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April 2012
King: 441 NTS, down 51.6% YOY
Snohomish: 275 NTS, down 49.7% YOY
Pierce: 267 NTS, down 55.6% YOY

Slightly different tune than we had been seeing over the last few months. Foreclosures have been falling year-over-year for quite some time, but this is the first time in a few months that they decreased month-over-month.

Here’s your interactive Tableau dashboard updated with the latest foreclosure data:

The percentage of households in the chart above is determined using OFM population estimates and household sizes from the 2000 Census. King County came in at 1 NTS per 1,889 households, Snohomish County had 1 NTS per 999 households, and Pierce had 1 NTS for every 1,208 households (higher is better).

According to foreclosure tracking company RealtyTrac, Washington’s statewide foreclosure rate for March of one foreclosure for every 1,581 housing units was 35th highest among the 50 states and the District of Columbia. Note that RealtyTrac’s definition of “in foreclosure” is much broader than what we are using, and includes Notice of Default, Lis Pendens, Notice of Trustee Sale, and Real Estate Owned.

Hit the jump for a larger version of the chart that shows the percentage of households in each county receiving a foreclosure notice each month:

Note: The graphs above are derived from monthly Notice of Trustee Sale counts gathered at King, Snohomish, and Pierce County records. For a longer-term picture of King County foreclosures back to 1979, hit this chart and drag the date slider to its full range. For the full legal definition of what a Notice of Trustee Sale is and how it fits into the foreclosure process, check out RCW 61.24.040. The short version is that it is the notice sent to delinquent borrowers that their home will be repossessed in 90 days.

I have reliable detailed sales data for King County back through 2008, so here’s the last 4+ years of that measure, with April’s number highlighted in each year:

Yikes. That’s quite the ramp-up in 2012, easily dwarfing every other post-boom year, with April 2012 coming in 6.5 percentage points higher than April 2011.

Just another sign that we may in fact have finally, really, hit the bottom.

I bought a mid-50s vintage 5-plex in North Everett with water views from 3 of 5 units and unit sizes ranging from 480 sq. ft. to 700 sq ft. in mid-2001. I did not read any books on the topic before investing. But I did speak with several experienced landlords. Based on my experience over the past 11 years, I would share the following with potential rental property investors.

The math of evaluating a rental property is simple. The art comes in making appropriate assumptions about what numbers to use. Some of the trickiest ones in my opinion are vacancy rates, market rents, appropriate cap rate, maintenance reserves, and maintenance expenses

There are a number of decisions that you have to make before you can make appropriate assumptions.

Which activities associated with running the business are you capable and willing to be involved in?

You’ll need time for accounting, tax prep, marketing, advertising, maintenance work, process development, surveillance, banking, landscape maintenance, cleaning, etc.

How much time do you have to be involved in the above activities? When I started out, I was single and had a job as an engineer. At that time, I did everything except heavy duty plumbing and flooring installations and it took most of my free time. Now I have a young family and am a Project Manager and so have no free time. I hire professional help in most of those categories now. That changes my costs. Fortunately, rents have increased and costs have dropped over the last 10 years and so I can absorb that.

Don’t forget taxes.

I’m sure I don’t need to remind an accountant of this, but for others it’s important to run your analysis on an after-tax basis. See what taxes do to your projected “profit” and also what your “profit” does to the tax rate on your other income.

Are you going to be a cash buyer or are you using financing to buy?

Be sure to consider the fact that fixed-interest rate loans are generally not available for properties that have more than four dwelling units on them. Variable interest rates can put significant variability into your expenses. How high might rates go? How soon? My timing was lucky and so my rate has dropped significantly since I bought.

Also, banks usually expect much higher down-payments for properties with more than 4 units and especially if they are not owner occupied. I lived in one of my units for a number of years while I was single. This limits write-offs in some cases.

What quality level do you want to provide your tenants?

On one end of the spectrum, you can be a slum lord, minimize cash out for maintenance, but at some point end up getting a lot of calls in the middle of the night for sewer floods, etc. My job wouldn’t allow for unscheduled interruptions, so I chose to reverse all the deferred maintenance and upgrade as many items as possible to low-maintenance configuration. That took time, money, and some trial and error until I found the combination of products/configuration that held up well. On the other end of the spectrum, you can reinvest all your profits (and more!) into maintaining/improving your property and build equity (to a point) and usually have a more stable business and predictable income. A third option is to buy something nice and then just ride it until you can’t stand the hassle anymore and then sell for whatever you can get.

What kind of tenants do you want to deal with?

You can fill your units quickly if you have no limits on who you take. Lower vacancy rate, but probably higher eviction/collections rate and you’d better have a degree in psychology to keep up with all the mind games they will play with you. If you have tenants who have money but bad credit, you will still have lots of fun trying to collect from them if they cause damage. They don’t have a credit rating to lose so no incentive to cooperate. If you take tenants with long and clean credit histories and good rental references, you may wait longer to find them (higher vacancy rate) but will find them more cooperative if push comes to shove over damages because they don’t want their clean 20-year credit history tarnished. Pre-bubble, those individuals usually bought houses. There are more of them out there now and more inclined to rent (thanks in part to the fantastic data published on Seattle Bubble by the Tim!).

Location is a huge factor.

As with a house, make sure you have checked for undesirable factors before buying. Your proximity to things like busy/noisy streets, noisy industry, train tracks/yards, pollution/odor sources, high crime areas, high tension lines or pipelines, are all factors that should affect your assumptions

Conversely, things like a view, “nice” neighborhood, or convenient access pay dividends over the long run in being able to command comparatively higher rents, having lower turn-over, higher quality tenants, and less hassle. Of cause this may come at higher initial cost.

Consider not only what the condition of the neighborhood is but the direction it’s heading and the rate of change.

Consider the home’s layout and internal features.

Make sure that the property you buy contains units whose layout and furnishings are what most people are looking for (size, storage, appliances like dishwasher or washer / dryer). If the units are quirky in some way, it will be a continual drag on the business. I have two units that have an entry configuration (90 degree turn) that prevents bringing any large furniture into the unit. Harder to find tenants. I have units with small kitchens and no D/W and no room to add one. Not popular.

How much deferred maintenance is there on the property you wish to buy?

Try to identify all the systems elements (roof, gutters, plumbing, water heaters, exterior paint, doors, appliances, HVAC, etc) that generally have a shorter life than the structure. Estimate how old each one is and identify the typical life and cost for each. Then you can create a graph showing your expected outlays by year. As an accountant, you know that some of these can be written off against income in the year incurred while others (like a roof) must be written off over a very long period (Capital Improvements). I learned this lesson the hard way. Knowing what I do now, I would try to get the seller to take work orders for as many of the Capital Improvements as possible before buying. They can write them off against their gains in the year of the sale. If you pay for them after purchase, you may not recoup that money for 27.5 years (and after considering inflation, you never will).

How much insurance will you want to carry?

Umbrella (excess liability) is highly recommended for landlords and relatively inexpensive. Earthquake (or DIC) can be very expensive and tends to be more expensive or unavailable with certain types of architecture (like brick exterior or not secured to foundation, or post-and-pier foundations). But consider that fact that you may be on the hook to provide temporary housing for your tenants for the remaining term of their leases in the event and EQ damages your building too much for habitability…and that available temporary housing may come at a premium cost in the event of a substantial EQ.

Know the law.

Before buying rental property, read RCW 58.19 (aka Landlord Tenant Act) in it’s entirety and decide whether you can be successful doing business by those rules.

Stay educated.

Subscribe to one of the major rental housing news letters such as On-Site. These journals contain articles which can fill in any gaps in your knowledge. For example, these articles often contain advice on how to handle some of the difficult and/or uncommon issues faced by landlords (fair housing questions, tenant fatalities, bedbug or mold infestations, etc) as well as market status (vacancies, prices, incentives, etc).

Another good source of data for landlords of smaller units is the 5-19 Unit Market Report published regularly by Dupre + Scott Apartment Advisors.

The art behind establishing the cap rate should, in my opinion, take all these factors and more into account.

I put 20% down (half of that borrowed as a 2nd) and have subsequently increased the size of the second to handle a new roof. I have reinvested all profits since purchasing and invested some of my own money. I am just now at a point where maintenance is minimal, vacancies low, rents at market. I expect to pay down my 2nd mortgage within the next 4 years and then will have a monthly cash flow of ~$1K after all expenses and tax effects on gross rents of ~$4k/month.

