Case-Shiller Tiers: Low End Spikes Downward

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Posted by The Tim on May 28th, 2008 at 7:00 AM · 128 Comments

Here’s our monthly look at Seattle’s price tiers from Case-Shiller. Remember that Case-Shiller’s “Seattle” data is based on single-family home repeat sales in King, Pierce, and Snohomish counties.

Now here come the graphs. First up is the straight graph of the index from January 2000 through March 2008.

Click to enlarge

At its peak, the low tier’s index was over 15 points higher than the high tier. As of March, the difference has shrunk to 10 points, a clear indication that homes in the low tier are so far experiencing steeper price drops than those in the high tier.

Here’s a chart of the year-over-year change in the index from June 2002 through March 2008.

Click to enlarge

The low and high tiers both nearly doubled their YOY decline from last month. Here’s where the YOY price change for the three tiers sit as of March - Low: -6.3%, Med: -4.4%, Hi: -3.2%.

Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.

Click to enlarge

Declines in the high and mid tiers continued to moderate somewhat, but the month to month drop in the low tier was the largest yet, at nearly 2%. The total decline from peak ranges from 7.0% for the high tier to 8.9% for the low tier.

At this point, even if the index suddenly and unexpectedly leveled off, prices in the three tiers would be down between 7 and 8 percent year-over-year by August. If values continue dropping between 0.5% and 1.0% per month, all three tiers will hit -10% around August.

(Home Price Indices, Standard & Poor’s, 05.27.2008)

Categories: Statistics
Tags: Case-Shiller, Statistics, tiers

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128 responses so far ↓

1 vboring // May 28, 2008 at 7:33 am

extremely good news for first time buyers, sine they normally shop the bottom tier.

bad news for local move-up buyers, since the place they are trying to sell is losing value faster than the place they want to buy.

also bad news for anyone wanting to buy a Hummer using a HELOC.
2 vboring // May 28, 2008 at 7:58 am

btw, if you’re watching foreclosures in order to find the fastest declining neighborhoods w/in the city limits, Beacon Hill and Northgate are the most active so far.
3 AndyMiami // May 28, 2008 at 8:01 am

Tim,

How do these tiers compare with other cities like San Diego and Boston? Given how much ahead of the curve these cities are vs. Seattle, they may give us a decent comparison where the tiers will go to (i.e. down)..
4 The Tim // May 28, 2008 at 8:50 am

AndyMiami,

Here’s the latest post from Professor Piggington, the excellent San Diego housing resource: March Case-Shiller Index: Back to 2003 Pricing

You’ll see that he has a set of similar graphs of the three Case-Shiller tiers. If you click the Standard & Poor’s link at the end of this post, you can grab the spreadsheets for yourself and create graphs for any city you’re interested in.
5 cheapseats // May 28, 2008 at 9:16 am

Anecdotally I would assume that the higher tiers have incomes to wait out price drops, to an extent, but I would assume there is a point where the waiting effects all tiers. May be a bit of an accordion effect at higher tiers eventually.
6 Ubersalad, Ph.D // May 28, 2008 at 9:34 am

This Summer should be the turning point. If price doesn’t rebound and the inventory doesn’t go down, with typical slow season in Fall/Winter, everything will escalate and I doubt many will try holding on another year.
7 AndyMiami // May 28, 2008 at 9:46 am

AndyMiami,

Here’s the latest post from Professor Piggington, the excellent San Diego housing resource: March Case-Shiller Index: Back to 2003 Pricing

You’ll see that he has a set of similar graphs of the three Case-Shiller tiers. If you click the Standard & Poor’s link at the end of this post, you can grab the spreadsheets for yourself and create graphs for any city you’re interested in.

Thank you Tim…
8 alex // May 28, 2008 at 9:49 am

Completely agree with Ubersalad - I think this fall, push will finally come to shove and many stubborn sellers will capitulate.
9 jon // May 28, 2008 at 10:05 am

There have been a lot of news stories about liar loans for expensive houses, but the bulk of the subprime problem is in lower priced areas. That’s where the excessive prices were most extreme, and where the foreclosures are now hitting the hardest. These graphs are a reflection of that.

The inventory growth has slowed considerably this past week. It will be interesting to see if that is just Memorial day, higher sales, slower listings, or all of the above.
10 TheHulk // May 28, 2008 at 10:40 am

There are three types of high tiers.
1. People who can afford the higher price and did not over-reach during the bubble. Obviously a falling asset is a pain point, but if they can pay their monthly mortgage these people can hold off longer. On the other hand a 20% decline on a 600K house is a huge hit and may not be something everyone can stomach. Remember, the same % in the high tier is a naturally a much higher amount. Of course if they took out a HELOC, once again they are screwed and they would fall in #2 below.

2. People who overextended themselves getting a 500/600K house instead of the 300K they could really afford. For them, the declines haven’t really hit home yet, since we are comparing prices from the peak of August 07. Looking at all the houses sitting on the east side though and the absolutely ridiculous prices, it is only a matter of time before reality hits home.

3. The people who are currently paying mortgages on two houses because they didn’t sell the older house in time . These people are in deep deep "chocolate". It doesn’t matter if they are renting the “older” place and hoping to hold off thinking that prices will rebound. These people are facing two declining assets and holding on to both is sheer irrationality.

