# One in Three Q1 Pending Sales Failed to Close in 30 Days

Now that 2009 Q1 + 1 month is in the past, let’s have an updated look at the relationship between pending and closed sales. For previous posts on this subject, hit the ‘pending’ tag archive.

Below is the updated chart including 2009 Q1. It shows quarterly King County SFH pending sales volume from the NWMLS, with closed sales offset by one month (since closings should theoretically take ~30 days). In other words, the pending sales data for Q1 includes January, February, and March, while the closed data is for February, March, and April. The blue and red lines represent pending and closed sales (left axis), while the green bars represent the percent difference between closed sales and pending sales (right axis).

The 2000-2007 average difference between pending and closed sales for the first quarter was just 8.8%. In 2008, the difference per quarter was 7.5%, 15.9%, 20.7%, and 27.3%. In the first quarter 2009, the gap between the two widened for the fourth quarter in a row, to yet another new record of 35.9%.

Here’s a look at the month-to-month data for all sales (SFH and condos) in King, Snohomish, and Pierce back through the beginning of 2008:

There are two theories as to why this gap is becoming so large, both centered on short sales.

The first theory is that the “pending sales” statistic in the NWMLS end-of-month reports includes all sales that were in “pending” status as of the last day of the month, rather than counting all sales that changed from “active” to “pending” in the given month. This would cause short sales, which typically take longer than 30 days to close, to be counted as a “pending sale” for multiple months, thereby artificially inflating the pending sales data.

The second theory is that the number of short sales as a percentage of total sales is rapidly increasing every month, and therefore more and more closings each month are being delayed beyond the “normal” 30-day period.

In the chart below, I have attempted to visualize the second theory, based on the following:

1. Fact: the average failure rate 2000-2007 was 5%
2. Assumption: the excess apparent failed sales above 5% represent distressed sales
3. Assumption: distressed sales will fail at quadruple the normal rate (20%)
4. Assumption: distressed sales average 90 days to close

Here’s how King County’s SFH quarterly closed sales would break down over the last four quarters (with each quarter offset +1 month), given the above fact and assumptions:

Interestingly, the 4-quarter total percentage of distressed sales calculated using the above assumptions comes out to 23%, which is fairly close to the number of foreclosure + short sale transactions reported by Zillow over the last year in the Seattle area. Their national spreadsheet says that 13.9% of the transactions in the Seattle-Tacoma-Bellevue area in the last 12 months were foreclosures, and 12.3% were short sales, for a total distressed sale percentage of 26.2%.

We still have not heard a definitive answer on the way that the NWMLS counts their end-of-month “pending sales” data, so we can’t rule out theory #1 entirely. But either way, the story here appears to be that a large number of short sales in the Seattle area are skewing the formerly-reliable pending sales statistic, making it increasingly difficult to get a true handle on what home-buying demand really looks like.

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.

1. 1
Mikal says:

What is the average over the last twenty years. Comparing todays rates to what was going on during the bubble is pretty much pointless.

2. 2
Kary L. Krismer says:

I wouldn’t call a 30 day close normal. Somewhere between 30-45 is more typical, and Ardell has commented in the past that even that is historically faster than normal. But even on a 45 day closing, roughly half of such offers will extend into a second month (those written in the second half of the month). IMHO, what’s throwing the numbers off are the 3-4 month short sale closings.

3. 3
Kary L. Krismer says:

Tim, see what you can do with this distribution. It’s close to the real numbers for King County–just rounded, and includes Pending, Pending BU and Pending Feasibility.

140 went pending between 11/8/08 and 2/8/09
150 went pending between 2/9/09 and 3/8/09
590 went pending between 3/9/09 and 4/8/09
1148 went pending after 4/8/09

4. 4
David Losh says:

There are a lot of pending right now. After looking at them last night and the property histories many have been on the market a long time. It was also surprising to see that along with the price reductions properties would go pending then back to active to go pending again.

The number one thing that I have always thought is that some houses look good from a staged point of view but lack substance in an inspection. Once a seller knows of a material defect it becomes a matter of disclosure. So a seller may balk at giving credit in an original inspection then have the buyer walk away. After that the seller is stuck with the issue of disclosing the inspection results if pertaining to a defect. Second time around there could be more concessions.

The second thing is that “sales” are made by creating urgency. An agent may say that it’s better to make an offer than lose an opportunity.

After all it costs a buyer nothing to make offers.

5. 5
DrShort says:

It’s not only that short sales take longer to close. A short sale often goes “pending” before the bank agrees to the price. It’s very possible the banks are saying “no” to the price and killing the deal. They could do this quickly or take their time.

I also wonder about the role financing and appraisals are playing. How many deals is that killing? Are appraisers simply not letting people pay too much for a property? An appraisal wasn’t a hurdle for most deals 2 years ago, but I get the feeling it is now.

6. 6
Ray Pepper says:

1 in 3 doesn’t Close in 30 days? Are you kidding? Thats not news. Its historical FACT. Even ALL CASH transactions have hiccups with wires, waiting on CD maturation, inspections, contingencies, title, escrow, I can go on and on.

7. 7
Haybaler says:

I am a Short Sale seller. 30 days?!

None of several investment property Shorts have closed quickly….I have a 4 unit building that has been in and out of the lender for 14 months now….each deal is lower priced of course.

A SFD has been in and out of the lender 4 offers over 9 months.

Another SFD had been in and out over 12 months and 4 offers. The bank took the house at Auction for the debt, sold the house to Fannie, Fannie spent 20K fixing the place up and now it is listed for sale at a LOWER price than the purchasers were offering on the Short.

The various Servicers are very slow to respond to a Purchase offer. Eventually a BPO happens, then we wait for the Investor to review the offer and make a demand. Then a counter offer by purchaser, the Investor draws a line, the Purchaser walks and it starts all over.

Foreclosure dates keep getting extended. The servicers encourage us to bring more offers.

