By The Tim on June 16, 2010
Here is your open thread for the mid-week on June 16th, 2010. 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.
Pfft may be right (ha, ha- I mean “correct”)- MSNBC is being very critical of BO. I guess the tingle is gone from Chris Matthew’s leg:
“Chris Matthews, Keith Olbermann and Howard Fineman react to President Obama’s Oval Office Address on the oil spill. Here are the highlights of what the trio said:”
Olbermann: “It was a great speech if you were on another planet for the last 57 days.”
Matthews compared Obama to Carter.
Olbermann: “Nothing specific at all was said.”
Matthews: “No direction.”
Howard Fineman: “He wasn’t specific enough.”
Olbermann: “I don’t think he aimed low, I don’t think he aimed at all. It’s startling.”
Howard Fineman: Obama should be acting like a “commander-in-chief.”
Matthews: Ludicrous that he keeps saying [Secretary of Energy] Chu has a Nobel prize. “I’ll barf if he does it one more time.”
Matthews: “A lot of meritocracy, a lot of blue ribbon talk.”
Matthews: “I don’t sense executive command.”
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Tim,
Sometime back you had posted an analysis of ‘bottom call’ based on various methods. Can you give that link again? Also, how does it compare to the current outlook?
Thanks
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“The housing market is doomed in the U.S., and the causal factors are all well-known. But we don’t want to know, because that knowledge would re-order the American culture and economy.
We know housing values are artificially and unsustainably high, but we don’t want to know this.
About two-thirds of U.S. households own a house (75 million); 51 million have a mortgage and 24 million own homes free and clear (no mortgage). Most of the other 36 million households are moderate/low income and have limited or no access to credit and limited or no assets.
Who benefits from a housing market propped up by massive government subsidies? The homebuilders, lenders and real estate industries, of course, but the 75 million “stakeholders” in the housing market also want to believe the market is “fairly priced” and bound to recover its bubble-era heights.”
http://www.oftwominds.com/blogjun10/housing-bust06-10.html
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http://www.businessweek.com/news/2010-06-15/commercial-property-to-stay-40-from-peak-pimco-says-update2-.html
40% from peak for US Commercial RE. Did you guys know that it had fallen this far? What does it say about King County commercial RE – i believe we are at 20% vacancy. most interesting lines in the story:
As regional U.S. banks are forced to recognize losses on construction loan portfolios, “the deleveraging cycle will take far longer to play out” than in previous real estate cycles, making a V-shaped recovery unlikely, the report said.
“Many assets may not return to their peak 2007 values until the 2020s,” according to Pimco.
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RE: bob @ 4 – I don’t follow commercial, but that doesn’t surprise me a bit. Value is based on rents, and when you have lower rents and vacancies, values plummet.
There are other types of properties that are bad too. For example, apartments used to be worth some valuation for their rents plus an additional bonus to account for the fact that they could be converted to condos. Their rent valuation probably hasn’t dropped as much as commercial, but the other factor has completely disappeared.
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By Scotsman @ 1:
I would compare him to BP. No admission that anything at all has gone wrong since the accident, an unqualified claim that 90% of the oil will be captured soon, and no admission that the oil could possibly be leaking out of the well long after August if the relief wells don’t work.
How was his speech any different than what we’ve been hearing from BP for almost 60 days? Oh, wait. BP has accepted the blame. That’s how it’s different.
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By Pegasus @ 3:
That claim of houses without a mortgage comes from here: http://www.factfinder.census.gov/servlet/DTTable?_bm=y&-geo_id=01000US&-ds_name=ACS_2008_3YR_G00_&-mt_name=ACS_2008_3YR_G2000_B25087
I have a hard time believing that data. I have a hard time understanding it too! ;-)
If that large of a percentage own homes without mortgages, there must be a lot of very old people in this country relative to the total population.
