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 August 31st, 2007

Say Hell NO to Government Bailouts!

By The Tim on August 31st, 2007 at 8:06 AM · 74 Comments

Seriously. What the hell.

August 9, 2007 – Bush: No bailout for pinched homeowners

President Bush said Thursday concern should be shown those who’ve lost their homes but it’s not the federal government’s job to bail them out.

“Obviously anybody who loses their home is somebody with whom we must show an enormous empathy,” Bush said. Asked whether he would champion a government bailout, Bush responded: “If you mean direct grants to homeowners, the answer would be `No, I don’t support that.’”

August 31, 2007 – Bush to outline aid to mortgage holders

Offering federal aid for strapped mortgage holders, President Bush is proposing to help hundreds of thousands of borrowers hard hit by the housing slump.

The president on Friday was to talk about several initiatives and reforms to help homeowners with risky mortgages keep their homes, a senior administration official said Thursday. Bush also was to discuss efforts to prevent these kinds of problems from arising in the future.

Any federal program that allows home-loan-owners to keep the house that they can’t afford, and at the same time avoid paying back their debt obligation under the terms that they willingly agreed to is a “government bailout.” If believing that people should be held responsible for their own stupidly risky decision to take on more home debt than they could afford makes me a heartless bastard, then I guess that’s what I am.

I have been responsible with my money throughout this housing mania. I paid off all my debts (which consisted mostly of student loans), contributed to my 401(k), saved, invested, and didn’t buy things that I couldn’t afford. I’m not about to sit here and watch the government spend my tax money to prevent people from suffering the consequences of their own piss poor financial decisions.

[Update: For the record, I am equally against a bailout of the lending institutions and investors that propped this whole thing up from the back end. Would letting it all play out be painful? Yes, and maybe that's exactly what this country needs to teach us not to gleefully prance down this well-trod bubble path again.]

Say Hell NO to government bailouts!

[Update 2: For the counterpoint to this post, see Sniglet's forum post: 3 cheers for Bush mortgage bail-out!]

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Case-Shiller Complete Graph

By The Tim on August 31st, 2007 at 7:36 AM · 13 Comments

By popular request, here is a version of yesterday’s graph that includes all 20 cities tracked by Case-Shiller, with no time-shifting monkey business going on. Click the image for a super-sized version.

When I look at the graph, I see that Seattle and Portland—for whatever reason—seem to have arrived at the appreciation-spike party late, and are therefore (as one would logically expect to follow) late to see declines. The reason I time-shift the graphs I usually place up here is simply to provide a visual of just how strong the delayed correlation seems to be.

The real winner here appears to be Charlotte, NC, where they rode out the wild years of ‘04-’05 with healthy 3-5% appreciation, and now appear to be experiencing increasing appreciation, in the 7-8% range. If any of the Case-Shiller tracked cities are “bucking the trend,” it’s Charlotte, not Seattle (or Portland). Better get in on the Charlotte housing bubble now, before you’re priced out forever!

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Case-Shiller: Seattle Following the Crowd Down

By The Tim on August 30th, 2007 at 12:36 PM · 46 Comments

As many of you have already noticed, the latest Case-Shiller data (June) has been released. Here’s an update of the graph I’ve been keeping of the west coast cities:

For those that are into this sort of thing, here’s what Aubrey Cohen over at the Seattle P-I had to say about the latest data:

Seattle-area home appreciation continued its long slide back to reality in June, according to data released Tuesday.

The typical home in King, Pierce and Snohomish counties was worth 7.9 percent more in June than a year earlier, but June had the lowest increase since February 2004 and was the 16th consecutive month of slowing growth, according to the S&P/Case-Shiller Home Price Indices.

Still, while market observers say that the national housing credit crunch is affecting the area’s market, Seattle had the largest yearly increase of the 20 metropolitan areas the indices track and was one of just five with increasing values.

…

A 7.9 percent annual growth rate still is extremely good, Matthew Gardner, a local land-use economist, said Tuesday. “No markets can continue to see real estate values spiraling and double-digit annual appreciation rates. It doesn’t work.”