There is more that could be said about many of these points, but… then it would be a book! Hope this is a helpful starting point for someone.

I am considering purchasing a few rental properties to generate income. I’m trying to weed through all of the books about buying and managing successful rental properties. Can you recommend one (or more?) for the novice? As a former accountant, I’m competent when it comes to discussion of financial analysis and legal considerations.

In summary, my questions:

1. What book(s) or other resources would you recommend for learning about becoming a landlord?
2. What book(s) or other resources would you recommend for learning about selecting successful investment properties?
3. When it comes to books written about these topics, how old is too old? For example, is the REI for Dummies 2nd Edition from 2009 still relevant? What about Chavis’ Buy It, Rent It, Profit!: Make Money as a Landlord in ANY Real Estate Market from 2009?
4. If you can’t recommend any books on this subject, where would you suggest I turn to next for guidance?
5. In your personal opinion, would you recommend entering the Seattle rental market at this time? Just your anecdotal opinion, I’m not looking for legal or investment advice….

Any input you can provide would be much appreciated!

Since I do not yet own any rental properties (I would like to eventually when my family is more established), I can’t speak from personal experience on this issue, but I do have a few thoughts on the subject.

Since I haven’t read any books on the subject, I can only share how I would go about vetting potential reading material on a subject like this.

First, as you mentioned, when the book was written is definitely important. I’d probably throw out anything that came out between 2004 and 2007 since they are likely to be full of nonsense bubble thinking. For a book published in 2008 or 2009, I’d sort the reviews by date and see what people who have read it have to say about it in 2011 and 2012 to get an idea of whether it stands the test of (a little) time.

Second, I’d spend a little time researching the author(s) of any book you’re considering spending time with. Look up their previous works. Did they write opportunistic garbage during the housing bubble urging people to buy overpriced homes because “home prices only go up”? What are their credentials? Does anything substantive come up when you Google their name along with keywords like “scam” or “ripoff”?

Honestly, the principals of actual investment in real estate are fairly simple. If you buy a property that you can cash flow on day one at a decent cap rate using reasonable assumptions about rental rates, maintenance / management costs, and vacancy, you’ll do all right. In my search, I did turn up one book that looks like a decent primer of the basic math you’ll need to be proficient in: What Every Real Estate Investor Needs to Know About Cash Flow… And 36 Other Key Financial Measures by Frank Gallinelli.

As for whether I’d recommend entering the “Seattle rental market” right now… I think there are definitely good deals to be had as potential rentals. Keep in mind, most of these deals will probably require quite a bit of “elbow grease” to get them cleaned up to the point where they will command the most in monthly rent, so you’ll need to factor purchase plus rehab into your initial costs.

In my opinion, I’d avoid condos and townhomes all together, and definitely anywhere near the downtown core, as I haven’t seen prices on those come close to penciling out as decent rentals yet. For my money, the best potential rentals out there right now are in smaller single family homes a little further out, in places like Mountlake Terrae, Renton, Federal Way, Everett, etc.

I’m sure there are some readers out there that actually have first-hand experience as landlords in the local rental scene… What advice would you share with this reader?

[Follow-up: Advice From an 11-Year Veteran Landlord]

At 51.4, the Present Situation Index has gained 154% from its December 2009 low point, but still sits well below 100, and even 14% below the pre-crash low point of 59.7 in September 2003. Meanwhile, although expectations for the future have been slowly climbing as well, they too sit well below 100.

It still looks like we’re just going to continue this slow climb out of the gutter for quite some time.

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Thankfully, when water started pouring out of a failed joint last night, the LeakFrog I had placed in that area immediately brought the problem to our attention, allowing me to minimize the spread of water, and shut off the source.

Even better, the parts to fix the problem cost me less than $15 at Home Depot. Score.

Placing LeakFrogs around my house under sinks and next to the washer and water heater was one of the first things I did when I moved into my house. That is a decision I definitely do not regret. Whether you own your house or rent, it never hurts to have a few LeakFrogs around.

I got mine at Woot a few years ago, but you can pick them up on Amazon for relatively cheap without waiting for them to reappear on Woot.

There’s been a lot of discussion on the blog about the buyer’s side — how it might be good to wait until fall, how there are bidding wars, etc.

What about the sellers? We are getting ready to sell. Why? We bought in ’99; we’ve got lots of equity; we want to get rid of the expense and responsibility of homeownership and live in a condo, which we’ve already purchased.

So for those sellers who do have their houses on the market, what are the current challenges?

My advice to sellers this year has been simple: Now is a great time to sell, if you can afford to.

With quality, well-priced listings so few and far between, a seller that has a well-kept home in a good location who lists at a reasonable price and shows a clean, well-kept home has it pretty easy in today’s market.

My primary tip is that you not take the “hot” market for granted. If you overprice your home, it will sit, unsold. If you leave your clutter lying around and the yard full of weeds, it will probably sit, unsold. Today’s market bears some resemblance to the frenzy of 2005 and 2006, but buyers’ irrational fear of being priced out forever is thankfully gone, so they won’t just buy the first dump that comes along.

What about those of you that are selling your home right now, or have sold in recent months? What’s your advice?

In the following charts each bar represents the number of King County single family homes sold or listed in April of each year since 2000.

Record low for new listings.

Record low for total on-market listings.

38% below the record high for sales, but 76% above the record low, and just 10% below the pre-boom average between 2000 and 2002.

Tied for the second-lowest year ever in terms of the ratio of new listings to sales.

Prices in most places are better for buyers today than they were a year ago, but personally I would hate to be trying to buy a home right now. The balance of supply and demand is just way too skewed against the buyer.

The affordability index is based on three factors: median single-family home price as reported by the NWMLS, 30-year monthly mortgage rates as reported by the Federal Reserve, and estimated median household income as reported by the Washington State Office of Financial Management.

The historic standard for affordable housing is that monthly costs do not exceed 30% of one’s income. Therefore, the formula for the affordability index is as follows:

Here’s a look at King County’s affordability index over the last 20 years (as far back as the median price data from the NWMLS is available):

I’ve also added a line on the chart to show where affordability would be today if we had a more sane mortgage interest rate of six percent. As you can see, with April’s spike in the median price we’ve backed off of the record high affordability levels that we saw in Q4 and Q1, but we’re still sitting at a near-high, and even if rates were to shoot up to six percent overnight (which isn’t going to happen), we would still be close to 100.

Next, let’s have a look at the “affordable home” price chart. In this graph I flip the variables in the affordability index calculation around to other sides of the equation to calculate what price home the median household income could afford to buy if they put 20% down and spent 30% of their monthly income.

Even with the big spike in the median price in April, the affordable home price is still sitting nearly $80,000 above the current median price. In other words, the median household income can afford to purchase a home 22% more expensive than the current median price of homes that are selling. Not bad.

Finally, let’s flip the numbers around one more time to calculate the household income required to make the median-priced home affordable, and compare that to actual median household incomes.

As of April, a household would need to earn $54,402 a year to be able to afford the median-priced $360,000 home in King County. Meanwhile, the actual median household income is around $66,000.

I’d say that overall the affordability picture still looks quite good. I don’t think I’m going out on a limb to suggest that this is a large part of what’s driving the mini-frenzy of buying we’ve been seeing this spring. High affordability + low inventory = good deals but a frustrating buying experience.

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It’s time once again for the monthly reporting roundup, where you can read my wry commentary about the news instead of subjecting yourself to boring rehashes of the NWMLS press release (or in addition to, if that’s what floats your boat).

To kick things off, here’s an excerpt from the NWMLS press release:

Western Washington housing market "energized" and showing signs of "definite turnaround"

Northwest Multiple Listing Service brokers reported double-digit gains in both pending and closed sales during April compared to a year ago, but the most eye-catching number may pertain to prices. For the first time in more than four years (since January 2008) the year-over-year change in selling prices was positive.
…
Prices for single family homes continued climbing. The median price for last month’s closed sales was $250,000, up from both a year ago ($242,950) and from March ($234,487).