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RE: Kary L. Krismer @ 7 –
OK, stop, this is Real Estate. The only way you have a Real Estate is to own it free, and clear. You might borrow against it to buy something else, but then you pay that off as well. We will see about seven to fifteen years of people paying back the money they took out of properties, but the market place will go back to normal.
There again many people will begin buying as soon as the market stabilizes to be in line with other economic conditions, such as wages. Wages are for sure a wild card, because those good paying jobs that a college degree was supposed to get you are gone.
High Finance may be a dying art. We may be headed back to the meat head eras. You know, those people who were stupid enough to pay off property.
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RE: reader @ 2 – Here’s the original series of posts:
And here are the follow-ups I’ve done so far:
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RE: bob @ 4 –
Loans for commercial property are for seven, ten, or fifteen years. When they go to refinance the value won’t be there. Some will default, but more than likely there will be some dealing done, losses took, and commerce will continue.
If I owned stock, or had a 401K, or gold, I would be very nervous. That’s why I prefer having a Real Estate.
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RE: Scotsman @ 1 –
I didn’t watch the speech, and don’t care. Obama has show great restraint, which I suspect he will continue to do. He has taken much more blame than he ever needed to for this mess. I am extremely confident that he is making the very best decisions for the American People. He is a true patriot.
I do pray that during the short time he has we can gain some control of our government by wrestling it away from the evil that American Corporations have become.
Again it would be more simple for you to list one accomplishment the Bushes did for America.
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Redfin had a great post on the area’s housing market yesterday.
http://blog.redfin.com/seattle/2010/06/seattle_may_2010_market_reportprices_increase_but_demand_weakens_.html?src=map-an-marketreport-seattle
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RE: David Losh @ 8 – I’m not being critical of owning real estate free and clear–I’m just saying I don’t believe that 1/3rd of the houses in America are owned free and clear.
On the other hand, I don’t have the aversion to borrowing that you do. Without borrowing, not as much can be done. Even Microsoft if borrowing money!
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bob @ 4
The fall in CRE has been fairly silent compared to fall in residential real estate and yet it is being watched carefully. Most of the banking industry heavy in CRE is bankrupt if they put current values on their loans and collateral. But (wink wink) they have been given permission to fib if they claim they are working things out. I expect there will be massive bailouts and incentives over the next few years as the bad business losses are once again transfered to the taxpayers backs. Kind of like the Greek bailout. They really are bailing out the banks mainly in Germany and France who are holding the bad debt. Bad business decisions by banks are paid by others.
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RE: Pegasus @ 14 – I think the real solution that would be acceptable to the owners is to simply extend due dates. But because many of these loans were probably packaged and sold similar to the residential loans, there might not be anyone on the lender side that has authority to do that.
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Kary @ 13
Non-mortgaged housing truly exists Kary believe it or not for a sizeable portion of homes. Those homes are largely owned by retired persons who have paid off their mortgage before dying. Others are owned by people who make a concerted effort to pay off their mortgage early by being frugal. Yes Kary there really are responsible people in America. Just not as many as the clowns.
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RE: Pegasus @ 16 – Don’t forget I’m the one who repeatedly notes that those buying expensive homes don’t tend to put only 20% down, and that many of them pay cash. So I’m not having a problem with houses being owned free and clear–just that 1/3rd of them are.
As to the frugal and clowns comment, I was suggesting that most of these people must be old, because I doubt that most of them belong to my or a later generation. ;-)
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Ah Kary. If you are lending moneys on a building that is worth 20 or 30 percent less than the loan would you extend the loan? If you are the business that borrowed the money and the property is worth 40 percent less than what you paid do you really want to extend the loan or walk? The drops are too large to ignore and equity has disappeared. Only fools keep paying in a no win situation. Vacancy rates and competitive lease rates will ensure that. How do you make your payments on the loan if the building is empty? The banks can’t afford to write the equity loss down because of their balance sheets which in the end only makes things worse. Until these worthless loans are dealt with it only gets worse. The only way your suggestion works is if you expect real estate to regain that 40 percent loss in the next few years. That’s about as likely as pfft bad mouthing Obama here. It ain’t gonna happen. See no evil, speak no evil…….
