Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Mid-Week Open Thread (2009-06-24)

Posted on July 1st, 2009 · [previous open threads] · 30 Comments

125% Refinance: Pricing You IN for a Decade or More

By The Tim on July 2nd, 2009 at 9:20 AM · 99 Comments

Astute readers have no doubt have learned by now of yesterday’s announcement by HUD Secretary Shaun Donovan that the federal government’s “Making Home Affordable” plan will now allow mortgages owned or guaranteed by Fannie Mae and Freddie Mac to be refinanced with loan-to-value ratios of up to 125%.

I won’t go into all the details of the announcement since you can find good coverage of the changes over at the P-I or Rain City Guide. Instead, I thought it would be interesting to see what the long-term financial picture might look like for someone who plans to take advantage of this program.

Let’s take a look at some hypothetical home borrowers who currently owe $400,000 in various mortgages with difficult terms or high rates, and whose home is presently worth $320,000. They jump on the new FHFA Home Affordable Refinance Program and refinance into a single 30-year fixed-rate loan at a 5.75% interest rate with a 125% loan-to-value ratio.

I hope that our hypothetical couple doesn’t want to move any time in the next 13 years, because under a relatively optimistic home value appreciation scenario that’s how long it will take before they will be able to sell without bringing money to the table:

125% Loan-to-Value Home Refinance

Note that the home sale proceeds line assumes paying 6% of the sale price to real estate agents, as well as an additional 2% to account for excise taxes and other costs of selling. You can also download the spreadsheet I used to create these charts and tweak the values yourself.

With the home value appreciation tweaked to a slightly less rosy scenario, it takes 17 years before our couple can break even selling their house:

125% Loan-to-Value Home Refinance

According to a 1993 study by the Census Bureau (pdf) only ~10% of home owners stayed in one house for over ten years. A 2001 study (pdf) by the NAR-funded Joint Center for Housing Studies put the median length of home ownership at 8.2 years. Refinancing one’s home into a 30-year loan for 125% of the house’s value will most likely lock the borrower into their present home for a period of time longer than 90% of people usually stay in their homes.

If the goal of this new 125% loan-to-value program is to financially imprison people in their current homes for a decade or more, then it looks like it could be a rousing success. However, I’m not sure how many currently struggling home borrowers would really consider that to be much of a “help.”

→ 99 CommentsCategories: Features
Tags: , , , ,

Case-Shiller Tiers: Middle Tier Flattens, Low & High Tick Up

By The Tim on July 1st, 2009 at 6:00 AM · 24 Comments

Let’s check out the three price tiers for the Seattle area, as measured by Case-Shiller. Remember, Case-Shiller’s “Seattle” data is based on single-family home repeat sales in King, Pierce, and Snohomish counties.

Note that the tiers are determined by sale volume. In other words, 1/3 of all sales fall into each tier. For more details on the tier methodologies, hit the full methodology pdf. Here are the current tier breakpoints:

  • Low Tier: < $267,042
  • Mid Tier: $267,042 – $392,156
  • Hi Tier: > $392,156

First up is the straight graph of the index from January 2000 through April 2009.

Case-Shiller Tiered Index - Seattle

All three tiers bumped up in April, just like last year. The low and high tiers both bumped up 0.28%, while the middle tier increased just 0.03% The low tier has rewound to March 2005, the middle and the high tiers to May 2005 (all the same as March’s data).

Here’s a chart of the year-over-year change in the index from January 2003 through April 2009.

Case-Shiller HPI - YOY Change in Seattle Tiers

The low tier actually saw a slight moderation in YOY declines in April, similar to the blip we saw in the high tier in February. Here’s where the tiers sit YOY as of April – Low: -18.4%, Med: -16.3%, Hi: -16.4%.

Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.

Case-Shiller: Decline from Peak - Seattle Tiers

Whereas April 2008 resulted in a bit of a bump in the chart, April 2009 looks like more of a plateau.

(Home Price Indices, Standard & Poor’s, 06.30.2009)

→ 24 CommentsCategories: Statistics
Tags: , ,

Case-Shiller: Anemic Spring Bounce in April

By The Tim on June 30th, 2009 at 7:00 AM · 104 Comments

Let’s make our regularly scheduled monthly check on the Case-Shiller Home Price Index. According to March data,

Up 0.2% March to April.
Down 16.8% YOY.
Down 22.3% from the July 2007 peak

Last year prices rose 0.7% from March to April and year-over-year prices were down 4.9%.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Portland continued to turn in a slightly smaller YOY loss than Seattle. Meanwhile, down in SoCal, the losses continue to get smaller. If Seattle and Portland keep following the trend set by San Diego and Los Angeles, we will see the most extreme YOY drops next March.

Case-Shiller HPI: West Coast

Note: This graph is not intended to be predictive. It is for entertainment purposes only.

