By The Tim on October 5, 2009
Here is your open thread for Monday October 5th, 2009. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.
Be sure to also check out the forums, and get your word in the user-driven discussions there!
Posted in Open Thread | Tagged open_thread
Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.
Frontier Financial acquisition called off
http://seattletimes.nwsource.com/html/businesstechnology/2010004101_webfrontierfinancial05.html
I think they’ve got a problem. Feds takeover on Friday?
Either that or they can stand on their own two feet. If they can survive, some shareholders buying are going to do very well.
Yeah, especially after their stock dropping 25% today.
Declining rents is an excellent example as to how the law of supply and demand doesn’t always work out the way we think it does. The concepts of both “demand” and “supply” are far more elastic than most people imagine.
http://bit.ly/lC9ZI
RE: Sniglet @ 4 – I do agree that elasticity of both demand and supply must be considered. There is also the issue of “quantity supplied” when it comes to the housing market.
A. Supply Side:
(let’s consider demand issues later)
When it comes to lollipops there is very little in terms of excess inventory, and the life expectancy of the product is very short. Thus a manufacturer of lollipops might be able to increase the inventory turnover rate by approximating the quantity demanded per unit time. The per unit time idea is very important, as it relates the expected life of the product to the manufacturing time.
In housing the “quantity supplied” cannot be tied directly to manufacturing, as there is an existing product that often comes back on the market. Again, ignoring the demand side, we have new homes plus availability of previously occupied homes. Now let’s talk time. The time to build, manufacture a new home is very long relative to daily life, but yet the final product is very durable and might last a person’s full lifetime (again, we are ignoring demand, moves, and so on at this point). It might take two years, plus or minus, for a builder to bring a set of homes to market (measured by some average of the entire project–some units will come online sooner than others). If there is clear demand today (assumption made), then all builders in the market place might act to fill the demand (reminds me of fishing fleets and over fishing when a given fish is in high demand).
Again, without considering how we get there, there are three cases:
1. The new supply matches the demand nicely.
2. The new supply is too little.
3. The new supply is too much.
Unfortunately at some point the third case, the new supply is too much, will eventually prevail. It might take years, but as builder A realizes the opportunity, Builder B is attracted into the industry. Builder A continues, possibly with a grander project. This continues until one day demand wanes, but there is a two-year time lag, plus or minus, for the added properties to be brought to market. By this time it’s too late, and the builders start falling like dominoes, like we have been seeing.
There is still the issue of how to measure existing supply. Like vehicles, I like to take a look at the replacement rate. If the existing supply is increasing in life expectancy, then all other things being equal, builders should be building less in aggregate. Note, however, that builders are prohibited from supply, price, or other fixing of the marketplace, so each looks to his or her individual opportunity rather than that of the greater whole (similar to what is happened to lenders…). So as the life expectancy of units increases, we should decrease the quantity built. I use this same analysis in the automotive industry, which is building cars that last longer and longer. CFC *might* have actually decreased the average age of vehicles on the road, as it took many 15-25 year old vehicles off the road and replaced them, on a 1:1 basis, with new vehicles. Thus 700,000 old vehicles were replaced with brand new ones. I cannot imagine that many new vehicles were traded in under the CFC program for the $3,500 to $4,500, plus scrap value.
Note that the manufacturers now have to guess, some 12-20 years in the future, on average, when the CFC will be replaced. I am going to go further and suggest that the average life expectancy of automobiles has been increasing faster than the rate of population growth. No, I have not actually looked it up, but automobiles clearly are lasting longer, and I am guessing that rate of growth is more than the rate of growth of the population.
After writing this long message, I have realized that I probably should have written it in the forms of rates of change. Where is the point where the rate of demand declines while the manufactures are positioned with high levels of invested capital for high production, and how having a market with many players can promote excess supply.
I have too much going on today, so I am not thinking clear enough this morning. Hopefully I have written my thoughts in a manner that is clear enough for the majority to understand. Sorry for the sloppy work.
