Seattle Bubble

• Tens of Thousands of Subprime Loan Resets Coming to Seattle
• WaMu Cuts Home Equity Credit + More Financing News
• More Bad News for WaMu
• Number Of Realtors Surges
• WaMu: Goodbye, Home Loans

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35 responses so far ↓

• 1 ShootDaMessenger // Aug 17, 2007 at 10:26 am

  The Wall Street Journal had an interesting opinion article today looking at how housing price tracks commodities. The article showed real estate price index tracked commodity price index over time. Whenever housing price index drops below commodity index, real estate always adjust up to meet the commodity price index over time. The conclusion: Real estate is underpriced by 30% based on current commodity / housing price index and is set for appreciation over time.

• 2 Rob Dawg // Aug 17, 2007 at 10:49 am

  Washington State is 0.6 points less exposed to sub-prime than the rest of the nation. Go us!

  And Washington State is eleventeen times more exposed to California Equity Locusts than the rest of the nation.

• 3 Grvetti // Aug 17, 2007 at 11:00 am

  Seattle’s special, our mortgages come from Leprechan’s at the ends of rainbows… not sure what this article’s talking about…

  Although, mortgages under 417K? is that even possible in Seattle?… oh well, I’m sure it’ll have no affect.

• 4 mike2 // Aug 17, 2007 at 11:51 am

  I’m reading JLS and Windermere’s response to mean that “subprime” tightening (specifically) isn’t affecting sales.

  I’ve heard from individual agents that the mortgage market in general IS causing a significant sale slowdown locally, though there’s no proof that subprime is the culprit.

• 5 deejayoh // Aug 17, 2007 at 11:51 am

  I’ll reiterate what I heard from my data point of one: Friend who is an independent mortgage broker is saying he can’t find loans for any of his customers. He did almost exclusively Alt-A in the past.

• 6 rose-colored-coolaid // Aug 17, 2007 at 12:02 pm

  ShootDaMessenger, did the journal even consider that commodities could be overpriced as well? In my mind, the major difference is that demand for real estate is local. As in, if everybody left Seattle, prices would plummet. Just because prices are plummeting doesn’t mean we can ship that buyers. Whereas, you can ship copper to whoever has use for it.

• 7 ShootDaMessenger // Aug 17, 2007 at 12:18 pm

  No, article made no comment on commodity pricing. Deflation could defintely wack commodity prices with serious implications for housing if the linkage between real estate and commodity price is true. And yes, real estate is local so article referred to aggregate US housing market.

  Inflation is a great driver of real estate price appreciation

• 8 softwarengineer // Aug 17, 2007 at 12:44 pm

  THEY’RE LOWERING SAVING RATES 0.5% TODAY TO SAVE A STOCK MARKET PANIC DUE TO THE SUBPRIME FIASCO

  Oh that’s wonderful, now we can all retire at age 80 instead of 77, as our 401Ks potential to support us, continues to shrink.

  That should plug up all the new job opennings for first time home buyers, unless we die first or inherit a fortune to retire.

• 9 SunTzu // Aug 17, 2007 at 1:27 pm

  “real estate price index tracked commodity price index over time”

  Correlation should not be confused with causality

  Other than copper, lumber, concrete, plastic not much else goes into a house.

  Of course housing will come back even if there’s a correction, none is saying this is the end of housing.

  I just plotted the growth of my toe nail against the housing price index, overtime the length of my toe nail in aggregate tracks the index. Go figure!

• 10 Greg Kirkos // Aug 17, 2007 at 1:48 pm

  I think the restrictions on Jumbo loans will definitely have an effect. With many homes above $500k in Seattle, buyers will now need more than $80k down. That’s a lot of cash.

• 11 Ubersalad // Aug 17, 2007 at 2:10 pm

  I believe lending —> real estate.

  Whatever is happening with lending will directly effect real estate.
  Those die hard lenders that are still floating against the wind will be in trouble soon.

  Btw, check out ING, they are one of such lenders.

• 12 david losh // Aug 17, 2007 at 2:29 pm

  What? Sub prime market crashing, thousands of mortgage loan generators going back to being school bus drivers? What is the deal with you guys? The Fed is here to save the day! Housing is driving our economy. Did you really think your government would turn it’s back on the biggest ponzi scheme in history? It’s global man! You can’t stop it.
  European stock market is jitttttery. China needs dollars to move those shirts we all buy over at the WALMART three for five dollars.
  Sub prime? What does that really mean? Does that mean your local bank has already taken as much as it can from unsuspecting borrowers? Does that mean we need another set of loan products from FHA, or VA? Really what does it mean? It means our government is stepping up to genereate more tax dollars to give more huge American Corporations relief.
  In my opinion, if housing goes, Home Depot goes. If Home Depot goes, we can’t move those refrigerators.
  We’re talking jobs here! We’re talking global melt down and the end of the world as we know it! Isn’t that our governments job; to protect us from threats of biblical proportions?

