Every once in a while (about twice a day, or so) someone asks for my thoughts on the current housing market. I’m in the industry, I read everything I can get my hands on, and those who know me generally consider that I’ll give them the straight scoop, to the best of my abilities. It’s that little caveat ‘to the best of my abilities’ that keeps me up at night. I was reminded of this conundrum last week, as I happened to catch a snippet of ‘Mad Money‘, the CNBC financial show hosted by loudmouth Wall Street pundit and market observer, Jim Cramer.

As he blathered about WAMU, Wachovia, the general financial picture, and whom to buy, hold, and sell, it became apparent once again that even his views are in a constant state of flux. As we all have seen, the economy is an unfolding story- one that even a guy like Cramer, with all his access to the inside can’t keep up with. However, Cramer’s on the same page with guys like Warren Buffet’s housing expert, Ronald J. Peltier, when he said in last week’s show, “Buy a home in the next 6 months!” This is the bookend to his statement of November, 2007, in which he said, “Don’t you dare buy a home right now!” and implies he has revised his opinion, based on new information.

Here’s Jim’s quote, in response to a viewer’s question, “I thought you were of the opinion that banks could not bottom before housing bottomed. What changed?”. To which Jim says, “We saw quarters from Wells Fargo,(and) from USB.

US Bancorp (Del) USB 31.03 1.01 +3.36% NYSE

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We saw a quarter from JPMorgan. We saw a quarter from Bank of America. And those guys had already put charges in that made it so that when
housing does bottom, they will be overreserved. That’s the ticket.
That’s what Wachovia did. They anticipated a housing bottom and they’re
going to be right.” The Federal Housing Authority will put $300 billion
to work to help homeowners with exotic loans and that will put a bottom
in housing. “I was the first guy that said torch your house for the
insurance money. I am now telling you that between now and the next six
months you have to buy a house.”

Interestingly enough, I am not surprised. Nor do I find his behavior indicative of an insidious desire to mislead. The reality of our current situation is far too complex to expect any one individual, board, committee, or administration to have all the answers at once- it’s been a roller coaster ride, with new developments dropping out of the sky on a nearly daily basis over the past 9 months. However, as with all things public and political- especially the economy, it’s easy to get pretty fired up, and develop an expectation that the ‘responsible others’ should have answers, and ‘do something’.
They should, they will, and they have- but that’s not the whole story.

It’s true, we have seen hundreds of financial institutions become victims of subprime mortgages, default rates have risen dramatically, and housing markets in some parts of the country have witnessed valuation declines up to 30 & 40% of their values 2 & 3 years ago. There is no way to minimize the impact of these activities on our national economy.

Regionally we’re seeing impacts, too: new home starts are down, housing inventory is up, time on market is averaging about 100 days, appreciation rates are flat, if not reversed, and savvy sellers are now happy to negotiate; the inverse of the blazing hot seller’s market we had just 2 years ago. Believe it or not, that’s the good news. Or at least it is if you’re a buyer- especially a first-time buyer- today.

Looking simply at the trendlines, and heeding the wisdom of some of history’s most well-regarded investors, it’s difficult to deny that housing has reached a low point. One which would have had those same investors on the line to their broker in a froth, screaming:”Buy, Buy!”

On that note, I’m going to break with my traditional reticence to make predictions; I’m going to go out on a limb here and say I believe that if we’re not at the bottom of the market, we are very close. If you heard about WAMU last week, or have been following their challenges, you know they are struggling to survive. They may, or they may not- that’s not for me to say. However, with the Fannie Mae/ Freddie Mac bailout, WAMU and Wachovia in a fight for their lives, and Congress finally making some decisions- I’m not going to take sides on whether they made the right ones- it’s my view that we have finally reached that critical turning point which every swing-pumping child recognizes must come: We are on the cusp of the apogee in our economic trajectory toward a brighter day.

This belief is partly in response to the numbers of investors we’re seeing come into the market, recognizing that windows of opportunity don’t stay open very long. The old ‘Buy Low, Sell High’ adage, being realized by those with the wherewithal to do so.

And of course, we’re in an election year- things are going to change: change being the only constant, we’re bound to see something different soon.

