Here are a few local real estate stories to kick off this snowy Christmas week.
Aubrey Cohen, Seattle P-I: It’s refi — not buy — in Seattle’s housing market
Unusually low interest rates have spurred a run of mortgage refinancings in the Seattle area, but not necessarily more home purchases.
…
Andrew Gledhill, an associate economist at Moody’s Economy.com, said low rates were not enough to turn around the housing market or the wider economy.
…
The economic downturn has become increasingly global, affecting Seattle-area core industries such as software and aerospace, Gledhill said. Moody’s now expects Seattle-area home prices to decline just over 20 percent from the peak in the summer of 2007 to a low point by the end of next year.After that, it will probably take until about 2014 for prices to get back to their 2007 level, he said. “It’s going to take several years for this to work itself out.”
Steve Tytler, Everett Herald: Can’t sell it? Tips on how to rent it
A lot of would-be home sellers are now finding themselves reluctantly becoming landlords in this slow housing market…
Rolf Boone, The Olympian: Foreclosures hit Northwest homes, business
Mortgage foreclosures in Thurston County increased more than 50 percent in 2008 compared with 2007, an indication the slowing economy is contributing to this growing problem, newly compiled data show.
Notice of trustee’s sales filed with the Thurston County Auditor’s office rose to 1,010 through Dec. 19, up from 662 in 2007.
Read any interesting stories this weekend in the real estate world? Share them here.
Plymster » Dec 22, 2008 at 11:44 am
Calculated Risk has been producing a ton of articles about Commercial RE.
Frankly, with stores vacating, project work stoppages (ie vanishing cranes or cranes growing cobwebs in downtown Seattle/Bellevue), and retail doing so poorly, I would expect that this will hit the overall economy much more than the Alt-A resets. The Alt-As will be a big nothing anyway, since many of these ARMs will reset to lower rates with the current Zero Interest Rate Policy (ZIRP).
That said, if Obama takes Krugman’s advice, he may be able to drive up interest rates by making USDs less attractive to foreigners, who are having problems of their own.
Scotsman » Dec 22, 2008 at 11:55 am
When I pulled up Bloomberg this morning the first dozen or so headlines were strongly negative. I think the media has turned the corner, replacing positive spin with reality based reporting. I’d expect downward trends to accelerate sharply.
Plymster » Dec 22, 2008 at 12:10 pm
Bad link above to Krugman’s article – it’s here instead
mark » Dec 22, 2008 at 12:18 pm
Mr. Mortgage pointed me to this article about why lower reset rates won’t help alt-a and other borrowers. It mainly boils down to the effects of negative amortization and lowered values:
http://www.doctorhousingbubble.com/option-arms-for-dummies-why-45-percent-mortgages-rates-will-do-absolutely-nothing-for-these-toxic-assets/
brianinboise » Dec 22, 2008 at 12:44 pm
As to the pending expected wave of residential refinances, perhaps there will be too little money available to accommodate those transactions. See housingwire’s post today, Dec. 22.
Groundhogday » Dec 22, 2008 at 12:48 pm
WSU-Pullman is facing a 13% cut in state support, 8% in real cuts once tuition increases are included. But local Realtor advice to sellers is to “wait for the spring bounce”.
-Price/Income and price/rent ratios at historical highs
-Dominant local employer to initiate major layoffs/cutbacks
-Sales volume has gone over a cliff the past 6 months
But don’t drop that price, the market should recover just fine this spring! Looks like we are all in the same sinking boat folks.
Ben » Dec 22, 2008 at 1:30 pm
I thought that this was interesting:
http://njrereport.com/index.php/2008/12/20/realtor-chief-economist-i-spun/
This is like Baghdad Bob admitting he was wrong. I might even buy a copy of Money to read this article.
Plymster » Dec 22, 2008 at 2:32 pm
Groundhogday @6,
You see the same sort of overly optimistic nonsense from King County RE “professionals”. These folks are encouraging others to keep their prices high, since “only time will tell” if prices will skyrocket next year. They’re doing their sellers a disservice by failing to admit that we are:
a) in a recession that economists are comparing to the Great Depression
b) losing jobs rapidly in the short term due to retail (Nordstrom, Eddie Bauer, Starbucks, and possibly Amazon), finance (WaMu), and slowdowns in imports/exports (Port of Seattle) and aircraft sales (Boeing).
c) sitting on record high inventory (supply) and record low closing sales (demand)
mark @ 4,
I understand the resets of the Option ARMs, but not all Alt As are Option ARMs. Some are legitimate no-doc loans (some are bogus no-docs), some are just ARMs. Only the Option ARMs will force a sale – and hence a foreclosure, and I haven’t seen any data on how many Neg Am Option ARMs there are that are getting reset. If you know of any , please let me know.
