This is actually a net reduction in demand and is negative for the market. One less seller of a small house, one less buyer of a big house.

We’re in agreement that prices will come down. I pointed out that the article said 30 – 40% of current home sales are currently distressed sales rather than normal sales. This was also the point that the reporter made in the CNBC article. Since the normal sales aren’t happening, the inventories of these homes are building and eventually sellers will have to lower their prices to be able to sell their homes. Some sellers will simply take their home off the market if they don’t really have to sell, i.e., if they just wanted to upgrade but other sellers won’t be able to because they have to sell due because they’re relocating to another area or some other reason.

Another factor that’s affecting sellers now is interest rates have increased so fewer buyers can affort the increased monthly payments. This will put further pressure on sellers to decrease their home prices.

I expect home prices to continue to drop in Seattle for the next year and I wouldn’t be surprised to see at least a 10% decline by this time next year.

The Fed economists seem to disagree with you please read Bernanke’s speech on the subject. Mortgage defaults are so high not because of rate resets, but because so many loans were made with way too high LTV (100%+ being very common). Any decline in prices means foreclosure if the borrower runs into trouble, whereas in previous periods either appreciation or higher downpayment provided the buyer a buffer.

Also, make sure to check out the heat maps at the bottom. In particular, figures #6 and #7. These show that the King county area (and much of western washington) had similar levels of both investor purchases and high LTV loans as the worst bubble areas. This portends very badly for the region next year when the price declines continue and the second year of declines has shown in other areas to be the most rapid.

If the current market price is higher than the purchase price, the house can be sold at a profit and there is no reason for the house to go into foreclosure, regardless of the borrower’s ability to make the mortgage payments. This is exactly why foreclosures are practically zero during rising markets.

the inability to find someone to buy because it is nearly impossible for some to get a loan now.

There is ALWAYS someone to buy at THE CURRENT MARKET PRICE, by definition.

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Quite right. It’s falling prices that are the cause of foreclosures, not the other way around.

The cause of falling prices is prices that are too high.

Since the housing data for Seattle does not include a period of decline before the credit crunch how can we possibly compare it to other cities with pre and post credit crunch declines with any degree of accuracy?

H H H H H H H!!!!!!!!!!!!!

“Wshfl Thnkng”

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Buyers will see that and get off the fence.

What he is missing is that each distressed property represents a person who is going belly up finanically. You own a property and you lose your job etc. You can’t afford your property.

This “Buyers Pool” sitting on the fence isn’t immune to going belly up from events like losing their jobs as well.

What DavidB is missing is that the buyers pool is shrinking too. The confident and stable buyers will purchase the distressed properties then whats left in your buyers pool? You will have then have sellers that didn’t want to come down and fewer candidates that should even be considering buying.

IMHO this scenario means prices will continue to fall. Wages can’t stagnate while the costs of everything else goes up without continually eroding the ability of people to purchase homes.

For anyone unwilling to drop prices, prepare to be a landlord for a long long time.

Actually I was thinking more along the lines of Hybrid, Option, and I/O ARM’s. As I stated above the FHA are going to have to either raise the down payment or lenders will have hold on to the loans; pretty hard to resell marginal loans in this environment.

Three things, (1) The FHA doesn’t do exotic mortgages, (2) The FHA needs Fannie and Freddie to be solvent which will require government intervention, and (3) FHA doesn’t service Jumbos (> $515k starting in 2009).

Fannie and Freddie have been living off cheap credit and investor confidence in Mortgage backed securities. They won’t be able service as many loans post-credit bubble. Also downpayments have to go up to protect against downside risk in a declining market.

All this assumes that the Feds don’t raise the debt ceiling again by a few trillion dollars for another bailout.

So much of your statement seems incorrect, as a starting point:
“Seattle has been, and will continue to be the area of the nation least affected by the housing burst”
There are multiple cities that have faired better than Seattle’s %2.1 price decline, including over 40 cities that had a price increase in the YoY for Q1 2008
http://money.cnn.com/2008/05/12/real_estate/Q12008_home_prices/index.htm?postversion=2008051415

Additionally, I do not think foreclosures are main factor (if a factor at all) driving down home prices in Seattle. Less buyers, for a variety of reasons, IMO is the main reason prices are declining.

