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Wednesday, February 28, 2007

Who Should You Believe?

The post you are about to read is true. The names have been change to protect the... Well, mainly because I don't want to start a blog war. For this same reason, I have not provided links to the posts I mention. They are available for verification upon private request.

By now, most sensible people know that the proclamations of national real estate sales spokespersons should be given little to no weight. The most visible example of course is NAR "Economist" David Lereah, who consistently spews positive predictions, despite market realities to the contrary.

Of course, "all real estate is local," right? So David Lereah's national predictions are fairly meaningless to us anyway. To get a feel for the local market, most people are inclined to turn to their friendly neighborhood real estate salesperson. However, is the friendly neighborhood real estate salesperson any more likely to be open, honest, and/or correct about what is happening in the local housing market, and where it is headed? Let's take a look at a few recent examples.

As January drew to a close, area Realtor "Marzipan" stated of the local housing market that inventory had "shrunk over the last month" and that supply was "tighter, not in excess of the demand." When the data for January became available from the NWMLS, it turned out that (King County res + condo) inventory actually rose 11.7%, with 3,744 new homes coming on the market (supply) and just 2,492 pending sales (demand). Keep in mind that as a member of the NWMLS, Marzipan has access to the data before it is published to the general public. Why she chose to make a verifiably false statement about inventory and demand is anyone's guess.

In another recent episode, real estate agent "Homestar" reprinted a verifiably false headline from the Seattle Times, and used it as the subject of an entire post. Referring to October - December of last year, the headline claimed that "Housing sales fall in 40 states; but not in Northwest." In reality, year-over-year sales declined 8-12% in the last three months of 2006 over the entire region covered by the NWMLS, continuing a trend that began in November 2005.

When called out on his inaccurate assertion, Homestar did not step up to correct the error. In fact, he appeared to ignore the issue all together. However, another local real estate salesperson, "Carol" readily stepped up in an apparent attempt to defend Homestar. Her tactic was to mount personal attacks and divert the discussion to home sales price, which she continued to harp on despite repeated attempts to point out the simple fact that the headline was in error. Carol utterly refused to acknowledge that the headline claim about sales was demonstrably false.

These are just a few of the most recent examples. Anyone who cares to spend some time reading the archives of the near-innumerable local real estate sales blogs is sure to find many other instances of verifiably false data being presented as fact to an unwitting public. In my experience, local real estate "professionals" are no more reliable than national PR talking heads when it comes to providing honest, accurate assessments of the present housing market.

If they can't even manage to honestly convey things that have already happened, why should we believe their predictions of what is going to happen? In my opinion, we shouldn't.

Tuesday, February 27, 2007

Seattle is Different. We're Totally Immune.

Dow, Nasdaq, S&P500
Dow, Nasdaq, S&P500 - 02.27.2007
Click to enlarge

Microsoft & Boeing
Microsoft & Boeing - 02.27.2007
Click to enlarge

Update: By request, here is a graph of today's stock performance for a handful of other locally-based companies.
Other Seattle-Area Companies
Seattle-Area Stocks - 02.27.2007
Click to enlarge

For those of you keeping score at home:
  • Boeing: -1.95%
  • Microsoft: -4.12%
  • Amazon: -5.00%
  • Starbucks: -3.94%
  • Nordstrom: -7.59%
  • Costco: -3.48%
  • Washington Mutual: -2.25%
Some immunity.

Monday, February 26, 2007

Forbes: Seattle Job Market Middling

Seattle home prices can't possibly fall, because we've got one of the best job markets in the country! At least, that's how the argument goes... but according to the latest claims from Forbes, that argument might not hold much water.

Oklahoma has inspired its share of songs and one memorable musical. But it's not exactly a top destination for recent college graduates looking for work. Usually, 22-year-olds flock to cosmopolitan cities like New York and San Francisco, assuming that's where they'll find the most opportunities for work (and, let's be honest, a social life). But they might be heading in the wrong direction. Oklahoma City made it on to our list of the 25 best American cities to get a job. New York's ranking? No. 75.

Of course, if you want a job in finance, you should still consider New York--Warren Buffett notwithstanding. And while Oklahoma City surely has a thriving arts community, the major metropolitan areas are probably your best bet if you want a career in theater. Our list looks only at statistics; we don't focus on which areas are best for specific careers. And for the second time in a row, the big cities performed poorly. While Washington D.C. is fifth on the list (down from No. 1 last year), Chicago (No. 82), Los Angeles (No. 88), San Francisco (No. 86) and Boston (No. 83) couldn't even break the top 75.
...
So where should you look for work? We wouldn't rule out New York or Los Angeles; highly educated job-seekers should be able to find opportunities there. But the major metropolitan areas will probably never shine on this list. Despite high median incomes, they are generally plagued by unemployment, expensive housing and low job growth.
Coming in at number 34 on the full rankings, Seattle out-performed many of the larger cities. Keep in mind though that this is the same source that five months ago predicted Seattle home prices will shoot to the moon.

It should also be noted that #1 on the list is Raleigh, NC, home of Research Triangle Park. Raleigh is a strong competitor to Seattle when it comes to technology jobs, and if you put any stock in Forbes' calculations (which I'm not saying I do), they currently come out on top by a long shot.

Seattle's a great place with a strong job market (at the moment), but you're only fooling yourself if you think we're unique, special, and invulnerable to serious housing market declines because of it. The point I'm trying to make is that there are plenty of places around the country with job markets as good as or even better than Seattle. A good local job market obviously won't hurt the housing market, but it won't save it, either.

(Hannah Clark, Forbes, 02.16.2007)

Friday, February 23, 2007

Seattle Bubble Forum Highlights

There are lots of great conversations going on over at the Seattle Bubble Forums, why don't you join in too? Here's a sampling of what's going on over there:

These are just a few of the conversations that are going on. So why don't you head on over and add your voice to the discussion?

Thursday, February 22, 2007

Latest Condo Conversion: Smith Tower?

If the owner of the Smith Tower gets what they want, you can add yet another condo to dozens already planned for downtown's future. Walton Street Capital is hoping to convert the Smith Tower into condos:

Ninety-three years after Pioneer Square's Smith Tower was built as an elegant business address, its new owner hopes to turn the 38-story landmark into residential condominiums.

Chicago-based Walton Street Capital filed papers with the city Wednesday to begin what could be a months-long process of getting approval to redo the tower as housing.

It seems that living in old buildings is more charming — and practical — than working in them.
...
"We bought it, frankly, as an office building, and it wasn't until we found out we would lose the two largest tenants in the building that we really looked carefully at what our options were," [Walton Street representative Michael] Allmon said. "We've just become excited about the possibility of changing its use.

"It's important that all possible current and future uses be explored in the preservation of this iconic tower," he added.
...
Allmon believes a condominium-ized Smith Tower would have little trouble competing with the dozen or so swank condo developments under construction in downtown Seattle.

"I think this really is a category unto itself," he said.
I personally think it would be pretty awesome to live in the Smith Tower (that is of course if I worked anywhere near downtown). It's always been one of my favorite buildings in Seattle. I made a crude LEGO model of it (crude compared to this one), and it is featured prominently in the only painting my wife and I own.

On the other hand, they'll most likely be ridiculously expensive luxury condos, far out of reach for most people, and besides that, does downtown Seattle really need yet another tower full of condos, on top of the 49 others in the works? Really?

(Amy Martinez & Elizabeth Rhodes, Seattle Times, 02.22.2007)

Microsoft & Boeing: Seattle's Firm Foundation

The Puget Sound economy in a nutshell
Illustration: James McFarlane
Click to enlarge
Question: How many of the Seattle-area's much-vaunted Boeing jobs will fail to materialize with the collapse of a $2.2 billion order?

Question: Are predictions about Microsoft job growth perhaps just as "overly aggressive" as Vista sales forecasts (according to CEO Steve Ballmer)?