Thomas B. » Dec 22, 2008 at 3:20 pm
Ben @7
I thought realtors had a code of ethics? I guess it just about the money.
Thomas B. » Dec 22, 2008 at 3:25 pm
The housing slump won’t end until prices reach reasonable levels.
For the economy to get back on track, the prices of houses need to come down significantly so a person making Median Income can afford to buy a home. When that happens, then people will be buying and producing revenues for the state. So the people that caused this mess, the realtors, are exacerbating the recession by refusing to face reality and cut prices.
I say it’s time to start cutting out realtors and looking for alternatives. Or further regulating the realtor industry.
jon » Dec 22, 2008 at 3:46 pm
brianinboise #5: That doesn’t make any sense. When you refinance, the new loan repays the old loan. There is some extra liquidity needed for the duration of the transaction, but rates wouldn’t be going down if they were running out of cash.
deejayoh » Dec 22, 2008 at 4:56 pm
Fixed that for you. REALTORs don’t set prices…
Thomas B. » Dec 22, 2008 at 5:33 pm
I thought realtors were “professionals” and that we should trust their opinion. I guess not. Why should I pay realtors 3% again?
Jillayne » Dec 22, 2008 at 6:10 pm
@Plymster,
Lower rates will help ARMs set to the COFI index or the LIBOR.
However, we shouldn’t confuse a rate RESET with a loan that’s RECAST.
When the negative amortization loan reaches a certain point, the loan is RECAST and the homeowner begins making a higher payment.
The interest only ARMs were a popular toxic product. Even though the rate may reset down, the loan then recasts and begins amortizing and the homeowner’s payment goes up.
Consider the “fixed for 5 years” interest only loans. When they recast, then the homeowner’s payment becomes fully amortized….and their monthly payment goes up.
I’ve fielded several calls from folks freaked out about this. They would like to refi today into a 30yr fixed but they are unable to qualify for a new loan because their 2008 income is, shall we say “radically different” compared to when they received that interest only loan.
We’re not talking stated income; instead these are people on commission.
Plymster » Dec 22, 2008 at 7:56 pm
Jillayne,
Thanks for the clarification. I get a bit confused with recasts vs resets since so many mainstream sources use these terms interchangeably.
I think I’ve found the data I was looking for. It looks like over the next 2 years we’re going to quadruple the number of recasts based on the Neg-Am Option ARMs. The numbers help me to understand exactly how big a deal this is.
It looks like somewhere between 50-60 billion worth of Neg-Am ARMs are recasting next year, and in 2010, and again in 2011. That’s a massive amount of loans to come reset during a recession. I take back what I said about the ALT-As being “a big nothing”, though I don’t think it’s as bad as the $1 trillion subprime resets in 2007 and 2008, even though the foreclosure rate of these Neg-Am ARMs is likely to be much higher.
David Losh » Dec 22, 2008 at 8:04 pm
Comment #1 is more to the point than if Johny and Suzanne will refinance thier home again. There’s very little point to refinancing an asset that is losing value.
The thing that keeps coming back to my mind is getting to an all cash position and staying that way. I only want to pay my home off rather than refinance.
Consumer credit is one of those things that has driven the economy. Refinancing that consumer credit into a refi has kept the mess going. In my opinion it was lenders who wanted higher and higher home prices so consumer credit would churn through to a secured asset.
A home owner or group of home owners are very little fish. Most people will continue to live in a home and pay the mortgage, We may see people staying in homes for more than seven years because they have to.
Commercial loans on the other hand, when they default it will be bigger news. If malls, or strip malls, or Baskin and Robbins, or Walgreens start giving up leases the owners of the building may have a hard time making mortgage payments. I’m wondering if Generla Motors owns or leases thier manufacturing plants.
I know we talk about residential Real Estate here, but if big loans start defaulting what will that do to residential prices. In planned communities like in Nevada the commercial spaces were leased out first on long term leases. When those leases begin to default, not renew, or steal off into the night where will the new foreclosure sale buyers shop?
