Uncategorized

Supply Up, Up, & Away, Demand Still Sinking

Just a quick note to point out the NWMLS has released July stats. Compared to 2006, listings are up 44%, and sales down 8%.

Here’s the link to the NWMLS press release, with a link to the recap pdf (which is no longer directly-linkable).

My brothers are in-town visiting, so I haven’t got the time for the full update tonight, but it will be first on the agenda tomorrow morning, when I’ll come back and update this post. Here is the promised update:

Here’s your King County SFH summary:

July 2007
Active Listings: up 44% YOY
Pending Sales: down 8% YOY
Median Closed Price: $481,000, up 11% YOY

As of July, there have now been 20 of the past 21 months that have clocked in with YOY decreases in pending sales. Inventory has been increasing YOY for 16 months in a row, and has now been at over 20% YOY for a full year. For some perspective on those numbers, consider that since the peak of Seattle’s market activity in March 2005, inventory has nearly doubled, with a total increase of 90%, while sales have dipped a total of 28%.

Median prices spiked over $10,000 from June—an unusual month-to-month jump. Not since the late ’90s has June to July seen that large of a jump. In the past I’ve been somewhat skeptical of the “low end buyers have stopped buying” explanation for an increasing median in Seattle, but I think we may finally be seeing that effect in these latest price statistics. I’ll be looking into this one to see what I can find.

For the second month in a row, months of supply jumped up half a point, coming in at over 4.0 for the first time since the winter of ’02-’03 (and the first time ever for July—since 2000, as far back as I have the metric).

Like some kind of unstoppable robot, carrying out preprogrammed directives, I have uploaded an updated copy of the Seattle Bubble Spreadsheet that contains the relevant data.

Here’s the supply/demand YOY graph:

Here’s the chart of supply and demand raw numbers:

Here’s the graph of YOY percent change in the median sale prices of single-family homes in King County since 1994:

Here are a few links to the local news write-ups. A post centered on these will be up tomorrow.

Elizabeth Rhodes, Seattle Times: Housing prices defy logic, keep climbing
Aubrey Cohen, Seattle P-I: Condos driving the market
Devona Wells, Tacoma News-Tribune: Dream homes, few takers
Mike Benbow, Everett Herald: County housing boom finally fades
Rolf Boone, The Olympian: Sales tepid for homes, condos


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

57 comments:

  1. 1
    nitsuj says:

    “Compared to 2006, listings are up 44%”

    That’s great news! It means that all the buyers that have been patiently waiting for choices will now come off the sideline and buy buy buy!

    /sarcasm

  2. 2
    Nude says:

    My favorite quote from this press release:
    “The prettiest homes with the most reasonable prices on the block are selling – and some are getting multiple offers,” said NWMLS director Kathy Estey, managing broker of a John L. Scott office in Bellevue.

    “It’s a nice time to buy and sell,” Estey commented. “The market feels a lot more peaceful as the frenzy cools and a more balanced market takes its place. We are healthy on the Eastside,” she exclaimed.

    Translation: Even the best properties have had to face the music; kiss those 20% price increases goodbye. Also, since demand has tanked, I had to fire half my staff so my personal income level survives this mess.

  3. 3
    Eleua says:

    A friend from out-of-town came to visit me this evening, so I picked him up from the Bainbridge Ferry Terminal. Rather than taking the highway route off the island, I decided to take him up the Eastern shore and out Port Madison, so he could see the sights.

    It had been quite a while since I went to Bainbridge and strayed off SR-305, but I noticed something very different today.

    It seems that the “For Sale” sign is in full bloom on Bainbridge. I must have seen at least 50 homes for sale in a very short drive off the island.

    It’s happening…20 cents on the dollar by 2010.

    You know I’m right.

  4. 4
    Garth says:

    Actually, I know you are wrong, an 80% drop is crazy talk.

  5. 5
    Old Ballard says:

    Ya, but once again, one can only hope.

  6. 6
    Buceri says:

    The lowest priced 3 b.room anything in Bainbridge Island is $397.5K. Let’s see what the same search yields in December.

  7. 7
    Grvetti says:

    Oh man… anyone check out Rhodesters puff piece yet?

