Posted by: 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.

44 responses to “NPR: Searching for the "New Normal" in the NW Housing Market”

  1. softwarengineer

    Great Job Tim, Dr Roubini was interviewed on NPR too

    He stated on the radio show, that America is experiencing the Worse Recession in 60 Years.

    The rest of the URL:

    http://www.rgemonitor.com/roubini-monitor/257527/roubini_interview_on_national_public_radio#readcomments

    Dr. Roubini is clearly sensitive to the chronic unemployment problem in America, albeit the overly optimistic “V” shaped recession MSM economists need a course in Malthus 101 IMO.

    As America’s population continuously increases and we become more densely packed, the per capita costs go way down, wages go concurrently down, unemployment goes way up [with poverty]; and it gets worse and worse with no end, as we pack them in tighter. Homelessness in America is now as bad as the Great Depression in numbers, albeit considering the food banks are marginally adequate with no dust bowl impact this time, we have unemployment extentions [that are running out for many Americans soon] and a FDIC [although only partially funded for the job at hand]: homelessness in America is actually far worse today, than the Great Depression, IMO.

    Asia/Mexico/Africa countries need a course in Condom 101 IMO.

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  2. Kary L. Krismer

    “The only way a house is an investment is when you purchase a cash-flow-positive rental.”

    There is another way buying a house is an investment. When you buy a house, live in it, pay it off and live there until you die. I guess that happens so seldom today that you didn’t even think of it as a possibility! ;-)

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  3. Dave0

    An owner occupied home can also be seen as an investment. Rather than it generating new cash though, it would be reducing an expense you would otherwise be paying, rent. If you buy a house and the sum of the mortgage payment, maintenance, taxes, homeowners insurance & utilities is cheaper than the sum of rent, renters insurance & utilities you would otherwise be paying if you rented, then I could see that house as being a cash-flow positive investment. This is rarely the case though with owner-occupied homes, because people are always willing to pay a premium to “own” their home.

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  4. Kary L. Krismer

    RE: Dave0 @ 3 – Or along the same line of thought, a hedge against inflation. I’d call hedging inflation to be investing.

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  5. Kary L. Krismer

    Is there ever a “normal” when it comes to markets? There are up markets, down markets and transitional markets. It’s very unusual for a market to be so stable that something is considered “normal.”

    Even though prior to 2007 I think the Seattle area went something like 20 years without a YOY decline in year end numbers, even those markets at the time were seen as not being the same. There was no “normal” over that period.

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  6. Indy

    By Kary L. Krismer @ 2:

    “There is another way buying a house is an investment. When you buy a house, live in it, pay it off and live there until you die. I guess that happens so seldom today that you didn’t even think of it as a possibility! ;-)

    My impression is that it is increasingly rare – though, I think about a third of homes are owned outright. On the other hand, when people usually talk about “investment”, they’re probably thinking of it in the “potential for capital gains upon sale” sense rather than the “free-and-clear ownership displacing expenses for necessities like rent” sense.

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  7. Dave0

    RE: Kary L. Krismer @ 4 – It’s only a hedge against inflation if homes appreciate at the same rate or greater than inflation. While that has traditionally been the case, assuming appreciation is in housing a bit speculative at the moment.

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  8. Keith T.

    “Buy a home because you want a place to live to call your own, not as some sort of vehicle to build wealth.”

    licking A. I’m glad you said it, because when I say it, people shake their heads at me and imagine the day I grow out of my silly childish notions.

    At least they did a year ago.

    Frankly, I’m dubious about the whole “owning is cheaper than renting” line. There’s definitely differences of opinion on that and it’s not always a good idea. And few if any of the pro-ownership side-by-side math examples factor in the costs of repairs that are free under renting but out of your pocket under ownership. Already in the house we rent we’ve had plumbing issues, roof leaks, a gutter fall off, and pest issues — all attended to by our landlords. Time and time again I hear homeowner horror stories about critical, expensive home repair jobs that they have to solve and pay for themselves. And let’s not forget when you have to move but your house has lost value; even if you don’t own for profit this is a bad scene.

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  9. ray pepper

    RE: softwarengineer @ 1

    Thus far Roubini and Eleua (where ever he is) have been absolutely crushed by this BULL RUN on Wall Street. WOW..DJI 9300 COMP nearing 2000 SPX 1000.

