By The Tim on April 20, 2009
Here is your open thread for Monday April 20th, 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.
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The linked is a really good article IMO.
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House Prices Finally Approaching Fair Value
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As goes housing, so goes the rest of the economy. So where do things stand? After two years of precipitous declines that have taken prices down almost 30% from the peak, house prices are finally approaching fair value (which is perhaps 10% below today’s level).
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That doesn’t mean that house prices will only fall another 10%, however. On the contrary, given the tendency for prices to overshoot, it would be startling if house prices stopped at fair value. More likely, they’ll drop at least 10% below fair value before they finally trough. Although the rate of decline is likely to ease over the coming months and years, therefore, prices will likely keep falling through at least 2011. And there’s at least 20% downside left…..
RE: TJ_98370 @ 1 –
Good article reconfirming fundamentals. And I’m generally not a Blogget fan. When he was at Merrill in 2000 he helped keep me and all the other lemmings running with the pack. He agreed to leave the securities industry after Elliot Spitzer accused him of giving a different opinion to big institutional clients.
May be a sign of the times, there is a poster nailed to a telephone pole at the corner of 50th & Green Lake Way “WINDERMERE AGENTS LIES, RUINS LIVES”
RE: td @ 3 –
Looks like there is quite a story regarding the WINDERMERE AGENTS LIES, RUINS LIVES thing.
Warning: before clicking link, there are some pictures of decayed rats.
http://www.windermerewatch.com/index.html
http://turnerradionetwork.blogspot.com/2009/04/leaked-bank-stress-test-reults.html
Any takes on what happens if this is true?
Will there be any banks to get mortgages from?
RE: Acerun @ 5 –
16 of 19 top banks insolvent? The government lies about it? Say it ain’t so!
http://market-ticker.org/archives/972-Treasury-Caught-Lying-Again.html
RE: Acerun @ 5 –
With all due respect to the folks at Turner, they overstate their case when they say that 16 of the 19 banks are insolvent. That conclusion assumes that the parameters of the most adverse scenario in the stress test come true and that the stress test is an accurate model of the banks performance under that scenario. After all, maybe the model is too optomistic and all 19 will become insolvent.
As to whether there will be any banks to write mortgages, sure there will be. My question is whose picture should go on the new $100,000 bills the Treasury will use to capitalize them. I vote for Alfred E. Newman. And instead of “In God We Trust” they should say “What? Me Worry?
RE: Scotsman @ 6
I love how they base the validity of the story on “How can you be ordered not to release something you don’t have?”
So, if you don’t want someone to disclose information, do you tell them not to disclose said information before or after you give it to them? I would go with “before.” Their information about the report could be dead on, and I wouldn’t doubt it, but the follow-up is showing a lapse of logical thinking.
RE: dancingeek @ 8 –
True enough, but I’d guess there’s more going on here than meets the eye. There was discussion about releasing stress test results along with the first quart’s earnings, an implication being that banks, etc. already had the info. Or this could just be the current choice for leaking what everyone already knows is bad news. There’s plenty of analysis on the web that suggests there really isn’t any good news or upside surprise waiting to sneak up on us.
The real answer is pretty simple- if they had good news, it would be all over the media in an effort to stabilize and/or kick start this dying economy.
Adding to the wild speculation about what’s around the bend:
http://blog.seattlepi.com/microsoft/archives/166912.asp?from=blog_last3
Nick
RE: td @ 3 –
Sign of the times? Not hardly, unless you go all the way back to the year 2002.
The buyer, purchased a 55 year old home in 2002. After a professional inspection, (which found no indication of rats) the home closed and the buyer embarked on a remodel by tearing into some walls only to discover several mummified rats (which could have been there for 50 years). He then sued Windermere, the seller and the inspector.
The court threw out the buyers claims against Windermere and the inspector for lack of merit. The buyer twice tried to reinstate those claims, and each time the court threw them out.
The buyer attempted to sue and was rebuffed by the courts and has been on a postcard mailing spree since 2003 with said baseless claim, targeting only Windermere (not the inspector or seller).
This has been going on for years.
RE: One Eyed Man @ 2 & Lurker @ 4 – We actually had a post about this ordeal back in September: A Cautionary Home-Buying Tale: Look Before You Leap
RE: Scotsman @ 9 -
I was going to put a comment onto the pretty graphs that Tim has on the March Update but this is more appropriate.
In my opinion the banks are now in control of the Real Estate market place. They could release thousands of listings in a day to drive prices down or hold properties off market in Trust Holding Companies for years to come. It’s even possible they would collect rental income.
