Matthew said nearly everything I was going to say. David Losh piled on with a few more decent points. The only thing I’d add at this point, is that the S&L crisis primarily involved local and regional institutions. Now we’re down to the titans, and they’re falling down hard.

And for the record? The president did NOT appear on television in 1989 to beg US citizens to bail out the financial industry in order to prevent financial collapse. Your memory is flawed. This is different.

To all the realtors who thing there is a bottom… think again.
WAMU just went bust. That’s about 5,000 high paying jobs in the Seattle area gone. Chase may give jobs to the tellers and local bank managers, but the $100K jobs just went bye-bye. Not too many tellers that can afford $400K or even $250K condos. 5,000 people without jobs. That’s brutal to the real estate market. There isn’t going to be a recovery anytime soon. So, to all the realtors and real estate writers out there… suck it up, stop lying, and face the truth. The housing market crash was caused by mad speculation egged on by realtors.

Daughter lives in Issaquah and we are up often. Lived in Portland area for 25 years. Now back in SD for 10 years. So I think I know both areas very well.

1. Anyone trying to bring any part of the LA area into this discussion is daft. Thankfully Pendelton ( Marine base ) is the buffer protection SD from the corrosion of LA.
2. Comment about comparing SD to Seattle, Bellevue, Kirkland, Issaquah and other areas as a whole is very relevant. SD has so many diverse areas a fair comparison is entire area to entire area
3. Lag factor of 18 months is valid. You might not want to believe it, or question why, but the slide in Seattle is just starting. Also look at low 650 market levels. High end has been flat for about 4 months now where as low end still declining. So one must dig deeper. Alot of our decline has been in condo’s ( overbuilt ) especially high rise. Seattle is only now going to start seeing that affect.
4. Each area has it pluses and minuses – so no real use to argue about bananas and oranges on these issues. Also alot of similarities that many die hard NW people do not want to admit. SD has way more transplants who have lived somewhere else and can see the comparisons more easily.

The future – affect of Peak Oil on each city

Seattle I believe is going to be severely affected as oil prices climb, shortages, restrictions and economics of oil change. Freeway system is a constantly congested disaster, lack of extensive public transportation alternatives, long comuting distances. This might add a whole new dimension to this discussion.

When have they ever and why should they?

My income is roughly median for the Bay Area and I sure as hell can’t afford any house let alone the median

They have some data:

http://www.newyorkfed.org/regional/subprime.html

I would be useful to compare the absorption rate of King County vs. San Diego County.

I am pretty confident that the MOS in San Diego reached a peak in excess of 12 months. By the way, the MOS in San Diego is probably somewhere in the range of 5 to 6 months at this point.

For someone who comes on the site and talks down to everyone, you sure don’t have a clue, do you?

You’re right…its all about supply and demand, but along with that comes the implicit notion that demand exists. At current prices, the average American simply can’t afford the average home, thus there is no demand. Why can’t they afford it it?..as you surely know, the easy credit drove up prices. Now we need to see a pull back to see income/ prices re-allign to a respective ration (3 or 4-1)That’s the hear of the matter.

So until we see either 1) a huge increase in wages, or 2) easy credit again(neither of which will be seen for a long time), we will certainly not see another Real Estate Boom.

Wow – if that’s your standard of new and tough, the world is still insane. 10% is way too low, 20% is reasonable. 3% is banking stupidity – there’s nowhere near enough equity to make that a sane deal for a bank.

And I don’t think it’s useful to compare San Diego County to up here. San Diego County is huge, with much more economic variety than King County. You’d be much better off talking about something like the city of San Diego vs Seattle + Tacoma + Bellevue + Kirkland.

And PB is great place – I grew up there. Go Bucs!

– James

You were so right about the cheer leading aspects of the Real Estate industry.

Today is far different from the Savings and Loan scandal. It’s hard to know where to begin.

Unsecured consumer credit got mixed in with secured loans by consumers refinancing and rolling in, consolidating, debt. It went on for years until there was no more credit to be had.
Consumers stopped paying credit cards so the government made bankruptcy harder. People began losing homes to foreclosure and the government encouraged FHA lending programs.
It was when builders had a problem selling units that there was a problem. Consumers stopped buying. When they stopped buying homes, or thought homes were over priced, it rippled into the entire durable goods market.
The problem is the core value of consumer goods. The price of everything is sky rocketing. Gas, food, housing, clothing, and entertainment have all gone up in price. The truth is that nothing is worth what we are paying for it.
The family home is a heart tug issue. Assets have no emotions.
They may keep the family home, so that is the very least of the concern. It’s a hot button.
The problem is Wal Mart, Berkshire, cars, Microsoft, airplanes, Chinese products. Consumers faced with the cash they can get from a shrinking jobs market will only buy what they need, when they need it.
To compete price becomes an issue. As prices go down so does the price of the assets that secure loans. Houses worth only say $250K with a $500K mortgage become precarious. People may keep them, or not, as they choose.
It’s much different today.