    Money is NOT flowing into housing??
    Housing: LEN 3.00-13.00, KBH 6.00-17.00, HOV .50-4.00, PHM 6.00-12.00 DHI 3.00-12.00

    1 giant headfake? Dead Cat Bounce? Good Lord BAC! 3.00-17.00

    Never fight the FED!

    After two weeks in the Southwest its amazing to see how many homes have been gobbled up from 75% off their highs. One home in particular I tracked hit a high of about 305k and sold for 133,500. I went to the owners home and knocked on the door to congratulate him. He was a 1st time home buyer and was so happy. He stated he saved and saved over the last 6 years and when he was ready to buy this home came along. He knew they were much higher and has no clue as to what happened. I told him he absolutely nailed what I perceived was the bottom in this particular development. I tried to buy the home as well but there were 4 other offers and I backed off. The previous low sold at 162k.

    As in the stock market……….TIMING is everything! I was very happy for him.

    As Tim used to state when he started this blog. “Since when is paying less for something a bad thing.”

    The base is being formed and WOW will we see shortsales/foreclosures over the next 10 years increasing the pressure on lower home prices. But, as in this case there will be GEMS to be had.

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  10. BMI

    RE: Dave0 @ 7

    Even in the absence of capital appreciation, it can be viewed as a hedge against inflation in housing expense. To grossly over-simplify the model (no taxes or maintenance expenses, etc.), even if the eventual equity in the house is $0.00, I have traded an infinite stream of rent payments which change (and frequently rise) over time, for a known, constant, and finite stream of mortgage payments.

    This should not be seen as an endorsement of buying into the current market; I just wanted to highlight an assumption about the housing market which seems to get little press.

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  11. shawn

    RE: softwarengineer @ 1 – As is usually the case with over population pundits, it is the white guy telling the brown skin people to quit making so many brown skinned people. The truth is you are a hypocrite. You had at least one child, that you have spoken of. You had the choice to reduce the population, keep it as is, or add to it, you did not act to reduce it. But, you chastise the brown skin folk instructing them that they need to do as you say, not as you do.

    SWE needs a course in Philosophy/Logic/English/Ethics/Civics/Government/etc 101 IMO.

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  12. dogwood

    RE: shawn @ 9

    Right on Shawn. And if you consider the disproportionate amount of the plannet’s resources used by your average American (and the waste created), the problem is not overpopulation elsewhere, it’s overconsumption and waste right here at home.

    Annual per capita CO2 emissions by country (in metric tons; 2006):

    US: 19
    Germany: 9.7
    France: 6.2
    China: 4.6
    Mexico: 4.1
    Brazil: 1.9
    India: 1.3

    A question for SWE: How exactly is overpopulation in other countries contributing to homelessness in America? I’m not following the plot.

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  13. softwarengineer

    RE: dogwood @ 10

    Firstly, I talk science, not ethnic groups [stop changing the subject when you have no science behind your allegations]. Overpopulation has absolutely nothing to do with politics, ask most scientists, they agree with me.

    When my parents [they were white, so what?] had a high fertility rate, they were wrong IMO. When the Baby Boomers had a low fertility rate they’re “infertile?” How about giving the Baby Boomers an environmental kudo for a job well done, instead of brainlessly condemning them all the time?

    As to populating America some more [like you push], which used to use much more oil, before consumption collasped 42% since 2006; you’re putting more people in a richer country that’s historically demons with energy use…..depopulating America makes far more sense for global warming. Besides, who’s going to “set the example” for global warming reduction or make it far worse: my way or yours? Now, illegally call me a “racist or extremist” for making scientific sense and voicing old fashion liberal values; because you have no logical common sense counter point…LOL

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  14. disgruntledengineer

    RE: softwarengineer @ 13

    I’m truly ashamed that I share the same profession as your (IMHO oxymoronic, and more moronic) name.

    You are so blinded by your own extremism and racism that you can’t even understand what it is you said wrong, and I need none of your so-called “scientific sense” or “old fashion liberal values” to back up what I think about you and your opinions.

    Sorry for the digression folks, but this idiocy just needs to quit.

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  15. cheapseats

    RE: Dave0 @ 7 – I think the argument to buy a house as a hedge against inflation is one where wage inflation matches cost inflation.

    So you buy a house now, 20% inflation occurs over the next 3 years, and the adjusted median income would support an equivilent increase in house price.

