"This is a great time to buy a home."

Check out this absolutely delightful paid advertisement masquerading as a "guest editorial" in today's Seattle Times. It's penned by Mr. Samuel L. Anderson, the executive officer of the Master Builders Association of King and Snohomish Counties.

The media have been all abuzz over the past year about the softening in the housing market.
...
At the same time, local analysts point out that even though home sales in the greater Puget Sound region have slowed, now is still a good time to buy a home, particularly in our area.

What does this slowdown really mean for consumers? Is it wise to sit back and wait for a home in the hopes that prices may drop? Most real-estate experts in our region say don't bet on it.

Oh really? Okay, well why is that exactly, Mr. Executive Builder Man?

One reason we have not experienced the steep decline seen in other markets is that while other parts of the country face an oversupply of housing, we do not.

So you're saying that supply is not growing faster than demand, so we're not headed for an oversupply? Interesting... very interesting.

Here in Washington state, the Growth Management Act (GMA) actually limits the supply of new housing entering the market by directing where new development can occur. As long as GMA is in place, we are very unlikely to find ourselves in a housing glut.

Growth management act, huh? You don't say.

Another key factor is that the area in and around Seattle has a healthy supply of jobs and a strong regional economy — factors most experts agree help keep prices from falling.

What a compelling argument.

Sitting on the fence waiting for the absolute best deal is a gamble that prevents consumers from taking advantage of buying a home, while prices are moderating.
...
In today's housing market, the real risk is in waiting to buy a home.
...
Unlike some cities where the real-estate market is in a slump, the Seattle area is healthy and analysts feel certain it will stay that way. As a result, the deep discounted prices some consumers have been hoping for simply won't be happening here.

For consumers sitting on the sidelines, the bottom line is simple. Homeownership is always attractive. Besides being a stepping-stone to a future of financial security, homeownership provides a sense of community and personal satisfaction. In fact, studies show that homeowners are more content with their lives, enjoying a stronger sense of belonging and increased activity in community groups.

The equation is simple: Since housing is always a smart investment and interest rates are still near 40-year lows, savvy consumers know this is a great time to buy a home.

Well dang, I'm convinced. Now is a great time to buy, and I'd better be quick about it or else I'll be priced out forever, doomed to be a miserable, broke, dissatisfied loner, renting from the man for the rest of my life.

(Samuel L. Anderson, Seattle Times, 01.24.2007)

Listing History

My thoughts on the issue while working hard.

A balanced perspective

The dissemination of data from the NWMLS to the public will be limited for a variety of reasons. Safety and protection of potentially personal information of each seller is paramount.

I am uncertain whether the issue of safety and protection of personal information should fall into the category of “transparency” for everyone to see. Some things should be kept out of the general public view. For example, theft has been an ongoing issue for the membership of the NWMLS—meaning that listings are a target for thieves, including new construction (appliances disappearing, furnishings and even mechanical items such as copper and other equipment).

Most sellers probably would not be pleased if the brokerage posted the time the house was on the market. The implications of a languishing listing means it is probably overpriced or there is some other problem such as poor location, poor condition or a combination of factors.

Market Time & Re-listing

There may be companies such as Zip Realty or others that will indicate if a home was re-listed or will post the total time on market. I have not researched this. The idea of disclosing this information, particularly in a slowing market or correcting market as one may define it, has the potential to have a negative affect on the value of a home if you are a seller. As a buyer, this information allows for a more level playing field. Buyers certainly had little to grasp on during the past couple years when the market was so hot. Realtors recommended removing as many contingencies as possible when making an offer or consumers would have little chance to buy the home. For many buyers, this exacerbated an already difficult buying experience. I heard about it first hand from many who sat across from me while going over their closing documents.

From a consumer’s perspective, many want the Realtor community to shape up. Many want full transparency, but the matter is complicated. The issue of agency and representation does not allow for certain facts to be transparent. Agency and representation does have merit.

Tim Ellis is correct. Much of the market time data and re-listing that goes on is manipulated. It is manipulated to assist the seller in having a sound market position. So, the agent representing the seller is doing their job. However, the interesting phenomenon to see is how this issue is being dealt with through the in-house NWMLS membership. The agents were tiring of this routine themselves. Today, we have the cumulative days on market (CDOM) being recently introduced to hopefully reduce the manipulation within the membership of the NWMLS.