#3 and #2 are the ones who will lead off the declines in the high tiers. There will be some % of #1’s who will be scared and will jump in as well.
11 [troll] // May 28, 2008 at 10:49 am

Lt’s hv shw f hnds n wh’s stll TMNG TH MRKT fr th “PRFCT” pprtnty t by….?!
12 Ben // May 28, 2008 at 10:51 am

Nostra"golly"Us - I am just looking for when it does not feel like a total disaster to buy.

I don’t mind some measure of reduction or stagnation in value after I buy my next house. I just don’t want to get taken to the cleaners.
13 The Tim // May 28, 2008 at 10:52 am

NDU, we covered this a few weeks ago, but you apparently missed it.

It’s not necessary to “perfectly time the market” to get a good deal on a house.
14 Alan // May 28, 2008 at 11:02 am

I’m not trying to time the market. I’m simple looking for something I can afford that I will be happy in long term. This means prices have to drop or I have to earn more. I accept that I may have to move to another part of the country to buy a home. If I did not think there was a bubble I would probably leave now. If in a few years I discover that I was wrong then I will leave then.
15 biliruben // May 28, 2008 at 11:06 am

Have pity, Tim.

If you shatter all NDUs memes and and scatter his strawmen at once, I’m not sure his psyche can take it. He may become disillusioned, despondent and do something crazy like “forgetting” to pay his mortgage for four months.

Baby-steps. Gentle, easily understood baby-steps.
16 TJ // May 28, 2008 at 11:27 am

If we compare the San Diego charts and the Seattle charts, we’d see the discrepancy among tiers is much more significant in San Diego than Seattle. That probably means the sub prime mortgage fueled boom and bust are much more significant in San Diego?
17 biliruben // May 28, 2008 at 11:51 am

TJ - I think it’s too early to tell. If you look at SD, the tiers moved more closely for the first 18 months or so, with the low-end actually holding up a bit better.

After that, you see the steeper decline of the low-end. My guess is that’s when the low-end flippers and renos with marginal, subprime or CRE loan mortgages started to get shaken out or give up.

We are only 9 months off-peak, and the flipper/ renos may still be holding on here, thinking they can still play the same game they had been playing. It might take another 6 months to a year of playing in a declining market to disabuse them of that notion.
18 I actually like it here // May 28, 2008 at 12:11 pm

http://www.nytimes.com/2008/05/28/business/28leonhardt.html?pagewanted=1&ei=5087&em&en=8f80e8ad15cc051c&ex=1212120000

Interesting article comparing renting vs. buying.
19 Ubersalad, Ph.D // May 28, 2008 at 12:49 pm

Pyramid scheme is what this is. Risky buyers filling up the bottom, and ignorant home owners trade up their homes with false appreciation by using Monopoly money from these imploded banks. Removing the bottom tier, top will eventually fall…

There needs to be more bus route from my house to work…or I am getting a bike!
20 Slumlord // May 28, 2008 at 1:16 pm

It is always good to have a bike. Lower health costs and fuel bills will give everyone the money to make their mortgage payments and keep house prices from falling!

Regarding the upper tier, one factor in price elasticity is the percent of people without mortgages. Jumbo loan rates tend to be higher than conventional loans and many people who have money simply save on interest by paying cash for their house. The people at risk in this tier are the ones who overextended themselves to get there. I don’t have actual data on cash purchases, so I am just throwing this out there as speculation for discussion.
21 biliruben // May 28, 2008 at 1:23 pm

I seem to remember the opposite being true. Nationally at least, the houses without a mortgage were significantly cheaper than those with a mortgage. Let me see if I can find the data…
22 Ubersalad, Ph.D // May 28, 2008 at 1:34 pm

Rich people don’t tie up their cashflow in the house…I know I wouldn’t.
23 alex // May 28, 2008 at 1:38 pm

Slumlord, some low-end owners have their houses paid off as well :)
24 biliruben // May 28, 2008 at 1:45 pm

I can’t find the data, but when I looked at it, it painted the picture of retirees in smaller homes being the vast majority of those with no mortgage.

The tax benefits and low interest rates you can get make it really stupid NOT to have a mortgage if you have the cash and are at least moderately savvy with investments.

If you are too conservative to invest in high volatility, high return equities or other vehicles, this might not be true. But if that’s the case, you are likely not rich enough to own an expensive house anyway.
25 Groundhogday // May 28, 2008 at 1:53 pm

Nostra"golly"Us - I’m not timing the market at all. I simply look at the alternatives: rent vs. own. Right now it is still MUCH cheaper to rent and nice rentals are actually becoming more available (Pullman, WA). I’m building equity by saving the majority of my monthly salary (cheap rent plus I’m not paying property taxes, homeowners insurance, utilities, maintenance and interest on a big loan). And I have the wonderful tax benefit of the standard deduction (unless I bought more home than I could really afford, the mortgage interest deduction doesn’t do me much good).