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  16. cheapseats

    RE: cheapseats @ 15 – Sorry Dave0, I misread your statement and said basically the same thing.

    Except that your house price would be smaller portion of your inflated income.

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  17. Racket

    By softwarengineer @ 1:

    Great Job Tim, Dr Roubini was interviewed on NPR too

    homelessness in America is actually far worse today, than the Great Depression, IMO.

    Yeah havn’t you seen the 1930’s style homeless camps in central park lately?

    Again someone who spends a lot of time in downtown Seattle, I will say that there aren’t significantly more homeless people than I recall being there 10 years ago. And we certainly have less than Vancouver.

    Typically when you get a spike in homeless people it has more to do w/ social programs that attract them, than people actually losing housing.

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  18. Scotsman

    RE: ray pepper @ 9

    “Money is NOT flowing into housing??
    Housing: LEN 3.00-13.00, KBH 6.00-17.00, HOV .50-4.00, PHM 6.00-12.00 DHI 3.00-12.00

    1 giant headfake? Dead Cat Bounce? Good Lord BAC! 3.00-17.00

    Never fight the FED! ”

    Ray, remember the dot-bomb craze? You sound like all my friends who were pushing pets.com.

    There is no “there” there. The P/E for the S+P is almost 150 and you think there’s something substantial behind current prices? If you think housing prices have fallen, just watch the collapse in equities. Maybe this fall, maybe next year, but the insanity will stop, and a lot of folks are going to get hurt when it does. Go back and review the charts for 1929-1940 and then tell me you know for sure the worst is over and the only way out is up.

    Are any of the companies you mention making real money- what we used to call profits, or are those quarterlies just FASB illusions? Care to venture what the real market value of the “assets” BAC claims might be?

    Read this, then report back: ;-)

    http://market-ticker.org/archives/1344-Will-It-All-Come-Tumbling-Down.html

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  19. cutienoua

    RE: Kary L. Krismer @ 2 – Unless it’s a really nice house,I find the perspective of living all my life there very depressing!

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  20. deejayoh

    RE: Scotsman @ 18 – Denninger really jumped the shark this morning with his post about death rates from the swine flu and economic calamity. I mean, that was pretty ridiculous. He was postulating about what would happen based ondeath rates that were on par with current hospitalization rates. IMO He can be a bit of a loon.

    http://market-ticker.denninger.net/archives/1349-Depression-Assured-Maybe-Swine-Flu.html

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  21. Scotsman

    RE: deejayoh @ 20

    Fair enough- it’s an open question given we don’t know how it could develop and what the true level of preparedness will be when it hits. We also don’t know what “flavor” we’ll get, or how it will respond to treatment. I wouldn’t call it loony, but it does deserve a grain or two of salt.

    But, that aside, his analysis of the banks and their capital structure is dead on and has been for some time. The only thing keeping large numbers of banks solvent is adjusted accounting standards and the unwillingness or inability of the regulators to act. “Zombie” banks is an apt description.

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  22. shawn

    RE: Racket @ 17 – Yes, the earlier statement by Dr Roubini tries to imply that things are now as bad as then regarding homelessness. For one, the demographics are different. Just from what I think is common knowledge, more mentally ill people are on the street today, rather than being institutionalized, and less elderly are on the street today due to social security. I am sure I am just barely describing the differences in the demographics of homeless people then versus now.

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  23. shawn

    I have always felt that NPR was a very intellectual program. So, congratulations to you Tim for all the work you have done to become the people’s spokesperson.

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  24. Jonness

    —I don’t necessarily agree with Austin’s conclusion that “buying a home will still be a good investment.”

    Let’s look at the track record. Roughly a quarter of Washington residents with a mortgage are currently underwater, and about a third are under or within 5% of being under. What’s more, roughly a third of U.S. citizens with a mortgage are underwater. What’s this say about the the RE industry? I couldn’t think of a better argument of why not to buy a home.

    Think about it, when times were good, the motto was, “buy a home because look how much money other people who bought a home made.” Well, it stands to reason, the new argument should be, “don’t buy a home because look at how much money other people who bought a home lost.” The funny thing about the RE industry is 100% of all events are translated to the positive side without a second thought for the potential negative outcome.

    http://www.loanperformance.com/infocenter/library/FACL%20Negative%20Equity_final_081309.pdf

    Deutsche Bank says about half of the people in the U.S. with a mortgage will end up underwater. As extreme as that sounds, prices only need drop perhaps another 13 or 14% to make it happen.

