Sorry no stats or graphs from me, just in the trenches reporting.
Snohomish Co. Update:
My wife is off providing sterling service tonight in Issaquah for clients who are buying/selling a home, (yes, we do business all over) so I’ve got some free time to do a bit of blogging and research.
There are a quite a few homes both listed and FSBO that are short sale candidates. That means that if the existing homeowner were to get an offer, the lender would have to agree to take an amount less than the sum of their encumbrances.
After researching about 15 properties that were short sale candidates, I stopped. What’s the point. The story kind of repeated itself. Basically, the gist of it is that I see home prices “softening” further. Many short sales are in neighborhoods that were recently built in 2004, 2005, 2006, early 2007. 100% financing was the primary type of mortgage on just about all of these short sale candidates. Lots of sub-prime lenders financed these homes, some of which are no longer around. This really is the story that we are going to have to get used to.
If interest rates continue to stay low and prices continue to have downward pressure, those who can buy will be receiving much more house for their hard earned money. So that is the silver lining if you are on the buyers side of the HUD-1 Settlement Statement.
I would love to report that the market in Snohomish Co. is earnestly in the Spring groove for buying but the truth is that the first quarter of the year is coming to a close with sales volumes down YOY , so unless we have quite a change in the credit markets to get things moving along as we enter the prime selling/buying season of April, May and June, it may not be any better than the existing pace we are on.
As it stands, lending requirements have become stringent enough that it is exposing quite nicely how much of the buying in months past really was a function of consumers obtaining mortgages that were setting many up for financial distress. In other words, eliminating the loose lending (I know everyone has read this ad nauseum) has exposed the frenzied market for what it really was—a foundation of quicksand via toxic financing that could only be rescued by ever escalating housing prices. The unraveling of the credit markets, billions in losses and subsequent bail out of Wall Street superfortresses such as Bear Stearns and others (more to come?) shows that on every dollar lost there was an address somewhere in America tied to it.
In January, refinancing did take a very big jump when rates dropped dramatically to about 5% and many people took advantage (those that could anyway).
My belief is that inventory will continue to increase (outpace sales) as some of those listings that were taken off the market in Fall and Winter of 2007 try again this Spring.
In conclusion, the fallout from the mortgage binge and foolish lending is really disrupting markets across the country. It is not different here in the Puget Sound region and I hope the seriousness and disappointment in my tone comes across. Is this really what was intended when we think of the American Dream? I know, I know, it’s just a natural market cycle and I need to get over it.
S-Crow
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19 responses so far ↓
1
Lionel
// Mar 26, 2008 at 10:18 pm
I think it’s more of an unnatural market cycle, S-Corw. I think prices are going to drop much faster, much further than many anticipate, mostly because the credit markets are going to contract so completely in the coming months. Considering the history of housing booms and busts, I believed this one would take 5-6 years to come down. Now I don’t think so. I predict this summer is going to be spectacular, and the fall and winter to be staggering. I think the mess will take years to completely work through the system, but the price drops will happen very rapidly.
2
S-Crow
// Mar 26, 2008 at 10:26 pm
I suppose the quicker the correction takes place the better.
3
Buceri
// Mar 27, 2008 at 4:23 am
Lionel - it will depend on how many are moving by choice. As the weeks go by and the headlines (and reality) make their way to the uninformed seller (”hey, I heard prices are coming down”), many may opt to stay put and/or pull the listing for good (both my neighbors have tried to sell unsuccessfully in the past 2 years). This will leave those moving by necessity (speculators, financial hardship, divorce, job loss/transfer).
It would be interesting to follow population gain in the region.
Conclusion - we could have a scenario where inventory may not show a large increase; but those units for sale are “really, we need to move” type.
Again, interesting quarter coming up.
4
Sandy
// Mar 27, 2008 at 8:30 am
S-Crow–the difference between us in Snohomish county and the people who work just in King County is that we have been seeing this stuff all along but it has gotten worse in the last 6-8 months. Our market is closer to the edge, you could say.