Jillayne » Dec 22, 2008 at 9:31 pm
Plymster,
I believe the ratings agencies have downgraded the Alt-As. Some of the pools of RMBS (residential mortgage backed securities) are performing more like subprime.
Fitch went through a pool of RMBS that had a large percentage of early defaults and found that although the credit score was decent enough to get an Alt A rating, there was a large number of problems with the pool including attempts to make the credit score look higher than it really was, occupancy issues, and so forth.
Our other problem is credit card debt. Even if people could get their toxic loans modified to a lower rate, that only addresses part of the problem for these folks who are likely carrying high credit card debt. Re-default of loan mods is high enough to make me believe that many of these loan mods are helping the banks (push the losses into the future) more than they’re helping the homeowner.
Ray Pepper » Dec 22, 2008 at 9:51 pm
I hate store gift cards. I hope this helps everyone so they are not stuck with any. Also add to the list Guitar Center! These are just a few….
http://www.thetreeofliberty.com/vb/showthread.php?t=37477
Merry Xmas from Gardnerville Nevada
Andy » Dec 22, 2008 at 11:10 pm
Jillayne,
How many Alt-A’s or ARM’s did you underwrite? How about some HELOC’s aka THE HOME ATM. Also, could you detail who you utlize as an appraiser – to help you get the “right” sales comparables? Also, what do you get (in terms of points) on the front end + back end of each transaction? Also, what is the compensation structure on a refinancing? I need to understand this murky compensation grid.
Considering that your job is to straddle a debt burden on a person; I’d like to understand the inside of your trade. Do you offer HELOC (2ND MORTGAGES), ARMs, Alt-A’s, JUMBO PRIME, JUMBO? Anything else on the shopping counter for debt that I might have missed?
Do you believe that HELOC’s are unethical considering most American’s have little character, cashflow, or collateral to pay back their borrowings? In terms of credit card debt, what ever happened to personal responsibility. I suggest letting these high-flying wannabes default and declare bankruptcy. If you can’t pay, don’t buy!
That way, they can get a new start, albeit with a shattered credit profile. I can’t stand seeing these idiots on 60 Minutes or Dateline complaining about their credit card debt and ARM mortgage payments ballooning. Considering that mortgage brokers are filling out the applications with these shamucks; I think that they should be able to decline a loan b/c the borrowers are retarded.
We can’t continue to depend on American consumers using thier homes as ATM’s and utilizing their entire $10,000 credit card for Christmas presents (but they work at Lowes). We need to rein in Mortgage Brokers who offer HELOC and burdensome mortgage poison.
Now all that is left is bailouts and stimulus packages. The same behavior that got us to this point. Let Americans borrow! Too bad our Asian Creditors won’t offer us any more cash. No more securitizations – and now there are little or no loans offered. Did anyone on this blog realize that most banks did not want to hold this poison – so they sent it to the idiots across the pond. Now, because the Chinese and Japanese don’t want the securitized crap that these mortgage bankers are underwriting. They recognize that the American Consumer is tapped out. They have already suffered from buying our toxic HELOC’s, ALT-A’s, and even JUMBO PRIME. Hell, JP Morgan, BOA, and the rest don’t want to underwrite a thing. ALL TOXIC!
Rent or mortgage payments need to be less than 20% of Net Income. I’m praying a complete & utter collapse of this housing bubble. Once Americans start realizing that this entire “home building/mortgage/realtor” Industry is phony – and their homes are a DEPRECIATING asset; we will all be better off. Hopefully these brokers will ONLY offer 15 year or less mortgages. That way, real estate prices will tank and people who SAVE will buy homes. ITS BETTER TO HAVE A LOWER PRINCIPAL THAN LOWER RATES! Don’t let your realtor or mortgage broker con you.
It’s either that, and we get back to personal resposibility (SAVE & INVEST) or we underwrite the 100 year mortgage (it happens in Japan)…
Sniglet » Dec 22, 2008 at 11:23 pm
On a personal anecdote, I had a lunch discussion about the economy with about 10 Microsoft colleagues today, from many different divisions, (who came into work in the bad weather SPECIFICALLY to have this chat), and there was a definite gloomy mood permeating the group. There are lots of wild rumours of cut-backs, declines in sales, and head-count reductions. The people at this meeting were really worried about their job security.
