Stepping back from the fierce debate on cottage lots and minimum size, it’s worth looking at the bizarre pressure cooker that is today’s post-bust Seattle housing market. The unemployment rate is dropping. Interest rates are absurdly low (30-year fixed rates are 3.5% as of today). Any halfway-decent house is getting multiple offers. Buyers are primed and ready.

And yet… there’s nothing for anyone to buy. Inventories are at record lows. The excellent puts it into stark relief:

Monthly King County SFH Inventory by

We went from over 12,000 homes on the market in King County in 2008 to about 5,000 today. One reason is that many homeowners are underwater:

King County has “such a short supply that it invites further price increases,” Crellin said. “The Realtors are right. They need inventory.”

So why aren’t more people listing their homes for sale, given the high demand?

Jacobi, Kelman and Crellin all pointed to owners who still wouldn’t be able to ask what they paid for their homes at or near the height of the market.

“They’ve sort of resigned themselves to staying put for awhile,” Crellin said.

One way to resolve this situation would be for the country to experience sustained 3-4% inflation over the next few years, which would slowly but surely put more homeowners above water and make it more palatable for them to sell. But federal policymakers have resisted this approach, and inflation has remained in the 2% range despite the record-low interest rates. The result is a whole lot of money sitting around looking for something to buy and a whole lot of homeowners who aren’t interested in selling or able to do so. Is it any surprise developers are looking for creative ways to build more houses?

42 Replies to “The Bigger Picture on Housing”

  1. Build, build, build! Build enough that there isn’t so much pressure on prices.

    At least until I can afford to buy again in 2 or 3 years. Then stop building. Got to preserve the things that make Seattle great at that point… something something views… breathing space…. green…

  2. That lack of summer bump this year looks like the outlier that proves the rule.

    There could be easy explanations, such as did the legislature pass any laws making homebuilders more responsible for damage that homebuyers find?

    There is also the political cycle. Realtors’ associations are polical creatures, and this can color the data they put out. Most realtors associations I’ve dealth with are squarely in the pro-sprawl camp.

  3. I can confirm this. I’ve been sniffing around the market for the past 6 months or so and inventory has been low everywhere, and nearly nonexistent in certain markets (Capitol Hill and near NE Seattle in particular). I’m going to rent awhile longer.

  4. A co-worker told me last week that she and her husband have been trying to move into Seattle (inside the city proper) and have lost 11 houses in a row in bidding wars. It’s tight out there.

    At some point this tightness will result in price increases sufficient to start freeing up inventory, but until then not much will change.

  5. I bought in 2006 and our house has probably lost a good 25-30% of its value since then. If we hadn’t lost all that value, we’d probably be doing a HELOC and using it to build a DADU in our large back yard that we never use (I would LOVE to turn that wasted space into a garage with an apartment above it that we could rent out). But we have zero equity, so, a HELOC isn’t an option.

    1. Unfortunately, the garage + apartment scenario isn’t very attractive under the current code. The total floor area of a DADU is limited to 800 square feet, including the area of any garage that is inside. (Source: CAM 116B)

      This document contains a few sample plans for backyard cottages that comply with the 800 sq. ft. maximum. A standard one-car garage is about 12×22, so that’s a third of your allowed space gone right there. The remaining space is enough for a one bedroom/one bathroom apartment (as in plans C and G in the linked document). However, if you look at Plan C, there’s an alternate version without a garage. It has an extra bedroom and bathroom, which can make a big difference in both the number of people who can live there and the amount you can charge for rent.

      Unfortunately the code also requires that you have two parking spaces somewhere on the property if you have a DADU (one for the main house and one for the cottage). If you don’t want to pave enough of your remaining back yard to store any cars, and you don’t have a garage built into your main house, you’ll have to build a two-car garage in the DADU. See Plan F for an example of that. The garage eats up so much of the allowed space that there’s only room for a 300 sq. ft. studio apartment above it.

      1. We have an alley in back, so we already have a long driveway that eats up a bunch of the space back there that can easily hold 2 cars, so we wouldn’t need a 2 car garage. But we do want a one car garage for my husband’s 1966 Mustang that currently lives in one of those plastic tent faux carport thingies. So, turning that into something more useful than just car storage would be kind a cool, hence the small apartment up top. A one-bedroom apartment would do the trick nicely. But who knows, maybe they’ll allow for slightly larger ones by the time the market rebounds enough for us to get a big enough HELOC to be able to afford to build the darn thing. Or maybe we’ll just move in a few years.

  6. Same here. I’ve been tracking the market and while I’m looking for condos there is very little inventory. I’m seeing condos come onto the market one day and go pending the next.