Just curious.

Wednesday, February 21, 2007

Seattle Running 6-12 Months Behind

A common belief (one that I've repeated a couple of times here) is that housing trends in the Northwest tend to lag California and the nation as a whole by six months to a year. Obviously we cannot know exactly what will happen here, but if we have generally followed California and the national averages in the past, then we can look to them to get a general idea of where our housing market is headed in the near future.

Let's take a look at some graphs to see if the theory holds any water. All of the following graphs are from the Case-Shiller Index, which tracks same-home sales in 20 markets across the country, including Seattle:

As we all no doubt already know, Seattle has experienced quite a climb in prices in the last few years. You can see in the graph that the gains really started to pick up steam around 2003-2004, but things seem to be leveling off presently.San Diego's rapid gains began in earnest 2002-2003, but they leveled off in 2005, and actually declined in 2006. Hmm, interesting.The composite graph appears to shoot up in 2003-2004, with a peak in early 2006, and declines since then. (Note that the composite graph tracks only 2000-present.)

Already you can probably see that on the way up, Seattle did in fact seem to lag the other two graphs. To help us visualize, I took the San Diego graph, and overlaid Seattle onto it, shifting Seattle one year back:
San Diego Home Price Index w/ Seattle Overlay
San Diego Home Price Index w/ Seattle Overlay
While they are of course not a perfect match, you can see that when Seattle is shifted back a year, both lines become suddenly steeper around the same point, and they both level off around the same point. This would seem to confirm the theory that Seattle's housing cycle has been lagging California (or San Diego at least) by approximately one year.

Here is the Composite-20 graph, with Seattle overlaid and shifted back by six months:
Composite-20 Home Price Index w/ Seattle Overlay
Composite-20 Home Price Index w/ Seattle Overlay
That looks like a pretty good match, too, with the two tracking very closely since midway through '03.

So what's the conclusion? During the recent unprecedented run-up in home prices, price growth in Seattle has lagged the nation as a whole by roughly six months, and San Diego by approximately a year. Both of these measures have shown real price declines in the past year, despite many positive factors (such as job growth, low unemployment, good interest rates, etc.).

Therefore, a reasonable person would conclude that there is a very real possibility that Seattle will also experience price declines in the coming year. On the flip side, a willfully igorant person would conclude that "Seattle is special" and we are totally shielded from experiencing similar price drops.

Declining prices are not by any means certain to happen, but ignoring the evidence that points to such a conclusion seems to me to be a pretty dumb move.

(S&P/Case-Shiller® Index, MacroMarkets, 01.2007)

Tuesday, February 20, 2007

"Quite frankly, it's time to buy."

I think maybe there is some kind of virus infecting the minds of potential homebuyers. The virus settles into the brain and causes the victim to lose the capacity for rational thought in matters of real estate. Symptoms include the delusions that "I need to buy now or I'll be priced out forever," "I should use whatever kind of financing I can get my hands on," and "owning any old dump is better than renting." Possible evidence of that last one can be found in today's P-I:

For those undeterred by the sales flier that warned a 96-year-old Columbia City house is "an extreme fixer, to be entered at your own risk" or by the "hazardous environment" sign on the door, Al Johnson left a flashlight just inside the entry.

"I'm on my second battery," said Johnson, an associate broker with Windermere Real Estate, during an open house earlier this month. He posted this listing on a Sunday evening and got calls about the house every half-hour the following day.

"One, it's about the cheapest thing around," Johnson said. "And two, people just get drooly about projects. ... People get weak in the knees and say, 'Oh, I can do this. I love this.' "
...
Johnson's weekday open house, set up so other agents could get a look, attracted a decent number of visitors. After looking through the house, Windermere agent Susan Sellin said she recently saw a Capitol Hill house in similar condition sell with multiple offers, despite a $500,000 asking price.
...
The increased interest in fixers over the past few years drove up prices beyond where many projects pay off for those who want to fix a house, then sell it right away, according to agents and builders.

"Everybody and their uncle was in this business," said Mark Johnson, who started renovating houses and building new ones in 2001, after five years as a contractor.

Johnson, no relation to Al Johnson, recently paid $360,000 for an old West Seattle house and said he poured about the same amount into overhauling it before putting it on the market last year. When the offers that came in were lower than he wanted, he decided to move in himself.

He said he knew the market was slowing when he started the project, "but I was kind of a little cocky, I guess, and thought that I could beat it."
...
But despite the slowing market, [Mark] Johnson sees an upside.

"As far as flipping, it's going to be a good thing, because there's not as much competition," he said. "Quite frankly, it's time to buy."
Oh yeah. For sure now is a great time to buy an overpriced dump. When isn't it a great time to buy one?

(Aubrey Cohen, Seattle P-I, 02.20.2007)

Monday, February 19, 2007

Industry Extreme Makeover

Side note: What in the heck is up with the FLU bug. I just got over it after my daughter (out of school for 3 days last week) planted one on me and passed it to me. Now my son has been in bed with it. What a great weekend! I understand Blanchet H.S was shut down recently due to the flu--this is nasty. Moving on....

Industry Extreme Makeover

Our state has recently enacted new rules by our Department of Financial Institutions to have loan originators get licensed, undergo testing and have background checks. Jillayne Schlicke, industry insider and commenter to this blog and Rain City Guide, is tuned in to this segment as her organization provids training, classes and pre-testing for those within the industry. Now, the candidates have to undergo testing (not in place yet, but coming later this year) and background checks 'a la finger printing. Um, how about including credit checks, like required of escrow ownership? Real estate agent candidates take coursework and have to pass an exam to be licensed by the Dept. of Licensing.

The industry needs an extreme makeover. It has a public relations problem that has been ongoing for years. It truly boggles my mind why many industry insiders do not drop by this blog and others not hosted by insiders. It is a laboratory! Bloggers offer gems of information about frustrations, housing issues, buying issues, etc....the very best cross section of existing homeowners, past homeowners, renters, those looking to buy now or in the future---people of all walks of professional and personal life! I digress. An earlier blogger comment I read really hit home for me:

"in my line of work, the MOST bankruptcy's I see on credit reports are from loan officers! hahaha, unbelievable. It's just amazing that people who deal with this amount of money can't keep their own finances in good standing. How can someone who cannot control their own situation give sound advice to anyone else?" - Matt

Here are some thoughts on what I would encourage to help mend the image of the real estate profession:
  1. Minimum of a 4 yr college degree (a far cry from a GED or high school diploma)
  2. Institutional training specific to the sub-set industry: financing, escrow, title, agents, etc..
  3. Background check on all agents and loan officers INCLUDING meeting minimum credit scores---this would include screening for derogatory lates such as 30-60-90 lates, prior foreclosures/ NOD's etc...do this ANNUALLY at the licensee's expense.
  4. Passing state licensing exams and annual continuing 'ed classes.
I agree with Matt's comment. There is nothing more dishonest and revolting than for those within the industry to market themselves as "trustworthy," "would help you like I would my own family member," "integrity filled," etc.... when their own house is out of order.

How would you like ownership in an escrow company or mortgage brokerage/loan officer to have financial distress or have suspect backgrounds, counseling you on a major transaction? Real estate is not like buying a stereo on credit at Magnolia Hi-Fi or a car at your local dealership. It is a big deal. Can you discern who really needs a commission vs. those that don't? I think you can. People can read body language, demeanor and professional image.

Now, before my colleagues get ready to write more hate mail to me, please know that not EVERY loan officer or agent has their house out of order. Realtors complain of weeding out the industry with new entry benchmarks, but they seem to be suggesting just softballs---increasing study hours etc....

If the industry wants respect, start giving it to consumers first by making it a profession, not a hobby. I truly believe that if as much time and money was spent on fundamental real estate knowledge and core customer service coursework vs. as much money and time is spent at a sales seminar on overcoming buyer/seller objections, this industry would be better off.

