Weekend News Roundup

Lots of local real estate related news over the weekend worth mentioning. Here’s a brief roundup of the stories you might be interested in.

Let’s kick things off with some good news via Aubrey Cohen at the P-I. Looks like the state’s irresponsible plan to pre-distribute $8,000 tax credit is dead in the water, thanks to the IRS.

SeattlePI.com: State clarifies state of tax credit loan plan

There has been a lot of information circulating in the past few months regarding a possible Tax Credit bridge loan program that would have potentially “monetized” the currently available $8,000 federal tax credit for qualified first time homebuyers. This potential program would have allowed these first time homebuyers to actually come to the closing table with their credit in hand, as opposed to waiting to have these funds available until after closing.

On June 2, 2009, the IRS formally declined this request citing long-standing regulations requiring refunds be paid only to the person or persons filing the tax return. Due to significant financial risks associated with the Tax Credit bridge loan program and recent guidance published from the Department of Housing and Urban Development, the Commission discontinued the development of the Tax Credit bridge loan program.

Next up, a bit of humor from SmartMoney.com, who you may recall last October labeled Seattle as “in the best shape for a rebound.”

SmartMoney.com: 5 Housing Markets That Have Further to Fall

In the Northwest, median home prices are down but they remain above the national average. Portland’s prices fell 2.1% in March. Home prices in Seattle were down 2.0% for the month.

The Pacific Northwest bubble was among the last to burst, which could mean the market will be among the last to recover.

And here’s a handful of additional stories for you to digest this post-holiday Monday morning…

Seattle Times: Landmark Smith Tower mostly vacant

Thanks to the recession and Washington Mutual’s collapse, there’s no shortage of vacant office space in downtown Seattle. One of the emptiest buildings also is one of the region’s best-known and most-loved.

The 95-year-old Smith Tower, once the tallest building west of Chicago, is at least 70 percent vacant, according to online listings and commercial real-estate databases.

Walton Street bought the 257,000-square-foot Smith Tower for $43 million in April 2006, when the market was nearing its peak and the tower was 92 percent occupied, according to its previous owner.

Less than a year later the new owner sought — and ultimately received — city approval to convert the entire building to condos, a move prompted, in part, by the impending departure of the tower’s two largest office tenants.

When the downtown condo market began to cool later in 2007, Walton Street scaled back its condo-conversion plans to just the top 12 stories.

But it hasn’t pursued permits for that scenario for more than a year, city records indicate.

The Smith Tower has always been my favorite building in downtown Seattle. It’s a shame to see it sit unused like this. I actually like the idea of converting it to condos, although I’m not sure there would be all that much appeal to live in Pioneer Square…

Seattle Times: Lynnwood’s City Bank gets tighter scrutiny

City Bank of Lynnwood, hurt by heavy lending to developers and homebuilders, on Thursday became the latest local bank to submit to tighter oversight from federal and state regulators.

It signed an agreement, called a cease-and-desist order, that requires City Bank to shrink the volume of nonperforming loans and foreclosed real estate it’s carrying on its books; reduce its dependence on brokered deposits; increase its capital levels; and make other operational and organizational changes.

Puget Sound Business Journal: Lexas believes condo buyers will show up

Call him a contrarian. Escala developer Eric Midby expects to move ahead with a pair of high-rise hotel and condominium towers at a time when nearly every other developer has decided to sit out this market because of the recession.

Midby, a principal and development manager at Lexas Cos., is betting that by getting the company’s next condo project under way now, he can exploit a two-year gap in the delivery of new condominium units in downtown Seattle that starts next year.

“We firmly believe that Seattle very soon is going to have a shortage of housing, that all the units in downtown will fill up and there will be continued demand,” Midby said.

Seattle Times: Property taxes: Appeals shoot up is King, Snohomish Counties

Homeowners complained in near-record numbers about high valuations last year. Appeals of property values shot up more than threefold in King County, from 3,767 in 2007 to 13,156 in 2008. The last time there were that many appeals was 1991, when a sluggish real-estate market followed several years of rapidly climbing home values.

Appeals also increased in Snohomish County last year — from 1,688 to 2,347.

Appeals resulted in lowered values about half the time in King County and about a third of the time in Snohomish County, according to the assessors.

I remind any Seattle Bubble readers that are considering appealing their assessment that S-Crow posted a useful “how-to” on this process that would be a good starting point.