    Housing prices defy logic

    No Lizzie, your silly non-investigative shilling is defying logic… I also like how she breaks down her “theories”, I’d email her refuting everyone of her ridiculous “theories”, even though she could have read the ‘jobs’ article from yesterday and surmised that reigning in the junk mortgage industry leaves only the top-end of a home market left, but I know I’d get the line “I just report!”, crap and “our advertising section is another building so they have NO influence over our reporting”… *yawn*

  8. 8
    Nolaguy says:

    Sorry for the off-topic post, but this is very important. From Market Ticker:

    “Fannie apparently has petitioned OFHEO (their regulator) to allow them to buy more junk mortgage paper.

    This must not be allowed, as it will only throw gasoline on the crap mortgage lending bonfire that has been created over the last several years.

    I urge you to read this letter to the OFHEO and, if you agree, pen your own and fax it to them.”

    THEY MUST HEAR FROM THE PUBLIC, AND SOON, OR FANNIE MAY BE FREED TO “BAIL OUT” THESE LENDERS.”

    http://tinyurl.com/ypmo7n

  9. 9
    Garth says:

    Tim,

    II am also skeptical of the “low end buyers have stopped buying” explanation, as a group it seems they never stop buying anything until they are forced to by actual financial constraints. The recent rapid tightening of lending standards has wiped out somewhere between 10-15% of the available borrowers nationwide and the end of 100% financing increases the amount of time it take to prepare to buy a house, so this time it seems a little more plausible.

  10. 10
    50%off says:

    80% declines in property prices are indeed possible. Reversion to the mean usually means you have to drop Below the mean for a while. Check out what’s happening in the mortgage industry these days. How many folks do you know who will be able to cough up $100-$200k down payments? Notice that jumbo loan rates just jumped up over a full percentage point? When no one can buy, the prices will plummet for those who must sell and there are plenty of those … divorces, job change, job loss. BTW, we haven’t even begun to see what happens when the jobs start to evaporate! I know Eleua is right. Just think back to the 80’s when the Savings and Loan debacle occurred. Many homes were ‘disposed of’ at 80% off! It’s coming….!

  11. 11
    Ichiro Vader says:

    Tim,

    Thanks again for the awesome charts!

  12. 12
    Greg Kirkos says:

    Even the Times admits it’s weird how much prices are still climbing:

    http://seattletimes.nwsource.com/html/businesstechnology/2003824885_homesales07.html

    Oh well! Glad I didn’t wait to buy…

  13. 13
    TJ_98370 says:

    Hey Greg,

    Theory 5: Median price statistics can be misleading.

  14. 14
    Greg Kirkos says:

    I think median is barely worth looking at. The important thing is to compare apples-to-apples. Take the same type of house, same sq ft, same quality, finishes, etc., same neighborhood. What did it sell at last yr vs this year? That’s all you need to know.

  15. 15
    Queen Anne Condo says:

    Is anyone following the subprime and credit debacle in the WSJ? Shame on businesses, Bears Stern, etc. for their greed. We all suffer because of their greed and dishonesty. Same thing with Enron and accountants. When financial reports are tweaked to produce better figures to inflate stock prices and the integrity of the statements are diminished, making them advertisements rather than true financial statements … we all lose … now this housing bubble … bursting is putting it mildly … blame the realtors, etc. for inflating prices, blame the appraisers for lying about the poor conditions of buildings … buyer beware. It’s this lack of integrity and caring that will do us all in … what about some honesty!

  16. 16

    I INVEST IN THE STOCK MARKET AND MAKING PREDICTIONS THERE IS AKIN TO LAS VEGAS

    So, in reguards to an 80% drop in real estate being completely ludicrous, consider this:

    1. China and other foreign countries suddenly decide to pull all their money out of US equities.

    2. Interest rates immediately creep up to 15% for home mortgages [that’s about a trippling of the mortgage payments].

    3. America sinks into a massive depression.

    Oh, I know, that will never happen, we have American manufacturing and Yankee ingenuity to keep us afloat….oops, we only manufacture 9% of what we use in America today and new “glueboard home phony replacement manufacturing” is going the way of the dinosaur with the current “monster payment” credit crunch contract adjustments in full swing.