Bubble Link Roundup

There were a lot of mildly interesting real estate stories in the local rags this weekend. So, I think it's time for another link roundup: a list of links that are worth posting, but not each as their own post. The following links happen to all be specific to the Seattle area.

Lastly, I was somewhat surprised to see this quote reprinted in the Seattle Times from a Bankrate.com article:
If you're looking for the best return on your money, you're better off investing in the stock market than buying a house. Primary homes generally don't earn the investment return of financial instruments such as mutual funds.

While the stock market's long-term average rate of return is in the range of 8 to 10 percent, housing historically has appreciated on average in the low- to mid-single digits. Don't buy solely for investment gain.
Seen any other good snippets lately?

Sunday, February 18, 2007

Announcing the Seattle Bubble Forums

As many of you may have noticed, the daily open threads have had an increasingly large number of comments lately. I don't know about anyone else, but for me they become rather difficult to follow after a few dozen comments. Plus, if someone wants to bring up a new subject 30 posts in, it's quite easy to be drowned out.

Well thankfully there is a solution. For your pleasure, I have created the Seattle Bubble Forums. It's like an open thread, only a hundred times better!

I'm hoping that these forums can be a place where people can get together to share information and learn from each other. It's up to you to make them the most they can be.

I don't necessarily plan to stop posting Open Threads on the blog, but if the majority of people move the active discussions over to the forum, I will definitely reduce the frequency of open thread posts, and possibly eliminate them all together. We'll see how it goes.

Have fun.

Saving money is possible

Today, Everett Herald reporter Debra Smith shows how Laura & Jon Ward saved $9,000 by using Redfin. The caveat is that they did most of the legwork in finding their home to buy. How much work would you be willing to do if you could save thousands? Some have the time, some don't.

"Taking $20,000 in commission? That's absurd. If I'm willing to do the work, I don't want to pay full commission."

- Jon Ward, Mountlake Terrace Homeowner.

The National Assoc. of Realtors projects that the majority of people start their home search online. My personal experience coincides with this too. I found my own home via the internet (at the Seattle Times.) But back in 2004, Redfin didn't exist, nor Zillow, or Shackprices.

It appears the frontier of financing is changing too. The problem is that many consumers are unaware where to get information to help keep money in their wallet. Web logs are probably blowing those doors wide open. Doors that have been kept closed for so long.

-S-Crow

Friday, February 16, 2007

Seattle Bubble on Inman News

The remaining portions of Glenn Roberts' piece on Bubble Blogs have been posted to Inman News. I recommend you read it today, because after today it is only accessable to subscribers.

Read about Glenn's conversations with a "Bubble Debunker" (real estate agent), John Doe of Southern CA, Bill Bond (Housing Panic contributor), an anonymous blogger from Southern CA, and Inman blog commenters

Oh yeah, there's also a Q&A with yours truly.

Below is the full text of my Q&A interview with Glenn.

View/Hide Full Interview


Hello. I am a real estate reporter for Inman News and I'm working on an article about the real estate bubble debate. I'm wondering if you'd care to share your thoughts.

Many blogs have been born around the notion of a housing bubble. The definition of housing bubbles; explanations for their formation and fate, size and location; and the very existence of housing bubbles have fueled arguments among real estate enthusiasts and experts alike for several years. And everybody seems to have an opinion. The debate has inspired T-shirt designs and sales of other bubble-related memorabilia.


First off, I would like to make it clear that I am highly focused on the issue of a residential real estate bubble in the greater Seattle area. When it comes to the national market or other specific regions, I am merely a consumer of other people's opinions. Therefore, I do not feel qualified to make predictions or assertions regarding any housing markets outside of Seattle.

Also, I do not claim to be an expert on issues of real estate or economics, and I have never received formal training nor held a job in either of those fields. That being said, I have spent a large amount of time researching these topics and taking in data and opinions from all sides of the issue. As an "amateur enthusiast" I definitely believe that I am qualified to make predictions and assertions regarding the local housing market. If you would like to see data to back up any such assertions made in the responses below, I would be happy to provide it, just ask.

[Although Glenn did not request any supporting information from me, I have added links throughout this online version of my responses to posts where I explore the topics mentioned.]

i) Is this the real estate equivalent of the global warming issue? Will there ever be a unifying bubble theory or are we doomed to never find a consensus?

I don't think the real estate bubble is anything like the global warming issue. We will know in just a few short years whether there is/was a real estate bubble or not. The "unifying bubble theory" will be what is written in the history books. In the late '90s the consensus was that we were in a "new paradigm" and that tech stocks were a sure thing. Looking back just a few years later, we see that it was in fact a bubble, unsupported by the fundamentals. The real estate bubble will be the same.

1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?

I would describe my feelings about whether there was a bubble or not at the time I started Seattle Bubble as "leaning toward bubble believer, but open to exploration." Since that time, all the data I have investigated has pointed to the existence of a housing bubble in Seattle.

In the last six years:Furthermore, every time I investigate the data behind the most common claims of factors that will prevent the Seattle-area housing market from declining, I find that the data does not support the claim.
  • As long as the number of jobs is increasing, home-buying demand will stay strong: FALSE
  • People are moving here faster than new housing is being built: FALSE
  • Growth Management laws have restricted supply too much: FALSE
I just can't ignore the facts. Things are seriously askew, and overripe for a serious correction.

2) How do you define a housing bubble?

I believe there is a housing bubble when home sales prices become seriously out-of-line with the fundamentals that should drive the housing market: fundamentals such as incomes and the cost of rent. The only difference between the driving forces of rental prices and the driving forces of home prices is that home prices have a speculative premium built in.

The easiest way to spot a housing bubble is to compare home purchase costs with rental costs. If you are looking for a quantifiable definition, if it is more than 1.5 times more expensive to purchase as it is to rent a comparable home, I would say that is a bubble.

3) How does this definition fit (or not fit) the national housing market? Which regional or local housing markets have exhibited the most bubble characteristics?

As I stated above, I really do not feel that I am in a position to make assertions about markets outside of Seattle. However, my definition is simple enough that you can get a general picture for markets using basic data available on the Census FactFinder website. The available data is overly broad and does not make for the best direct comparison, but it is at least worth looking at. Here are the rent vs. own ratios (as in, median monthly mortgage payments are X times median monthly rent) as of 2005 for a few areas (whole counties) according to that source:
  • Seattle: 2.2
  • San Diego: 1.9
  • Boston: 1.9
  • Miami: 1.8
  • Phoenix: 1.7
  • National: 1.8
As you can see, many cities across the country as well as the nation as a whole apparently meet my most simple definition of a housing bubble.

4) Which bubbles [have already] burst? Which ones have deflated? Which ones are inflating? Which are about to pop?

Again, with the caveat that my focus is on Seattle, I do not think that any of the housing bubbles across the country can honestly be said to have popped yet. In many places, including the nation as a whole, there has been a slight deflation, but I am of the opinion that things are just getting started.

Only a few regions are still inflating, and as of last spring Seattle was definitely one of them. I can't really say whether we still are or not, because the vast majority of price gains come in a 3-month time span in the spring, which we are presently just on the verge of. Personally I expect price gains to be very small this year in Seattle, if prices even go up at all.

5) Are there any common traits among the bubble markets?

Yes: Loose lending standards and a mass psychology based on two beliefs: "Home prices are shooting up, so if I buy now I will reap the rewards of large appreciation." –and– "If I don’t buy now, I may be priced out forever!"

7) Is it possible to accurately identify the existence of a bubble before it is gone? Explain.