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By Kary L. Krismer @ 7:
Hey, my parents own their home outright and I wouldn’t consider early 50′s to be “very old.” They bought their first home when they were about 30, refinanced once, and paid the 30-year mortgage off in twenty years.
They would still live in that house if the county hadn’t imminent domain’ed them in 2008 and deconstructed it to build a road and a retaining pond. Even so, they just traded across for another house of the same approximate value, so they still just pay property taxes and utilities. It’s a sweet setup.
Of course, I do realize that buying just one house and paying off one’s mortgage by that age is far from “normal” today.
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I just posted the link to my economics radio show from last night.
In this episode we discuss what role governments play in bubbles and whether diversified investment portfolios make sense when all asset classes rise and fall at the same time. We also investigate what growing disparities between the wealth of the rich and middle classes say about the economy.
http://surkanstance.blogspot.com/2010/06/this-week-on-bear-radio-manias.html
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RE: Kary L. Krismer @ 7 –
I agree, one third seems like a large percentage of homes without mortgages, but here’s a reference from the NY times with some explanation and another link with the 600+ page report from the Census Bureau – seems credible.
http://www.nytimes.com/2008/10/07/us/07housing.html
http://www.census.gov/prod/2008pubs/h150-07.pdf (page 108 has mortgage detail)
Homes with no mortgage had a median value of $144k vs $219k for homes with a mortgage.
Even more shocking to think that foreclosures are as high as they are if one third of owner occupied homes are owned free and clear.
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Fannie and Freddie officially delisted:
http://online.wsj.com/article/BT-CO-20100616-710987.html?mod=WSJ_latestheadlines
“The message is that the conservatorship relationship with the government is here to stay for a while,” said Mustafa Chowdhury, head of U.S. rates research at Deutsche Bank. “The government has capitalized the GSEs to an extent where it’s almost impossible to have a clear smooth separation again.”
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Speaking of commercial RE, can anyone suggest a good online service to search properties for sale? Or is that data hoarded like residential data used to be?
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I know a dozen people who own Real Estate free, and clear, most own multiple properties. It’s the way things are done. It’s called Real Estate.
Commercial is different from residential in that it directly involves investors, investment groups, pension funds, and Real Estate Investment Trusts. It’s complicated by the banking system who holds a lot of these funds.
I’m making this as simplistic as I can, because there is more to it than return on investment. Walgreen as tenant is an example. Commercial can, in some cases, include retail sales, with blue sky. There are a lot of intangibles, like owning Rockefeller Center.
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I read last year that:
30% – own their residences free & clear
30% – owed on a mortgage
40% – rent
Please be warned I also read(CNBC ticker), a few weeks ago, that the oil spill was plugged and the escaping flume was drilling mud.
I apologize that I wrote on SB the spill was plugged.
Dirty Renter
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good evidence of a recovery(even if it is slowing a bit).
Stronger Than Expected Capacity Utilization
http://www.bespokeinvest.com/thinkbig/2010/6/16/stronger-than-expected-capacity-utilization.html
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RE: Kary L. Krismer @ 7 – Kary I know a lot of people who are 35-40 years old who own free and clear. It is not THAT unusual. There are also a few gentlemen in our seattle area that own 10k+ apartment units free and clear.
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By mukoh @ 27:
Despite our prices, I’d expect our percentages around here to be a bit higher than other places, but I still don’t think we’re that high even here. As to our locality, somehow working for and owning stock in a tech company allows people to do that. ;-)
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https://login.wwdb.org/mcall/6411903541314568/image.jpg
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RE: Kary L. Krismer @ 28 – Kary, I think it would be just the opposite. In an expensive area like this, reaching the goal of paying off ones home is much more difficult. Those who have paid off homes due to stock options and RSU’s is going to be a very, very small percentage of the population.
