In addition to Tim's observations of a 35% increase in rent cost over a 12 year period vs. a 240% increase in housing costs during that same period of 12 years, Seattle Moose commented on a 240% increase in a 7 year period, on a house in Denny Blaine. Of particular note were Seattle Moose's comments regarding the California influence, on areas with the highest appreciation levels, at least for Seattle proper. I think his observations are "spot on" as they say, and found his comment even more interesting than the original article.
When it comes to housing choices, all segments must be included. In other words, there must always be a place for a minimum wage earner to live. Maybe they need a roommate, or even two or more roommates, to get by on that income. But every city, and to a lesser extent surrounding areas, must have affordable housing available for all people. Not necessarily to buy...but at least to rent.
Here's an interesting tidbit. When I was single, I rented a one bedroom apartment for between $600 and $650 a month. So add that to "The Tim's" equation, and then let your jaw drop down to your feet! We're talking 1978! So clearly expecting the housing market to follow the rental market, as in "I think that sums it up" is just silly. Why? Because of the land value!
Not to be too Scarlett O'Hara about it, but let's let Gerald O'Hara's quote "Do you mean to tell me, Katie Scarlett O'Hara, that LAND doesn't mean ANYTHING to you!?" fall on The Tim's maybe deaf ears, for a minute. The value of a house that is about to be torn down IS reality, when expressing opinions regarding rent prices and purchase prices. The land value is what is growing at these paces and not the house at all. An old house will rarely rise above replacement cost. Land, on the other hand, is not reflected in rent prices, at least not the cheap prices being quoted in the Seattle Bubble article.
When the value of the land itself, goes up 10 times, and the house gets old or functionally obsolete, it is not the cost of living inside the structure that you own vs. the structure that you rent, that can be compared in any way, shape or form. So "that sums it up" may make a whole lot of sense to a 20 year old...but not to an adult who thinks past today's monthly housing payment and factors in the rising cost of the land's value.
Huh. Well, I'm no 20 year-old, and your reasoning doesn't make a bit of sense to me.
First off, you're wrong -- I've done the math, over and over again, using the sales data from the King County records. To be sure, land prices have risen over the last five years, but not at nearly the rate of properties with existing homes. And if land costs were truly the culprit behind the idiotic price increases of the last five years, it would make no sense to subdivide single-home lots in order to build multiple, low-quality "townhomes." Yet that's what is happening, all over Seattle. Why? Because developers know that people will pay a premium for the structure, not for the lot size. If the land were driving prices, developers wouldn't bother to build anything at all.
But aside from the simple factual error, your post doesn't really make any sense! Land costs aren't included in rent prices? Who told you that? Last time I checked, all landlords had to pay property taxes based on the assessed values of their property -- taxes which are passed on to me, the tenant, in the form of rent.
In fact, rising property assessment values are practically the only reason that a fiscally solvent landlord would have to increase rent. A landlord buys/mortgages a property once, and unless she was "investing creatively," the monthly mortgage payment is fixed. The only costs that can rise over time are maintenance, utilities and...wait for it....property taxes. I'll give you three guesses which one increases fastest.
This post is already longer than I'd like, so I'll leave your twisted logic regarding rent in 1978 to another commenter. Suffice to say, you should be very careful when you use age as a discriminator of another person's intelligence....
> In fact, rising property assessment values are practically the only reason that a fiscally solvent landlord would have to increase rent
It's interesting, when talking about 'the bubble', it's all about supply and demand. However, you fail to mention S&D as a driver of rents. Rent can be as high as the market will bear.
Don't know if you were talking to me, anon, but I'll answer anyway: supply and demand clearly do affect rents in an area. I was only discussing the reasons that a landlord would be compelled to raise rents -- not reasons that would make them want to raise rents.
The fact that rents haven't risen as much as home prices suggests very strongly that demand for housing (in general) is not the driving factor behind the price increases of the last five years. That was Tim's original point -- and the one that Ardell ignored completely (I suppose tha she was too focused on insulting his age).
While I have you both here, can you explain to me what your definition of a bubble is? I sincerely would like to become better educated on the public's view of bubble, which may be different than mine.
