By The Tim on March 30, 2009
Here is your open thread for Monday March 30th, 2009. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.
Be sure to also check out the forums, and get your word in the user-driven discussions there!
Posted in Open Thread | Tagged open_thread
Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.
By my observations, rents in the seattle area have fallen quite a bit in the last 6 months. I’ve been renting since I sold my house a year ago so I tend to keep an eye on what rentals are available. I checked craigslist this weekend and was shocked by how much inventory is available and how much rents have dropped.
As an example, I was looking at some condos being rented at the 5th and Madison. Units that were going for $2400 a month are now being adversitsed for $1800. And this doesn’t appear to be isolated.
Anyone else seeing big drops in the rental market?
Scotsman et. al., with the FASB now rewriting the Mark-to-Market rule to something closer to Mark-to-Bank Judgement rule, I was thinking this could short circuit the Treasury’s TARP auction plan. There hasn’t been a functioning market for the toxics because buyers (Private Equity, Hedge Funds) and sellers (Banks) can’t agree on a price. To date, the banks want more than 60c on the dollar and the PE firms want around 30c. Of course the banks then say there isn’t a market for these assets which isn’t true. There just isn’t a market at the price they want. Which happens to be a price that would make them insolvent…
So now they are going to be allowed to recognize a higher asset value to help their books and profitability. But it most definitely won’t bring them to the auction with market pricing in mind. With this FASB rule change, it’s possible the auction will not function at all.
Here is a simply great article chock full of useful data from Bloomberg on the issue:
http://www.bloomberg.com/apps/news?pid=20601109&sid=awSxPMGzDW38&refer=home
RE: DrShort @ 1 – I’ve seen the same on Craigs List. Also, the apartment building where I live had been renting units for $1200 last Spring. In the Fall, they dropped to $1100. They recently tried $1000 and were unsuccessful. The units are now going for $900.
RE: DaveyDave @ 2 – I wonder how much information is made available about the underlying assets. Seems to me that unless there was a lot, just uncertainty would greatly reduce their value. Using your numbers, something the bank was willing to sell at 60 might actually collect 70, but without sufficient information no one would pay over 30 for it.
Also, I wonder how geographically diverse the underlying assets are. I suspect it’s quite diverse, where having them more concentrated in one or two areas would make them much easier to value.
RE: Kary L. Krismer @ 4 – Accessing the information on these assets has been an on-going concern. One of the issues regarding the TARP auction is to give the buyers time for proper due dilligence on the assets. This is a big unknown.
RE: DrShort @ 1 – I’ve been tracking $900-$950 on Capitol Hill sense last August on Craigslist. I know Craigslist is hardly a scientific sampling.
Last August there were usually 25-35 apts for rent on CH in the $900 range. Today I checked and there are 297 listings in that range. Double posting has to be included, but still, that’s big jump. Last August there were 35-50 apts on CH for $950. Today there are 327. Again, this includes double listings. Again, even with multiple listings for the same apt, that’s a major jump.
And I’ve noted that instead of these listings being all studios, more and more 1 bedrooms. Plus I am seeing more and more landlord incentives, rather than the lists of extras they were charging prospective tenants.
And there are still more and more apt/condo buildings going up on CH. So these rents will go on downward. imho. And I say; “Woohoo!”
RE: DaveyDave @ 2 -
You’re right- it’s just another distortion in the system, less transparency where more is called for. Kick that can down the road…
In other news, how many of us didn’t realize that banks could carry their credit card operations off balance sheet? That is about to change with new FASB rules. With credit card losses rising due to increased unemployment, etc the net result is expected to be a negative for most banks. Win some, lose some..
RE: Deran @ 6 –
Yeah, here’s a quote from urbanashley.com (who seems to have all the nicer rentals in the area).
“1 year ago- a search on Craigslist for rental properties in Belltown would pull up less than 50 listings, now it pulls up over 400!”
is this more inventory or just more aggresive posters on CL? Probably both.
“A spokesman for the FHA said 7.5% of FHA loans were “seriously delinquent” at the end of February, up from 6.2% a year earlier. Seriously delinquent includes loans that are 90 days or more overdue, in the foreclosure process or in bankruptcy.
Since the collapse of the subprime mortgage market in 2007, most home loans for people who can’t afford a sizable down payment are flowing to the FHA. The agency, which is part of the U.S. Department of Housing and Urban Development, insures mortgage lenders against the risk of defaults on home mortgages that meet its standards. FHA-insured loans are available on loans with down payments as small as 3.5% of the home’s value.