Steve Tytler your 10 year call will make many happy. They can dump their home they are buried in (remember non-recourse state and foreclose) and in 7 years their credit will be easily repaired and just in time to buy another home to catch the next run. You will make many happy for now they have an option….

The initial estimate for the S&L crisis was 20 billion. It ended up being 160 billion. We have already spent:

300 billion on Freddie and Fannie
85 billion on AIG
50 billion on money market accounts
700 billion (ESTIMATE) to bail out the banks.

This is much worse than S&L. None of these options have even come close to working at this point. The entire commercial paper market is frozen and housing has seen its worse declines since the Great Depression. Find another analogy.

Steve wrote: “Now, if we enter a new “Great Depression” as some people are predicting, all bets are off.”

How convenient… I suspect that most of the bullish prognosticators will proclaim innocence as their perpetual calls for a mild real-estate cycle prove to be illusory. How could they have predicted a “depression”?

Well, some of us DID predict such an event, and realized that housing prices, and the economy in general, were WAY out of wack.

My wife was beside herself last night after listening to Bush’s speech. She couldn’t believe that the nation’s leaders were actually sounding more dire than her tin-foil hat wearing partner! It says something when the Fed Chairman, Treasury Secretary, and even President are all proclaiming us to be on the cusp of something terrible…

For the record, I am actually NOT as pessimistic as Paulson and Bernanke profess to be (which isn’t to say I don’t believe our economy is still in for a world of hurt, and that housing prices will drop 80% +).

If outstanding home mortgages are about $14 Trillion (not withstanding Fed’s table L.100 shows $10.7 Trillion) and about $5.3 Trillion relate to the GSEs which leaves $8.7 Trillion not already backed by the government, how does 5% even make a dent in the problem? Numbers do matter just not to these guys. Which yet again, provides evidence of a typical ponzi scheme. I know why they can not value the problem but will not say it which shows how disingenuous they are.

I believe Real Estate prices have to fall about another 30-40% in this market. Remember, homes are effectively manufactured good (over dirt) that depreciate over the course of time. Any GAAP statement will tell you this. Real Estate should track GDP growth – perhaps 2% a year.

Unless you buy investment acerage (20+ acres) or extremely hard to get (waterfront, luxury “medina”); you’re going to take a bath. No one can afford homes anymore,

My wife and I earn about 500K/yr combined. We recently relocated from New York and are looking in Gig Harbor. Let me tell you. People here are not exactly New York Hedge Fund managers, yet the prices in Gig Harbor are similar to Tribeca New York!!! What is going on!!!!!

Let me tell you, the 200% appreciation we have seen over the past 3 years (in that market) is unrealistic. Someone needs to tighten monetary policy so banks are forced to eat what they sell. Remember the three C’s of Credit. CHARACTER, COLLATERAL, CASHFLOW.

I’m finding out that most of the people that live in over-priced Gig Harbor cannot afford to live in their homes. $500K average home price and $50k household income (10/1 ratio).

I wish our government would let the market just correct. I don’t want to bailout the mudkicker in Puyallup that cannot afford his home, or the “Wall Street CEO – aka political window dressing to appease the masses Let the deflationary pressure KO home prices, tighten lending standards, so that character-worthy responsible people can afford homes again.

Amen

Regarding your comment “Tonight the president got on TV, and announced to the world that “our entire economy is in danger,” if we don’t bail out our banks to the tune of over $700,000,000,000. Boy…I remember when that happened in 1990, don’t you?”

Yes I do, actually.

Here is the opening paragraph of the Wikipedia entry on the S&L Bailout:

“The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts[1]—which contributed to the large budget deficits of the early 1990s.”

$160 billion in 1989 (peak of the S&L crisis) is roughly equivalent to $300 billion in today’s dollars. Not $700 billion, but not “chump change” either.

And, oh by the way, 1989-90 also happened to be the last major housing boom here in the Seattle area, before the housing boom at the beginning of this decade.

Hmm….

Massive bank failures and a housing boom at the same time … with mortgage rates at 10% !!

How could that be?

So, to sum it up in LA you get crime, horrible traffic, putrid air, rude people, overpriced homes, but, yes, you do get a lot of sun. In fact last May we had many days around 100.

Now forget me, how about AAA, they had LA in the top 5 of the most rudest drivers, and Seattle in the top 3 most polite, so it was not all in my head.

But barring a total collapse of the U.S. financial system, I am confident that any house you buy today will be worth more money 10 years from now than it is today…

In inflation adjusted dollars?