All I can say is that this is a BIG difference from the mood at discussions of this economics club from as recently as 3 months ago. But then, maybe it’s only people who are concerned about the economy who even bother to participate in this group, so I might be getting a very skewed view of how people at the company feel.
buystocks » Dec 23, 2008 at 1:56 am
Microsoft like every other company needs to follow the rule of:
decreased profits equals a need to decrease costs (translate layoffs)
Unless, of course, they increase their profits by diversifying into the foreclosure market by selling robots that kick foreclosed people out of their homes.
Just lots of denial.
DavidB » Dec 23, 2008 at 6:16 am
Microsoft isn’t immune to an economic downturn. As businesses cut back on upgrading their software or change to lower cost options, consumers cut back on buying Xbox games and consoles, Microsoft will look for ways to decrease costs including headcuts.
The employee stock grants at companies like Microsoft and Amazon are a large part of the employee compensation package. Unfortunately, the stock prices at these companies have declined a lot in the past few months so these employees will have less income than they would have had if the stock prices hadn’t declined.
Civil Servant » Dec 23, 2008 at 8:19 am
David B: But isn’t it the case that these periodic stock grants are pegged to some periodic share price? That’s my understanding, though my contacts at Microsoft are fewer and fewer. For instance, let’s say Microsoft wants to give someone about $15K in stock grants at bonus time, the same amount two years in a row. If the stock is around $30 when the y1 grant package is formalized, he will receive 500 shares. If it’s at $50 for y2, he will receive 300. One guy I know is getting substantially more shares than he used to, such that even a small uptick “makes” him quite a bit of money — I figured this was how MS was compensating for the fact that steady share price increase was no more hence options had become unattractive. Please let me know if I’m wrong on any of this — I have a tangential interest in software companies’ compensation packages.
Buceri » Dec 23, 2008 at 8:23 am
Just for fun; but it seems many hot markets should see median prices under $250K or even $200K by 2010.
10 Worst Real Estate Markets for 2009
Tuesday, December 23, 2008provided by FortuneonCNNMoney.com
1. Los Angeles
2008 median house price: $375,340
2009 projected change: -24.9%
2010 projected change: -5.1%
The median home price in the L.A.-Long Beach-Glendale metro area is projected to fall nearly 25% in 2009 – the biggest drop in the country.
2. Stockton, Calif.
2008 median house price: $248,050
2009 projected change: -24.7%
2010 projected change: -4.0%
3. Riverside, Calif.
2008 median house price: $256,540
2009 projected change: -23.3%
2010 projected change: -4.8%
4. Miami-Miami Beach
2008 median house price: $293,590
2009 projected change: -22.8%
2010 projected change: -6.4%
Miami will be nursing the hangover from its epic building boom for years to come. After falling 22% in 2008, prices are predicted to plunge another 23% next year.
5. Sacramento
2008 median house price: $225,140
2009 projected change: -22.2%
2010 projected change: 2.3%
6. Santa Ana-Anaheim
2008 median house price: $532,810
2009 projected change: -22.0%
2010 projected change: -3.5%
7. Fresno
2008 median house price: $257,170
2009 projected change: -21.6%
2010 projected change: -3.3%
8. San Diego
2008 median house price: $412,490
2009 projected change: -21.1%
2010 projected change: -2.9%
9. Bakersfield, Calif.
2008 median house price: $227,270
2009 projected change: -20.9%
2010 projected change: -2.5%
10. Washington, D.C.
2008 median house price: $343,160
2009 projected change: -19.9%
2010 projected change: -5.7%
Bits_of_Real_Panther » Dec 23, 2008 at 9:29 am
“the prices of houses need to come down significantly so a person making Median Income can afford to buy a home”
A median income earner can easily afford to buy a home in Seattle right now, just not a median priced home. A quick scan of Zillow shows dozens of homes in the city that are affordable, sure it’s in Delridge or Highland Park or … but that’s where typical starter homes are in the city. They’ll be even more affordable next year but that’s ancillary to the point. Median income earners who are looking to buy a SFH on Queen Anne Hill are eating retard sandwiches.
Angie » Dec 23, 2008 at 9:32 am
Jillayne, if you’re still reading out there, I wonder if you can tell me how you see 80/20 mortgages fitting into the picture in the coming years?
Most of the consternation these days is about ARMs with relatively short timeframes before resets/recasts (1,3,5 years). Enough time has passed to set those changes in motion and it’s kicking a lot of people in the butt.
I’m wondering about a little further on down the road.
