Real Estate — How far can prices fall?

A month or two ago I was walking the dog in my neighborhood and I ran into a real estate agent who was about to list a home around the corner from me.  The owners were moving out.  She was surprisingly chipper and upbeat.  It was all I could do not to laugh at her.  They initially listed the three-bedroom two-bath house for $680,000.  They’ve already come down to $630k.   Up the street, another 3/2 is for sale for about the same price.  Apparently these people are all smoking crack.

I recently was discussing the question of how much farther prices can fall around here and a friend made the argument that houses like those above (i.e. 3 bedroom houses in Bellevue) were over $700k last year.  I think they can probably still lose another 15-20%, maybe more.  Here are some reasons:

• Since I’ve been here, people have been showing the same retarded optimism about local housing that we saw in the rest of the country just before it started crashing.  Everyone was trying to find reasons why Seattle was exceptional, but the prices are totally irrational.  I read recently that transactions in the Seattle area in September were down 42% from the previous September.  This means that the bid-ask spread for houses has gotten too wide: sellers are still clinging to the hope of high prices but buyers are unwilling to pay.  The spread will have to close eventually, and its pretty obvious in this economy that it’s not the buyers who are going to move.
• The economic fundamentals of homebuying haven’t changed.  The old rule of thumb has always been that you shouldn’t buy a home for more than three times your annual income.  That means that the homes above would require buyers making more than $200k/year.   These are not big homes.  I just don’t see it.
• Seattle is overvalued compared to California.  In the past, Seattle was always cheaper than Cali.  Now housing is currently more expensive in here than in San Diego.  Remember, in the winter it can rain continuously for days here.  Just in the past week we’ve had multi-day rain spells, and at most a couple of hours of sunshine.  Wait til January.
• People don’t seem to believe how bad it can get.  In the spring of 2006 I had an interview for a job at HRL in Malibu.  The closest place that seemed like it might be affordable was Thousand Oaks, CA.  I drove up there and took a look.  It was a nice suburban community.  Pleasant, with an area with sidwalks and shops, and nice looking housing.  Not big McMansions, but normal suburban split-levels and ranches.  At the time, the cheapest three-bedroom detached house listed on realtor.com in Thousand Oaks was $525k, and there were very few under $600k.   When I asked one of my potential co-workers at HRL how anyone who worked there could afford to own a home, he suggested that I could get an ARM.  The guy telling me this had a PhD in computer science or some kind of engineering.  Smoking Crack.  Anyway, how is Thousand Oaks faring today?  Right now, the cheapest three bedroom listed there on realtor.com is $240k, and there are 32 homes listed under $400k.  And remember, these are asking prices, not closing prices.

I would not be surprised if a 3/2 around here comes down close to $500k.  In fact, I think the only thing that can stop an enormous loss in nominal home values is massive inflation, which could bring down the actual values of the homes without bringing down the nominal values.  This situation could actually be good for the sellers because it would allow them to pay off their debt even as the value of their home has fallen.

Yes We Can!

EOM.

Guido Van Rossum’s new Blog

Neopythonic. Thoughts from the creator of the Python programming language, now working for Google.

Buy Obama!

I noticed today that Electoral-Vote.com’s composite of national polling is giving Obama a 338 to 185 lead in electoral votes.  The interesting thing about this is that Intrade’s state-by-state prediction markets have been giving him roughly the same margin for several days, maybe a week — i.e. the prediction markets have been leading the polls.  Right now I think the only difference between EV’s electoral map and Intrade’s is North Carolina: EV calls NC a tie while Intrade gives the state to McCain.  It will be interesting to see if the polling in NC turns back toward McCain in the next week or so.

Looking at Intrade’s market for the overall outcome of the race, it’s worth noting the technical indicators (as I did in the primary).  Obama’s MACD is strongly positive, indicating upward momentum.

Intrade chart for Obama prediction market

The MACD also shows Obama’s momentum went negative just after the Republican convention, and then reversed again around September 20, just as the shit was hitting the fan on Wall St.