Here’s the graph of all twenty Case-Shiller-tracked cities:

Case-Shiller HPI: All Cities

In April, eight of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops than Seattle (the same number as the previous four months). Denver at -4.9%, Dallas at -5.0%, Boston at -7.7%, Charlotte at -10.0%, Cleveland at -10.5%, New York at -12.2%, Atlanta at -15.2%, and Portland at -16.0%. As usual, Phoenix had the largest year-over-year drop, with prices falling 35% in a single year.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

Case-Shiller HPI: Decline From Peak

In the twenty months since the price peak in Seattle prices have declined 22.3%. April’s uptick brought us further from the trendlines of Phoenix and Tampa, and closer to San Francisco. April saw similar upticks in Seattle, Portland, San Francisco, DC, and Boston.

Here’s the “rewind” chart. The horizontal range is selected to go back just far enough to find the last time that Seattle’s HPI was as low as it is now. This gives us a clean visual of just how far back prices have retreated in terms of months.

Case-Shiller HPI: Seattle Price Reversion

Seattle’s Case-Shiller value for April 2009 of 149.38 came in just above its May 2005 value of 148.97. Prices have now “rewound” a full four years (longer than this site has been in existence).

Finally, the following chart takes the post-bubble years of 2007, 2008, and 2009 and indexes each January’s Case-Shiller HPI to 100 so we can get a picture of how this year’s declines compare to last year:

Post-Bubble Seattle Case-Shiller HPI by Year

We got the uptick we were expecting for April, but compared to last year’s bump, I’d have to call it somewhat… anemic. If price declines only manage to match last year, Seattle’s index will be just over 29% off peak by December. If we continue to turn in stronger price drops than 2008, we’ll be closer to 32% off peak by December.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 06.30.2009)

→ 104 CommentsCategories: Statistics
Tags: , , , ,

Findwell - Get full service at 1/2 the commission

The Neighbors Paid WHAT?

By The Tim on June 29th, 2009 at 9:06 AM · 49 Comments

In our discussion this weekend about why people would walk away from a mortgage, even though they can afford to continue paying, Tim Kane (S-Crow) pointed out:

It doesn’t take much emotional pull to consider walking away when you see property being purchased across the street for $150,000+ less than what you may have purchased your place for in 2006 and it costing substantially less to cover the monthly payment at today’s market prices. This is more prevalent in newer developments and I would guess can make for interesting neighbor to neighbor discussions.

Well, I spent a little time on Redfin looking at some new construction homes for sale, and it didn’t take long for me to find some examples similar to Tim’s hypothetical scenario:

Camwest "Aspen"Development: Camwest “Tambark Springs”
Floorplan: ~1,700 sqft, 3-bed, 2.5-bath “Aspen” (pictured at right)
Past sales:

New units’ current asking price: $319,950 (~20% off)

Camwest homeDevelopment: Camwest “Shamrock Heights”
Floorplan: ~2,500 sqft, 3-bed, 2.5-bath (pictured at right)
Past sales:

New units’ current asking price: $459,950 (~19% off)

In the first example above, if we (very generously) assume that the folks that bought in ‘06 and ‘07 had 20% down payments and got 30-year fixed-rate mortgages at the going rates at the time, their payments would presently be around $2,400. Today’s buyer with the same sized down payment would have a monthly payment around $1,700.

That’s a ~30% difference in payments. The ‘06-’07 buyers are spending $8,400 a year more for the same house as their neighbors. I imagine most people can think of lots of things they’d rather do with $8,400 a year than to continuously pay for a poor decision they made years ago.

There are tens of thousands of buyers around Seattle who bought at or near the peak with little to no money down. Many of them even got a mortgage that they can technically afford (got ramen?). At the time they bought, it made sense to them to squeeze their budget, because they bought into the notion that if they didn’t get something right away, they would be priced out forever.

Every month that these peak buyers spend in their peak-purchased house they’re basically “throwing away” hundreds (sometimes thousands) of dollars. Selling isn’t an option, because they owe so much more than the home would sell for. Walking away starts to make sense.

I’m not saying I necessarily recommend walking away as a course of action (or that I don’t), but I can absolutely understand the rationale, especially when you’re in a situation like the above examples, where people buying the exact same house today are paying thousands less per year.

→ 49 CommentsCategories: Features
Tags: ,

Poll: Do you personally know someone who has walked away from a mortgage they could afford to pay?

By The Tim on June 28th, 2009 at 12:05 AM · 52 Comments

Please vote in this poll using the sidebar.

This poll will be active and displayed on the sidebar through 07.04.2009.

→ 52 CommentsCategories: Polls
Tags: ,

Dilbert: “I Can’t Afford My Mortgage…”

By The Tim on June 27th, 2009 at 4:21 PM · 15 Comments

I think yesterday’s Dilbert is front-page worthy. At least for a Saturday.

Dilbert Strip for Jun 26, 2009

→ 15 CommentsCategories: Humor
Tags: ,