It all depends on the property, or a package of properties, how far they are under, how much they can write off, is it quarter in three weeks and they need to sell them to an institutional investor, or can they hold the properties on the market for 2 months and get rid of them in that time frame, what their deposit limits are because of these properties and etc.. etc..

Some banks have really become very easy to deal with as buyers of bulk REOs are getting the properties for cheap as well as getting loans from the same bank for below market rates.

Look at the Case-Shiller numbers. The first year after burst is most certainly NOT the worst at all. In markets like San Diego and Miami, terrible bubble places, the first year was sort of a drift down (sort of like Seattle right now). Its the second year, where stuff coming on-line floods the area and people have given up hope of a rebound and cut their price, that the really bad stuff begins.

Also, as to my earlier comments on WaMu, here is a new fact to back up the rumors:

The cost of protecting Washington Mutual’s debt for five years rose to $1.85 million on an upfront basis, plus $500,000 in annual premiums, up from about $1.35 million plus $500,000 annually on Thursday, according to a trader.

That is a $500k insurance premium increase in one day. Personally, I believe that portends the end of WaMu by next week. It remains to be seen if its a Bear-style shotgun marriage, or an FDIC takeover.

Do you think the local papers are trying to please the realtors and trying to minimize the reporting of this news?

Most of the graphs and analysis performed is “time-shifted” to attempt comparing apples to apples. It would seem obvious that numbers closer (Seattle) to a bubble collapse would be less favorable than those (national) that collapsed a year + back. That’s why is is called a bubble collapse or crash, rather than a bubble linear decline.

Lenders sell according to a Broker’s Price Opinion. Lenders contract with a loser low life scum of a Real Estate agent in a certain area to give them CMA pricing for a short sale.

Really? Don’t some lenders sell according to how big of a write down they can afford to take before going into FDIC conservatorship? The impression I have is that if some of these lenders with MASSES of REOs would be insolvent if they had to write down the value of all those homes to market rates. Isn’t it in the lender’s interest to just sit on the properties as long as possible, and dawdle on foreclosures with delinquent borrowers, to avoid having to take the write downs for as long as possible?

If the choice is between going bust today or 10 months from now, then almost everyone would choose to delay.

By the way, there is a thread on the forum on this.

http://seattlebubble.com/forum/viewtopic.php?f=2&t=1507

Thought you guys might find it interesting! I personally think it’s a load of crap!

Of course an opposing view is needed to analyze any situation, yet to attempt that here, well that does take courage, or naivete? The argument that you should buy for other than financial reasons is valid, but the argument that it makes good financial sense is silly at best. However, I think I can balance the two soon, I hope, maybe next summer?

Thanks Tim for helping me see the perspectives I don’t get from the press.

Unearthly, while I don’t disagree with the tone of your post, I think you took it a little too far here. FHA mortgages are becoming very popular these days for obvious reasons. They allow as low as 3% down, although I suspect that will change to 5% or *maybe* closer to 10%, maybe.

Of course, you have to qualify for the loan, which I think is the bigger part of the adjustment that we’re facing. Old fashioned things like a job, income, credit score, etc… There is a misconception floating around here that once lending “returns to normal”, that this equates to 20% down and 6 months of reserves.

Exactly right. I had my emergency fund (and checking) in Wamu, so I transferred half of it to HSBC, also FDIC insured. I’m not concerned that I’ll lose my money as I do trust that the FDIC will come through for me (even if the tax payer foots the bill), but why take the risk? It took 30 seconds to log onto HSBC and transfer the money. Why *wouldn’t* I do that?

I’d add the Seattle media, in its attention to painitng the pony pink, has created a RE market that’s in total denial. The owners and sellers don’t want to drop prices 20% to sell, so they just don’t sell ['til they have to]. I saw the same “pig headedness” among sellers of used homes during the 1990 Bubble [the new construction was more realistic on price then too]. The difference today, the interest rates increases, insane purchase prices since 1998 and preditory loan balloon payments over the last 10 years owed by owners that can’t afford them today; makes 1990’s Bubble look like a walk in park.