The days of “liar loans” and zero down loans (other than VA) are gone — thank goodness! We are now back to the kind of common sense lending we had in the 1990’s when I started in the mortgage business. Actually, lending standards today are still much more lenient than they were back in the ’90s, but now you at least have to verify your income and credit before you can get a loan and you have to make at least a small down payment (3-5%) unless you’re a veteran.

If you have a steady income and decent credit, you can buy a home.

We literally have clients buying homes almost every day. Today alone I had two different clients make offers on homes.

So if you think people are not buying houses today just because of the “credit crunch” you are wrong.

The tighter loan standards have had SOME effect, of course, but I would estimate that they have reduced the overall buyer pool by only about 10%. The rest of the population can afford homes and they will buy when they get around to it.

Real estate prices are simply a function of supply and demand. The reason home prices are falling is because there are more sellers than buyers. It’s really that simple.

Buyers know that they are now in charge, so they are not in a hurry to buy. Housing booms happen when the inventory of homes for sale shrinks and buyers start to think “I better buy NOW becuase prices are going up!”

Trust me, that WILL happen again sometime within the next 10 years.

Now, if we enter a new “Great Depression” as some people are predicting, all bets are off.

But barring a total collapse of the U.S. financial system, I am confident that any house you buy today will be worth more money 10 years from now than it is today — but in the short-run home values are likely to continuing dropping for another year or two.

I tell my clients that they should never buy a house unless they plan to live in it for AT LEAST 7-10 years because that is the length of the typical real estate cycle.

If you buy a house and have to sell in the first 5 years, you are almost guaranteed to lose money unless you happen to luck out and sell during a housing boom. That’s just “Real Estate 101.”

Unfortunately, many people get caught up in the “get rich quick” atmosphere that surrounds every housing boom and they start to think that it’s “normal” to buy a house and sell it for a 30% profit in less than 2 years. It can happen — IF you get in and out at just the right time — but in most cases you are going to lose a lot of money. Even if you sell the house for the same price you paid for it, real estate commissions, excise tax and other selling expenses will take a big bite out of you.

I know that some readers of this blog are hoping for a collaps of housing prices in the Puget Sound region so that they can buy houses for pennies on the dollar.

Sorry, but it’s not going to happen. I know we have a VERY serious financial crisis facing the US today, but we will survive. The Boeing Bust of 1970 was a very serious economic blow to the Puget Sound region but home prices didn’t collapse then. There has never been a time when our home prices have fallen 50% like those in San Diego, Las Vegas, Phoenix and other boom-bust housing markets. Yes, we really are “different.”

I see nothing on the economic horrizon (other than the new “Great Depression” that probably won’t happen) that would indicate that we will break from our historic norms and suddenly follow San Diego’s real estate market down a rat hole.

My weekly real estate column has been published in the Everett Herald and other Seattle area newspapers every Sunday since 1990. I will continue writing it over the next 10 years, and at some point I’ll be able to say “I told you so” when the next housing boom comes along.

And if I’m wrong, you can write in and say “neener neener!”

Steve Tytler
Everett Herald Real Estate Columnist

Wow, you actually played the “I’m older than you, so I know better” card. Cool :D

Nice to see palm trees again, and we had a fun time at Disneyland, but that wasn’t enough to make up for all the negatives. Too sprawling, too many strip malls, too dirty, too much graffiti, too hot, too expensive. Not much to recommend it. And the water out of the tap tastes like sh*t! It was gross.

Just…no.

I srongly disagree with with your prediction. I don’t think we will have another housing boom for a very, very, very long time. Remember that “the generals are always good at fighting the old wars”. Now, everyone understands the mess we are in is created by a housing boom based on un-regulated financial innovations – NINJA loans, CDS/CDO, Option ARMs, etc. After we go through this mess, I don’t think the banks will ever dare to make loans to people who cannot pay back. Loans now have to based on the good old 3 Cs: Credit worthiness, Capability to pay, and Collateral down payment. So, in order to have a housing boom, we have to have a wage/income boom. With the current global landscape today, I don’t see any of this will arrive soon.

One thing I’ve learned in life: if everyone is mocking you, then it’s probably because you’re being an idiot.

Tonight the president got on TV, and announced to the world that “our entire economy is in danger,” if we don’t bail out our banks to the tune of over $700,000,000,000. Boy…I remember when that happened in 1990, don’t you?

Point is, Steve, is that this time, it’s a little different. We may be 20% down today, but that says absolutely nothing about tomorrow. And the fact that we were only down by 20% a decade ago? That’s totally irrelevant. If next year, we experience a 30% drop, are you going to argue that it’ll be just like 1976?

Yeah, you probably will. Enjoy your bellbottoms, Steve.