Banks still make over valued loans today so it is in thier best interest to keep Real Estate prices inflated. The buyer has very little control over getting a seller to make price reductions. Sellers are inclined to hold out for as much as they can get.
The answer to the stalemate is for banks to close doors. Banks, lenders, and investors need to sell off inventory and get on with business. Unless employers pay more, or there are wind fall profits there will be no more dollars allocated to owning a declining asset.
The inventory exsists. There is much more inventory being held onto until something happens. It’s best if banks make a clean break from Real Estate and get on to something else.
RE: One Eyed Man @ 7 –
It has been shown by Krugman and others that the “most adverse” scenario is actually better than or in line with what is occurring _right now_. The tests are a joke, so I am sure the results of the tests will conform perfectly to whatever the next hobbled together Treasury plan needs.
There’s a lot of truth in what you say, David. The banks could certainly make or break the housing market if they had the flexability to do so. Unfortunately, they’re constrained by reserve requirements, etc. that limit how fast they can take and absorb the inevitable losses that will come from dumping inventory.
The economy in pictures….
http://economicedge.blogspot.com/2009/04/economic-cliff-diving-by-charts.html
RE: Scotsman @ 16 –
Funny.
RE: Scotsman @ 15 –
People on this blog comment like there is a reality to the text they read.
Here’s reality: a rich white guy has your money in a safe deposit box where ever he chooses. Reserves are making a good 2% to 3% some place out of sight. Dollars are all over the globe shrink wrapped in plastic doing deals worth millions and billions of dollars.
Your reality is that you keep giving banks as much money as you can. You talk like giving a bank 20% down for the privilege of them being in business is a smart thing to do. You then pay double, triple, and quadruple the price of everything in interest payments. When you talk about being debt free you again give the banks your money so the banks can make more money.
We’re all slaves until we stop giving banks money and start doing our own business.
To bottom line this for you, banks could close their doors tomorrow and still have way too much money. You would take the loss. That’s the system that we have set up and the rules we follow.
BTW it’s all perfectly legal.
Weird anecdote from my neighborhood you all might enjoy:
There’s a pack of townhouses near where I live that hit the market just after the bubble burst. None have sold and two of nine units are rented. (For folks watching the volume of listings on the MLS, I think maybe two of them are listed.) We’ve been keeping a close eye on them to see how it plays out. This weekend there were some unfamiliar people out front with a truck…my youngest and I were out walking around so we went to introduce ourselves. Asked them if they were moving in–nope, they were on their way out, having rented there only briefly–they knew the owner was having difficulty selling any of the units and they didn’t want to live in a place where their landlord might be foreclosed upon.
Today, just two doors up from that pack of townhouses: demolition began on a parcel which (formerly) held two low-slung triplexes. This lot had been bought by a developer a while back but had been occupied until very recently. Apparently Ashworth Homes (http://www.ashworthhomes.com/) is going to start building something on that site…
Strange days indeed.
The financial news almost seems to come straight from bad fiction lately. Who else but an author of pulp fiction could have imagined the US treasury playing the role of a loan shark (although I am sure that anyone who has been on the wrong side of the IRS won’t find this too much of a stretch)?
http://surkanstance.blogspot.com/2009/04/us-treasury-as-loan-shark.html
RE: Sniglet @ 20 –
The International Monetary Fund said Tuesday U.S. financial institutions could suffer $2.7 trillion in losses from the global credit crisis, part of a worldwide total expected to top $4 trillion.
People on this blog talk like those that use credit should be the ones who pay. Your employer as it turns out uses credit all the time to make payroll. The mall you shop at is a huge ponzi scheme of credit equity. Your home equity is being propped up by lenders who are holding properties off the market and doling them out as gifts to savvy buyers.
Banks should pay. Lenders need to be held to fair business practices. The small print gimmicks for collecting excessive fees to show as profits needs to stop. Equilibrium needs to be restored to the market place and business has shown they will refuse to regulate themselves.
Sorry David, but I don’t see how your comments relate to my missive about the government refusing to let banks repay loans. Are you arguing that tax-payers have a responsibility to under-write the financial system or that banks have an obligation to accept tax-payer capital, whether they want it or not?
I have decided that blogs are pretty much worthless and full of rumor and speculation.
Except for SeattleBubble of course!
By Acerun @ 23:
…and also a lot of opinion parading around as fact, which is also pretty common in mainstream media.
” We’re here interviewing noted real estate expert and broker Dr. Coldwell Banker.” ” Dr Banker, a lot of potential homebuyers seem to have been scared off by the major freefall in prices we’ve been experiencing the last two years. You’re a noted expert. What do potential homebuyers need to know?”