Step up to the plate sellers and lower your prices drastically or you’ll never sell it. Waiting to sell next year, you’ll lose even more profit, I predict, if you don’t reduce prices now for quick sale.

That sort of rhetoric has long been the first and last tactic of housing bulls who’d prefer that their listeners imitate their own inability to think critically.

By now you all should now that when something can go wrong, will go very wrong in Florida.

I swear; it’s hilarious. Great summer reading!!

- “When Almeida made the jump from cocaine trafficker to mortgage broker in 2002, he joined a wave that would nearly triple the number of brokers in Florida by the summer of 2007.”

- “Among them: Anthony Hollis of Orlando, who got a license to own a mortgage brokerage in 2003, despite convictions for car theft and passing bad checks.
He didn’t even make it through the 24-hour mortgage-broker training class without breaking the law, court records show. He persuaded a classmate who worked for Sprint PCS to sell him cellphone customers’ Social Security numbers.”

-”The Miami Herald reviewed the complete application files for 100 mortgage professionals — violent offenders and those with the most serious financial crimes, like bank robbery and racketeering — to see how the OFR handled high-priority cases.”

-” They accepted one (license application) from an Almeida business associate, Joel K. Hill, who has since been arrested, and acquitted, on charges of grand theft and exploiting the elderly. They accepted another from Almeida’s mother, who noted that her son struggled with the exam after his training course: ”It took Scott three times but he passed and he didn’t give up,” she wrote.”

- “When South Beach real-estate speculator Richard Crowder applied in January 2003, he explained that his prior burglary case was ”my only altercation with the law and something I will be forever ashamed of.”
The same month he wrote those words, court records show, Crowder embarked on one of the most ambitious mortgage-fraud schemes in recent Florida history, netting $37 million in fraudulent loans by systematically lying on mortgage applications, fabricating supporting documents and arranging bogus appraisals.”

-”In 2003, Kissimmee broker Donald Lewis Smith checked ”no” to the crime question on his application. In fact, he had been sentenced to 17 years in prison for strangling his wife and dumping her body into Tampa Bay, court records show.
When their background check revealed that Smith had lied, it was too late to reject him.”

http://www.miamiherald.com/static/multimedia/news/mortgage/brokers.html

Rates will hit 7% by 2009 and banks will not re-fi loans with high LTV’s. The folks who used their houses as ATM’s will be SOL as prices continue to fall. Exotic mortgages are dead and that means 20% down, low debt/income ratio, and 6-month reserves will be the price to buy into the corrected housing market. No one will purchase a CMO/CDO unless the risk is mainly removed with large downpayments or the rate is jacked up to 10-12% or more.

The numbers for Seattle verses the rest of the country fit perfectly with our status as a last responder, and our current position on the transitory curve, i.e. just going over the top and headed down fast.

The whole creation of the bubble, and now its deflation, are about financing and the relationship between income and home prices. With the magic financing that let a pauper live like a prince gone forever, it’s back to the boring old rules of our parents where a house is no more than three times your income. Prices have to fall a lot further to get us to that point.

Fannie, Freddie, and FHA are the only game in town, and their standards are getting tighter as we speak. And Seattle isn’t special, we’re subject to the new national financing restrictions just like everybody else. The impact of local employment numbers, economic diversity, etc. are lost in the constrictions of the credit markets. The good old days are coming back, starting with significantly lower housing prices…….. even in Seattle.

If you think foreclosures will slow down just wait till those Option ARM houses on the Eastside start to recast – then it’ll be good night. I won’t even go into the fact that loan rates are going up and that banks will want 20% on all Jumbos by this fall. Close to 30% of all Seattle/Eastside loans taken out during the 2003-2007 runup were either Option ARM’s or I/O’s. People took out these loans because they couldn’t afford a conventional 30-year fixed; now the rates are significantly higher they won’t be able to re-fi out.

The only people who think Seattle is doing well are those who haven’t put their house on the market.