It’s also a function of my optimistic view of ‘the American Way’. Then again, maybe I just want to believe Jim Cramer- Call that pollyanna, call it wildly unrealistic- the reality is that nobody can contradict me today. They’ll be happy to criticize tomorrow, but that’s what critics do.

We all know the old saying, “All work and no play… ” in which Jack becomes a dull boy for keeping his nose to the grindstone. Well, Jack and I have had too much in common lately, and it has prompted me to reminisce on summers past, when I’ve had the luxury of exploring some of our areas scenic escapes. As I’ve spent a little time reviewing, I’ve realized with some surprise, that I’ve amassed a pretty fair travelogue, and since I’m not likely to get back to many of them any time soon, the decent thing to do would be to spread the wealth to those enterprising folks with a little more time on their hands. Most of my favorite trips have involved a few days in the woods with a backpack, and a flyrod, so that’s going to be the slant of this post.

The majority of my travels have been in the North and Central Cascades- starting in college with short weekend trips around the Bellingham area to Pine & Cedar Lakes- small, twin lakes packed with brown and rainbow trout, and populated by clouds of voracious mosquitoes. The hike in is, while not overly long at 2.5 miles, punishing with it’s unrelenting grade. Which makes it all the more remarkable that the group I hiked it with were treated to fresh berry pies by one of our fellow dorm dwellers, who grunted up the trail after dusk with 2 warm pies cradled in his arms- now that’s what I call service!

A favorite destination for many years was the Jordan Lakes located off the Sauk river road, just south of hwy 20, near Rockport. A 20 mile logging road (FS Road 16) takes off from Hwy 530 (Sauk valley Rd.), and winds its dusty, ravine-traversing way through some beautiful country, eventually ending at a gate. Opposite the only available parking space is an overgrown trail that leads almost immediately into a stunning alpine meadow. I’ve made this trek in a variety of weather conditions, and can state with some authority, that I don’t recommend making the trip before the end of June, or you will likely find yourself camping in the snow, with only frozen lakes to greet you. One of my favorite memories of this hike is the small fairy ring nestled at the top of the abruptly descending trail, which drops quickly through a field of house-sized boulders populated with whistle-pigs (marmots) and jays whose warning calls spread ahead of our advance.

Further to the east, outside of Marblemount, is Trapper Lake, which retains the crown as the most brutal hike in my experience. This is probably due to the route we chose, rather than the actual trail, but nonetheless, my shins still bear the scars, and the photo at the head of this article, taken from the craggy saddle above the North end of the lake, is a painful reminder that this is one destination I won’t likely visit again- in spite of rumored monster trout.

In recent years, my travels have tended toward the central Cascades, in particular around the Cle Elum area. This part of the Wenatchee National Forest is a hiking anglers dream, with access to numerous alpine lakes- enough potential destinations to spread out the pressure, and provide solitude to please most everyone. For many years, Waptus Lake was our primary destination- an 18 mile round trip, with good trails. If you’re willing to hike another 2 miles around the side of the lake, a private island campsite puts you in the middle of the lake, with nothing but fish, water, and silence. Pure heaven. Be warned, this lake is snow fed, as are most in the Alpine Lake Wilderness, which means the risk of hypothermia to swimmers is very real! But boy is it refreshing on those 90+ degree days! If you’re up for a day hike from Waptus, I highly recommend making the effort to see Spade Lake, which is a true High Alpine Lake, nestled placidly below rugged Cascade peaks. The primary hazards of the Waptus lake trail are the black flies that accompany the many horse pack trains visiting the area. Well, that and the horse apples littering the trail- watch your step.

I have a dream of hiking from Canada to Mexico on the Pacific Crest Trail (PCT), and have covered many sections of it in my various ramblings, but by far the most ambitious trip to date was one taken in 1997, starting at the Cooper Lake/ Owhi Trailhead, and covering roughly 40 miles to Hyak. The 1st section, to Pete Lake, is a great hike for kids- I took my 6 year old daughter on a 2 night trip there last year- and it’s truly ideal in length and difficulty. It’s also a nice, easy warmup to the rest of the trek. From Pete Lake, the trail begins climbing to Spectacle lake. Approximately 1/2 mile off the PCT, Spectacle is a stunning, deep and chilly lake surrounded by peaks and alpine meadows. A great day hike from Spectacle is Glacier Lake, which takes its name from the large chunks of ice that drift around the surface most of the year- the water temperature is the definition of ‘bone chilling’. Surrounded by granite tables and the clink of ice floes grinding together, Glacier Lake is a spectacular setting for lunch before heading back to base at Spectacle.