The FHA’s share of the U.S. mortgage market soared to nearly a third of loans originated in last year’s fourth quarter from about 2% in 2006 as a whole, according to Inside Mortgage Finance, a trade publication. That is increasing the risk to taxpayers if the FHA’s reserves prove inadequate to cover default losses.”
Interesting stuff on Seattle rent trends from a blogger over at ActiveRain.com
more stuff at http://www.thrivingrentals.com/
More and more landlords are realizing Craigslist is a good place to advertise (being free, and whatnot). Better than the newspaper. So the surge in numbers is not a pure rate increase. The significant part of that sample is that $1500 was getting 1BR places a year ago, and now is finding 2BR or 1BR+Den type apartments, free parking spots instead of paying $50 extra, etc.
I tried to find some comps for my current rental house and didn’t find anything to justify arguing for a lower rate. It’s a bit of an oddball property though, so there were only a few homes that were even remotely similar.
RE: deejayoh @ 10 – Sounds like there’s a lot of “pent-up supply” out there.
Using http://www.rentometer.com/ as a source, my unchanged rent has moved from slightly ($75) under median to slightly over. Not worth renegotiating, but interesting. And unlike Seattle, there are far fewer ads for homes in the Fall City area than there were a year ago. Less supply, and still rates fall? Hmmm.
I’ve been evaluating rent vs buy recently, and I tell you there are loads of sellers that are hoping for either. Anecdotally 1/2 – 2/3 of my target range on craigslist is also on the MLS. Many of them are new construction or new remodels that didn’t sell. So my expectations match what deejayoh says. If it isn’t almost-new level quality, I can move on.
RE: Scotsman @ 7 –
Credit card income is expected to rise dramatically with unemployment. People will use cards more, interest rates are expected to rise, late fees, and penalties will increase while banks wind down the credit limits and make people increase minimum payments to get them paid off faster. It should be criminal, but it is legal.
What I want to point out is that all the talk about rents directly reflects the value of foreclosed properties. Properties should be worth what they can rent for compared to a mortgage payment. It is after all a declining priced asset which will be hard to resell.
I like seeing rents going down even though it takes the ROI numbers the same way with it. However a property that was easily selling $1m+ multi unit i.e. 5+ are now chopped from investors who are cash poor for really better margins. The market is definitely best corrected.
RE: David Losh @ 15 –
Rising income from higher rates and fees is a great theory, but none of it works out if the cardholders can’t make the payments. I didn’t refer to the entire article, but the main expectation was that most existing operations are about to go negative. Losses are mounting, and having to bring them onto the balance sheet isn’t going to help already hurting banks.
DrShort -
I just resigned my lease for a ~15% discount. While I was looking around I found the reasonable places a year ago are down about as much, and the unreasonably high places a year ago are down more like 25-30% and more in line with the market now.
RE: Scotsman @ 17 –
The operative word is expected to increase. The other thing is that credit cards are free money after a very short amount of time. The balances don’t decrease with minimum payments. Then there is legal recourse that we have not begun to see.
If you average, even with people not making payments, there are a lot of people who still are making payments. Let’s also not forget that many cards are tied to retailers. I don’t know anything about how that works, but I suspect there is a kick back system in place.
RE: mukoh @ 16 –
What? Once again you make absolutely no sense.
OK guys. Ardell has another post up over at raincity showing statistical proof that we’ve hit bottom.
http://www.raincityguide.com/2009/03/30/sunday-night-stats-snapshot-of-bottom/comment-page-1/#comment-338262
If any of you guys can explain it to me in 50 words or less I would appreciate it. TIA.
By Scotsman @ 21:
Looks to me like Ardell is trying to convince people with the fancy use of graphics that make no sense in order to convince the buyers that believed her tripe that she didn’t take them for a ride when she said the market was at bottom.
When prices drop further in Seattle, you can bet she will correlate it to the Dow and claim she always based her bottom call on the Dow not dropping any further.
By Scotsman @ 21:
I can explain it to you in two words: “It’s spring.”
By Scotsman @ 21:
I haven’t looked at the entry or stats, but does it explain another 3.6% month over month price decline as in this month’s Case Shiller report? Perhaps that’s merely signaling that there is a bottom — somewhere.
