I don't know the best way... a circuitous approach would be to maybe go to some foreclosure site, search by zip code, study a few entries' maps, then make a cross street/intersection search at the King County Parcel Viewer for parcel numbers before returning to the Records site.

Lionel said...

As I'd mentioned on a previous post, I found a house for rent in Montlake for 1050, so anyone renting an apartment for 1000 is probably just not very smart.

HomerLoanseeker said...

Thanks Tim,
It looks like the newspapers are buying the RealFacts stats.

http://www.mercurynews.com/realestatenews/ci_5701716

http://www.dailybreeze.com/business/articles/7096711.html

It does seem 9% is pretty sharp increase. Hopefully this is not the case.

I am currently renting a house for $1500 and have given up looking to buy. My lease is up this summer.

I really hope the slowdown in homesales does not drive up rents.

Dan said...

I found this on the urbnlivn blog:

I don’t know if you heard but Canal station has stopped selling units. It has about 30 units left and the developer decided to hold
them unit January 08. Apparently they were selling so well and fast that they thought why not keep them and sell them for a lot more later.

Pretty interesting...sounds like one developer has his head in the clouds...I can't remember who is doing that project.

flotown said...

"their statistics come from surveying a mere 650 apartment complexes across the entire state"

...which probably means 1/2+ are in King county. Seems good enough for a valid survey to me

Lionel said...

As this mess unwinds, it's also possible that rents will decrease, as they have in Vegas:

“‘What’s interesting is that Nevada has the highest foreclosure rate in single-family
homes. You would think that the vacancy rates for apartments would be going down,’
said Carl Sims, apartment broker in Las Vegas. ‘In reality, it has increased from
4 percent to 6 percent to 7 percent in the last year.’”

“Sims said higher vacancy rates are partly due to new development and ’shadow rentals,’
or condominium conversions that have been purchased by investors and put back into
the rental pool.”

Automatic said...

So, I've heard the term stagflation bandied about on these open threads a few times as well as on other blogs and in this interview with Ron Paul,
http://www.youtube.com/watch?v=USSAEQl0XMM&mode=related&search=. In that video they talk about putting your money in precious metals which I think I've heard a few times over the last couple of months. Can anybody explain to me the reason people think that gold and precious metals will grow in value over the coming years (with sources if possible)? Also, my 401k has limited investment options, so what would be other safe havens for my retirement fund in a period of stagflation?

The Tim said...

Flotown,

The issue isn't so much that their sample size of apartment complexes isn't large enough. It's more that they completely ignore rented condo units and SFHs, which are likely to exert downward pressure on rents as appreciation slows and flipping becomes more difficult.

Lionel said...

From PIMCO bond fund manager:

U.S. Credit Perspectives
Mark Kiesel | May 2007

Still Renting

One question my friends and colleagues have asked me repeatedly over the past six months is: Are you still renting? Yes! I sold my house over a year ago and continue to rent. Back in late 2005, I became anxious about my investment in the “American Dream,” after spending a considerable amount of time and effort researching several factors that I felt would influence housing prices. At the time, I was nervous about housing and ended up selling my house in early 2006 after owning for eight years, and then, upon closing, published For Sale, our U.S. Credit Perspectives, June 2006 publication. A year ago, I suspected housing prices were set to take a sharp turn for the worse and more “For Sale” signs were coming.

Based on the current outlook for housing, I will likely be renting for one to two more years. While many factors that influence housing prices have turned negative, I suspect we have not yet hit bottom. In fact, housing prices should head lower throughout the rest of this year and next year as well. Why? Housing inventories remain high, delinquencies and foreclosures are set to rise as homes purchased over the past few years by speculators and individuals with teaser-rate and adjustable-rate mortgages come back on to the market, affordability is low, and sentiment and risk appetite has shifted negatively. Most importantly, the availability of credit is set to take a turn for the worse as lenders tighten credit standards.

This is all great news for renters and buyers who are patient. Over time, housing prices and interest rates should decline, resulting in improved affordability. This adjustment, however, will take time and occur over a period of years, not months. Housing is illiquid and prices are sticky. As a result, potential buyers should exercise patience and not jump back into the housing market too early. A year ago, I described the state of the U.S. housing market as “the next NASDAQ bubble.” The NASDAQ took over 2 ½ years to go from peak to trough. I suspect that housing prices could display a similar pattern, and we are still over a year away from the bottom. Given these risks, I prefer renting versus owning, and an investment strategy which favors defense versus offense.