While cheered by the figure that snapped a 50-month string of negative numbers for year-over-year price comparisons, Northwest MLS brokers said consumers must be realistic in their expectations. They also noted the market recovery will be slow and incremental.
…
Tight inventory is creating sellers’ markets in some areas, according to reports from MLS directors. Inventory is down more than 27 percent for the Northwest MLS market overall, and by even larger margins in three counties: Snohomish (down 46.2 percent), King (down 39.4 percent), and Pierce (down 28.6 percent). Brokers say as demand outstrips supply, competition may intensify, especially for homes that are well-priced and in good condition in desirable locations.
…
Talk of a seller’s market has to be tempered, Wilson emphasized, because “when sellers hear these words in the news they instantly think their homes are worth a lot more money….and they are not. Even if our home prices appreciated 2-to-3 percent a year – which they aren’t currently — it will take many years for homes to return to the values that we saw a few years ago,” he suggested.

Despite his cautionary words, Wilson was upbeat. “We continue to see an increase in activity across the board. More people at open houses, more listings coming on the market, more buyers making offers and more multiple offer situations on correctly priced and staged homes.”

Weirdly, this is the most moderatly-toned release I’ve seen from the NWMLS in years, despite this being the first month in years that they actually have something moderately substantive to crow about. So strange.

Read on for my take on this month’s local news reports.

Sanjay Bhatt, Seattle Times: King County home prices rise with fewer houses for sale

“We’re at the beginning of the prime selling season, so to see this sort of strength coming out … this is very good news for the industry,” said Glenn Crellin, associate director of research at the University of Washington’s Runstad Center for Real Estate Studies.
…
“The very tight inventory of homes available for sale coupled with the stabilizing prices are probably going to convince some sellers that it’s now safe to come back into the marketplace,” Crellin said.

That doesn’t necessarily mean prices will grow rapidly.

Ding. Thanks to Sanjay for getting in touch with me to get the story on the decline in sales of bank-owned homes.

Aubrey Cohen, Seattle P-I: House prices rise in King County, surge in Seattle

House prices rose for the first time in a long time in King County last month, while they surged up by double digits in Seattle.
…
Writing on Trulia, real estate broker Kary Krismer threw some cold water on the King County increase.

“(D)on’t get too excited,” he wrote. “Remember the median is affected by mix.”

Lender-owned “REO” homes, which tend to sell for less, made up 22 percent of all house sales in April 2011 but less than 17 percent of sales last month, he wrote. “Fewer REO sales means a higher median, all other things being equal.”

Nice work Kary, getting the story out to the P-I. In other news, has anyone else noticed that the P-I uses the same photo every month on the NWMLS article? Plus it’s a photo of a For Sale by Owner sign, which, if the house sold, wouldn’t even be included in the NWMLS stats.

Michelle Dunlop, Everett Herald: Home prices rise 10% in Snohomish County

Northwest MLS director Meribeth Hutchings, broker and owner of Windermere Real Estate in Lake Stevens, credited favorable interest rates and low inventory for spurring activity.

“The demand for ‘good clean homes’ is extremely high,” she said. “Our primary buyer today is still the first-time homebuyer.”

No particular insight in this month’s Herald article. Mostly just a regurgitation of the press release.

John Gillie, Tacoma News Tribune: Many in state see uptick in median home prices

For the first time in more than four years, the median price of homes sold in Western Washington turned upward in April, a report reveals.

Frank Wilson, managing broker at John L. Scott Real Estate in Poulsbo, said sellers should not read too much into the positive news.

“When sellers hear these words in the news, they instantly think their homes are worth a lot of money … and they are not,” he said.

“Even if our home prices appreciated 2 to 3 percent a year — which they aren’t currently — it will take many years for homes to return to the values we saw a few years ago,” Wilson said.

Seriously, what has gotten into these agents? Now that we may finally actually be at the bottom they’re saying everything but calling the bottom. So weird.

Rolf Boone, The Olympian: Thurston home prices rise for second consecutive month

Thurston County median home prices rose more than 2 percent in April, the second consecutive month of price increases and another sign that the once-struggling housing market may have finally hit bottom.

Year-over-year median prices rose nearly 5 percent in March and climbed another 2.75 percent in April, according to Northwest Multiple Listing Service data released Thursday.

As usual, I could only find the blurb, unfortunately.

(Sanjay Bhatt, Seattle Times, 05.04.2012)
(Aubrey Cohen, Seattle P-I, 05.03.2012)
(Michelle Dunlop, Everett Herald, 05.03.2012)
(John Gillie, Tacoma News Tribune, 05.04.2012)
(Rolf Boone, The Olympian, 05.03.2012)

Western Washington housing market “energized” and showing signs of “definite turnaround”.

Northwest Multiple Listing Service brokers reported double-digit gains in both pending and closed sales during April compared to a year ago, but the most eye-catching number may pertain to prices. For the first time in more than four years (since January 2008) the year-over-year change in selling prices was positive.
…
While cheered by the figure that snapped a 50-month string of negative numbers for year-over-year price comparisons, Northwest MLS brokers said consumers must be realistic in their expectations. They also noted the market recovery will be slow and incremental.

That’s… a surprisingly measured response.

One thing that’s interesting to note is that Kary has been mentioning in the comments the last few days that the median price was likely to spike this month due to a lot fewer bank-owned homes being included in the mix. No mention of that in the NWMLS press release, but here’s a chart that shows the magnitude of the change we’re talking about:

When you drop a bunch of bank-owned homes out of the mix, it’s no surprise to see the median shoot up by so much in a single month. How much? On with the stats and we’ll see…

Here’s your King County SFH summary, with the arrows to show whether the year-over-year direction of each indicator is favorable or unfavorable news for buyers and sellers (green = favorable, red = unfavorable):

April 2012	Number	MOM	YOY	Buyers	Sellers
Active Listings	4,927	-1.0%	-38.2%
Closed Sales	1,769	+7.7%	+15.4%
SAAS (?)	1.43	-5.6%	-23.3%
Pending Sales	2,848	-5.6%	+22.9%
Months of Supply	1.73	+4.9%	-49.7%
Median Price*	$360,000	+9.1%	+2.9%

Feel free to download the updated Seattle Bubble Spreadsheet (Excel 2003 format), but keep in mind the caution above.

Here’s your closed sales yearly comparison chart:

Following the usual yearly pattern, and remaining just barely above 2010 still. Nothing to write home about.

Here’s the graph of inventory with each year overlaid on the same chart.

Only three months on record since 2000 have seen lower inventory than we had this April: January 2000, December 2004, and December 2005. All in the dead of winter. Selection stinks.

Here’s the supply/demand YOY graph. In place of the now-unreliable measure of pending sales, the “demand” in this chart is represented by closed sales, which have had a consistent definition throughout the decade.

Continuing the same pattern we’ve been seeing for about a year now.

Here’s the median home price YOY change graph:

With a 9.1% gain month to month it’s no surprise that prices are up year over year. The question is, will this hold?

And lastly, here is the chart comparing King County SFH prices each month for every year back to 1994.

April 2012: $360,000
April 2005: $355,000

No headlines yet at the Seattle Times or the Seattle P-I. I’ll update this post when they become available.

Check back Friday for the full reporting roundup.

Update: Here are the Times and P-I headlines.
Seattle Times: King County home prices rose in April
Seattle P-I: House prices rise in King County, surge in Seattle

Please note: These posts should not be construed to be an advertisement or endorsement of any specific home for sale. We are merely taking a brief snapshot of the market at a given time. Also, just because a home makes it onto the “cheapest” list, that does not indicate that it is a good value.

Here are this month’s three cheapest single-family homes in the city limits of Seattle (according to Redfin):

Same exact three homes as last month, with a slight price drop on number three.

Stats snapshot for Seattle Single-Family Homes Under $200,000 (excluding short sales)
Total on market: 56
Average number of beds: 2.8
Average number of baths: 1.4
Average square footage: 1,364
Average days on market: 85

Inventory continues to fall, but the average number of beds and the average square footage both hit new highs.

Here are our monthly “cheapest homes” charts:

Here are cheapest homes in Seattle that actually sold in the last month in arms-length transactions, regardless of condition (since most off-market homes don’t have much info available on their condition).

That first one has surprisingly nice photos for a sub-$100k house.

They’re a little long, but both worth reading. Here’s the first one:

My husband and I are hoping to buy a house sometime this summer in the Shoreline area.

We looked and found a house at roughly 147th and Wallingford, west of I-5, in Shoreline, that we both thought was a pretty decent listing. Really close to exactly what we are looking for.