” Well, Bob”, ” Potential homebuyers need to know that buying opportunities like we’re seeing now only come around maybe once a century, and this opportunity could change on a dime. If I were a potential homebuyer right now I’d borrow as much money as I could so I could buy that house right now!”.
” Thank You, Dr. Banker.”
Greg Perry @ 11
I commented that I saw the sign posted, Lurker @ 4 brought up the dead rat web site explaining the law suit. I don’t doubt that the circumstances you describe are anything new, but the poster on the telephone pole did not indicate anything regarding the law suit or list a web site address. I was more inferring that someone put on public display a bold statement that very plainly describes what we have discussed on this blog for quite some time now: that Windermere did throughout 2008 and continues today to paint a rosy picture on the outlook of real estate when all available data would indicate otherwise.
RE: Ira sacharoff @ 24 –
Ira, that’s creepy, the delivery is so smooth it’s as though you’ve said it over and over…
(Just kidding- I’d trust you over the other 99%.) ;-)
RE: Angie @ 19 –
Angie- thanks for your previous comments. We go down tomorrow for the THREE DAY “get aquainted” (indoctrination) session, even though the choice is made. My wife and I had hoped she might pick a smaller school, but it’s her choice.
There’s a new spec home just starting down the street from us, 3 acres, probably going to be priced at right around $1.0M. I’m not sure what the logic is, since the 6 other similar homes (including 2 new) already for sale at $700K haven’t had a bite in the last 18 months. Maybe they believe the market will indeed turn around by the end of the year or next spring. My personal observation is that builders need to build- it’s in their blood or something, so build they do, come hell or high water. They must lay awake at night, dreaming of excavation and concrete forms, stud walls, and exterior color choices until they just can’t take it any more. Morning comes, and they head out to the property and fire up the equipment, getting ready to show the market, indeed the world, who’s tough. Nobody out performs American contractors when it comes to attitude, perseverance, and raw guts in the face of overwhelming odds. I’m serious. That doesn’t mean they have brains or operate logically though.
The above reminds me of a joke:
You know why God invented beer? To keep contractors from ruling the world.
RE: Ira sacharoff @ 24 –
Before Bob gets to the door Dr. Banker turns and says:
“Wait Bob! Before you go, take one of our new items of value we send to people on our mailing list. It’s our new Coldwell Condom with my picture and phone number on the package. It symbolizes the assistance and extra protection we’ll provide in helping you close your next deal. Here, take one to put in your wallet and some extras to give to your friends. And look, it’s got a refrigerator magnet on the back. And there’s a Mariner’s Schedule inside the package just in case you need to think about baseball to keep from buying too soon.”
“Oh, and before you go, can I have all your personal information so I can send you next month’s marketing gift? It won’t have anything to do with the most significant issues in real estate because that wouldn’t help me make a commission but it will have a nice refrigerator magnet attached.”
Query – - – How long will it take realtors to learn that magnets don’t stick to stainless steel?
Back in the 1990’s, the legislature and DOL enacted new stautes and regulations modifying the law of real estate agency in Washington. Among other things, the law sets forth the duties of real estate agents. Significantly, these duties are not the same as the duties of common law agents. A common law agent is legally required, among other things, to act in the best interest of their principal. But even though the real estate agents aren’t true common law “agents,” they are still refer to themselve’s as agents. They have to give clients a copy of a state pamphlet on the law of real estate agency, but I doubt that very many people actually read it, and even fewer would understand it’s significance.
In the interest of transparency, honesty and simplicity, wouldn’t it be more helpful to the consumer to use a name other than “agent” that doesn’t carry with it an inaccurate historic meaning that may confuse the issue of what a real estate sales person intends and to what extent they are obligated to represent the interests of their client. Perhaps the law should ban realtors from referring to themselves as “agent” and require them to use the term “real estate sales person” or “real estate sales associate” to help eliminate the confusion.
May be they should also be required to disclose that they are not common law agents.
In the alternative, perhaps the law should require those holding a real estate sales license to refer to themselves as a “real estate pimp” because that probably most accurately brings home to the general public the nuances of their relationship to the client and the transaction. But then again, perhaps this is already abundantly clear to most if not all people. In the interest of fairness, many realtors exceed the minimum legal requirements in their representation of their clients. Making fun of the profession isn’t an answer to the problem.
