Posted by: Timothy Ellis (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 responses to “Puget Sound Housing Market Entered Deep Freeze in Q3”

  1. ray pepper

    The Freeze will get even more chilling.

    Glenn Kelman on CNBC AGAIN today. Hes becoming celebrity status but more importantly they did their CNBC poll “Would you Walk Away?”…… 55% stated YES upon last check. An amazing 1 in 2.

    Mark Haines took off his glasses and said ” What a sad state this has become in America.”

    He hasn’t seen nothing yet!

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  2. softwarengineer

    RE: ray pepper @ 1
    Even the American Companies Have Took All Their Cash and Put It in the Freezer Too

    Article in part:

    “…U.S. companies are hoarding almost $1 trillion in cash but are unlikely to spend on expanding their business and hiring new employees due to continuing uncertainty about the strength of the economy, Moody’s Investors Service said on Tuesday….”

    http://finance.yahoo.com/news/US-companies-hoarding-almost-rb-2687745036.html?x=0&.v=1

    RE: Real Estate, why should Americans in general spend money too, due to continuing uncertainty about the strength of the economy?

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  3. ray pepper

    a

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  4. The Other Ben

    By ray pepper @ 3:

    a

    b

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  5. robotslave

    Off Topic…

    Tim, have you frozen new accounts in the forums? I tried to sign up a couple days ago, but the account hasn’t been approved yet.

    [edit]

    … Whoa, that was *fast*. Thx.

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  6. Scotsman

    RE: softwarengineer @ 2

    The fact that companies are “hoarding” record amounts of cash keeps coming up, often mentioned as proof that the economy is in fine shape and companies are ready ti jump on the next opportunity. What doesn’t get mentioned is the fact that companies also have record amounts of debt. What they have done is the equivalent of taking a big cash advance on the Mastercard and banking it to ensure future liquidity if/when things turn ugly and lines of credit may be canceled or reduced- just when they need them most. It’s disingenuous, and doesn’t show financial strength but rather fear of the future.

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  7. Scotsman

    Interesting presentation on what year housing prices have returned to. Looks like Seattle is behind the trend. From Calculated Risk:

    http://calculatedriskimages.blogspot.com/2010/10/burns-prices-have-corrected-to-what.html

    Also, as a pure time line:

    http://2.bp.blogspot.com/_pMscxxELHEg/TMnrfS9wjdI/AAAAAAAAJjI/ZvjrGMF26NE/s1600/PriceWhatYearCS.jpg

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  8. David Losh

    RE: Scotsman @ 7

    I’m going to respectfully disagree. In my opinion, and i really don’t know, it’s just an impression that I have, we just had a period of corporations shedding massive amounts of debt. Defaults, bankruptcies, banks closing, the FDIC, government bail outs, restructuring, the stock market declines, the money that’s been “lost,” all sound like purging debt.

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  9. Scotsman

    RE: David Losh @ 9

    There has been a lot of debt purged, but that doesn’t change the numerical fact that corporate debt is still near all time highs. If the corporations wanted to they could use the cash they have on hand to pay some of it off, but the decision has been made to keep the cash and liquidity available even if it means higher interest expenses. It’s not opinion, it’s accounting.

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  10. AWhiteHorse

    Sellers still appear to believe Seattle is still flush with two high incomes per family, but that’s just not true anymore. Our incomes haven’t kept up with inflation – much less, kept up with home prices.

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  11. One Eyed Man

    RE: Scotsman @ 7RE: Scotsman @ 10

    You know as well as I do that a lot of the current debt offerings are financial arbitrage. When have corporations been able to issue debt financing this low? The AAA’s like IBM and MSFT are issuing at around 1%. What’s their return on capital? My guess would be that it’s at least ten times that. Some will use the money to buy their own stock and some will use the money for growth by acquisition. At some point, some might even opt to fund more R & D for organic growth.

