Okay so this is old news to any of you that have been following the mortgage mess as it unfolds, but it’s worth bringing up again to point out the fact that Elizabeth Rhodes at the Seattle Times has finally admitted what a mess we’re in:
The evening before their home purchase was to close, Gary Becker and his wife, Amy Dacus, learned their mortgage to buy a Woodinville home had evaporated.
Unlike subprime borrowers defaulting on loans, the couple had a stellar credit score, a 20 percent down payment, strong employment history and had effortlessly purchased three prior homes.
But their new home’s $670,000 sales price was large enough to require a “jumbo” loan, so named because it was for more than $417,000, the limit the nation’s largest mortgage backers will fund.
Their California mortgage broker had unexpectedly lost its ability to provide jumbos — an event being repeated by lenders nationwide as the underlying funding for these large loans grows scarcer.
Now wait just a minute here. Didn’t anyone tell the nation’s largest mortgage backers that Seattle is Special™? It’s just not fair that “jumbo” here means the same thing as it does in Ord, Nebraska. “Jumbo” in Seattle should be, like, $4.17 million, or something. Just because we’re buying ridiculously expensive houses up here doesn’t mean that we’re a higher credit risk. Come on!
Seriously though, here’s the most interesting part of the article, where Ms. Rhodes provides some actual statistics… (emphasis mine)
Nearly half of the single-family houses for sale in King County, plus 21 percent of the condos, have sales prices high enough to require jumbo loans — and that’s if buyers reduce their loan amount by putting 20 percent down.
Despite the dire tone of the article, jumbo loans are not disappearing entirely. However, they are certainly becoming much more difficult to obtain. Is there anyone out there that thinks making mortgages for nearly half the houses in the county exceedingly harder to obtain isn’t going to result in a strong downward pressure on prices? Anyone rational, I mean.
Let’s follow up yesterday’s heavy downer of a post with some lighter fare. I think it’s time for another link roundup.
So you say they’re not making any more land, huh? Well, maybe not, but that doesn’t mean we’re running out of places to build houses. No, I’m not talking about condos. I’m referring to something a little more green…
A few years back, when Lolly Shera’s son was 9, he peppered their yard with four treehouses he banged together from scrap lumber, like a modern-day Huck Finn.
His mom can still glimpse some of them — from the window of her own treehouse, a professionally built getaway she uses as an art studio.
…
Unlike the kiddie versions, Shera’s Fall City treehouse has power, insulation, plug-in heat, alder paneling, stairs and a deck. Its expansive windows mimic the fire lookouts she stays in when she’s hiking and climbing in the backcountry.
Check out some of the pictures. Those things really are amazing.
Rental rates have increased in West Seattle by 7 percent to 10 percent in the last year, but the demand for rentals is stronger than ever.
“For landlords, this is the best rental market I’ve seen,” said Mike Gain, of Cayce and Gain Real Estate Management. “We don’t have any vacancies that just sit.”
…rental rates have climbed “back to reasonable rates,” said Gain.
So if you read a little bit into that last line there, you’ll catch the implication that rental rates for the last few years have been artificially low, and their recent increases are simply a return to the mean. That sounds fairly reasonable actually, and makes the media’s scare-mongering over rent increases even more amusing.
Over in Ballard, some developer is apparently unaware of just how late to the party they would be if they began yet another condo conversion in a year or two.
Officially, Lock Vista residents don’t even know for sure they’ll be ousted. But a city inspector canvassed the buildings earlier this month offering “condo conversion” as an explanation, residents said, and that was enough to set off a chain reaction that’s led to an outpouring from community members — including a number of other Seattle residents who say they also lost their apartment homes to condos recently.
Seattle condo-development company the Northlake Group is interested in buying the apartments. But Lock Vista residents don’t even know exactly who’s selling the complex; they’ve never met their landlord. John Fox, a representative of the Seattle Displacement Coalition, said the apartments belong to a Bellevue-based businessman.
A wise real estate investment eight years ago has put King County in position to possibly consolidate more services downtown in a new King County Administration Building at no new cost to taxpayers. The economics of replacing the deteriorating, 37 year old administration building would be strengthened with the possible sale of the eight-story King Street Center in Pioneer Square.