    I was looking at GDP data that goes back to 1947 last night and realized the current period is the only time within that time-frame we’ve had this many back-to-back quarters of negative GDP. This recession has been a rough one, and IMO, it’s far from over.

    Things seem temporarily OK because of the government stimulus. But we can’t pump it forever or we’ll go bankrupt as a nation. Then again, maybe we’ll get a cash for old clothes program and I can get a brand new wardrobe out of the deal. Then perhaps we’ll get a cash for old washers, dryers, and refrigerators program. Oh yeah, I need a BoFlex too. Or how about this? Cash for old beer bottles. You trade in your old bottles and get new ones free of charge. The tax payer picks up the tab. With brilliant thinking like this, we’ll have a long-term sustainable GDP of 7 or 8% in no time.

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  25. ray pepper

    RE: Scotsman @ 18

    Agree with much of the article but the fact is nobody knows when it will all come crumbling down. Will it be after another act or terrorism? What will be the stimulus to trigger it?

    In the meantime we only have one life to live and betting on Armageddon the last 6 months has crushed the shorts. Look at SRS for godsakes!

    Could be 1 year or could be 10 years. In the meantime the trend is long and don’t fight the FED. Appears they still have bullets and are firing.

    As I have said many times all these homes are coming back and short sales and foreclosures will be very common over the next decade. Home prices we know are going nowhere but trendline down but I just cannot place my bets against this rally or bet against the FED at this time.

    Heck I’m even long CIT!

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  26. David Losh

    Let me seperate out housing from the economy debate.

    Housing, or more specifically new construction, is a big part of consumer spending. A new house means durable goods, a new car, and home furnishings. It’s a big ticket item that generates a bunch of smaller tickets. In my opinion that’s over. We have over built and the cost of construction is going down, demand for goods is going down.

    We can try to rely on old tired worn out data to say that housing is the economy, but the truth is if supply and demand were ever a factor in housing, we over supplied. Even if we are not over supplied we have enough guys running around with permits in hand to create supply at the drop of a hat.

    This year was very sad for a lot of people who were foolish enough to pay way too much for housing when there is way too much information telling them not to.

    Even Ray was talking about some one who bought a house in the South West for $130K. Did that have a pool? Because a house in Las Vegas, or Tempe, Or Mesa was selling, before the run up, for $95K with the pool.

    People are gah gah for housing and still talking about it. It’s over done, finished. You paid too much, you have a mortgage, and now some one has to pay it off.

    Real Estate is a complicated business, and all the really smart people who looked on line and decided to ignore reality because they knew so much paid too much, some times for a discount.

    Give it a rest. Real Estate will go back to normal. You will have some people who wander around “in the business” and the rest of you can go back to day trading stocks. It’s more fun and a lot less work.

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  27. Kary L. Krismer

    By cutienoua @ 19:

    RE: Kary L. Krismer @ 2 – Unless it’s a really nice house,I find the perspective of living all my life there very depressing!

    That’s interesting. I don’t think I’d ever buy a place I found depressing, but that probably explains how a lot of places sell. There are a lot of places I’d never consider buying! Roughly about 99% of places. ;-)

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  28. Kary L. Krismer

    RE: Jonness @ 24 – All just numbers pulled out of thin air. You cannot determine the percentage of households that are underwater.

    I dealt with the DB “study” here in a piece called: “Have We Become a Nation of the Extremely Gullible?”

    http://blog.seattlepi.com/realestate/archives/175675.asp

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  29. Urban Artist

    We rent in Ballard still hoping prices go down in this area. The main reason we want to buy is because we wish to have a self sustaining house or as close to as we can…with solar panels etc .. You can’t do that and rent. We have never owned we have always rented. Both of us never felt brave enough to commit to such a big purchase but now we would like to we are just waiting. I do hope things return to some sanity; that if you make a decent living you can afford a house and not have it be a strain.

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  30. softwarengineer

    RE: Urban Artist @ 29

    Step One

    Look for a newer rental with 2×6 insulation [built after 1990]….the 50% increase in insulation should help considerably, albeit I bet the old house owners from Ballard will want URL blog references on my wild allegation that 50% more insulation will reduce your heating bill significantly…LOL

    I imagine post 1990 homes in Ballard are rare too…LOL

    Look for double pane windows too. There are also companies that do leak checks on homes, ask a potential landlord for permission to perform this check and in exchange you’ll give them a copy of the report.