As Ardell DellaLoggia and others suggested, there are some techniques that agents utilize to work around the days on market issue—also re-list the same property having the CDOM counter show zero. Sometimes there are good explanations for this. Sometimes it is clear market manipulation.

If I were buying, I would want to know how long a home has been on the market and how many times the home has been re-listed. In addition, I would want my agent to confirm the sales history (which is now publicized on various web sites) and underlying financing (King Co. shut this down via website, but Snohomish Co. is still available via web). In a swift moving market, much of the information gathered could save a buyer from making a costly decision. Buyers are able to discern if the home was recently flipped and whether the improvements merit the asking price.

The benefit of providing a true picture of time on market or re-list history is that it would put pressure on the sellers to market and price the home in an authentic competitive manner. For Realtors, I would think this would be helpful. That type of transparency may trigger phone calls from sellers indicating that they need to make a change—either make it worth what they are asking or drop the price to a level that is more reasonable. Rather than the Realtor initiating the delicate conversation of dropping the asking price, the seller is opening up the door for that conversation first, based upon what the market is dictating.

-S-Crow, your consumer driven Sentinel.

Hello Again, Condo Anecdote

This is at least worth a brief mention. Another unit has come up for sale in the condo complex in my neighborhood that was the subject of my first anecdotal post. Actually, it's not "another unit" but rather the same unit that sold just over a year ago.

In December 2005 Unit #6 was bought for $300,000. It is now on the market for $350,000, a 16.7% price increase. Given that the most recent county-wide data (pdf) shows condos up 21% from a year ago, perhaps the asking price is too low?

Since county-wide data is based on an ever-changing data set of new homes, remodeled homes, sub-divided lots, condo conversions, and so on, same-unit sales are the best way to gauge the actual appreciation in the market. It will be interesting to see how long it takes to sell this condo, and what the eventual sales price is.

If the MLS is an advertisement...

At the risk of beating a dead horse, I'd like to continue Friday's conversation about the re-listed house on Avondale.

Thanks to yet another reply by Ms. Reed as well as a series of replies from Ardell, it has finally gotten through my thick skull that "cancel and relist" is different from "let expire and relist." Ms. Reed is guilty only of the latter, which is technically not a violation of NWMLS rules.

Although I now understand the difference, it seems to me like a trivial distinction. Ardell claims that a seller's agent that uses a short listing agreement in order to be able to re-list an unsold property "takes the risk of being replaced as the seller's agent by having short contracts." However, it seems to me that once the benefits of re-listing (falsely appearing to be a "fresh" listing) are explained to the seller, they would be more than happy to keep the agent on board, knowing that this is an agent that is willing to pull whatever kind of tricks are necessary to sell their house.

In fact, Ardell had an awful lot to say on the matter. Here are a few quotes that I found most interesting:

The general public's perception [of the MLS], the one most focused on here...is really the least of our concerns.

I am sorry that no one wants to understand that the mls system is not meant for the public to use as a means for purchasing property without an agent.

The public's view [of the MLS] is an "advertisement" for the most part, and not a "sharing of the agent tool". ... It is just a small view of the big picture and one to give the public an "idea" of what is out there...not the whole story.

If the publicly-accessible portion of the MLS is an "advertisement," shouldn't it be held to truth in advertising standards? When a property appears as "new on market" despite having languished non-stop on the market for months upon months, how is that not a deceptive practice? To simply brush off such concerns by saying that the MLS is "not meant for the public" seems a bit cavalier to me.

Ms. Reed's tactic, which Ardell describes as both something that "we [agents] hate" and "an excellent job" appears to have paid off. As Ardell pointed out, the listing has gone to "subject to inspection," presumably meaning a twenty-five to thirty-five thousand dollar payday is in the beleaguered Ms. Reed's near future. When the transaction shows up in the public records, I'll post the last update on this house.

Update: Anecdote: Reloaded

Sarah Reed, the listing agent of the still-unsold $1.275 million-dollar home left a comment on my recent post about her listing. I feel it is only fair to reprint her comment here on the front page so that more people are able to read her defense.

So here it is, word for word.