West Seattle Blog: City Council townhouse talk in West Seattle: Less (rules) is more?

…As in, less (fewer) restrictions could mean more variety in housing units. Or, so said the architects from whom City Councilmember Sally Clark and her Planning, Land Use and Neighborhoods Committee heard at Youngstown Arts Center Tuesday night.

The West Seattle meeting addressed only a slice of the Multi-Family Code Update, townhouses and “low-rise” zoning in particular.

And finally, here’s a national story on the subject of “strategic defaults,” which we have been discussing lately.
Wall Street Journal: New Evidence on the Foreclosure Crisis

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

…the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures.

…although only 12% of homes had negative equity, they comprised 47% of all foreclosures.

Yow.

  

About The Tim

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.

18 comments:

  1. 1
    Softwarengineer says:

    INTERESTING NEWS STORIES TIM

    I found the Escala Midby developer story the strangest. If Seattle were a Phoenix or an Orlando, there might be a tiny bit of logic to the allegations [but even Arizona/Florida are dead in the popped bubble too]; as retired folks with wealth may want to move to a nice climate, but who’s kidding who, Seattle in the winter [especially with no snow salt…LOL] is a dreary rainy place to make the retirees dream of sunshine and blue skies.

    The story would have had a spark of believability if unemployment hadn’t of devastated our state’s economy.

    I think there’s a lot of pink pony people that believe if even 50% of us have jobs, everything will be fine…LOL

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  2. 2
    WestSideBilly says:

    If the Lexas guy would have inserted “affordable” somewhere in there, he may be on to something. Unfortunately they’ll probably build another building full of $400k studios and $700k 2BR condos that will sit empty.

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  3. 3
    Kary L. Krismer says:

    I agree on the tax rebate issue. I’ve been against that being available at closing all along.

    On the Smith Tower it sounds like they’re trying to keep their options open. A two year lease isn’t going to be very attractive to a lot of businesses.

    As to Smartmoney.com–pretty amazing they have to cite statistics from March. You’d think they were a monthly news magazine.

    Somewhat related, the tax appeal issue is a bit late too. They’re just now sending out 2010 assessments. My 2009 was way too high, but 2010 is significantly lower–over 15% lower. It’s too late to appeal 2009 for everyone, I think.

    BTW, I didn’t appeal 2009 because it wasn’t worth it to save $500. I almost did it just for the experience, but that was my only real motivation to do it.

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  4. 4
    S-Crow says:

    If people wish direct links to forms for appealing vs. navigating through county websites to get to those forms they can download the forms directly from our website (pdf format). I posted the links on June 26th for King, Snohomish & Pierce Co. Click here

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  5. 5
    Sniglet says:

    Actually, I am suprised that only 47% of the foreclosures looked at in the WSJ study had negative equity. Why would any home ever wind up in foreclosure if there was actually equity? If a home-owner has equity they can always sell and avoid foreclosure.

    There may be a few cases where struggling home-owners don’t have a clue, or have psychological issues which prevent them from taking the necessary action to avoid foreclosure by selling (like the lady in the movie “House of Sand and Fog”), but that would be a very SMALL portion of struggling home-owners.

    I wonder if the number of foreclosed homes with negative equity aren’t being under-reported somehow? it’s not like it is obvious whether a home has negative equity, not until you sell it. We know that many lenders have large REO inventories, which they are often trying to seel (unsuccessfully) at unrealistic prices. Perhaps the number of foreclosed properties with negative equities is so low because lenders refuse to acknowledge the write-downs for their unsold REO inventory. Also, I wonder if they are counting second mortgages, or are only looking at whether there is enough equity to cover the first mortgage?

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  6. 6
    Kary L. Krismer says:

    RE: Sniglet @ 4 – Procrastination is a common trait of people in financial trouble. Back in my attorney days having people call the day before a foreclosure was fairly common.

    Even before 7/07, only about 10% of the homes with significant equity were listed with the NWMLS prior to the sale date.

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  7. 7
    Sniglet says:

    Let’s put it another way. If lenders are buying back something like 90% of the properties going up for foreclosure auction at the country courthouse (which I hear is the case across most of America) I find it extremely hard to believe that many of those homes they are buying back have equity. Why not just take the offer from a low-ball investor at the auction if the price on offer at least covered the mortgage? There is absolutely NO incentive for lenders to buy back properties at foreclosure auctions and list them as REOs if they can be made whole at the initial auction.