Sorry for the rant. Ira, I value your comments and don’t intend this to be critical of you any more than I intend it to be critical of me and others who come to this site. I definitely concur that there’s a lot of opinion parading as fact, and that the real estate brokerage community has little if any interest in clarifying the true issues. I wish I were more confident that I or someone else knew how to fix it. There are revisions to the Brokerage Lcense Law in the works, but I haven’t taken the time to read them or follow their progress and I’m not sure to what extent they resolve the issue in question here. Bringing issues to light is important and this forum does a great job of doing that for a number of issues. But if we’re going to be less cynical and do more than just complain, we also need to propose solutions .
RE: Scotsman @ 27 –
While the answer to why does the spec builder builds may be stupidity, it might also be cash flow. Although construction lenders try to limit cash going to the builder through their disbursement procedures and the terms of the construction loan documents, sometimes they allow for some builder’s overhead in the disbursement schedule and sometimes the builder may disguise payments the lender wouldn’t allow them to receive as something else. Not that it’s honest, but unless the lender’s construction inspections and disbursment procedures are good, contractors sometimes do any of the following to get cash flow: kick backs from sub contractors; payments used to pay for work and materials on other projects; and, payments for what appear to be legitimate expenses like labor but which are to a related party that will kick the money back. I don’t know how common it is overall but when times are tough sometimes people will do things to pay the rent that they wouldn’t otherwise do.
In the late 1980’s I saw a lender disburse the entire construction loan (less retainage) on a San Diego County waterfront condo project when it turned out that the project never got beyond the framing stage. The framing warped in the salt air and after the foreclosure the lender got back a piece of ground and foundation. Two years later the lender was owned by the RTC.
An old joke from when I practiced real estate law:
Question: What do you call a lawyer who borrows from his client’s advance deposit?
Answer: Disbarred.
Question: What do you call a business man who borrowers from his client’s advance deposit?
Answer: A contractor.
“Real Estate Pimp” Ouch. That’s gonna leave a mark… ;-)
You can actually buy a stainless fridge with a common steel plate behind the door facing just so your magnets will work. After all, if they didn’t, how would
America keep track of all those important family matters?
By Scotsman @ 30:
Just in case you were thinking of taking advantage of this unique opportunity and obtaining that valuable domain name:
REALESTATEPIMP.COM is already taken.
Most of the low end “Stainless Steel” appliances are not SS, they’re low grade steel with a laminate finish (closer to plastic than anything else) on the outside. Magnets will stick to them, but not particularly well.
RE: WestSideBilly @ 32 – Magnets don’t stick to stainless steel because of the presence of other alloys in the steel (Chromium, Nickel) which are generally more expensive than the base steel. So I’m not sure cheapness has anything to do with it as better quality steel has higher alloy content (e.g. 18/8)
RE: Sniglet @ 22 –
Banks want to repay tax dollars to get government out of their business. Government wants banks to make loans. Banks are claiming they are stretched thin.
It went back and forth until yesterday when Wells Fargo jumps up and claims a profit.
In my opinion banks are using what I call number magic to make things seem like we will be back to business as usual. The reality is that banks want to keep their money, your money.
If banks have money they need to start doing legitimate business. They need to fore go penalties and bogus fees, lower interest, and collect money in a responsible manner. In turn banks should lend money to make money.
The system that is in place today is severely flawed. Banks refuse to regulate themselves so our government has the duty to look out for the greater good. Banks are the villain here, rather than the consumer.
RE: One Eyed Man @ 28 –
The purpose of agency and representation was to clarify that there are two parties to the Real Estate transaction. Before every one represented the seller with the mistaken belief the seller paid the commissions when it was the buyer who brought the money to the table.
It was Jim Stacy who set in motion Buyer Agency. He did a fantastic job of staying in front of the issue.
You have pointed out the fatal flaw in the issue. Buyer Agency became a loop hole. Real Estate Brokerages chose to hire commission sales people.
Many people have tried to fix the system. Some companies or agents have put in place a workable solution. It’s very hard to determine the good from the bad, but there are agents who work in a professional manner.
By professional I mean they know how to represent a client to the very best of their ability.
RE: David Losh @ 35 -
For purposes of full disclosure, I hold a sales associate license in WA. I’ve also occassionally represented brokerages and realtors as legal counsel primarily for transaction related advice. I consider certain realtors to be people of the highest professional competence and personal integrity. Many know more about real estate than I do, or at least certain aspects of it. Many are also financially more successful than I am. Although I’d like to think that I’m one of the good guy’s, my wife continues to remind me that I’m far too often an insensitive ass.
RE: One Eyed Man @ 36 –
As does mine.