One thing I wonder about the state-by-state prediction markets is how much liquidity they can have?  I mean, how many people are trading in these markets?  Are is there really enough volume in the West Virginia, Indiana, or Missouri markets to get accurate predictions?  Those states polls are all within the statistical margin of error (I think).  Florida and Ohio are also pretty close, but I guess those are more liquid, because they’re known battleground states.

Anyway, it will be fun to track this as the election gets closer.

VideoLectures.net: Good machine learning and AI lectures

A while back I posted about SciVee, a site for posting videos of science presentations. Today my old neural-networks labmate Tal Tversky commented pointing me at VideoLectures, a similar site containing academic lectures.  Although the site doesn’t seem to be explicitly intended for any one topic, the page of “top” lectures is dominated by talks in statistical machine learning.  Skimming the page, I noticed talks by such notable names as Tom Mitchell (chair of CMU’s machine learning department), Usama Fayyad (former VP of Research and “chief data officer” at Yahoo), Michael Jordan (UC Berkeley), and William Cohen (CMU).  Lots more, too.

In addition to ML and AI stuff, there are also talks by Tim Berners-Lee and Umberto Eco on the “Top Lectures” page.

Subramanian Ramamoorthy blogging on AI ‘n’stuff

My old UTexas Qualitative Reason & Intelligent Robotics Labmate Subramanian “Ram” Ramamoorthy is blogging now as a lecturer (i.e. assistant prof) at the University of Edinburgh.  He is the second former labmate of mine to end up there.  (The first is former NNRG labmate Jim Bednar.)

Bellevue, WA: Just like back home, only not really.

In moving to Seattle Laura and I put a lot of effort into finding a great place to live.   We wanted a place that was suitable for living with a small child and an active dog — I.e. a house with a yard, in an area with good schools, but with a short commute to my office in downtown Seattle.  Luckily, we were spared the choice of buying vs. renting, because sale prices for single family homes in much of the Seattle area are preposterously high, but rents are still (barely) within reach for us.   We also had the advantage of some time to shop around thanks to a month of temporary housing in my Amazon.com relocation package.  We ended up in Bellevue, WA.  More about it below the jump…

Rina Ferrarelli, Poet and Translator

Thanks to my sister, my mom has a working website again: www.rinaferrarelli.com.  Actually, the new site has been up for a couple of months, but I just got around to updating my sidebar links.  I thought I’d throw her some link love from the main page as well.

Why sell to half-price books?

Laura and I unpacked all our books yesterday and realized that we have a shelf-space crisis in our new house, so we decide to try selling some to Half-Price Books. We picked out three boxes of books, probably around 40 books total (though maybe more, I didn’t count). The were mostly hardbound, and many fairly technical, which according to HPB’s FAQ are the kind of books that fetch the most. We carted them down to the Bellevue HPB location, and I waited 30-40 minutes for their buyer to assess the haul. The final offer? Twelve dollars. That comes out to something like 30c per book.

Now, I’m a big believer in the free market, especially for things like this, so I can’t criticize HPB for trying to pay as little as possible for their inventory. What I can’t figure out is this: Why would anyone would ever bother to sell them books in the first place? The HPB is located about 4 miles from my house, and gas here is $4.40 per gallon, so just the cost of driving there ate up about $1 of my gross. Counting driving and waiting, the trip took about an hour. I specially selected books that I thought had a chance of being valuable, rather than just grabbing the many tatttered pulp paperbacks in my library, that probably added an extra hour to the process. If I value my time at Washington’s minimum wage of $8/hour, the whole trip was a net loss for me. I would have been better off just taking the oldest and most tattered books from my library and throwing them away. It would have gained me just as much shelf space with far less time and hassle.