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  31. posthoc

    RE: Urban Artist @ 29 – Insulation (windows are part of that), heat pump, solar panels… it is not technically difficult to achieve “self-sustainability” if you’re talking about energy only, which I assume is your target given your lack of mention of water consumption, building materials, etc. Especially given cheap NW hydropower. We ourselves are hardly self-sustaining because we didn’t want to pay 20K+ for solar panels… then again we did manage to halve our energy bill, even after doubling our square footage, by taking a few sensible (somewhat pricey) steps like installing a heat pump, new double-paned low-E windows, front-loading washer, new fridge, low-flow faucets and toilets, and fluorescent lights. Too bad we didn’t qualify for a clunker program.

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  32. Jonness

    By Kary L. Krismer @ 28:

    RE: Jonness @ 24 – All just numbers pulled out of thin air. You cannot determine the percentage of households that are underwater.

    I dealt with the DB “study” here in a piece called: “Have We Become a Nation of the Extremely Gullible?”

    http://blog.seattlepi.com/realestate/archives/175675.asp

    Your argument appears to boil down to these points:

    1) Deutsche Bank is biased because they own mortgages; therefore, Core Logic must be biased as well.

    By the same token, Kerry is a RE agent and stands to profit if people believe home prices have bottomed. Thus, since Core Logic is an independent research firm that makes its profits from delivering forecasts as accurate as possible, I conclude that its data is much more trustworthy than your or Deutsche Bank’s.

    2) You can’t believe something just because it’s posted on the Internet, and Deutsche Bank and Core Logic’s study outcomes are posted on the Internet.

    Your claims are also posted on the Internet. Therefore, by your own admission, they are suspect.

    3) It’s impossible for Core Logic or Deutsche Bank to fairly value homes in today’s market.

    You or someone you know is capable of fairly valuing homes in today’s market; This proves it’s possible to fairly value homes in today’s market. Since you don’t know what methods Core Logic used to value the homes, simply choosing the most inaccurate algorithm in the industry (Zillow) and critiquing it is non-meaningful. In order to provide support for your statement, you need to provide proof that Core Logic used the same inaccurate methodology as Zillow.

    4) It’s impossible to obtain an accurate sample of homeowners who know how much they owe on their home.

    Most people are well aware of how many months of payments they’ve missed. In fact, they lay awake at nights thinking about it over and over again. Most people also know how much they paid for their home, how much equity they took out, and what date they bought their home. So the math is simple. Even if your claim is true that most people don’t know this information, Core logic can simply exclude those who don’t know and include those who do.

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  33. Kary L. Krismer

    RE: Jonness @ 32 – 1 and 2 are not my arguments at all (other than in the title to the piece where I say “It’s on the Internet it must be true”), although I have pointed out that DB is not a credible source because of the apparently bad decisions they’ve made in the past. It’s similar to the arguments I make about Economy.com–using their past predictions to discredit their current predictions. I haven’t even mentioned Corelogic specifically and I’m not sure why you even bring them up.

    As to 3, no one can value houses in mass. You need to actually visit and go inside a house. That’s why Zillow isn’t accurate at all. That’s why tax assessments are not accurate.

    As to 4, this isn’t a question of how many payments anyone has missed. It’s a question of how much they owe. It also isn’t a question of how much they paid. You think it’s simple math, but you don’t even know what the math is!

    The simple fact is that equity is current value less encumbrances. If you can’t determine current value you can’t determine equity. If you can’t determine encumbrances, you can’t determine equity. Here my argument is they cannot determine either. To prove me wrong you’d have to prove they could determine both. It’s possible I might be wrong on the encumbrances thing somehow (e.g. maybe they can pull credit information and somehow link that to address–but I doubt it), but there’s no way they can determine value. It’s impossible.

    Then we get to the point of future value. I take the position that’s impossible to predict too, but in any case, when you’re dealing with national numbers, just where in the nation the change occurs would affect the end result as to how many people are underwater.

    So once again, but numbers pulled out of thin air. They’re completely meaningless.

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  34. Jonness

    “I haven’t even mentioned Corelogic specifically and I’m not sure why you even bring them up.”