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RE: mukoh @ 27 –
Those are multi generational owners.
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RE: Kary L. Krismer @ 28 –
Once you get away from mom, dad, and the kids, because that’s the buyer pool most people relate to home purchases, there is a market place much larger. Providing housing units is a business. Where mom, dad, and the kids, may buy one, two, or three homes in a lifetime, there are other people who buy one or two houses every year.
That leverage is used to pay down principle balances, and in these past ten years a lot of these small investors thought they had died and gone to heaven.
Let’s say you bought a house a year from 2000 to 2005. You saw the crash coming, as most people who follow the Real Estate market did, and you sold three to put money toward the principle balance on two. You are struggling today, but the loans are amortizing more quickly.
Owning two properties with equity is better than having three properties all losing money.
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RE: wreckingbull @ 30 – Prices are high here because there is so much wealth. This site repeatedly tends to focus too much on income relative to house values, which ignores wealth altogether.
If you accept the statistic that 1/3 of houses are owned free and clear, you can see why income and median don’t really relate that well. In the past I’ve focused on both sides of that issue (that some income earners are not in the market for a house, and that some people pay cash), but in doing so I never contemplated that the free and clear owners would be such a large group. True most of them are also not in the market, but when they are they could greatly affect the resale market on their purchase side.
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By David Losh @ 32:
I don’t think there’s any evidence that “most people who follow the Real Estate market” saw the “crash coming.” Back when I was reviewing bankruptcy filings, a lot of those filing owned multiple parcels of real estate. And there were plenty of people in 2007 who owned multiple parcels looking to pick up another.
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RE: wreckingbull @ 23 –
In the world of commercial Real Estate even the listing service, CBA, is flawed. It’s all about who you know. It’s about the deals you want to do, so agents have niches.
I’m sure this is changing, and Brokerages want to control the agent information, but really you are dealing with a wide variety of products. Just as an example, in Business Opportunities you have retail, services, restaurants, or manufacturing. There is leasing, and buying of office space, retail space, or ware house space. Then you also have industrial.
Inside of all parts of commercial you can have a variety of any and all, such as a shopping mall.
So you don’t go to your uncle Morty, who has a Real Estate license to buy a Shopping Mall.
That’s a part of the reason the data base is so hard to find.
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RE: Kary L. Krismer @ 33 –
What?
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RE: Kary L. Krismer @ 34 –
Every one saw it coming. That was the biggest topic of conversation during 2005, 2006, 2007. People in the Real Estate business, industry, talked constantly about how they never saw anything like it.They called it unsustainable. More and more people entered Real Estate sales as a career move. More and more people in the Real Estate business moved out of the way. They were working too hard for not enough money.
By 2007 things were so screwed up that I sold my little menagerie of properties, or interests there in. You are correct other people didn’t listen to me. As was proven in the 2005 to 2009 era, anything can happen in Real Estate so I may be proven wrong. It definitely feels that way some times.
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By David Losh @ 37:
You’re right. And it’s a good thing too. Otherwise there would have been a lot of subdivisions started that would have had to have been stopped, developers would be forced to lower prices to below resale prices, and a lot of local banks would have gone under making loans to people in real estate. Thank God everyone in real estate saw it coming.
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RE: David Losh @ 37 –
Based on the pricing history for the listing shown in your avatar, it looks like maybe not everyone listening to you was able to sell their menagerie of properties in 2007
Date Description Price % Chg Source
02/26/2010 Listing removed* — — —
08/08/2009 Listing removed* — — —
04/27/2009 Listed for sale* $849,500 -5.1% Agent
04/05/2009 Listed for sale* $895,000 -0.6% Agent
03/21/2009 Listed for sale* $899,950 -5.3% Agent
01/10/2009 Listed for sale* $950,000 -13.6% Agent
01/17/2008 Listed for sale* $1,100,000 -12.0% Agent
10/26/2007 Listed for sale* $1,250,000 201% Agent
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RE: deejayoh @ 39 –
People just wouldn’t listen, but then again that is a great house worth keeping.