I can’t figure out how selling to HPB ever comes out to a rational thing to do.  If you have a few high-value books (e.g. first editions or collectors editions) HPB will probably offer more than I got, but you’d still be better off selling them individually as an Amazon seller.  If you have just the average haul of old books, HPB will offer you peanuts.  I get a sense that a lot of their customers buy books there, read them, and then sell them back. If the books they buy are high-value, then maybe the fetch more on resale, but it’s still a net loss for the consumer. That’s certainly a nice deal for HPB, getting to resell the same book over and over, profiting each time. But for the reader, it seems like it would be far more economical to just use a library. At least I have the satisfaction of not having recycled any of the $12 back into HPB’s till. I just took the cash and left.

More thoughts on leaving Pittsburgh

Mike Madison at Pittsblog picked up on on some of my parting negativity about PIttsburgh, adding:

Just when Pittsburgh is getting ready to blow out the candles on its (cup)cake, something like this happens — the sort of thing that Lenore Blum and Project Olympus are trying to avoid by building stronger connections between local academic labs and local business.

I thought it would be worthwhile to repost part of my reply here:

[T]he root cause is the same as it has been for all the economic questions in Pittsburgh: Jobs. If you have a good job (and live in the right neighborhood, and you don’t have to ride public transportation or go through too many tunnels) Pittsburgh can be a nice place to live. But if you can’t find a job, why stick around?

I don’t think I really knew how I felt until the moment when I knew for sure I’d be leaving. That moment came during the week in March when I scheduled on-site interviews with three major west coast tech companies and I still did not have anything in-process with any Pittsburgh company. Once I knew for sure that I was leaving, I started to feel that my only regrets would be leaving my friends and family here, not leaving the city itself. Then late May rolled around and the flowers started blooming, and I thought that maybe there were some things I’d miss. Then my wife reminded me that I found a great job in Seattle and I was S.O.L. in Pittsburgh, and I realized that there are flowers everywhere.

Incidentally, the one Burgh tech company that did contact me got back to me more than two months after I first inquired with them. Most of the Pittsburgh companies I applied to didn’t even bother to acknowledge that they had received my resumé. With Amazon.com, the total elapsed time between my first contact and an offer on paper was 29 days. Are there any good engineers left by the time the Pittsburgh companies get around to talking to them?

On top of this, I admit that there were things about living in Pittsburgh that bothered me, but the details of those annoyances are irrelevant. The point is that from my subjective perspective there’s good reason to be sour on the Burgh — it didn’t work for me.

Viewed objectively, however, my move is a perfectly normal, natural event. I looked for a job — focusing my search on cities that seemed like places where I would enjoy living — I found a job in one of those cities, and I moved with few regrets. This is how we do things in America, right? We move. My dad was born in Louisiana, my mom in Italy. Now they’re Pittsburghers and they like it there. My brother lives in New York, my sister in Dallas. My wife grew up in Ohio. My daughter was born in Austin. That people leave Pittsburgh is not strange. What’s strange is that we’re expected to retain a strong identity as Pittsburghers, instead of adopting full identities as New Yorkers, Texans, Seattleites, or whatever. It’s a weird, unrealistic expectation. The Pittsburgh emigrants I’ve met identify as belonging with their new homes, just like anyone else would. It’s a mistake to read Steeler fandom as a longing for home.

When thinking about economic development, I think that Pittsburgh itself could benefit from forgetting its identity for a while. Instead of treating everything as a unique Pittsburgh problem requiring a unique Pittsburgh solution, maybe it’s time to recognize that the small cities struggling to compete for jobs and capital largely face similar problems that admit similar solutions. It seems like a distraction to constantly focus on the “Pittsburghness” of the problems. The answer to emigration is immigration, whether in Pittsburgh or anywhere else. The way to spur immigration is through job creation. The way to create jobs is by creating an attractive climate for business. The policy instruments available for doing that are mostly the same everywhere (e.g. tax policy).

Despite my personal issues with it, there’s no denying that Pittsburgh has a great deal of innate charm. A big influx of capital and people with high expectations could transform it into the city that it likes to see itself as becoming. But I’m not getting any younger, and I can’t wait around for that to happen.