Can a bubble be identified? Absolutely. When the price of an item becomes grossly out of line with the actual intrinsic value of that item, you have a bubble. However, what cannot be identified is exactly how a bubble will dissipate. Perhaps it will pop rather suddenly, perhaps it will gradually deflate, or perhaps it will simply stagnate for a very long time while the fundamentals catch back up. I will say that that last option does not seem very likely.

8) How are bubbles born and how do they die?

It is all primarily about mass psychology. When a large enough group of people get it in their heads that purchasing something will result in guaranteed high returns, it becomes a self-fulfilling belief. Unfortunately it is basically akin to a pyramid scheme, and eventually there is no one new to buy in. When that happens, people finally realize what a crock it was and they all try to get out at once. This of course causes prices to plummet, bringing the death of the bubble.

9) Why do people get so fired up about the concept of a housing bubble?

That is a question I have often asked as well. I think there are a variety of reasons for the emotional charge that some people exhibit. Some homeowners bought into the idea that their house will appreciate endlessly at 10%+ per year, and are defensive against any suggestion to the contrary. Some renters are frustrated that home ownership has moved out of reach, seemingly for no good reason. Of course, anyone in the real estate business gets defensive about the notion of a bubble because a bursting or deflating bubble would affect their bottom line.

10) Will there ever be an explanation for bubbles that we can all agree upon?

I doubt it.

11) Will there ever be a time when the discussion about bubbles goes away? Is this just a passing fancy?

I imagine that we will stop discussing bubbles when they stop crapping all over our economy. Seriously though, the root of the problem is that people want a way to make money quickly and easily. If an opportunity comes along that appears to offer that, they will jump on it. There are no guaranteed shortcuts to riches, but as long as enough people keep jumping on the latest "sure thing" with their investments, we are doomed to see plenty more bubbles (real estate or otherwise) in the future.

12) What has motivated you to participate in the bubble discussion and what have you learned? What has happened with traffic volume at your blog site as the U.S. housing market has slowed? What is your background in real estate/economics?

I started the blog primarily as a place to keep track of everything I was reading while I researched the housing market. My wife and I had been "window shopping" for a home, and were extremely discouraged with how unaffordable they all were, despite our above-average income. The more I researched the housing market, the more disturbed I was about the state of things. A good summary of what I have learned is stated above in response to question 1.

In 2006, monthly traffic to my blog increased nearly seven fold. However, since I only started the blog in August 2005, that is probably primarily a function of the blog's newness rather than the state of the national market.

As I stated above, I do not have a "background" in real estate or economics. My formal schooling and career experience is in the field of electrical engineering. As someone with a very analytical mind, able to seek out and process data, I feel that I have built a fairly complete picture of the local real estate market.

Hide Full Interview


(Glenn Roberts Jr., Inman News, 02.16.2007)

Our Doom and Gloom Media

It seems that every time the local press prints a story that is slightly less than 100% "rah-rah, go home prices" people come crawling out of the woodwork to accuse them of using "doom and gloom" or "sensationalism" to sell papers. Accusations like that really amuse me, since (as regular readers of these pages know well) the vast majority of real estate stories printed by Seattle's two dailies are overwhelmingly positive about the market, despite looming signs of a slowdown.

Case in point. Take a recent AP story about the nation-wide housing slowdown. The P-I reprinted the story in its original form: Housing sales drop in 40 states. However, over at the Times, they couldn't let a headline like that slip by. No, that just won't do. So they whipped up their own version (additions in bold): Housing sales fall in 40 states; but not in Northwest

The slump in housing deepened in the final three months of last year with sales falling in 40 states and median home prices dropping in nearly half the metropolitan areas surveyed.

The Pacific Northwest bucked that trend, with the Seattle-Tacoma-Bellevue area prices rising 11.3 percent in the fourth quarter, the National Association of Realtors reported today. Spokane prices were reported up 12.2 percent, and Portland up 11.2 percent.
At this point I imagine the Times was pretty proud of themselves. But apparently after going to print, someone thought: "You know, adding just one paragraph might not be enough to get the message across. The Puget Sound housing market is so blisteringly red-hot that it deserves more than that. Let's add a bit more and print it again."
The slump in housing deepened in the final three months of last year, with sales of existing homes falling in 40 states and median prices dropping in nearly half the metropolitan areas surveyed.

Although Washington state's sales of houses and condominiums declined 16 percent, prices continued to climb, thanks to a generally strong economy.

In the Seattle-Tacoma-Bellevue area, prices rose 11.3 percent in the fourth quarter compared with a year earlier, the National Association of Realtors reported Thursday. Spokane prices were up 12.2 percent, and Portland up 11.2 percent.


Formerly red-hot areas were among the hardest hit as the five-year housing boom cooled considerably in 2006.

While some economists think the worst may be over for housing, others predicted more price declines to come in some areas until near-record levels of unsold homes are reduced.

The Puget Sound area is not now reporting an excess housing supply.

At the end of January, King County had a three-month supply of unsold homes, according to the Northwest Multiple Listing Service.
There, that's better.

You want another example of the sensationalist doom and gloom reporting we are subjected to by the local press? Okay, how about Aubrey Cohen's twist on the AP story, appearing in today's P-I: Area's housing prices still strong
Whatever is happening to the region's housing market, its home prices held up better than in much of the nation.

The price of a typical house in the Seattle-Tacoma-Bellevue area was $372,900 in the final three months of 2006 -- up 11.3 percent from the same period in 2005, according to data the National Association of Realtors released Thursday.

The association did not release figures just for Seattle, but the Northwest Multiple Listing Service reported the city's median price for houses and condos increased by more than 9 percent in each of the final three months in 2006, compared with the same months the year before.
I do have to give Mr. Cohen some credit though, as he did manage to bury a little bit of a warning in there between the sub-headline "Homes here buck national trend" and all the starry-eyed cheerleading:
Seattle isn't in the clear, however. The number of homes on the market increased for seven straight months, compared with the same months in the prior year, while year-over-year sales declined for six straight months before going up in January, according to the Northwest MLS.

The rate of price appreciation slowed in recent months, with a year-over-year increase of just 0.8 percent in January. January's median was down 9.5 percent from December. Some analysts have speculated that Seattle will see year-over-year price declines.
What can you say. They've got to throw in a little "doom and gloom" to sell the 'papes, right?

(Martin Crutsinger, Natasha Metzler, Elizabeth Rhodes, Seattle Times, 02.16.2007)
(Aubrey Cohen, Seattle P-I, 02.16.2007)

Thursday, February 15, 2007

Let's talk Financing: Gross Income outdated?

Bonus Picture Day (billboard next to Everett Events Center): Looks like the banking industry is aware of the debt picture.

Gross Income outdated?

For years the lending industry has utilized gross income as the yardstick by which consumers are qualified to obtain mortgages. Let's say the median priced home in King County is $465,000. What would the gross income need to be to qualify for this mortgage?

Here's the generic scenario: Specifically, let's use a 100% financed program as our sample; not to ridicule the program, but because it is used so often. Property Taxes are presumed to be $5000/yr. Homeowner Insurance is presumed to be $600 per year. We won't worry about Mortgage Insurance for this illustration. This is just to make you think, so don't pull out your calculators.

A single 1st Deed of Trust loan is $465,000 @ 6% fixed for 30 yrs: Using the Bankrate.com Mortgage Calculator, the Principle & Interest is $2787.91 Now add $466 per month for taxes/insurance, so your total monthly payment is: $3253.91.

If a rule of thumb is to not exceed, say, 33% of your gross income, then what should my income be to qualify for this loan? If your payment is $3253.91, roughly a third of what you make, then you would need gross income to be roughly $9900.00/month. That is a lot of dough.