8. 8

MORE TAX PAYER BAILOUT FOR CURRENT SUBPRIME LOAN SCAMS STILL ALIVE AND KICKING

Its called the 2009 FHA scam and you too, with as little as 3.5% down can buy a house that conventional banks wouldn’t qualify you for. Will you default in a few years? Probably, but it doesn’t matter, “We the People” will pay for the FHA defaults for low income and unqualified buyers. The banks aren’t even affected. I imagine a good portion of the closed sales The Tim reports are a result of the FHA subprime scam.

See the proof:

http://money.cnn.com/2009/04/03/real_estate/FHA_loans/index.htm

Isn’t big over-spending government just wonderful :-)

9. 9
sullim4 says:

Personally I think the 30 day closing window is a bit off base. I’m in the process of closing on a townhouse, and I punted closing out to around 50 days simply because I wanted it to better line up with when my lease expires. I bet others have contingencies around selling their existing home as well. Sellers would have laughed at offers like these during the boom – not anymore.

Bottom line – sellers seem to be much more willing to accept closings that last longer than 30 days. Short sales are definitely the larger part of it though. However, for those not buying the short sale theory, what do you think accounts for the gap? Appraisals not going through, financing falling through? Honestly I think you’re seeing buyers who are a lot more responsible out there now – people with 10-20% down payments, who were sitting on the sidelines during the boom knowing it would fall, etc… so I really don’t think it’s financing.

10. 10
Kary L. Krismer says:

RE: softwarengineer @ 8 – Are you seriously just learning of FHA loans?

Your focus is really misguided. The bigger issue is the credit score that they allow, not the 3.5% down. As much as I hate using credit scores for mortgage loan approvals (as opposed to something better), that’s probably a much better indicator of future default than down payment. Skin in the game is an over-rated argument.

11. 11

I agree that appraisal and underwriting issues have a lot to do with the delays as well. I rarely write an offer these days with a 30 day close because it’s often not realistic. With all the re-financing going on appraisers have been backed up and have caused some of the delays in closings. If an appraisal needs a second or third look by the underwriter we see even more delays.

The question that is missing – how many of the pending sales had contracts that were “planned” to have closed in 30 days or less? I would guess that number has changed over time.

12. 12
DrShort says:
Tim, see what you can do with this distribution. It’s close to the real numbers for King County–just rounded, and includes Pending, Pending BU and Pending Feasibility.

140 went pending between 11/8/08 and 2/8/09
150 went pending between 2/9/09 and 3/8/09
590 went pending between 3/9/09 and 4/8/09
1148 went pending after 4/8/09

Only 290 of the 2050 current pendings are older than 60 days? I read this and conclude short sales taking longer to close is not the driver of the divergence between pending and closing.

And there may not be one big reason. It probably a combination of smaller things.

13. 13
Kary L. Krismer says:

RE: DrShort @ 11 – That is 15% or so. And since some of the newer ones will also take longer to close, the percentage would be higher.

I wish I’d done that by month instead of from today’s date because then we’d have a slightly better idea of how many appeared in the month end stats 4 times, 5 times, etc.

14. 14
Racket says:

I bought my first house on one of these FHA scam loans when i was 21.

I have never been late on a payment, refinanced to a 15 year to get rid of my PMI (thank you bubble) and never looked back.

I agree with Kerry, its about credit scores not down payments.

15. 15
David Losh says:

Rather than just looking at data look at the listings that go pending.

There is a project in Wallingford close to the freeway of town homes that stood in various stages of completion since last year. They are selling. I’m sure some will come and go out of pending because they are not completed.

Stuff is selling that hasn’t moved in months. I’m also sure that there was very little preparation for this type of activity. The systems may be a little slow to react.

It’s spooky.

16. 16
Greg Perry says:

In the mean time King County, Eastside and Seattle Metro areas had another strong week for new pending sales.

For the 7 days prior to 5/06/09

King County: 545 (last week 537)
Eastside: 154 (last week 158)
Seattle Metro: 206 (last week 201)

Best pending week of the year so far for KC.

Later in the afternoon, I’ll break down the price ranges for the Eastside and Seattle Metro markets on my blog. http://www.425Realty.com

Pending means all Pending statuses with a Pending date within the last seven days.

17. 17

RE: Racket @ 14

Hi Kerry and Racket:

Read the CNN article I provided before you blog, credit’s got nothing to do with it. Here’s a snip from it, if you don’t want to take the effort to read it:

“…Borrowers with weak or limited credit histories may still qualify. Mortgage applicants can have very short credit histories or a late payment or two on their records and still get approved with low interest rates. The FHA guidelines set the credit score minimum at 620, but exceptions may be made for people with even lower scores….”

I like the part: exceptions are made for even lower credit ratings than 620….LOL

18. 18
deejayoh says:

Two thoughts
1) I think the increase in volume is causing the widening gap b/t pending and closed sales. Looking at the trend in the 30 day lagging ratio only makes sense when sales volumes are reasonably predictable. With a rapid increase in pendings, if most deals take longer than 30 days (which I agree with posters saying they do) then you should expect to see a short term increase in the pending:close ratio
2) The fact that most of the increase in purchase activity is concentrated at the low end suggests to me that the \$8k tax credit is driving a lot of activity. Most of these are probably first time buyers who can take advantage of this, and frankly \$8k on a \$350k house is a whole lot more of an incentive than \$8k on an \$800k house. Personally, I doubt the pool of buyers who are going to be interested in this “promotion” is that deep.

19. 19
patient says:

RE: deejayoh @ 17
1. Isn’t this the case every spring? You are coming from signfificantly lower volume months Dec,Jan,Feb, march into high volume months April, May, June. If your logic is correct wouldn’t we see huge gaps between pendings and closing each year during this time period? What i understand it’s not the case.