If at some point in the future it makes financial sense to purchase a home, I will do so. I won’t wait for the “bottom” and won’t try to predict the bottom. The odds are that the market will overshoot fundamentals on the downside, so given my decision-making criteria I will quite likely purchase before the bottom.
26 Lake Hills Renter // May 28, 2008 at 1:54 pm

OffTopic, but HBB has a Seattle post today: What Many Thought Impossible Has Happened
27 TJ // May 28, 2008 at 2:20 pm

biliruben, the issue I raised isn’t just about the behavior from the peak, but more importantly the behavior of the climb. In San Diego, the lower tier obviously was boosted much more than the upper tier. The lower tier houses gained more than 100% comparing to the higher tier. In Seattle, the difference at peak is less than 20%.

I think that’s a significant difference.
28 biliruben // May 28, 2008 at 2:40 pm

Hmmm…, yes. Good point TJ. I think it’s well documented that SD had more subprime than we did (though I don’t think that’s true of the Alt-A hinky loan.). So it’s likely we won’t see quite the fall on the low-end here that they did.

It could be a function, too, of new construction. They have a lot of desert in SD to build on (and on, and on), and I think they did more of that than we did. I don’t really quite understand how C-S handles new construction, but it sounds like they weight transactions with quicker turn-around more heavily.

So I could see larger epidemic in SoCal of buying into low-end tracts pre-construction, then quickly flipping them once they were built. That would serve to drive prices sky-high on the low-end, I would think.

I saw that sort of thing first-hand in Vegas. Don’t know if it is similarly true in SoCal.
29 Garth // May 28, 2008 at 3:19 pm

Case-Shiller does not include new construction at all.
30 softwarengineer // May 28, 2008 at 3:48 pm

I MENTIONED YOUR DATA TO A HAUGHTY NARROW-MINDED SEATTLE HOME OWNER LAST NIGHT

She said, oh no my street is special, all the small old homes go for $450K and the big ones $1M in my “pink pony” neighborhood.

I responded the bubble data is documented average home data, not a limited sample “wet finger in the wind guess” on wind direction. [I should have added and the data is skewed to look overly positive too, it comes from anomalous real estate sources].

Seattle has a horrible real estate hang-over from the wild party over the years and the symptoms are TOTAL denial. Its like a hopeless alcoholic; and the treatment center [Schick Shadel] is the Seattle Bubble.
31 deejayoh // May 28, 2008 at 3:50 pm

I think it’s well documented that SD had more subprime than we did

I think according to an article Tim linked a while back from the WSJ, the profiles for Seattle and SD lending were pretty similar over the last 3 years.
32 deejayoh // May 28, 2008 at 3:51 pm

Ever notice that the only people who tell you that it’s a bad idea to try to time the market are people who make money off of transaction volume? Realtors and stockbrokers.

hmmm
33 shawn // May 28, 2008 at 4:06 pm

Nostra"golly"Us, I have timed the market perfectly, I did not buy at the height of the hysteria. If I were to buy today, I would pay less than if I bought yesterday. Now it is just a matter of how much less I could pay today rather than yesterday.

It is real easy to avoid these bubbles, be it the stock market or the housing, just use sound judgement. I like the way that you are trying to make some of us out to be “crazy” to not buy with irrational exuberance. That worked a while ago, but today, come on.
34 [troll] // May 28, 2008 at 4:13 pm

Shwn
hv tmd th mrkt prfctly. f wr t by tdy, wld py lss thn f bght ystrdy.
………………..

Shwn,

Tk ths s n xmpl:

Th bttm ws TDY. Bt y wn’t knw th Cs Shllr My stts ntl thy cm t n Md Jly. By thn th Pnt p dmnd wll s hms sllng bv sk.

My pnt s, f y r plnnng n bng n yr hm fr mny yrs, ths dp s pnts. bght my hm n th md 90’s, lk t tn yr chrt f Sttl hm prcs t ndrstnd nt wlth.
35 biliruben // May 28, 2008 at 4:24 pm

This is the highest price, taking into account inflation, that any house will ever be in the future. Ever.

If you buy today counting on appreciation from current levels even 50 years in the future, I am extremely confident you will be making a big mistake. This is the mother of all bubbles for Seattle, and the high-water mark for a hundred years.

Yeah, RAL, you got lucky hitting the biggest run-up in history. Don’t count on it for your current McMansion however. You will sell for less than you bought it for.

Even during huge run-ups, it’s the nature of real estate that you seldom actually make any real money. In fact, you generally lose money. A lot of money.

My example:

I bought in 2004. less than 50K down.

I sold in 2008. For more than 50K more than I paid.

Wahoo! doubled my money! Right? Wrong. When taking into account upkeep, inflation, higher utilities, new roof, new floors, and the biggest one: Transaction costs, it was a big money loser.

But I’d do it again. And I will. But I’m going to wait a bit and watch the market slide and Rentersareforlosers sweat as his equity trickles into his well manicured lawn.
36 uptown // May 28, 2008 at 4:24 pm

By then the Pent up demand will see homes selling above ask.

I’m still laughing at that one!
37 didn't just fall off the turnip truck // May 28, 2008 at 4:36 pm

Ahhh but it is worth it in my estimation to miss a couple of months on the upside rentersarelosers to make it less likely that I’ll eat 20% on the downside. Like others here I’ve owned in the past and will again in the future just not willing to buy right now. Though as someone else here says I ALWAYS am looking …
38 Alan // May 28, 2008 at 4:41 pm

Properties can sell above asking in a falling market if people price them low enough.
39 [troll] // May 28, 2008 at 4:51 pm

By thn th Pnt p dmnd wll s hms sllng bv sk.