Next stop is the Park Lakes, a set of smallish twin lakes divided by the PCT and nestled together below Chikamin Ridge, and the base of Alta Pass. We reached the lakes just as a squall blew in, and were treated to a distant electrical storm tickling the peaks of the Three Queens, while dark clouds threatened to make our rain fly a decided necessity. Did I mention that Gore-Tex is a backpackers best friend? There’s nothing like hunkering in a tent, sipping a warm cup of tea while thunder rolls overhead.

Without question, the highlight of our trip was the next section. We had been told about Edd’s Lake
by my hiking buddy’s father-in-law, a member of one of nearby Roslyn’s founding families. The lake was rumored to have huge trout, but access was also rated as ‘difficult’. Both statements are true. This is a destination for the hardy and trout-obsessed only. Approximately 800 vertical feet below the PCT, Pete Lake is not visible from the trail, and could easily be missed if you weren’t looking for it. The trail to Joe Lake, on the other hand, is well-marked on the South side of the PCT, and draws lots of visitors. The drop in to Edd’s is precipitous, and with a full pack, can be considered treacherous.

As dedicated anglers, we had brought along our float tubes (we’re not lightweight, toothbrush-sawing, bare- necessities-type backpackers). They’d been pressed into use at every stop, but they really came in handy at Edd’s. After making the hairball descent, we were pretty wiped out. Resting lakeside, we contemplated the boulder field of house-sized rocks that litters the shore, and blocked our easy access to the one campsite near the lake’s log strewn outfall. It was time. The rest of our recovery time was spent inflating float tubes and donning waders and fins. Carefully balancing the remainder of our still bulging packs (this was a 10-day trip) across the tops of the float tubes, we paddled our way across the mirrored surface of the lake to our new home. Nirvana!

Large Mayflies were dropping from the surrounding spruce trees as we set up camp. Hungry trout swirled and slurped as we frantically rigged flyrods, and pushed off in pursuit. We fished until well after dusk, and the last couple ‘hogs’ were carefully wrapped in foil, given a dash of pepper and lemon, and gently roasted over a small campfire. This is living!

Last stop on our adventure was Alaska Lake, at the base of Alaska Mountain. We have visited this lake numerous times, and it has become a favorite, in spite of the strenuous nature of the 1100′ climb in. On this particular trip, we had come in the back door to the lake, coming down from the PCT, and were treated to a drop in, rather than the usual climb up. The drop was no picnic, but it beat the usual option. Especially welcome was the stash of food we had lugged in the previous weekend, as we knew our supplies would be running low by this stage. Best of all, we had the foresight to cache 2 oilcans of Foster’s Lager! Nothing beats a cold brew at the end of a long hike and not coincidentally, it’s also the perfect complement to a lakeside snack of Chick’n in a Biskit & Sardines in mustard sauce- Nectar of the Gods!

After 3 days of fishing at Alaska Lake, we made the final push out the Gold Creek Trail, where our wives picked up 2 very grizzled, thinner, and tanned husbands. This trip is still fodder for daydreams of ‘Glory Days’, but it seems that in my current life, responsibilities override calendars on a regular basis, and health concerns trump adventures. My fishing buddy had valve-replacement surgery a few years ago, and between blood-thinners, children, and work, there’s just not the time and wherewithal to embark on major outings. But I still dream. In fact, I’m leaving this afternoon to take my nephew to Waptus for 3 days; there’s hope! If I can inspire the next generation…

We know a thing or two about marketing. Before he got into real estate, Dennis spent most of his career managing advertising projects for a sign company – not just stand alone signs, but convention booths and tables, where his work had to be good enough to lure people in without the promise of free pens or letter openers. Before I got into real estate I helped other real estate agents develop ad campaigns in print and online – alerting them to new techniques, strategies and technologies that were having success in other areas of the country.