My understanding is that for most 80/20 loans, the secondary/smaller loans have a big balloon payment 10 or 15 years out. I recall that these were just starting to get popular in the late 90s–when we bought our house in ‘98, my agent and broker regarded them as kind of new and weird, as a departure from how things used to be and so to be regarded with caution.
Of course those loans got hugely popular since that time and I wonder if this is going to be the next batch of land mines. Lots of folks bought houses in, say 2003 with “fixed” payments, are immune to the vagaries of the ARMs mess–but a big chunk of principal will come due in 2018….
Maybe in the refinancing frenzy everyone is ending up with 30 year fixed loans. Or maybe we’re going to be dealing with the fallout from the recent financing shenanigans for a loooong time to come….
Tim » Dec 23, 2008 at 9:42 am
big rumors of bad news at MS in the new year.
jimmythev » Dec 23, 2008 at 10:07 am
It’s looking like it’s going to be “significant” at MS on Jan 15th… or so the rumors say… people are really scared. I’ve heard 10% or between 5k-10k in the US with the bulk in Puget Sound area… What is that going to do to the local housing market…
Tim » Dec 23, 2008 at 10:11 am
that would be a massive layoff. I’d personally be surprised if that occurred out of the blue. Any MS people care to elaborate?
DavidB » Dec 23, 2008 at 10:15 am
civil servant, you’re understanding of the stock grants is correct. I worked for Amazon and the stock grants made up about 30% of my pay. Each year you’re given additional stock grants and the you receive the stock when it vests. The number of shares you get each year depends on the price of the stock. For example, you may receive $50K for stock that vests over 4 years. If the stock stays at the same price then you receive about $12.5K each year. But if the stock is cut in half then you only get $6.25K!
The largest grant is given to you when you start and then you receive additional shares each year based on performance and level.
Jbeans » Dec 23, 2008 at 10:23 am
Ray@18: that list has been floating around for a while. Significant inaccuracies there. See Snopes: http://www.snopes.com/politics/business/storeclosings.asp
Sniglet » Dec 23, 2008 at 10:38 am
I can confirm that there is a lot more skittishness, and concern about job security, around Microsoft these days. However, I haven’t seen anything to confirm that a huge across-the-board lay-off is in the immediate offing. In fact, some groups have still been hiring even in December, which would seem odd if there were plans to have a general reduction in staff. Further, it would also seem odd to have a big lay-off when there are still a significant (albeit reduced) number of contractors employed. There are LOTS of cost-reduction possibilities yet to tap before company wide lay-offs would make sense.
I won’t rule ANYTHING out, but I think that a big lay-off is unlikely in the next couple months. Rather, I think we will continue to see increasing pressure on cost cutting, reduction in the use of contractors, and dismissal of poor performers. There will also most likely be a greater scrutiny on teams that aren’t profitable, or don’t have a clear plan to become so. So, it is certainly possible (and even propable) that SOME teams, or groups, could see huge lay-offs, but these would be relatively localized events (which still could amount to a significant number of staff on a cumulative basis).
Microsofties » Dec 23, 2008 at 10:51 am
@29:
I work at MSFT, and have yet to hear anything credible. Of course people are going to speculate on what will happen, but from what I’ve heard, MSFT is going to use this time to attempt to put distance between competitors. Laying off thousands of headcount isn’t conducive to that strategy.
With a clean balance sheet and billions in the bank, it’s my belief MSFT will report a miserable quarter but not announce layoffs. The people inside the doors are not immune, but reducing headcount only helps your numbers once.
After MYR (mid-year review) on Jan 9th, the direction for H2 will be established but I seriously doubt you’re going to see 5-10K of layoffs in the Puget Sound area.
First budgets will get cut 10-25%, less vendors are hired to do work, and finally permanent headcount will be reduced. I have yet to see less orange badges walking around compared to any point in time the last 3 years.
Hopefully my speculations are correct and MSFT doesn’t shock everyone.
Plymster » Dec 23, 2008 at 11:06 am
It’s a fallacy to believe that contractors will be the first to go when IT companies start slashing jobs. My experience has been the opposite. Contractors are accounted as a temporary expense, where employers are generally trying to cut long term expenses to shore up their balance sheets during recessions.
RT » Dec 23, 2008 at 11:25 am
Greedy greedy greedy is all there is to it !! Just plain GREED!!
