To close out the week, let’s take an updated look at a couple of factors that are continuing to drag the local housing market down: unemployment and foreclosures.
From 1990 through 2006, the average unemployment rate in King County was 4.9%. The unemployment rate is currently 7.9% (61% higher than the 1990-2006 average). Over that same period, there were an average of 203 notices of trustee sale each month. In November there were 421 NTSes (107% higher than the 1990-2006 average).
Foreclosures are down considerably from where they were over the last few years. I suspect this is largely due to legislation passed in Olympia earlier this year that has only served to lengthen the foreclosure pipeline, but even then, we’re still over double where one would expect the level to be in a “healthy” housing market. Plus, the unemployment rate is still far too high to be considered “healthy,” as well.
As I mentioned last year, as long as unemployment and foreclosures remain elevated (which they definitely still are), we’re not going to see a “recovery” in real estate. Expect both sales volumes and prices to be rolling along in the gutter for at least the next few years.
Big Picture Week on Seattle Bubble
- Case-Shiller HPI Rate of Increase
- Examining Home Affordability
- Price to Rent Ratio
- Price to Income Ratio
- Unemployment and Foreclosures
00
I wonder why previous recessions (periods of elevated unemployment) had little or no increase in foreclosures? The 91-97 unemployment rate shows absolutely zero relationship with foreclosures. The next recession has a small relationship, but it is nothing like that seen in the Great Recession. What other variable played such a significant role in the foreclosure rate? Could it be that this time prices for housing were insanely elevated? Could it be that the unemployment rate only plays a very minor role in foreclosure rates (and perhaps in house prices as well)? Perhaps a few other variables could be shown, in various combinations with some regression analysis?
Rate this comment:
0 
0
RE: NESeattleSeller @ 1 –
All prior recessions over the last 30 years were fixed by increasing private and government debt which caused the economy to grow out of those recessions. Now, we have reached the point of the great deleveraging of debt as it is no longer sustainable. In addition, this excessive debt caused structural economic problems in the USA – ie, outsourcing of jobs to China and other countries and driving the services industries – Financial, Real Estate and Retail through consumer and government debt.
Rolling along the gutter…then down the drain!
Rate this comment:
0 
0
RE: NESeattleSeller @ 1 –
Bankruptcy laws have changed since the last recesssion. It is more difficult to file for bankruptcy and get a homestead exemption.
I don’t know if these changes are significant enough to impact the foreclosure rates, but it’s defintely something that changed in way that doesn’t favor unemployed homeowners.
Rate this comment:
0 
0
RE: bd @ 3 – Yeah. That makes some sense. But why did foreclosures rise before unemployment went up in 2007? It is an interesting issue. Of course what really matters is whether or not we can convert some of the sequestered wealth into economic activity that causes growth and some more equitable distribution of wealth.
Rate this comment:
0 
0
RE: NESeattleSeller @ 1 – There are several reasons why there were a lack of foreclosures. In the past, homeowners were prudent and did not take on mortgages with big monthly payments. They had adequate money in the bank to weather periods of job loss. Unemployment insurance used to replace a much higher percentage of a persons wages. So if you lost your job in a recession, then you did not have a very high payment, your unemployment payment gave you more, and you had adequate savings to make up the difference. So a job loss did not so immediately translate into default/foreclosure.
In addition, you have to go all the way back to the Great Depression to find a contraction that was this broadly felt. It has effected all regions of the US and both white collar and blue collar workers. In all recessions since then (until now), when the recession ended after 1-2 years, demand bounced back strongly, and employment was quickly restored. So those homeowners who were getting by on unemployment and savings were working again fairly soon. There is no bounce this time.
And lastly, foreclosures were often prevented by selling the home. High down payments, no equity withdrawal, no stupid mortgages (no down, no doc), meant that yesterday’s homeowners had a fair cushion of equity in their homes. They simply sold the home and pocketed the reduced equity.
Ah-h-h! — the good old days!
Rate this comment:
0 
0
While I’d agree with your numbers in the general sense – the Seattle market is down. I’d also argue that if you took out the price of distressed homes and the slump in home prices is not as significant. There are buyers paying slightly short of the listed price because some homes are being priced effectively. Some sellers are pricing much to high in the beginning (with the idea of leaving negotiating room) and then end up selling the home for less than they could have if they had been firm on the right price.
