Seattle Bubble

From the Wall Street Journal:

“‘I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out,’ Countrywide CEO Angelo Mozilo said on a Tuesday conference call. ‘I have to prepare the company for the worst that can happen.’”

Of course, we all learned that Washington Mutual announced late last week that it sold it’s entire government mortgage servicing business and a portion of conventional portfolio to Wells Fargo.

How else can you comment on that? Speaks for itself. We all can take MSM for what it is, but the proof-n-the-puddin’ is not what is said (except for a transparent CEO at Countrywide), but rather watch what the CEO’s and Corporations do!

My reponse was too long in the thread so I thought I’d throw it here for people to debate.

Well, Sue hates me. Actually, just teasing. But, she thinks that my picture of Mt. Rainier is rather boring and may not add to this blog. Geez, who couldn’t take a shot of Mt. Rainier with a warm and clear evening like we enjoyed. It was staring me right in the face and I have a good interest in photography even though I’m a beginner.

Sue and others would like to bring up actual cases of problematic loans, days on market, price reductions etc….and cases where people have a probability to go delinquent. I’ll tap more into this discussion as the blog evolves.

Two key points to internalize:

1) The first is that a change in market psychology is well underway here locally. For example, just months ago, as late as Fall of 2005, our market had virtually no price reductions at all. It wasn’t on the radar. The very fact that we have price reductions in listing prices confirms that the real estate community understands this. Price reductions are now common place, incentives from builders are common place and there are some instances where sellers are offering more of a sales commission than normal. For example, a listing may give notice that there is a sales commission bonus of $1000, if a full price offer is accepted by a specific date.

The market change is being felt by Realtors and allied real estate professionals we work with out in the market place. It is being talked about. It is being addressed in staff meetings and is being discussed by various national r.e. speakers that cater to the Realtor community.

One of the very first clues of this was the title of seminar put on in Seattle from national real estate sales trainer, Brian Buffini, earlier this year: “how to survive in a changing market.” While I’m not a licensed agent, it was telling that a sought after sales trainer was even discussing the market change to those he serves.

2) My gut feeling is that there is a large pool of potential buyers that have no idea of the realities of the market. This is just an observation and no fault of their own. The world (and I’ll have tomatoes thrown at me about this from our friends in the business) does not revolve around me, real estate and sales folks. People have lives to live, work to do, family to tend to, people to visit, and real estate is NOT on the radar in the manner in which many believe.

People are worried about other things: car payments, vacations, a sick family member, world events (I’m concerned about the impact of middle east turmoil for one), sporting events, school, etc…

The take away here is that the psychology is changing, and there is a new medium, called blogging, that when real estate is on the radar for consumers, they can get information that they did not have readily available during the last bona fide market change in our area. And this new medium will continue to have a major impact on the scale and swiftness of the unraveling of the markets across the country.

Why this is in the news again is beyond me, but apparently CNN/Money is really keen on some dude that uses a secret formula to determine which housing markets are overpriced. We talked about this same guy’s babblings just three short months ago, and very little has changed since then.

After years of local home markets getting more and more overvalued, the trend has reversed, according to an analyis (sic) published this week.

Each quarter, Local Market Monitor, which provides research to the real estate industry, assesses 100 markets, comparing selling prices to “equilibrium” values. Company president Ingo Winzer bases those values on local economic and population growth, construction costs, vacancy rates, household income in the area and interest rates.
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Winzer says that 56 of the 100 markets he covers are now fairly priced, up from 54 last quarter.

As I pointed out last time, this dude’s “analysis” of the “Seattle/Tacoma” region covers so broad an area as to be completely and utterly useless. June median home prices (residential & condo) across the area in question were as “low” as $275,250 in Pierce County, and as high as $415,000 in Seattle. To take such a broad range of data and make a determination that it is all a “FairValue” is ludicrous.

Furthermore, I’m calling BS on the numbers given in the report. Take a look at the first quarter report. The home price listed for Seattle-Tacoma is $311,000. Now notice that in the second quarter report, that number went down, to $308,700. Excuse me? Last I checked, median prices were still going up in King, Pierce, and Snohomish counties. This report has zero credibility. I wish I could say that I’m shocked (or even a little surprised) that it was unquestioningly parroted by CNN.

(Les Christie, CNN Money, 07.25.2006)

One of the benefits of homeownership (ok it’s only a few days of the year this clear, but when Mt. Rainier shows her majesty, it speaks for itself)

Photo: Tim Kane -July 25th, 2007, 8:30pm.

Hello Bloggers. Gosh, I have a bunch of topics to discuss. No time this evening but here’s a quick sneak preview of what’s on my mind:

1) Today’s above the fold front page headliner in today’s Herald:
“DIG DEEP: New Homes Top $500,000K“ (emphasis Herald).