We moved on it. I contacted Redfin and requested a tour, we were all set up for 6:30 today, but it was canceled. The touring agent explained that someone made the seller an offer “they couldn’t refuse”—cash—and they would likely be taking this offer.

Is this what is happening when I read that there are more cash buyers? Are these likely real estate investors buying nice (move in condition), family (3 bed, 1.75 bath), forever homes (for us) before the rest of us who don’t have $300K CASH lying around?

We are just getting started on our home search. Is this what we can expect for the summer? What is your prediction for the cash buyer snatching nice houses out from under us?

And here’s the second:

My wife and I recently began looking for a home. We decided to look in the $375-400k range. That would put us at a manageable monthly payment and we were quickly pre-approved for the full 417k that FHA gives in king county.

We are looking for 3 bedrooms, 1.5 bathrooms, good schools, and a good commute to downtown for around $400k, which I know, is typical for young married couples everywhere.

What I am shocked by is the voracity of this market for that exact thing. I thought I was walking into a buyers market, where the world would bend over backwards to sell me a house. In reality, we cannot get into a house that’s near decent, that doesn’t already have multiple offers. I was in a nice home last weekend that had been on the market for less than 5 days. I counted 98 cards on the counter. I’m told the $410k asking price ended up “much higher” with the buyer waiving all contingencies.

This morning I found a decent house at $375k and I’m being told that they are only accepting offers until Monday, we need to preinspect, and FHA would probably kill our chances because of the extra fees on the seller.

This house is $25,000 less than my target, needs a ton of interior work, and I’m out of the game before it starts?

So my question is this: What’s going on?

Like I said, I’m very new to this. I don’t want to panic and rush into a house to find this is just the normal spring uptick, but is this normal? Did I really just step into a shark tank, or is this a typical feeling when you start out looking at homes?

Maybe I’m just being a baby?

I’ve been hearing similar stories in person from friends who are looking for a home to buy around Seattle this season, and at Redfin, 60% of the offers our agents submitted for buyers in April were up against at least one other competing offer.

So what’s going on? A combination of factors are contributing to the mini-feeding-frenzy we’re seeing right now:

• Prices are back in line with both rents and per capita incomes.
• Therefore, many buyers have decided that prices are “low enough” for them to finally buy.
• Meanwhile, those same low prices mean fewer home “owners” can afford to sell, since they owe the bank more than their home is worth.
• Many home owners that could sell are holding out for an imagined “recovery” in home prices.
• It’s spring.

Unfortunately, “low prices” is not synonymous with “buyer’s market.” Until the pent-up supply is released to the market by would-be sellers who finally get the picture that peak pricing isn’t coming back even in the best-case “recovery” scenario, it’s likely going to be a frustrating time to be buying a home in and around Seattle.

That said, I do have to be thankful that at least things aren’t as bad here as they are in the Bay Area, where the 2-bed, 1-bath, 971 square foot post-war Palo Alto shack pictured at right listed in late March for $948,000, received 12 offers, and sold just four weeks later for $1.35 million (hat tip to Redfin for the details). You really have to have the right combination of too many dollars and not enough sense to believe that was a good buy.

Personally, if I were looking for a home right now, I’d probably put the brakes on and pick my search back up in the fall when there will (hopefully) be less competition from other buyers and more supply (also hopefully). Unfortunately, one of the biggest variables in all of this is the human psychology of it all—Shiller’s “animal spirits.” No matter how many ways you crunch the numbers, you can’t account for the emotionally-driven decisions of other participants in the market.

First up, total home sales as measured by the number of “Warranty Deeds” filed with King County:

Nearly a two-year high for sales, and the highest April since 2007, which was the last year that sales were over 3,000 before the bottom fell out.

Here’s a look at Snohomish County Deeds, but keep in mind that Snohomish County files Warranty Deeds (regular sales) and Trustee Deeds (bank foreclosure repossessions) together under the category of “Deeds (except QCDS),” so this chart is not as good a measure of plain vanilla sales as the Warranty Deed only data we have in King County.

Snohomish was down year over year again.

Next, here’s Notices of Trustee Sale, which are an indication of the number of homes currently in the foreclosure process:

Same pattern in both counties, dipping from last month’s spike and coming in near February’s level.

Here’s another measure of foreclosures for King County, looking at Trustee Deeds, which is the type of document filed with the county when the bank actually repossesses a house through the trustee auction process. Note that there are other ways for the bank to repossess a house that result in different documents being filed, such as when a borrower “turns in the keys” and files a “Deed in Lieu of Foreclosure.”

Actual foreclosure repossessions dropped to their lowest point since 2008.

Lastly, here’s an update of the inventory charts, updated with the inventory data from the NWMLS.

Absolutely dismal inventory levels out there. Snohomish might possibly inch out a slight gain this month, but King County just keeps plummeting.

Stay tuned later this month a for more detailed look at each of these metrics as the “official” data is released from various sources.

It is the West Coast’s most successful condominium high-rise community with established market values.

In light of the “established market values” comment, I find it interesting to note (hat tip to WestSideBilly) that Unit 3802, the second-largest unit on the 38th floor (the tower’s top level), sold on Friday for $3.6 million.

That would be an “established market value” 27% below where it sold just three years ago in May 2009, for just shy of a cool $5.0 million.

The previous buyer only financed $2.5 million at purchase, followed by another $500k loan a few months later, so that entire $1.4 million loss is on them.

• $1,362,820 loss on the sale
• $386,778 in interest payments
• $180,000 agent fees (assuming 2.5% commission)
• $92,831 in property taxes
• $60,660 in HOA dues
• Total Cost for 3 years: $2,083,089

$57,864 a month has got to be the most expensive rental in town, hands down.

[Update: Oops, I originally forgot to include the interest payments on the $3 million in loans. We'll assume that they were short term ARMs with rates 1.1 points below the 30-year average. I have now added the total interest payments to the above accounting.]

The content of my talk will be tailored to an audience that has owned their homes for quite a while and are trying to figure out a real estate strategy to maximize their ability to enjoy their golden years.

The event will be at 10:00 AM on Friday, May 4th at the Cristwood Park Dining Room. If you’re interested in attending, please RSVP with Crista at 206.546.7565 or info@cristaseniors.com

For my regular readers who aren’t quite in the potential audience for this presentation, I’d be curious to hear your thoughts: What’s the most important thing you would share with this group if you had the chance to speak to them about real estate?

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Just in time for the National Ass. of Realtors’ Nationwide Open House Weekend, I just posted the results of an analysis I’ve been working on at Redfin to see if holding an open house is at all correlated with the chance that a home will sell.

Do Open Houses Help Homes Sell?

…we thought it would be interesting to dig into Redfin’s stash of real estate data to answer the question: Does holding an open house make a home more likely to sell?

To answer this question, we analyzed over a quarter million listings across eleven different cities around the United States.
…
In San Francisco, an astonishing eighty-three percent of listings held at least one open house. In Phoenix and Las Vegas, less than five percent of listing had an open house. In the remaining cities, twenty to sixty-five percent of listings had an open house.

Seattle actually came in above most other markets for how common open houses are, with 53% of listings in King County holding an open house at some point while on the market.

In the other eight markets we examined, there was virtually no difference in the percentage of homes that sold, whether they had an open house or not.
…
But what happens if we break that data down a little further and take a separate look at homes that held an open house specifically within the first week of listing versus those that held an open house at some later date?

Interestingly, when an open house is held within the first week, a home is thirteen percentage points more likely to sell than not having an open house at all, and twenty-six percentage points more likely to sell than if an open house is held sometime after the first week.

Here’s what that data looks like for Seattle specifically:

Obviously there isn’t some sort of magic about having an open house in Week One that somehow dramatically increases your chance of selling, because if there was you wouldn’t expect open houses held later in a listing’s life to decrease the chance of a sale. Most likely holding an open house in the first week is just a sign of a hard-working listing agent.

Open houses are fun for buyers and lookie-loos, but here in Seattle they most likely don’t help a home sell.

First up, the plot of both the first derivative (year over year changes) and the second derivative (month over month changes in the year over year data):

The second derivative is still well into the black as year over year price changes continue to move rapidly up toward zero. Unless we start to see the second derivative head back into negative territory, it still seems quite reasonable to assume that the year over year value will be in the black before the first half of this year is over.