Regarding my listing on Avondale-I wanted to set the record straight about my intentional relisting of the property. I try to always write a shorter listing agreement than the average agent as it better serves the client/seller. I do not "cancel and relist", or intend to deceive the consumer or other agents. I wanted the listing to expire contractually, and be relisted after the first of the year so that it would have an MLS # starting with 270. Largely because so many agents only search the new listings for their clients, overlooking perfectly fine homes with a bit of market time. Buyers always ask how long a property has been on the market, and I am always honest with my clients in every way. The Days On Market is clearly available to all agents, though the MLS does not print it to the consumer. My sellers always get a detailed explaination of my reasons for writing a shorter listing contract, and the benefits it gives them. Ultimately, the descision is theirs.

Certainly, I have had a few issues to overcome with this property, as the last agent blantantly overpriced it since he does not live in or do much business in the area. Also, he had it in the zip code for the city of Sammamish. Finally, the school district was wrong, and the photos were lack luster. The former agent really SHOULD have relisted the home with each of the massive price drops he was forced to do by his lack of accurate info and pricing, and did the sellers a huge disservice by not. He was likely afraid that they might cancel his service, which they were eager to do in the end. The home is very well constructed and finished nicely, and is finally appropriately priced. There was an appraisal done this summer for value only, and it came in at $1,550,000.

The current listing contract is written to expire the first week of March. I did this to appeal to the lazier agents out there that only search for "new listings". More paperwork for me, but I'm not lazy.

One more thing. I agree that there are alot of unprofessional agents out there harming the public. It would be valuable to the industry and the safety of the consumer if we had stricter regulations surrounding the obtaining of a real estate license in this state. If you ever get the chance to vote for stricter guidlines and laws for real estate professionals, PLEASE DO! We try to be a self-policing industry, but not everyone shares the high ethics that we all should subscribe to. Unfortunately, there are alot of people that get in the business to take advantage of the public.

I'm not really sure what point Ms. Reed is trying to make here. Again, I'm no real estate professional, but the rule seems pretty clear-cut to me: "You may not cancel and relist a property, even with a new listing agreement and new listing input sheets, unless there is a material change to the listing" (emphasis mine).

I don't understand how "I try to always write a shorter listing agreement than the average agent" excuses Ms. Reed from the rules.

Perhaps one of our readers from Rain City Guide can enlighten me?

P.S. (Please refrain from making personal attacks on Ms. Reed in the comments. Thank you.)

HouseMath 2.0 - Lending Woes - News

I've received a few e-mails over the past holiday season, some asking if I disappeared. Yes, I read this and many other Blogs every week. I'm not hibernating. So here's what's up:

When people decide it's time to buy in the market this is a cool tool to use.

May I introduce the HouseMath 2.0 website. Last week, I e-mailed Kerill Sheynkman, the wizard behind this tool, if I could get his permission to blog about it. Some may have already seen the introduction to this over at Zillow Blog, but for those who haven't seen it I would encourage you to spend a few minutes to familiarize yourself with this great resource.

When you hit the "Analzye " button, your presumptions come to life. Please don't make fun of the $315,000 sales price for a home in Seattle that I used, it's for illustration only.

Below is a screenshot of financial analysis tools such as creating your reports in .PDF format.

Interestingly, Kerill Shenkyman resides in New York and has previous working relationship ties to Glenn Kelman over at RedFin. Small world. 2007 is going to be a great year in the innovation of real estate tools and Web 2.0 blog arena.

Lenders are scrutinizing loans

One of the perks of being in real estate is that I enjoy discussing issues with the people who are actually conducting business. It encompasses a large sphere: from builders, to Ardell and loan officers.

A lot of discussion is taking place about lending right now and the struggles of the sub-prime market. Seems like the tune out there is changing quite a bit. Inman News has a lot on the plate this morning (check it out quickly before the articles go subscription).

From Inman News:

Bernice Ross on "The demise of the housing ATM"
Bradley Inman on "The subprime tsunami"
Mortgage Lenders Network being shut down (evidently failing to fund on 1,409 loans across the country)

I spoke with a couple loan officers early this week and the responses were that lenders were scrutinizing transactions more. For example, one broker mentioned that an underwriter actually dropped the value of an appraisal from x amount to x amount and required that interior photos be taken along with obtaining two new comp's (comparable homes). In another example, funding conditions came back with more hoops to jump through in terms of actually verifying borrower deposits and funds to close.

Stuff

Before I forget, check out ShackPrices new mapping tools. Packed with innovative features. I had the pleasure of briefly meeting Galen Ward, the wizard behind this great tool at a function a few weeks ago. I look forward to them rolling out some new features that are coming soon.

- S-Crow

Does Job Growth = Home Buying Demand?