’m stll lghng t tht n!
………………..

t’s nt lghng mttr ptwn. hv trnd dwn svrl ffrs nd clsngs r dwn. Thr r byrs t thr wntng t by, nd thy r gttng trnd dwn. Thr s pnt p dmnd.

Wtch nd lrn.
40 Ray Pepper // May 28, 2008 at 4:56 pm

“Time the Market”……Stocks yes. Housing Hell No!. Transaction Volume= more money to Realtors? Obviously!! Here is the truth….Slice it and grind it anyway you desire…………..

Its a horrendous time to sell. Be happy your not a builder. They MUST SELL!!

But, its has always and will always be a great time to Buy…..Tomorrow, Next year, 10 years from now…2 years ago…1 year ago……….But, here I go again. What you buy, where you buy it, and what you pay is ALWAYS the most important factor!

All this timing the mkt talk is insanity. There are builders who are absolutely buried and bleeding profusely now. I can’t remember a better time to GRIND out the deals. My investors are salivating waiting for Thanksgiving and Xmas this year and next year 2009 to dive in and start the bloodshed but when I see homes that were listed at 520k, then 490k, then 430k, then 399k, Then I’m here to tell you the time is ripe to submit 330k. The FACT IS THESE HOMES HAVE GOT TO SELL!! Cost of materials will continue to rise I assure you that. FIND THE PEOPLE THAT MUST SELL!!!

Good Lord People…..Start looking… You don’t need to buy this year or next but if you begin to EDUCATE YOURSELF ahead of time you will know a GEM when you see it.

Ray Pepper
http://www.500Realty.net
41 biliruben // May 28, 2008 at 4:56 pm

Are you aware there is something called “supply” and that we have never had as much of it as we do now? We have record inventory and plummeting sales and some snarkasorus is quacking about pent up demand. Welcome to nonsense land.
42 biliruben // May 28, 2008 at 5:00 pm

I think according to an article Tim linked a while back from the WSJ, the profiles for Seattle and SD lending were pretty similar over the last 3 years.

I must have missed that, DJ. I was just going by the old map-o-misery data.
43 [troll] // May 28, 2008 at 5:07 pm

r y wr thr s smthng clld “spply” nd tht w hv nvr hd s mch f t s w d nw? W hv rcrd nvntry nd plmmtng sls nd sm snrksrs s qckng bt pnt p dmnd. Wlcm t nnsns lnd.
…………………………….

njy yr cckrch nfstd hgh rnt 600 sq ft rt trp blrbn!
Y r n tht grnt, wll mss th nxt rn p.

“Rntrs r lsrs”
44 biliruben // May 28, 2008 at 5:10 pm

Enjoy paying two massive mortgages on properties losing 2K in value a week. How’s the 6K a month nut to countrywide feeling right now,”Winner”? Kinda like when the doc last checked your prostate?
45 David McManus // May 28, 2008 at 5:15 pm

Rentersarelosers, we’ve got to get you guys doing something other than coming on bubble boards and flaming away. I hope this market turns around and gets you guys “working”. It must be tough, though, and I feel for ya.

Well, the part about feeling for ya was BS, but then again so is pretty much everything that comes out of your mouth.

And now here comes an inaccurate assessment from him (or her) that I’m just a bitter renter in 3………2…………1………….
46 [troll] // May 28, 2008 at 5:19 pm

njy pyng tw mssv mrtggs n prprts lsng 2K n vl wk. Hw’s th 6K mnth nt t cntrywd flng rght nw,”Wnnr”? Knd lk whn th dc lst chckd yr prstt?
……………………..

Wht? Dn’t y fllw ths thrd r d y jst brf vrbl drrh lk th rst. hv wnd my hm sn th md ’90s py lss thn grnd n mrtgg!
nd hv nt bght th nxt n yt.

“Rntrs r Mrns”
47 biliruben // May 28, 2008 at 5:25 pm

Sorry, I guess I must have confused our trolls. I thought you’d already bought your McMansion.

As long as we are straightening out misconceptions I live in a nice SFH in a terrific Seattle neighborhood with a beautiful view of the lake and mountains with twice as much space as I had owning, and I walked to work this morning.

What’s with the greed? Why don’t you sell?
48 [troll] // May 28, 2008 at 5:30 pm

m rdy t sll, mjr lf chng plnnd. m nt gng t dmp.
N rsn t.
49 EconE // May 28, 2008 at 5:36 pm

Be nice to RAL.

Can’t you tell he’s under quite a bit of stress??

I mean seriously…He bought a new construction McHome…oh…sorry….a Caaaaamwest home.

Give it a year or so…the builders are gonna bury the *new* home buyers of yesteryear just like everywhere else.

Then…when RAL is really singing the blues….we can kick him while he’s down!

Oh…and finally…here’s one for you RAL.

http://www.youtube.com/watch?v=-0vVkcWYvME
50 [troll] // May 28, 2008 at 5:41 pm

cn,

fl srry fr th stdnts tdy. Yr stpdty s why mrcn tngrs scr s lw.
r y prd s Tchr tht yr stdnts cn’t rd nd wrt?