B. Demand/quantity demanded to be considered later.
RE: AMS @ 5 –
“I have too much going on today, so I am not thinking clear enough this morning”
OK. But how does writing a novella on arcane economic theory help you focus on what does matter? ;-)
I swear this blog is populated by caffeine enhanced ADD addicts with too much time and to few neurons.
Sun’s out- I’m going to visit it one last time before the eternal darkness decendes…
BTW, I was looking at stats and didn’t realize they were September’s
Over 1600 sales and a $382,160 median (King County SFR).
….And you thought only real estate agents were slimy?
http://www.vancouversun.com/Baseball+slugger+frozen+head+used+batting+practice+whistleblower+book+claims/2060565/story.html
“I swear this blog is populated by caffeine enhanced ADD addicts with too much time and to few neurons.’
I’ve never described myself that way, but it fits:)
Good discussion on extending the $8K tax credit for housing- from TickerForum:
http://www.tickerforum.org/cgi-ticker/akcs-www?post=113276
RE: David McManus @ 1 –
Maybe American Marine Bank is next?
Bainbridge’s American Marine Bank Hires Firm to Recover Capital
American Marine Bank has hired an investment bank to help it recover the $20 million it lost in the first half of this year…..
Good article on property prices (titled “House Proud?”) in The Economist:
http://www.economist.com/businessfinance/displayStory.cfm?story_id=14573531&source=features_box_main
RE: dydx @ 12 – Where do they get this claim? “In America the Case-Shiller index of national prices is back to where it was in the fourth quarter of 2000.”
RE: Kary L. Krismer @ 13 – If you take the “U.S. National Values” (published quarterly, different from the 20 and 10-city indices) and adjust for inflation based on CPI – all items, the latest data (June) is 104.7 vs. an average of 104.5 in Q4 2000 (Q1 2000 = 100).
It makes more sense to me if you’re going to adjust using CPI to use CPI – less shelter. If you do that the latest Case-Shiller national index is 106.4, which is right between Q1 and Q2 2001.
RE: The Tim @ 14 – Wow, Google is incredible.
When I searched for C-S this time to find the numbers, it popped up with those quarterly numbers for the first time. It knew what I wanted–I just didn’t know to look at it! ;-)
RE: Kary L. Krismer @ 13 –
You asked:
> Where do they get this claim?
I don’t know. I suppose you could ask The Economist on one of their Q&A discussions, though.
RE: AMS @ 5 –
OK I want some apologies about my rambling from a lot of you.
You don’t ramble, David. Okay, some of your posts kind of jump around a little and don’t always make sense, but they’re usually not insanely long.
RE: Kary L. Krismer @ 13 –
We are headed to 1998 pricing.
The reasoning is getting more clear by the day. Wages never kept up with what must have been a false inflation.
It looks to me as though credit floated our economy for the past decade, or better put, created a false economy. Now we’re in the holy carp phase as we realize there is nothing supporting the profits but paper promises of a rosey future.
The future is now and we need to pay the money back.
RE: Scotsman @ 6 – I guess we all have time for Starbucks?
RE: David Losh @ 19 –
Very nice, David- short and to the point, not to mention dead on factually. ;-)
And while we are headed for 1998 pricing, the question is: will we stop there, or continue down?
Question: do “holy carp” swim in holy water, or is the transformation more involved?
RE: Scotsman @ 21 – To give him a little out, I guess it’s factual if prices are going down even if we do not make it to the 1998 price level. We are also headed toward zero when prices are going down, even if the prices never get that low.
By David Losh @ 19:
“The time has come
To say fair’s fair
To pay the rent
To pay our share
The time has come
A fact’s a fact
It belongs to them
Let’s give it back
How can we dance when our Earth is turning
How do we sleep while our beds are burning
How can we dance when our Earth is turning
How do we sleep while our beds are burning”
Beds are Burning – Midnight Oil
http://www.youtube.com/watch?v=10BbpGKLXqk
I’d love to re-write the lyrics toward the US banking industry.
http://www.moneyandmarkets.com/three-government-reports-point-to-fiscal-doomsday-4-35722
RE: Scotsman @ 24 – Ever talk to one of the many people having suffered when lenders quit lending and from substantial interest rate increases? Surprise! 30% interest.