• 13 rose-colored-coolaid // Aug 17, 2007 at 2:45 pm

  SunTzu, it might only be a few years until only concrete and gypsum are required. When that happens, the cost to build a house in almost any shape (dome, curves, lines, whatever) would be pennies on todays dollar. I don’t think most people realize how much impact this will have on the price of the building itself. These concrete shells are likely to be more energy efficient, last longer, look more unique, and still be cheaper. You can have curves on outside walls and normal boxes inside. The house is fireproof, but no asbestos. And just imagine this happening while we’re in the middle of a housing crash. Builders who lose their jobs will probably never get them back.

  check this out

  This is a cool video demonstration of the technology on YouTube.

• 14 david losh // Aug 17, 2007 at 3:06 pm

  OK, I took a shower and got ready for my busy day in the Real Estate business.
  The comment about concrete housing is very true. I spend a lot of time in what most people consider the Third World, North Africa and South America. I was in Mexico this past week and a set of about twenty guys built a commercial building next door to our hotel. They built it using rebar, concrete and bricks, laid the whole thing out with string and used string to make the walls plumb. It’s an amazing thing to watch, and I’ve seen it all over the world.
  We here in the United States are very special people with very special ideas about how the world works. We are spoiled rotten. The Fed left interest rates artificially low, again in my opinion, to create this paper wealth. If I cash out my wealth and take my money to South America I can now invest it the same as I can from anywhere. I don’t need to be here, nobody does. We chose to be here.
  That paper wealth is driving thousands of economies around the world. It’s all funny money. It really makes no difference at what rate that money is floating but cheaper is better for everybody.

• 15 j // Aug 17, 2007 at 4:02 pm

  advice wanted…we are considering buying but are really nervous about buying. Found a house, shoreline, 250K, and are approved (fixed, 10% down). Would you do it now? planning on staying at least 10 years. Just wanting to see the opinions.

• 16 Greg Kirkos // Aug 17, 2007 at 4:33 pm

  I bought a townhouse in Fremont/Ballard for $475k last year. Another one right around the corner, same size, same #bed/bath, same quality just sold for $599.
  In one year. Apparently this is an anomoly?

• 17 Ubersalad // Aug 17, 2007 at 4:46 pm

  Good luck Greg. After this summer peak, it might take a miracle to sell.

• 18 geon // Aug 17, 2007 at 4:51 pm

  Anomaly? Nope…just another greater fool.

• 19 Colin // Aug 17, 2007 at 5:06 pm

  Meanwhile Californians prove their idiocy by lining up to withdraw money from Countrywide branches throughout the state.

  It amazes me how the media can perpetuate one comment into reality. Anyone who thinks CW is going under doesn’t understand mortgage, or business in general.

• 20 redmondjp // Aug 17, 2007 at 5:16 pm

  Greg,

  What’s your point? If you primary reason for buying was as an investment, and you want to turn your paper profits into real ones, sell now! If you just wanted a place to live and can afford it, and won’t be really mad if the value drops below what you paid (and I’m not saying that this will happen, BTW), then by all means stay where you are at.

• 21 arraya // Aug 17, 2007 at 7:08 pm

  Colin,

  Why do you think CW can not go under? They own almost 11,000 homes nationwide (not by choice) and climbing, have 100 billion or so loans in their warehouse line that they cannot sell on the secondary market, Mozilo (CEO) sold all 11 million shares of stock over the last year(needless to say that is a big vote of no confidence), cut out selling all subprime and alt-a loans (about 50% of their business and still have not laid off any of thier 54K employees. That is just bad business and IMO prime to go BK

• 22 deejayoh // Aug 17, 2007 at 8:06 pm

  It amazes me how the media can perpetuate one comment into reality. Anyone who thinks CW is going under doesn’t understand mortgage, or business in general.

  you should probably educate us Colin, because Countrywide owes me $4k in escrow from my mortgage settlement, and I’m skeptical of getting paid.

• 23 kpom // Aug 17, 2007 at 8:38 pm

  Countrywide deserves to go under, as a consequence of its nonexistent lending standards.

  There is no reason for firms to worry about doing risky and dumb things, if they think that the Feds will always bail them out.