The whole ball of wax:

http://tinyurl.com/3acrow

Terry said...

andymiami,

Good article. It provides a good overview. Well worth the few minutes it takes to read.

"....For renters and potential homebuyers, my advice is to still rent. The housing market has turned for the worse but the unwinding of this bubble will take more time. Unfortunately, this is not good news for the U.S. economy, job creation or corporate profits. Nevertheless, investors who are patient and adopt a conservative investment strategy should prosper over the next few years...."

Mike said...

Automatic

It's not that the metals will grow in value, it's that the dollar will continue to fall, hence making the price of gold go up.

In 2000, gold was around $270/oz. Today it's at $682/oz. It's worth noting that in 1980, due to the rampant inflation in the late 70's, gold was bid up above $800/oz - so while it can be a good inflation hedge, it is subject to speculative bubbles.

Some, but not all of the recent appreciation in gold has been due to the weak dollar.

B said...

automatic:

You should probably seek the advice of a financial consultant (a fiduciary sort, not a mutual funds huckster a la Edward Jones, Schwab, etc). They can help you lay out an organized plan with a mixture of defensive and offensive allocations, which you can implement yourself.

This blog is nice, but I wouldn't ask my best friend for financial advice, much less the comments section of a blog. You might receive some solid advice, or you might receive some insane advice. How would you know the difference?

Making large personal financial decisions is not to be taken lightly. It takes a lot of research, self-education, consulting trusted advisors or professionals. What's another major financial decision (the largest and possibly most advantageous OR damning of one's life)? Buying a house.

..And there's a word for the hype machine blogs out there (e.g. Rain City Guide, etc) that claim to be offering good advice online.

Let the buyer beware. NOBODY is on your side but you.

B said...

Also be very wary of goldbugs and other commodities preachers. There is a time and a place for these assets, but be very very educated before you jump in.

FB said...

If you want a great deal on a rental, you need to take a little time and find it. I have never thought that renting from a large apartment complex was a smart move. You can usually find much better rents from a condo owner or SFH owner. That is exactly why that rent study is a joke.

But then again, I live in a 'substandard' SFH according to Lord Shuggy. I won't respond to that, other than saying my place is 10-15 blocks west of his place. I'll let the rest of you draw your conclusions based on your knowledge of Ballard.

Deejayoh said...

Washington continues to defy national foreclosure trend"

As I said yesterday, I don't find this surprising at all, and I think that anyone who was expecting a whole lot of near-term foreclosures in Seattle should put down the crack pipe.

Seattle has 1/2 the subprime that CA/FL/AZ do - most of it in Pierce county. There you are starting see the impact of foreclosures/loss of low end of the market. It is creeping up, but I don't expect we'll see much local impact until Alt-A starts to reset, and then only if the interest rate picture is much worse.

I think the bigger issue is general credit availability and buyer sentiment - which seems to have turned in most of the country, and based on the MAI, inventory etc discussed yesterday, I think has turned here too.

And I'll say it again - population is not growing any faster here than anywhere else. c'mon. at least know when you're beat.

flotown said...

Tim,

The survey was not projecting forward it was reporting for the past year. Not sure what rents did in rental condos or homes over the same period. You're initial comment indicated you doubted the verity of the report stating that rents has risen 9%. I agree rental condos and homes will exert some downward pressure. how much is debatable - if 45% of units in seattle are rentals and 5% of the 55% of home-owned units are rentals (highly doubt its this high). that means only 3% or so of the rental stock are rented homes and condos.

Grivetti said...

The 9.1% figure comes from a group called "ReaFacts, Inc."...their statistics come from surveying a mere 650 apartment complexes across the entire state.

This is a joke, considering the proliferation of overpriced condo-conversions going back to rentals, this statistics is pointless, meaningless...

Additionally their samplings are the most susceptable to the condo-conversion which has artificially increased demand by pulling units off the market..

B said...

Rents are rising in some places, true, for the first time in years. However, I and others who have shopped around for rentals recently have found prices/incentives quite negotiable.

Even a quick spin through craigslist will find you *several* places being rented out by either unsuccessful flipper types, or "I'm gonna become a landlord" types, who can not possibly be covering their monthly mortgage payments if you look at the sales data on the houses. Ouch!