Fct s y cn’t ffrd t by Sttl hm, nvr wll.

Chrs!
51 TheHulk // May 28, 2008 at 5:53 pm

Rentersarelosers // May 28, 2008 at 5:30 pm
I am ready to sell, major life change planned. I am not going to dump.

Aha!! Now I understand all the venom spewed by RAL. It must have been like this. He most likely purchased a dump in the mid 90s for around hmm 200K? . Probably infested by roaches (it always seems to be in his mind).

Anyways he planned to sell around mid 07. Listed it at hmmm 600K? Probably got a couple of offers quickly close to asking, but then he got greedy. He wanted more and decided to wait. Whats that sound? “psssssssssssst” thats the air leaking from the bubble.

Boy oh boy RAL is seeing his “paper profits” decline everyday and now no one is even making offers. He still has to stay in his roach-fested home and chants “Renters are losers” lol

Hey RAL, take it easy alright. We all can be civil to each other. Don’t start calling people stupid and blaming others for your mistakes. Bring in a terminator, clean up your house and yes price it conservatively. Maybe then a “loser-renter” might look at your place.
52 [troll] // May 28, 2008 at 6:04 pm

Th Hlk,
Y dn’t knw sqt!
Kp pshng yr shppng crt ndr -5.
53 Mikal // May 28, 2008 at 6:11 pm

Subprime will work it’s way out of the market in what 13-14 months? The lag time has been two years and that is when their loans reset. So we are through most of it. It will be intresting to see what happens then. There is some demand. I know some people that are saving down payments as they are now unable to get a loan as before they had been approved. This area is growing as we have jobs and the last time I checked, much of the rest of the country shipped theirs to China. Now you fools, attack me. I’m not selling anything and don’t have anything to do with the real estate business.
54 [troll] // May 28, 2008 at 6:27 pm

cn,

fl srry fr th stdnts tdy. Yr stpdty s why mrcn tngrs scr s lw.
r y prd s Tchr tht yr stdnts cn’t rd nd wrt?

Fct s y cn’t ffrd t by Sttl hm, nvr wll.

Chrs!
……………..

bmp
55 S-crow // May 28, 2008 at 6:28 pm

Ray,

Thanks for the two articles in the mail. I’ll let you know how it goes!
56 Alan // May 28, 2008 at 6:39 pm

You are one that I guarantee, will miss the next run up.

I don’t think that parses correctly…

I feel sorry for the students today. Your stupidity is why American teenagers score so low. Are you proud as a Teacher that your students can’t read and write?

Oh, I get it. That is what psychologists call “projection”.
57 LotharBot // May 28, 2008 at 6:48 pm

I don’t mind contrarian views, but I do mind views (contrarian or otherwise) that are stated in the angry manner RAL uses. Tim, any reason you haven’t banned him yet?
58 [troll] // May 28, 2008 at 6:51 pm

LthrBt ,

Y r jst nthr bd wttr rnnng t Mm.

Wht frggn bnch f lsrs hr!

nblvbl!

“Rntrs r lsrs”
59 b // May 28, 2008 at 7:00 pm

Mikal -

Subprime is not the only problem, it was just the catalyst for the credit contraction. The Fed has shown that resets do not cause foreclosures, declining prices do. S&P today just downgraded $34b worth of Alt-A securities, the first of many such downgrades I am sure (many are already on credit watch negative). While Seattle did not have the subprime issues of a place like Florida, it had a ton of Alt-A loans generated in the last few years. I don’t think most people realize that the credit contraction is working its way up the chain, the fact you can still find liar loans and other exotic products just shows we are in the first few innings of this game. You won’t see the serious price declines in all areas until credit seriously contracts, so far the Fed has been able to keep the bleeding going slowly but they are almost out of bullets with a 2% FFR and half of their treasury stock traded for McMansions and Lexus loans owned by Safeway baggers.
60 Mikal // May 28, 2008 at 7:15 pm

So you are telling me that homeowners with subprime that reset to a payment that these people can’t pay are not why houses are being foreclosed on? That may be happening in Detroit where house values have dropped a huge amount and it is cheaper to just drop off the keys in the long run. But here? I don’t think so. Again, we have jobs. RAL may get a little out of hand, but some of you get upset by him because you simply can’t handle a different view point. Sounds like a certain president I know.
61 EconE // May 28, 2008 at 7:22 pm

Mikal…

Alt-A baby…Alt-A. You know…those option-ARM (time-bomb) Stated Income (liars) loans?

Tim…

please…never ban RAL. It’s gotta be some of the best comedy on the blog.
62 TJ_98370 // May 28, 2008 at 7:22 pm

Off topic, but hopefully some are interested. Seattle was mentioned in Ben Jones’ HBB today:

What Many Thought Impossible has Happened
63 TJ_98370 // May 28, 2008 at 7:26 pm

Sorry. Wrong link on previous post.