For instance, I assume an increase in price from 1980 to 1989 is not a bubble if it is sustained in the long term, say over a ten year period. If prices go up from $300,000 to $450,000, for example and then level back and sustain at a correction point of $400,000, is the $50,000 difference the bubble? That would make sense to me. But I'm more interested in what makes sense to you. What is a bubble?
If say most of King County goes up 12% and one segment goes up 20%, then maybe the area with the difference is the bubble, but the bubble is not the 20% it increased, but the top air filled area of 8%. Just putting my thoughts out there to see how they differ from yours. I appreciate your thoughts whether they agree with mine or not on this topic.
Please excuse the edit, I was just trying to get it to separate paragraphs and it won't. Mister Bubble? Can you shed any light on why your comment has paragraph spaces, but mine will not do that? Do you write on a different program and then cut and paste your comment into the comment box? Thanks.
As to the "20" year old reference I made in my original article, that really had nothing to do with a specific person or the "intelligence" of a 20 year old. If some person happens to be 20 years old that I linked to, that is pure coincidence.
My reference to "a 20 year old" is my recognition of the fact that a 20 year old must pay even more attention to the housing limitations and trials and tribulations, than someone who say has been working for 15 years or more. The options at the beginning of one's adult life are often more depressing and frustrating, as they often can't afford on their own, even a modest apartment cost and a nice car and general basic needs. I say this based on my own 18, 20 and 22 years olds, the last with child, and not with reference to anyone in the Blogosphere whose age I do not know.
My 20 year old is very intelligent. In fact she happens to be quite brilliant. But I feel for her frustration at trying to get a handle on her education, housing, transportation and other needs. Her intelligence doesn't elevate her to some superhuman level to deal with life as a 20 year old, as much as I wish that were so, for her sake. There's just no way to not be a 20 year old, when you are a 20 year old. That's life and just how it is, and not a criticism of 20 year olds.
I can see where I could have worded it differently, but I truly do not expect my 20 year old to view things from the perspective of anyone but who she is. Thus our perspectives will be completely different and our view of various topics, including housing choices, is different. That doesnt makes out to be right vs. wrong or smart vs. not smart, but quite simply young vs. old.
Last but not least, is he really 20? I seriously thought he was at least 35. Sorry Tim, the 20 year old had nothing to do with you, and in fact was referring to some of the frustrated commenters on the site and young people I meet generally, and not you at all.
Assessed values and taxes increasing has not much to do with monthly housing costs increasing, since it is such a tiny increment of dollars vs. land plus home price increases affecting mortgage payments. $100 a month being added to rent price for assessed value increases over time vs. $100,000 being added to sale price in a shorter period of time, is not an equivalent correlation.
Regarding new construction, whether they be townhomes in Seattle or single family homes in Kirkland, tracking price increases based on new construction vs. resale is always "off", as there is always a premium for new. Best to draw conclusions based on average age of resale in an area, than new construction. Exception would be out further as in Monroe or Duvall, but generally we track closer in values when discussing market conditions. Not everyone is wiling to commute the distance, so using new construction out of "the zone" would be to give people false impressions of the marketplace in general.
Broad statistics are always wrong. Finding where exactly they are right and where exactly they are wrong, is my job.
Ardell-
Here's one definition of a bubble: the price of an asset increases wildly, based not on fundamentals, but on the emotions of participants who see the price rising and feel they need to get on board or be "priced out forever".
Fear and greed both become involved as the prices continue to rise.
Once prices stop rising, or show signs letting up in their furious fast forward pace, people step back and realize it was all an illusion, created by themselves.
Then they allow prices to fall again, until the next go 'round.
It has to do with emotion driving prices. A kind of mania if you will.
Thanks Lisa,
Well the only people I see fitting that description are the flippers and investor wannabe types. I don't work with them as clients, as fear and greed as motivators, don't suit my God given talents. I'm more the former banker, practial type for the most part. In fact I have a tendency to be give overly cautious advice, which chases away the fear and greed people. We choose each other not.