Unsolicited private sector inquiries into possible purchase of King Street Center illustrate the high demand for quality office space in Pioneer Square. Analysts think the county could possibly sell the property for more than double its original $65 million cost. If the county gets the price it wants, it would move two of the county’s largest departments from King Street to a planned new Administration Building at Fourth and James. The consolidation would create new efficiencies and give citizens easier access to services.
“Our smart investment in King Street Center could return tremendous new value to citizens in both dollars and services,” said King County Executive Ron Sims.
Yeah, it was a “smart investment” to buy property in 1999, just before the biggest real estate bubble the nation has ever seen. Not “lucky,” but “smart.” Because, you know, they saw the bubble coming.
I don’t know about anybody else here, but I for one am a total sucker for Dr. Laura. Thanks to a company department picnic, on my way home from work today I had a rare opportunity to partake in this particular indulgence, and I heard an interesting call. Here’s an excerpt:
If you can’t listen to the audio, here’s a partial transcript:
Ryan: When my husband comes home from work today—if he comes home, ’cause he’s calling and saying he’s not going to come home—I’m wondering how, or what to say to him. He had like, a flip out last night that continued into the morning. I actually had to leave with our kids because he was actually breaking things. This is not typical behavior of his at all, and I’m just really nervous—
Dr. Laura: Was he drinking?
Ryan: He doesn’t drink, no.
Dr. Laura: What do you think caused this big flip out?
Ryan: Well, we bought a house two years ago, and ever since we bought the house it’s always been “we bought it because you wanted it,” and every time we have financial struggles, it’s my fault because we bought a house that he said we shouldn’t buy, so… that’s… I guess the stresses of the house are getting more intense because our interest is going up so it’s been sort of like the past month I’ve been hearing him talk a lot about that.
Dr. Laura: Well, wait a minute. You mean, you bought a house when you really couldn’t afford it?
Ryan: There you go. [nervous laugh] Exactly. Exactly. And I kinda pushed to buy the house because I thought we could, even though I really should have listened to him…
You should take the time to listen to the entire three-and-a-half minute call (player below). Due to the format of Dr. Laura’s show, we don’t know where Ryan was calling from, but thanks to your friendly neighborhood housing bubble, situations like this are playing out across the country with increasing frequency.
For anyone that is confused about the title of the post, be sure to check out the original “Suzanne Researched This” commercial:
Aubrey Cohen of the P-I reports on the continuing trend of the increasing number of local foreclosures. Skipping over the article’s pointless comparisons with other parts of the country that are clearly ahead of Seattle on the bubble-bursting curve, here’s the meat of what’s going on around here:
Area foreclosure filings in July were up 21.5 percent from June and 44.6 percent from July 2006. Filings in King County alone were up 27.8 percent from June and 34.2 percent from July 2006.
Washington state filings were up 8.9 percent from June and 49 percent from July 2006. Nationwide, filings were up 9 percent from the previous month and 93 percent from a year earlier.
Here’s a graph of monthly King & Snohomish foreclosures since October of last year, to help you visualize the recent trend:
Nobody worry though, despite rapidly decreasing rates of appreciation with almost certain price deflation on the horizon in the face of a much tighter lending market and a possible national recession, Seattle is different from the rest of the nation and will soon see foreclosures level off. They definitely won’t continue rising to eventual record highs. Why would they? I can’t think of a single reason.
As the mortgage industry begins to crumble and home prices are declining across the nation, the local media and blogging real estate insiders seem to be getting a bit anxious. Maybe it’s just me, but take a look at some of the recent headlines:
Many recent reports such as these seem to have a tone of: “I swear, the housing market in Seattle is still strong! The mortgage mess won’t affect us at all, really!” Who can blame them, really? What else are people whose income depends on the continued strong performance of the local market going to say?
You’ve probably all seen the “Cycle of Market Emotions” on other housing blogs:
The Cycle of Market Emotions
Although it takes an ounce of actual critical thinking to see the cracks in Seattle’s housing market as of now, I believe that those most involved in the market can feel it in their bones. Whether they are consciously aware of it or not, the fear of what’s about to happen is starting to come through in what they write. Based on what I’m reading out there, I would place the general market sentiment in Seattle right now at somewhere between “Anxiety” and “Denial.”