I say this because I’m about to reveal one of our best marketing secrets. It’s something I picked up from my days at the advertising firm, and if I hadn’t lucked into it, I probably never would have known how important it could be to our business. It’s responsible for our greatest volume of lead calls every month, and helps us secure buyers by getting them to respond emotionally not just to a home, but to an idea. Our secret? The log home.

We try to feature a log home in almost every form of advertising that we do. If we don’t have a log home listing, we look through all of the log homes available, pick out a few of our favorites, and ask the listing agent for permission to advertise their listing for free. Why do we do this? Simply said – we get more calls on log homes than any other niche home: more than waterfront homes, more than view homes, more than cheap homes, more than equestrian homes.

I think that we have Michael Landon to thank. TV shows like Bonanza and Little House on the Prairie showed several generations of viewers that log homes were: (1) impervious to attacks from wolves, (2) too thick to be pierced by arrows,(3) great for escaping from blizzards, and on a sub-conscious level – (4) kept families together (at least that’s true of the Cartwright and Ingalls families).

I’m being a little cute, but my point is true: people respond to the qualities of a log home much differently than any other home. I would argue that this isn’t necessarily because of its architectural style, but because of everything it embodies. A log home is like a sculpture that begs to be touched ; I’ve been a kid playing in a log home, and we grabbed every beam and truss as we raced and played – something I never would have done on the sharp edge of drywall. Log homes are their own deodorizer – the natural smell of pine and cedar is a part of the sensory appreciation that gets people to call on log homes. And the setting! Imagine if you will a log home and everything around it. Now imagine a brick home.  It’s not the same is it? Log homes evoke a sense of privacy and a sense of nature – and for good reason: the log homes for sale in Snohomish County average a lot size of 3.9 acres.

My wife grew up in the house log business. At one time or another all of her brothers worked in her dad’s log distribution business, and every family member helped in the construction of the three log homes that lived in at one time or another. Her brother Casey now owns his own log distribution company, so I asked him why he thought people bought log homes:

“The biggest benefit to a log home over the many alternatives is probably the value that they hold. Although there is a lot of work involved in keeping any kind of wood siding maintained, the fact is that a log home is almost always worth more in any market area.”

I tested his theory. It’s too comprehensive to test the available log homes in Snohomish County against the remaining available listings, so I compromised. I took available homes with a similar average lot size (around 3.9 acres) and that weren’t log homes or have log siding, and I ended up with about the same number of listings (about 40). Log homes for sale in Snohomish County average $287.94/square foot, while the sampling of homes without log siding average $258.87/square foot  – a difference of over 11%.

We love listing and looking at homes that we would buy ourselves, and we like listing and looking at log homes most of all, for all the reasons I stated above. I’ve put together a link with a map search of all the log homes available in King and Snohomish Counties, so if you want to feed your log home fantasy a little bit, click on the links below.

Log Homes in Snohomish County
Log Homes in King County

Recently, Dennis wrote a blog post about seeing the long range picture when considering purchasing.  As fate would have it, I have stumbled upon more information to support that fact AND I think buying prior to September might be a good idea. Read on:

PMI Mortgage Insurance Co., the primary U.S. subsidiary of The PMI Group, Inc. (NYSE: PMI), today released its Summer 2008 U.S. Market Risk Index(SM), which ranks the nation’s 50 largest metropolitan statistical areas (MSAs) according to the likelihood that home prices will be lower in two years.  To put it simply, the higher the score, the greater the chance that home prices will decline in the next 2 years. 

Here’s an example where bigger is NOT better. For instance, the number one position is held by Riverside-San Bernardino-Ontario, CA with a 95.5% chance prices will be lower.  That is amazing to me and I feel sorry for the sellers that are attempting to sell in that area. Most buyers would be extremely leery of investing their money in a home that has a less than 5% chance of being worth what they paid for it in 2 years.