There's something else at play here. Despite some government "core inflation" numbers which don't seem to correspond with reality, ("inflation is tame, as long as you don't eat or buy fuel. Here's a LCD TV from china."). Are rents going up significantly in real terms?

Adam said...

"Also, my 401k has limited investment options, so what would be other safe havens for my retirement fund in a period of stagflation?"

Automatic, since your 401K has limited investment options it is hard to say for sure. But if your 401K has a TIPS fund that would be a pretty good choice. Tips are "Treasury Inflation Protected Securities".

Chris said...

There is a very good reason that rental rates have increased 9.1% in the last year. It has been scientifically proven that renters are ugly, stupid, and fat.

You can try to deny cold, hard facts all you want, but you are only kidding yourselves. My recommendation is that you get on the equity escalator ASAP before you become a POF loser!!!!1!!

Grivetti said...

Regarding: Washington continues to defy national foreclosure trend

hahahaha! Did everyone get pay-raises? or did the ARM rates go down, mwhaahahaha...

Talk about a loss leader of an article... sorry Rhodester, devil's in the details...

Last month, one in every 1,846 King County homeowners was in some stage of foreclosure.

Pierce County, with one in every 703 owners in danger, led the state. Snohomish County ranked second, with one in 949 owners facing home loss.


Yep, foreclosures spiking in the exurbs, the feeder communities to the Emerald City jewel. Its sort of like the blob, creeping in from the edges...

Than there's this apologetic nonesense about the national foreclosure trend which the Rhodester parrots...

it's important to note that U.S. foreclosure activity overall is not far above historical norms

Nothing like gross ignorance of statistics and naivete about "inflections of the mean", yeppers, a snapshot of crashing plane almost makes it look like nothing's wrong.

While we're seeing a 15 to 20 percent increase in foreclosures in our local market, that's still one of the better markets in comparison to a number of the markets nationwide. Some are seeing 200 to 300 percent increases

hahahaha! love it! oh sweet ingorance. Yes, yes, but we're talking Cleveland here, not the bubble-zones of the coast. A the tom-foolery... love it!

Grivetti said...

I won't respond to that, other than saying my place is 10-15 blocks west of his place. I'll let the rest of you draw your conclusions based on your knowledge of Ballard.

10-15 blocks... good golly, the Bel Air of Loyal Heights, congrats! Too bad all rental homes are run-down wrecks next to child-endangering busy roads and crack-houses. That and I heard there's a city-law that if its an updated craftsman, cops have to evict the renters automatically... some kind of ordinance.

BTW, you're too far west dude, not even walking distance to the Sands Showgirls on 15th.

Automatic said...

I was hoping for information not unlike the information on the housing bubble I've recieved from websites such as Seattle Bubble. I didn't just come to the conclusion that the housing bubble is near bursting just because some dude on the internet says so. I researched the reasoning and facts behind the each of the arguments and decided for myself that the current housing bubble is simply unsustainable.

My goal wasn't to see somebody write "HURRY AND BUY X!" and then go out and buy it without any thought. I was hoping somebody with more financial knowledge and experience than myself could give some advice with supporting evidence and references that would give me a starting point for doing my own research.

I'm wary about going to financial consultant (I don't even know what one is really, can you just look up financial consultant in the yellow pages?), because it seems that people that are supposed to know stuff about investing aren't any better than anybody else. I mean, look at mutual funds. Far less than half of mutual funds do better than the overall market and the mutual fund managers are supposed to be smarty-pants stock pickers.

You say you wouldn't ask your best friend for financial advice. Maybe I'm just stupid, but I would. There's decent chance they know something I don't. I certainly wouldn't just take their word without researching it myself though.

So basically I'm just fishing for leads that I can research myself. Thanks for the advice though.

Deejayoh said...

hmmm.... housing bulls are excited by report of rent increase, yet according to their source rent increases seem to have been inversely correlated with home price appreciation in the past. an explanation is forthcoming, I am sure.

It is interesting to compare the year-over-year change in single-family home prices with the change in apartment rents. The chart below lists the top fifteen major Western US metropolitan areas with the greatest year-over-year change in median single-family home prices and corresponding changes in apartment rents. One might expect that those "hot markets" with the highest increases in single-family home prices would experience similarly high increases in apartment rents.

