Seattle Bubble

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

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

Entries from September 30th, 2008

In the trenches update

By S-Crow on September 30th, 2008 at 11:13 PM · 13 Comments

First, something to lighten the spirits of everyone:

Tales of homeownership:

If you are on a septic system, don’t drive over a waste line with a 10 ton truck loaded with gravel.  I did and just learned that PVC waste lines will indeed pancake.  The result is rather disgusting.  – SCrow

No one is lending money:  that is false.

Although the pace of transactions is meaningfully lower than what we have seen, the idea that no-one is lending money is not the case.   Our office is closing routine sales, closing short sales and refinance transactions.  The difference is that closings are taking longer, authentic underwriting is taking place and FHA is appearing to be very much the type of financing people are using.   And, yes, borrowers are asking for and receiving concessions.

Some of the loan officers (still in business) we have worked with during the last 4-5 yrs. have jumped from one firm to the other that is FHA approved.  FHA is the name of the game right now.

In the area in which I live (Snohomish and vicinity), we have had several sales take place over the last month  or so, and, among those, a couple properties closer to where I live sold for $750K and up.   So, there are some people who are snooping around and finding very good values for the current market we are in.  My guess is that if you asked, “why in the world would they buy in this market”, they would reply, “talk to me in 15 -20 yrs.”  And that is one of the primary real estate mindset shifts I’m discovering:  few are those who are not looking at a long-term horizon in their purchase.

There are some absurd decisions being made

The unique view from the escrow seat allows for a lot of discussion in the S-Crow household, some of it funny and some of it just remarking about how foolish some people have been.

For example, a seller purchased a home within the last year to flip it.   The seller made improvements and put it back on the market.  The seller then obtained an offer and the transaction moved towards closing.   Once escrow disclosed proceeds, the seller evidently did not like the net proceeds after expenses:  not enough (code for potential paper loss).  Buyer is ready to close and the seller refused to sign closing documents.  You’d think that a seller would know within a small range what the proceeds would be before putting the home on the market and wasting everyone’s time and money.  Result: highly probable legal action moved the seller to sign.

There are a number of people in our society (save the politics for another blog) that just refuse to take personal responsibility for stupid personal financial decisions.  This is an issue that Mrs. S-Crow and I argued a lot over in months past.  I’m starting to come to the conclusion that her analysis has more merit than my “it’s not all the borrower’s” fault mentality circulating in my head.  Some borrowers did put too much trust in the people guiding them along the way.  But, in the end, their signature is on the Note and Deed of Trust.

We are at the bottom, locally:  I don’t think so.

I have no data to back this up, but my anecdotal evidence of closings is the best I can come up with.   Based upon what I see in the refinancing realm over the last three quarters of this year,  I see some existing homeowners delaying the inevitable.   Refinancing costs thousands of dollars and there is a pervasive thought (I don’t know where some people get their information…either they are terribly not paying attention or someone is giving them false hope, which in many cases is more dangerous and damaging than being honest about where the chips are falling) that the market will turnaround within the next year or two.  Possible?  Anything is I suppose.  Likely?  Nope.

Real scenario:  It is not realistic that a borrower can purchase a home late in 2006 for $500K+,  now owes in the realm of $540K on the property and think that in two years time (2009-2010) they can have an equity gain to pay routine closing costs.   And this is in a development that was birthed in 2005 that has already experienced a foreclosure and another distress sale (as so disclosed by the very borrowers that were signing their closing documents!).   It is a classic example of a potential, not to distant, distress sale staring at me in the face.

Are the closed sales-price-to-list-price ratios accurate?:  a question for local agents.

For example, if you have a listed price at the time of the sale of $100K and the sale closed at a price of $95K, you would have a 95% list-to-sales-price ratio.  This is used a lot by agents to gauge how well priced a home was and another metric to show that homes in an area are selling on average, for example, about 97-99% of the list price.   Does the NWMLS use the ORIGINAL list price in this metric or the last posted list price?

What’s up with all the Steve Tytler negativity?

Steve was was of the severely few locals in the business of lending that was reporting publicly that we were going to experience lower housing prices.   Straight shooting integrity is what we need in this industry.

Questions about transactional things?:   Just drop me an e-mail as many recently have and in the past.  I may not have all the answers, but I’ll do what I can.