An article in the Times yesterday about the Puget Sound's job recovery following the dot-com bust got me thinking again about the oft-claimed jobs to home prices correlation. The usual assertion goes something like this: "Prices are justified because our economy is strong (i.e. - lots of jobs), and as long as we keep adding more jobs, home prices will not stop increasing, because more jobs equals more demand." It's certainly a comforting belief for inflated housing enthusiasts to hold when the local job situation is on an upswing:

Even though it ended on a somewhat muted note, 2006 was still the best year for job creation in Washington in nearly a decade, according to figures released Tuesday by the state Employment Security Department.

The state averaged nearly 2.87 million nonfarm payroll jobs last year, a gain of 3.2 percent, or 91,500 jobs, over 2005's average. That was the most nonfarm jobs added in a year since 1997, when 98,600 were created.

The year-end figures also show that 2006 conclusively marked the Puget Sound region's full recovery, in terms of total jobs, from the dot-com collapse and subsequent recession of the early 2000s.

The article included a nice graph showing the number of jobs in the four-county region since 2000. It has been well demonstrated in other markets that job growth or loss does not directly relate to home prices, but I thought it would be interesting to compare the Seattle Times graph with some data from the Seattle Bubble spreadsheet to see how well the more jobs = more demand = rising prices claim has held up in King County over the last five or six years. To obtain data about the number of jobs in King County I went to Workforce Explorer, the source cited in the Times article.

First I present you with the graph that comes closest to supporting the view that jobs are the primary source of demand.

Click to enlarge

When you compare the percent change year-over-year in both the number of jobs and the median (residential only) home price, the curves actually almost line up, with both job and home price changes being increasingly positive from about early 2003 to the end of 2005. However, the total change in home price increases during that time went from +7.3% to +20.0%, while the total change in jobs went from -1.9% to +2.3%. Despite the similar curves, I think it would be difficult to argue that such a slight change in the job situation drove the major price increases seen over the same period.

Here is same data presented in a slightly different way:

Click to enlarge

At the end of 2006 there were roughly 4% more jobs in King County than January 2000, yet home prices had increased a whopping 85%. I'd like to hear the logic that tries to argue that such a paltry increase in jobs will cause that large of a price increase in homes.

Now let's take a look at home sales. Supposedly the improving job situation is driving demand, and demand is measured by sales, so let's see how the two compare.

Click to enlarge

Hmm. It would appear that sales were experiencing the strongest growth during a time when the number of jobs was actually declining. In the summer of 2003 sales were up by as much as 45% over 2002, and yet the job market was still declining by roughly 1.5%.

Looking at the raw numbers of jobs versus sales the disparity becomes even more clear:

Click to enlarge

If jobs are supposed to drive demand, why is it that once the number of jobs began to increase in early 2004, sales actually leveled off? And why have sales been dropping off so steeply in the last year despite what the Times reports as "the best year for job creation in Washington in nearly a decade"? Could it be, perhaps, that the number of home sales and prices of sold homes in fact have very little to do with the number of jobs in a region?

I challenge anyone out there that still believes more jobs = more demand = rising prices to show me the data that supports any sort of correlation between those data sets. Lacking that, I hope we can finally put this dead argument to rest.

All of the above graphs—and the data behind them—can be downloaded in Excel format.

(Drew DeSilver, Seattle Times, 01.17.2007)
(Workforce Explorer, Industry Employment: Historical Series, 01.2007)

Slowing Condo Market? Not Here! Not Here!

The New York Times yesterday ran a story about the struggling condo market in many parts of the country, and with as much attention as it received, you just knew the local news couldn't let it go unanswered. Enter Aubrey Cohen of the Seattle P-I with Seattle bucks trend on slumping condos.

Seattle's market was not to blame for a recent decision to change a planned 34-story downtown building from condominiums to apartments.

Rather, the slumping condo markets in cities such as Washington, D.C., Las Vegas, Miami and Boston affected the national firms that fund such buildings, said John Schwartz, northwest regional director of Keller CMS, which is managing the Terry Avenue Apartments project.

"There was quite a bit of skittishness," he said. "I think the Seattle market clearly has a little different story to tell, but a lot of the big equity players, they take a wider view."