    I bring them up because you responded to my posting of CoreLogic’s data informing me that the numbers were pulled from thin air. I’m left wondering, if this research firm simply pulls their numbers from thin air, how do they manage to stay in business? Is their website just a scam to defraud investment firms who are too gullible to realize they are buying made up numbers?

    Nowhere in my post did I claim Deutsche Bank’s data was accurate. Instead, I pointed out that, based on Core Logic’s analysis, houses only need decline perhaps another 14% in value to meet Deutche’s forecast.

    We know the approximate value of houses in an area at any given time, and we know how much they’ve declined to date. Performing a sample of how many payments people are currently behind does not should not represent a problem.

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  35. Jonness

    I’m not a PhD expert who specializes in determining mortgage value like the folks at Core Logic, but it takes about two seconds for my ignorant brain to come up with a methodology of determining mortgages underwater. Perhaps it’s not 100% accurate, but it does provide a decent indication of the problem. Case-Shiller and the MLS data provide a good approximation of value, sales, etc. Purchase date, price, and Encumbrances can be found by taking a random sample. Mortgage holders who are too ignorant to know they have a mortgage and owe money on it can simply be excluded from the sample.

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  36. Jonness

    Step 1 -Take Sample:

    1) When did you purchase the house?
    2) How much did you pay for the house?
    3) What are your encumbrances?

    Step 2: Compare sample to Case-Shiller tiers and/or MLS data for specific price ranges.

    Step 3: Add in some PhD magic and do the math.

    Step 4: Publish report.

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  37. Kary L. Krismer

    By Jonness @ 36:

    Step 1 -Take Sample:

    1) When did you purchase the house?
    2) How much did you pay for the house?
    3) What are your encumbrances?

    Step 2: Compare sample to Case-Shiller tiers and/or MLS data for specific price ranges.

    Step 3: Add in some PhD magic and do the math.

    Step 4: Publish report.

    Question 1 is irrelevant.
    Question 2 is irrelevant.
    Question 3 is relevant.

    Step 2 won’t tell you much. Case-Shiler, NWMLS medians, etc. are applicable to no one. They don’t tell anyone what their house is worth. Even within say the 3 county area, Case-Shiller wouldn’t tell you how many houses were underwater, even if you knew the exact amount owing on every property.

    Step 3 is probably what they did–only I call it making stuff up.

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  38. A New Normal « ALL ABOUT…..Portland.Oregon.Real Estate

    [...] Here’s an interview that was done out of Seattle on the new normal based upon the above NAR® Report.  It’s entirely about the Pacific NW and is interesting as well. In fact, this article makes reference to Kurt Andersen.  I recently saw Kurt Andersen, the author of “Reset” on The Charlie Rose Show.  You can see that interview here about how this crisis can restore our values and renew America.” [...]

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  39. Jonness

    By Kary L. Krismer @ 37:

    I’m not saying I do not agree with your argument in its entirety. I’m saying that I believe your use of the terminology, “pulling numbers from thin air” is misleading. The key is, you study a market. You sample the market to determine what owners paid, when they bought, and what they owe. You then sample the current value within that market. If you desire more accuracy, you sample by neighborhood (or whatever level of detail you want), and you match each neighborhood to each mortgage holder within that neighborhood. You then sample the MLS data by neighborhood showing prices for similar houses in the time period the owner bought.

    I think where we disagree is you believe you need to go to each house at each point in time and do an evaluation. I believe you can get a fair approximation by sampling houses now compared to then. IOW, a person bought a house in Jan 2007 for $500K and has an outstanding balance of $495K. We look in the MLS and see similar houses selling for $300K in the same neighborhood. We then do the math. Since the sample sizes don’t need to be huge in order to perform a statistically valid study, it makes the task doable.

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  40. Kary L. Krismer

    RE: Jonness @ 39 – But the problem with that scenario would be the debt side. Perhaps when they borrowed $495 it was before they sold their old house, and maybe they took 100k from that sale and paid down the debt. That wouldn’t show up in the public record. (BTW, there are some loans where the amount is even re-amortized in that situation.)

    Also, probably less than 10% of all houses have sold within the past 2 years. So the houses you’d be most likely to be correct on would be a tiny percentage of all houses.

    As to your last paragraph, yes you can do that, and that’s what Zillow does. And they aren’t very accurate. Now maybe that would balance out if they’re just as likely to be low as high, but we don’t know that.

