Posted by: Timothy Ellis (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.

19 responses to “Radar Logic: Seattle Going Into the Red”

  1. S-Crow

    Never mind that interest rates have quietly (or not so quietly for those in the biz) increased to over six percent for a 30 yr fixed since my last post urging those who have the capacity to refinance, to get busy.

    I think that Steve Tytler, whether intentially or not, has been writing in the Herald about the market changes and that people considering refinancing should move forward with it (at least that is the underlying theme).

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  2. rose-colored-coolaid

    S-Crow, do you have any professional opinion where rates are moving? I have nothing but hunches. However, my hunches say rates are heading north of 7% sometime by mid June. I felt like the 5% rates we just saw were anomalous.

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  3. blueskitten

    Tha’s really interesting to compare Seattle to the charts for some other cities. The biggest boom cities Miami, Las Vegas seem to have almost no seasonality – a pretty smooth line up and down. By contrast Cleveland and Boston both have very strong seasonality, with annual peaks in late spring; yet the annual peaks and valleys lie pretty close along that same up and down line as the boom cities.

    Seattle’s line seems to be a hybrid of the two extremes; the seasonality was pretty evident until 2004 and then the winter lows didn’t really materialize anymore until this year.

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  4. S-Crow

    Coolaid,

    I argued with my broker at the end of the year (’07) about rates dropping (I said, no way) and he ended up being right, but his tune has changed very recently, so now my broker is probably getting glossy eyed. If rates go to 7%, affordability will probably be increasing while housing price pressure mounts–everywhere. But, until then, I’m going to think about happy things.

    Now that you have me thinking…I’ve found it interesting to track common adjustable rate mortgage index:: LIBOR, 1 yr Treasury, etc.. because ARM’s are tied to these. For example, it is really helping those with resets keep their rates low. On the other hand, I’m reading reports that defaults are occuring prior to these recasting, not necessarily because housing values are dropping; which means that people got in over their heads to begin with.

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  5. softwarengineer

    HI S-CROW, YOU’RE RIGHT

    The witches brew logic I hear makes no sense though, like they assert the economic stimulus package will cause inflation, because its not really needed, and the economy is on the rebound this year type hogwash….therefore, interest rates up .5% this week with good economy inflation fears.

    see the convoluted proof:

    http://maps.yahoo.com/maps_result.php?q1=Steilacoom%2C+WA+98388&rd=1

    My guess is the banks aren’t passing the recent fed fund cuts to real estate mortgages [they don't have to], but they made sure to butcher axe money market savings rates anyway. Its welfare bail out money for the rich banks, courtesy of the Feds….

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  6. David McManus

    Wanna hear an imitation of every realtor right now?

    Plugs a finger in each ear.

    At the top of my lungs….

    “LA LA LA LA LA LA LA I CAN’T HEAR YOU LA LA LA LA LA LA I HAVE NO IDEA WHAT YOU’RE TALKING ABOUT LA LA LA LA LA”

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  7. softwarengineer

    UPDATE:

    Wrong URL Above, here’s the right one:

    http://www.behindthemortgage.com/behind_the_mortgage/interest_rates/index.html

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  8. Sniglet

    What rates are you referring to, rose-colored-cool-aid? If definitely think that Federal Reserve rates will keep dropping all the way below 1% in the next couple years. You can pretty much count on more rate cuts this year.

    However, how that might translate into mortgage rates is a dicier issue. I think it is a fair bet we will continue to see mortgage rates rise for any kind of even slightly risky product (Jumbos, Alt-A, no-doc, small down-payment, etc).

    The big unknown is what will happen to the straight-forward 30-year fixed products, with good down-payments, documentation, and credit history. They could stay where they are, rise, or even fall. I suspect we may see quite a bit of volatility in mortgage rates over the next 24 months as the financial markets continue to reach market prices for all the toxic waste in the system. In the LONG run (30 months, say) I believe we will see rates for super-safe 30-year fixed loans lower than they are today. Most of the other mortgage products won’t even exist.

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  9. TJ_98370

    Kitsap Homeowners Feel the Pain of Subprime Loans

    …..Marvelle Lahmeyer, a housing counselor with Kitsap County Consolidated Housing Authority, said she’s never seen it so bad. Dozens visit or call her Silverdale office each week. She expects quadruple that volume this year. The tissue box is hopping…….

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  10. Sniglet

    I just love this quote from the Kitsap article, “The majority of it is they just got a bad loan”.

    That’s all it is. It’s not that people were trying to live beyond their means, or seeing their homes as money generating machines. It’s just that they got a “bad” loan product.

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  11. rose-colored-coolaid

    Sniglet, I’m talking about mortgage rates.

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  12. matthew

    S-Crow,

    Risk premium is now being factored into all the mortgages being sold, in all flavors. That is why you are starting to see a spread widening between the 10 yr treasury and mortgage rates. Traditionally they move in unison, but right now banks are not willing to buy mortgages in a declining market without a risk premium.

    As the market continues to deteriorate and market conditions get worse, the risk premium will get higher and higher. Despite the Fed cutting rates, mortgages are going to continue to rise as long as being mortgages is risky. The lender wants to be compensated for the additional risk he is taking on his books.

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  13. S-Crow

    From the Kitsap article:

    “Local lenders and housing counselors applauded the move, and say educating prospective homeowners is key to never getting in this mess again.”

    Oh, the irony.

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  14. Sniglet

    “Education” won’t solve anything. It doesn’t matter how knowledgable people are about finances, when a bubble panic grips them they will throw all caution to the wind to avoid being left out.

    Greed will overcome any amount of eduction. Likewise, fear can cause people to panic beyond what is reasonable too. This is why we will have extremes on the downside too.

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  15. deejayoh

    aubrey cohen gave you some props over on his blog

    http://blog.seattlepi.nwsource.com/realestatenews/archives/132383.asp?source=rss

    ever vigilant :)

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  16. Jonathan Miller

    Hey Tim – nice post – the key to tracking real estate markets is getting rid of smoothing. Keep up the great work. I’ll link out to my own blog Matrix.

    Blues Kitten – made some great observations. Seasonality definitely is pervasive in transaction counts but the warmer climates show less. Speculative new development was the key driver in the warm weather markets.

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  17. Amarjit Sandhu

    What goes up must come down! What goes up faster must come down faster!!! Now that is really NOT Physics but must be Seattle Housing Prices.

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  18. anon

    To the poster above who wonders why Miami and Vegas don’t have the strong seasonality of the northern cities: easy, weather. They don’t have harsh winters and so there isn’t a big natural slowdown like up north.

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  19. Cougar

    I’m sure just the beginning of ugly –
    http://windermere.com/index.cfm?fuseaction=Listing.ListingDetail&ListingID=19400437

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