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.

Entries from January 31st, 2007

Fleckenstein: Seattle "Just a Little Less Dark"

By The Tim on January 31st, 2007 at 8:44 AM · 36 Comments

Wow, Aubrey Cohen over at the P-I is really slipping lately. First he prints the prediction that Seattle will see “slight year-over-year price declines this spring or summer,” and now he has penned an entire article about Bill Fleckenstein’s “not-so-rosy” outlook for local real estate.

Like many economists and real estate professionals, hedge fund manager Bill Fleckenstein thinks Seattle’s housing market is, relatively speaking, in decent shape. But, while others see Seattle as a bright spot, he describes it more as just a little less dark.

The national market is going through “probably one of the biggest, most dangerous bubbles we’ve had in this country,” said Fleckenstein, president of Seattle’s Fleckenstein Capital, MSN columnist and a panelist Tuesday at a forum on housing trends sponsored by the Greater Seattle Chamber of Commerce.

Although Seattle is in better shape, its home prices will go down, Fleckenstein said after the meeting. Asked if he would buy a home in Seattle now, his response was an immediate, definitive “no.”
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“I really think it was more of a lending bubble and an abdication of responsibility by the lending institutions,” he said. “Anybody with a pulse could borrow any amount of money.”

Meanwhile, the rising home values created equity, which homeowners cashed in to live beyond their means, Fleckenstein said. He said the [national] market peaked in mid-2005 and has serious potential for prolonged trouble.

Real estate prices declined for a decade after Japan’s equity bubble burst in 1989, with commercial property values falling 90 percent and home values down 70 to 80 percent, Fleckenstein said. “You can look to see what happened in Japan as where things could go.”

The ultimate depth of the fall is not yet knowable, he said. “When the tide starts to go out, then you start to find out all the crazy stuff that’s gone on.”

Fleckenstein said the recent tightening of lending standards could affect the lower end of Seattle’s home market, while the national fallout would hit the city’s higher-end buyers.

I don’t really have much to add. I’ve been reading Bill’s stuff over at MSN Money for a while now. He’s a sharp guy, and was accurately warning of a national slowdown and credit tightening well before it all began. I’d think carefully before dismissing his local predictions just because they don’t reflect your preferred version of the future.

(Aubrey Cohen, Seattle P-I, 01.31.2007)

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Notes From the Trenches

By The Tim on January 30th, 2007 at 9:59 AM · 35 Comments

Last Wednesday there was some great conversation about what people are experiencing as they are out there right now trying to find a home. I think it’s worth re-posting these comments on the front page, since they give a good feel for what the housing market is really like right now that you can’t get just by looking at graphs and spreadsheets.

Peter:

I’ve actually started looking seriously at homes in the $400k-$500k range and have toured probably at least a dozen from the Kennydale Area up to Juanita/Kirkland. Here’s what I’ve noticed:

1) Pretty much everything you’ve heard about flipper renovations is true. These people are morons. I’ve seen some work so shoddy that it would blow your mind. We toured a home in Newport Hills and the owners were still there – he pointed at the electrical plates and said, “we upgraded to the latest style!” Um, yeah. You went to Home Depot and dropped a hundred bucks and spent the afternoon with a flathead screwdriver. No.

2) The $400k-$500k unrenovated properties are bottom of the barrel garbage. Borderline unliveable. Most of these are in such a state of disrepair they will probably need to be torn down. We saw a house in Finn Hill that had been vacant for quite some time. It smelled like death. My wife said, “this place is haunted!” I saw something – I’m not sure what – but it was brown, papery, and slightly organic looking in the fireplace. I asked our agent what it was and she just said, “let’s get out of here!” And a steal at only $450k.

3) Prices are all over the board and don’t appear to be based on recent nearby sales or appraised value + whatever. People are just asking whatever they feel like and seeing if they can get any bites.

4) The increase of inventory is definitely accelerating. It’s all crap though.