2. The tax credit is capped at \$170k for couples and \$95k for singles. It excludes all mid to high end buyers that doesn’t have huge down payments so it’s not only the dent on the total amount it’s also about qualifying for the credit. Personally I don’t think the tax credit makes much difference, i think it’s the new range that most people can afford that determines where the volume is. I also suspect that much of this is the new target of flock mentaility where someone knows someone who boosts about the short sale or reo deal they made and the normal behaviour of chasing deals with inusufficient investigation takes off. Everyone want in on it and soon it’s the hairdresseser and baristas that gives foreclosure advice. I’ve seen it already among our circle of friends and how the greed ignited in the eyes when two parties disclosed their almost 40% off appraised value REO purchases.

20. 20
Groundhogday says:
RE: softwarengineer @ 8
Skin in the game is an over-rated argument.

No, it is not an over-rated argument. It is the key. There are two reasons people walk away: (1) can’t make the payments; and (2) under water on the house. Both of these factors are individually sufficient as we are learning (there is a lot of data on this if you do even a cursory survey). If a homeowner is significantly underwater (owes more than the house is worth), they are walking away in large numbers.

How do you prevent situation (2)? You require a large enough downpayment to handle a substantial decline in property value without leaving the homeborrower underwater.

The FHA will soon have to go to Congress to beg for a bailout for the first time in history. FHA loans certainly aren’t the root cause of our problems, but just another way to taxpayers to take a hit in a misguided attempt to keep home prices from falling.

21. 21
Groundhogday says:

RE: patient @ 18

I’m with you Patient. Pendings go up EVERY spring, as Tim’s chart makes clear. THe longer term trend (YOY) is clearly down. ANd this spring, a lot of those offers aren’t being completed… potentially short sales, potentially sales that fall through due to lack of financing, inspection problems, etc… Most buyers out there right now are looking for a real deal, and are probably more than willing to walk away if there are problems.

22. 22

I wonder what impact the refinance wave has had on close time. For example, I started refi on our SFR 1.75 months ago and was locked and approved at that time. The bank I am dealing with has been swamped with refis and technically, my lock has expired due to bank not processing the paperwork even though we have had appraisal etc. Seems like it takes at least 2 months to get loan funded and paperwork signed.

My previous refi took less than 25 days from lock to close.

23. 23
Kary L. Krismer says:

RE: softwarengineer @ 16 – How can you say credit has nothing to do with the defaults when FHA allows lower credit scores at the same interest rate? (And makes the exceptions you mention.) Seemingly your post supports the claim that credit is a factor.

24. 24
Kary L. Krismer says:

RE: Groundhogday @ 19 – I don’t believe a lot of people don’t walk away because they’re underwater. They walk away because they can’t make the payments, and being underwater might help them justify it, or make them less likely to want to take extreme measures.

If Joe Sixpack buys a house and agrees to pay \$2,200 a month on his mortgage, he’s very unlikely to pull up stakes and get a foreclosure on his record just because the value goes down.

25. 25
Kary L. Krismer says:

RE: bubblebuyer @ 21 – I think sales get priority in processing.

26. 26
The Tim says:

RE: Groundhogday @ 19 & Kary L. Krismer @ 23 – Relevant post from last month on Calculated Risk: http://www.calculatedriskblog.com/2009/04/fed-paper-on-reducing-foreclosures.html

If there is no hope that the price of the house will ever recover to exceed the outstanding balance on the mortgage, the borrower may engage in “ruthless default” and simply walk away from the home.

To sum up, falling house prices are no doubt causing some people to ruthlessly default. But the data indicate that ruthless defaults are not the biggest part of the foreclosure problem. For the nation as a whole, less than 40 percent of homeowners who had their first 90-day delinquency in 2008 stopped making payments abruptly. Because this figure is an upper bound on the fraction of ruthless defaults, it suggests ruthless default is not the main reason why falling house prices have caused so many foreclosures.

27. 27
patient says:

RE: The Tim @ 25
How do you become delinquent without stopping making payments?

28. 28
The Tim says:

RE: patient @ 26 – I believe it’s the word “abruptly” that’s important in that sentence.

29. 29
Scotsman says:

Forget closed verses pending- the story told by the first chart is that this market, spring bounce excepted, is headed in only one direction- down. Ten year t-bills are up to 3.32%, having jumped 20% in the last 2 weeks. Mortgage rates will soon follow, putting additional downward pressure on home sales and prices.

30. 30
DrShort says:
RE: softwarengineer @ 16 – How can you say credit has nothing to do with the defaults when FHA allows lower credit scores at the same interest rate? (And makes the exceptions you mention.) Seemingly your post supports the claim that credit is a factor.

FHA was ready to implement different mortgage insurance rates based on credit score last year, but there was a 1 year moratorium put in place starting 10/1/08. It would have made it more expensive for lower credit applicants to buy a house (as it should since they have higher default rates).

31. 31
patient says:

RE: The Tim @ 27 – Understood but what I meant how to stop making payments any other way? Either you pay or not. It’s not like paying 200 bucks a month on a \$3k mortgage will make any difference or?

32. 32
DrShort says:
Forget closed verses pending- the story told by the first chart is that this market, spring bounce excepted, is headed in only one direction- down. Ten year t-bills are up to 3.32%, having jumped 20% in the last 2 weeks. Mortgage rates will soon follow, putting additional downward pressure on home sales and prices.

It is pretty amazing that sales activity is still so low considering:

+ An \$8,000 tax credit
+ Super low interest rates
+ 20% reduction in home prices

The spring buying activity really heated up when interest rates dropped form 5.25 to 4.5. What happens when rates go back to the mid 5 range?

33. 33
deejayoh says:

RE: patient @ 18 – I wasn’t that clear on what I meant. I think the difference between this spring and most springs is that closing windows are increasing. So more volume at longer closing times is going to make the stats worse – vs. more volume at a consistent closing window would stay in a normal range

As for the tax break – yes, it only benefits relatively lower income, first time buyers. That is why we are only seeing volume pick up at the low end. Your points seem consistent with my observation. Price drops are an incentive too, to be sure – but that is not exactly a new phenom. Prices have been dropping for a year and a half. whereas the tax incentive was signed into law in early march. Suddenly real estate agents report that open houses are flooded with first time buyers asking about the tax credit, and pendings for only the low end of the market shoot up

coincidence? I don’t think so.