Let's remove fear and greed and move on to emotional purchases. Yes, I absolutely see a bubble in emotional purchasers. There are two groups of those. People who just have to have that view, for example. But by and large, the emotional buyers that have to have that waterfront property an any cost, can afford to make a mistake. They are not value conscious and so don't want to be hindered by logic and reason. They can afford to be selfishly, emotionally driven. So let's not worry too much about those people. They are the same people who might pay $2,000 a night for a hotel room. By and large, not my clients either.
The other group, that I do meet and get particularly frustrated with, are the snooty types who really can't afford to be snooty or take a big loss. I really get so frustrated with them that I end up not representing them at all. They are people who refuse to make wise choices that fit their budget and long term financial picture. They HAVE to have a place that is perfect and near where all of their friends live. The snooty bubble area that is driven by status and fake prosperity. I know they can get more for their money outside "the zone". I know they can't afford to live in "the zone". I know if they have to sell that thing they just have to have, I cannot promise to get them out whole. But still they insist on buying the worst choice for them. I walk away.
Yes, there is an emotional bubble...it is in the snooty zone.
Thanks for the description! I found the bubble!
This is the sales data of a home in bainbridge. 2 sales within a 8 month period,
I know it was not a flipper/investor. Would you consider this a bubble given the
avg. historical increases in RE
While the two sales closed 8 month apart, it was listed in May of 05 the first time and May of 06 the second time. A sale at 1.34 time assesed value and a 10% increase in a year's' time does not seem out of line to me. Looks like they had trouble selling it in 05 as it was listed in May but didn't receive an acceptable offer until September. When it was relisted in May of 06,they actually tried a price of $634,900 first for a week, and then reduced it down to an asking price of $598,000 and it sold within eight days of the price drop.
A 5% difference can be attributed simply to "it showed better", so a 10% difference in a year''s time is not dramatic from my standpoint. Just the right person at the right time wanting it vs. lingering on market the year before.
I don't know Bainbridge Island, but that would clearly not be "a bubble" here or in most places. 10% could be the difference between the two agents who marketed the property or Bainbridge Island being hotter in 06 than it was in 05.
I would not call a single sale a bubble in any case. Easy for one house to sell at less than market value and then a year later sell at slightly over market value. Staging alone could do that. Doesn't look like a frenzied sale the second time. Didn't sell for over asking price. Bubble areas I am familiar with had multiple bids and sold for well over the asking price. So by my definition, no it's not a bubble, but yes, the current owner might have trouble selling it for what they paid if they try to do that too soon.
Dear Just_checking,
I took a look at Bainbridge Island, but I do not know that market at all. Nor do I know Kitsap County. Here's what I came up with. 175 properties for sale, 52 in escrow and 195 closed in the last six months. Add the escrows to the closed and you have a 4 to 5 month supply of houses on market. But seems like most hold out for the highest of prices, even though you do not seem to have a lot of bidding wars there.
What I found interesting was the one property you sent me in your previous comment sold lower than most properties when looking at sale price relative to assesed values. Many properties are selling higher than our hottest areas at their peak, in terms of sale price vs. assessed value. So while almost all of Bainbridge Island might be at bubble level, that one property was not one of the ones that has sold at its full potential, relative to other sales.
I might go back 15 years in Seattle or Eastside to run stats, as that is my service area. But going back that far in a place I've never been to, would cause me to speculate way too much, and my interpretation of the results would not be reliable.
Hope that helpful in some way. The bubble areas I am used to, are where properties consistently sell in bidding wars at way above what the seller even expected and the seller's agent expected. I am still seeing that here in some isolated cases, while other properties may linger. I am not seeing evidence of that on BB Island, but many properties consistently selling at 1.6 times assessed value, which by our standards here, is high, and much higher than the individual sale that went up 10% in a year that you first showed to me which even at this years high price, was 1.34 times assessed value. Lower than most sales in the last six months there.
ARDELL
DellaLoggia
On Seattle Real Estate including Kirkland, Bellevue, Redmond, Green Lake and most areas around Lake Washington North of Downtown Seattle.
Phone: 206-910-1000 - Mailto:Ardell@RainCityGuide.com
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