But, hey! Meet Bob. After tax income for Bob the borrower is actually around $7,000/mo. That's his net income. But, hey! Wait! Bob spends at least $500 per month on utilities and he needs cable to watch pay per view specials like the UFC Championships. And he spends hours blogging, so Bob needs a high speed internet service at $50/mo. He also drives that sweet Acura TL, so his payments are around $600 mo., including insurance--which would have been less, but that's another story. He loves the Sonics and attends at least 2-3 games per season. Bob and his close friends eat out at least once a week and dang it, he wants to go to REI and buy that Thule car roof rack for his new boards that he purchased last year. Up to a few weeks ago (conditions have been horrible recently) Bob was skiing at Crystal Mountain every weekend. That's a hundred dollar day, just to ski and play. When Bob really thinks about it, he's spending about $2000.00 month on food, utilities, car payments, and other stuff. Once in a while he likes to travel.

What I'm illustrating is probably not terribly far off from reality. After tax income on this borrower does not leave very much left for a housing payment, provided the income stated was a full doc loan---full employment and income verified loan. If the borrower did not actually make $9900 mo/ gross (went Stated Income or NINA--no income or asset verified) but ACTUALLY brings home $5000.00 per month, NET, this borrower is on borrowed time.

Fortunately for Bob, his co-worker is also a part-time loan officer! Bob went with an 5 yr. Interest-only ARM, amortized over a 30 yr term. Bob is paying interest only, $2325 plus taxes and insurance, so his payment is about $2791/mo. That is about $500 less than the previously mentioned loan program. He could take that difference and invest it or have more fun. Is this scenario plausible to readers? It should be. It works well with those who use it wisely.

Should the lenders stick with gross income? I'm probably old fashioned, but when I look at my monthly obligations, my decision making (usually) is based upon take home pay, not gross income. Borrowers should know what they actually bring home and use that figure as the real number to stay within their comfort level.

Wednesday, February 14, 2007

Kleenex, Q-Tip, Band-Aid... Realtor

Public Service Announcement for people employed the real estate field:

Whether you like it or not, the general public uses the term "Realtor" in much the same way that we use the terms Kleenex, Q-Tip, Band-Aid, Jell-O, Styrofoam, and many others. Despite the fact that "Realtor" is a registered trademark that refers to a specific product, in practice the majority of people use the term "realtor" to refer to anyone that sells real estate.

I know this really bothers some of you, Realtors or not, but it's just a fact of life, and not likely to change any time soon. Also, you should know that it really gets old when you constantly correct people on the use of the term. Imagine how annoying it would be if every time you asked someone for a kleenex you were told "Kleenex is a registered trademark of the Kimberly-Clark Corporation, and I don't have any. However, I do have two-ply facial tissue; would you like one of those?" It gets old really quickly.

I just wanted to throw this one out there, because I have occasionally seen it become a point of contention on this and other real estate blogs in discussions between real estate "professionals" and the public. I am but a messenger. This is just the way things are. Get used to it.

Ask Seattle Bubble: Just Bought A Condo

Here's a question I recently received from a reader that I will call "Jack":

I'm 26. From L.A., recently moved here. Saved for a year, and moved with about 30k, (made 110k in '06) I was on disability for a year before after I almost died in an accident, so my previous savings were depleted. We are renting and working in Bellevue. Our rent for a 2 bed / 2 bath is $1,175. It's a pretty nice place outside of downtown Bellevue

I just closed on a 2/2 in Issaquah off of W. Lake Samm. Blvd. and I-90, for $219,950. Got good rates (I deal with loans of a different kind, so I did my homework). Anyway, my payment all in is $1,600, including approx. $140 in tax and $218 in HOA dues. Looking at the comps over the last 6 mos. I didn't steal the place, may have overpaid a couple of grand. I plan on living there for 4-5 years.

I've been well versed in med. emergencies, and work on commision, and am very worst case scenario oriented. My all in, PITI, and everything else is around 30% on the worst month i've had in a year, and around 12-15% on a good month, with plenty in reserves...

What is your HONEST opinion on this one?
Here's what I said to Jack:

My opinions on buying real estate right now are pretty simple. In general, I don't think that now is the best time to buy. However, those that do choose to buy will come out all right as long as their payment is affordable and they would be able to and wouldn't mind staying put if the price dropped to less than what they paid. Be aware that if price drops do come, it could take 5 to 10 years before prices come back up to their previous highs. By "affordable," I mean no more than 30% of gross income is going to mortgage, insurance, taxes, and HOA. Certainly there are exceptions to every rule, but it's always best not to start off with something that you can barely afford (approaching 50% of gross or more), because if a job loss or medical emergency crops up you could be in a tight spot very quickly.

So generally, I would say that if you're happy with your home, you're not stretching to make the payments, and you have a reasonable plan in case of financial problems, then more power to you. Enjoy your place.

What advice do you have for Jack, now that he has bought the condo in Issaquah?

Tuesday, February 13, 2007

What Cities Does Seattle Compare To?

In the last few days I've run into a few comments in various discussions about Seattle real estate that have caught my attention:

Dean Jones, Condo Marketer:
"You might cringe at condos that sell for $2,000 a square foot. But it would be twice that in New York. We're still, relatively speaking, a bargain."

Bob, Urbnlivn commenter:
"When I look at the prices in New York, Tokyo, Hong Kong and London where new apartments can routinely fetch $1500 per sqft, Seattle still isn't that expensive but it is getting there."

Emkorial, Ars Technica Forum Member:
"Seattle is a MAJOR city. Like LA and NYC."
What I find interesting about these comments is the tendency to justify Seattle home prices by comparing Seattle to large, major cities. Is this a valid comparison? Is Seattle really a major city like LA or NYC?

Usually when people refer to a city as "large" they are referring to the sheer population of the city. However, population density also has something to do with it, because otherwise any city that expanded their boundaries enough could claim to be a "major" city. So we could rephrase the question to ask: "What cities most closely match Seattle's population and density?"

To answer that question, I made a list of a handful of major world cities and a number of large-ish US cities. Here are the population, land area, and population densities of each:I have highlighted the six closest cities to Seattle in each separate category: population (orange), land area (green), and density (yellow). When looking only at population, Seattle is most similar to cities such as Las Vegas, Vancouver, Milwaukee, Portland, Cleveland, and Sacramento. When comparing land area, St. Louis, Cleveland, Baltimore, Milwaukee, Sacramento, and Las Vegas are all fairly close. Lastly, when you compare density (which the chart is sorted by above), Seattle is comparable to Los Angeles, Baltimore, Buffalo, Detroit, Cleveland, and Milwaukee.

There are two cities on the list that are similar to Seattle in population, land area, and density: Cleveland, Ohio and Milwaukee, Wisconsin.

Keep in mind that I am not attempting to compare all available statistics (such as income, economy, home prices, etc.) for these cities. I simply wanted to determine which cities Seattle should be compared to when discussing city size.

And now we know the answer: Cleveland and Milwaukee.

Update: Some people pointed out that my "highlight the three next highest and the three next lowest" method does not meet the rigorous scientific standard that the readers of this site deserve. Therefore, in the interest of science, I present this updated chart:In this chart I have highlighted cities that are ±20% of Seattle in each category. As you can see, Cleveland and Milwaukee are still a close match to Seattle, with the city of Baltimore, Maryland joining the list.

Monday, February 12, 2007

Why this insider blogs at Seattle Bubble & Rain City Guide

So, why do I contribute from time to time and participate on Seattle Bubble Blog and over at Rain City Guide? Isn't that like not a good idea?

I'll write as I think, so here goes:

I read, collaborate and discuss housing here because it offers one of the very best cross sections of consumers who are interested in housing. Housing impacts our daily lives, whether you currently rent or are a future, existing or past homeowner. This blog has them all (consumers), mostly absent of insiders who stick around to comment, except for Ardell Dellalogia, whom I've encouraged to join in on the discussion and has both here and at RCG.