“Compared with a year earlier, there has been a significant increase in the number of existing single-family homes for sale relative to the number of buyers, even beyond the normal increase in the spring home sales season. April’s ratio is the highest since 1985. Given the magnitude of the inventory overhang, we expect national home price declines to continue into at least 2009.” – David Berson, PMI’s Chief Economist and Strategist

I hope that you have made it this far, because I am about to deliver some really good news—the Seattle-Bellevue-Everett area has a 1.7% chance of price declines. Or said another way, a 98.3% chance that what a buyer purchases today will be worth at least what they paid in two years. Those are great odds!!!

Another interesting factoid—the greater Seattle area is the only area on the west coast where the risk index is lower than 8%. The next closest on the west coast is Portland-Vancouver-Beaverton with a risk index of 8.2%. To see the entire PMI table, click HERE.

In other news, in Europe they just raised their interest rate which will put further pressure on the US dollar. There is talk that the FED will raise rates in September and that a 30 mortgage will be around 6.75%.   If you are waiting to purchase, you might want to move your timeline up a bit.

When in the course of human events, it becomes necessary to take up arms, then someday a government official will declare a holiday…  and we will blow up stuff to celebrate!

So, this is how we spent our 4th of July, 2008 holiday- with a few friends from college, celebrating in a tradition that is now 20 years old; to eat until we explode, and then piece together sufficient gunpowder to make the biggest blast in the neighborhood. If that’s not the American Way, I don’t know what is!

The piece you’re about to see includes a 16′ tall steel sculpture, dubbed ‘Lady Liberty’. She was constructed several years ago for the express purpose of serving as an explosives scaffold. She is demurely wrapped in 70,000 or so firecrackers, with spinners placed strategically at her breasts and navel, and holds a mortar box of another dozen rounds. Beside her, at stage right, is a dizzying testament to the wonders of gunpowder & saltpeter, including mortars, Saturn Missiles, and who knows what.

This link will take you to the video- it’s about 12 minutes long, and needs a minute or so to load, so you’ve been warned!

independence-day-2008-web.

Kick back, crank up the speakers on your pc, and enjoy the show.

And remember, no actual Ladies, or Liberties were harmed in the making of this film.

Note: The attached video was shot on a Canon S5 IS digital camera, and edited on a Mac Mini, using iMovie HD.

Podcast: Play in new window | Download

If you pay attention to any real estate related news headlines these days, it certainly sounds like THE SKY IS FALLING!. It seems the safest option would be to sit on your predictably rising average rent payment of $1350/mo., and wait for interest rates, the cost of living, gas, and housing to drop back to where they should be. That’s what I would have done- 14 years ago. Or at least that was my plan. My wife had other ideas.

We’d been paying $690/mo for an 1100sf 2 bedroom, 1-3/4 bath Wedgwood apartment. It was a block from the local Safeway, the bus stopped at the front door, and was within easy reach of downtown Seattle. We were comfortable, and after 3 years there, I saw no sense in nearly doubling our housing allotment to over $1200/mo. (We didn’t have much of a down payment) to move 12 miles away, into the ‘burbs’, or as our Ballard friends called it, “Canada”.

We saw about 35 homes before our agent, Linda, called one evening to say, “this is it, it’s just come on the market, and you’d better run up here to see it, now!”

We’d familiarized ourselves with the area by that time, and the search criteria had been honed down to ‘needs’ vs. ‘wants’ out of economic and practical necessity; although how a yard ended up on the list for a guy who has many more hobbies than time, is still a mystery to me. And the whole family thing had (so we thought) been resolved by mutual lack of interest, so how we serendipitously ended up in one of the areas best school districts is also one of those happy occurrences we’re better off not questioning. The yard and the school district are now major features in our world, as the bemused parents of an energetic, soon-to-be 2nd grader.

When we arrived at the cul-de-sac location to which our agent had summoned us, it was nearly dusk on a late October evening. The home had been on the market for a day, and the sellers were lounging in the living room watching tv as we made the circuit through. Garage: check; fireplace: check; 3 bedrooms: check, and down the list we went. Good condition, decent neighborhood, what about that gun range across the road? And the main road that borders the backyard? What did you say the price was again? OK- so we’re pre-approved for $150k, and this is listed at $140k. Can we negotiate that?