But that’s just Seattle. In order to get a more broad look at the data from all twenty Case-Shiller cities, I created this chart, in which each green square represents a city with a positive second derivative, and each red square a city with a negative second derivative:

Things were clearly the most negative from 2006 through 2008, and then again in late 2010 and early 2011 after the tax credit buzz wore off. Here’s an even longer-range view of this chart, stretching all the way back to 2000 (the earliest that Case-Shiller reports on all twenty cities):

The last few months have actually more or less resembled the more “normal” pre-bubble market of the early 2000s. I still doubt that we’ll be returning to the frenzied increases of the bubble days any time even remotely soon, but I do think that the trend suggests that price declines are nearing an end in most markets.

Note that the tiers are determined by sale volume. In other words, 1/3 of all sales fall into each tier. For more details on the tier methodologies, hit the full methodology pdf. Here are the current tier breakpoints:

• Low Tier: < $228,037 (down 0.8%)
• Mid Tier: $228,037 – $364,832
• Hi Tier: > $364,832 (down 1.2%)

First up is the straight graph of the index from January 2000 through February 2012.

Here’s a zoom-in, showing just the last year:

All three tiers took a predictable seasonal dip between January and February. While the low and middle tiers both only barely declined, the high tier dragged down the combined index. The low tier fell 0.3% MOM, the middle tier dropped 0.2%, and the high tier lost 1.5%.

Here’s a chart of the year-over-year change in the index from January 2003 through February 2012.

Flat for the high tier, but a strong improvement on both the other tiers. Here’s where the tiers sit YOY as of February – Low: -11.0%, Med: -5.1%, Hi: +0.1%.

Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.

Current standing is 43.6% off peak for the low tier, 35.9% off peak for the middle tier, and 28.9% off peak for the high tier. The middle and low tiers each set new post-peak low points, while the high tier remains just barely above its February 2011 low.

(Home Price Indices, Standard & Poor’s, 04.24.2012)

Down 0.8% January to February.
Down 2.9% YOY.
Down 32.9% from the July 2007 peak

Last year prices fell 1.9% from January to February and year-over-year prices were down 7.5%.

Still moving closer to zero on the year-over-year chart. I still think we’ll probably hit year-over-year zero by April or May’s numbers.

Here’s an interactive graph of the year-over-year change for all twenty Case-Shiller-tracked cities, courtesy of Tableau Software (check and un-check the boxes on the right):

There are now five cities in the positive year-over-year club: Phoenix, Detroit, Miami, Denver, and Minneapolis. In February, Phoenix, Miami, and San Diego all saw month-to-month increases, while everyone else fell.

Seattle came in near the middle of the heap for month-over-month losses, performing just about on par with the 20-city composite index.

Hit the jump for the rest of our monthly Case-Shiller charts, including the interactive chart of raw index data for all 20 cities.

In February, nine of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops (or saw increases) than Seattle (versus eleven in January):

• Phoenix at +3.3%
• Detroit at +1.5%
• Miami at +0.8%
• Denver at +0.5%
• Minneapolis at +0.4%
• Dallas at -1.0%
• Charlotte at -1.8%
• Washington, DC at -2.3%
• Boston at -2.4%
• New York at -2.9%

Ten cities were falling faster than Seattle as of January: Tampa, New York, Portland, San Diego, San Francisco, Cleveland, Los Angeles, Chicago, Las Vegas, and Atlanta (where prices continue to get absolutely hammered—down 17.3%!). This is the first time in years that we’ve actually come in better than Cleveland.

Here’s the interactive chart of the raw HPI for all twenty cities through February.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

In the fifty-five months since the price peak in Seattle prices have declined 32.9%, another new post-peak low.

Lastly, let’s see just how far back Seattle’s home prices have “rewound.” So far: April 2004.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 04.23.2012)

On Realtor marketing tactics, page 4 (4-C):

Realtor’s Gift Ties Boost World’s Fair
One of the more original boosters of the fair is R.C. Schiefelbein, Edmonds Realtor, who took 20 dozen neckties to a Chicago real-estate convention.

Each necktie had a picture of the Space Needle and underneath, “Ask a Realtor.”

Pretty sure if you tried a stunt like that today, the Space Needle corporation would sue you for trademark infringement.

An ad on page 14 (14-C) declares:

PLENTY OF MONEY FOR HOME LOANS
Conventional bank loans—Up to 75% appraisal and up to 25 years.

Interesting that 50 years ago borrowers using conventional financing had to bring 25% down and could only get a 25-year mortgage. I wonder how many of today’s home buyers could afford to buy a home around Seattle under those terms.

On architecture, page 58 (10-E):

“I hope that urban housing problems can be better solved by more ingenious planning such as row houses, court plans, and the like rather than the conventional street pattern of individual lots,” Bumgardner said.

Imaginative design can provide imaginative individuality in such scenes he said.

I wish. Instead of imaginative design, we got row after row of ugly townhomes.

On swimming pools, page 67 (E-19):

There is one thing on which all executives of companies that make swimming pools agree, and that is that home-owners of the future will insist on having at least one pool included with the facilities of their home.

Real-estate salesmen showing a prospective customer through a home will point out the fact that it has two pools, much as today they remark on two baths.

“At present,” William M. Smith of Pacific Pools said, “there are less than 10,000 private swimming pools in Greater Seattle. At the rate they are increasing I predict we will have 30,000 in about ten years.
…
These extras that we consider luxuries will be quite common in the 21st Century and will cost very little.

I don’t recall my real estate agent pointing out two pools in a home even once while I was home-shopping. I got ripped off.

On Lake Hills, page 98 (2-H):

Lake Hills, a community that began only six years ago on hilltops between Bellevue and Lake Sammamish, is the kind of community that pessimists had described as impossible to accomplish.

Larger than any other planned Seattle-area community, it typifies the foresight of many builders and developers.

R. H. Conners, the developer, bought 1,200 acres in 1945. He has added 300 acres since. George Belle has constructed most of the 4,000 homes. Bell expects to build 12,000 more homes over the next ten years.
…
The prices range from $15,000 to $45,000.

$45,000 in 1962 is roughly equivalent to $342,000 in 2012 dollars. I bet there are a few people who wish they could buy one of the nicest homes in Lake Hills for $342,000.

Hit the jump for a few more gems that I found amusing but don’t particularly relate to real estate.

On sports arenas, page 12 (12-C):

Construction of the Washington State Coliseum — the first new major structure for the World’s Fair — was under way.

…the Coliseum — spreading out over almost four acres like a massive metal “big top” — has become one of the top architectural attractions on the fairgrounds.
…
“Paul’s Paraboloid,” sports fans call it in fond jest, as they wait impatiently for the day when it will be theirs.

For those who aren’t aware, the Coliseum was the original name for the Key Arena.

On public transit, page 20 (20-C):

The Seattle World’s Fair has a magic carpet.

The name is Monorail.

Zooming along at ta mile-a-minute speed, two Monorail trains will whisk passengers from downtown Seattle to the fairgrounds and return.

Fair officials are predicting the Monorail will be the exposition’s “main gate,” carrying perhaps 40 per cent of the paying customers.

This is the world’s first full-scale rapid-transit system — both an attraction for the fair and perhaps a preview of the transportation of the future.
…
Sixten Holmquist, Alweg’s president, is optimistic about the Monorail’s future as a rapid-transit system.

“This is the spark that could touch off a revolution in transportation,” Holmquist said.

Fifty years later, every major metropolitan city relies on Monorails to whisk commuters from their homes to work and return. Er, wait a minute…

On local transportation infrastructure, page 132 (J-3):

…the King-Pierce-Snohomish-Kitsap area…must be prepared to accommodate 3,000,000 residents by 1990, if not sooner.

Transportation will be one problem. An air-view of the Seattle area shows how the freeway now being built will provide a further linking of Seattle, Tacoma and Everett and how the Evergreen Point Floating Bridge will double the development opportunities east of Lake Washington.

These facilities, however, will fall far short of meeting all needs of the 3,000,000 persons who must have opportunities to move from home to work and to recreation areas.

The freeway they’re talking about is I-5. Aside from the construction of a second I-90 span across Lake Washington, very little major transportation infrastructure seems to have been built since this was written fifty years ago. With approximately 3.7 million people living in the four-county region as of 2011, I think most would agree with the assessment that our existing transportation options do indeed “fall far short of meeting all needs.” Whoops!