What Many Thought Impossible Has Happened
64 Mikal // May 28, 2008 at 7:39 pm

Well, those loans reset when. Educate me.
65 TheHulk // May 28, 2008 at 7:44 pm

Tim,

Please do not ban RAL. I want to know if he ever has the guts to actually post his MLS# on this site. Of course there is no way to verify that it is *his* listing :)
66 S-crow // May 28, 2008 at 7:59 pm

When you add up the Sub-Prime and Alt-A loans in the Puget Sound region, (I have no data other than seeing what our office was closing and the various reports) I think that we have enough that it will impact our local markets. I think it is more than palatable. How much? Couldn’t say, but I speculate that that those 2006 vintage loans (2/28’s for example) that are going to reset over the next 6 mos., will not make for pleasant news.

Here’s one of the problems: FHA is helpful in taking those on the ropes, but with mortgage insurance, the increase in taxes over the last two years (the adjustment upward that not many discuss) and full PITI is not as palatable as it may appear.

Purchasing a home in the ” first time buyer” price brackets takes much more cash and credit worthiness than in the few years prior to mid August 2007 credit market earthquake, but with more contracts being written with seller contributions for closing costs (WITHOUT INCREASING THE SALES PRICE) it may be the catalyst for a seller to actually generate a sale.
67 economist // May 28, 2008 at 8:04 pm

So you are telling me that homeowners with subprime that reset to a payment that these people can’t pay are not why houses are being foreclosed on

Correct. The real reason that houses are being foreclosed is that the mortgage balance is higher than the market price of the house. It ’s all about lack of equity, not ability to make the payments. In non-recourse states such as California a lot of well-off owners who could easily make the payments are walking.

If the house has equity, a distressed owner can just sell and get out with cash and an intact credit rating. That is exactly why there were so few foreclosures during the market runup. Should be obvious really.
68 b // May 28, 2008 at 8:09 pm

Mikal -

The Fed has lowered rates so aggressively, people with ARMs from the bubble years are likely paying lower rates than you are. Here is the original study by the Boston Fed:

…house price depreciation plays an important
role in generating foreclosures. In fact, we attribute much of the dramatic rise in Massachusetts foreclosures during 2006 and 2007 to the decline in house prices that began in
the summer of 2005.

Bernanke later refers to it when discussing with Congress a few weeks ago.

Some other highlights of that speech:

In good times and bad, a mortgage default can be triggered by a life event, such as the loss of a job, serious illness or injury, or divorce. However, another factor is now playing an increasing role in many markets: declines in home values, which reduce homeowners’ equity and may consequently affect their ability or incentive to make the financial sacrifices necessary to stay in their homes.
…
However, the behavior of unemployment does not seem sufficient to explain the increased delinquency rates in other areas, including California, Florida, and portions of Colorado, where mortgage delinquencies increased during a period in which unemployment generally decreased.

So much for jobs saving the market…

I recommend you check out the Fed graphs on the links there. Particularly Figures 6 and 7. Washington is not much better off than California as far as increased risks (via piggyback loans or investor properties). With price declines just starting, where do you think Seattle ends up?
69 S-crow // May 28, 2008 at 8:15 pm

You have to have a mechanism that triggers default: payment stress.

There also was the mechanism of credit being pulled: mid August 2007 when the credit lines were stopped or suspended to mortgage bankers etc.. because of loans going bad. So, with payment stress or no payments, that starts the ball rolling and the lenders start to file NOD’s and move towards foreclosure. Markets start to stall and then that rolling ball starts to gain momentum exposing all the “investors” buying homes “owner-occupied” with nothing down and the rest is what we see unfolding.
70 Groundhogday // May 28, 2008 at 8:24 pm

I finally understand why RAL is so angry. He can’t sell his home! Denial, anger, depression and acceptance… but I think I’m missing a few steps. Can someone fill in the rest of the steps?

Renters are feeling pretty good these days. Almost every day I wake up, check the news and chuckle to myself as I walk to work. Homedebtors… not so happy. What happened to all those happy, gloating borrowers bragging about their paper equity? Now the only flamers we get are bitter owners reduced to 6th grade name calling.
71 S-crow // May 28, 2008 at 8:27 pm

Mikal,

You bring up an interesting wrinkle with LIBOR and Treasury based ARM’s being at or less than the start rate. The problem locally is that property taxes went up, so payments went up without the ARM itself adjusting. Some may have had a net even play, but we have to remember that quite a few programs for buyers DID NOT even collect for property taxes. So, when tax time comes in April and October here locally, I seriously doubt those who qualified with these loans have the discipline (perhaps to generous of a word) for saving for taxes, given that they were credit challenged from the get go. There may be some that get on track but in aggregate, don’t believe so.
72 TJ_98370 // May 28, 2008 at 9:14 pm

Lake Hills Renter -

I duplicated your post. It was not intentional. It didn’t come up when I posted. That’s my story and I am going to stick with it whether it’s true or not. :-)
73 deejayoh // May 28, 2008 at 9:36 pm

When you add up the Sub-Prime and Alt-A loans in the Puget Sound region, (I have no data other than seeing what our office was closing and the various reports) I think that we have enough that it will impact our local markets. I think it is more than palatable. How much? Couldn’t say, but I speculate that that those 2006 vintage loans (2/28’s for example) that are going to reset over the next 6 mos., will not make for pleasant news.