But I agree with DrShort @31 that given all factors taken together – activity is still pretty anemic.

34. 34
deejayoh says:

RE: bubblebuyer @ 21 – My buddy who works as a mortgage broker tells me all he is doing are refinances. That the volume of purchases is very low.

35. 35
Greg Perry says:

In the meantime, we had another very good week (best so far in 2009) for NEW pending sales.

For previous 7 days ending on 5/6/2009

King County: 545 (last week 537)

Eastside: 154 (last week 158)

Seattle Metro: 206 (last week 201)

Definition of Pending: Pending means all Pending statuses with a Pending date within the last seven days.

36. 36
b says:

This activity does not surprise me, Seattle is entering the “oooh, short sales and REOs and oh boy I am getting a steal” mode for fence sitters who are extremely eager to pull the trigger at any time. I saw this personally last year back in California. Don’t fret about it, prices will continue their massive decline as the top-tiers are not selling and will compress prices much further as we continue down the road. If you goal is to buy a home at an even lower price next year I do not think you have to worry about it too much, shadow inventory and price compression make it extremely likely at this point.

37. 37
DrShort says:

As for the tax break – yes, it only benefits relatively lower income, first time buyers. That is why we are only seeing volume pick up at the low end.

I think the upper market has other problems not experienced by first time buyers. If you’re not a first timer, then you have to sell your current house. And your current house has lost a lot of equity, so you may not have a down payment even if you can sell. Also, the stock market has destroyed a lot of potential down payments.

Even with a lot of equity, the logistics of “moving up” get really complicated when there aren’t any bridge loans available. You either have to perfectly time the buying and selling or become a renter for the short term.

A couple of years ago, you could buy a new house with special bridge financing then put your old house on the market and get top dollar in a few weeks. Now the special financing is mostly gone and the prospects of selling quickly at an attractive price are much less likely.

38. 38
b says:

Tim –

I think it would be nifty to dig through some California newspapers archives from last spring, like the Mercury News, and find some articles. I can pretty much guarantee you will find many that sound exactly like Seattle spring articles, discussing how short sales/REOs are a super great deal and how sales are really picking up. Its true sales picked up (and are still relatively strong compared to just after the bubble burst there). What they don’t say is that prices have continued to decline quite a bit from that point.

39. 39
patient says:

RE: deejayoh @ 32

“Your points seem consistent with my observation”. Yes absolutely when it comes to the area that could be impacted by the tax credit. The difference is that I think it has almost zero impact in reality. I think the drivers are increased affordability and the (IMO misguided) feeling that good deals can be had just beacuse prices are less inflated.

40. 40
Scotsman says:

RE: b @ 35

Great points that need to be remembered. As higher priced homes fail to sell and eventually reduce in price, the value difference between them and the current low tier will become apparent, forcing the prices in the lower tier down further. Starter home prices must fall once buyers figure out that for just a bit more they can purchase significantly more home. Financing restrictions and rent/buy comparisons will continue to put significant downward pressure on mid and upper tier homes.

41. 41
S-Crow says:

FHA is the new subprime. As Groundhog suggested, FHA is going to have real problems around the corner. People are walking because of the fact they are so underwater.

The question people ask when so underwater is “how long to recover lost equity?” Oh, THAT many years? When you are paying \$3900 month and are underwater \$120K and you know your home will rent for \$1800…..the decision becomes more evident every time your lender drafts your account.

Deejayoh: yep, refi’s are 90% of what we are seeing. I’m sure some LO”s are thankful for streamline FHA’s where appraisals may not be required. This is the story that needs to be told.

42. 42
patient says:
In the meantime, we had another very good week (best so far in 2009) for NEW pending sales.

For previous 7 days ending on 5/6/2009

King County: 545 (last week 537)

Eastside: 154 (last week 158)

Seattle Metro: 206 (last week 201)

Definition of Pending: Pending means all Pending statuses with a Pending date within the last seven days.

So the current pace in KC is about 500 units going pending/week. That makes ~2000 units a month. Is that really good for May? Doesn’t sound very impressive to me. How does the number fo closings per week look, that’s more interresting to see how the pendings in March and April are doing.

43. 43
patient says:

RE: S-Crow @ 40 – S-Crow, quick question do REO purchases go through escrow companies like your’s as well?

44. 44
Greg Perry says:
RE: b @ 35

Great points that need to be remembered. As higher priced homes fail to sell and eventually reduce in price, the value difference between them and the current low tier will become apparent, forcing the prices in the lower tier down further. Starter home prices must fall once buyers figure out that for just a bit more they can purchase significantly more home. Financing restrictions and rent/buy comparisons will continue to put significant downward pressure on mid and upper tier homes.

Well…..not exactly. I think you have this partially correct.

We can’t just look at the overall market to try to make sense of it. If sales ratios tighten in the low end (and they are), more people will be competing with fewer houses in the price range THEY CAN AFFORD.

This competition will stabilize the price range and then cause prices to go up.

At the same time 2nd tier and high end prices may continue to soften and fall for lack of support. Only a few 2nd tier will be able to drop enough to make a difference (because of the underlying lien restrictions) to get into that “affordable” zone.

The result I believe, which I introduced a few weeks ago, will be market compression.

For instance in Seattle Metro 7 days prior to 5/06 (140, 380,385,390,700,705,710,715,720)
0-300: 2.0 months supply
300-500: 2.1 months supply
500-800 5.7 months supply
800-1 mil 9.2 months supply
1.5-2 mil 26.0 months supply
2 mil plus no sales last week out of 124 on the market

By the customary definition of a seller’s market of <3 months inventory, this Metro market is moving right along under \$500k. Some of the individual areas are well under 2 months supply in this price range.

Because we’ll see a lot of inventory continue to come into the market, I don’t think the ratios will shrink to the point we’re actually inventory poor on the low end, but I do believe we’ll see prices stabilize in the low end.