I was just talking to a Seattle agent the other day and said I thought we were probably two years out from a real recovery. She looked at me like I was nuts. But, honestly, I don’t see how a recovery is possible until the market has adjusted to the new lending guidelines and all of the bad risks that have been taken work their way through the system. And I don’t think that isn’t going to happen in a year.
BTW–this is not just a natural market cycle. This is a historical event and a learning opportunity. We are learning every day, aren’t we?
5
vboring
// Mar 27, 2008 at 9:36 am
Buceri -
the people who can most effectively destroy local prices are the people who bought recently with a high loan to value ratio. as soon as they owe more on the loan than the house is worth, they are financially incentivised to go into voluntary foreclosure - to walk away.
because this idea has gotten a fair bit of media attention already, we may see that Seattlites go down this path in larger numbers and faster than people did in other areas.
it has probably already started to happen in the newer suburbs. any neighborhood with a large number of recent high LTV sales will be impacted first, this will drive down prices in surrounding areas, and eventually the older, nicer neighborhoods in the city itself will be impacted.
6
Tsuru
// Mar 27, 2008 at 9:51 am
I was listening to NPR this morning, and they said that nationally, 25% of new mortgage originations are still ARMs! My jaw just about hit the floor!
7
S-Crow
// Mar 27, 2008 at 9:56 am
Sandy-
Yep. I’m thinking of all those local homeowners who have ARM’s recasting this year from 05′ vintage. Nobody likes increasing mortgage payments, so if their loan officer who originated the loans are not in contact with them about the changes in the mortgage market then they will be disappointed in learning that they may not be able to refinance.
8
laxtosnoco
// Mar 27, 2008 at 10:17 am
S-crow, thanks for the thoughts on Snohomish County. Not every post requires 12 charts and a multiple regression analysis.
From my vantage point, much of the inventory growth appears to be concentrated in newer housing developments like Lake Stevens and South County (Mill Creek/unincorporated areas South of Everett). This is where sellers will have the toughest time because these developments tended to be more expensive in the first place, and many were purchased in the last few years at peak prices. I have noticed that older housing stock in areas like Everett proper and Mukilteo is moving (albeit with price drops).
It will be interesting to see how the county fairs. I think there are two vastly different possibilities:
1.) Prices fall faster and further here than in King County, mirroring what has happened in other suburban metro areas around the country (ex. Riverside, East Bay areas of SF). With high fuel prices and an ugly commute to Seattle, I could see why this might happen.
2.) Prices fall less than in Seattle. You can make a case for this possibility because prices are starting from a lower base, and median income in Snohomish County is only slightly lower than in King. Mortgage/rent and affordability ratios are also much more reasonable compared to Seattle. Also, public schools in the county are good overall, and quality of life is high (parks, opens space, access to recreation).
Any thoughts on where we’re headed? Even though I’m still seriously considering buying in the next year, I think #1 is more likely.
9
Bits_of_Real_Panther
// Mar 27, 2008 at 11:03 am
“Nobody likes increasing mortgage payments”
My ARM would re-set to a considerably lower payment today and the trend on the 1 year LIBOR looks flat if not down to me
10
Buceri
// Mar 27, 2008 at 11:05 am
Sandy - it seems everyone is expecting a recovery by the second half of the year; but they can’t tell you the logic behind it.
Is easy money coming back? or are we all getting a 90% raise?
11
Ubersalad
// Mar 27, 2008 at 11:18 am
Those that remains in the Industry have to convince themselves that the end is near and there is light at end of tunnel…or they’ll be out of the industry like myself. So naturally you can assume where RE agent stands.
