4.5% rates will create a stimulatory effect but will not fix the problem in Seattle

Whatever stimulus 4.5% rates might cause will be exceedingly short-lived. As I’ve been repeating (again and again), low rates are a sure-fire signal of deflation. Who wants to buy an asset that is depreciating at 5% a year, even for 0% interest?

I have a podcast on the problem with low rates at http://msurkan.podbean.com.

Valuations

I find a lot of value in the Global Insight median price data, because their adjustment to the OFHEO data makes it more accurate. As far as their valuations are concerned, the same parameters are used throughout the country, so the chart has great value when taken as a relative comparison tool.

As for the upcoming low-interest loans, It’s important to keep in mind it was easy-to-get loans that really caused the market to explode. Cheap rates helped, but after building the comparison tool on my website, I was a surprised to learn that rates don’t affect home prices nearly as much as I had supposed.

http://www.housingcorrection.com/medianpricevsmortgagerate/medianpricevsmortgagerate.aspx

IMO, 4.5% rates will create a stimulatory effect but will not fix the problem in Seattle. I predict, for the most part, the low rate will bring out buyers in areas identified on National City’s valuation chart as being undervalued. Places like Seattle will actually see larger drops than in previous quarters.

Why do I believe this about Seattle? It comes down to the historical homeownership ratio. Mortgage rates can go to 0%, but it won’t change the fact that way too many people got loans during the bubble years. Now that banks will only loan to qualified buyers, house prices have to go down to meet the law of supply and demand. House prices cannot stabilize until the homeownership ratio gets back in line with historical levels. Most likely, this means the areas identified on GI’s chart as undervalued will continue their downward trend for some time to come.

Following the logic of Global Insight/National City, this must be the bottom for most of the country, and a great time yo buy! Pay no atterntion to the fact that National City is a huge mortgage lender and clearly unbiased.

King County home prices fall 9.2% in November
The median price of a single-family house in King County fell 9.2 percent in November from the year earlier to $395,000, the Northwest Multiple Listing Service reported today

As for Seattle…we are behind the rest of the country and this chart confirms that our correction is lagging. However the downward trend in prices is now firmly underway and will continue “down” until the 2012 timeframe (+/- year).

Okay something is really screwy. I love how neither of the two versions I’m seeing on the website flash tool match the one in the pdf. Because of that, I’ve changed the graphic on the post to reflect the one in the pdf.

If I told you three months ago that gas was going down 70% in price in 2009, I’d be laughed off the stage. If I told you that today, you’d nod your head yes.

Same with plasma TVs, laptops, homes, etc…..massive deflation during a bailout economy is uncharted water economically and its size may be much bigger than you first estimated.

January 2009’s Kiplinger’s Personal Finance had a great chart on the history of stock collapses and the rebound size a year later (pg 30). The Worst Years of Our Lives [2008 is rated #2 Worst Down Market Year Historically, Believe It or Not]:

Year Down market Following Year
1931 -43.3% -8.2%
2008 -36.6 N/A
1937 -35.0 -31.1
1974 -26.5 +37.2
1930 -24.9 -43.4
2002 -22.1 +28.7
1973 -14.7 -26.5
2001 -11.9 -22.1
1941 -11.6 +20.3
1957 -10.8 +43.4

Note, The Great Depression’s 1929’s 90% collapse isn’t mentioned, since 6 months later the market mostly recovered, then sank back into the 1930s hole [see chart above].

it’d work just fine to stabilize prices – if it is offered for both refi and new loans.

otherwise, we still have the ARM wave to deal with.

Something isn’t right for sure. I tried it in two browsers and got the same image multiple times. And if I open the PDF report you linked to, I get this graphic, which again is significantly different from the one you are basing this article on:

http://img142.imageshack.us/my.php?image=ncereportscreenshotlo9.jpg

Yup, there is a simple explanation. Your screenshot is outdated. I bet your browser is pulling a cached copy of the page or something. Try doing a force-refresh.

Edit: Okay weird. I refreshed a few times myself, and half the time I get the image above while the other half the times I get the one linked @ 12.

Here is a screenshot that I just took of the map from web site you linked to:
http://img165.imageshack.us/my.php?image=ncescreenshotvg2.jpg

The “true value” of an asset (any asset) is what someone payed at the time it exchanged hands. It doesn’t make any sense to bail out anybody (regardless of whether they put down 100K vs. 500K).

The real issue is that housing is returning back to historical norms. Its faster in some places (detroit) than others (seattle) because of differences in the local economies. The main point however is that the regression to mean is inevitable.

Considering the big picture, no (sensible) person is going to buy houses in Seattle (just look at what people payed for the same house around 2001). Thats what people should be paying when all the bleeding stops. Some people might be suckered by their RE agent into buying a *great* deal at 4.5% in the next quarter or so. Let me know how that works out 1 year from now when that person is about 10% underwater.

Then you can tell us what you really think.

But if you’re ok with “shopping by stats” then be my guest.

The new Radar Logic report shows Seattle is the leading metro area in the US for 5-year annualized change in price per square foot. (7.1% per year; Philadelphia is 2nd at 5.1%).

http://www.radarlogic.com/research/RPXMonthlyHousingMarketReportforSeptember2008.pdf

It sure doesn’t look like Seattle’s current prices are sustainable.

A lot of bubble cities on their map have still not corrected to their “estimated” price.

True, there are a lot of undervalued cities in the US now. Too bad I can’t find a good reason to live in Detroit, Dallas, Cleveland or Houston.

at present, our prices are about 2% below those of LA, and about 15% above San Diego. in my industry, those areas pay 10-15% more than here.

Its a short, concise and effective shredding of *that* particular argument to buy houses.