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Note the bubbles coming from the chimney of the house. So amazing.

Thanks again, Rhonda!

P.S. (If you’re new here, no, I am not a Brony. Pink ponies have been an inside joke on this site for five years, long before the recent My Little Pony show began airing.)

For my regular readers, if you dig my flavor of charts and tables and you’re into local sports, it might be worth checking out. I’m disabling comments on this post since it’s totally off-topic for this site. If you’d like to comment, please post on TimAndJeni.com. Thanks!

“…a new reality: The economy has made the transition from tentative to robust recovery, and the period of historically low interest rates is ending.”

“In the residential market, the belief that the period of historically low interest rates may end has begun to sink in with buyers.”

“Historically low interest rates have boosted home sales, persuading renters to become buyers.”

“In recent years, many homeowners have made good use of historically-low interest rates and remortgaged to a cheaper deal, cutting their mortgage costs…”

…”the end of a long period of historically low interest rates, a period that may not be repeated anytime soon.”

“The days of historically low interest rates are likely soon to be behind us.”

Here’s the thing about these quotes though… They’re all from May and June of 2004, a time when home prices were just beginning to boom and the “historically low interest rates” were around 6.25%.

You can perhaps understand why I am skeptical when I hear claims that a point or two increase from today’s sub-4% interest rates is somehow going to destroy the housing market.

For the full context, here’s the long-term chart of rates since the early 1970s from the Federal Reserve:

Rates could nearly double to 7% and they would still be lower than they were 96% of the time from 1971 through 2000. I’m sure the housing market will get along just fine if rates go up a few points.

That said, we’ve all been expecting rates to increase for years now, and yet low rates persist. It would not surprise me one bit if rates stay in the threes and fours for at least a few more years.

Here’s how I break down the price percentiles for these posts. Each bucket is a cutoff where some percentage of homes sold below that price, while the remaining percentage sold above that price.

• Bottom: 10% below, 90% above.
• Low: 25% below, 75% above.
• Median: 50% below, 50% above.
• High: 75% below, 25% above.
• Top: 90% below, 10% above.

First up, a long-term view of the five percentiles, going all the way back to January 2007, shortly before King County’s peak pricing.

In March, 44% of homes sold for under $300,000 (the 10th percentile level at the peak). Meanwhile, 72% of homes sold in March went for less than the $481,000 median price at the peak.

Here’s a closeup look at just 2010, 2011, and 2012 so far:

All five tiers saw a bit of an uptick in March. Here’s where all five percentiles fall compared to their respective peaks as of March:

• Bottom: 53% off peak
• Low: 41% off peak
• Median: 32% off peak
• High: 24% off peak
• Top: 27% off peak

Lastly, here’s a look at the year-over-year price changes in each of the five percentiles.

At this rate, it seems likely that the high and top tiers will break into positive territory in the next three months. Here’s where the tiers stand as of March:

• Bottom: down 14%
• Low: down 10%
• Median: down 5%
• High: down 2%
• Top: down 3%

Quite the turnaround from just three months ago, when all five tiers were in double-digit negative territory.

The idea for this series stems from the ongoing forum thread Detrimental Listing Photos, which is where you should post your nominations for next month’s Real Actual Listing Photos post.

This month’s theme is drawings. What do you do when you either can’t or don’t want to show potential buyers an actual photograph of the product you’re asking them to spend hundreds of thousands of dollars on? Slap up a quick drawing, of course!

Enough explanation. Let’s get to the photos! Click the photo to view the Real Actual Listing.

“Elegant NEW construction w/ gleaming hardwoods, crown molding, ornate trimwork…”

Of course, we’re not going to actually show you any of those things. You only get to see this colored pencil drawing my eighth-grade daughter drew (via Curbed Seattle).

“Denny Blaine contemporary pre-sale from the experienced team of Christofides and Kormondy.”

Never mind that they’re having a “pre-sale” on a home that was allegedly built in 2011. I just want to know who’s got the mad water color skills—Christofides or Kormondy?

“Contemporary home in fabulous Greenlake Neighborhood.”

This is what happens when you keep the 18-year-old original drawing of your home in the same drawer as your mouthwash.

“Plan has been designed by Allon Development to accommodate TWO elevation options: traditional or contemporary.”

Note that apparently only the traditional option shown here comes with those amazing transparent bushes.

“Rare opportunity to purchase a custom home designed by Gelotte Hommas & built by Bender Chaffey.”

Hmm, built in 2010 according to the listing, but still no photos?

“Outstanding presale in the Compton Green neighborhood of Bridle Trails.”

Okay this one actually almost had me fooled into thinking it was a photograph until I viewed it at full size. Well done. That said, again with the “presale” of a home allegedly built last year… What gives?

“New construction embodies the essence of Kirkland.”

Forget Kirkland’s “essence.” Tell me more about that amazing grass (must be viewed at full size to really appreciate).

“Stunning Custom 4D design sited on a private lot.”

Now you’re thinking fourth-dimensionally! Also, I’m really digging those clouds and trees.

Let me know if you have an idea for a future “Real Actual Listing Photos” theme.

My wife and I bought our home a year ago in Mill Creek, Snohomish County. On Friday, we received a bill from King County instructing us that we owed them over $2,000, payable in 48 easy monthly installments. This bill was for sewer capacity. The previous owner had stopped paying this bill.

Needless to say, I was a little confused. We already paid Alderwood Wastewater a sewer bill every month. Anyway, I did a little looking, and it looks like Snohomish struck a bargain with King County that it could charge Snohomish County citizens big bucks for having their sewage treated in King County. I already pay for a sewer bill with Alderwood, but apparently this involves them carting it to King County.

My main bone of contention: for all new homes, the amount of sewer capacity debt a buyer takes on is a pretty hefty $10,000. Why is this not billed to developers? The FAQ says, helpfully: ‘because that’s how we wrote the law.’

I think you and I know why. If Snohomish and King home buyers knew they were taking on $10,000 of debt on top of the price of the home, they might not buy. Fewer short sales would go through, and the housing market could be more depressed. The alternative? Sneak that big bill in under the radar!

Their phone line makes it clear that whether or not the charges are known to the home buyer, they’re on the hook! And there’s absolutely no recourse, short of selling the home and passing it off to some other sucker (while paying a fortune in fees)

When one buys a home, they don’t pay itemized fees for the permits, the road extensions / expansions, the new traffic signals, the expansion of the power grid. Some of that is spread evenly among the populace, and when it’s not, it is charged to developers, and passed on to homebuyers, so they know exactly what they’re getting into.

I work for an electrical utility. Seattle City Light power is mostly transported through PSE utlity lines, and is mostly generated by the Bonneville Power Administration. Seattle City Light doesn’t allow PSE and BPA to bill their customers separately for this privilege, it’s all wrapped up in the cost of power to their customers.

The fact that utilities are interconnected is not a new phenomenon; asking a few new customers to pay thousands for capital projects is. Utilities need capital projects to keep up with demand all the time. It’s called expanding your customer base, and every other utility I’ve ever dealt with spreads out the cost and are happy with the long term gains.

This law may have been in effect for quite a while, but I’ve never heard it discussed before. I also find it hard to believe that it is just or ethical to charge new developments special fees. We don’t typically charge special fees to older neighborhoods because their roads or infrastructure are old and need to be repaired, do we?

Getting a bill like this out of nowhere seriously has me on edge. What else will come down the pike that my family’s not ready for? Special fees for police and fire fighters? A library tithe? School capacity fee?

Have any other readers had an experience like this with an unexpected bill for thousands of dollars to a municipality that you don’t even live in or receive direct service from?

[Update]
A representative from King County responded in the comments. Here’s a portion of their remarks:

As our region grows, our need for new sewage treatment capacity increases as well. Since 1990, King County has levied a capacity charge on new connections to the sewer system that new customers pay in addition to their monthly sewer bill. The capacity charge covers the cost of new projects and system expansions to serve population growth. The Wastewater Treatment Division directly bills newly connecting customers for the capacity charge. Only new connections within King County’s service area will be assessed a capacity charge — our 420-sqaure-mile service area extends from as far north as Mill Creek down to a portion of Pierce County. The sewer service area was based on watersheds, not political boundaries.

Elected officials, sewer utility representatives and jurisdiction officials were all involved in King County’s decision to implement a capacity charge to ensure that “growth pays for growth”. At the root of the capacity charge is the issue of fairness. Property owners who paid for the cost of past system expansions are not expected to pay for new capacity generated by new construction.