12
MacAttack
// Mar 27, 2008 at 11:29 am
I am wondering if we will see what we saw in the manufactured-home biz during the 1990s. It was almost EXACTLY the same situation:
* Borrowers who really weren’t qualified
* Intense pressure on buyers and sellers both to consummate a transaction
* All sorts of things accepted as down payment, including thin air - falsification of documents
* Teaser periods expiring after a year or so, at which point
* “homeowners” found themselves under water
And they walked away.
The manufactured home industry was badly wounded as a result of the unraveling, with repos everywhere at 50% off, and sales of new homes off by 2/3. Golden West and Oakwood went BK, though they were snapped up by Berkshire Hathaway (via Clayton Homes).
The industry has still not completely recovered - today Champion announced a plant closure in Silverton, OR.
If history repeats itself, we have at least another year to the bottom, maybe two, and the climb back out may take 5-7 years.
I’m just sayin’…
13
patient
// Mar 27, 2008 at 2:27 pm
Thanks S-Crow for sharing your observations. You write:
“Many short sales are in neighborhoods that were recently built in 2004, 2005, 2006, early 2007. 100% financing was the primary type of mortgage on just about all of these short sale candidates.”
I’m curious if you from all the transactions you have overseen during these years (2004-2007) have a feeling of in what range the average LTV was for sales of new homes in your area (Snohomish)? 95%-100%, 90%-95%,80%-90%?
14
Marc
// Mar 27, 2008 at 3:51 pm
MacAttack,
You’re dead on about the similarities of today’s mortgage market and the mobile home industry’s implosion. The loose lending was unbelievable and led to a massive repo problem that took years to work through. I imagine the run away train that was the ‘04-’07 stick built real estate market made it even harder for the trailer boys to rebound. That is to say, their target demographic suddenly found it remarkably cheap to buy a “regular” house so why bother with a trailer.
15
Sandy
// Mar 27, 2008 at 4:57 pm
Lax–couple of things…I think you have to adjust what you said about Mukilteo because we actually have tons of new construction here and it is having a big effect on our market. We actually have the double whammy–lots of new supply, and prices high enough to be a problem as regards jumbo financing. That makes it actually a little more difficult for us compared to Lake Stevens and areas where prices are lower. So, this market is getting hit harder with price drops than most, plus, about 80% of what is selling is new construction.
Buceri–there is no logic, it’s wishful thinking. It’s a little bit like Ubersalad said, which is that if you are in this business you want to believe that the good times are right around the corner. However, if you’re going to last you have just have to adapt to what IS. What we have now is a market that has rapidly shifted from being very much in favor of sellers to being in favor of buyers IF they can qualify and if they have a long term perspective.
The best part of the Bill Virgin article tim linked to was the part about how what got lost in the last 5 to 10 years was the idea of actually OWNING your home. As in, paying it off. People who have that as their end game are going to weather this storm just fine and those who think their home is an ATM are going to have trouble. That’s the way it is supposed to be, we’re just going back to a way of doing business that never should have been abandoned.
16
laxtosnoco
// Mar 27, 2008 at 5:12 pm
Sandy, you might be right about Mukilteo. I was thinking more about the built-out areas on the north side rather than the ugly behemoth that is Harbor Pointe (yes, I have strong feelings about Harbor Pointe).
That said, is it just me or has your ‘tude changed in the last couple of months? I thought we bubble types were supposed to be the doomsayers.
17
Sandy
// Mar 27, 2008 at 5:33 pm
Hey, go easy on Harbour Pointe. Some of us like it just fine, thank you.
As for the other question…times have changed. Smart people change with them.
18
mike2
// Mar 27, 2008 at 6:10 pm
Wait just a minute. If I read that correctly, you’re saying that paying off debt by taking on more debt is futile? Christ, where were these radical ideas being hidden from 2002-2007?
19
whats my name
// Mar 27, 2008 at 7:47 pm
“My ARM would re-set to a considerably lower payment today and the trend on the 1 year LIBOR looks flat if not down to me”
I got my reset notice today: down 2%. And, as they used to say around here, the resets are just getting started.
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