    I know, we’ll bring in a bunch of foreign guest workers and outsource all our jobs, that will prop real estate up….not.

  17. 17
    MacAttack says:

    Looks just like Portland. By the way, buyers, you didn’t want to borrow more than $417K, did you? Because if you do, I’m afraid we have a little problem. You see, it’s not just Wells Fargo who raised their rates to 8%… the others are following. Seems no one wants to buy their jumbos…

  18. 18
    SunTzu says:

    http://online.wsj.com/article/SB118644741706689960.html?mod=hpp_us_whats_news

    “The market disruption came as crushing news for Gary Cecere, a mechanic who lives in Croton-on-Hudson, N.Y. Mr. Cecere said he learned yesterday that Wells Fargo & Co. was no longer willing to complete a planned package of two mortgage loans that would allow him to buy a $410,000 four-bedroom home in Mahopac, N.Y. Hugo Iodice, a branch manager at Manhattan Mortgage Co. who is acting as a loan broker for Mr. Cecere, blamed tighter standards imposed by Wells Fargo on Alt-A loans. A Wells Fargo spokesman had no immediate comment.”

  19. 19
    Buceri says:

    This is the last sentence from a Windermere broker in an article that Tim provided from heraldnet (Everett) with regards to Snohomish.
    “My only fear is that mortgage brokers will overreact,” he said. “I’d hate to see them requiring really high credit scores and 25 percent down.”
    Holly Crap!!! Aren’t those the requirements people were supposed to have until not too long ago??? (OK, not the 25%; but 20!!!).
    By the way, remember, never say never. My parents had a 12% interest in their mortgage back in 1983. I know, those were different times….

  20. 20
    Nude says:

    A snip from the listing of the Top 100 markets:

    Metro Area Seattle
    Home Price(median) $399,000
    Median Mortgage(% of income) 31
    Price change(5 years) 62.8
    Worst one-year decline -7.8 81-’82
    Forecast growth to April 2008 0.6%

    Taken from http://money.cnn.com/2007/04/09/real_estate/forecast.moneymag/index.htm

  21. 21
    mikek says:

    zillow has an interesting tool called “sales trends”

    for any home you are viewing, you can click on a tab and see charts tracking numbers of sale and price per square foot in the immediate area (i am not sure how they calculate that area, probably zip code).

    the trends for renton show a clear peak in both charts in june, with the present trend being noticably downward.

    tacoma sales (i just sold a home in tacoma, closed 7/10) show an even more dramatic downward trend (for kicks, look at the graph. its pretty startling).

    http://www.ziprealty.com/buy_a_home/logged_in/search/sales_trends.jsp?listing_num=27092916&page=1&property_type=SFR&mls=mls_seattle&cKey=nd7l1jsr&source=NWMLS

    clearly, a tipping point has been reached and the trend is down. how far down isnt clear, but this buyer is going to rent for year.

  22. 22
  23. 23
    Brian says:

    Has anyone surveyed Seattle real estate sellers to see how much money they put into fixing up their homes for sale? It seems like half the homes in Fremont have been knocked down and the other half gutted and renovated. What I’m wondering is, could that 11% YOY be mostly from the improvement of the properties instead of appreciation? To me it seems more plausible than any of the theories in Ms. Rhodes column.

  24. 24
    biliruben says:

    mike – either there is a bug in those charts, or they’ve just begun giving homes away for free.

  25. 25
    uptown says:

    Prices will drop to wherever the support level is. Not every homeowner bought their house in the last 2, 4, 6, or 10 years, and they will be more than willing to sell at a price lower than today’s but higher than what they paid.

    Once the entry level buyers are scared off, the market will dry up.

  26. 26
    MisterBubble says:

    I can’t help but notice the discrepancy between the NWMLS report and the inventory numbers on the sidebar. NWMLS says inventory is 10,000 units, but the tracker hasn’t seen that level since mid-July!

    Did they hire some Enron executives to do their accounting?

  27. 27
    The Tim says:

    MisterBubble said,

    I can’t help but notice the discrepancy between the NWMLS report and the inventory numbers on the sidebar.