- S Crow

→ 13 CommentsCategories: Opinion
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“Turmoil,” “Fear,” & “Uncertainty” Bursting Seattle’s Bubble

By The Tim on September 30th, 2008 at 5:49 PM · 45 Comments

The P-I ran an interesting little article by Aubrey Cohen today: Turmoil rattles local real estate market

The recent nationwide economic turmoil appears to have intensified already prevalent skittishness among buyers and lenders — and helped persuade sellers to get real.
…
The turmoil has increased the fear of buying now, only to see prices fall even more later, said Ryan Thompson, an agent in John L. Scott Real Estate’s Seattle Center office. “The other end of the fear is a lot of people are uncertain about their own jobs, their own income.”

Buyers also are asking more questions and are less willing to make snap buying decisions, said Melinda Eley, marketing manager for builder Polygon Northwest.

It’s disturbing to me that buyers asking questions and avoiding snap decisions is seen as a negative, and a sign of a lousy market.

Matthew Gardner, a local land-use economist who works with developers, said the economy in general, including the housing market, has come to a grinding halt.

“Banks aren’t lending banks money right now, so they sure as heck aren’t lending to anyone else,” he said. “The effect is paralyzing.”

Sounds like a bit of a different tune than Mr. Gardner was singing in July last year:

“It’s not happening in Seattle to any degree whatsoever,” local land-use economist Matthew Gardner said Wednesday. “We’re not really seeing any fallouts.”

Also amusing to me in today’s article is that Mr. Cohen calls out Moody’s for their consistently overly optimistic predictions:

Moody’s latest forecast is for Seattle-area prices to fall 17 percent from last summer’s peak, with the bottom coming around the end of next year.

The company probably will revise that to a bigger drop, based on the national situation, in coming weeks, Gledhill said.

He acknowledged that most economists, including those at Moody’s, consistently have underestimated the length and depth of the housing market’s swoon.

“For most economists’ lifespan this is unprecedented. We really haven’t seen this before and it’s been driven by different events than what we’re used to,” he said. “It’s probably also somewhat just optimism.”

No kidding. Note that even as recently as last October, Moody’s was predicting that Seattle home prices would increase 3% in 2008.

If the ever-rosy Moody’s is saying we’re in for a total 17% drop with a bottom in late 2009, a pretty good guess would be that the bottom will probably not come until 2010 or 2011 at the earliest, with a minimum 25% drop.

Also of interest is the general sentiment being expressed by commenters in the P-I’s “Sound Off” to the article. Even just a few months ago, any real estate article in the P-I was littered with pink pony supporters piping in to say that the bottom is in and Seattle real estate is bound to head back up any day now. Now it seems that such comments have become virtually extinct.

Perhaps reality is finally sinking in.

(Aubrey Cohen, Seattle P-I, 09.29.2008)

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Case-Shiller: Price Drops in Seattle Re-Accelerating

By The Tim on September 30th, 2008 at 10:30 AM · 55 Comments

According to the latest data from the Case-Shiller Home Price Index, the home price bust in Seattle is gaining steam again.

Down 1.0% June to July.
Down 8.2% YOY.

Last year prices rose 0.20% from June to July, and year-over-year prices were up 6.9%.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Portland continues to experience a smaller “correction” than Seattle, falling 6.6% YOY in July.

Case-Shiller HPI: West Coast
Click to enlarge

This graph is not intended to be predictive. It is for entertainment purposes only.

Here’s the graph of all twenty Case-Shiller-tracked cities:

Case-Shiller HPI: All Cities
Click to enlarge

In July, seven of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops than Seattle. Charlotte at -1.8%, Dallas at -2.5%, Denver at -4.7%, Boston at -5.4%, Portland at -6.7%, New York at -6.9%, and Cleveland at -8.1. The largest year-over-year drop was in Las Vegas, where prices plummeted just under 30% from July 2007.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

Case-Shiller HPI: Decline From Peak
Click to enlarge

It has now been exactly one year since Seattle’s Case-Shiller index peaked, and prices have declined a total of just over 8%. One year after peaking, only two other cities had declined more than Seattle has: Tampa & Miami, at 8.8% and 17.5%, respectively.