    By contrast, several years ago only a tiny percentage of homes were ever bought back by lenders at foreclosure auctions. When homes have equity banks don’t even bother bringing them into their REO inventory.

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  8. 8
    Kary L. Krismer says:

    RE: Sniglet @ 6 – There are fewer people making low ball offers on the eve of foreclosure. Flipping isn’t that common right now. Also, locally there are still distressed property law concerns for such people.

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  9. 9
    deejayoh says:

    RE: Sniglet @ 4 – I had a different intepretation of the results. The author was trying to isolate the main cause of the foreclosure. His conclusion was that in 47% of cases it was negative equity. there could have been negative equity in other cases but his conclusion was that another factor Ie.g. job loss, interest reset) was the driving factor

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  10. 10
    ray pepper says:

    The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

    Simply shocking news! They will walk! Boy will they walk!! In numbers we still cannot even imagine!

    Mtg Cramdown? Where are you??

    ***********************

    Cease and desist order on Lynnwood bank?…Well now they can join all the others with cease and desist orders. Unless I’m mistaken the following also have the same orders:

    Venture
    Sterling
    Banner
    RPFG
    Everett Bank

    The little guys better find financing quick………..which they won’t…
    They better find a merger consortium quick….which they can’t…
    Thus we say good bye to Venture, Banner, Sterling, and a bevy of others in the next 12 months..

    Have you seen the amount of CASH these banks have left to cover for BAD LOANS? They need a market turnaround within 90 days…..

    Don’t take it from me look at their pps. STSA, BANR, RPFG…Turn out the lights and see you all at CHASE!

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  11. 11
    Kary L. Krismer says:

    By deejayoh @ 9:

    RE: Sniglet @ 4 – I had a different intepretation of the results. The author was trying to isolate the main cause of the foreclosure. His conclusion was that in 47% of cases it was negative equity. there could have been negative equity in other cases but his conclusion was that another factor Ie.g. job loss, interest reset) was the driving factor

    It’s been a while since I looked at that, so I don’t recall the specifics. But what they’re trying to do is highly suspect. They think you can tell from payment records why a foreclosure occurred. For example, they think that if the payments just suddenly stopped, that that would be a walk-away type situation. I think that’s a very questionable assumption.

    Also, this has sort of been touched on in the reverse, but someone with equity has more options. So it’s not surprising you’d see a lot of houses that actually get foreclosed have negative equity. If short sale or deed in lieu are your only options, you might as well start spending your mortgage money on lotto tickets, because the odds would probably be better.

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  12. 12
    Sniglet says:

    There are fewer people making low ball offers on the eve of foreclosure. Flipping isn’t that common right now.

    Sure, flipping is not as common as it was, but I believe this is primarily because it is exceedingly difficult to find a home at foreclosure auction that has any equity. I have read many articles about foreclosure auctions, where the participants complained about how the lenders just buy back all the properties and won’t let them sell for realistic prices.

    If there really was any significant amount of equity in the homes going up for foreclosure auction, I am quite certain that private parties would be buying them. Which leads me back to my earlier point: banks wouldn’t be buying back properties at foreclosure auction and adding them to the REO inventories if there was actually equity.

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  13. 13
    patient says:

    Someone made a comment a cuple of days ago of the number of NTSs for June to the note that they will pretty much keep of with the number of closings. Is the number of NTSs for June official at this time?

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  14. 14
    The Tim says:

    RE: patient @ 131,615.

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  15. 15
    patient says:

    RE: The Tim @ 14 – Thanks Tim, wow that’s close.

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  16. 16
    nancy says:

    RE: ray pepper @ 10RE: ray pepper @ 10

    Ray – I believe you are mistaken. There is no documentation of any Cease and Desist order against either Sterling or Banner Banks.

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  17. 17
    Frank says:

    I thought this piece was a pretty effective refutation of the WSJ opinion piece. Tim, you’re usually pretty skeptical of the media’s coverage of the real estate sector, I’m curious why you put so much stock in (of all things!) a Wall Street Journal op-ed?

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  18. 18
    ray pepper says:

    RE: nancy @ 16

    Yes you are correct..

    Venture and Homestreet Bank. I don’t bank at any of these banks I just read the press releases from the PSBJ. I suspect they will all meet the same fate. COLB appears to be holding up this month OK. I will be fascinated to see how these smaller banks survive with their current cash on hand. If they can sustain, and turn it around, WOW you will have a great long position at these entry points.

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