Sniglet » Dec 23, 2008 at 11:29 am
All the talk about rumoured Microsoft lay-offs does raise one interesting question: what would the fall-out be on the local real-estate market if Microsoft WERE to lay off 5,000 Puget Sound employees? On the face of it 5,000 people shouldn’t have that much of an impact. Far more people from the real-estate industry have lost their jobs in the last couple years and that hasn’t brought us to ruin.
Magnolia44 » Dec 23, 2008 at 11:31 am
Sounds like a bunch of people want to see layoffs at MS. Its not enough housing has gone down quite a bit and unemployment its become “let’s see thos MS employees join the rest of us”. What a sad site, lol wait until all thw hope comes home to roost counting other peoples money, housing, job prosperity, what’s next?
Merry X Mas I guess, maybe those MS employees won’t have a job nex year then u guys will be happy. This is not the first thread to discuss Microsoftees, jealous much?
cheapseats » Dec 23, 2008 at 11:36 am
Umm, I dont care about MS much either way, but it appeared to me that it was largely MSers having the discussion.
Tim » Dec 23, 2008 at 11:40 am
I used to work at MS and am not jealous of MS employees in the slightest. Actually I kind of pity them.
Magnolia44 » Dec 23, 2008 at 11:43 am
Tim posted
“Big rumors of bad news at MS in the new year”.
MS has been brought up in numerous threads its the bubblehead call for collapse in the pudget sound. Read between the lines, and people look in the mirror about what exactly you hope and want to have happen. Its one thing to see houses go down 25% or so but another for all the other bs discussions that go on. This is all my opinion but that’s what I take from it.
Tim » Dec 23, 2008 at 11:48 am
you’ve obviously never checked out the mini-msft blog. There seems to be a lot of talk there about something happening, albeit all rumors. Sorry but I do believe it is somewhat relevant to the conversation here.
Lake Hills Renter » Dec 23, 2008 at 11:50 am
“I used to work at MS and am not jealous of MS employees in the slightest. Actually I kind of pity them.”
I don’t need your pity. I enjoy what I do and the people I work with, and I’m compensated decently enough. Ultimately it’s just a job, no more and no less. I’m sure some are better and some are worse.
The MS-haters do amuse me sometimes, however. They’re just as bad as te fanboys. Not saying you are either, just saying.
I have no information on layoff rumors, but it wouldn’t surprise me after the hiring binge the company has been on. It would certainly be tough on the local economy IMO.
Microsofties » Dec 23, 2008 at 12:08 pm
@34:
Fallacy? I’ll be very impressed if you give me one data point that supports your blanket statement.
Just for fun, here’s a link that shows your “past” knowledge are not valid in the new recession:
http://www.webguild.org/2008/11/google-layoffs-10000-workers-affected.php
Assuming they do act, MSFT is going to follow suit.
buystocks » Dec 23, 2008 at 12:30 pm
Magnolia44,
You sound a bit foolish; see no suggestion of hoping for layoffs. I have family that works there… MS sales are tied to the economy, so I am guessing their sales and profits will go down. And since they are a publicly traded company they need to report profits or investors will leave in droves. If they post poor profits, then they need to report a cost reduction plan, which generally includes layoffs. This is just the nature of the beast.
Tim » Dec 23, 2008 at 12:59 pm
Below is an interesting snippet from an article pulled off CNBC. Why would they add the portion about the 10% reduction in headcount? Kind of jives with the rumors that have been posted elsewhere.
Microsoft shares [MSFT 19.24 0.06 (+0.31%) ] are trading roughly flat around $19.13 at midday. Oppenheimer says it would be a buyer of the stock at current levels, adding that a 10 percent headcount reduction at the software giant would offset $3 billion of revenue declines and generate about $0.10 per share of savings.
deejayoh » Dec 23, 2008 at 1:40 pm
oh, yeah. Analysts have proven to be absolutely prescient with their forecasts of what will happen to stock prices over the last, say 20 years.
I’m not saying that MSFT isn’t going to do some layoffs but I doubt that will be the first/only shoe to fall. Lots of perks have been added over the past few years, connector, touchdown, etc. Plus we have as many CSG as FTE these days. I suspect a mix of cutbacks – and if you are not in a revenue generating function – keep your resume fresh.
Buceri » Dec 23, 2008 at 1:46 pm
Microsofties @43
I have a co-worker that has family working for Sun in Silicon Valley. Two weeks ago she mentioned that Sun and Google were laying off (I expected Sun; but Google?). Wow!!