Sadly, it's a shame other allied real estate pros don't participate. My sense, right or wrong, is that other folks in the business do not want to be scrutinized or singled out and be the fodder of any blog. I wish this were not the case, but I think it holds true. I also believe there are many people in the business who agree with a lot of what is being discussed in this forum, confirmed from many conversations I have outside the confines of this blog. The real estate community, while large, is small. Enough said.

One of the other reasons that I participate is that I learn. A lot. From everyone. I just wish I had some way of an RSS feed for Eleua's comments. I admit it. Sometimes I just scroll to find his military flavored comments that nearly make me pull a muscle from laughing so hard. Sometimes my kids wake up at midnight from the laughter in my office. They murmur to each other: Dad is on that blog again!

Commenting on this blog has not been counterproductive to myself personally or professionally. Oh, I've had my fair share of hate mail over the months, but I never take it personally. I participate because I have a lot to offer from a perspective that has a unique vantage point: we (escrow) see everything (finance, lending programs; the good and bad as well as real estate issues) from the lens of escrow—a traditionally neutral party (arguable).

If there is anything that concerns me the most about real estate it is that far too many consumers go blindly into a transaction without the best information and receiving full disclosures of fees, any affiliated business relationships, who is paid what, when and why? Most problems associated with a transaction, either purchase/sale or refinance, could be avoided by full transparency and integrity-driven, consumer-FIRST practices. Unfortunately, consumer-FIRST practices are not always on the radar. Sometimes it is off the radar completely.

The difficulty with escrow is that you must maintain a fact-based approach to assisting consumers with closing documents and loan paperwork. By the time a consumer signs paperwork the efficacy of the transaction and question "should I be doing this," hopefully has been previously answered. Sometimes it is not. I say it is difficult because with a "neutral party poker face," we cannot get into a discussion of "gosh, you are paying $10,000 in fees to get $20,000 cash back on your refinance!" It is also difficult watching a 90 year old very bright and fully cognizant woman refinancing her home, again. Probably the most difficult professional day in my life.

For years, real estate has been used as an additional vehicle to build wealth. From my experience, it has been a wealth builder for those who treat the primary home as a place to put down roots. Long term. I recently had the pleasure of meeting with a gentleman who has several properties as long term investments. The youngest in his portfolio was purchased about eight years ago, most much older. Over the past three years, it was an odd day to not hear a buyer, while signing closing and loan doc's, comment about how much equity they would realize. Where did "I'm buying the house because it's a place I want to live" go? It's not that housing should not be a part of asset growth, but when it becomes THE only way to go in the minds of many, many are going to be sadly disappointed.

Does my participation and others' have an impact on the market, its psyche, or whether or not our Puget Sound region is experiencing a bubble as defined by each individual? Should the real estate community be critical of the media now? Is it the classic double-standard? No comment during the run-up, but when the winds blow the other direction, should the media be criticized?

My best guess is that my participation has little to no impact by itself. The market changes were occuring well before I stumbled upon this blog or others. My belief is that, at its core, this blog is helpful to consumers. Buying a home is a large transaction. Seattle Bubble and other blogs provide an alternative and fresh approach to understanding economic dynamics that are in play in our local markets. Filter out cheerleading and rants on both sides and you'll find gems of relevant information. The cumulative power of hundreds of bloggers discussing real transaction issues, market nuances and news is what makes this and other blogs powerful. How influential is difficult to quantify.

Regarding the criticism of the media discussing housing bubbles: in my opinion, this is the more humorous of ironies. Look, there is no doubt in my mind that housing is a large, very large, contributor to our economy. I don't want the housing sector to be hit hard, but what did anyone expect with the enabling and complete abandonment of sane lending practices? As I said to the lender account executive from LA who drove up to Seattle visiting mortgage brokers, "what did you expect was going to happen to all these borrowers with Option Arms and 100% financing?"

While Rain City Guide is a fantastic blog, even though some of my comments or topics may be thought of (8 min. 30 sec mark of the podcast) as controversial, its core audience is allied real estate professionals. The core audience of Seattle Bubble is largely consumers: including people interested in buying a home, existing homeowners like me and others. Each blog serves its own purpose. I would be interested in knowing how many hits Rain City Guide gets from actual consumers vs. industry insiders, but I don't know how you could track it.

Living within or under your means starts with educating yourself about home ownership, when it's right to make that step and the critical stage of understanding financing. Learning strategies to keep more money in your wallet within the realm of buying or selling a home is an important factor in building your future nest egg. Stay tuned.

Inman Talks Bubble Blogs

This is just a quick note to point out the first article in a series about Bubble Blogs over at Inman News (the all-real-estate, all the time "news" outlet). Since articles over there are only free to view on the day they're posted, you might want to check it out today. I was interviewed for this series by the writer, and I assume/hope that some piece of my interview will crop up in the continuation of the series later this week.

The list reads like a prophecy for real estate Armageddon: The Housing Bubble, Housing Panic, Housing Doom, Ready to Burst, Bubble Meter, Southern California Real Estate Bubble Crash, Seattle Bubble, The Jersey Shore Real Estate Bubble, Southern Maryland Housing Bubble News — and the list goes on and on.

These are titles for real estate blog sites among a giant genre that is devoted to a discussion on housing bubbles and the possibility of a real estate market crash. Despite the sensationalist blog names, the creators say their aim is not to scare people into hiding. Rather, they want to empower consumers with information and commentary about real estate and economic statistics so that they can make more informed decisions about housing.
I'll be sure to post the link if my interview comes up, and I'll probably post the complete text of my Q & A with Glenn as well.

(Glenn Roberts Jr., Inman News, 02.12.2007)

Update 02.13: "Meet the Bubble Bloggers, part 1 has been posted. Read Glenn's interview with John McLeod, co-blogger at HousingDoom.com.

Update 02.14: Part 2 is up. Read Glenn's Interview with Patrick Killelea of Patrick.net

Update 02.15: Part 3, Patrick Veling, real estate industry analyst and consultant.

Buy A Downtown Condo RIGHT NOW!

Many of you pointed out the latest in a series of paid advertisements masquerading as reporting in yesterday's Seattle Times. The apparent purpose of the "article" was to convince the reader that 2007 is a great year to buy a condo in downtown Seattle, at any cost.

[Condo developer David] Thyer insists that Seattle isn't like other cities, where developers are struggling with an oversupply of new condos. There's a demand for condos in downtown Seattle, he says, drawing a contrast with the speculative buying frenzy that has led to a boom-bust scenario elsewhere in the country.

On Friday, political and business leaders met over breakfast at the Westin Hotel for an annual review of downtown Seattle. Real-estate economist Matthew Gardner shared Thyer's optimism, telling an audience of about 700 that demand for new places to live downtown will remain "very positive."
...
Developers say the new condos will sell, but will they sell at the prices developers want?
...
In Miami and Las Vegas, developers have had to drop their prices after condos outnumbered buyers.

Part of the problem is that many buyers regarded their new condos as investments and had no intention of living in them.
...
[Dean] Jones [president of Realogics, a local condo-marketing firm] estimates that speculators accounted for 30 percent or more of all new condo purchases in Miami and Las Vegas, compared with "no more than 15 percent" in Seattle. Now, developers require buyers to disclose if they intend to live in their new condos in an effort to limit speculators, Jones said.

Ada Healey, a vice president at Vulcan Real Estate, said speculators represent a "very modest minority" of its buyers. Thyer, president of R.C. Hedreen, said he tries to limit speculators to no more than 5 percent.
...
[Seattle real-estate agent Brett] Frosaker counts at least four projects where a significant portion of the condos sell for $1 million or more. Never before, he says, has downtown seen so many ultra-expensive condos come online at the same time.

"A lot of research shows there's a market for them," he said. "But it hasn't been proven yet."
So, a bunch of condo developers, condo marketers, and real estate agents all say that "it's different here." What a shock. And what evidence, pray tell, do they have to support that assertion? Estimates, intentions, efforts, and (I'm just guessing on this one) a sprinkle of pixie dust.