    Yeah, I noticed that too. This is the second month in a row now that there has been that much of a difference.

    At the end of May, the difference between Windermere’s count and the official NWMLS report was 12. At the end of June, it was 258. At the end of July, it was 259. Don’t know why, but since I’ve only been watching the daily numbers from Windermere and John L. Scott for a few months, I don’t have any way to know if it’s regularly off by hundreds, or if it’s a new occurrence.

  28. 28
    Lukasz says:

    From http://www.nwmls.com/discover/nwreporter.cfm?SectionListsID=25&PageID=3916:

    According to New Home Trends, a Bothell company that tracks new construction, there are approximately 29,000 condos in various stages of development and construction in the four-county Puget Sound region, with only a fraction of them currently in the MLS database.

  29. 29
    Buceri says:

    “Consumer credit raises strongly for second straight month”.

    http://biz.yahoo.com/ap/070807/consumer_credit.html?.v=2

  30. 30

    BUT NOT TO WORRY: MSM PREDICTS A SOFT LANDING FOR REAL ESTATE ANYWAY TODAY

    Here’s an excerpt from MSM:

    “…ZaZandi predicted this trend would continue for the next year or so until the housing market stabilizes and home prices start rising again….”

    The rest of the URL:

    http://biz.yahoo.com/ap/070807/consumer_credit.html?.v=2

    How can this mess clear up by the next year? Jumbo “Monster Payments” have just started in Seattle, the worst part of the credit crunch iceberg has yet to surface.

    Check out this Mortgage Broker’s fine print on a Jumbo Loan:

    “….*The $1299.00 payment is based on the borrower selecting the minimum monthly payment option on a $430,000 adjustable first mortgage loan using a minimum payment interest of 3.625% (which is calculated by taking the actual interest rate minus 3.00%). The actual interest rate is 6.625% with a 7.342% APR.

    By selecting this option, the loan has the potential for negative amortization. The minimum payment does not cover all of the interest that is owed for the month and, therefore, you will incur deferred interest that is added on to the balance of the mortgage. You may make the minimum monthly payment for up to 5 years or until your new mortgage balance is 115% of the original mortgage amount. The borrower also has the option of making an interest-only payment or making principal and interest payments amortized over 30 years. For example, if the borrower selects to make principal and interest payments amortized over 30 years, the monthly payment will be $2753.34. These terms are available for first mortgage loans. To qualify for this monthly payment, the property must be owner occupied single family residence and a loan-to-value ratio of 80%. Credit restrictions may apply. Rate is variable and subject to change daily without notice.

    LowerMyBills, Inc. is not acting as a lender or broker. The information provided by you to LowerMyBills is not an application for a mortgage loan, nor is it used to pre-qualify you with any lender. If you are contacted by a lender or broker advertising within our network, your quoted rate may be higher, depending on your property location, credit score, loan-to-value ratio, debt-to-income ratio, and other factors. Not available in all states. Not all service providers in the LowerMyBills network offer this or other products with interest-only options….”

    Monthly payments of $2800 and that excludes property tax, mortgage insurance and home insurance; let alone maintenance. My calculator comes up with a $170-200K gross household income to have a net pay that could manage $2800/month. That must be at least the top 2-5% of household incomes in Seattle.

    Hades, we’re all Rich Elite and can easily swing those type of Monster payments in the future.

  31. 31
    biliruben says:

    I got an offer yesterday that was SAAAWEEEET!

    Drop my monthly mortgage payment to $86 for the next 10 years. $86 (“You read right!”).

    But that’s not all! They were also offering me $88,600 cash back!

    I didn’t bother with the math, but even with our current 50% ltv on a 400K home, that would have to recast before 10 years, right?

    If not, Jagular, Cancun, and Vegas here I come, baby!

  32. 32
    locust says:

    The crash of the secondary market for “jumbo” loans will have a huge impact on loan rates for most Seattle area homes, which are well into the “jumbo” price range. See:

    http://money.cnn.com/2007/08/07/real_estate/jumbo_jam/index.htm?postversion=2007080711

  33. 33
    What are you doing says:

    Why are you looking solely at King County SFH data. The Seattle Res +Condo data shows less than 5% YoY appreciaton for the lat 6 months

  34. 34
    poetrywater says:

    Thought this article is a good reminder about Median Home Prices!!!