Marisa
Visum RE
Rate this comment:
0 
0
RE: NESeattleSeller @ 1 –
I agree with everything you said. I’d add that in addition to insanely high home prices contributing more to foreclosures than unemployment, loose lending standards were also a factor. People were qualifying for mortgages they previously couldn’t qualify for. There was also a big increase in non prime mortgages. Not always sub prime, but ARMS, ALT A, none verified employment, etc.
Rate this comment:
0 
0
RE: NESeattleSeller @ 1 –
I agree with WestSeattleDave and Ira.
I would like to add the -1% savings rate Americans had right before the recession hit this time around. Very few were prepared with savings to weather the storm. But; as we all know now, even the recommended 6 months of living expenses rainy day fund turned out to be insufficient for many families, as unemployment is lasting much longer for many.
By the way, last I heard, savings rate is about 4% these days.
Rate this comment:
0 
0
The economy tanked. A lot of people made a lot of money then kept it.
What’s to figure out? It has nothing to do with the price of tea in China, or the residential housing market.
Rate this comment:
0 
0
By NESeattleSeller @ 1:
Rising prices and easy credit allowed them to refinance and avoid foreclosure, or worst case, sell and recover some equity. Also, I would guess the average period of unemployment was shorter.
Rate this comment:
0 
0
By bd @ 3:
Not at all true. Also, not that it matters, but the homestead exemption is now larger. Also, some of the Chapter 13 options are more attractive in the past, or at least they were for a time.
Rate this comment:
0 
0
By Kary L. Krismer @ 11:
Isn’t it now 125K -vs- 45K a few years ago?
ugh… edit is horrible!
Rate this comment:
0 
0
RE: NESeattleSeller @ 1 –
I don’t think that’s true. I did my first short sale in 1992. It may not have been as heavily publicized and of course the internet didn’t spread the news as wildly as today. But I don’t think you can say that “The 91-97 unemployment rate shows absolutely zero relationship with foreclosures.” There were lots of underwater houses after the runup of prices in the 80s during the early 90′s recession. Not as many after 95 or all the way to 97. But clearly in 1991 and a year or two before and after.
Rate this comment:
0 
0
By Kmac @ 12:
Something like that, give or take 5k on each number. When you consider that a trustee will usually add in costs of sale to that number, someone with a $500,000 house has about a $170,000 exemption before a trustee will touch the place, absent other circumstances.
Rate this comment:
0 
0
By ARDELL @ 13:
Did you look at the chart? Maybe not absolutely zero, but clearly very little correlation.
Rate this comment:
0 
0
RE: ARDELL @ 13 –
I did my first short sales in 1984, through 1986. There have always been short sales, and foreclosures.
What Pegasus says is true, we have been through a period of exceptional theft. I can’t even use the term theft whole heartedly because it is all legal. There has always been the opportunity to build, mortgage, sell the paper, and default.
The difference this time is that it is global. There are millions of condo units around the world that were priced well above value. The mortgages were made, the Notes sold, the losses insured, and it continued for about 15 years, and is still going on today in the emerging markets.
The unemployment is from pulling the plug on the scheme.
Rate this comment:
0 
0
First, TT, great series. Thanks.
And, since we see what you are doing, statistically, we have no objections, disagreements, or negative comments. Wish we did, but that’s life:)
Second, most of the comments are mixing WA apples with Cal oranges (and that assumes they still grow oranges in Cal)
Bcuz this one really IS different.
Take one factoid, please – that the decline in home values, and therefore, mortgage underwaterness (oh, we know) is extreme, it is still not as much so as during the Boeing Bust.
Along with a CPA, Doug O’Connor, we worked with many general & specialty sub contractors, and their suppliers – before, during and after The Bust.
So, as many of you/US ask: What’s the difference?
Nor is it even close to the sand states. So, why is WA so different?
Some of you suggest that it was the “free lending” practices. No.
That occurred in the sand states – Cal, Nev, Fla & Az. Not there was none in Wa & Or, but that it was insignificant. Even less in Ut & Id.