Read their entire response below.

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…the forecasts for housing price growth are calling for booming values in the state of Washington. For the June issue of MONEY Magazine, Fiserv Lending Solutions and Moody’s Economy.com provided forecasts for the coming 12 months for 380 metro areas – they predict that five of the top 10 fastest growers will be in Washington.

…Much of the appreciation in housing is attributed to above average job and population growth and limited supply of housing.

Meanwhile, around the same time, our state’s Chief Economist ChangMook Sohn was sounding the alarm with a more realistic outlook:

However, people are spending more money than they’re making, which Sohn finds worrisome because it can’t continue indefinitely. Consumers appear to be cashing out some of the value of their homes to fuel their spending, he said.

“Clearly, the consumer is over-extended,” Sohn said.

…revenue officials raised warning flags, predicting that a slowdown in the construction industry will drag down the state’s economic expansion before long.
…
The state’s sizzling construction and housing sector is ripe for a major correction and other factors could hammer the state and national economies in the next few years, said ChangMook Sohn, the state’s chief economist.

His biggest concern is that the state’s recent economic and revenue expansion has been heavily dependent on a single sector of the economy, the construction and housing industry.

That sector accounts for about 7 percent of the overall state jobs, but the construction and housing surge in recent years has accounted for 20 percent of the job growth, he said.

That’s not sustainable and the number will surely drop back to more usual numbers, he said.

Too bad neither lawmakers nor pretty much anyone else bothered listening to Mr. Sohn. Even worse, he gave up his job as Chief Economist to run for State Treasurer in 2008, but lost in the primary.

Thanks to homebuyers’ and lawmakers’ choice to accept the home salesmen’s fantasy version of reality instead of Mr. Sohn’s sound advice, the rest of us get to deal with years of state budget shortfalls and a sagging economy. Thanks, real estate agents!

March 2012
King: 600 NTS, down 45.6% YOY
Snohomish: 349 NTS, down 41.1% YOY
Pierce: 300 NTS, down 51.3% YOY

Same story that we’ve seen all year: Each county was down from a year ago, but up month-to-month. It will be interesting to see if foreclosures continue to climb through the spring and summer.

Here’s your interactive Tableau dashboard updated with the latest foreclosure data:

The percentage of households in the chart above is determined using OFM population estimates and household sizes from the 2000 Census. King County came in at 1 NTS per 1,387 households, Snohomish County had 1 NTS per 786 households, and Pierce had 1 NTS for every 1,074 households (higher is better).

According to foreclosure tracking company RealtyTrac, Washington’s statewide foreclosure rate for March of one foreclosure for every 500 housing units was 35th highest among the 50 states and the District of Columbia. Note that RealtyTrac’s definition of “in foreclosure” is much broader than what we are using, and includes Notice of Default, Lis Pendens, Notice of Trustee Sale, and Real Estate Owned.

Reminder: I had been including a heat map of Washington counties from RealtyTrac on these posts each month, but they did something to their embedded map that was forwarding my site readers to a RealtyTrac registration page, which is not acceptable. So no more Washington State heat map.

Hit the jump for a larger version of the chart that shows the percentage of households in each county receiving a foreclosure notice each month:

Note: The graphs above are derived from monthly Notice of Trustee Sale counts gathered at King, Snohomish, and Pierce County records. For a longer-term picture of King County foreclosures back to 1979, hit this chart and drag the date slider to its full range. For the full legal definition of what a Notice of Trustee Sale is and how it fits into the foreclosure process, check out RCW 61.24.040. The short version is that it is the notice sent to delinquent borrowers that their home will be repossessed in 90 days.

The Contenders

From the photos on each listing it definitely looks like the flippers of 3609 Wetmore spent more time to really make the home shine, but will the extra polish be worth a $62,000 premium to buyers?

Interestingly, at 2.1 times their purchase price, 3609 is actually more conservative than these flippers’ most recent Everett project (featured on here in September), which they successfully turned around for 2.4 times what they paid for it.

Whatever happens, it should be interesting to watch. I’m hoping they both have open houses this weekend so I can go check out the quality (or lack thereof) of the rehab work in each up close.

In order to explore this concept, we break King County down into three regions, based on the NWMLS-defined “areas”:

• low end: South County (areas 100-130 & 300-360)
• mid range: Seattle / North County (areas 140, 380-390, & 700-800)
• high end: Eastside (areas 500-600)

Here’s where each region’s median prices came in as of March’s data:

• low end: $157,000—$282,500
• mid range: $230,000—$615,000
• high end: $376,000—$1,025,000

First up, let’s have a look at each region’s (approximate) median price (actually the median of the medians for each area within the region).

Both South King and the Eastside saw increases between February and March, while Seattle / North King actually dipped slightly.

Next up, the percentage of each month’s closed sales that took place in each of the three regions. The dotted line is a four-month rolling average.

Not surprisingly, the big bump in the county-wide median price from $308,125 in February to $330,000 in March corresponds with a big dip in the share of homes sold in the cheapest parts of the county.

Lastly, here’s an updated look at this same set of data all the way back through 2000:

If this one-month dip in sales in South King continues as we move through the spring and into summer, expect the county-wide median price to continue to climb. Personally I think the mix over the next year or so will probably resemble roughly what it was from 2004 through 2006, but for different reasons (more cash buyers instead of zero-down buyers)

First up, the NWMLS press release: “Buyer Ready” Home Shoppers Have Edge as Brokers Report Rise in Multiple Offers.

“Buyers are screaming for more inventory and they’re being more aggressive with presenting offers on homes,” reported MLS director George Moorhead, branch manager at Bentley Properties in Bothell. Home shoppers perceive the bottom is nearing, he noted, “and both buyers and sellers want to catch the historically low interest rates.”

That makes no sense at all. Why would sellers care more about “catching the historically low interest rates” than they would about getting a good price for their home? Obviously, they don’t really care about rates, otherwise we would be seeing a lot more listings on the market than we are.

FRENZY! by Flickr user Don DeBold

“Close to the job centers, 45 percent of new listings are selling within a single month. We are seeing a frenzied market in the Puget Sound region, especially in the more affordable and mid-price ranges, with an increase in sales activity in the high end,” remarked J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. “Because of the shortage of homes for sale, combined with the sales surge being driven by job growth and historically low interest rates, if you are not ‘buyer ready’ you may not get a house in today’s market,” he added.

FRENZY!

Diedre Haines, another Northwest MLS director, said pending sales in Snohomish County, which jumped 21 percent, would have been “considerably greater were it not for the buyer competition due to the magnitude of multiple offer situations.” She said they are seeing the return of price escalator forms, pre- inspections, set dates for sellers to review offers and properties selling above list price, according to Haines, the regional managing broker at Coldwell Banker Bain in Lynnwood. “Prices are not increasing dramatically but those properties that are listed and priced correctly, especially in the $300,000 and below range, are selling within days of coming on market,” she noted.

Hah. I love the “sales were okay, but they would have been even better bit. This lady should run for public office.

Read on for my take on this month’s local news reports.

Eric Pryne, Seattle Times: King County home prices highest since September

“I think in some places prices are recovering, but it’s very neighborhood-specific,” said Glenn Crellin, associate director of research at the Runstad Center for Real Estate Studies at the University of Washington. “Those markets that are close to the job centers are by and large doing pretty well.”

Prices in Seattle were up more than 3 percent from a year ago and nearly 9 percent from February. Neighborhoods north of Interstate 90 all saw double-digit year-over-year increases.

Sweet, it’s the North of I-90 magic!

Aubrey Cohen, Seattle P-I: Seattle house prices up again

Sales actually fell 2.1 percent in Seattle from a year earlier, while rising 10.5 percent countywide. Pending sales, which don’t all close but can be the best indicator of recent activity, were up 15.4 percent in the city and 26.9 percent in the county.

But, with few new homes hitting the market, supply fell to 2.8 months worth of homes for sale at the current pace in Seattle and 3.2 months of supply countywide. That’s down from 4.4 months and 5.6 months, respectively, a year earlier.

Hmm, not much meat in this month’s article. Both of the quotes appear to be lifted straight from the NWMLS press release. Oh well.