    Inman News
    Don’t be misled by median home price
    Jul 23, 2007, 5:00 am PDT

    DEAR BOB: My wife and I are considering the sale of our home. We have noticed the median sales prices of houses where we live have declined about 3 percent in the last 12 months. However, before that, home prices were going up anywhere from 5 percent to 11 percent annually. We would hate to lose our equity by not selling now. But then she brought up the question “Where would we move?” as we are not yet ready for “the old folks home.” How important are these sales price statistics and trends? –Gabe R.

    DEAR GABE: Please don’t be misled by the median sales price statistics. They can be very misleading. Median price means an equal number of homes sold above and below the median sales price in your area.

    Purchase Bob Bruss reports online.

    Equally important, don’t confuse median sales price with the average sales price. Average sales price means the number of home sales divided into the total sales prices of all homes sold during a specific time period.

    Lastly, when you hear home sales are down, be sure to check what that means. Are actual sales prices down? Compared to what? Or is the volume of home sales down? Compared to sales volume last month or a year ago?

    Both median and average sales prices are meaningless unless they apply to your specific neighborhood. It is very easy for the median and average sales prices for a city to be skewed by a few very expensive or very inexpensive home sales.

    The higher-priced luxury home sales prices tend to fluctuate wildly because there are few sales in that price range so one or two expensive sales can have a major effect on median sales price statistics.

    Also, you need to know who supplied the numbers. Do they reflect just the home sales involving homes listed in the local MLS (multiple listing service)? Or do they include all local home sales, including FSBO (for sale by owner) where no realty agents were involved?

    In other words, be sure you are comparing apples to apples, not apples to oranges. That means you need to know recent home sales (not asking) price trends for comparable homes like yours in your neighborhood. Don’t consider similar homes more than a mile away from your home unless there are no closer comparable sales.

  35. 35
    urban exile says:

    Thanks for the link, Locust.

    As a potential homebuyer, this simply keeps me waiting on the sidelines. I just can’t imagine this not having an immediate effect on Seattle homes over $500K?!

    Will buyers keep paying more to buy less?

  36. 36
    MisterBubble says:

    Thanks, locust. That article on jumbo loans should send a cold shiver down the spines of every Seattle real estate agent. It is the missing link — the logical connection between the sub-prime collapse and the local market (which has supposedly been “immune” to these trends).

    I don’t think anyone on this board — not even the the perma-bears — was predicting the swiftness of the credit collapse that we’ve seen so far. There’s certainly no way that I would have called a pull-back in the jumbo loan market, based on the collapse of sub-prime lenders. This is getting scary….

  37. 37
    Buceri says:

    Again; it’s the domino effect. The “upgraders” have $150K plus in equity to put down on their new $450K home. But first, they need to sell their place to the first time owner who needs to mortgage $275K-$350. But then again, rates are going down to the low 6% once again…

    Has anyone seen any news on money tightening other than “jumbos”? If so, what type of requirements are they having?

  38. 38
    carlislematthew says:

    “The higher-priced luxury home sales prices tend to fluctuate wildly because there are few sales in that price range so one or two expensive sales can have a major effect on median sales price statistics.”

    Actually, one or two expensive sales will *not* skew the median – that’s the whole point of using the median and not the mean (aka “average”, although both are technically averages).

    What *does* skew the median is a general change in the mix of houses that are sold, as we’re all pretty much aware. In San Diego the median kept going up while the market was beginning to tank because it was mostly the larger houses that were selling.

    A better statistic, if you can get it, is median price per square foot. Doesn’t account for quality, but at least it’s an objective measure.

    Anyone out there able to calculate or locate the median price per square foot?