An examination of data from RealFacts' quarterly survey of rents, however, reveals this is not the case. Astonishingly, four of the markets with the greatest increase in home prices - Boise City, San Francisco, Portland and Seattle - actually saw apartment rents decline. In Las Vegas, where home prices skyrocketed 52 percent, apartment rents only rose 2.6 percent. Although rents rose a relatively robust six percent in Riverside, single-family home prices climbed 38.5 percent. In the booming southern California markets of Orange County, San Diego and Los Angeles, where home prices were up roughly a third, rents increased only three or four percent.

Grivetti said...

Stocks vs. Real Estate

Annual Returns 1978-2004
Housing: 8.6%
Commercial property: 9.5%
S&P 500: (a crushing) 13.4%

Stocks roll up large margins of victory in performance, costs, diversification and effort you need to expend as an investor.

Real estate's only big win is in leverage. Using that leverage to buy a home you can afford makes sense.

Yeah, and they use the now bizarre situation of a 20% downpayment on a 500K home, and a overly positive 10% a year appreciation. Only works in the short term. They also give a more realistic counter-example of a condo purchased w/ 5% down at 250K.

jumping into the real estate ring thinking you'll use others' money to score an investing knockout is plenty risky

Yah don't say?

Terry said...

automatic,

Maybe you are already aware, but you can check out "Ben's Money and Metals" on Ben Jones Housing Bubble Blog. Good info but not much discussion

Deejayoh said...

Yes, yes, but we're talking Cleveland here, not the bubble-zones of the coast.

Actually, that one is a bit surprising. What I have seen is that midwest cities like Cleveland, Cincinnatti, Indianapolis are seeing more foreclosures than anywhere, even though the didn't get much of an uptick in the bubble. Friend of mine just moved to Indy and he says every eighth house seems to be boarded up. Not so much FBs - I think the fraudsters really went to work with the straw-buyer scam in these towns.

Mike said...

but I don't expect we'll see much local impact until Alt-A starts to reset, and then only if the interest rate picture is much worse.


Even with current rates, alot of the Alt-A loans are going to reset higher than the initial rate.

For instance, there's a local RE agent (let's call her 'Carol') that bought in Summer 2005 with a 40 year jumbo arm fixed for 2. At current rates, her 1st mortgage is going to reset to around 9%, vs the current rate around 7%.

Another reason Alt-A defaults aren't going to be tied to interest rate increases is that the majority of the Alt-A loans were SI/SA or NI/NA. Sure some of these people have good income and assets, but it's widely acknowledged amongst mortgage brokers that the most common reason for going stated is the obvious one: the borrower couldn't qualify based on their actual income.

The 'slow bleed' from taking on too much debt happens regardless of interest rate.

Christina said...

Also, my 401k has limited investment options, so what would be other safe havens for my retirement fund in a period of stagflation?

Automatic, if you're not going to retire in ten to twenty years, and if you're not expecting a national economic collapse, consider just holding tight with your money, or leaving enough in cash or stable value to buy on dips, the deeper the discount the better.

Many 401(k)s have broad asset allocations (international, S&P, a midcap, small cap, bonds and stable value) limited mutual fund options, and don't get into spicy sectors like mining funds or inflation-protected securities. You may have better luck with your Roth IRA investing in those sectors.

If you are expecting a national economic collapse, go find some bear sites (Le Metropole, goldmoney) or sit in Barnes & Noble for a few hours and read Financial Armageddon: Protecting Your Future from Four Impending Catastrophes.

Most of all, try your best to remove emotion from your investment decision-making, think and act 'long-term' and don't expect to be completely protected from economic havoc.

Disclaimer: none of this is to be taken seriously as investment advice. I am not an investment advisor: probably doing the opposite of what some semi-anonymous forum poster recommends is a safer course.

Mikhail said...

Meshugy: "it seems that Washington, and especially King County have been relatively immune to these problems."

True enough, the foreclosure rates in Washington are still relatively low. But this only makes sense seeing as how we haven't seen price declines here yet. It is price declines that have really caused problems in other states.

What I would really like Meshugy to explain is why he feels that the Puget Sound can't suffer the same kind of pricing deterioration, and subsequent rise in foreclosures, as places like Sand Diego or Orange County? Is it that Seattle is just more desirable to live in than San Diego?

I've heard the argument that the price levels have never gotten as high in the Puget Sound as in those Californian areas, but that doesn't hold water when one looks at the median incomes, or the original price points we started from. On a percentage basis, Seattle home prices have increased quite a lot. Also, the fact that the Puget Sound has seen a dramatic increase in the use of exotic mortgages (e.g. option ARM, negative amortization, 100% interest, etc) indicates that we have the same affordability issues as many other places. People just don't get loans like this if they can afford the house they are buying.