Tim -
This is somewhat old, but is the best source I have seen yet for assessing risky loan volume by year, and allows you to compare both within and across markets. If you dig and compare the San Diego and Seattle MSAs, you will see remarkably similar volumes, percent of loans, and $ value of loans between the two markets.

http://online.wsj.com/public/resources/documents/retro-SUBPRIME07.html

The Tim had a blog posting on it here
74 Mikal // May 28, 2008 at 9:43 pm

Thanks Economist. More of your usual fluff. That is happening in other places. What is next from you, “The Sky is blue”? Those places again aren’t here. There is no Boeing in Colorado. There is no Microsoft in Miami. You can’t compare them without being a KOOL AIDE drinking fool. We make things that are shipped all over the world. Most places in the US now don’t. You should thank god we live here. Some of what is happening all over the US will hit us, but we are insulated somewhat by the jobs. Houses haven’t lost 25% of value around here. Maybe they will, but I bet they don’t. I’m sure as hell glad I’m not selling anything around North Bend. Gas prices will play a part also at some price point. I understand the financial house of cards the market has been built on, but around here, it was expensive 16 years ago. Didn’t the FED lower rates in 2001?
75 Ubersalad // May 28, 2008 at 9:52 pm

Anybody looked at Charlotte? More than half of fortune 500 companies is based there, where they at on the scale?

“Didn’t the FED lower rates in 2001?” WTF is that, Feds been lowering rate since last year as well…your point?
76 Ubersalad // May 28, 2008 at 9:59 pm

Hah I just looked, it is the most stable market of all it seems.

We’ll see kids, time will tell. Smart people will wait at least after end of this Summer to purchase homes. Since we can all agree that the price won’t appreciate for at least this year, why buy now? Let’s see how long these “desperate” sellers can hold on.
77 Garth // May 28, 2008 at 10:06 pm

Similar if similar means double

http://www.newyorkfed.org/mortgagemaps/
78 Mikal // May 28, 2008 at 10:07 pm

Agreed, anyone buying a house now is out of their minds. FED rates in 2001 were lowered down to next to nothing and it actually helped the economy. Not sure it will happen now as our government owes 5 trillion more and the dollar is worthless because of the borrowing.
79 Mikal // May 28, 2008 at 10:11 pm

Garth, that is a good point. But then we have always been double. Maybe it will be the same. I will believe it when the foreclosure rates are the same. We are a far cry from that.
80 deepcgi // May 28, 2008 at 10:36 pm

RAL: what is it that is going to make the market turn positive, again? The baby boom? All of their money is tied up in real estate. They have to sell to spend it. Immigration? They don’t have money for down payments. Banks return to lax lending practices? It can’t happen. The derivatives market risk factor increase prevents it. Inflated wages make people feel rich, again? Wage inflation always lags behind prices - it’s years away and will be accompanied by interest rate increases. Speculation increases the rate at which people resell homes enough to offset the stricter lending? Not after this bloodbath. It’s hard to step up to bat again after getting hit by a pitch.

Nope, this is a knock-out punch for real estate - in all 50 states, England, Spain, Australia, New Zealand, Germany and your neighborhood. It’s going to take years for the tide to turn. By 2010 we will be back to 1998 prices and 1970’s inflation. Just add Socialism, government-controlled housing and just a dash of carbon-taxation and you get 30 years of real estate pain.
81 Everett_Tom // May 28, 2008 at 11:06 pm

TheHulk // May 28, 2008 at 7:44 pm

Tim,

Please do not ban RAL. I want to know if he ever has the guts to actually post his MLS# on this site. Of course there is no way to verify that it is *his* listing :)

look for the sign in the yard that reads something like

” Only full priced or above offers accepted , dirty stinking stupid renters need not make ANY offer, it will be rejected”
82 economist // May 29, 2008 at 12:09 am

Nope, this is a knock-out punch for real estate - in all 50 states, England, Spain, Australia, New Zealand, Germany and your neighborhood

There’s no RE bubble in Germany. Main reasons are the fiscal effects of the reunification, and lack of cultural bias towards buying - i.e. Germans are happy renters. Germany also has very strict lending standards for RE and taxes RE gains.

You also left out what is now North America’s biggest bubble area, just a couple hours up the I-5, where everybody is absolutely, positively, sure that it’s different there.
83 Mikal // May 29, 2008 at 5:33 am

Thank you economist for more of your enlightening and truly fascinating insight. I haven’t seen anyone claim that there is no bubble in Seattle on this blog.
84 what goes up comes down // May 29, 2008 at 6:12 am

Mikal, just a quick point, I actually live in Germany and even if you don’t like it what economist states about RE in Germany is correct.
85 what goes up comes down // May 29, 2008 at 6:14 am

Oh and Mikal, are you really sure that no one claimed that wasn’t a bubble in Seattle on this blog. Before you do that you just might want to go back and read through some of the old posts.
86 cheapseats // May 29, 2008 at 8:11 am

Seattle’s job market is not so unique enough to prop up the market. Seriously every market said they were unique. I lived in DC for many years and they at least had a legitimate claim that 90% of the jobs were federal government related and not going anywhere. So far its true, the job market has been very steady… As others have pointed out, job losses have little to do with what has happened so far in the housing market.
87 softwarengineer // May 29, 2008 at 8:54 am

YOUR HOUSE IS WORTH WHAT THE ESCROW PAPERS CLOSE OUT ON

Not a penny more or less.