I scanned it, but didn’t take enough time to understand it. If she’s focusing on volume, then her February 5 bottom call might be right (as Tim notes it’s Spring). But even if you allow a 60 day delay for time to close I think it’s pretty clear it won’t be right as to price, unless maybe we’re just looking at a few neighborhoods. Those can jump around, so perhaps the ones she picked were low in February.
Scotsman,
I thought it was supposed to be an explanation of why she made her earlier “bottom call” post. The gritty details. I couldn’t really understand it either.
RE: David Losh @ 20 – Dave a half realtor half house cleaner and a failed flipper. You need to know your place.
http://www.youtube.com/watch?v=HANTJ1JlNbc
What? How can this be? We are going to be soooooo broke.
TARP taxpayer commitment $2.9 trillion
By Silla Brush
Posted: 03/31/09 11:55 AM [ET]
At $2.9 trillion, the total risk to taxpayers of the financial bailout package Congress passed last year dwarfs the original $700 billion cost of the program, a watchdog office said on Tuesday.
The special inspector general appointed to oversee the bailout package, the Troubled Asset Relief Program (TARP), said that the $700 billion does not include the additional financing and associated programs run by the Federal Reserve and Federal Deposit Insurance Corporation. Once it is all added together, the $700 billion sum balloons to $2.9 trillion in taxpayer commitments.
The federal government, and the central bank in particular, have set up a series of additional funding programs that boost the total government commitment to well in excess of $10 trillion. The programs under the inspector general’s jurisdiction, however, amount to $2.9 trillion.
RE: Scotsman @ 29 –
I wouldn’t worry about it Scotsman, when the rest of the world figures out that we can’t pay them back, you can just hand them a few of the 10 to the 12th power bills they’ll be printing by then and pay off the debt. Whose picture should go on the triliion dollar bill? Ben’s or Geithner’s? Or maybe Ronald McDonald’s cause I think about the only thing you’ll be able to buy with it is a Big Mac. And you won’t have to go on vacation to Europe because we’ll be just like them. Doesn’t the Italian currency already use exponents so you don’t have to waste time counting all the zero’s?
They won’t nationalize and run the mega banks even if they can because the geo-political stigma is too great. Even if they fail the stress test, they won’t take over Citi until another mega bank is big enough to buy and operate the assets without risk of being dragged down. They’ll borrow money to bail them out until they can’t borrow anymore and then they’ll print money until the debt’s next to worthless. Sure I’m exagerating because I think a little dark humor is warranted. Do you remember the old SNL skit from the late ’70’s where they had Jimmy Carter saying: “Inflation is your friend. Haven’t you always wanted to drive a $100,000 car? I know I have. Haven’t you always wanted to live in a million dollar house? I know I do.”
Now that they’re opening the Pandora’s Box to fight deflation, I don’t think they’ll be able to shut it right away. Didn’t it take Volker about 5 years to stop hyper inflation the last time? And I think 30 yr mortgage money stayed at about 8 to 9% until the early 1990’s. I think the odd’s are that somebody is going to make a lot of money in a couple of years buying real estate at multi year lows with 30 yr money at the lowest rates in my lifetime.
OK, so the conventional wisdom at the Bubble is that it’s probably better to risk loosing cheap rates than to risk buying too high. But do you think that real estate prices will bottom before rates go up much? Or will “would be” investors and buyers have to sit on the sidelines and watch cheap rates disappear before committing to buy. Oh yeah, that’s right, I forgot, the Bellevue/Kirkland housing market bottomed in February didn’t it. My apologies to the blogger whose name shall not be mentioned for that last snarky statement. And the jury is still out at least until the March MLS numbers come out any way. And hey, if my predictions were so great, I wouldn’t be carrying capital losses forward on my 1040, would I.
“And hey, if my predictions were so great, I wouldn’t be carrying capital losses forward on my 1040, would I. ”
Amen. ;-)
Ardell has stated that her bottom call was for March closings.
http://blog.seattlepi.com/realestatenews/archives/165406.asp
I suspected as much, but I’m not sure that was clear before.
RE: Kary L. Krismer @ 32 –
Thanks for the correction Kary! Fair is fair. One should at least get the time frame of Ardell’s prediction correct. I must also admit I didn’t devote enough time Ardell’s charts to understand and critically evaluate her thesis. I’ll definitely take a second look if the late spring numbers are up. But even if they are, my first inclination will be that it’s a bit of a selling season “bear market rally” with the real test being the doldrums of next fall and winter.
King County Notice of Trustee Sales in March:
1089
Beat the next highest month on recent record by 20% (January had 909)
Last March had 476.