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RE: Kary L. Krismer @ 38 –
What?
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Would love to see some data about Vashon Island. Everything on the market is either 700k+ or total sheitboxes in the 2-300s, not a lot of in between. What happened to all of the nice inventory that was on the market in the 400′s a year ago, that should be in the 300′s or even 200′s now? Was there a massive migration to the island? If not, who’s bogarting all the inventory?
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By David Losh @ 41:
Rather ironic that the person who posts the most wandering nonsensical dribble on this board repeatedly posts “what?” in response to my postings.
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RE: Kary L. Krismer @ 43 –
Now that’s better.
Yes, Kary, every body who is in the Real Estate business saw a crash in pricing coming. Development continued, mortgages were made, and lenders ran boiler room like operations getting in as many suckers as they could before the money supply was cut off. Banks failed, others bought the assets.
That’s the business.
The problem is that this continues globally. All those mortgages are worth less today than when they were written.
I expected inflation, as usual, until we went to Spain, where my children were born, and I expected to retire. Once you see the global economic landscape you know there is no way banks can claim “they just didn’t know.”
We’re on a blog, written, and maintained by an electrical engineer, for goodness sakes, who knew some thing was wrong.
Then when we went to Peru, and saw every one with a credit card, when four years before $1 a day was the quoted wage for outside the cities, you really knew that banks, in concert, were in the process of robbing consumers.
I’m thankful to this site, and sniglet for their insights.
God bless you that you are a true believer. The system some how is working for you. From my point of view the system is broken deliberately by people who are after my money, and I don’t mean the government. I want my government to jail these people.
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RE: David Losh @ 44 –
I believe Kary when he says he says
he didn’t see it comingI also believe you when you say
you did[Edited by The Tim: Links to personal home addresses removed. Granted, information like this is available in public county records, but that doesn't really make it cool to post here.]
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RE: EconE @ 45 –
Nice. You’re good! ;-)
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By EconE @ 45:
First, I really don’t appreciate your posting my address in a public forum. That’s a pretty low life thing to do.
Second, as I’ve told the story many times, we were stuck in our old house by a neighbor from hell, and the time to move up was based on his moving. Our choice then was to move up and keep the old place, or move up and sell the old place. I expressly didn’t want to former because I didn’t want to have that much exposure to real estate. However, if the alternative was having total exposure to cash, I certainly would not have wanted to do that either, and that would have made me much more nervous these past two plus years. In addition, as I’ve noted, I would never rent because I’m a control freak.
Third, that was already just after the peak, and after the first mortgage crisis, and so the concern at that time was obvious, and the goal was to sell the original house as quickly as possible. There you could be critical of me because it took us far too long to get the house ready.
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RE: Scotsman @ 46 – RE: EconE @ 45 –
It’s my business. It’s been my business, by hook, or crook for forty years.
There is a world of Real Estate that you will never see.
I blog for business, and my business is a booming. We clean houses, and prepare properties for sale. We have prepared properties for sale for forty years. This year we will again expand into painting, and yard work. We can build decks, repair rot, and kill mildew.
I’m on the internet to learn how to relate to you people. You people meaning the public.
Real Estate is a world of it’s own. It’s like a circus. I like that analogy a lot, we are circus performers. You come in, talk to us, we put on a little act, and then you go away. The vast majority of people are doing exactly what you are attempting to do here. You want to expose an illusion, where there is none.
It’s simple, you buy low, and sell high. In between you do what has to be done to maintain the property.
Now if you have questions about Real Estate I’m always happy to answer. You just don’t like what I have to say.
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RE: Kary L. Krismer @ 47 –
Please forgive me. I had thought in the back of my mind while I was baiting you that it could be a stupid thing to do. I apologize.
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RE: David Losh @ 49 – It’s okay David. You only know half the story, and figuring out the other half is possible from public records, but a lot more difficult. ;-)
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