• 24 magnolia44 // Aug 18, 2007 at 9:38 am

  I call BS on the Ballard Fremont townhome selling for 599k recently care to show a link? Take a look those townhomes are sitting in Ballard Fremont with reductions you will be lucky to break even if you stick around longer…just sayin

• 25 finance // Aug 18, 2007 at 9:55 am

  softwarengineer - You should stick to your day job, as it is apparent you dont understand what the FED did yesterday.

  Banks go to the FED to borrow money at the Discount Window at 6.25% and they lowered the cost of borrowing to 5.75%, thus a 50bp reduction in the cost of capital. Since it is now cheaper for banks to borrow money it will expand borrowing and allow companies to borrow on better terms with banks. There is now more liquidity in the system since the FED encouraged borrowing from them, when normally they discourage borrowing (since they are the lender of last resort).

  What did you mean by your comment on retiring several years later and the fed lowering the savings rate? The savings rate is the percentage that the avg american retains of their income. Most stats show this negative, yet dont include real estate investment in your home and other misc areas that are hard to calculate (options, some trusts, and stuff).

  P.S. The FED Funds Rate is seperate from the Discount Rate…There is currently a 100% chance of a Fed Funds Rate cut by 0.25% on Sept 18th by the futures market…and the futures market has always been correct in its anlaysis of the FED’s decisions (yes it is true as of the day before the FED meets, whatever the futures market predicts happens, at least 100% of the time in the past).

• 26 CCG // Aug 18, 2007 at 10:25 am

  “Whatever is happening with lending will directly effect real estate.”

  My tagline for WA is “stupid money ends the same way everywhere.”

  “Isn’t that our governments job; to protect us from threats of biblical proportions?”

  “What has always made the state a hell on earth has been precisely that man has tried to make it his heaven.” - Friedrich Höderlin

• 27 CCG // Aug 18, 2007 at 10:41 am

  “That is just bad business and IMO prime to go BK”

  The reasons you give might make sense in the real world, but CFC is one of the Fed’s primary dealers and therefore subject only to the Pink Pony reality of the corporate kleptocracy. Like Fannie Mae, which rocketed 10% in the depths of Thurday’s mid-day 300-point pukefest after they reported a 36% drop in profits in 2006, the tardiness of which has somehow not gotten them delisted. It would be like me getting an A+ and a roll in the hay with the smoking hot teacher after turning in my homework over a year late and having been caught cheating on the exams.

  Too bad no one’s even outraged over this anymore. They’re too busy trying to figure out how they can get in on the scams.

• 28 CCG // Aug 18, 2007 at 10:44 am

  “There is no reason for firms to worry about doing risky and dumb things, if they think that the Feds will always bail them out.”

  The world financial system in a nutshell. Moral hazard much?

  Of course, the consequences can’t be eliminated, only delayed. It’s like rolling a snowball up Mt. Everest.

• 29 Skydiver1013 // Aug 18, 2007 at 10:26 pm

  According to Seattle Real Estate, agent’s house prices only climb, never fall. A big pull back for Seattle is a drop to normal 4% growth. So 2006 $450K, 2007 $599K, 2008, $670K, 2009, $789K, 2010 $965K, 2011 $1, 299,756.22. Are you a lemming, moron, or realist?

  1) Puget Sound house inventory is up, sales are down. Every month inventory continues to grow while sales continue to decline. Nevertheless, house prices YOY are up. FACT! Only one way to reach equilibrium, reduce the price to clear the inventory. We are talking about a 20% to 30% PULLBACK in price.

  2. Its hard to get a loan due to sub-prime mortgage meltdown. In addition, Jumbo loans costs are way up and most do not qualify. Try to buy a Seattle area house without a jumbo. This disqualifies buyers from being funded, reduces sales, and promotes house inventory growth.

  3) House cost is just too high. Homeowners moving here from TX, GA, PA, HO, IA, IL, NM, or all but six States do not have the 20% down from their home sale needed for a Seattle down payment. They need to rob their 401K money taking a 10% early withdraw hit plus 25% tax hit. I bet people everywhere are tripping all over them selves to move to the only place in the country where house prices have not pulled back.

  4. Boeing and Microsoft have 500,000 employees making $135,000 a year each to buy $650K homes. HA!!! Nothing like that number, more like 7,000 to 10,000 over the next two years. Most make between $65K and $85K a year. About 20% make $85K +. In addition, they have to have $100,000 cash for down or 80/20 loan, which is not available anymore. If new employees move from CA, FL, NV, AZ they have a beating trying to sell their home. CA down 22% over the past year. This problem promotes inventory growth and reduces sales.