    1. Assuming the giant hole in the ground just dug at 5th & Battery will soon turn into shiny new condos, I’d hope that new development lets a little pressure off the market for a bit.

      1. Keep in mind Bellevue and Seattle are very different markets. Also, that story’s a year and a half old.

  7. August 2012 Seattle Condo Market Update:

    The 551 active condo properties for sale last month reflected a 6.5 year inventory low. Currently, 18% of the inventory is distressed (short sale or bank-owned), which represented 26.5% of the closed sales last month.

    The reason inventory is low and people still aren’t buying is because of the huge surplus of bank owned properties that still need to clear the market. And then there’s all the properties that were built as condos waiting to be converted back from rentals to come on the market. Right now 99% of the people are shopping for the 20% that represent “good deals”. Three people where I work have bought houses in the last couple of months; every one of them was either a short sale or a bank owned property. If you’re willing to pay 2008 prices put out an offer to buy and you’d be flooded with offers to sell.

    1. “people still aren’t buying” Where’d that idea come from? Did you see the comment above about someone losing out on 11 offers? People are buying as much as they can. I went house shopping in the early spring, and all that was out there that wasn’t being snapped up were low-quality homes. One home had so many problems, I couldn’t imagine it being sold for half of what they were asking. It was sold a week later near full asking price.

      1. I will second Matt the Engineer’s perspective. Every house I’ve seen that has been on the market longer than a month either has significant problems or is being offered at a completely unrealistic price.

        Passable to good houses are selling in one day in many neighborhoods, at prices that are 10%-20% higher than prices were less than a year ago.

      2. When there’s really a hot market prices are going up. Only for the last couple of months has there been a price increase which in part can be attributed for by even lower mortgage rates. The house that didn’t seem worth fixing probably won’t be. My bet is it gets bulldozed. Maybe there’s “hidden value” in the lot(s). People by and large are still choosing to rent rather than buy and holding out for that “killer deal”. Looking at the big picture, the last 5 years rather than the last five months you’ll see that time on the market and prices are creeping back up. That’s because those people that weren’t forced to sell at fire sale prices are starting to come back into the market. It’s like unemployment numbers. When people stop looking they’re no longer counted as unemployed. When people won’t list because the prices are so depressed it’s no longer inventory.

        Soft market conditions are likely to persist as inventory is staying on the market longer. Also, the rise in supply and sale prices makes it appear that more suppliers are coming into the market to take advantage of the rising prices.

        For those expecting the Building Fairy to leave them a new condo under their pillow, might as well add a free pony to the wish list.

      1. Checked the inventory of buggy whips lately? I’ve come to realize the reason the land use posts on this transit blog are so far fetched is that they are universally written looking only at one side of the market; the buyer. Fred Meyer is moving it’s patio furniture into storage to make room for Halloween and Xmas. By your logic Winter must be when people are buying up garden goods since inventory is low. Housing inventory is low because there are a lot of people that can’t sell for what they paid for their house. Prices are low because buyers, rightly so, are demanding bargain basement prices. There should be no surprise that at the peak of the real estate bubble prices and inventory were both at record highs.

      2. Bernie’s right about inventory not corresponding with volume of sales. But this quote “Prices are low because buyers, rightly so, are demanding bargain basement prices.” misses the mark. Prices aren’t very low, they’re just not the level they were at the bubble. That probably creates a strong psychological reason to not sell your home, even if the bank lets you.

        If we continue to see this strong demand without a change in inventory, prices will rise until people are enticed to sell.

      3. Yes! As prices rise more people will decide to sell their home. And more developers will start new construction. It’s hard to say Seattle and low priced housing in the same sentence. Compared to say Spokane prices are ridiculously high. That’s the “reward” for becoming one of the “in places” like San Francisco. But short of economic collapse things aren’t going to get any cheaper and mortgage rates can’t stay this low forever. In 5-10 years people will look back and wish for the “good ole days of 2012” when the average professional could afford to buy their own home.

      4. “Compared to say Spokane prices are ridiculously high.” Price without location is meaningless. Spokane prices are ridiculously high compared to most anywhere in South America. What’s important is price:income. Or, more specifically, (housing costs + transportation costs)/income.

        How do we drop price:income? Stop restricting housing supply.

      5. Sure, like politics all real estate is local. Comparing to South America is more of a stretch than Spokane since at least we’re talking about roughly the same economy. The income multiplier for Spokane is just under 4 compared to Seattle’s 7.5 (2010 census numbers). OTOH, the current 6.4 in Seattle is below average for the last 20+ years and interest rates are half what they were in 1990. And take note that the median home price in Everett is half again that of Spokane. So, to anyone waiting for “affordable” housing in or around Seattle all I can say is, “Shit or get off the pot.” The Building Fairy isn’t real.

