Posted by: 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.

119 responses to “Condo Projects Repartmenting, Rental Vacancy Increasing”

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  1. Markor

    marko says: “I just think if things get very dire, renting could be worse than owning, unless you’re very careful.”

    question: how so?

    See my post immediately above.

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  2. Markor

    Net effect is prices are stickier on the way down than they were on the way up.

    Agreed. That affects my rent vs. buy decision. Suppose the real value of a typical house falls $300 a month for 20+ years. That might be an acceptable cost for those who prefer to own.

    It’s like buying a car. If Seattle Bubblers analyzed cars like they analyze houses, they’d all drive beaters since newer cars depreciate faster. But I bet there’s some nice wheels among the group. They are willing to lose money forever to enjoy the nicer ride.

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  3. B&W Nikes

    Does anyone know whether Japan had anything comparable to the adjustable rate mortgages during their bubble? Did their phenomena have any sequential events equal to tighter lending standards occurring about the same time as monthly payments balloon en masse like the US is on track toward?

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  4. Markor

    Markor said: “Prices could well fall further, but that doesn’t necessarily mean that the best choice is to wait to buy.”

    It doesn’t? Could you please elaborate?

    See my post immediately above.

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  5. deejayoh

    It’s like buying a car. If Seattle Bubblers analyzed cars like they analyze houses, they’d all drive beaters since newer cars depreciate faster. But I bet there’s some nice wheels among the group. They are willing to lose money forever to enjoy the nicer ride.

    Some, perhaps. For me it’s a decision of buy now, or wait 12-18 months. I decided to wait in the crazyness of last fall (2006) after having lost out in 3 multiple bid situations. At the time I was reminded of the “winner’s curse” where the only IPO you can get your hands on is the one that sucks. Now, we’re about 3 months from being back where I got out, and I can take my sweet time picking and choosing. I don’t need to find the absolute bottom (nor do I think we are close to it) If I miss it by six months, that’s ok. I already rode the market up for nine of the last 10 years – so I’m not shedding any tears.

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  6. Garth

    In the Japanese bubble they developed the 3 generation or 90 year mortgage.

    At the peak of the bubble in Japan, just the real estate in Tokyo was worth on paper a few trillion more than all of the property in the US is worth on paper today.

    20 trillion or so in paper value was wiped out in both the stock and real real estate markets.

    There were no CDO’s since CDO’s were invented by our government as a solution to the S&L scandal, banks held most of the loans, and some of the US S&L debt.

    Japan was much much worse.

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  7. rbp

    B&W Nikes – Japan had very little debt, public or private. They were on top of the world economically. Some think the Bank of Japan didn’t lower rates fast enough, but their rates were not that high to begin with. Credit was readily available. No they did not have anything like adjustable rates. China and India were growing rapidily and Japan was the main beneficiary of that growth.

    Their bubble popped, and the Japenese consumer stopped buying, borrowing and investing in the stock market, even though interest rates declined to zero. Instead they increased their savings rate, which already was the highest in the world.

    The social mood changed from optimism to pessimism without any apparent reason. It is believed that mass social mood changes are endogenous, and external causes are for the most part irrelevant.

    Compare that to the US national debt. Including unfunded liabilities, it is over $400,000 for each American family. Considering the vast majority of Americans can’t write a check for $10,000, you can see the untenable situation we are in.

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  8. Markor

    Now, we’re about 3 months from being back where I got out, and I can take my sweet time picking and choosing. I don’t need to find the absolute bottom (nor do I think we are close to it) If I miss it by six months, that’s ok. I already rode the market up for nine of the last 10 years – so I’m not shedding any tears.

    Good strategy. My situation is that I’m relocating w/in the Eastside due to my workplace having moved. I would have rented for a while but was surprised by a relatively great deal that was sitting unsold and that I liked a lot. I don’t like most Eastside houses; I see maybe one house I want every six months. Being picky costs me one way or the other. In normal times I’m outbid, like what happened to you.

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  9. Markor

    Compare that to the US national debt. Including unfunded liabilities, it is over $400,000 for each American family. Considering the vast majority of Americans can’t write a check for $10,000, you can see the untenable situation we are in.

    And yet they still buy their daily $3 latte! And vote Republican (e.g. vote to shower the rich with borrowed money)! You’ve hit on the prime difference between the bubbles. Most Americans don’t have a clue of their true financial situation. That may save us. They’ll still be spending frivolously at the market bottom, so that the bottom is not as deep.

