I think that if buyers really have managed to be disciplined and put away, dollar by dollar, a nice down payment from their regular earnings, yeah, this is a good predictive factor in terms of their low likelihood to default. But if Mom and Dad or Grandma’s estate has handed over $50K for them to go shopping with, we may have another story here — we may in fact have just the opposite. Free money more often induces recklessness than prudence. So the question of who I’d make my loan to is a little more complicated.

Not trying to start an argument, just offering a bit of perspective.

Whoops, you’re right. Thanks for pointing that out. At least I got it right in the chart headers.

Tim, I think there’s a typo in your description of the SAAS at the beginning if the article. Shouldn’t it say it’s the new listings divided by closed sales? I think the inverse would almost always be less than one.

Auburn Wine and Caviar sure sounds like an oxymoron, like Clyde Hill Crack Rock and and Malt Liquor.

Or Yuppie Pawn in Kirkland! Always loved seeing that sign from the highway.

That’s painful to hear about. Even so, I don’t think I would have invested in Auburn Wine & Cavier. I’m pretty sure that the biggest use for fish eggs in Auburn is still steelhead fishing. And know I’m a lot more likely to go to Auburn Sports and Marine than to Auburn Wine & Cavier.

Didn’t they used to say that a bank will only loan you money if you don’t really need it? I think that was the first rule of underwriting for the post-depression era wasn’t it?

It’s somewhat related to one of my complaints about loan approval–they don’t always look at the change in the buyer’s living expenses in moving to the new property. If your savings had not been increasing for a year and you only have $5,000 in the bank after buying a property, and your living expenses are going to go up $500 a month, then seemingly you’re going to have major issues in about a year.

Anyway, who would you rather make a $320,000 loan to? Someone with $250,000 in the bank after the sale or someone with $5,000 in the bank?

Or how about making a $380,000 loan on a $400,000 house so someone with $250,000 in the bank, versus a $320,000 loan on a $400,000 house to someone with $5,000 in the bank?

We really loved Lakeland Hills when we moved in, but were taken aback by the rapid acceleration of prices. I really wish I had started a Lakeland Hills Bubble back in 2006 or even late 2005, I’d have a ton of examples of speculator/flipper greed and buyers getting in way over their heads.

Montevista Drive in Verona could be a housing bubble documentary unto itself. So could the homes on Highland Drive (the Russian built stucco monsters that look like drug lord lairs – I think it was in 2006 a home there was sold for over 1 million dollars…1,000,000 bones for a house in Lakeland!) and the aforementioned Steve Jensen Homes.

Local strip mall shops are really stressed – the ‘Dinner’s Ready’ type store in the Lakeland Town Center called it quits, so did 3 Day Blinds, a children’s ‘learning’ toys boutique, and Top Foods shuttered their day care while you shop area. The strip mall with the new Taco Time is struggling with vacancies, as is the other newer strip mall just south of there. Then there is the ultimate throwback to the good ol’ bubble days of 2005-2007 on A Street – the Auburn Wine & Caviar company. I give them another 3 months before they give up the ghost…

Money magazine this month stated:

“…..Figure out if you qualify. Nowadays, credit score and equity are king. To land the best rates, you’ll probably need a credit score of at least 740, and 20% equity. “Banks are looking for reasons not to lend you money,” says Mark Miskiel of Lighthouse Mortgage in Sedona, Ariz….”

The rest of the URL:

http://money.cnn.com/2009/04/17/real_estate/low_rate_loan.moneymag/index.htm?postversion=2009041711

Which brings up an interesting twist to Tim’s Charts…..sales rates. Take the April 2009 Money Magazine rules above and apply it to an avg $400K Seattle home loan:

20% Down: $80K
6 months salary in the bank after paying down payment= approx $40K
740 Credit rating for first time home buyer…LOL

So, you need an impossible credit rating and like $120K cash to buy an avg house in Seattle at the low teaser rates. I’d assume its slam dunk; anyone with the brains to save that much cash [unless its to a non-investor and/or uneducated type who got like inheretance], the last place almost all of them will invest it is real estate. Most have it in their cash can, like the banksters did with most of the bailout money, to ride out the Great Recession and prepare for yet another yearly wave of reset loans, RE: subprimes, etc., doubling in mortagage payment sizes.

Little good that paltry $8000 tax credit does…..LOL

I think it’s a similar patern to So Cal. The new outlying developments seem to get hit the worst. My wife was curious as to whether some of the Boeing layoffs were more concentrated in the south end perhaps causing some of the problem.