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  41. Jonness

    RE: Kary L. Krismer @ 40 – OK. Here’s what my thinking about this is. Zillow has to value every single house in every neighborhood, and that is way too big of a task to be able to do with consistent accuracy. For instance, if you try to value a house that has no public sales records, and you know nothing about the house other than neighborhood and square footage, you’ll encounter accuracy issues.

    By contrast, corelogic only need value a small well-stratified sample of homes that it knows a great deal about. This allows it to measure much more accurately than Zillow. Corelogic can compare a home in it’s sample that sold for a specific price in a specific neighborhood with other homes that sold during that time in the same price range and neighborhood and have recently sold again. This is similar to the technique used by Case-Shiller. The key here is, you know the starting price of the home in your sample, and you know the then price and current price of the comps.

    The homeowners are contacted directly in order to get accurate information of what they owe on their homes. Thus, if they put an extra $100K they got from a previous home sale, you know about it. It’s true that many owners are not likely to provide this info over the phone, but on the flip side, many people like to be included in surveys. Thus, as in any survey, you only include the willing participants that meet your criteria (such as knowing how much they owe on the home).

    Sample home: Purchased Jan 2006 for $500K in neighborhood A. Homeowner states he owes $450K.
    Comp 1: Sold Jan 2006 for $510K in neighborhood A; sold last week for $425K
    Comp 2: Sold Jan 2006 for $495K in neighborhood A; sold 2 weeks ago for $420K

    You survey enough homes in each neighborhood to be representative of that neighborhood. Thus you need only deal with a small subset of homes in that neighborhood, which you know a whole lot about. You extrapolate your result to other homes in the neighborhood, as is commonly done in a well-designed study using proven statistical techniques.

    Perhaps a weighting adjustment is necessary to account for the number of distress sales in your sample space, etc. But it seems to me, you would end up somewhere in the ball park, and certainly much closer than Zillow, because Zillow knows very little about the majority of homes it attempts to fairly value.

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  42. Jonness

    IOW, when you click on a home on Zillow, you are most likely seeing their attempt to target the average price for a home in that neighborhood with similar square footage. One home might have beautiful hardwood floors, and the next home could have it’s floors rotted out. Yet both homes are valued the same. One is way over-valued, and the other is way under-valued.

    Core logic need not provide an average on a home-by-home basis. It need only provide an overall average for the neighborhood. Thus, it’s valuations can be much more accurate than Zillow, even though it might uses similar valuation techniques. That being said, I have know idea of the methodology it uses. I’m only claiming that it’s possible to get in the ballpark.

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  43. Kary L. Krismer

    RE: Jonness @ 42 – I really haven’t addressed Corelogic much, but if you look at your link, they don’t seem to do anything on the debt side. They don’t even adjust for amortization, and just say that most the loans are under 6 years old, so there wouldn’t be much difference. So on the debt side it appears they do just go by the original amount, and in the case of HELOCs I’m going to assume they assume the full amount simply because they don’t say otherwise, and they do so little. I’m wondering if they even look for reconveyance documents, indicating that the loan has been entirely repaid? It takes a bit of work to determine which loans are still outstanding. For example, if someone bought with a $200,000 first and a $40,000 second, and then refinances for $220,000, you need to determine whether they then owe $220,000 or nearly $260,000. Either is possible, but to know you’d have to look for a reconveyance or subordination recording for that property.

    I will say your aggregation of values idea makes some sense, but more so from trying to assess the position of the banks. How much security do they have for their loans, etc. But the fact Corelogic does so little on the debt side makes me question how much they really do on the value side.

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  44. Jonness

    RE: Kary L. Krismer @ 43
    “I will say your aggregation of values idea makes some sense, but more so from trying to assess the position of the banks. How much security do they have for their loans, etc. But the fact Corelogic does so little on the debt side makes me question how much they really do on the value side.”

    I think one of the biggest problems with CoreLogic type reports is they provide very little information about how they derive the numbers. It does seem odd to me that a report such as this would not include the methodology used. Without the methodology, the claims lose most of their value because it’s impossible to put them into perspective.

    I think aggregating shows promise toward getting a rough idea of being underwater, but I’m left wondering whether corelogic would go through the amount of work that this requires. In fact, the more I think about it, the less work I think they did. It would be interesting to interview one of their analysts in order to get more information.

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