But what do you think about the rally? If this is a bear rally then it is taking a long long time to play itself out! And we have countries that are starting to raise interest rates – what’s up with that?
RE: Trigger @ 26 –
Well, one country raised rates, Australia, by only .25%. There has been some talk about Norway doing the same. The main reason Aus raised rates? Why, they have a nasty housing bubble forming thanks to rates that have been at record lows, and have driven housing prices up at record rates to record highs. After looking around at the rest of the developed nations and the problems they are having, Aus decided maybe it wasn’t such a good idea to go there. They can see how it ends.
The stock market? There’s a nice little bear rally bubble forming there, isn’t there? As it continues up, more and more folks jump on the wagon, pushing prices even higher. But there aren’t any profits behind those stocks, and the insiders have been selling at record rates, so watch out. There’s nothing of substance there, as will be shown soon enough. Go pets.com!!
On an inflation-adjusted basis, where have Seattle prices fallen to? My understanding is on a nominal basis, we are back to Q1 or Q2 of 2005.
When folks here are predicting 1998, do you mean nominal pricing or inflation-adjusted? The former would obviously involve a much greater % decline from present-day.
RE: cc12 @ 28 –
OK, I started by 1998 adjusted to inflation which brought prices to about 2003 levels. Then I started reading the Seattle Bubble and learned about wages, debt burdens, the deficit, and global credit contraction.
My thoughts now are that there may be some adjustment for Consumer Pricing, but in my opinion, credit will be used less in the future. If we truly need to go back to cash as a basis for Real Estate purchases then I think actual 1998 pricing may be a reality.
A long time Real Estate agents and investor I was talking with today sold her gold, today, to have cash for the coming Depression. Cash will be king. So the apocolytic out there call me bullish, just so you have a point of reference.
Hello,
I am interested in listing my property in 98271. How hard/easy is it to get out of the “hand 3% to listing agent / 3% to buying agent” trap? At minimum I will do whatever I can to avoid paying for the buying agent. That just seems like 3% of my money that I’m not getting. Is this harder to do if I list through the “big boys”, e.g. Coldwell-Banker, John L. Scott, etc. I tried listing through Redfin but they don’t do manufactured homes. Any listing agents out there with good advice? My plan is to get whatever cash I can out of the deal and then rent for a few years and save for something closer in. I work in Redmond and the commute is awful, plus I am just not emotionally invested in the property any longer.
This rally is nothing special. There was a major rally in 1930, recovering most of the losses from ‘29 and that didn’t end well. Japan has had quite a few rallies since their initial crash in 1989, some of which lasts for over 2 years, yet the broader Japanese market just kept going down to lower lows.
Anyone staying in stocks (or any asset right now) is just going to see their wealth crater in the next big leg down of the bear market.
As far as interest rates go, we are seeing mortgage rates reach new lows. T-bill rates are also very low. This is hardly an indication that inflation is about to pick up. In fact, it’s a glaring signal that deflation is starting to get even more entrenched.
A bit off-topic, but for those fellow SeattleBubble regulars (and guests) who are between jobs such as myself, I have put together a podcast, offering tips on how to use LinkedIn to get in touch with the people you want to know at the firms you hope to work for, and offer strategies to build relationships with them. This is far more effective than just trusting your resume to an on-line job application form.
http://bit.ly/2p91zi
I don’t profess to be an expert, but I figure I can share the few words of wisdom I have come up with.
