Seattle Clearly At Risk in Credit Retraction

Posted by The Tim on March 24th, 2008 at 10:12 AM · 27 Comments

Speaking of the economy, here’s a headline I never expected to see in The Seattle Times, let alone above the fold on the front page of the Sunday paper:

I guess this is a surprising discovery for some people—something that is considered big news. Here are some choice excerpts from the article:

“If things get really bad, we’ll have all sorts of problems,” said Dick Startz, an economics professor at the University of Washington, who thinks a recession is still unlikely.

Michael Parks, publisher of Marple’s Pacific Northwest Letter and the dean of regional economy watchers, said, “We’re obviously not immune to what’s happening in the national and global economy. We [the nation] came awfully close to systemic failure over the weekend” of the Bear Stearns debacle.

And these are the optimists.
…
WaMu’s troubles endanger a major corporate headquarters, meaning a potential loss of large numbers of well-paid jobs and local giving. And that’s what Wall Street would consider a good outcome — a buyout, which looks unlikely. Otherwise, WaMu will be left to work out its troubles, leaving the area without the economic boost from the institution’s growth years. And if history is a guide, it will still be acquired at the end of the process.

WaMu won’t be the only part of the local backbone to suffer if the recession is prolonged.

Boeing, already stunned by the loss of the Air Force tanker program, could begin to pay a serious financial price for delays in the 787, undercutting its best selling point as fuel-efficient.

Cuts in consumer spending also could damage such leading companies as Microsoft, Amazon and Starbucks.

These companies are responsible for vast wealth creation, through everything from payrolls and the returns for their many local shareholders to their contracts with local vendors.

A continuing credit crunch will reach Washington businesses and could even influence venture capital, a key component of Seattle’s innovation machine.

All these “what ifs” might have seemed alarmist even two months ago. Not now.

Of course none of this really comes as much of a surprise to anyone that has been really paying attention to this irresponsible run-up over the last few years. Smart people like Peter Schiff and Bill Fleckenstein have seen all this coming miles away. Here’s a quote from Peter Schiff in August 2006:

The United States economy is like the Titanic and I am here with the lifeboat trying to get people to leave the ship …I see a real financial crisis coming for the United States.

Some people seem to want to draw some sort of distinction between the impending recession and the housing bubble. That is nonsense. The housing bubble is a direct result of the credit bubble. All sorts of insane risks were taken, loans for hundreds of thousands of dollars were given to people simply because they asked, and now the consequences are finally catching up with us.

Those that say “Seattle didn’t have a housing bubble,” apparently think that the rapid, reckless expansion of credit and all the temporary benefits that came from it did not have any positive effect on Seattle’s real estate market or general economy, and therefore the inevitable retraction will have little to no negative effect here. Again, that is nonsense.

What began as the pricking of a housing bubble has spread over the past seven months into most parts of the economy. Even solid companies and municipalities have had trouble getting loans or selling bonds. The complexity of many financial instruments and the interrelationships among banks have made it difficult to root out the bad bets and keep them from contaminating the system.

The housing bust presents perhaps the most serious obstacle to recovery, according to Douglas Cliggott, chief investment officer for Dover Management. “It’s hard to have an interest rate that makes it attractive to buy an asset that’s going down,” he said.

Indeed. Amazingly, these economic realities hold true everywhere, even here in Seattle.

(Jon Talton, Seattle Times, 03.23.2008)

Categories: News
Tags: economy, Fleckenstein, recession, Schiff, Seattle_is_special, Seattle_Times, Talton, WaMu

Related Posts:

Jump to the bottom to add your comment. ↓

27 responses so far ↓

1 TJ_98370 // Mar 24, 2008 at 10:19 am

Business Spotlight: Rising Foreclosure Rates Begin to Hit Home in Kitsap

……In yet another indication Kitsap County is not immune from the current housing crisis, the number of properties that were scheduled for foreclosure auction during the first two months of this year is 140 percent higher over the same period last year.

About 110 properties were scheduled for auction in January and February combined, compared with 46 in 2007, according to the Bellevue-based ForeclosurePoint.com, which tracks distressed properties for people interested in acquiring them. Most were single-family homes…….
2 patient // Mar 24, 2008 at 10:41 am

This could be good. The banking crises and the feds actions keep the dollar low. The housing bubble causes massive home price declines. Some results are that the low dollar makes US goods and services cheaper in the global market and lower home prices causes a decrease in monthly costs for new US households. A $1000 decrease in mortgage costs easily offsets a $200 increase in gas costs etc, another benefit is that low consumption vehicles becomes more popular and decreases the global warming and further lowers the monthly costs. The lowered household costs makes it possible to keep US salary inflation low and thereby further boost the competetivness of the US goods and services. Makes you wonder if it’s all a clever plan from the fed and government after all…
3 [troll] // Mar 24, 2008 at 10:44 am

Fr ths stll n th fnc:

NWS LRT
frm Th Wll Strt Jrnl

Mrch 24, 2008

xstng-hm sls clmbd fr th frst tm n svn mnths drng Fbrry s byrs pprd t tk dvntg f shrply fllng prcs. Hm rsls rs t 5.03 mlln nnl rt, 2.9% ncrs frm Jnry’s nrvsd 4.89 mlln nnl pc, th Ntnl ssctn f
Rltrs sd. Yr vr yr, sls wr dwn 24% frm Fbrry 2007. Th mdn hm prc ws $195,900 n Fbrry, dwn 8.2% frm $213,500 n
Fbrry 2007. Th 8.2% drp ws th lrgst n rcrd, th NR sd.