Here’s the “rewind” chart. The horizontal range is selected to go back just far enough to find the last time that Seattle’s HPI was as low as it is now. This gives us a clean visual of just how far back prices have retreated in terms of months.

Case-Shiller HPI: Seattle Price Reversion
Click to enlarge

Seattle’s Case-Shiller value for July 2008 was halfway between its May and June 2006 values. So far we are “rewound” twenty-five and a half months. The June to July drop puts Seattle at yet another new post-peak low, nearly two points lower than June.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 09.30.2008)

→ 55 CommentsCategories: Statistics
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Breaking: House Votes Down $700B Bailout

By The Tim on September 29th, 2008 at 11:46 AM · 179 Comments

Incredible. Even with voter feedback at 100 to 1 against (source), 141 Democrats and 65 Republicans still voted for the bailout.

The fate of a controversial $700 billion financial bailout plan was in doubt Monday as a House vote turned against it.

The next steps were not immediately clear but supporters were scrambling to put it up for another vote.

What was supposed to be a 15-minute vote stretched past the half-hour mark as leadership scrambled for support. Investors who had been counting on the rescue plan sent the Dow Jones industrial average down as much as 700 points while watching the measure come up short of the necessary support, before rebounding slightly. The key stock reading was down more than 500 points.

The measure needs 218 votes for passage. Democrats voted 141 to 94 in favor of the plan, while Republicans voted 65 to 133 against. That left the measure with 206 votes for and 227 against.

Of course, they only need to slip in enough random pork to convince 12 representatives to switch their vote, so I’m not too optimistic that the bill will remain dead for long.

Update:

Here’s how Washington State’s Representatives voted (district map):

YES:

  • District 2 – Rick Larsen (D)
  • District 3 – Brian Baird (D)
  • District 6 – Norm Dicks (D)
  • District 7 – Jim McDermott (D)
  • District 9 – Adam Smith (D)

NO:

  • District 1 – Jay Inslee (D)
  • District 4 – Doc Hastings (R)
  • District 5 – Cathy McMorris Rodgers (R)
  • District 8 – Dave Reichert (R)

Full roll call from the House here.

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Poll: Will you vote for politicians that vote for the bailout?

By The Tim on September 28th, 2008 at 12:05 AM · 65 Comments

Please vote in this poll using the sidebar.

Will you vote for politicians that vote for the bailout?

  • Yes (33%, 109 Votes)
  • No (67%, 217 Votes)

Total Voters: 326


This poll will be active and displayed on the sidebar through 10.04.2008.

→ 65 CommentsCategories: Polls
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WaMu Failure: What it Means for Seattle

By The Tim on September 26th, 2008 at 8:27 AM · 134 Comments

From today’s Seattle Times: Feds seize WaMu in nation’s largest bank failure

WaMu’s 43,200 employees won’t feel any immediate impact, though it’s likely JPMorgan will drastically shrink the thrift’s headquarters staff. More than 3,500 people work at WaMu’s 42-story headquarters at Second Avenue and Union Street, along with 800 people elsewhere in Seattle and 1,500 people elsewhere in Washington state.

WaMu is also downtown’s largest office tenant, with about 1.6 million square feet in the central business district. It put some space on the market in recent months, helping raise downtown’s vacancy rate.

JPMorgan reportedly sent e-mails to all WaMu employees asking them to report for work as usual today.

Not surprisingly, I’ve got a few friends that work at WaMu corporate downtown. I really feel pity for them. The fact that WaMu put itself into such a dangerous position was not the fault of the rank-and-file corporate employees, but they’ll be the ones to feel the brunt of this failure.

I’d like to be clear that I do not take any pleasure in knowing that 4,300 people in Seattle are likely to lose their jobs, or the effect that will have on Seattle’s economy.

Another interesting bit from the article:

JPMorgan, which earlier this year offered to buy WaMu for $7 billion in stock — a deal former CEO Kerry Killinger turned down in the belief he could salvage the company — was the high bidder in an auction the FDIC conducted Wednesday, Bair said. Three other banks submitted bids for WaMu’s banking assets.

So four banks were bidding on WaMu’s assets, and $1.9 billion was the highest bid. Dang.

(Drew DeSilver, Seattle Times, 09.26.2008)

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