Civil Servant » Dec 23, 2008 at 2:08 pm
DavidB @ 30, thanks for the info.
Microsofties @ 33, I like your point about reducing headcount being a one-time fix.
Extrapolating wildly, I don’t know if I think the impact of hypothetical Microsoft layoffs will hit big in the housing market. I would expect to see the local impact more in terms of an aggregate consumer-spending cutback, one that is perhaps contagious among still-employed-but-now-on-guard friends of those who have been laid off.
jon » Dec 23, 2008 at 2:33 pm
Microsoft could costs just by reducing the number of new contracts it starts. As those people move back to their home country, that will decrease purchasing and increase the rental vacancy rate here.
Jillayne » Dec 23, 2008 at 2:47 pm
@Angie from comment #26
“Jillayne, if you’re still reading out there, I wonder if you can tell me how you see 80/20 mortgages fitting into the picture in the coming years?”
Most 80/20s that I saw had the second mortgage amortized over 15 or 20 years fixed.
As far as how I see the 80/20s doing, well, let’s lump all 100% LTVs together. This would include the 80/20s, the FHA downpayment assistance loans, VA 100%LTVs (not many of those since many Veterans ended up going subprime) and the 100% LTVs.
When we see values declining and negative equity increasing, the chance of foreclosure for this group rises. A trigger event such as divorce or job loss would make this homeowner especially vulnerable to foreclosure because there are less reasons to keep making the payment.
Not every homeowner with negative equity will go into foreclosure, but it does increase the risk for banks. Let me see if I can find an outside source for you. Christopher Cagan from Firstam Core Logic was one of the first people to go public with this way back in the spring of 2007.
Here’s a Feb 2006 article:
http://wwww.signonsandiego.com/uniontrib/20060226/news_1h26harney.html
In this Roubini article from Feb 07, Cagan reminds us that some banks were doing 125% LTVs.
http://www.rgemonitor.com/blog/economonitor/176221
Cagan is quoted elsewhere in 2007 on the severity of foreclosures due to the ARM resets and in my opinion, he was too optimistic.
brianinboise » Dec 23, 2008 at 3:03 pm
jon #11: I appreciate your comment. But, please consider the following excerpts from the article:
The recent refinancing boom, coupled with low warehouse capacity, prompted the MBA to form a task force and to request a meeting with Treasury Department secretary Henry Paulson (or his successor, depending on when the meeting is granted), according to coverage at American Banker. “I’m sure [Paulson] is not aware of the bridge between mortgage lending and warehouse,†said Larry Charbonneau, a mergers and acquisitions adviser leading the task force, according to the story.
When contacted, the MBA told HousingWire it could not comment on the task force’s progress or any details of its initiatives — but the fact that the association is looking for an audience with the Treasury is a telling enough sign that the group believes there is an issue here.
“[I'm] not sure what mortgage companies are going to do, but there is no way all these loans will get funded any time soon with no warehouse money,†said one of HW’s sources, a mortgage banker who spoke on condition of anonymity.
Another mortgage banker that asked not to be named in this story also confirmed his business is seeing dwindling warehouse supply, which, coupled with big demand equals “not a pretty picture.†His firm lends in more than 30 states across the nation. “We have seen warehouse lenders cutting back or getting out,†he said. “There is a huge demand for warehouse financing because we are in the midst of a refinance boom.â€
Jillayne » Dec 23, 2008 at 3:07 pm
@ Andy,
“Considering that your job is to straddle a debt burden on a person; I’d like to understand the inside of your trade.”
Hi Andy, I have never originated mortgage loans. I use to underwrite and process, and I also worked in loan servicing/loss mit, but only underwrote/processed FHA/VA/Conventional. Nothing toxic. For the last 8 years I’ve been teaching/training and consulting. We have much in common. I was writing/publishing articles and speaking out against predatory lending as far back as 8 years ago, much to the dismay of the mortgage broker community, by teaching Realtors and consumers how to spot predatory lending and how to spot mortgage fraud within their closing documents. Some local leaders in the mortgage broker community hated me for doing that and made my life miserable.
I am all for old-fashioned underwriting guidelines. Right now I believe underwriting guidelines for mortgage loans are not tight enough.
I’ve also done my part by writing a lengthy code of ethics for the mortgage industry to try and help mortgage folks learn how to become fiduciaries. Many are still in denial about their new higher duties. It will take time…..or a court case to wake them up.