      6. As has been pointed out, the “housing costs” variable in Matt’s equation actually consists of home prices + borrowing costs since most of us aren’t paying cash for our homes. Interest rates and downpayment requirements have huge effects on home affordability, as the real estate bubble demonstrated.

    2. The price increase started long before “a couple of months” ago. I’ve been actively watching the market since February. The fastest rise I saw in my price range was during April and May, although the rise has continued since, and now seems to be accelerating again.

      1. That’s true but we’re just barely above 2011 levels and still 27% off the peak in 2007. Couple that with interest rates at record lows and your payment on a median price home leaving out taxes down payment is still 34% lower. Let’s see, down payment and mortgage payments are down by a third. Prices are rising. Interest rates can’t stay this low forever. Seattle’s office market indicates the region is poised to be one of the hottest job markets in the country. Yeah, housings not affordable. I should whine and wait for the Building Fairy because if you blog it they will come.

      2. I’m not “whining and waiting for the Building Fairy.” I’m waiting for an inventory situation where I don’t have to make panicky snap decisions on an exceedingly limited selection of houses.

        At one point a few months ago there were two (2) condos in my price range for sale on Capitol Hill — and my price range is a fairly broad one that should capture most of the large-one-bedroom and small-two-bedroom market.

      3. And prices may go up, but in light of the Fed’s action last week I’m not too worried about interest rates going up substantially in the next year or two.

      4. True, it looks like interest rates are safe for the next couple of years but even small moves in lending rates (can you say points) cut back on the number of listings you can qualify for. The main pressure is going to be on prices. As they go up more inventory will come back on the market. As people see their chance to buy at the bottom slipping away prices will heat up bringing more inventory online. Zillow shows 813 listings for 1 bed 1 bath condos in Seattle. Limit the search to Capitol Hill and you’re down to 61. Put a max price on it of $275,000 and you’re down to 40 listings. You’re unlikely to get more choices and better value. OTOH, there’s still a supply of bank owned property to clear the market. And new construction will keep a lid on the price of high end property.

      5. “there’s still a supply of bank owned property to clear the market” It looks like we’re about out of bank owned property in King County (check out “bank owned volume” here). (note: that’s a single family graph, not multi-family)

        “And new construction will keep a lid on the price of high end property.” The easier we make construction, the lower that lid goes. The lower it goes, the higher the volume of sales, the higher the volume of sales the faster people move out of under-high-end homes, the faster people move out of these homes the lower the under-high-end home prices. Every new home that’s built in Seattle allows one more household to afford to live here. That’s not the building ferry, that’s the market.

      6. It looks like we’re about out of bank owned property in King County

        If you’re a seller, developer or in the construction trade you’d like to think so but it’s just not true. Look at the foreclosure filings. This stuff takes a long time to work it’s way through the market (~6 months following foreclosure) and as much as banks don’t want to own real estate they also have deep pockets and aren’t about to flood the market. If you’re a buyer you hope the bank owned property yet to come on the market will keep pressure on pricing. But a stagnant market hurts both banks and potential buyers not to mention the overall economy. So we should all hope that we really have found the bottom.

      7. The easier we make construction, the lower that lid goes.

        If Seattle were Houston that would work. Show me history of any time since the building boom sparked by WWII that it’s happened in Seattle. New construction really does create gentrification. Every new household moving into Seattle raises the median household income. It’s not just market theory it’s fact with the weigh of history behind it.

        the faster people move out of these homes the lower the under-high-end home prices.

        Says the building fairy. It’s never really happened but some people just have a hard time giving up on Santa Claus even after they know it’s not true.

      8. “Every new household moving into Seattle raises the median household income.” I completely agree. Cities are productivity machines. They not only reduce friction in business by bringing people physically closer together, but they allow for specialization. That’s why it’s important to not just focus on prices. When someone moves to the city, they produce more and their income goes up. Remember that affordability equation from above? Increase incomes faster than you increase prices, and you win.

        Every new home built in a city allows one more household to afford to live there. Yes, it also makes that one household less poor.

      9. It’s never really happened

        The low-rent, 10-bedroom rooming house I lived in after leaving college was once a grand mansion. The triplex my current cheap apartment is in was quite an ostentatious and expensive house, back around the turn of the century.

        It doesn’t happen right away, it’s a long-term adjustment, but eventually most high end houses becomes a fixer-upper bargain. Every bit of low-end housing now affordable to the lower class was, at one point, a shiny new expensive building.