Anyway, I still don't see why the same dynamics that are leading to rising foreclosures in Orange County can't happen here.

The Tim said...

Flotown,

I do doubt the verity of the 9% figure. My second comment wasn't worded very well, but I'm basically saying that the blanket proclamation of "rents went up 9%" is less than convincing.

The sample size is fairly small and we have no way of knowing what kind of selection bias there may be. Plus, we know for sure that it completely omits a portion of the market where rents are likely much more stable.

In other news, I wish Blogger had a threaded comments option. I should really spend more time looking into WordPress.

Deejayoh said...

Even with current rates, alot of the Alt-A loans are going to reset higher than the initial rate.

For instance, there's a local RE agent (let's call her 'Carol') that bought in Summer 2005 with a 40 year jumbo arm fixed for 2. At current rates, her 1st mortgage is going to reset to around 9%, vs the current rate around 7%.


Could be, but I am sure there are plenty of people like me, who had a broker try to steer them into a no-doc loan because they (the brokers) are LAZY. Had I taken that loan, I'd have been in your "at risk" category and I assure you, I would have no problem refinancing. Not saying I am typical, but I also don't think you can read worst case into the stats we see. I bet most alt-a buyers have 2-3 years to refi out of an ARM (mostly 3 or 5 year) if they need to, and it's a bit of a stretch to think most or all of them will be desperate.

On this issue, the absolute level of income in our area vs. lower use of suicide loans puts in a better position that average. Not saying I think we can buck what I think will be a global trend, but I wouldn't cry that the sky is falling.

Slinky said...

Automatic--

I am not a financial professional, so take everything I say with a grain of salt.

With respect to gold or other precious metals, they can be a source of speculative investment (see early 1980s gold price crash), a hedge against dollar inflation, or something you enjoy having for the fun of it. You don't want to have a portfolio exclusively of precious metals any more than, say, exclusively tech stocks. Gold has two other big advantages over other investment instruments: it will have a residual value for as long as you own it (unlike stock--think pets.com) and it has a recognized value all over the world (unlike currency--think of the Zimbabwean dollar). The catch is that its "value" may not reflect the price you paid for it. What goes up can and will go down.

I do buy and hold small amounts of gold as part of my personal investment program. The key words there are "buy and hold." I don't buy gold to flip for a quick buck. In terms of long-term financial planning, my gold stash provides me with an easily traded asset. I buy both coin bullion and jewelry, with a preference for coins that are especially pretty and shiny.

In less clinical terms, it looks good against my wrists/fingers/ears/neck, and that makes me happy. What can I say? I like my bling.

Mike said...

In southern California, rents increased rapidly up until Q4 2005, at which point the rate of increase started slowing, and vacancy rates started creeping back up.

Seems the trend is rents go up, then vacancy rates go up. I wouldn't be surprised if the increase in vacancies is due to people moving into lower priced SFH and condo rentals that aren't typically included in the rent studies.

Landlords Lowering Apartment Rates, Offering Incentives

Grivetti said...

With respect to gold or other precious metals, they can be a source of speculative investment (see early 1980s gold price crash), a hedge against dollar inflation,

I bought 4 ounces in Spring '05 at $443/oz... currently its up around $710/oz... +60% increase.

Pretty much blew any other investment of mine out of the water for that time frame.

Mikhail said...

From what I have seen happen to rents throughout the country, it seems as if rising rents are a symptom of the transition to a real-estate bust.

At the beginning of the downturn, desperate landlords who bought at the peak want to get enough money to cover their super-high costs, while more people decide to rent instead of buy due to uncertainty of the market.

As real-estate continues to deteriorate, rents begin to fall as more flippers decide to try and stem the bleeding by collecting rent. Lots of condos come back on the market as rentals in this phase. Demand also decreases as job-losses mount (e.g. laid off mortgage brokers, realtors, construction workers, etc), and more people start living with relatives, and getting creative with living arrangements to cut costs.

Eventually, rental prices really collapse when property prices tank and new landlords can purchase rental properties at much a much lower cost basis.

Deejayoh said...

On Rent vs. home price, I guess I have to answer my own question.