  39. 39

    MORE MAINSTREAM MEDIA LIES ON REAL ESTATE’S ALLEGED SOFT LANDING

    This just came out from Bloomberg today:

    http://www.bloomberg.com/apps/news?pid=20601103&sid=amcA4v4SfFSI&refer=news

    To quote it in part:

    “…“We’re at the bottom right now in housing,” said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina. “The biggest declines are over.” …”

    What is that buffoon smoking? We’re at the very beginning and I predict this will be just like Japan’s Bubble in 1990 [its gonna go on for a long haul folks], especially in Seattle, where insane Monster Payments are just now starting to “kick in” in the jumbo loan ARM catagories.

    Here’s a logical and much more believable Dr. Roubini blog on the subprime fiasco credit spill-over ya just gotta read:

    http://www.rgemonitor.com/blog/roubini/208728/

  40. 40
    Garth says:

    What are you smoking?

    The scale of the crash in Japan was much larger than anything going on here.

    The average Japanese stock in 1989 had a P/E of about 60, some banks as high as 100.

    The land on the island of Japan at the peak in 1991 was valued at over 20 trillion, which was five times the value of all the land in the US at the time, and is probably still more than all the property in the US is worth currently.

  41. 41
    Schaum says:

    NPR is doing a piece on home foreclosures in WA state right now (Wednesday, Aug. 8 at 9 AM). FM 94.9

  42. 42
    MisterBubble says:

    Ya beat me to it, Schaum….it’s the Weekday call-in show. Everyone tune-in and/or call-in your opinion!

  43. 43
    MisterBubble says:

    (Incidentally…I admire your outlines.)

  44. 44
    Buceri says:

    Schaum, I will have to catch it on npr.org. What’s the name of the show?

  45. 45

    THE REAL ESTATE VALUE IN AMERICA IS APPROX $20 TRILLION TODAY TOO, COMPARED TO JAPAN

    Also, the longterm 1990+ bubble in Japan has similarities to learn from to compare to America’s current subprime “Jumbo Loan Monster Payment” credit crunch dilemma.

    See the proof:

    http://www.realtor.org/intupdt.nsf/pages/japanese_economy

    Which states in part:

    “…Historical lessons available for Japan
    Mark Twain once said, “history never repeats itself, but sometimes it rhymes.” There are lessons to be learned from U.S. history. The savings and loan crisis in the late 1980s and early 1990s had similar characteristics to the current circumstances in the Japanese real estate and banking industries. Japan’s decade-long banking crisis has created a substantial number of problem real estate loans, resulting in a considerable drop in land and home prices. The Japanese government has instituted a practice of leniency with its financial institutions, permitting banks to restructure their problem loans rather than dispose of them. As a consequence, a great deal of money is tied up in problem loans, representing a severe misallocation of resources in the Japanese economy.

    When the U.S. faced its savings and loan crisis in the late 1980s and early 1990s, a high percentage of its lending institutions experienced serious earnings reductions problems because of problem real estate loans partly due to changes in the 1986 Tax Reform Act. The U.S. government acted decisively, creating the Resolution Trust Corporation (RTC) whose sole purpose was to manage the disposition of problem assets. Bank regulators permitted over 300 banks and savings and loan associations to fail. Their problem loans were quickly sold by the RTC at discounted prices to the public in about four years. This massive sale and removal of problem loans from the U.S. banking system virtually eliminated investor uncertainty in the marketplace, permitting America’s financial system to get back on track….”

  46. 46
    Garth says:

    Japan is the size of California and was worth the same as the entire US is now in 1991. Their stock market index had an average P/E 3 times that the Fortune 500 in the US right now. How are you matching those numbers up for a comparison?

    Some people here keep saying we are in for a Japan style crash which means housing crashing down almost 100% over 14 years and the stock market losing 80% of its value over 13 years.

    I have yet to see a commenter here mention the Japan crash with any understanding of the scale of what actually happened there, other than it was big and it involved new types of mortgages.

    I did laugh that your “proof” was a rambling opinion piece written by a REALTOR® in 2004 :)

  47. 47
    TJ_98370 says:

    I have yet to see a commenter here mention the Japan crash with any understanding of the scale of what actually happened there, other than it was big and it involved new types of mortgages.

    Okay Garth, other than scale, please explain how the Japan bubble was different. If the Japan bubble comparison is inappropriate I, for one, would like to understand. Seriously!