And here’s a wild card. Once existing new construction sells, it’s not being replaced. We have between 8 and 10 months left at the current rate of sale.

45. 45
Greg Perry says:

By patient @ 41:

By Greg Perry @ 34:

So the current pace in KC is about 500 units going pending/week. That makes ~2000 units a month. Is that really good for May? Doesn’t sound very impressive to me. How does the number fo closings per week look, that’s more interresting to see how the pendings in March and April are doing.

Well granted we may have had different math taught to us when we were kids. The last 2 weeks have averaged 540. When you multiply that by 4.3 what do you come up with? In addition, at this point weekly pending counts are going up every week. Granted some of these pendings as discussed will fall away.

Trendgraphix shows 2662 pendings in May 2007 (best month of year on 2007) and 1613 in 2008.

If May ends up anywhere near 2100-2200, I think that will be very good, especially from where we were in Jan/Feb 2009.

46. 46
patient says:

RE: Greg Perry @ 44 – Ok Greg, I will not point my needle at your happy bubble more today but do you happen to know the closings for the last two weeks as well?

47. 47
Greg Perry says:

A quick check shows that 312 closed in KC in last 7 days. If the rate maintains we’ll be looking at 1342 closings (or a 34% increase from April). I’ll bet the number of these closings increase each week now. I said a few days ago I wouldn’t be surprised to see 2000+ in June.

I think we’ll see 1500+ in May when the smoke clears, and 2000+ in June. I think I’ll look at closings as well in weekly stats for awhile.

48. 48
b says:

Greg –

How are prices going to go up? The higher tiers are not selling right now, which shows there is a total lack of buyers in those price zones. If there is a lack of buyers right now, where are these new magical buyers going to come to buy at higher prices if they can’t find that lower tier house they want? If they could afford a higher priced home, they would be buying in the higher priced tiers and they are not. This points to the idea that price compression is going to have to shift all the way down the spectrum until sellers can find their buyers. If we saw a broad-based increase in sales across all categories you could make the argument that as inventory declines and sales increase we will see new price gains. However, that is not what is occurring and the current market dynamics point to price declines for a long time unless you believe that everyone who has a \$500k+ priced house can wait forever for a buyer.

49. 49
patient says:

RE: Greg Perry @ 46 – Thanks Greg, since we have a huge backlog of pendings it would make sense to see closings increase rapidly as we go but I have very little confidence in the pendings validity in terms of converting to closings at all so we’ll have to see.

50. 50
Kary L. Krismer says:

By DrShort @ 31:

By Scotsman @ 28:
Forget closed verses pending- the story told by the first chart is that this market, spring bounce excepted, is headed in only one direction- down. Ten year t-bills are up to 3.32%, having jumped 20% in the last 2 weeks. Mortgage rates will soon follow, putting additional downward pressure on home sales and prices.

It is pretty amazing that sales activity is still so low considering:

The activity is pretty good considering that the Secretary of the Treasury was warning of a systemic collapse of the economy in September. ;-)

51. 51
Urban Artist says:

This may be a bit off topic. But what is with the Ballard area? The houses here are still selling and are way over priced. I have not seen any foreclosed sales near me but some may be short sales. Even with so called price reductions the houses are still 400 + K to 600+ k.. Maybe it is Ballard that is special. We would love to buy here but not at these prices.

52. 52
Kary L. Krismer says:

RE: DrShort @ 36 – I think Washington Federal may still have bridge loans, but it requires a ton of equity.

53. 53
deejayoh says:
A quick check shows that 312 closed in KC in last 7 days. If the rate maintains we’ll be looking at 1342 closings (or a 34% increase from April). I’ll bet the number of these closings increase each week now. I said a few days ago I wouldn’t be surprised to see 2000+ in June.

I think we’ll see 1500+ in May when the smoke clears, and 2000+ in June. I think I’ll look at closings as well in weekly stats for awhile.

Does the last 7 days include the last day of April? Might that figure might be a bit misleading based on more people choosing the last day of the month for closing?

Note – it took me 12 seconds to find this advice from a REALTOR…

BIGGEST MISTAKES
Closing on the last day of the month. Avoid this day if at all possible. This is the busiest day for the Lenders, Title and Escrow companies. When people are overworked mistakes can happen. Try to close a few days before the end of a month.

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Greg Perry says:

By b @ 47:

Greg –

How are prices going to go up? The higher tiers are not selling right now, which shows there is a total lack of buyers in those price zones. If there is a lack of buyers right now, where are these new magical buyers going to come to buy at higher prices if they can’t find that lower tier house they want? If they could afford a higher priced home, they would be buying in the higher priced tiers and they are not. This points to the idea that price compression is going to have to shift all the way down the spectrum until sellers can find their buyers. If we saw a broad-based increase in sales across all categories you could make the argument that as inventory declines and sales increase we will see new price gains. However, that is not what is occurring and the current market dynamics point to price declines for a long time unless you believe that everyone who has a \$500k+ priced house can wait forever for a buyer.

Great questions.

One of the problems of looking at markets to broadly is attaching a drop in median equally across the board. I have analyzed markets by location and price range for several years now. Different locations and ranges have their own supply / demand dynamics.

As the market compresses we will see overall drops in the median, but those low enders won’t participate in the decline during stimulus. (We did see mild market compression after 9/11.)

Why is this? Well, for one reason, the buyer pool is larger. Second, prices have fallen, short sales and REO’s have created relative bargains. Another is that 100% of stimulus and advantages is pointed to the low end buyer. I have grave concerns about our State’s proposal to put that \$8,000 credit to new buyers as their DOWN PAYMENT. The thought is noble, but what will the unintended consequences be?

So for now, the business owner, service providers and upper executive owns his house in the 2nd tier high end. The economy and future tax increases are killing this guy who is really paying for the first time buyer’s stimulus and soon to become State of Washington down payment. This guy, however, doesn’t have any relief in sight until the economy is well into recovery …..and then his tax rate increases to pay for the debt. So, in the meant time his house values are declining.

