Seattle Sweet Digs

December 5, 2008

What Other Data Do You Look At?

This morning I attended the IREM Forecast Breakfast and earlier in the week I talked to an investment manager for a major northwest developer. Based on both of those interactions here’s a list of other data points that folks might want to consider if you’re trying to answer the question when is a good time to buy:

Supply side:

  • AIA Billings Index. Are architects billing more or less? Currently, less. They’re one of the earliest indicators
  • Housing permits and starts. Are the projects that architects are designing getting to the permit phase?
  • Current inventory level and prices. Something we blog about here.

Demand side:

  • Consumer Price Index. What is happening to the rent component? Expect volatility and rent decreases as more supply comes online.
  • Local job growth. What are the hiring pipelines for the large local businesses (Microsoft, Amazon, Expedia, Gates Foundation, Boeing, Costco)?
  • Net migration. How many people are moving to Seattle versus out? (It’s decreasing but still forecasted to be positive.)
  • Local GDP. What components make it up? Are the major ones growing or shrinking? Real estate and construction have dominated recently. This doesn’t bode well for the future.
  • Payroll. Growing? Declining? Likely declining more.
  • Closed NWMLS transactions. Something we blog about here.

Data Sources

I was also pointed at some interesting data sources that you might not be aware of:

As for predicting the recovery, Lennox Scott’s comments, really resonated with me:

J. Lennox Scott, chairman and chief executive of John L. Scott Real Estate, predicted that residential real estate’s comeback will be led by first-time home buyers, close to downtown. Cheaper gasoline, interest rates that may decline to 4.5 percent and a small inventory of appropriate houses will fuel a surge in that segment, Scott said. But he didn’t predict when it will occur.

So keep an eye on transaction volume below the conforming loan limit of $576,500.

Posted by Matt on December 5, 2008 7:18 PM | del.icio.us | Digg

  • In King, Pierce, and Snohomish Counties, the conforming loan limit was lowered from $567,000 to $506,000 in November 2008. The $567,500 limit was a temporary increase.

    http://www.ofheo.gov/media/new...
  • Gene
    Sorry, that was in the Northeast (New York area specifically), rather than Pacific Northwest. When I lived out there, prices were down to flat for quite a while after the run-up during the mid to late 80s.

    I do think that once the current projects that are still in progress finish (12-18 months from now?), that we'll start to see a supply constriction and prices starting to rise - but before that, I doubt it. (This time I'm talking Seattle.)
  • Guest
    Gene, you said I think we’re in for a period similar to the late 80s through mid (to late) 90s where prices are slightly down to flat for quite a while.

    Where were prices down to flat for the 7 or 8 year period you reference above? Certainly not in the Seattle metro area.
  • Gene
  • Gene
    The following article has some good info on ARMs, and also Pay Option ARMs which are going to be increasingly coming due. These loans are going to lead to even more foreclosures.

    Having said that, with 30yr mortgage rates dipping under 5%, maybe we will see a short term bump in the market. I still don't think we're going to see any sort of upward sales or price trend anytime soon though...
  • Gene
    A slight upward trend over the next 8-10 months? Upward trend in what? Foreclosures?

    Seriously, the economy is not going to get better over the next 6 months, unemployment is rising, layoffs will continue.

    As for when I see the recovery starting... When home prices are more in line with incomes and become more affordable. Unfortunately incomes are not heading in a positive direction right now (those that still have incomes) - so home prices will continue their decline for at least a while. I think we're in for a period similar to the late 80s through mid (to late) 90s where prices are slightly down to flat for quite a while. If we're lucky.

    As credit markets find a new "normal" we'll start to see more sales, but I don't think we'll see rising prices anytime soon. Lenders are going to have much stricter requirements than they have over the past few years (they have to).
  • Thanks for your opinion. I hadn't taken into consideration the effect of ARM resets. Can you point us to any data on ARM reset dates?
  • Gary
    My opinion is that first time buyers may lead the comeback because housing is going to be 'affordable' again, as the bottom drops out.

    My feeling is that we're going to see a slight trend upwards for the next 8-10 months, but starting third quarter of next year, a huge number of ARMs are going to reset...for a period of 5 years. Now, if the mortgage industry, Washington D.C., and the banking and credit industry are actually thinking ahead that far, they know that these massive numbers of ARMs are going to cause the same kind of problem we're having now.

    Are they going to leave the interest rates where they are, or are they going to charge these people according to their contracts?

    If people's payments on these ARMs don't move significantly, i.e. $100-200 max, then we'll continue to see a slight growth curve upwards. But, if the ARMs reset/recast like they have in the past, then we'll move back into a huge downward spiral for 5 years or so, where people are not going to want to be in the market because of the coming bigger economic crash.

    Gary
  • I agree that cheaper gasoline may not be the driver here.

    I think that the recovery will happen closer in to downtown cores (I don't have data but anecdotally I feel like people are willing to live in smaller spaces to be closer to work to reduce commute times) at lower price points (financing will be more accessible below the conforming loan limit) and will be led by first time home buyers (because they aren't burdened with a house to first sell.)

    As the first time home buyers enter the market they'll provide existing home owners the opportunity to once again start moving up because there will be demand for the homes they need to sell first.

    I'm open to alternative theories on where the recovery will start :).
  • Gene
    So good resources here - thank you. The quote at the end though seems out of place and not logical though:

    Cheaper gasoline is going to be pretty temporary, and I'm not sure how that will help fuel a surge in the segment of first time buyer's closer to down town. Cheaper fuel if anything pushes people out to further.

    The final part of the quote can be paraphrased as "watch the least experienced segment of housing buyers, because they will start the trend". Ok, maybe that will end up being true, but I can't say it's a smart thing to do. Those are the same people who were fueling the bubble because they were being convinced they'd be priced out "forever" if they didn't buy "now". ... I seem to be missing the logic here...
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