2) This evening in south Everett I had the unique pleasure of discussing housing with Banner Banks’ Chairman, President & CEO (including mingling with Bank Directors & VP’s.) It was quite a fun discussion. Oh, and their stock hit a 52 week high today. Full disclosure: Our company, Legacy Escrow Service, Inc., trust account is with Banner Bank but I hold no stock in Banner Bank.

My topic is: “Suits vs. a guy in shorts (me): Puget Sound Real Estate is poised for more growth.”

3) “Appraisers sound off & it’s not pretty.”

4) Artificial Appreciation Revisited & Confirmed: Closing cost contributions offset by seller price escalation.

5) Affiliated Business Relationships in Real Estate: it’s costing consumers a bundle.

6) Title Insurance: Why one state banned Title Companies, issues its own state backed insurance for its citizens who are taking the savings to the bank.

Any one of these topics you would like me to address sooner than later? Or, you can tell me, “I don’t give a rip.”

I’m game for other topic suggestions on insider questions anyone may have. Both selling or purchasing for that matter.

Here are a couple of blasts from the past for you, courtesy of the Seattle Times archives and real estate Q&A columnist Bob Bruss. Our first question is from November 1993:

Q: Our home has been listed for sale with several different realtors for almost two years. We have reduced the asking price by about $35,000. It still hasn’t sold. All the realtors who inspect our home say how nice it is. But we have received only two purchase offers and they both involved taking other houses in trade. We want to sell for cash and move to a better climate. However, we’re not going to give our beautiful home away. Any suggestions how to get our home sold?

Wow. It’s pretty hard to imagine that same column being written in 2006. Even if a home listed in 2004 was overpriced, it probably would have looked like a bargain by late 2005, without any reduction in price. When was the last time you saw a nice, relatively well-priced house sitting on the market for more than a few weeks? I don’t think it used to be such a rare occurrence, and it seems likely that it will soon be common again…

The second question is even better, coming at you from August 1991:

Q: How much below the asking price should we offer for a home which we want to buy? Last week we saw a home which will be perfect for us. We are now in the process of pre-qualifying with a mortgage lender to be sure we can afford to buy it. If we decide to make an offer, how much below the asking price should we offer? The real-estate agent says it is a bargain at its full asking price. We agree. Once this house hits the multiple listing book in a week or so I’m sure it will sell quickly. Should we offer the full price to be sure we get the house?

A: Never offer the full asking price. Well, almost never. Unless you offer less, you will never know at what price the house could be purchased. Please believe me there is no worse feeling than to have the seller accept your first offer. If that happens, you know you probably could have bought for less if you had offered less.

It’s almost funny to imagine that there was a time when “always offer under the asking price” was considered sound advice. Of course, real estate enthusiasts would have us believe that we’ll never see such a time again—that double-digit appreciation will slow to 4-6% appreciation, demand will be strong, and prices will keep going up, up, up, forever and ever, amen!

I predict we’ll be reading columns that bear a striking resemblance to those above within the next five years.

(Bob Bruss, Seattle Times, 11.14.1993)
(Bob Bruss, Seattle Times, 08.11.1991)

Marlow Harris of the P-I blog Seattle Real Estate Professionals had a great post last week about the insatiable appetite of the American home buyer:

I am generalizing from the 100’s of homebuyers I’ve met, plus the watercooler talk from the many agents I’ve known, and I know that buyers list of “wants” quickly become “needs” and color their entire search.

Granite countertops, restaurant-quality stainless steel appliances, custom tile and other finishes, hardwood or bamboo floors, perhaps some skylights, high ceilings, designer fixtures, a master suite with a separate bath, 2000, 3000, 4000 or more square feet, a two or three-car garage, huge yards, the list goes on and on. Larger homes, larger lots, further and further away from the city.

There is still plenty of room right in the city limits to build attached homes, cottage homes, townhomes, cozy, sustainable homes, yet many people don’t want them, and they’ll drive 50 miles away from the city and mortgage themselves to the hilt to get them.
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Are Americans spoiled?
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What is this about? With increased concerns about the environment, why this consumer-driven drive toward conspicuous consumption and wealth? Why this sense of entitlement? Why is the Street of Dreams one of the most highly attended events of the year?

Obviously, this is a huge topic best addressed by sociologists, but it’s my observation that these attitudes are pandemic in our society and cannot be sustained for much longer. Hence the upward spiral of prices and increasing anxiety on the part of buyers, builders and politicians.

Marlow raises some interesting points and poses some good questions. Are American’s spoiled? I say heck yes—it’s not even a question. Personally, I’d like to own a home, but I don’t have any sense that I deserve to. The reason I’m sitting out of “the market” right now isn’t that I can’t afford to buy the home I want or that I think I deserve, it is because I’m of the opinion that even modest homes are ridiculously overpriced. But I digress.

I definitely agree with Marlow that the prevailing attitude of entitlement cannot be sustained for much longer. What is it going to take to collectively snap us out of it? It seems to me that a painful bubble burst might do the trick, but what if the real estate talking heads are right, and that never happens?

(Marlow Harris, Seattle Real Estate Professionals, 07.19.2006)