Matt Goyer, proprietor of the local condo enthusiast blog Urbnlivn also had some critical thoughts about this article that are well worth reading. Considering that he is already a condo believer, it is commendable that he takes these cheerleading articles with such a large grain of salt. Kudos, Matt.

(Amy Martinez, Seattle Times, 02.11.2007)
(Matt Goyer, Urbnlivn, 02.11.2007)

Friday, February 09, 2007

Our Present Real Estate Cycle

Just for kicks, let's take another look at the home price YOY change graph that I posted on Wednesday.

I noted that the downward curve on the right that represents the last nine months looks fairly steep. But just how steep is it, compared to the rest of the graph?

In order to get a feel for the "cyclic nature of the market" I ran some calculations. Since things were slowing down at the beginning of the available data (1993), I defined a complete cycle as a slowdown, trough, speedup, plateau. I calculated the average month-to-month change in year-over-year home prices for each slowdown, trough, speedup, and plateau.

In other words, when "appreciation" was on the rise, how quickly was it rising? When it was declining, how quickly was that? I did a little number-crunching, and here are the results.

Cycle #1: January 1994 — June 1998
Slowdown: January 1994 — March 1995
Median YOY Start: +5.33%
Median YOY End: -1.77%
Total Change: -7.10 points
Time Elapsed: 14 months
Average Monthly Change: -0.51 points

Trough: March 1995 — September 1995
Median YOY Start: -1.77%
Median YOY End: -1.82%
Total Change: -0.05 points
Time Elapsed: 6 months
Average Monthly Change: -0.01 points

Speedup: September 1995 — February 1998
Median YOY Start: -1.82%
Median YOY End: +15.10%
Total Change: +16.92 points
Time Elapsed: 29 months
Average Monthly Change: +0.58 points

Plateau: February 1998 — June 1998
Median YOY Start: +15.10%
Median YOY End: +14.67%
Total Change: -0.43 points
Time Elapsed: 4 months
Average Monthly Change: -0.11 points

Cycle #2: June 1998 — April 2006
Slowdown: June 1998 — March 2001
Median YOY Start: +14.67%
Median YOY End: +0.35%
Total Change: -14.32 points
Time Elapsed: 33 months
Average Monthly Change: -0.43 points

Trough: March 2001 — June 2003
Median YOY Start: +0.35%
Median YOY End: +1.72%
Total Change: +1.37 points
Time Elapsed: 27 months
Average Monthly Change: +0.05 points

Speedup: June 2003 — October 2005
Median YOY Start: +1.72%
Median YOY End: +20.00%
Total Change: +18.28 points
Time Elapsed: 28 months
Average Monthly Change: +0.65 points

Plateau: October 2005 — April 2006
Median YOY Start: +20.00%
Median YOY End: +18.17%
Total Change: -1.83 points
Time Elapsed: 6 months
Average Monthly Change: -0.31 points

Cycle #3: April 2006 — ???
Slowdown: April 2006 — Present
Median YOY Start: +18.17%
Median YOY Present: +10.13%
Total Change: -8.04 points
Time Elapsed: 9 months
Average Monthly Change: -0.89 points

As you can see, the slowdown we are currently experiencing is nearly twice as rapid as either of the two previous slowdowns since 1994. Clearly this does not tell us anything about what is going to happen in the near future, but it's definitely an interesting point to note, and one that you're not likely to read in the local newspaper or the blogs by those in "the industry."

Down and down it goes, where it stops... nobody knows.

Thursday, February 08, 2007

January Reporting Roundup

Let's have a look at the local press reaction to the market's continued slowdown, shall we?

First up, the poster child for slowdown denial in the media, Elizabeth Rhodes. This month she actually managed to sandwich a morsel of reality in between the excuses and the unbridled optimism:

A nasty dose of winter last month meant sales of single-family houses and condominiums were down 4 to 14 percent throughout the four-county central Puget Sound region, according to the Northwest Multiple Listing Service's monthly report released Wednesday.
...
"People were not buying in January; it was the weather," said [Jack] Cosby, an agent in Prudential Northwest Realty's Kent office.
...
Besides the weather, two other factors — the number of properties on the market and the rate of home appreciation — point to a continued sluggishness of the market.
...
Compared with a year ago, countywide listings were up 25 percent in King, 31 percent in Snohomish, 42 percent in Pierce and 46 percent in Kitsap.
...
Near the month's end the market started to pick up, said Judy Hay, an agent in Coldwell Banker Bain's Bellevue office.
...
Likewise [RE/MAX Broker Pat] Reagan also sensed a month-end rally with "more appointments being set up to see the interiors of homes, as opposed to just shopping on the Internet."

If that continues this month, spring sales will be strong, Reagan said.

"But if we have a very bad February," added Cosby, "it doesn't look like it will be that good of a year. Still, I'm an optimist, and I do believe in our area the market will be fine."
Keep the faith brother, keep the faith.

The silver medal for bubble boosterism goes to our good friend Aubrey Cohen, who points out some interesting statistics and then does his darndest to explain them away:
Seattle's median home price in January was the lowest it has been in a year, according to statistics released Wednesday.

The median price of $379,990 was down from $420,000 in December, according to the Northwest Multiple Listing Service.

A seasonal decline is consistent with recent years, but Seattle's January median home price also was lower than King County's median — a first since at least 2001. King County's median home price in January was up 8 percent from a year earlier, while the median for all 19 counties in the Northwest MLS was up 10.6 percent.

"That's odd," Bob Melvey, assistant manager at Windermere Real Estate's Ballard office, said of the Seattle numbers. "My personal experience doesn't jibe with the stats."
...
The median price could be dragged down by the sale of condominiums...
...
Melvey speculated that town homes ... might have made up a larger chunk of Seattle's sales in January.

"I've noticed a lot of town homes in what I would consider not desirable neighborhoods coming on the market, and they're at pretty low prices," Melvey said.
...
Shifts in how home sales are distributed among Seattle neighborhoods also could be to blame, said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.
...
Crellin said he expects prices to go up in general, but said they would not go up as fast as they did in the past couple of years and they could decline in higher-end areas or those with many speculators.
Absolutely delightful. You know, I am really starting to enjoy reading this kind of stuff. It just gets more and more ridiculous with every passing month. Moving on...

Lastly, we check in with Mike Benbow at the Everett Herald, who seems to believe that prices will continue to rise no matter how low sales drop or how high inventory gets.
Home sales in Snohomish County continued to slow significantly in January, but that didn't stop a double-digit increase in the median price, according to the Northwest Multiple Listing Service.

Following a trend that emerged last summer, inventories rose substantially and sales dropped from prior-year levels. Prices rose more slowly than they had a year ago.

But the combined median price for single-family homes and condos still hit $348,000 in January, a 16 percent rise from a year ago, when the median was $299,950.
...
Listing service officials said January sales started slowly because of the bad weather but picked up significantly later in the month.

"Pent-up, frustrated people who, due to snow, wind and rain, postponed looking, found their way out of the house and into open houses," said Kathy Estey, managing broker at John L. Scott in Bellevue.
That's the ticket. The market only appears slow because, you know, we had three days of snow last month. Yeah.

Addendum 02.09: I missed the Devona Wells' article in the Tacoma News-Tribune yesterday, so here it is now. Better late than never.
Pierce County median home prices in January were the lowest in eight months, pointing to a market still better for buyers than sellers.

While trending flat, the median sales price of $266,725 did inch upward from the same month last year by 5.3 percent, according to figures released Wednesday by the Northwest Multiple Listing Service.
...
"I think sellers are realizing that there is a whole lot more competition out there," [real estate agent Mike Larson] said.