…

Annual appreciation is expected to continue to slow until the end of this year and possibly into early next year, Gardner said. “I think we’ll probably end up somewhere between 3 and 5 percent.”

From the looks of the above graph, Seattle appears to be right on schedule… If the local real estate bulls such as Matthew Gardner are correct, we’ll see the red line drop another 2-3 points, then completely level off. Is it possible? Sure. It’s also possible that the legions of crows that fly by my house every day at dawn and dusk are really robotic spies, deployed by clandestine Soviet Union operatives poised to carry the motherland out of the shadows and onward to glorious new heights.

Just to give you an idea of how ridiculously unlikely it is that Seattle will escape unscathed, as the sole beacon of housing appreciation light in the dark valley of the bursting national bubble, behold the following graph, which shows thirteen of the twenty Case-Shiller-tracked cities (with Seattle and Portland still time-shifted back 15 months):

You should note that while there are examples of cities that saw home prices rise much higher and faster than Seattle and are already falling much harder (Las Vegas, Phoenix), there are also examples of cities that never saw much more than 10% YOY appreciation, and yet have already hit negative YOY (Chicago, Minneapolis, Boston). The “we didn’t rise as much” excuse really holds no water at all.

In fact, looking at that graph, the existence of robotic USSR spy crows seems more likely than a near-future return to steady 5% appreciation for Seattle. I suppose that by this time next year, either Matthew Gardner or The Tim will look like a fool. We shall see.

(Aubrey Cohen, Seattle P-I, 08.29.2007)

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Sub Prime fallout: Ok. Really. How many sub prime originations took place in the Puget Sound area?

By S-Crow on August 29th, 2007 at 8:54 PM · 18 Comments

I’m weary of hearing that the sub-prime market is or was a small portion of the pie in the Puget Sound Region. Certainly, there are many prime conventional loans that were made. But the idea that the originations of sub-prime loans being reduced or eliminated will have a less than meaningful impact is just not reality.

Is Legacy Escrow Service, Inc. the only escrow company in the area that closed a lopsided amount of home loans and refinances that were sub-prime vs. traditional conventional transactions? Was Legacy Escrow Service, Inc. the only company working with loan officers in the sub-prime arena? Hardly. We are a small fry compared to the volume of more established companies and title insurers.

As I mentioned over at RCG, how can I explain away the fact that our refinance volume is down about 70% YOY and that is not due to working with only two loan officers. We worked with scores of LO’s, as any escrow firm does. It means that with the sub-prime market essentially relegated to the “intensive care unit” due to Wall Street liquidity problems and the severe delinquency rates reported, the loan officers that sent work our way are doing significantly less originations. And that “Domino” has squarely hit escrow and ancillary real estate service providers in the rear end.

Seventy one percent of the purchase transactions closed by our office in 2005 alone was 100% financed (largely 80/20 with pre-payment penalties, etc..) and while the number dropped as 2006 went forward we did not see a healthy decline in 100% nothing down purchase transaction until 4th Quarter of 2006. Don’t forget that in EVERY single 100% nothing down transaction our office closed, the purchase price was increased to offset closing costs paid by the seller on behalf of the buyer due to their loan program. And to really make you super dizzy, a few of those were increased AFTER being involved in multiple offer situations. The 100% loan programs played a very central role in housing price escalation. And they will play a central role in making many of these homeowners renters again—-but that is just one fellow’s opinion.

Regarding the sub-prime loans in the region, Jillayne Schlicke remarked in a recent comment:

That’s because Eliz Rhodes was looking at only Seattle and the Eastside.

I have always said that the entire Puget Sound area has been populated with upwards of 8 to 9,000 loan originators whose sole income was only originating subprime: Starting from Pierce, up through King and Snohomish, if you add all three counties in together, there has to way more subprime loans that what she originally stated several months ago.

These folks never learned how to originate prime, conforming, A paper conventional loans and never wanted to learn because they could make so much more money shafting people into a subprime loan due to the high yields being offered by investors.