This isn’t the first bust cycle for Lakeland. Although the first was before many, if any, homes were built. The original land developer was Henderson Homes. Prior to going out of business in about 1994, they were one of the larger home builders in King County. As I recall, they bought the land and began doing the infrastructure work on the first phases in the late 1980’s or very early 1990’s. As the real estate market collapsed in the early 1990’s Henderson’s lender called the acquisition and development loan due and they were force to sell the project (I believe to one of the major infrastructure contractors they probably owed money to) and to go out of business.

I’m with you Kary, Closed sales are a firmer piece of data than pendings, especially in an era of mounting short sales. The statistical consistency of closed sales is unpolluted by failures to close and month to month carry over that can occur with pendings.

I have similar concerns (to a smaller degree) about using new listings. I think that statistical pool will be to at least to a small degree polluted by relisting of cancellations and expireds that aren’t truly new. My intuitive guess is that the pollution effect on new listings may not be statistically significant but I’d be shocked if it weren’t with regard to Pendings.

The Tim, I’d also be interested to see the graph over time of the raw SAAS ratio of closed sales to new listings without the seasonal adjustment factors. I find it interesting that the graph of the SAAS closely tracks the MOS but generally seems to turn downward a little prior to any significant decrease in the MOS. I think I like the fact that SAAS tracks pure expansion and contraction in inventory (although it doesn’t factor in properties taken off the market).

Good Stuff! Thanks Tim.

http://seattletimes.nwsource.com/html/localnews/2009123349_foreclosures26m.html

I actually live in Lakeland Hills (not Verona) and let me tell ya, this was ground zero for speculative buying in South King/Pierce County. We looked at the new construction homes in Verona before purchasing an older home in a different area of Lakeland. Even back in late 2003 and early 2004, the builder’s agents (the houses in Verona were built by Polygon) were playing up the ‘buy now or be priced out forever’ angle, citing how values were climbing 10-15k a month. I’ll admit some of the floorplans in Verona were nice, lots of square footage but at the expense of quality. Ask a person living in Verona about truss lift, siding issues, and settling cracks and they will no doubt have some kind of story to tell about one, if not all three of those items.

I’m honestly surprised that this area of S King and Pierce Counties has not been mentioned here before as it is a perfect example of the housing bubble run wild. We bought our house in early 2004, by summer of 2005 one neighbor had sold their house for 120K over what we paid for ours. Summer of 2006 saw the house two doors down from us sell for 210k over what we paid. During the summer of 2006 I had three different agents stop me while I was working in the front yard and asked what it would take to get us to sell to one of their clients. It was insane….

There is going to be a flood of foreclosures hitting this particular market by Aug of this year. While the HOA hasn’t gone so far as to hire ‘lawn painters’, they have to be getting close. Montevista Drive was a forest of for sale signs last summer, and I expect it to be the same. I would sometimes go for late evening walks down that street last year and would try to pick out the empty homes….dead lawns are only part of the story, no lights on or the same lights on every day and night tell the same tale. That neighborhood, especially the area where homes sold for over 600k during the bubble’s peak, is kind of spooky at night…almost haunted.

Another area/builder that has to be feeling some heat these days is Steve Jensen Homes. I’m not sure how many lots this builder purchased, but they still have quite a few sitting fallow (as well as empty homes for sale at steep discounts from when they initially came on line). The neighborhood in question, Pinnacle Estates, sits across the way from Verona there in Lakeland Hills. I questioned the wisdom of building 3000+ sq foot ‘luxury’ homes in this area when they first broke ground, and my hunch was correct – early buyers were going to get hosed to the tune of 125k (or more) once the bubble burst and EZ credit went the way of the mastodon. Sure enough, homes that sold in the high 700k’s are not being offered in the high 500 to low 600k range.

Sorry for the lengthy post, and I know this is a Seattle Housing Bubble Blog, but a lot of buyers that were ‘priced out forever’ in the Greater King County area wound up down here in tatty ol’ Lakeland. It is going to be a wasteland this summer, and I’d be happy to report back on how things are going in this area in the near future. I’m putting my money on pre-2000 pricing for all of Lakeland by end of summer with zero appreciation for many years. The occassional knife catchers will provide little break for the free fall in values as months of supply numbers go through the cieling.

Personally I like to use actual sales rather than pendings to determine the months supply of inventory. Either method is acceptable, but using sales you don’t have the issue of the same pending being counted month after month after month.

For instance, I’d like to inject a sweet liquid cash infusion into that fertile private sector over yonder.

ummm, what was the topic, again?

As for why I would put the “balanced market” at 2.0, its largely based on what SAAS value seems to result in a sustainable level of price appreciation. Maybe when I get home I’ll whip up a quick chart comparing SAAS to YOY % appreciation to visualize it.

Can you share the seasonal adjustment (0.7 and 2.1) by month so we can see how that affects the numbers?
Also
Can you share some of your thoughts on why 2.0 is balanced? Not criticizing, but curious as to your thinking.

Thanks again for all the work Tim.