A strong economy and relatively low interest rates, however, should make for a healthy 2007, he said.
...
"What's going to be interesting is to see what happens outside the winter months. When spring and summer hit, we’ll have our increase, probably 5 percent or 6 percent," [real estate agent Dick Beeson] said.
Pretty much the same template as the P-I article. Quote the stats, then quote plenty of local real estate "experts" telling us all that it'll be okay, nothing is broken.

Stay tuned for even more lame excuses and blind optimism approximately 28 days from now. It's sure to be an entertaining show.

(Elizabeth Rhodes, Seattle Times, 02.08.2007)
(Aubrey Cohen, Seattle P-I, 02.08.2007)
(Mike Benbow, Everett Herald, 02.08.2007)
(Devona Wells, Tacoma News-Tribune, 02.08.2007)

Wednesday, February 07, 2007

Guess What? Inventory Up, Sales Down.

An inside source has supplied me with the latest NWMLS statistics, and they tell exactly the story you would expect if you've been paying any attention at all during the prior nine months. For what is now the tenth month in a row, inventory was up and sales were down YOY. In fact, sales have been in the negative YOY since November 2005, making January the fifteenth consecutive month of declining sales.

Here's your SFH summary:

January 2007
Active Listings: up 22% YOY
Pending Sales: down 6% YOY
Median Closed Price: $429,495, up 10% YOY

As is the custom, I have uploaded an updated copy of the Seattle Bubble Spreadsheet that contains the relevant data. The public NWMLS pdfs are not available yet, but when they are I will update this post with the link. [Update: And, here it is.]

Here's the supply/demand YOY graph:

It would be a stretch to call the upward curve on the sales graph a "recovery" since it is still in negative territory, but sales are certainly now slowing as much in the last few months as they were during the summer months. Will we see the all-powerful "spring bump"? We'll know in just a few months...

Here's the chart of supply and demand raw numbers:Finally, just because I'm in a charty type of mood (also I'm in Atlanta and there's nothing much better to do), here's a graph of the YOY percent change in the median sale prices of single-family homes in King County since 1994:Wow, that latest dip sure is steep... Huh.

Tuesday, February 06, 2007

Condo Shoppers Lie Low

This article appeared on the front page of the Puget Sound Business Journal early this month. While typically not read by the general public, "Biz Journals" are widely circulated throughout the business community. Local businesses use the publication to keep tabs on their customers and competitors and to stay abreast of local business news.

I've posted the entire article with permission as it's currently only available to subscribers of the Journal. Enjoy!

Puget Sound Business Journal
February 2, 2007
by Justin Matlick

Walk into the "Trio" condominium project's Belltown showroom, and it looks like many other glitzy condominium projects rising in downtown Seattle. Many of Trio's units, when they're completed this fall, will feature bamboo floors and faux-granite countertops. Tenants will share a roof deck just a block from the new Olympic Sculpture Park.

But there's one key difference between Trio and some other recent projects: It isn't selling.

With a median price of $405,000, the project opened for presales in December 2005 and, as of Jan. 7, had sold just 28 of its 116 units, according to the Fat Report, a monthly newsletter that chronicles local condo sales.

Trio is among a growing number of struggling condo projects in Seattle. A downtown Seattle high-rise project at Fifth Avenue and Madison Street has sold about 52 of its 126 unfinished condominiums since September 2006 [sic]. Lumen, a 94-unit project in Seattle's Lower Queen Anne neighborhood, started selling in June 2005, and roughly a third of its units are still up for grabs. In Ballard, a project dubbed Hjarta, which started presales in October, had sold seven of 79 units as of Jan. 7, according to the Fat Report.

The stagnant sales could pick up once the projects are completed, and don't mean Seattle has been dragged into the condo tailspin now affecting markets in Las Vegas, Boston and other cities -- some recent local projects have sold out within days. Still, many local developers and real estate watchers agree that Seattle's condominium market is decelerating for the first time in years.

The reason: With thousands of local condos slated to go up in the next few years, buyers believe the recent period of rapid price appreciation is disappearing, and it's taking away the buy-now urgency that fueled the local boom with it.

"Buyers have a lot more to choose from and are playing a bit of a waiting game," said Mark Schuster, president and chief executive officer of the Schuster Group Inc., a Seattle-based real estate development company.

Nationwide, the condominium outlook is bleak in cities such as Washington, D.C., where a rush to build left the market oversaturated. In the fourth quarter of last year, developers in the Washington metro area switched roughly 5,900 projected condos into rental apartments, while plans for another 2,500 new condominiums were shelved, according to Delta Associates, a research firm based in Alexandria, Va.

While the Puget Sound region's housing market is slowing -- in King, Pierce and Snohomish counties, the Northwest Multiple Listing Service has reported falling home sales and rising inventories since last summer -- none of the real estate professionals contacted for this story were aware of any local projects being canceled or postponed, and most economists agree that the local market is well-insulated against a dramatic decline.

According to Dick Conway, co-publisher of the Puget Sound Economic Forecaster newsletter and Web site, the ongoing Boeing boom, a Microsoft hiring spree and strong demand for the region's exports from Asia set the stage for an ongoing population inmigration that should keep housing demand steady.

"We have very strong fundamental demand for housing because of population growth," Conway said.

The critical question facing local condo buyers: whether supply will outstrip that demand. While it's nearly impossible to predict how many condos are too many, it's apparent that the region's developers remain in the throes of a condo-building spree.

Developers in King, Pierce and Snohomish counties filed permits to build 8,300 units of multifamily housing, including apartments, condominiums and townhomes, in 2005, according to Conway. That number rose to 11,200 last year.

Meanwhile, developers are converting apartments into condos at a rapid clip. Roughly 7,000 apartments were transformed into condominiums in 2006, or were scheduled to hit the market soon, according to Dupre + Scott Apartment Advisors in Seattle.

The bevy of new projects "has probably put a little rain on the sales parade," said Lin Shih, a Seattle real estate agent who specializes in condos at Coldwell Banker Bain. "Buyers think that, with all these new developments coming up, they can be picky."

Another factor: a widespread belief that the days of rapid price gains are over. "When the market was hot, people knew they were buying today for ready-made appreciation," said Brett Frosaker, owner of Columbia Real Estate in Seattle and publisher of the Fat Report. "Now they're starting to wonder if today's condos are listing at tomorrow's prices."

According to Frosaker, a project's sales typically accelerate once it is completed, in part because buyers feel more comfortable seeing the actual units instead of showroom mock-ups.

Nonetheless, some projects have sold rapidly in the presale phase, especially lower-priced developments targeted at first-time buyers. The 251-unit Moda project in Belltown, for instance, came on the market for presales last summer and sold out within days, according to Frosaker. Many of Moda's condos were small units priced under $300,000.

Looking ahead, Frosaker believes this summer could be a ripe time for condo buyers to get good deals, especially as the bigger projects get closer to completion and their developers feel a greater sense of urgency to fill them up.

"With all these projects fighting tooth and nail," Frosaker said, "summer might turn into a great buying opportunity." Schuster believes demand will remain strong enough to support current price levels. "I don't see price drops being part of the equation even if there were a significant slowdown," he said.
What do you think? Pretty objective, no? Why aren't we getting this "fair and balanced" type of reporting from most of our friends over at the Times or PI?

What makes this article unbiased in regards to residential real estate is the fact that 100% of its advertising is B2B related.

From my own personal experience, the B2B world (especially in the business networking community) have little use for the B2C crowd (i.e. real estate clerks and mortgage brokers). Since B2C types are usually dealing exclusively with consumers, it can be difficult for them to provide B2B referrals, and, worse yet, they often attempt to solicit business from their fellow networking partners.

Newspapers such as the Seattle PI and Times are co-conspirators to the REIC as they rely heavily on residential real estate advertising for their revenues, often leading them to distort the truth.

(Justin Matlick, Puget Sound Business Journal, 02-02-2007)