The popular housing notions “It’s different this time” as well as the highly regarded corollary “It’s different here” continue to bite the big one.

While housing in some cities will always carry a premium, fundamentals, especially price-to-rent ratios, property taxes, and wage growth will eventually matter.

Those fundamentals caught up to cities thought to be immune to a housing slump.

Please consider Housing Crash Is Hitting Cities Once Thought to Be Stable

SEATTLE — Few believed the housing market here would ever collapse. Now they wonder if it will ever stop slumping.

The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.

Seattle is down about 31 percent from its mid-2007 peak and, according to Zillow’s calculations, still has as much as 10 percent to fall. Mr. Humphries [chief economist for Zillow] estimates the rest of the country will drop a further 5 and 7 percent as last year’s tax credits for home buyers continue to wear off.

CoreLogic, a data firm, said last week that American home prices fell 5.5 percent in 2010, back to the recession low of March 2009. New home sales are scraping along the bottom. Mortgage applications are near a 15-year low, boding ill for the rest of the winter.

“I don’t expect the market to get better,” said Ms. Dortch, 31, a customer service consultant.

Neither does Gene Burrus, another frustrated seller who became a landlord. “Rent is so cheap it doesn’t make sense to buy now,” he said. He might reconsider if 10 or 15 percent more comes out of the market.

Whenever the market finally does pick up, all those accidental landlords will want to unload, putting another burden on the market. “So many sellers are waiting in the shadows,” said Redfin’s chief executive, Glenn Kelman. “The inventory is going to expand and expand and expand. I don’t see any basis for significant price increases.”

“We’re at a period near the bottom but with more volatility than we normally see at this point,” said David Stiff, Fiserv’s chief economist. “This sort of double dip is unprecedented for housing.”

Unprecedented Double-Dip

The double dip is “unprecedented” because the last rally was totally artificial.

  1. The Fed bloated up its balance sheet with $trillion in Fannie and Freddie paper pushing down mortgage rates
  2. States an processors alike sponsored foreclosure moratoriums
  3. Most importantly the Obama administration had two rounds home-buyer tax credits

As expected in this corner, the stimulus from all those measures did not work. Worse yet, they stimulated more new home building smack in the midst of a massive inventory glut.

Seattle vs. Las Vegas 2009-2010

Seattle vs. Las Vegas 2000-2010

Those are two of four Las Vegas vs. Seattle comparisons by the New York Times.

Las Vegas has given back 100% of its gains since 2000. Seattle has given back all of its gains since 2003. That’s quite a drop.

Years ago, I got into it on several occasions with the “Rain City Guide”, a Seattle real estate blog promoting the idea “It’s different here”

November 17, 2007: It’s not different in Portland and Seattle

August 19, 2007: Chicken Little

Here is a snip from the former:

Rain City Madness

Denial is a mile thick on the Rain City Guide.

This might sound strange coming from a real estate blogger, but I just don’t find all the hype about a real estate bubble all that interesting. None the less, it seems that about once a week a new blog starts up with the mission to highlight all the “evidence” that there is a nationwide real estate bubble that is about to pop. The most popular site is the Housing Bubble 2, although there are many others.

My Comment: Of course you do not find it interesting. You are a Real Estate agent with a vested interest to deny there is a real estate bubble.

What I would like to hear is a “pro-bubble” argument which takes into account two secular, local Seattle conditions which both tend to limit the supply of urban land:
1. A firm political consensus for “growth management” which will not change & hence unleash a lot of land for at least the next generation or so. (Even if there is land to be found.)
2. Total inability to deal with traffic congestion which is having a centralizing force, making “in city” properties (where one can minimize travel) more and more valuable.

When you take into account these trends — both firmly rooted in our local culture — do you still get a bubble?

The same arguments were made about Florida, San Diego, and the entire nation of Japan. Prices in Japan fell for 18 consecutive years and there are less places to build in Japan than there are in Seattle.

The San Diego Bubble

Professor Piggington has a nice recap of The San Diego Housing Bubble and he easily shoots down such arguments that we might be hearing about the Rain City such as:

  • “Everybody wants to live here.”
  • “The strong economy.”
  • “Low interest rates.”

Here is the heart of the matter:

Further theories are offered up by home price apologists. They speak of an implausibly sudden shift in demographics, a new era of endlessly looser mortgage lending, and any number of other rationalizations that all, in the end, translate to “it’s different this time.”

The key to understanding the housing boom really lies in the difference between growth rates of home prices and rents. While one might expect that homes would be more expensive to own than to rent, there is no fundamental reason why the cost difference between renting and owning should have expanded as much as it did since 2001. ….

It’s Wasn’t Different This Time

History now shows it was not different in Seattle after all. Prices in Seattle are back to 2003 levels and falling much faster than other bubble areas that may have bottomed.

Mike “Mish” Shedlock
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