Very best regards to you and your family.
Microsofties » Dec 23, 2008 at 7:20 pm
@ 47 – Buceri
That article is a link that while google is reducing it’s workforce, the permanent positions aren’t being affected like the contingent ones.
But yes, “strong” public companies need to take measures to cut the fat when times a bad.
The problem is that you can only cut so many costs before you are left with a shell of nothing…Organic growth is the only way to appease investors, and the only way MSFT will ever approach the status it once had.
I don’t believe letting people go is a good decision unless a company is faced with impending bankruptcy…MSFT is on the opposite side of that spectrum and doesn’t face “doom” as some of these companies do. The death march is much slower, but this economic climate does nothing to halt the progress towards the cliff.
I think this economic climate is a great test of Steve Ballmer’s effectiveness as a CEO…A great CEO would figure out how to turn the ship without cutting heads…A poor CEO would take the easy way out to appease the investors by cutting 10-20% of staff. Whatever he does will be met with disdain, however, this is the inflection point of MSFT’s existence.
Andy » Dec 23, 2008 at 9:10 pm
Jillayne,
Thanks. Just trying to get a rise out of you. Thanks for taking it – arguments are usually relatively fun here at Seattle Bubble. :-)
I’m looking for a fundamental collapse of this credit bubble. Giving out half million dollar or more mortgages are unethical – even to qualified folks. Many times, mortgage brokers utilize two seperate income streams – to qualify families for a home. So, a married couple (two incomes) earning $200K should be able to qualify for around $650K, right? As you mentioned, what happens when one person loses their job.
I just think that this debt bomb is getting too large. There should be a cap on mortgage size – perhaps $200k – that way people will save or buy what is within their means. I mean, if you want a million dollar depreciating asset – you should pay for it in cash. If you are so rich, why not pay for it upfront? Why do wealthy folks need the bank to finance the depreciating luxury.
This will crush prices. Think about it – how great will it be if we can pay off our homes in 5 years – versus 30. We can invest and save; just like our founding fathers wanted. Also, this constraint will drive this market into the ground.
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Thomas Jefferson
Buceri » Dec 24, 2008 at 4:06 am
Microsofties – I agree. Head count cuts only take you to the next quarter. After that, you are back to square one. But as you said; it’s the easy way out for most CEOs.
Now; relating to the Real Estate market, the high tech industry has a high percentage of younger, single, relocated workforce. Being at this stage in life, and in a high cost city, they are generally renters. So I am not sure how bad layoffs in the industry would affect RE pricing. As some have mentioned before in this blog, the dot.com collapse was deeply felt in Seattle’s job market; but RE pricing did not react.
DavidB » Dec 24, 2008 at 6:39 am
Unfortunately, payroll costs are the biggest costs for most companies so when there’s a downturn in the economy CEO’s cut jobs.
Thanks to the bailouts, the US is now a socialist country so maybe we should go further and have employment laws like Europe that makes it more difficult for companies to cut jobs. Maybe we can also increase the number of paid holidays employees receive. Europeans get a lot more vacation each year than Americans do!
jonness » Dec 24, 2008 at 11:42 am
“you’ve obviously never checked out the mini-msft blog. There seems to be a lot of talk there about something happening, albeit all rumors. Sorry but I do believe it is somewhat relevant to the conversation here.”
There’s an interesting artlicle about that blog in today’s UK Register:
http://www.theregister.co.uk/2008/12/24/microsoft_january_cuts/
Angie » Dec 24, 2008 at 11:57 am
Jillayne, thanks for your response–that makes perfect sense about 100% financing of any stripe.
When we bought our current house 2.5 years ago, the broker tried real hard to sell me on an 80/20 where the secondary had a big balloon payment. Her argument was all about the lower monthly payment (than a 30 year fixed for 95%) and the tax benefits that resulted from paying more mortgage interest. I know those were very popular themes in the last decade, so I figured that the balloon payment deal was widespread.
economist » Dec 25, 2008 at 1:31 am
Yep, and sellers don’t either. The buyers alone set prices. Because somebody always has to sell, but nobody has to buy. Ever. A house will sell only for what someone is willing to pay.
What people hope for has nothing to do with what happens. If it did I’d be steadies with Angelina Jolie. I have no ill will against anyone who works for MSFT, but I do think their software is crap and I don’t use it.