RE: laterite @ 30 – If you want to cut the commission, cut the listing agent side. Cutting the buyer’s agent side is counter-productive. The buyers agents are the ones with the clients that might want to buy your house. You only need one buyer, and if that one buyer is with an agent that doesn’t show 2.5% listings, or even subconsciously talks them down, your house may take longer to sell or may not sell at all. Note that it doesn’t affect all agents. We for example do show reduced commission properties. But when you only want to sell one property, what you want is the widest exposure possible. Even one missed showing can be the difference between success and failure. Here’s a link to a piece I did on that: http://blog.seattlepi.com/realestate/archives/135895.asp
I would look for a full service listing agent with a good record selling properties (and not that they sold 20 properties because they had 100 listings–someone with a good percentage). In my pieces comparing full service to limited service, the limited service firms I selected have not done well until just recently, where one did start performing better, coming in 3rd in sold percentage and first in pending percentage.
http://blog.seattlepi.com/realestate/archives/181080.asp
I just discovered where the “before December 1″ language comes from in articles discussing the expiration of the $8,000 tax credit. The IRS uses that in its publications.
RE: Kary L. Krismer @ 33 – “Even one missed showing can be the difference between success and failure.”
More correctly stated this should be, “One missed showing can be the difference between success and failure, if that one was the buyer.”
How we can set up a probability distribution as to the chances that any given buyer would buy, and thus the probability that missing that one right buyer.
Then there is the issue of time. Let’s assume every buyer who sees the product will buy (success rate = 100%). Now all we need to know is how soon the next prospect will see the product (Queuing problem, possible we can used Poisson as a model?). If the average time between prospects is short, then missing one has little impact.
Using your fish example, if I miss the only fish in the pond, I am probably going to to hungry.
On the other hand, if there are a bunch of fish in a barrel, it won’t be so hard.
Make the bait more attractive, or shall I say lower the price, and watch the fish come right in.
When houses are sitting on the market an average of just under 90 days before getting an accepted offer, I think it’s pretty clear that the success rate on showings is much less than 100%. I doubt there are many listings where at least 10 people don’t look at it during the first 90 days. I’ve had perfectly nice listings where over 30 people looked at them before one made an offer.
This isn’t like retailing, where a decision might be the difference between selling 20 or 30 units. It’s the difference between selling within 60 days or 120 days or not at all.
RE: Kary L. Krismer @ 36 – The lower the probability of success, the less chance of missing that one right buyer.
“I think it’s pretty clear that the success rate on showings is much less than 100%.”
Let’s say 10% of the lookers are potential buyers. That means that 9/10 times you won’t be any worse off, on average.
RE: AMS @ 37 – Well clearly there’s a better chance that the miss won’t matter, but you don’t know that for certain. If over the life of your listing 30 people look, only one would be the buyer, cutting off that one would be the difference.
Selling houses is very funny. When we were looking there were only a few that either the wife or I were seriously interested in. Some of those few sat quite a while. If we’d decided to buy one of those, the situation would have been considerably different for the seller. One person (or one couple) can make a huge difference.
For a situation like Old Navy selling a blue sweater, they really could care less about one individual buyer. They care about the masses.
RE: Kary L. Krismer @ 38 – If out of a pool of 30 people only one will buy, then you have a 29/30 of showing to a non-buyer.
RE: Kary L. Krismer @ 38 – Oh, I think you are mixing impact with risk.
The risk of missing the buyer might be fairly small, but the impact of not selling for another 60 to 90 days is large for some sellers.
An unmotivated seller might consider the impact to be small too.
RE: Kary L. Krismer @ 38 – There are two types of people who look at homes:
1. Those who buy given a reasonable time frame.
2. Those who don’t buy.
2a. There are those who love to look at homes, but will never buy. This is the worst case.
A seller shows to both categories, so it is really tough to know which buyer is really serious. This is especially true when you have a new agent that thinks a category 2a person is really going to buy.
RE: laterite @ 30 –
Manufactured Homes with no commission means craigslist and the Little Nickle. Pick a price that you will accept then place the craigslist ads first to see what will happen. Do a blind e-mail with about four pictures of the property. You can also say you don’t want to or will not pay a commission. you will find other like mineded people.