“Year-to-year sales were down 15.5% nationally. Locally, closed sales were down 40.9%. Ouch, that’s nearly three times the drop in the national numbers.
Advantage: National (strong)”

The Seattle bubble started to burst about a year ago. Most of the nation burst two or more years ago. Since the first year of a burst is usually the worst the relative difference in these numbers is not surprising at all, and definitely do not indicate that the near future will continue to be so bad. In other words, if year-to-year sales in one market dropped 40% two years ago, it is REALLY unlikely sales will drop another 40% this year. Meanwhile the market that has been going up while the other market dropped is VERY likely to drop 40% once it does start dropping.

“Nationwide median prices were down year-to-year by 6.1%. In King County, prices were down 3.6% from last year, about half the drop, but still down, and only a few points different.
Advantage: Seattle (neutral)”

One thing to keep in mind is that nation-wide, and in Seattle, the main thing driving prices down are foreclosures. If foreclosures slow down, which is likely to happen over the next year, then the housing drop should slow down as well. In addition, because interest rates are close to where they were when all those bad arms were taken out, housing prices are now the most important thing to stopping foreclosures. The lower the total housing price drop the more likely it is that borrowers will have the equity they need to refinance when their ARM runs out. So the fact that Seattle’s drop in prices is so much lower than the national average is by far the best news we could have. This information alone is enough to offset both of the other areas where the national numbers were better than Seattle’s numbers.

“At 4.49 million vs. last year’s 4.20 million, nationwide year-to-year inventory was up 6.9% in June. In King County, inventory was up 28.9% year-over-year. Seattle comes in with four times the increase.
Advantage: National (strong)”

In Seattle there were tons of new housing projects still in the works a year ago, just before the big housing drop. As a matter of fact there are still more of them in the works here than in almost anywhere else in the nation. So when you compare Seattle to other areas you should really first remove our excess new construction to get an accurate comparison. Of course high inventory itself is not that big a deal anyway unless it is based on slow sales rather than increased production, which will self correct eventually. Speaking of slow sales….

“Nationwide “months of supply” (inventory divided by pending sales) was 11.1, versus King County’s 6.2. Both buyer’s markets, but Seattle is just barely in buyer’s territory.
Advantage: Seattle (neutral)”

When selling a home there is a huge difference between being on the market for 6 months and 11 months. The shorter time on the market results in sellers not dropping their prices nearly so much, again propping up home prices and therefore decreasing foreclosures. So this is again much more important a number than the “Strong” national numbers.

I am not saying Seattle won’t have more housing troubles. I am saying this though:

Seattle has been, and will continue to be the area of the nation least affected by the housing burst. Seattle was one of the last places in the nation to have the bubble “burst”, and will be one of the first places in the nation to start bouncing back. We won’t see massive gains like in the past, but Seattle will quit dropping first, and will even start going positive when most of the nation is just reaching the balance point. The reason for this is that economically Seattle is in much better shape than the rest of the nation. Because of the overall economic situation here Seattle is far more resilient and affected far less than anywhere else by these kinds of down turns. In addition many of the primary drivers of our local economy are major international companies, so we even have the benefit of not being affected as much by a slowing national economy as many other areas.

no facts, just internet rumors. for bank runs right now it seems that rumor becomes truth, facts or not. personally I doubt there is much difference to most people if they have checking at wamu or some other bank, so why chance screwing around with the fdic?

I would think that any kind of stabilization cannot come before those distressed properties get cleared out of the market. Normal sellers can take as much time as they want before they lower their asking price (or give up selling altogether), and it’s the distressed properties/”motivated” sellers that are driving the price decline. Hence, once the distressed properties are removed from the market, I would think that the price decline will be harder to come by (I mean if the foreclosured comparable house in your neighborhood that was listed lower than your asking price got sold, why would you then lower your asking price? You no longer have that competition). Psychology drives the market, and as long as there are continuous stream of distressed sellers and swelled inventory, buyers will not come forward. Once inventory start to decrease and the wave of foreclosures disappear, only then recovery can begin.

Sellers Have Taken A Bite Out Of The Reality Sandwich

http://www.cnbc.com/id/25835217

The article points out that 30-40% of the home sales are “distressed” so these aren’t normal sales. The reporter speculates that the big price drops from normal sellers are yet to come. The only reason sales increased 1% in the West is because of the dramatically reduced prices in areas like California.