That’s a 128% increase.
About 1/3 of these have been turning into default sales (which would occur in June).
The Tim – “It’s Spring” would = up, not bottom.
The really, really short version: 13.7% decrease in closed sale price Feb. to Mar. A full year’s worth of down in 30 days.. I called it on Feb 7 when I saw the properties going into escrow…so the “proofs” where not available until those sales closed in March. Less than 10% of those were short sales or bank owned properties. The sample I used and why I used that sample group won’t fit into the 100 words or less version :)
RE: mukoh @ 27 –
Again, absolutely no sense.
I think I actually get it now. Ardell made a post a while ago predicting at which price the bottom would be. I think she is saying that prices dropped considerably in the past month down to her target for the bottom so therefore we are now at the bottom.
Joel,
Just one example back on Feb 7. Went to a condo. The unit next door had sold for 1.7M. The subject property was assessed in 2008 for over 1.5M. Price drop was to $999,950 and the offer prices were less than that. I haven’t looked back at it to see if it closed and what price it closed at. But I said Holy Cabole! If THIS isn’t “bottom”, I don’t know what is.
It’s not a given month that is bottom….it’s the extreme discount points of 20% and 37% off peak that are bottom. 20% for great properties that are not distressed, like new construction in good locations and 37% off bank owned or short sales.
I know you don’t have a clue what I’m talking about, and I’m probably wasting my breath on you…but FWIW, I see it; I say it.
RE: Ardell DellaLoggia @ 38 –
I know the condo you’re talking about. The LARGE unit that was split into two. Sure wouldn’t want to be right next to that huge apartment complex in that south side unit for a mil. Many of the 1M+ condos have been pulled from the market over there. SFR’s also in that price range have disappeared off of the MLS. Selling slow as molasses also in that price range. It will be interesting to see what it closes at.
99% of the Kirkland sellers are still in La La Land however.
RE: DrShort @ 34 – I’m waiting to see if fewer turn into sales with the amendments to the distressed property law. The increased percentage turned almost immediately when it was enacted, but for this I’d expect the reversal to be slower. When enacted, it affected people buying right away, where now the sellers will still be affected if they didn’t get a full marketing time. That will be roughly June too.
King County Foreclosure Rates:
Jun 08 NTS = 576 TD = 171
Jul 08 NTS = 730 TD = 193
Aug 08 NTS = 574 TD = 190
Sep 08 NTS = 607 TD = 237
Oct 08 NTS = 643 TD = 294
Nov 08 NTS = 540 TD = 230
Dec 08 NTS = 660 TD = 224
Jan 09 NTS = 916 TD = 230
Feb 09 NTS = 838 TD = 233
Mar 09 NTS = 1089 TD = 203
I had fully expected the actual foreclosure rate to increase for March since Notice filings have increased, but they actually went down. They have been dropping since peaking Oct 08. We’ll have to see what April numbers show to see if the doubling of Notice filings have an impact on actual foreclosures.
I’ve notice in Snohomish County an significant increase in Short Sales and that may be what is keeping the actual foreclosure rates down.
April and May numbers will give us a clearer picture.
By JJL @ 41:
There is a three month lag between when the NTS is given and when the sale would take place, so it’s most appropriate to compare Dec NTS with Mar Trustee sales.
RE: JJL @ 41 – I took your numbers and compared the TD to the NTS three months earlier, and here’s what I came up with:
0.41145833333
0.40273972603
0.40069686411
0.36902800659
0.35769828927
0.43148148148
0.30757575758
The short sale explanation is a good one, but I wonder if there’s also something to do with the moratorium that was in effect. Or maybe the refinance/renegotiation efforts?
RE: DrShort @ 42 –
Exactly why I said:
April and May numbers will give us a clearer picture.
RE: Ardell DellaLoggia @ 38 –
No, I get what you’re saying now. Basically, it can’t get much lower than 20% – 37% off peak for non-distressed properties. And since you see a lot of properties in your area at tha price point this must be the bottom. And the 20-37% off number comes from this post about how prices can only roll back to early 2005 levels.
RE: JJL @ 41 –
You aren’t going to see the numbers for foreclosures rise that much, IMO. Most lenders have basically stopped the foreclosure process for the time being. Must be nice to live rent free in the house you can’t afford!
Joel,
In some areas 37% off peak is below 2005 levels, in other areas not. Hard to generalize but I talk about the areas where I work, not all areas, the same way I am not talking about Chicago or Tampa.