Fr mr nfrmtn, s:
< hrf="http://nln.wsj.cm/rtcl/SB120636579684859225.html?md=djmlrtNWS" rl="nfllw">http://nln.wsj.cm/rtcl/SB120636579684859225.html?md=djmlrtNWS

Th rtcl lnk bv s ls mbl frndly. Mbl srs, clck th lnk t s ths stry nw.
4 Ray Pepper // Mar 24, 2008 at 10:46 am

I will pound the table when I say this. Maybe its from being a trader for 15 years.

**Never underestimate the power of the FED. ** The Bernanke bounce in the short term is clearly evident and with todays rally we question was the bottom really put in 2 weeks ago. I doubt it!!

Its an exciting market and the GEMS that I see pop up here and in Nevada are quickly gobbled up.

But as a famous CEO stated 2.5 months ago ” If there is no incentive to stay in your home with declining values, higher taxes. and higher maintenance costs vast numbers will continue to walk from their homes and become renters. If this happens our capital markets will crumble.”

Call me nutts but I’m on the Bernanke bandwagon and I will place a picture of him in our office if he pulls us out of this mess in the next 3 years!

Ray Pepper
http://www.500Realty.net
5 [troll] // Mar 24, 2008 at 10:50 am

Ry Pppr- h wll.
6 AndyMiami // Mar 24, 2008 at 11:20 am

The Fed has become the backstop for failing financial institutions. They have no choice or face a systemic meltdown. And we may still experience a meltdown. As far as Feb’s national existing home sales, the bulls are out on CNBC saying it’s a sign of the bottom…just because Feb sales are up 2.9% vs. Jan 08. Feb sales are down 14% vs. Feb 07. The Feb number is the lowest since 1998. We are only in the 4th inning, and in Seattle, the 2nd inning…
7 redmondjp // Mar 24, 2008 at 11:26 am

Did anybody catch the news this morning? Good news! February housing sales UP–woo hoo!

Um, what’s that? Sales always goes up slightly from January to February? Y-O-Y sales still hugely negative? Hey man, stop being such a downer–now get out there and buy that house before the spring bounce drives prices skyward again!

Like some famous president once said: “Fear is the only thing we have to fear”

Or something like that.
8 Scotsman // Mar 24, 2008 at 11:27 am

Seattle could be involved? It’s as though a small light gets turned on at the end of the hall. Any rats down there?

But didn’t you hear? Home sales are up from last month!!!! No mention of seasonality, no mention of the fact they’re still way down from last year. No mention that the prices are down. Oh well, some win, some lose.

Bernanke is trying to stop a herd of stampeding elephants with a BB gun. Over the weekend several have raised the possibility the the Fed’s actions in “saving” BSC are likely illegal and well outside their charter. This will be fun to watch, especially when it goes to court and part of the process involves taking a look at just what is in those CDOs, etc? Ouch!
9 SeattleMoose // Mar 24, 2008 at 12:22 pm

“But didn’t you hear? Home sales are up from last month!!!! No mention of seasonality, no mention of the fact they’re still way down from last year. No mention that the prices are down. Oh well, some win, some lose.”

In related news….Feb temperatures were warmer than Jan!!!

Sales in Feb are ALWAYS higher than Jan……talk about desperate cherry pickin your sound byte!!
10 alex // Mar 24, 2008 at 12:42 pm

It seems to be a general consensus that Seattle is some 17 months “behind the curve” on the real estate crisis.

Should that trend continue, the rest of the country will start a recovery when we’re right in the middle of our own crisis.

In that scenario, what market forces will hold our real estate prices DOWN while the rest of the nation is going UP?
11 Ubersalad // Mar 24, 2008 at 1:02 pm

Although it was fun talking about bubble and real estate apocalypse in epic proportion, actually reading about it is making me sad…anyone else feel the same?
12 dg72 // Mar 24, 2008 at 1:11 pm

For those still on the fence:

NEWS ALERT

“Regionally, existing-home sales in February rose 2.5% in the Midwest, 11.3% in the Northeast, and 2.1% in the South. Demand fell 1.1% in the West.”

Does this mean I stay leaning towards the renter side of the fence since I think we are considered being in “the West”. Or is Nostra trying to say now is a time to buy because sales are down in the West and prices are down? I’m confused about what this means for people “sitting on the fence”.
13 Ubersalad // Mar 24, 2008 at 1:14 pm

That’s just bad reading skills…

“The National Association of Realtors said that sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It marked the first sales increase since last July, but even with the gain sales were still 23.8 percent below where they were a year ago.“
14 softwarengineer // Mar 24, 2008 at 1:21 pm

AMERICAN HOME SALES UP FOR FEBRUARY

Prices are down though and for the West coast [Seattle], homes sales were down too.