My hypothesis:
If you assume population is fixed (or it is growing at an astonishingly fast 1-1.5% - which is basically in line with available housing stock) then:

- higher demand for home purchase --> lower demand for rentals --> no/low rent appreciation + high home appreciation
- lower demand for home purchase --> higher demand for rentals --> increasing rent + no/low home price appreciation.

Of course, if your mix of rental/purchase property gets out of whack relative to demand than it could skew things short term, but as others have pointed out - SFH can easily be converted to rental.

Anyway, I can't see how increases in rent are put forth as "evidence" of the strength of the housing market. Long term, rents may go up - but home prices will also come down so they meet at a the historical mean of rent/buy multiple.

Note that I am not sure what the right multiple is - probably not 100x (which is a "buy" sign") but probably also south of the 250-300x that seems to be the norm in Seattle today.

audit trail said...

Here's a nice ditty from Craigslist today. "Buy a house, get a free mustang!" I was hoping for a pretty pink pony.

http://seattle.craigslist.org/see/rfs/314864956.html

They're not desperate at all.

Deejayoh said...

Economics 101

Substitute good
From Wikipedia, the free encyclopedia

In economics, one kind of good (or service) is said to be a substitute good for another kind insofar as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses. Classic examples of substitute goods include margarine and butter, or petroleum and natural gas (used for heating or electricity). The fact that one good is substitutable for another has immediate economic consequences: insofar as one good can be substituted for another, the demand for the two kinds of good will be bound together by the fact that customers can trade off one good for the other if it becomes advantageous to do so.

Thus, an increase in price for one kind of good (ceteris paribus) will result in an increase in demand for its substitute goods, and a decrease in price (ceteris paribus, again) will result in a decrease in demand for its substitutes.

Thus, economists can predict that a spike in the cost of wood will likely mean increased business for bricklayers, or that falling cellular phone rates will mean a fall-off in business for public pay phones.

Example usage: Renting is a substitute good for home ownership

Automatic said...

I'm not convinced yet there will be a national economic collapse, but the evidence seems to point towards a significant downturn. And while I realize that the stock market does just fine over any 20 - 30 year period, I just got to thinking that it would be nice to have my investments gain value for the first 10 years rather than stagnate or even lose value (if that's what they're going to do).

Automatic, if you're not going to retire in ten to twenty years, and if you're not expecting a national economic collapse, consider just holding tight with your money, or leaving enough in cash or stable value to buy on dips, the deeper the discount the better.

This will be my default action unless I can dredge up some convincing evidence to do otherwise. I realize that investing in precious metals sounds hokey, and I wasn't even going to ask about it because it sounds naiive, but I eventually convinced myself that it was at least worth investigation.

Thanks for all of the pointers.

BanteringBear said...

"So now we have to ask ourselves why we dodged the foreclosure bullet? Again, I think the answer is in a strong local economy, population growth."

I know, I shouldn't even feed the trolls, but this sort of statement is outrageously stupid and shortsighted. It's the equivalent of cutting ones arm off, and loudly proclaiming five seconds later that you've avoided bleeding to death. Again, the herd never does see the cliff ahead.

Mike said...

Wow, here's a new record: 7 mortgages since 9/2005!!!

It's both for sale, and for rent (at about $400/month above market value). Additionally, the owner already bought another house nearby with piggyback loans.

Magnolia Townhome Short Term w/ Option

Lionel said...

Seems job growth doesn't always fend off foreclosure:

“California has escalating foreclosures despite a respectable job market, following a trend that started in Colorado more than two years ago. The causes are familiar to Front Range residents, low home price appreciation, meager home equity and mortgages with payments that are adjusting higher, according to foreclosure experts.”

Deejayoh said...

Magnolia Townhome Short Term w/ Option

On sale for $540, so 235x rent. yup - that's a deal

Even better, check out the zestimate trend!!!

from $658k to $540k in 10 months

Must be under priced. RUSH OUT AND BUY!!!!

audit trail said...

Maybe that townhome is in magnolia, technically, but 21st Ave? That's interbay, right off the train tracks. Does it come with a free hobo to feed my pink pony?

meshugy said...

Does it come with a free hobo to feed my pink pony?

Duh! Pink Ponies eat gum drops that fall from the sky. Geeez, don't you know anything??!!

Eleua said...

Duh! Pink Ponies eat gum drops that fall from the sky. Geeez, don't you know anything??!!

Shug,

Thanks for finally posting something worth reading.