1) Do you have any logical explanation for the lag-time between the “bubble burst” in Seattle vs other markets? Is it that news take so long to reach Seattle? I cant think of any obvious reason for such a long lag time (several months).

2) What do you think will be the role of inflation or hyperinflation. If the dollar plunges much further or quicker and you don’t plan to move for a while, it may be a very wise investment to buy a house.

I am curious to see your opinions… Sorry if either one has been addressed before.

1. San Diego’s real estate run up started much earlier and peaked much higher, Seattle run up started later and saw half the run up.
2. Their default notice rate is roughly 3300/month in 2008, King County’s is roughly 800/ month. http://www.foreclosureforum.com/stats.html
3. San Diego has 50 miles of waterfront property, King County has 2000 miles of waterfront property.
4. San Diego county has 4261 square miles, to King County’s 2126.
5. San Diego’ median household income is $59771 and King County’s is $71,420 (so much for San Diego so being tech heavy and all that defense money)
https://edis.commerce.state.nc.us/docs/countyProfile/CA/06073.pdf
https://edis.commerce.state.nc.us/docs/countyProfile/WA/53033.pdf

You need to look more deeply than comparing home prices, “weather”, and what you think the job market is and what it might pay. The run up inspired many San Diego residents to leverage their newly found equity and take cash out or buy other homes (Arizona, Vegas). With twice the run up of King County residents, yet earning 20% less than King County residents you can see why they are in major trouble. Pile all of California’s taxes, higher gas prices, water shortages, higher utility costs and crime and you can easily get a sense that the grass might not be as green.

The reason why the Tim’s comparison is departing his predicted trend is because the two counties were a poor comparison to begin with. Most importantly he forgot real estate’s biggest rule, IT IS LOCAL.

From this point on, the government’s actions will determine how the market does. With credit frozen all markets will see large decreases. If the government takes over the loans and creates workouts with home owners and makes credit more easily available then housing prices will level off. For evidence of the effect of the credit freeze and how banks are not working with customers look at the percentage of houses being foreclosed on and sold it’s almost double from the previous year http://www.foreclosureforum.com/stats.html.

Click Here

There appear to be some similarities to the current situation, but I would argue things are very different now than they were then.

Ray Pepper: But, with all the landscaping done, blinds, upgrades, only 4 years old, and a rental mkt supporting 1200 the 150k range is tough to pass up.

Are you sure you’re not putting too many eggs in one basket? What if the rental mkt supports only $800/mo a couple years from now?

Would you buy the house, or continue waiting? We have been saving since 2004 and are starting to get tired of putting our lifes on hold. If you would wait, how long would you wait?

The data you linked to doesn’t seem to help much. It will show the median LTV, but that doesn’t tell us what percent of people have low LTVs. Also, it doesn’t appear to offer any historical data that would allow us to compare the number of people with low LTVs today with past peaks in our region.

I do appreciate the link though.

http://www.newyorkfed.org/mortgagemaps/

You can switch between Subprime and alt-A and there is a button on the right of median LTV.

You might leave what might actually be the real professionals alone & spend a little more time getting your facts, before coming back into the Snake Pit.

Steve how much actual time you spend? on real data- Betcha can’t come even close to the 20-30 hours “I spend looking at all sides.. at the same there is absolutly no way anyone can call everything as it falls.

Sure Steve- Fannie/Freddie/AGI/Bear Sterns/almost 300 Mortgage companies and the over 100+ Banks that are on the Brink of Failture are just Normalities we have seen from past cycles.. You Actually Think Were Stupid?

Credit is what created the Price Run ups and Credit will bring those prices down.. historic pull backs on Credit… it will be very lucky if Seattle Escapes with only a 30% price drop.

Yeah right, uncle same threw tons of money at Lehman and bear and AIG. Fat lot of good it did propping up those companies assets.

Paulson and his buddies are only looking at bailing out his golfing buddies on wall st. They will buy the assets at “above-market” prices from the banks. That doesnt mean the asset is priced correctly. It just means the banks get away scot free. AND we, the taxpayers get to foot the bill.

And just because some fool (in this case uncle sam) paid a certain amount of money for an asset doesnt mean the value of that asset is *that* amount. Housing prices are going to collapse all over the country regardless of the bailout. The only thing that is sure is the following:
IF ballie mae succeeds, 700 billion or so gets tacked onto our nation’s debt. This means the dollar will decline. This means all commodities will be more expensive (as will be loans etc). All in all it means all the taxpayers will be hit everywhere, while wall st gets away scot free.

Read between the lines, not just what they tell you.

The US Government is going to throw so much money at keeping prices up – they will provide a floor to housing by signicantly reducing forclosures- The 17 month lag might prove to be a big benefit to seattle housing prices.