        For a shorter-term example, take a look at 2008. There was a short period of time where the subprime/zero-down lending had dried up, no one was buying houses, but construction was still roaring along on projects started before the bust. In the southwest it was quite pronounced; we had entire new luxury subdivisions hitting the market at a time when there was zero demand for additional housing. Prices did indeed drop across the board, both high-end and low-end, and on a larger scale than the recession and lending issues could explain. The regions with the most overbuilding in the nation got the biggest price drops in the nation.

        If you want to make housing affordable, encourage building. The rules of supply and demand always kick in, in the long run.

      10. It doesn’t happen right away, it’s a long-term adjustment, but eventually most high end houses becomes a fixer-upper bargain.

        Nope. The large mansions on Capitol Hill became “affordable” shared housing because development stall in that neighborhood for many years. Remember “urban flight”? Curt Cobain’s house was built in 1902. How many more centuries do we have to wait for your economic theory of building upscale housing improves affordability? You’re fundamental failing is that there is no new supply of land to be had in Seattle. Each new household you bring in incrementally increase the cost of living. The only hope is that salaries increase but the trend is the higher the density the larger the percentage of income consumed by housing. That’s life in the big city.

      11. “new construction will keep a lid on the price of high end property.”

        What exactly does high-end property mean? There’s the large houses around Lake Washington that are more or less for the “old rich”, and there’s no land to build more of them. There’s the McMansions in Issaquah for the “new rich”, and oversized houses on regular Seattle lots, which do have room for expansion. But the demand for such huge houses has probably decreased, as people see that it’s not a good idea unless you can comfortably afford it, and the high utility bills of heating such a house, and the gasoline required for long commutes, falling household sizes, and the lessening likelyhood that you’ll find an able-and-eager buyer when you sell your new-rich house. There will always be some people looking for those things, but the number will probably gradually decrease over time, and the number of truly-rich people who don’t have to look at the price tag is not increasing enough to make up for it.

      12. Forgot to say, the main issue for us isn’t houses on Lake Washington or McMansions in Issaquah, it’s $600,000 houses in Columbia City and $300K condos that threaten to make it harder to live within walking distance of a Link station. A moderate gentrification is inevitable, and new TOD is the only way to make up for the underavailability of such places (and neighborhood amenities) around stations not in Capitol Hill or the U-district. But whatever we can do to prevent moderate gentrification from becoming extreme gentrification (McMansion style, $300K+-condo style) on transit corridors is a good thing. Some high-end houses and condos are fine, as long as they don’t all become like that.

      13. What exactly does high-end property mean?

        The new Duffus housette was $600k. That’s the low end of high end; roughly 50% above the median. Depending on where in the city you want to live a $300k condo can barely be considered high end. It’s more like the high end of the new normal. I doubt you’ll see many of the new condos in Seattle selling for much less than $450k so new construction isn’t going to help much if you’ve “only” got $300k and want to live on Capitol Hill, Belltown or the U District.

      14. “new construction isn’t going to help much if you’ve “only” got $300k and want to live on Capitol Hill, Belltown or the U District.”

        What I want is more urban villages and transit in other parts of the city and suburbs, so that there’s not this huge quality-of-life gap if you live outside Capitol Hill or the U-district without a car. I don’t mean trendy boutiques and bars, but the ordinary amenities that facilitate daily life.

      15. Northgate! $100k gets you 970 sq-ft. Less than half what you’d pay for a comp on Capitol Hill. Buy now ’cause when it’s the next hip place prices are going to skyrocket.

    1. If you look at both the ticks and the tocks the trend is showing a decrease in the unemployment rate; 10.4% in February 2010 to 8.3%(preliminary) for July 2012. Using month to month non-seasonally adjusted preliminary data leaves the truth needle on empty. Frank’s statement, “The unemployment rate is dropping.” gets a mostly true. However, taken literally, “there’s nothing for anyone to buy” is completely false. But it is true inventories are low. It’s also true that buying has accelerated meaning not only is there something to buy but that people are buying.

  8. Watch out for the clouded title on homes which had mortgages which were resold. The chain of title is generally broken. This means if you “buy” such a house you will also end up having to file quiet-title claims, and claim title by adverse possession, which can take over a decade, in order to eliminate all claims by banks that they might own the mortgage.

    1. That only applies if you are buying at a foreclosure auction. In most cases the bank in first position on the mortgage will be the top bidder. You’d have to bid more than the outstanding loan amount to win the auction and if the house wasn’t underwater by a fair amount it would have been a market sale. Buying bank owned property is no different from a title perspective than any other market transaction. You get the deed and purchase title insurance just like a sale from a private party. A common misconception is that when you have a mortgage the bank actually owns your home. They don’t, they only hold a deed of trust which says you will turn over title to the property if you fail to meet the obligations of the contract. Foreclosure is the legal process by which ownership changes hands.

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