Of course, some people are more willing than others to be frank about the situation facing us today. To her credit, Jillayne Schlicke over at Rain City Guide appears to be one of them, recommending in a frank post about the snowballing troubles at Countrywide, she recommends that employees there “polish your resumes and quietly begin making inquiries.”
And let’s not forget our old friend at the P-I, Bill Virgin, who pipes in on the ongoing mess with his usual wit and insight:
You can’t help reading the accumulating horror stories in the mortgage market… without shaking your head and wondering, “What were they thinking?”
Not the borrowers. The people making the loans.
The borrowers certainly deserve to be asked, “What were you thinking?” The explanations offered in answer range from, “I didn’t read it” to “They didn’t explain this to me” to “Maybe I fudged the numbers a bit” to “I didn’t count on my job/the housing market/ interest rates/the economy going bad on me.”
If ignorance born of laziness is unattractive in consumers, it’s inexcusable for the industry that was generating and selling these loans. Alternative explanations are hardly more absolving: Inexperience (”Housing markets only go up, right?”), hubris (”I know what I’m doing, those other clowns don’t.”) or greed (”As long as I get the loan made and sold, it’s not my problem.”).
The real world is not tolerant of such excuses, and it is a harsh grader on those who ignored, or never learned, the principles of responsible financial management.
Of course, it’s my opinion that anyone who didn’t see this kind of mess coming years ago was either not paying attention or willfully ignorant. I leave it as an exercise to the reader to determine which group of people falls into each category.
Who can say how this is all going to unfold in the coming months and years. All I know for sure is that these are definitely interesting times.
Last week Tim had a great post on median prices, where he looked at sales by area of the county, and showed that sales had remained strong in the high end locations while they had dropped away in the lower-priced areas. It was great analysis, and it got the wheels turning in my head - with average price data at the right level, I knew that we could really show how the distribution of sales prices was changing. Of course, the MLS likes to make this data as difficult as possible to come by, so I wasn’t able to dig any deeper.
Then while reading a blog this morning I found this link for MelissaDATA - which is the company that sells your name to all kinds of people when you buy a new house. One of the other things they do to tempt buyers of that data is show the number of sales and average price per sale by zip code. They had data back to 2001.
After a whole lot of point, click, cut and paste activity - I now have a distribution that shows the average price of a home sale and the number of sales by zip code for all of King County by month for the last 6 years. With about 75 different zip codes to report, I was able to put together a histogram that I think should approximate the sales price distribution in the overall market.
This chart pretty clearly shows that the sales volume has dropped year over year in the lower priced zip-codes while the high-end “tail” of the distribution has remained fairly consistent. In comparing 2007 to 2005 and 2006, the shape of the distribution appears flatter and more skewed to the right.
More support for Tim’s contention that the median price doesn’t tell the whole story.
Update:
Here’s another look at the data based on JP’s excellent suggestion in the comments. In order to normalize away the shift in the median and just focus on the shift in the volume by neighborhood, I assigned each zip code to a decile based on their 2005 average price and sales volume - such that each decile contained about 10% of the sales volume for that period (not exactly as you can see, because the sales are grouped by zip code so they are kind of “lumpy”). I then compared the distribution of sales in 2005 to the distribution in 2007 for these decile assignments. I also reduced the data set to just the last two months, as I wanted to focus on what the impact of the subprime fallout has been. As you can see in the chart below, the shift isn’t huge - but the percent of total sales in the top five deciles has increased as a percent of the total market. In 2005 the top five deciles was 52.4% of total sales. In 2007, this has increased to 55.6% of total sales. Put in context of total sales, the volume in the top five deciles has dropped 55% (from ~6,400 to ~2,900 homes) while the volume in the bottom five has dropped 60% (from ~5,900 to ~2,300 homes).
As JP points out, this does assume that the “mix” of homes by zip code remains constant over time (e.g. Medina remains relatively high while White Center remains relatively low) but given there is only a two year span between the data sets, I think this should be a safe assumption.
Thanks for the comments and suggestions. Keep them coming!