Bear in mind that the market in 1994 was heated, interest rates had moved up 2.25 percentage points from a low around 6.25% at the beginning of the year, to 8.5% when we finally closed the week before Thanksgiving, and I was half-convinced this purchase was our ticket to financial destruction. At the time, our combined income was a little over $50k/yr, so the sticker shock of a nearly 3X income purchase price was dramatically at odds with my renter’s brain. I had to sell my beloved motorcycle to cover an earnest money check, and borrowed from my boss to scrape together funds for the down payment. I was struggling with the concept of homeownership being worth this much hassle, and bemoaning the loss of my coveted freedom.

The escrow and closing processes were uneventful, and we learned in the Appraisal that we would realize $5000 in equity at closing, as we had negotiated the original $140k list price down to $138,950, and the sellers had left some money on the table. Woo Hoo! It wasn’t going to bring my motorcycle back, but it was something.

In the haggling to finance we had decided on a 5/1 Arm, in an effort to get a slightly lower rate, and I was pretty traumatized over the idea of any financial commitment lasting 5 years- we’d only been married for 4! The original plan was to sell in 5-7 years, so we figured the 5/1 Arm wasn’t too much of a risk, and we could always refinance. As it turns out, several housing market bobs and weaves and 14 years later, we’re still here; and this miserable albatross I was sure would be our financial waterloo has nearly tripled in value. Assuming we’re still here in another 15 years, I fully expect we’ll see close to that return
again. It’s been an interesting lesson; maintaining a longterm perspective while negotiating around short term obstacles.

Now that we’ve refinanced into a 30-year fixed, low-interest (5.875%) mortgage, and have grown a bit smug with the realization that our mortgage payments are less than today’s average Seattle rent, I’m recognizing that my wife saved us from certain financial ruin. If I’d had my way, we would have waited until the market slowed, the rates came down, and real estate was ‘affordable‘ again. Fortunately for us, she is really persistent.

And, realistically, when I pull out my crystal ball for the coming year, it’s a little cloudy. Sorting out all the drama from the various media about what it means to buy in a ‘down market’ is daunting. There are too many voices, each with an agenda. The bottom line can be summarized by answering a couple brief questions:

1) Can you reasonably assume you will be living in the same area 5 years from now?
2) Will you still need a roof over your head?
3) Are you a good credit risk, with a decent FICO score, and income documentation?
4) Do you have the intestinal fortitude to suck it up to achieve a longterm goal with some short term sacrifice?
5) Have you managed to put aside a down payment.

If you’ve answered yes to these 5 questions…

Fortunately, we’re not in the crazy, speculative, free-money financing environment of the last few years. Any responsible adult will tell you that’s a good thing. You should be required to prove you have an income, that you have some savings, that you are able to make payments, and that you’re willing to stretch a little in the short term to attain a longterm goal. Those aren’t just old-fashioned values, they’re common sense. Once again, we’re seeing there’s a reason it’s called ‘hard work’.

And, while the slower market means appreciation rates have come back into the single digit range, that’s also good news for buyers. It means there’s a window of opportunity to be selective, in a market rich with options, and then to negotiate on a home, as sellers are currently quite motivated to work with you. It may also be one of the last opportunities we’ll see to lock in a decent interest rate before the Fed’s next meeting in August, at which time they are rumored to be looking at a hike to prop up the weakened dollar, and stem the tide of growing energy-related inflation. Barring unforeseen positive economic changes, current indicators are pointing at rates beginning to climb before the end of 2008.

If you have short term, get-rich-quick expectations for your real estate purchase, you are probably out of luck. But if you look at the longterm trend line, which is the only time-tested way to measure the value of any investment, I will lay odds on a solid return for any home buyer – anywhere. But making the decision to buy a home shouldn’t depend on my musings, or experience, or the arcane calculations of some talking head economist; it’s about what fits your particular longterm goals. If financial stability is one of those goals, then a home should unquestionably be considered a valued part of your investment strategy. And the sooner you stop paying your landlord’s mortgage, the better. Then again, who knows… someday I might be one of those landlords!

For an easy-to-read, informative guide to the longterm investment value of owning your own home, I have just finished reading, and strongly recommend ‘Houseonomics‘. The book lays out a disciplined approach to utilizing equity for wealth-building, and thoroughly analyzes ways you can leverage what they refer to as your ‘home dividend’.