The cool map is only for the year 2005. Would love to know their data source. My guess is that it came from Firstam/CoreLogic

Jillayne’s comment inspired this post. But the question remains: If our small business was doing a large volume of closings with sub-prime terms, how many did First American, Chicago Title, Pacific Northwest Title, Old Republic, The Talon Group, TransAmercia/Land Title, Fidelity Title, Stewart Title and all the other escrow firms close? I suppose the market will tell us.

The good news is that to an extent, Seattle is certainly not experiencing the problems I witnessed in New England a week or so ago.

“It was an idiotic decision to buy in Massachusetts. I should have bought in Seattle.”- my brother as he was taking me to the airport.

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Mid-Week Open Thread

By The Tim on August 29th, 2007 at 11:55 AM · 15 Comments

I won’t have a chance to make a substantial post today until later tonight. When I do, it will probably on the latest Case-Shiller data. But until then, enjoy this open thread.

FYI, a few people have been asking “I don’t get it, what’s the deal with pink ponies?” As an answer to that question, I direct you toward this post on the forum. In related news, something I’ve been intending to add on here (”when I get the time”) is a glossary. Anyone have any suggestions of other items that should be included in such a resource?

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What a last two weeks of extremes: Wall Street & Mortgage Mess to a symbol of America’s dark days and accomplishment.

By S-Crow on August 27th, 2007 at 10:26 PM · 22 Comments

I just happen to look up at the ticker when I was in Times Square about a week or so ago (8/17) after a quick subway train ride up from Wall Street. Then shortly after, the following message in the picture below showed and I quickly took a shot of it. This was on Friday after the Fed injected another round of Billions into the market. These photos pretty much sums up the market over the last couple weeks.

After arriving home at 2:30AM Wednesday last week I had but a few hours of shut eye and then promptly drove all the way to Idaho. On the way back home this past weekend I felt the urge to take it slow and go HWY 2 and visit the Grand Coulee Dam and then onward to the North Cascades Highway via the beautiful Methow Valley and Okanogan countryside. I told my kids that one of the trips this summer had to include some historical background for a bit of education. The Grand Coulee Dam was it.

Well, during the visit I came away absolutely awestruck. We all went upstairs to the visitors center Theater and watched a 50 minute documentary on why the Grand Coulee Dam was built: It was part of the New Deal by President Franklin D. Roosevelt to put people back to work after the devastation created by the Stock Market Crash of October, 1929. The documentary spent several minutes discussing, with actual 1929 footage of the floor in a frenzy at the NYSE, the events leading to the New Deal by FDR and subsequent Federal backing of building the Grand Coulee Dam.

While only a handful of people were in the Theater, I noticed an old couple sitting two rows down from us and I could not help but notice they were knodding there heads up and down (presumably in agreement with what was being said) and from side to side (presumably in agreement and disbelief that they or people they knew went through that period) during some intense footage of the desperation across America.

During the documentary I could not help but think, my gosh, I was at ground zero (Wall Street) just a few days ago where it all began, and then to see this monumental icon of American engineering, ingenuity, brutal work and symbol of both the dark days of America and at the same time the symbol of what is great about this country. Some of the quotes in the documentary by the financial elite are eerily similar to what we hear today about the economy and health of the banking system. There was even mention of how the FDIC was created back then to guarantee deposits and thus reduce the possibility of there ever being a run on banks.

The Grand Coulee Dam took many years to build and 12 Million Cubic Yards of concrete. It produces the most electrical power in North America and it currently is the largest concrete structure in America and the third largest Hydroelectic plant on earth. Excavation began in 1933 and it was essentially complete in 1941. Subsequent upgrades and pumping stations followed and now irrigates roughly a half million acres of farmland in what is today the Columbia Basin. It is a must see if you ever get a chance.

Photo of the Grand Coulee Dam (a mile long) this past Saturday. A symbol of both the dark and bright periods in American history. Sorry this post too long, but I hope some find the symbolism, as I did, very educational.

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