The frenzied condo market in many cities has collapsed since the middle of 2006, dragging down prices and scuttling projects -- or at least forcing them to change, according to a New York Times report Tuesday.
...
Seattle's housing market has fared better than those in other parts of the country in recent months, with continued year-over-year price increases, despite increasing inventory and falling sales, according to the Northwest Multiple Listing Service. The area's condo market, meanwhile, has been stronger than the market for other types of homes.

Seattle real estate professionals and economists agree that the city's job creation, relative lack of speculators and the fact that its boom never rose as high as other places kept its housing market healthy.
...
A Boston real estate consultant cited about 600 condo projects in the city's metropolitan area, with about 49,000 units in various stages of development, according to the Times story. Seattle has fewer than 9,000 condos in the works, according to Williams Marketing Vice President Warren Ballard.

"We don't have anywhere near the volume of construction that some other markets have," Ballard said. "You cannot go anywhere in Seattle and find a finished, brand-new condo to buy."

Really? I guess Mr. Ballard hasn't bothered reading Urbnlivn lately, where Matt has been tracking dozens of condos coming (and sometimes sitting around) on the MLS.

Let's see how this article holds up to the standard "our market is magically stronger than all others" type of article. Prominent mention of continued appreciation: check. Citing job growth as keeping housing strong: check. Un-supported claim of fewer speculator purchases than elsewhere: check. Looks like we've got all the makings of the classic Seattle real estate fluff piece.

Plus, as a bonus, Mr. Cohen threw in the odd comparison of the Boston "metropolitan area" (population 4.4 million) with just "Seattle" (population <600,000). So the Boston metro area has seven times the population and five times as many condo projects as the city of Seattle. Go figure. Also, it is made apparent later in the article that the 9,000 condos figure doesn't include apartment conversions, which numbered 7,000 (this time in the entire Seattle metro area) just last year.

In any case, direct numerical comparisons with other markets seems rather pointless to me. What really matters is whether there are more condos coming online in the next few years than there is demand. Maybe demand for condos in Seattle is just a lot lower than other cities, and 9,000 will push us over the edge. Who knows? It's not like we can count on Aubrey Cohen to actually do some serious investigative reporting on condo demand.

(Aubrey Cohen, Seattle P-I, 01.17.2007)

Update: Over at Seattlest, Michael van Baker compares Cohen's reporting to the Titanic's claim of being "unsinkable."
Meanwhile, condo enthusiast Matt Goyer of Urbnlivn says that "this article is just a little too go-go-go, even for me."

Who's Buying Condos in Kirkland?

We're used to hearing unsupported claims that "young professionals" and "empty-nesters" are providing the bulk of the demand for condos. Well, finally we have a first-hand account of who's actually buying condos (in downtown Kirkland, anyway).

Amie Lynn is the community sales manager for Miller Condominium Marketing, which recently opened The Boulevard, a 119-unit condo building at 598 Central Way, and 128onState, a 124-unit building at 128 State St.

She said most of the two-bedroom condominiums — which make up about a third of the stock — sell to empty-nesters who are downsizing into smaller, lower-maintenance places in more urban areas.

"They can afford the higher price points because they had great appreciation in their last house," Lynn said. "More and more people want to spend their weekends not maintaining a home. They want to enjoy what the city has to offer."

Retirees, too, have purchased condos downtown as second homes, Lynn said. They winter in California or Arizona and come back to Kirkland in the summer to visit old friends and family.

The remaining studios and one-bedroom condos go to single people ranging in age from their 20s to their 50s, Lynn said, though the majority are in their 30s.

So it sounds like "young professionals" are in the minority in Kirkland. I can't say I'm surprised that "most" of the condos are selling to people that are actually downgrading their home. When prices spiral upward out of control like they have lately, young people have a hard time buying, and existing homeowners looking to upgrade find that they can't even afford to trade up.

What's not springing up downtown are young families — the condominium units that are big enough for couples with children are typically more expensive than they can afford. But Lynn said that's something that could be changing over the next decade.

Whoops! Looks like the writer let a little bit of truth slip in there. Maybe they figure that they can get away with implying that prices might actually be headed down soon because the King County Journal hasn't got anything to lose.

(Erica Hall, King County Journal, 01.15.2007)

Where did the "Open Threads" go?

In an effort to de-clutter the front page, I have modified the dates on all "Open Thread" posts to 25 years prior to their real post date. Open threads will still be posted regularly, but in order to find them you'll need to click the open threads link at the top of the page, or browse the archives at the bottom of the sidebar for posts with dates in the 80's.