5) Most builders are idiots. They will shoehorn a house into just about any space, regardless if the front door of one house is directly facing the house next door. Yeah, I want to look out of my living room window and see my neighbor reading the newspaper in his bathroom. Most are still not offering concessions.

6) I’m not seeing any of these houses move. No one is buying them. However, if a decent house at a decent price does get listed, it is snapped up immediately. The crap is sitting forever though.

7) This has been one of the worst and most depressing experiences of my life. I’ve seen more than one house that *could* have been nice but had been ravaged by a flipper and had the price jacked up $100k from the purchase price a year ago. It seems every flipper runs out of money and you can tell exactly where they did – 4 out of 5 rooms will have hardwood floors, for example. The last one will have 30 year old filthy carpeting in it. 3 out of 5 closets will have been redone – the last two look like something like the meat locker from Texas Chainsaw Massacre.

Anyone who thinks this is a “healthy market” is certifiably insane.

Alan:

I know what you mean, Peter. My wife and I went to an open house a few weekends ago. We could tell that the owner had done some shoddy renovations, but we thought we would have to redo it and so we would have wanted a discount *because* of the renovations (if we had even wanted the house — which we didn’t because the floorplan was horrible).

I enjoy messing with the realtors. They ask if I am in the market and I say, “No, I’m currently priced out of this market. I only make $X per year.” (where X is significantly above the mean income for the area). The last realtor I said this too got excited and started telling me that the owners would probably sell for less than the asking price and that he could get me a good deal on the house.

B:

Peter:

Wow, I haven’t been looking as hard at as many properties as you have, but your observations exactly parallel my own. What a strange twilight-zone of inventory and comps we’re looking at right now.

I came back from the last place we walked through (SFH in Greenlake listed at $699, which was absolute junk inside) with a resolve to renew my apartment lease through 2007 – let the flippers flop.

The only thing worth less than a “fixer” is a house where someone did a crappy remodel/flip on a fixer. Now I have to tear out all your shoddy garbage and re-do it. Honestly!

stephen:

If you are going to buy (like we are) it is extremely important to do loads of homework and tons of driving. We’ve been looking since the first and still haven’t set foot in a house. One passed the drive by sniff test but fell out due to the flood report.

So have any other readers been out there looking at homes? What have you experienced? Is the market as strong as local real estate agents would have us believe? Let’s hear your tales.

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Seattle’s PMI Risk Index Continues Climb

By The Tim on January 29th, 2007 at 2:25 PM · 2 Comments

The latest PMI report (pdf) is out, and much to no one’s surprise, Seattle’s risk index has increased yet again.

Jumping 14 points from the fall to a total of 167, Seattle now boasts a PMI that is 2.6 times its Summer 2005 low of 64. Although Seattle’s Risk Index is still a good margin below regions such as San Diego or Sacramento, it is certainly interesting to note that it has now increased in five of the last six PMI reports.

But don’t you worry, Seattle is special and all that. Surely price growth will simply stabilize, and the Risk Index will head back down.

(PMI Mortgage Insurance Co., Winter 2007 Report (pdf), 01.2007)

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Foreclosures On The Rise, Even In Seattle

By The Tim on January 27th, 2007 at 11:32 AM · 5 Comments

Here’s some interesting news. Apparently even double-digit appreciation isn’t enough to keep foreclosures from rising around here, much like they are across the country:

Following a national trend, Washington state’s mortgage foreclosures increased significantly last year, claiming 18,527 homes.

In the Seattle/Bellevue/Everett area, one in every 136 homeowners was displaced by foreclosure, as was one in every 75 Tacoma owners.

Still, the state and the Seattle area faired better than the nation as a whole, according to RealtyTrac, a California-based foreclosure-information provider. It released its 2006 annual report late last week.

Washington state foreclosures grew 25 percent last year compared with a year earlier — far below the national increase of 42 percent.

Phew! Thankfully we’re safe because we’re “far below the national increase.”

However, since Ms. Rhodes mentioned that we are “following a national trend,” and given the assumption that the Seattle housing market lags most of the nation by six months to a year, I wonder how much foreclosures increased nationally in 2005?