Looks like Seattle is the last roller coaster car to begin the sky dive down the track and we’re following San Diego, like The Tim predicted.
15 Buceri // Mar 24, 2008 at 1:40 pm

Looks like inventory will hit 11000 by April’s fools day.
16 Ubersalad // Mar 24, 2008 at 1:40 pm

Tim can post another joke about shutting down Seattle Bubble.
17 Ira Sacharoff // Mar 24, 2008 at 1:55 pm

dg72,
I’m guessing that Nostra"golly"us was inferring that we may have hit bottom and that if you were sitting on the fence hesitant to think about buying because you weren’t sure where the bottom was, well…there it is!
Me, I disagree and think we’ve still got a year+ before we hit bottom…It never hurts to look at what’s out there, but you might want to get some foam padding and a pillow for that fence.
18 Jaz // Mar 24, 2008 at 2:36 pm

Our economy is based on people buying more and more stuff while making less and less. The government used cheap credit to try to make the two ends of this Hookah Economy meet.
19 Moe Ronn - Realitor® // Mar 24, 2008 at 7:33 pm

“It seems to be a general consensus that Seattle is some 17 months “behind the curve” on the real estate crisis.

Should that trend continue, the rest of the country will start a recovery when we’re right in the middle of our own crisis.

The graph of Seattle’s rise and fall will not be as symetrical as that of other areas which preceeded us. For us, the financial problems have come to a full head just as we’re beginning our descent. This will likely result is some sort of rapid drop, eventually. Although, sellers will hold out as long as they can before they finally accept the inevitable. Many will not reach this point before foreclosure, but once they start coming it will drop the comps for many, many areas. This will begin in the out lying regions, and gradully make its way to King Co. and the Seattle. I should just copy and paste this into a text file on my desktop, since it gets repeated over and over and over again……..
20 christiangustafson // Mar 24, 2008 at 9:55 pm

WaMu’s collapse is guaranteed. They wrote pay-option ARMs, almost guaranteed to fail. They won’t be missed.

Every pumped-up segment of debt is experiencing massive defaults: mortgages, commercial RE, credit cards, auto loans, student loans. And it’s still so early in all this! Major banks will fail, muni bonds will default, and we should be taking a pool right now to see when FDIC falls over.

It can’t be stopped. The best thing .gov can do is stand back and let all of the markets clear.

Well, no. Actually, .gov can help speed the process up by insisting on full transparency, mark-to-market on all financial vehicles, and ending the off-balance sheet games the IBs and banks have been playing.

We can start new banks one day.
21 S-Crow // Mar 24, 2008 at 10:09 pm

Speaking of WAMU…..

Commented to my banker about the fireworks bound to happend at the annual shareholder meeting this April (I think at Benaroya or McCall Hall). MIght be good to get some insight for anyone that attends.

On the topic of Banks….

Frontier Bank should be one to watch locally (stock price) as they are heavily invested in lending to builders both residential and commercial. I hope their exec. staff don’t think that they are “immune” as well and have been planning ahead.
22 Buceri // Mar 25, 2008 at 4:46 am

“In that scenario, what market forces will hold our real estate prices DOWN while the rest of the nation is going UP?”

Alex - you are assuming a quick cycle. If for the past 17 months prices have been falling, then they might hold steady. The “cycle” might take years.

As discussed many times before here - for sales to pick up we need very high salary increases, very cheap money, or home prices to come down to real affordable levels.

Salary increases - well, numbers indicate we are all making less than 6 years ago (when you factor increases in health care insurance, and other prices).

Cheap money - Sure; money is still very cheap; unfortunately, that is if there was any money to lend. Credit Crunch = no money to lend.

Home price decreases - seems like the only option.
23 MarkM // Mar 25, 2008 at 6:59 am

Home prices down another 11.4% in January…. hmmm… still a good time to be a fence sitter it seems.

http://www.usatoday.com/money/economy/housing/2008-03-25-sp-home-prices-january_N.htm
24 BellevueRenter // Mar 25, 2008 at 7:20 am

What is the number for Seattle area this time?
25 BellevueRenter // Mar 25, 2008 at 7:31 am

It appears that Miami and Vegas remain the biggest losers (close to -20%) and Charlotte was the only YoY gainer in the 20-city composite.
26 BellevueRenter // Mar 25, 2008 at 7:38 am

Seattle is sitting at -1.3% YOY
27 softwarengineer // Mar 25, 2008 at 9:15 am

HEY NOSTRADARNUS AND RAYPEPPER: HOMES FOR $1 A PIECE IN THE NORTHEAST

And the Northeast was still suppose to have a likely phony +0.4% YOY???? LOL!!!

See the proof:

http://news.yahoo.com/s/nm/20080325/us_nm/usa_housing_vacant_dc

Jump to the top of the comments. ↑

Do you want a nifty avatar picture next to your name, instead of a photograph of Tim's dog? Just sign up with Gravatar, and make sure to use the same email address in the form below. It's that easy!

Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.