    But the point is it’s not all raising cash to survive another wave of financial armageddon. Obviously, some of the financials and other troubled industries aren’t in the same boat and may need the capital to survive. I haven’t researched the issue to see what the break down is between those playing capital arbitrage and those whose motive is more likely preparing to weather the potential storm, but its not all the later.

    This should be on the GET thread, but seeing as this is a response and the posts here are light, I leave it up to The Tim.

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  12. David Losh

    RE: One Eyed Man @ 12

    Thank you for pointing out the massive opportunity these cheap interest rates give to corporations, both foreign, and domestic.

    Also, respectfully, I do feel this is exactly the place for this discussion. We are continually looking at sales data reports, charts, and graphs. This is what Kary points to with his claim we can not predict the future. Sales can mean anything. We can sell any one, anything, for any price we chose, and make it sound reasonable with sales data.

    We are, though, very close to the end of our time together. Real Estate, both residential, and commercial, has been over exploited. There will be no more of the wild infusions of cash that have propped up that asset base for Mortgage Backed Securities.

    We are in a highly predictive state for residential housing, and all Real Property. The economy will determine what per cent the population, and business can pay for housing, retail, rent, or commercial space.

    Scotsman is pointing to debt, you are pointing out the opportunity, the only question is if the economy will grow, or contract.

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  13. Kary L. Krismer

    By Scotsman @ 10:

    RE: David Losh @ 9

    There has been a lot of debt purged, but that doesn’t change the numerical fact that corporate debt is still near all time highs. If the corporations wanted to they could use the cash they have on hand to pay some of it off, but the decision has been made to keep the cash and liquidity available even if it means higher interest expenses. It’s not opinion, it’s accounting.

    A few comments. Ford is where it is today largely because they took on a lot of debt, well before the financial crisis. Cramer went very negative on them when they did that, but it put them in the position of being the only American car company to survive the crisis without bankruptcy.

    Second, I once had a client that had maybe $140,000 of credit card debt and $70,000 of savings at the time that he saw first me. I’m not trying to say that made any sense, especially where the interest on the savings was probably at a rate a quarter of the interest on the credit cards. But let’s say you’re large corporation and those numbers are in millions, and that your income currently allows you to pay the interest on the $140,000M without much difficulty. If you were the CEO of the company, would you risk taking $50,000M of cash to pay down the debt to $90,000M, when that increased the risk of your company defaulting in the future and the President of the United States and other politicians then calling you a criminal because your business went under? I don’t think so. And there are lots of other things they won’t do to avoid such a risk too, like expand their business and hire new people.

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  14. Dirty_Renter

    RE: Scotsman @ 7
    As I’ve mentioned before, you have to look at the age-old debt/equity debate. A lot of companies are issuing 1% debt as opposed to issuing equity for expansion/capex. Some, like Mr. Softy, sold debt to buy back stock.

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  15. Kary L. Krismer

    By Dirty_Renter @ 15:

    RE: Scotsman @ 7
    As I’ve mentioned before, you have to look at the age-old debt/equity debate. A lot of companies are issuing 1% debt as opposed to issuing equity for expansion/capex. Some, like Mr. Softy, sold debt to buy back stock.

    I haven’t looked, but I assume Microsoft is still sitting on a ton of “cash,” right?

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  16. Scotsman

    RE: Dirty_Renter @ 15RE: Kary L. Krismer @ 14RE: David Losh @ 13RE: One Eyed Man @ 12

    All true- the cost of borrowing is low for many. But the cost of cash is even less, and they have the cash. I still maintain they are holding onto the cash because of future uncertainty. If there were as many great opportunities out there to invest as everyone claims wouldn’t the money the fed is trying to inject into the system be circulating at a velocity at least greater than 1? It’s not.

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  17. Kary L. Krismer

    RE: Scotsman @ 17 – I would agree they are holding onto cash because of uncertainty. Uncertainty over the future of the economy. Uncertainty over future taxes. As to the latter, you can’t give the go ahead on some marginal projects without knowing the expected tax rate.

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