Let’s see… Ah, here we go:

January 23, 2006 – RealtyTrac™ … today released year-end data from its 2005 U.S. Foreclosure Market Report, which showed that 846,982 properties nationwide entered some stage of foreclosure in 2005, and a 25 percent increase in the number of new foreclosures from the first quarter to the fourth quarter.

Hmm, interesting.

(Elizabeth Rhodes, Seattle Times, 01.27.2007)

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Kirkland-Based HouseValues Continues Slide

By The Tim on January 25th, 2007 at 6:37 AM · 5 Comments

More bad news for local real estate lead-generation company HouseValues:

Amid a slumping real estate market, HouseValues Inc. is cutting 12 percent of its work force and closing its online lead generation business for mortgages.

Sixty employees are losing their jobs, all at the company’s Kirkland headquarters.
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In a memo to employees, HouseValues Chief Executive Ian Morris said that the company has encountered a number of challenges because of a “steep decline in transaction volume in many local real estate markets.”
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A HouseValues employee, who was not involved in the layoffs and asked not to be identified, said that “morale has been very low and a lot of people have been quitting from all departments.” As of September, the company employed 590 people. But the employee count has drifted lower in recent months as people have left for other jobs.

Also, HouseValues stock is down another 46% since I last mentioned them nine months ago. Maybe it’s just me, but now doesn’t exactly seem like the best of times to be building a business centered around real estate sales.

(John Cook, Seattle P-I, 01.25.2007)

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"This is a great time to buy a home."

By The Tim on January 24th, 2007 at 10:57 AM · 25 Comments

Check out this absolutely delightful paid advertisement masquerading as a “guest editorial” in today’s Seattle Times. It’s penned by Mr. Samuel L. Anderson, the executive officer of the Master Builders Association of King and Snohomish Counties.

The media have been all abuzz over the past year about the softening in the housing market.
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At the same time, local analysts point out that even though home sales in the greater Puget Sound region have slowed, now is still a good time to buy a home, particularly in our area.

What does this slowdown really mean for consumers? Is it wise to sit back and wait for a home in the hopes that prices may drop? Most real-estate experts in our region say don’t bet on it.

Oh really? Okay, well why is that exactly, Mr. Executive Builder Man?

One reason we have not experienced the steep decline seen in other markets is that while other parts of the country face an oversupply of housing, we do not.

So you’re saying that supply is not growing faster than demand, so we’re not headed for an oversupply? Interesting… very interesting.

Here in Washington state, the Growth Management Act (GMA) actually limits the supply of new housing entering the market by directing where new development can occur. As long as GMA is in place, we are very unlikely to find ourselves in a housing glut.

Growth management act, huh? You don’t say.

Another key factor is that the area in and around Seattle has a healthy supply of jobs and a strong regional economy — factors most experts agree help keep prices from falling.

What a compelling argument.

Sitting on the fence waiting for the absolute best deal is a gamble that prevents consumers from taking advantage of buying a home, while prices are moderating.
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In today’s housing market, the real risk is in waiting to buy a home.
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Unlike some cities where the real-estate market is in a slump, the Seattle area is healthy and analysts feel certain it will stay that way. As a result, the deep discounted prices some consumers have been hoping for simply won’t be happening here.

For consumers sitting on the sidelines, the bottom line is simple. Homeownership is always attractive. Besides being a stepping-stone to a future of financial security, homeownership provides a sense of community and personal satisfaction. In fact, studies show that homeowners are more content with their lives, enjoying a stronger sense of belonging and increased activity in community groups.

The equation is simple: Since housing is always a smart investment and interest rates are still near 40-year lows, savvy consumers know this is a great time to buy a home.

Well dang, I’m convinced. Now is a great time to buy, and I’d better be quick about it or else I’ll be priced out forever, doomed to be a miserable, broke, dissatisfied loner, renting from the man for the rest of my life.

(Samuel L. Anderson, Seattle Times, 01.24.2007)

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