The numbers to watch are supply /demand ratios within general price ranges.

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Greg Perry says:

RE: deejayoh @ 51

7 days ending on 5/06. I run weekly stats every Thursday through Wednesday.

BTW, any real estate agent worth his/her spit would not allow his/her client to close on the last day of the month. Last week? Yes. Last day? NEVER!

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Greg Perry says:
This may be a bit off topic. But what is with the Ballard area? The houses here are still selling and are way over priced. I have not seen any foreclosed sales near me but some may be short sales. Even with so called price reductions the houses are still 400 + K to 600+ k.. Maybe it is Ballard that is special. We would love to buy here but not at these prices.

The long and the short of it is Ballard is special. Best in-city sales ratios.

The week before sales ratios were right at 1 month of supply between 300k and 400k. Between 400 and 500k under 2 months of supply

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S-Crow says:

Patient@43: Any residential or land sale transaction can be closed through our office provided you name our office on the purchase & sale contract (open escrow with us). Foreclosures sold at courthouse are a different beast and are not closed through us.

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Scotsman says:

Yeah, he was early in his call, and honest. Now he’s just scared. Check the next picture you see of him- see those eyes? He knows that light at the end of the tunnel is a train… ;-)

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Scotsman says:

RE: Greg Perry @ 54

We forget the last 20+ years really hasn’t really been a “normal” market in the Seattle area. Microsoft, other tech money, and then the bubble have distorted our perceptions of how a market should work. While your idea of compression may hold for some relatively short term, I would expect more simply that prices will come back into alignment with income, and tier distributions will more closely mirror income distribution. What looks like a bargain today won’t be seen as such in the future. And while the man in the street may see the current situation as a bottom, the vast majority of those with a fuller understanding don’t. This spring bounce, along with the market rally, will fade as the year goes on and we’ll be back to discussing how far out the true bottom is and what happens after.

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patient says:

RE: Scotsman @ 59 – Well put.

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[…] sales doth not a great real estate market make. I highly recommend you talk a look at his post: One in three Q1 Pending Sales Failed to close in 30 days. In fact, pending sales are stretching out for long periods of time for a number of reasons: failed […]

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wreckingbull says:

RE: Scotsman @ 59 – Very nice.

This is precisely the problem I have with my better half. She saw the bubble for what it was, and fought the nesting instinct (bless her), but she has a little bit of a contextual problem. Now that homes are 25% off where I live, she wants to buy. Look at any mania, panic, and crash and the road to the bottom is not smooth. The bubble which is deflating is far more than a housing bubble. I think people need to stop and think about that a little more when talk of a spring bounce is in the air.

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Greg Perry says:

To see how this year’s supply stacks up to last year’s same week:

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Dave Lincoln says:

RE: Greg Perry @ 54

OK, people, I think looking at the numbers is all well and good. However, there has been a general shift in attitudes in this market (psychology if you will) back to where the attitudes should have remained, instead of the attitudes of the bubble. Hold on, let me explain:

No matter how low the mortgage rates are for the moment, and how reasonable a \$ 550,000 house sounds compared to the same hunk-a-junk at \$700,000, many more potential buyers in this market have their mind right now. What does having your mind right mean? I’m fixin to tell ya. It means, you will only want to buy a house for WHAT IT IS WORTH (construction, materials, location, location, location).

Have the neighborhoods in Seattle become 2 or 3 times nicer than they were in the 1990’s? No. Have all the houses moved closer to the parks and libraries (actually libraries are pretty worthless anymore – the employees never learned how to hush, as they no longer teach that in library school), or closer to your workplaces? Or vice versa on all of that? Are the road arteries much less clogged? No. Are the materials in your house 3 times better in quality or durability? No. (politically incorrect stuff coming, avert your eyes, lefties) Are the Mexican builders 3 times better than the guys from 1998? Nope.

Now that potential buyers do not think of the house as something that will net them cash by next year no matter what they pay for it, they have got to start thinking: Hey, are the payments going to be worth it for this house. Once you start thinking that way, in a way reminiscent of 1980;s to mid 1990’s (except in California), you are going to realize that 20% off of the peak sucks. Prices at this level are still not worth it for the houses in Seattle, period. A smart buyer will realize that, and, hope-and-change-morons notwithstanding, I think people are going to learn lessons the hard way, and when you learn the hard way, the lesson really takes.

House prices have got a long way to fall.

Oh, Kari @ #50: Yeah, like Scotsman said, off on the timing, but not on the idea. Bad times are coming – heck look at my own pupils for that matter. They are extremely dilated. Oh, wait, that was the Jack Daniels, Dang, and I wasn’t even supposed to open that bottle – part of my survivalist stash for the coming doom.

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Urban Artist says:

I hope prices return to a level that is in more alignment with incomes. I don’t know if that will happen in Ballard. It just might take awhile longer. Not everyone makes what it would take to afford a 400 or 500K house. I’m just not comfortable having nearly half my income go to a mortgage.

66. 66

“I’m just not comfortable having nearly half my income go to a mortgage.”

Nor should you be, ever.
Ballard’s okay, but it’s “mystique” and high prices elude me. I used to like it better when it was populated by drunk fishermen named Sven . Some people just don’t open their minds to less expensive but not less pleasant neighborhoods. They believe that Ballard is “cool” even though it has one of the highest crime rates in the city, higher than Rainier Beach or Delridge or the Central District. They believe that Ballard is the low budget “cool” neighborhood compared to Greenlake or Wallingford and they wouldn’t be able to find lattes or Phad Thai or cupcakes anywhere else.
I don’t really dislike Ballard. But it is full of extremely overpriced “chocolate” boxes.

67. 67

RE: wreckingbull @ 62
Humor your better half. Start looking at houses, but do it slowly.
It’s very possible that we’ll actually see the bottom in 2010.
You’re obviously smart enough to know that prices are still falling, and I’m sure your wife is too.
The nesting instinct can be strong, you can’t fight it with logic. Maybe it’s time for a meeting in the middle. “I’m willing to start looking at houses if you’re willing to wait a year or two before we pull the trigger.”