  48. 48
  49. 49
    Alan says:

    From TJ’s article:
    “took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment”

    and

    “the sale price would not cover the $300,000 he still owes the bank”

    Let’s look on Redfin for four bedroom condos in the area, shall we?

    The cheapest today is $449k for 1548 square feet. Not exactly cramped but still well above the sub-300k that the condo outside Tokyo is worth today.

  50. 50
    Garth says:

    First look at the stock market, the Japanese stock market crashed hard in 1990 before real estate peaked in 1991. Google’s P/E right now is 44, the entire Japanese stock market at the time was averaging 60. The Industrial Bank of Japan had a P/E of 100. Bank of America and Citigroup are currently 10.5 and 11.5.

    The massive stock run-up also put pressure on banks because they had no commercial business. No reason to take out a loan when your stock is providing you with plenty of capital. So to make money banks needed to increase lending and they came up with the three generation or 90 year mortgage. Residential housing appreciation in the six largest cities over 5 years (85-90) was over 250% and commercial was near 400%. IN FIVE YEARS. That is twice the amount of appreciation of the Naples, Phoenix and Miami in the US over the last five years.

    That does not even mention the Yakuza, Japanese business , the keiretsu’s, the “Three Generation” 90 year mortgages they were selling, or the fact that like or S&L crisis here highly leveraged BANKS held all the debt.

  51. 51
    deejayoh says:

    Residential housing appreciation in the six largest cities over 5 years (85-90) was over 250% and commercial was near 400%. IN FIVE YEARS. That is twice the amount of appreciation of the Naples, Phoenix and Miami in the US over the last five years

    Based on what I have read in the Economist, I don’t think this is an accurate comparison of the markets. Their graph shows the US/UK/Aus compared to Japan zero-based to 1980 vs. 1995, and the appreciation of the western markets is greater than japan by a ratio of 1.2:1 over those 15 year periods.

    Bill Fleckenstein wrote an interesting article today about the possibility – but IMHO he is not exactly the voice of pragmatism as he tends to be as extreme in his bearishness as Cramer is in his bullishness.
    Generally, I think using Japan as an example of what will happen is extreme. That could happen, but I would not say it’s a likely scenario. There are plenty of differences between Japanese economic system and ours which impeded their ability to recover – plus we have the advantage of being able to learn from their mistakes.

  52. 52
    Schaum says:

    You can find the NPR piece on WA foreclosures at this link. (It was broadcast Wednesday morning on the show “Weekday”.)

    http://www.kuow.org/programs/weekday.asp?Archive=08-08

  53. 53
    Joel says:

    Psssh, 90 year mortgages? Talk about no creativity. In America we have the infinite mortgage, where you never have to pay off any of the principal.

  54. 54
    TJ_98370 says:

    Garth,

    With respect to the Japan vs US real estate / credit bubble I will agree that there are major differences, such as real estate in Japan inflated faster and higher than what’s happened in the US, and that the Japanese stock market helped fuel their real estate bubble. I also personally do not believe we are going to see anything near 80% depreciation in real estate.

    However, the major similarity that is worth looking at is how willing Japanese / U.S. real estate buyers were / are to accept the “real estate always appreciates” mentality and then use risky, exotic financing to purchase real estate to avoid being “priced out forever”. From what I’ve read, many Japanese families suffered severe financial difficulties after becoming upside down on their real estate purchase made during the bubble. Educating readers so that they may avoid that possible fate is one reason the Seattle Bubble blog exists!

  55. 55
    Schaum says:

    Misterbubble: just to clarify, I’m not the physicist or the person who makes psychology outlines… I simply chose the name “Schaum” because it’s German for “foam/froth”…

  56. 56
    SunTzu says:

    Can’t say I’m always a fan of our esteemed President but he’s got this one right!!

    Bush against lifting Fannie, Freddie mortgage cap
    http://www.marketwatch.com/news/story/story.aspx?guid=%7B550D5AFD%2D3900%2D411A%2D8EA4%2D8CD2E28AD678%7D&siteid=rss

  57. 57

    […] King County’s SFH median price has fallen 18% from the July 2007 peak of $481,000 to $395,000 in November.  So much for “positive job growth” and “low interest […]

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