IF you disagree, we suggest that you take a long, hard look at Utah and Idaho. Serious unemployment, and foreclosure problem equal to WA and OR. Why?
And, WA and OR about one (1) year later than Cal, Nev and AZ. And, Ut & Id a year later than WA & Or. Again, why?
One of the even more puzzling questions is WHY the West Coast – west of the Rockies + Denver ???
Third, we all notice that “unemployment” is down. Oh, goody.
What we are not being told, and most do not notice, is that the total number of “workers” is down by more than the “unemployed”.
Bcuz they stopped looking…, they no longer “count”!
Today, in AZ, they publicly noticed that:
most of the job growth was in seasonal Christmas temp and part time hires
AND
that the total “work force” in AZ is, now, still, shrinking.
And, in AZ the number of foreclosure sales are down by 50%.., so the average sales home price is now UP…!!!
You do see, do you not, TT, that tis like with our produce stand – when you cull out all the Bad Apples, everything left is absolutely “Perfect”.
Rate this comment:
0 
0
Back to the original intent of this post… None of these statistics predict anything any more. Employment, income, ratios, trends, blah, blah, blah — have always gone up and down. This is a different world where those relationships no longer work. Credit blew out, peaked, and is unwinding. The process has a long way to go.
If you want to understand where we’re going, google “money as debt” and watch the video. Until you do you have no idea no matter how educated you think you are.
Rate this comment:
0 
0
RE: Kary L. Krismer @ 15 –
Answering from a national perspective, and the specific reference to “previous recessions” vs Seattle Area specifically and unemployment stats only, I don’t think that’s the case. At least it’s not what I was seeing in other areas of the Country during previous recessions. Recessions were not only about or even primarily about unemployment, and those run ups in value and subsequent recessions left just as many people underwater.
There may have been fewer people bailing…but there were just as many people underwater. “Strategic Default” was not popular during previous recessions.
Rate this comment:
0 
0
By ARDELL @ 19:
The chart is King County.
Rate this comment:
0 
0
RE: Kary L. Krismer @ 20 –
When the local picture does not match the national one, you have to find the element that caused the result to be different. Why didn’t the fall in home prices in King County start in 2005 as most of the Country did? Not sufficient to say “Seattle is ‘special’ as the cause” or because it is “a lagging market”. I know that there was a large number of people hired by Microsoft, all at once, in 2005. That created a scenario where home prices were pushing up while most of the Country was beginning its decline.
One thing I have always wanted to see is how the number of Microsoft employees changed over the years. Tracking the employment records generally will always include a high % of unemployed who did not own homes. Consequently the growth in unemployed people who were renters vs owners would not impact foreclosures.
Tracking the employment history of the major employers in King County, where incomes were and are in the range that support being able to buy a home, would likely be of more value than general unemployment stats.
Rate this comment:
0 
0
Regarding foreclosures rising before unemployment- (NESeattleseller on #4)
A contributing factor to this situation is that the first foreclosures were due to mortgage re-sets to a higher interest rate. The borrowers were unable to handle the new monthly amount due, and foreclosures started.
Then, demand dropped and fewer houses were being built, and since so many people were employed in the home building industry and associated purchases (new furniture etc) layoffs started, and then those people lost their houses due to being unemployed.
IMO politicians allowed too much outsourcing of American jobs. Since home building was one of the few jobs that could not be outsourced, they started pushing the “American dream” of “home ownership”. Since so many jobs were in this one category of manufacturing, once layoffs started, it quickly started to spiral downward. There were no other manufacturing jobs for these people to apply for. They are all overseas.
That is one of the reasons why foreclosures rose before unemployment in 2007-2009.
Rate this comment:
0 
0
I got here in 1986 and I think unemployment was around 7 or 8 percent…I guess even when times were good my mindset is that the PNW was both a place people wanted to be and yet didn’t produce that many jobs…the PhD at the used bookstore.
However, it now seems like that is the new normal for everywhere. In that sense, “Seattle” the culture… hipsters, slacking, coffee, software … has spread to the whole planet.
Rate this comment:
0 
0