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Scotsman says:

You’ve got it- look now, but suggest waiting until fall when the market cools seasonally to get serious. My guess is that by then the greater context of our current economic malaise will be much more obvious to all, and it will be easy to extend or defer… once again… until the true bottom is closer.

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jon says:

The gap between pending and closed seems to be specific to certain areas.

I compared Feb Pending to April closed for SFH. The percentages are shown in the last column below:

SW King…..157 111 71
SE King……359 217 60
Seattle……..378 361 95
N King……….55 36 65
EastSide…..308 274 88

So Seattle and EastSide are at 95 and 88 percent and the rest are in the 60 to 70 percent range.

Most short sales so far are at the low end, it appears that the gap is also greatest in areas at the lower end of prices.

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Jonness says:

“As the market compresses we will see overall drops in the median, but those low enders won’t participate in the decline during stimulus.”

I think it’s important to keep in mind a lot of places have largely worked through their subprime mess, but 25% of all subprime loans in WA will reset this year. This is bound to put continued downward pressure on low enders. Also, you can look at the upcoming Option/Alt-A resets and see a nice little lull in this storm is bound to occur this spring. My question is, what happens when the mid and high-end defaults push these ranges down to what people can afford (keeping in mind fewer people will qualify for these loans and the banks will need to get rid of these houses)?

http://www.housingcorrection.com/altaresets.htm

I think it’s also important to keep in mind all the phony economic numbers (for example stress test) being reported in an attempt to pump investor confidence. All it will take is a single piece of reality to completely crash the confidence again.

What’s going to happen when Obama cuts the deficit in half a few years from now? How’s the housing market going to fare when WA unemployment rates hit 10+%? OK, you did say “during stimulus”; however, I’m still quite a bit less bullish about the bottom end than you.

71. 71
Mikal says:

RE: Scotsman @ 59 – So you are suggesting that Microsoft will simply disappear as will what it affects. Good luck with that. A company like that is really a historical trend changer. I would think you would approve of them as they have created jobs here which is something you are always wanting. And you know what jobs do. They create wealth.

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EconE says:

RE: Mikal @ 71

The “Big 3” were “historical trend changers” at one time…were they not?

73. 73
what goes up must come down says:

Mikal problem is MS had its first LOST and is now laying people off. Greg may be pumping but when people are losing jobs how in heck can prices go up? Have people in Seattle forgotten this thing called RECESSION? People were grousing about San Diego not having water but man sometimes I think the water in Seattle is spiked.

74. 74
b says:

I am in software and Microsquish isn’t going anywhere. However, it does not need 75000 people to run the divisions where it actually makes money. If they continue to have flops like Vista, and continue to bleed money on other misadventures, they will be forced to shed people eventually and focus. It will make for a better company overall, but a smaller one as well. I think anyone who has worked in tech at successful companies knows that they tend to way overhire, you have twice as many people as necessary but nobody cares because you are making chocolateloads of money.

75. 75
Scotsman says:

RE: Mikal @ 71

Mikal, my point was that Microsoft, Amazon, etc. generated huge amounts of wealth through stock options that allowed their employees to bid freely, perhaps unrealistically freely, on homes in the Seattle area. Those wild days appear to be gone- I haven’t heard of too many folks cashing in huge options lately. The secretary making \$30K a year that had \$500K in stock options is a thing of the past, as is her ability to bid up or support unrealistic home prices. But I’m glad those companies are here, diversifying the local economy and bringing the jobs they create.

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fwiw says:

errrrrr no they didn’t have what you call ‘a lost’ they were busy making a BILLION dollars a MONTH last quarter. Of course they still felt the need to lay people off but that is a different issue

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shawn says:

As a result of the housing bubble’s bursting, I predict a definite increase is transumerism. Where folks are going to start deciding not to rent just till things look right for buying, but to rent as a lifestyle choice and shun owning a home.

To what extent, I am unsure. But I do see the idea that owning a home, which was the great American achievement, is losing its luster.

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BillE says:

By Mikal @ 71:

RE: Scotsman @ 59 – So you are suggesting that Microsoft will simply disappear as will what it affects. Good luck with that. A company like that is really a historical trend changer.

Disappear? You talking about Microsoft or Boeing?
;)

79. 79
what goes up must come down says:

FWIW my bad, it was a PROFIT MISS and the news that quaterly revenue fell for the first time in 23 years, the layoffs well those are only the biggest job cuts ever for the company but hey everything is A OKAY right?

80. 80
David Losh says:

RE: b @ 74

Microsoft doesn’t need to be here. In the next ten years the company will be truly global. From what I get in conversations computer technology will continue to be a single mind advancement. Some one can have an idea about computer technology anywhere, anytime, The broader the search for the next idea the more advancement.

Microsoft is here because of Bill Gates, in my opinion. If he retires it would make sense for the Board to open campuses in India, China, South America, Spain, and Africa.

Boeing has plants here and a port system for importing parts from Asia. Microsoft only needs interconnectivity to expand.

Once again I will say that Seattle is a Port town. We are close to Vancouver B.C. which has a huge Chinese and Asian population. As ties within the Pacific Rim grow stronger Seattle will become more significant economically and financially.

81. 81
Kary L. Krismer says:
Mikal problem is MS had its first LOST and is now laying people off. Greg may be pumping but when people are losing jobs how in heck can prices go up? Have people in Seattle forgotten this thing called RECESSION? People were grousing about San Diego not having water but man sometimes I think the water in Seattle is spiked.

First, you mean loss, not lost, and no Microsoft did not have a loss. It earned \$3B. Maybe not oil company money, but still significant. You’re thinking of the fact that revenues were down for the first time.

Second, although they are laying people off, they are also still hiring. I think it will be interesting to see how disciplined they are in the employment arena.