If you get interest put an ad in the Little Nickle.
RE: David Losh @ 42 – DL on pricing:
“Pick a price that you will accept then place the craigslist ads first to see what will happen.”
Just pick a price you will accept. No need to consider anything else.
Why not do something like a CMA?
He could also have an aUction!
RE: laterite @ 30 –
I agree with Kary completely. You want your property to have maximum exposure, and in order to do that , you don’t want to cut out the buyer’s agent. They’re the ones most likely to bring you the buyer.
You can save a lot by selling it yourself and just paying a broker to put it on the MLS and for a keybox. You can list it on Craigslist, Hotpads, Trulia, etc, or go with a discount brokerage like Ray Pepper’s 500 Realty or AAA Properties in Bellevue or MLS4Owners.
RE: AMS @ 43 –
Manufactured Home.
Most people know what their property is worth and what price it will sell for. They live with it, talk about it, get told about it, long before they have an agent.
Manufactured can be anywhere and have a value. The market is the best place to determine a price. Craigslist is free and anonymous.
RE: Ira Sacharoff @ 44 –
Manufactured may want an attorney. Title can be tricky.
RE: AMS @ 41 – I could agree with that terminology.
Although I’d say for owner occupied properties, the impact would be huge for virtually all sellers.
Selling a house can be stressful, but if you’re living in it too it’s a PITA.
By Ira Sacharoff @ 44:
As a perspective buyer, I won’t even bother looking at a FSBO listing anymore. 99 times out of 100 it’s way overpriced. In fact, when I see a listing by a third tier brokerage company, I get suspicious because so often the sellers that are trying to squeeze every last time out of the place with an inflated price.
By David Losh @ 45:
Sounds like a regular home. People live with it, talk about it, and so on.
You can advertise any home on Craigslist for free, and so on.
What’s the difference?
RE: Kary L. Krismer @ 47 – Depends on how motivated the seller is. A very unmotivated seller would not take it as stressful!
RE: Kary L. Krismer @ 47 – I often think in terms of expected value, which is explained here:
http://mathworld.wolfram.com/ExpectationValue.html
Like driving down the streets, the chance of getting into a bad accident is fairly low, but the impact to the ones that do is quite high.
Imagine if you were the pedestrian:
http://spdblotter.seattle.gov/2009/10/05/driver-sought-after-striking-pedestrian-in-crosswalk/
Very low chance of peril (very few people get hit in this manner), very high cost if you hit the lottery (life-threatening injuries).
RE: DrShort @ 48 –
I have noticed that. Maybe FSBO sellers are a little more deluded as far as the worth of their homes?
RE: Ira Sacharoff @ 52 – The FSBO sellers are even more deluded when it comes to dividing any savings on transactional costs. Let’s see, we have a seller that wants to save all the fees, and we have a buyer that wants to save all the fees. It’s a match made in a toasty place.
Realtors with rose colored glasses?
Is this indeed a “cottage on the river?” You decide:
http://seattle.craigslist.org/est/reb/1406762051.html
By AMS @ 50:
I guess it depends on what you mean by motivated. If you mean they need to sell quickly, then yes. But there’s more to the stress than need to sell. Having to clean up each day before you leave. Having to get out on 10 minutes notice when someone calls. Having to leave your drapes open and lights on, if that’s not your typical habit. Concern about pets inside or outside the house. If you’re not worried about (and/or not doing) any of those things, then it wouldn’t be stressful.
BTW, that’s another one of the “impact” issues. Leave the dirty dishes in the sink one day and that could be the pet peeve of the potential buyer who would have otherwise bought your house. It doesn’t matter that every other day the sink was spotless.
By Scotsman @ 54:
What makes you think that’s an agent? Technically it should say if it is. I tried the link, and the virtual tour only showed a woman’s face for some reason. But if you click it–it says: “Cottage in the Woods, No … Mobile.