Michelle Dunlop, Everett Herald: County home sales up; fewer houses on market

The number of homes for sale in Snohomish County last month was down nearly 44 percent compared to March of 2011, indicating a stabilizing housing market.
…
“The lagging inventory is actually helping prices stabilize, which we hope will have a positive impact on the real estate market as the year progresses,” George Moorhead, branch manager at Bentley Properties in Bothell and director of MLS, said in a statement.

I don’t really see how a dramatic 44 percent drop in inventory can be considered “stabilizing.” I also like how even after everything the market has been through, real estate salespeople are still hard-wired to view declining prices as a bad thing. Lower prices are a good thing. We don’t need prices to “stabilize” to have a “positive” market.

C.R. Roberts, Tacoma News Tribune: Pending Pierce County home sales increase

Real estate brokers representing the 21-county region of the Northwest Multiple Listing Service said Friday that the latest monthly housing market figures indicate “a sustainable recovery” is finally afoot.

Bonus points for using the word “afoot” in a professional news article.

C.R. Roberts, The Olympian: Home sales data suggest Pacific Northwest economic revival

Real estate brokers representing the 21-county region of the Northwest Multiple Listing Service said Friday that the latest monthly housing market figures indicate “a sustainable recovery” is finally afoot.

Wait a minute… This is the same article with just a few words and numbers changed. Bonus points withdrawn.

(Eric Pryne, Seattle Times, 04.05.2012)
(Aubrey Cohen, Seattle P-I, 04.05.2012)
(Michelle Dunlop, Everett Herald, 04.06.2012)
(C.R. Roberts, Tacoma News Tribune, 04.07.2012)
(C.R. Roberts, The Olympian, 04.07.2012)

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“Buyer Ready” Home Shoppers Have Edge as Brokers Report Rise in Multiple Offers.

The housing market in the Puget Sound region is pointing toward a sustainable recovery, according to several brokers who commented on the March activity report from Northwest Multiple Listing Service.
…
“We are seeing a frenzied market in the Puget Sound region, especially in the more affordable and mid-price ranges, with an increase in sales activity in the high end,” remarked J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. “Because of the shortage of homes for sale, combined with the sales surge being driven by job growth and historically low interest rates, if you are not ‘buyer ready’ you may not get a house in today’s market,” he added.
…
Noting stabilizing prices are “forcing buyers to make offers that reflect a more balanced market,” Northwest MLS director Darin Stenvers said house-hunters have taken note of rising rents, fewer choices and increasing fuel costs.”

I told you that this gas prices nonsense would rear its head again. In other news… It’s a FRENZY! You know it has to be true because Pyramid Expert J. Lennox Scott says so!

Before you get too worked up about the biggest February to March median price increase on record (previous high was a 6.4% gain in 2004), remember that prices have jumped up in a similar manner every spring throughout the downturn (albeit not as large):

With that, let’s get on with the stats!

Here’s your King County SFH summary, with the arrows to show whether the year-over-year direction of each indicator is favorable or unfavorable news for buyers and sellers (green = favorable, red = unfavorable):

March 2012	Number	MOM	YOY	Buyers	Sellers
Active Listings	4,978	-3.9%	-34.4%
Closed Sales	1,642	+33.5%	+7.7%
SAAS (?)	1.51	+3.3%	-11.9%
Pending Sales	3,018	+24.2%	+23.9%
Months of Supply	1.65	-22.6%	-47.1%
Median Price*	$330,000	+7.1%	-4.3%

Feel free to download the updated Seattle Bubble Spreadsheet (Excel 2003 format), but keep in mind the caution above.

Here’s your closed sales yearly comparison chart:

Just the usual seasonal bump in sales, nothing to write home about, especially since they’re still quite a bit below every year before 2007. Just like our monthly stats preview predicted, the big year-over-year gain from February mostly vanished in March, dropping from over 22% to under 8%.

Here’s the graph of inventory with each year overlaid on the same chart.

And we are now at an all-time low for March. Previous record was in 2006 when there were just 5,100 homes on the market. However, keep in mind that the NWMLS did change the definition of “active listing” between then and now, so it’s not apples to apples.

Here’s the supply/demand YOY graph. In place of the now-unreliable measure of pending sales, the “demand” in this chart is represented by closed sales, which have had a consistent definition throughout the decade.

Sales gains dropped off, but the steep drop in inventory just gets deeper.

Here’s the median home price YOY change graph:

Another upward tick toward zero…

And lastly, here is the chart comparing King County SFH prices each month for every year back to 1994.

March 2012: $330,000
July 2004: $329,950

Here are the headlines from the Seattle Times and the Seattle P-I:
Seattle Times: King County home prices highest since September
Seattle P-I: Seattle house prices up again

Check back Monday for the full reporting roundup.

For many people, renting is simply the better choice, even if home prices are at a reasonable level supported by the local economic fundamentals. Therefore, without further ado, I present my Top 10 Reasons NOT to Buy a Home:

10. Renters don’t have to fix leaky plumbing, pay for a new roof, or buy major appliances.
9. The moment you sign the closing papers, you lose ~10% of your home’s value.
8. Better job offer in another city? Hope you can afford to sell…
7. Lousy neighbors move in next door? Too bad, you’re basically stuck!
6. Your down payment and equity are anything but liquid.
5. You just moved to a new city and don’t know the area yet.
4. You don’t have the financial discipline to save up a down payment (even 5% or 10%).
3. Home prices may keep falling, a prospect that you can’t stomach.
2. In some neighborhoods, renting will always be a lot cheaper than buying.
1. You just prefer the freedom, mobility, and liquidity of renting.

What did I miss?

Here’s where Seattle falls when you sort the top 100 cities by various measures:

• Population: #23
• Square Miles: #62
• Density: #15
• Household Size: #100
• % with Children: #97
• Home Ownership Rate: #69

I have to say, I expected it to be low, but I was surprised to see Seattle all the way at the bottom when it comes to household size, especially when we’re so high up the list when it comes to density. I guess Seattle’s anti-social tendencies even extend to our own families…

With just under half of homes in Seattle being owner-occupied, it’s not surprising that our home prices are higher compared to median household incomes compared to say, Scottsdale Arizona, where 68% of homes are owner-occupied.

This is a good reminder that it’s much more informative to compare a city’s housing prices to its own local fundamentals and historic trends than it is to compare one city to another, where the local demographics and economics may be quite different.

Hit the full post for the entire table of all top 100 largest cities.

Click on any column header to sort by that column.

Note: I am aware that the household size number does not equal the population divided by the number of households. All three of those numbers are exactly what the Census Bureau’s data reported for each city in 2010. I’m not sure why they don’t line up.

First up, total home sales as measured by the number of “Warranty Deeds” filed with King County:

We backed off of the big year-over-year surge we saw last month, turning in just a 6.3% gain from March 2011 to March 2012.

Here’s a look at Snohomish County Deeds, but keep in mind that Snohomish County files Warranty Deeds (regular sales) and Trustee Deeds (bank foreclosure repossessions) together under the category of “Deeds (except QCDS),” so this chart is not as good a measure of plain vanilla sales as the Warranty Deed only data we have in King County.

Snohomish actually fell between 2011 and 2012, but as you’ll see in a moment when we look at King County Trustee Deeds, the dip in deeds in Snohomish was probably due to a decrease in foreclosure sales (back to the bank) rather than regular resales.

Next, here’s Notices of Trustee Sale, which are an indication of the number of homes currently in the foreclosure process:

Both counties surged in March, hitting their highest points since last September. With three months in a row of increasing foreclosure notices, I think it’s safe to say that we’re on a renewed upward trend.

Here’s another measure of foreclosures for King County, looking at Trustee Deeds, which is the type of document filed with the county when the bank actually repossesses a house through the trustee auction process. Note that there are other ways for the bank to repossess a house that result in different documents being filed, such as when a borrower “turns in the keys” and files a “Deed in Lieu of Foreclosure.”

Actual foreclosure repossessions dropped to their lowest point in years, which is completely predictable since Trustee Deeds tend to track Notices of Trustee Sale on a three to six month delay, and NTSes were at low points three to six months ago.

Lastly, here’s an update of the inventory charts, updated with the inventory data from the NWMLS.

I keep thinking eventually we’ll see a “spring bounce” in inventory, but it keeps not happening. How long can inventory keep falling like this?

Stay tuned later this month a for more detailed look at each of these metrics as the “official” data is released from various sources.