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  10. B&W Nikes

    Thanks rdc & garth – Their example comes up a lot, especially in conversations about prices being slow and sticky on the way down. We have a different kind of bomb to defuse here and now. I also wonder if there is an analogous valuation of NYC compared to the rest of the country, as is often used in the Tokyo comparison. Four bedroom apartments averaging 10 million clams in Manhattan seems pretty over the top.

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  11. Garth

    I’m not sure if rbp’s first paragraph is entirely accurate / in context.

    As for rates, the fed in japan likes to put their rates so low it creates a substantial yen carry trade, the US can’t really do this as other federal reserves adjust their rates based on our fed.

    I find it hard to compare any recessions / crashes previous to the S&L scandal to those post as the impact of the invention of the SIV / CDO seems to be pretty profound.

    Now that these things are no longer liquid and are the problem not the solution, we are in uncharted territory.

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  12. Garth

    NYC data is here:

    http://en.wikipedia.org/wiki/New_York_City#_note-NYC_real_estate

    http://www.nyc.gov/html/dof/html/pdf/07pdf/tent-ass-roll-07-08t.pdf

    Assessed value in 2006 was ~800 billion (search for 71 in the wikipedia article)

    Tokyo was worth 20 trillion in 1990 dollars.

    Manhattan first sold in 1626 for $24, somebody needs to make a excel chart :)

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  13. rbp

    Garth – My first paragraph is a little disjointed, the point I was trying to make was that the Bank of Japan was not tightening, they had a very loose monetary policy. The purpose of which was to try and stimulate the Japenese consumer to borrow, spend, and invest in order to put the brakes on the deflationary collapse that was occurring. It did not work, just like it won’t work here.

    The Yen carry trade was one of those unintended consequences that government programs always seem to create. It’s impact on the Japenese economy was minimal, but it did wonders for expanding credit and leverage world
    wide.

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  14. B&W Nikes

    nice one Garth… but the quote from the NYT Bubbles Hurt article says

    all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time.

    not just Tokyo. If it were true, twenty four 1624 dollars worth of beads must have seemed an impressive haul to grant fishing and hunting privileges to the newcomers. :)

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  15. bitterowner

    “In normal times I’m outbid, like what happened to you.”

    Those were the *abnormal* times.

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  16. Garth

    Internet data of the for the japan bubble is kind of weak, as google wasn’t indexing things, and I don’t think the Japanese did a ton of public analysis.

    I took a fantastic international business class in 1997 and wish I could find my course materials.

    Either way it is a paper peak and the total value at the peak is only a estimate.

    http://www.jahrbuch2000.studien-von-zeitfragen.net/Weltfinanz/Hedge_Funds/hedge_funds.html

    Japanese euphoria over becoming the world’s financial giant, was short-lived. The inflated Japanese financial system, with banks awash with money, led as well to one of the world’s greatest stock and real estate bubbles, as stocks on the Nikkei index in Tokyo rose 300% in a space of three years after the Plaza Accord. Real estate values, the collateral of Japanese bank loans, rose in tandem. At the peak of the Japan bubble, Tokyo real estate was valued in dollar terms greater than that of the entire United States real estate. The nominal value of all stocks listed on the Tokyo Nikkei Stock Exchange accounted for more than 42% of world stock values, at least on paper. Not for long.

    rbp,

    Being that their rate was effectively 0 at points during and after the buble that seems pretty loose. The stock + real estate combo that was in play in Japan at the time I don’t think compares to the current US situation in regards to the impact of adjustments in the fed’s interest rate.

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  17. Markor

    “In normal times I’m outbid, like what happened to you.”

    Those were the *abnormal* times.

    This is true.

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  18. B&W NIkes

    Thanks Garth, fascinating stuff. It looks like there was a powerful element of economic policy muscling from the US and the Europe that drove Japan’s slide well beyond the consequences of their own euphoric rise.

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  19. deejayoh

    FWIW – another reason why I think those Goldman guys are pretty smart…

    How Goldman Won Big on the Mortgage Meltdown

    …The group’s big bet that securities backed by risky home loans would fall in value generated nearly $4 billion of profits during the year ended Nov. 30, according to people familiar with the firm’s finances. Those gains erased $1.5 billion to $2 billion of mortgage-related losses elsewhere in the firm. On Tuesday, despite a terrible November and some of the worst market conditions in decades, Goldman is expected to report record net annual income of more than $11 billion.

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