82. 82
Kary L. Krismer says:

RE: Scotsman @ 75 – I thought the same thing during the dot-com bust, and somehow it didn’t seem to have much of an affect on housing–nothing like what I expected. I still don’t understand why not.

83. 83
mukoh says:

RE: David Losh @ 80 – David, if we were all so forward thinking as you. We would all be MEGA rich. Is that why MS is building new campuses in Redmond, Bellevue and such? Is that they don’t need to be here? BTW Bill Gates is already pretty much out of that company and is retired.

MS has entirely too many people however I think. If you look at Apple the whole MAC OS division is 800 people. Thats a far leaner operation and in my view more efficient. MS bloated a bit and now is taking advantage of this to shed as many useless mid grade positions. The companies that are hired by MS locally however are actually hiring.

84. 84
Groundhogday says:
RE: Groundhogday @ 19
If Joe Sixpack buys a house and agrees to pay \$2,200 a month on his mortgage, he’s very unlikely to pull up stakes and get a foreclosure on his record just because the value goes down.

Actually, Joe Sixpack IS walking away just because the value goes down, even if Joe can afford the home. Whether you believe it or not, it is happening. Check out the housing bubble blog, Ben has been highlighting this point for years now (the same thing happening in the Texas housing bust of the 1980’s). And Jill Sixpack the speculator (30-40% of all sales in the bubble) who only pretended to occupy the home is most certainly walking away when her speculative investment turns sour.

85. 85
b says:

RE: David Losh @ 80

To take that one step further, no company that isn’t sourcing local raw materials needs to really be anywhere in particular. MS and other global companies already have offices all over the world. They want to maintain an HQ in the US and therefore will likely stay where they are. It would take a really long time, and cost a lot of money, to try to relocate a company like MSFT. Boeing has been “relocating” for something like 30 years and they still employ a ton of people here. Once the momentum has built up, its hard to justify moving thousands of people at huge expense to somewhere else.

86. 86
David Losh says:

RE: mukoh @ 83

Absolutely no sense.

You be MEGA rich for me.

87. 87
Kevin Lisota says:

Tim,

Your theories on short sale statistics needs to account for differing methods of changing status in the NWMLS. In some transactions, the moment a short sale offer(s) is accepted by the seller, the agent changes the status to Pending. Then it sits and waits for bank approval. On other transactions, the seller accepts an offer(s) and submits to the bank, but the agent leaves the status as Active. Which one is correct? I could make an argument both ways, though if the statistics are to be correct, I think that it should not change to Pending until the bank approves the short sale, but there are no guidelines about this.

I have three short sale offers active at the moment. Two are marked as pending and the third still remains active. Not sure that you’ll be able to sort this all out unless there is a stronger guideline for when to change status by the NWMLS. I have no doubt that short sales are increasing the average closing time in these stats. Maybe you’ll be able to exclude short sales using the new fields in the NWMLS.

From what I am seeing, non-short sales are still closing in a 30-45 day timeframe, and most end up going through, though the percentage of folks walking away during their inspection has certainly increased during the last year.

88. 88
David Losh says:

RE: b @ 85

Absolutely. Companies only need to be where the resources are. In Microsofts case it’s my opinion the next wave of technology will come from Asia or India.

Microsoft used to bring people here from all over the world to the campus. It’s never made any sense to me. Back in the 1980s or 1990s it may have made more sense, but today, with the advancements of the internet, it makes more sense to have larger operations in more locations.

89. 89
b says:

David –

Its not so cut and dry, at least not for another 20 or so years. The reason MS can bring people from all over the world to here is that people from all over the world are fine living here. Large tech companies want to hire the best, and right now its far easier to convince the best Indian to come live in the states than it is to convince the best American to go live in India. In 20 years when India has advanced to a state where people from all over the world have an easy time just going and moving to live and work there, things might change. But by that time, wages will likely have equalized for the most part.

It all boils down to what the company is looking for. If you are fine with having only the best Chinese developers, then you can setup shop in Beijing and thats that. If you want only the best Indian developers, then setup in Mumbai and call it a day. If you want the best developers, regardless of origin, then you will probably want to setup in the US. We have easier immigration laws, a culture of ‘melting pot’ and advanced enough society for anyone to live here without much of a hassle.

90. 90
David Losh says:

RE: b @ 89

The United States is very difficult to get into and stay here. Visas are a messy business. That’s a rant for another time.

The thing about technology is that any one can be a genius at it, school, or no school. I know of three guys in a basement today who are working on having a virtual world.

There is a place in Egypt that got computers five years ago and are working on a Proctor and Gamble account today.

People are so jazzed about getting technology as a new thing that they will spend 24/7 living it, the way we used to. Today Microsoft is working on that massive interconnection that translates language and has it where you can all see each other no matter where you are in the world. It’s a Microsoft idea that they are working on.

I’m saying that in the next five years Microsoft will be having groups around the world compete and the campus concept will be global. That way more people can participate no matter if they are the best and brightest.

The mukoh point is about the value of the building lots around the Redmond campus. Ardell hits on this a lot. I just think the campus is out in the middle of nowhere because the dirt was cheap. In the next ten years I think those building lots should be dirt cheap.

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Kary L. Krismer says:

RE: Groundhogday @ 84 – Merely evidence that it has happened, not that it’s happening in large percentages, or even significant percentages. It’s against human nature to do that. People want to nest, don’t want the embarrassment, don’t want to admit they were wrong, etc.

92. 92

[…] right now.” One would assume that many agents are already doing this, causing some of the growing discrepancy between “pending” and closed sales. Of course, if there are a non-trivial number of agents out there not doing this already that begin […]

93. 93

[…] get real. According to statistics compiled by “The Tim” of http://www.seattlebubble.com, 1/3 of pending sales fail to close 30 days after a contract is accepted. Also, according to one of my inside sources in a very large, local Title Company almost 50% of the […]

94. 94

[…] over at Seattle Bubble noticed that pending sales are failing to convert to closings. Far fewer pending sales are converting to […]