  When you took economics in college and studied ‘price vs. inventory’. What happens to price if there is a housing shortage? With a housing surplus, what should price do to clear inventory? Of course, if I was a Real Estate agent whose income is linked to the closing price will I be a pumper. In addition, if I am selling my house I will believe my agent even after my house has been on the market for over a year without selling unoccupied.

• 30 finance // Aug 19, 2007 at 12:21 am

  I just refinanced with Countrywide on Monday (when the loan got funded) and it went smoothly and my good friend (which just happens to be hot) did an extremely good job in makeing it work and was up front with everything. The best part was that it was super cheap since I refi-ed with the same company (yes I compared) and my Break Even point is almost a year. Not too shabby!

• 31 JohnnyBigSpenda // Aug 19, 2007 at 10:06 am

  I stumbled across this gem:

  “A banker is a fellow who loans you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” Mark Twain

• 32 JohnnyBigSpenda // Aug 19, 2007 at 3:26 pm

  The failure of central banking
  Stephen S. Roach
  Chairman, Morgan Stanley Asia

  For the second time in seven years, the bursting of a major-asset bubble has inflicted great damage on world financial markets. In both cases–the equity bubble in 2000 and the credit bubble in 2007–central banks were asleep at the switch. The lack of monetary discipline has become a hallmark of unfettered globalization. Central banks have failed to provide a stable underpinning to world financial markets and to an increasingly asset-dependent global economy.

  The current post-bubble shakeout is hardly an isolated development. Basking in the warm glow of a successful battle against inflation, central banks decided that easy money was the world’s just reward. That set in motion a chain of events that has allowed one bubble to beget another–from equities to housing to credit.

  When the bubble burst in early 2000, the optimists said not to worry. After all, Internet stocks accounted for only about 6% of total U.S. equity-market capitalization at the end of 1999. Unfortunately, the broad S&P 500 index tumbled some 49% over the ensuing 2 1/2 years, and an overextended corporate America led the U.S. and global economy into recession.

  Similarly, today’s optimists are preaching the same gospel: Why worry, they say, if subprime is only about 10% of total U.S. securitized mortgage debt? Yet the unwinding of the far broader credit cycle gives good reason for concern–especially for overextended American consumers and a U.S.-centric global economy. Central banks have now been forced into making emergency liquidity injections, leaving little doubt of the mounting risks of another financial crisis. The jury is out on whether these efforts will succeed in stemming the rout in still overvalued credit markets. Is this any way to run a modern-day world economy? The answer is an unequivocal “no.”

  It is high time for monetary authorities to adopt new procedures–namely, taking the state of asset markets into explicit consideration when framing policy options. As the increasing prevalence of bubbles indicates, a failure to recognize the interplay between the state of asset markets and the real economy is an egregious policy error.

  That doesn’t mean central banks should target asset markets. It does mean, however, that they need to break their one-dimensional fixation on CPI-based inflation and also give careful consideration to the extremes of asset values. This is not that difficult a task. When housing markets go to excess, when subprime borrowers join the fray, or when corporate credit becomes freely available at ridiculously low “spreads,” central banks should run tighter monetary policies than a narrow inflation target would dictate.

  The current financial crisis is a wake-up call for modern-day central banking. The world can’t afford to lurch from one bubble to another. The cost of neglect is an ever-mounting systemic risk that could pose a grave threat to an increasingly integrated global economy. It could also spur the imprudent intervention of politicians, undermining the all-important political independence of central banks. The art and science of central banking is in desperate need of a major overhaul–before it’s too late.

• 33 Matthew // Aug 19, 2007 at 8:09 pm

  Countrywide WILL go under. Colin would shed some light, but I have a feeling he is doing a little TROLLING!

  When the CEO and CFO are dumping their options like left and right, and my brother in law tells me that working at CFC right now is “the worst situation it could humanly possibly be”, coupled with the fact that they have by far and away the #1 exposure to the subprime market, why can’t they go under when over 100 lenders have already gone under this year?????

  Why don’t you edumacate us in your infinite wisdom Colin?

• 34 Matthew // Aug 19, 2007 at 9:57 pm

  And don’t give me the “they have multiple streams of revenue” crap either. The #1 thing that has separated CFC from the others is their exposure to subprime…. It allowed them to grow to become #1, and it will lead to their ultimate demise.

• 35 explorer // Aug 20, 2007 at 2:30 pm

  All of this brings to mind that old saw about living and dying by the sword. Greed is only good if you are not affected by the downside. That is very rare, although those that survive may have to live on what they got away with for awhile.

  I left my sword in its scabbard, and its still plenty sharp to cut bread with in a condo built as a condo in a year or two.

  Nice summation of the local potiential buyer market Skydiver1013,

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