I heard on Channel 13 news today that our local Seattle area has prospects of endless job growth, above the rest of America.

What they omitted was the average wage of this growth….like $10-15/hr [reference: an old recent data point from The Tim]. They most likely also omitted the horrifying demise of housing related contract jobs not tracked, like the unemployment rate totally omits too.

What is the local MSM smoking? They need Seattle Bubble treatment for their denial problem.
88 Ubersalad, Ph.D // May 29, 2008 at 9:45 am

Channel 13, they have news? I thought it was a spoof of the Naked Loon.
89 TheHulk // May 29, 2008 at 11:03 am

I am wondering if there is a correlation in the extent of “paper price” drop to frequency of posts by the hmmm lets call them “frothers”. ;^) The frothers are responsible for the liveliest discussions on this blog. So who are the frothers?

It seems Nostra has suddenly seen a steep drop in his paper prices since he re-listed his house, hence the increase in frequency.
RAL on the other hand suddenly woke up one day to find his house wasnt worth the money he was banking on. Probably did not listen to a couple of good loser-renters who told him exactly what they thought it was worth. And now he has to move! quickly! and sell his house! Except that those HELOCs he probably took out are now hanging above his head like the sword of damocles.
90 Tsuru // May 29, 2008 at 11:17 am

Folks, “Nostra"golly"Us” is just Mack McCoy (from the Seattle RE Pros blog on the PI) over here trolling in a pathetic act of revenge for the “scrubs” that have dared soil their “it’s a great time to buy!” mutual back-slapping session. Just ignore the troll, and move on. He’s not worth the effort.
91 EconE // May 29, 2008 at 12:05 pm

I doubt Nostra is Mack.

Nostra said he lives in a house. Mack lives in a condo in Belltown.
92 Tsuru // May 29, 2008 at 12:09 pm

He’s just obfuscating the details - go read Mack’s recent comments on the PI blob, he prattles on incessently about “timing the bottom” just as Nostra"golly"Us does here.
93 biliruben // May 29, 2008 at 12:15 pm

That’s a pretty standard NAR talking point. They probably sent out a memo.
94 EconE // May 29, 2008 at 12:27 pm

Yeah…agree with Bili…the “you can’t time the bottom” is common on RE blogs all over the country.

Mack has a much more flamboyant way of insulting us…you know…scrubs banging on the side of our hoopties etc. etc.
95 Affluent Bitter Renter // May 29, 2008 at 12:30 pm

Great recent Mack quote:

“What I don’t quite understand is what sort of person, who can apparently afford it, wants to put off owning the home of their dreams for several years solely because the delay may save them a few thousand dollars? ”

According to Seattlecondoreview, the price of the median Belltown/Downtown condo (Mack’s hood) has fallen by $30K in the last year. Pay that no mind - remember (as a different PI poster noted), that even if you overpay, you can finance it over thirty years, so its only a few extra dollars a month!
96 Flotown // May 29, 2008 at 12:45 pm

http://www.nytimes.com/interactive/2008/05/28/business/20071031_HOUSING_GRAPHIC.html

sorry if someone posted this already. No time to read the whole thread
97 Everett_Tom // May 29, 2008 at 12:51 pm

I’d have to agree with EconE,

I REALLY doubt that Nostra is Mack. Especially since one of Mack’s big point is that he isn’t afraid to be know by his name, and all the anonymous posters should be identifiable. (see PI post)

No matter how I turn it, I can’t figure any reason why Mack would bother to create an alter ego..
98 jon // May 29, 2008 at 1:35 pm

House prices in Washington are not going to drop much more. Here’s why: http://www.dol.wa.gov/about/reports/Apr2008WDLReport.pdf

There was a net gain of 67,000 new drivers from out of state in the past year. Checking around, there are 4,000,000 over the age of 18 in the state, with 2.5 million housing units, or 1.6 adults per unit. So those drivers represent growth of about 40,000 new housing units per year. There are currently 50,000 listings on NWMLS now. That’s 10 months of sales at the currently depressed sales rate, and only 15 months of new growth. Since typically most sales are trades, the sales is bound to increase significantly once prices stop dropping, which will bring down the MOS.

No one is going to dump their house in a panic when in about a year there would be a severe shortage unless the price of housing is high enough to sustain new construction. Rent ‘em while you can.
99 Tsuru // May 29, 2008 at 2:23 pm

Well, you guys may be right but if I recall correctly, Mack created the “Nostra"golly"Us” alter ego to demonstrate the horrible atrocities caused by anonymous posters in blog comments and the ruinous effect said anonymous posters have on driving the blog post discussion off topic.

But Nostra"golly"Us may just be one of the many thousands of panicked RE Agents looking for an outlet to vent - I guess only Nostra"golly"Us knows for sure.
100 Alan // May 29, 2008 at 2:26 pm

I’ve always thought that Mack was “What’s My Name”.
101 [troll] // May 29, 2008 at 4:21 pm

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Ldng th ntn wth vr-th-yr mplymnt ncrs ws th Hstn r (p 71,000 jbs), fllwd by th Dlls