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.

16 responses to “Weekend Open Thread (2013-01-25)”

  1. ChrisM

    Squatting story of the week (as found on ZeroHedge):
    http://www.orlandosentinel.com/fl-boca-squatting-in-style-20130122,0,1530279.story

    “The 23-year-old has moved into an empty $2.5 million mansion in a posh Boca Raton neighborhood, using an obscure Florida real estate law to stake his claim on the foreclosed waterside property.”

    At some point I could envision a populist arson movement…

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  2. Kary L. Krismer

    On the earthquake/tsunami news front, the earth has been very quiet the past 35-40 days. Only two “significant” quakes in that time, and only one in the past 30 days.

    http://earthquake.usgs.gov/earthquakes/map

    (Change data feed to sigificant/30 days–the link to have it set that way automatically is very long).

    Usually that list is at least 7 or 8 significant quakes in thirty days. I don’t remember ever seeing just a single quake.

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  3. Blurtman

    RE: ChrisM @ 1 – Hopefully for this enterprising entrepreneur, the original mortgage has been assigned to multiple MBS, or is in parts unknown, and BofA will continue to drag this out, sheepishly, until Obama changes the laws of finance, for the,…ahem,..”Greater Good.”

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  4. AndySeattle

    Am I just crazy or are all of the recent ‘real estate is improving, the market is rebounding’ articles totally overlooking the low numbers of inventory? Of course there are offer battles, there’s limited inventory. Am I missing something or are we knee-deep in inflated demand due to low supply?

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  5. Kary L. Krismer

    RE: AndySeattle @ 4 – A number of articles have mentioned the low supply.

    I don’t know that it’s inflated demand due to low supply, however. The prices in some markets may be inflated because of that supply, but if anything the low inventory is probably discouraging a good number of buyers, so that would be lowering the demand.

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  6. redmondjp

    RE: AndySeattle @ 4 – Read this, Andy, it may help explain things a bit: http://www.counterpunch.org/2013/01/25/the-all-powerful-fed/

    Plus, we still have a relatively strong job market with many above-median-wage jobs available. They can’t even give houses away in Detroit and Flint, so that darn location (x3) thing really is important . . .

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  7. softwarengineer

    RE: AndySeattle @ 4

    Yes Andy

    Add and the banks do not want to lend right now to the equation and its complete.

    If you were a banker and could sit on safe 1-2% government treasuries, lend the money out later at 6-8% in a normal inventory real estate economy [instead of getting stuck with foreclosures and 3-4% interest that doesn't pay for the default risk, let alone the bank building and your personnel working there]; what would you do?

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  8. softwarengineer

    RE: redmondjp @ 6

    What a Bunch of Hotair….

    The total labor market in Bellevue Seattle Everett is DECLINING, not improving.

    http://data.bls.gov/timeseries/LAUDV53426406?data_tool=XGtable

    I do agree that we haven’t reached Detroit’s depression due to ALMOST TOTALLY outsouring our product development to Asia and Europe….but we’re trying [the 787 was conceived as 90% outsourced]. Ohhhhhh….havent ya read the financials lately? Even king Apple is going down the tech tube too, they’re comparing their current downfall to Microsoft.

    At some point the raw lack of good American engineered jobs socks us all in the stomaches.

    The complete lack of a need for engineers in America when ya don’t make anything makes the engineer a “canary in the coal mine”…when its dead, we all are.

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  9. Eleua

    This is a post that is expanding on the topic I wanted to explore on the mid-Week open thread.

    I spent some time on the phone talking to one of the chairs of the IER and came across some interesting data. This data is not verified nor crosschecked with any of the other chairs at the IER.

    The US Treasury complex has been under pressure and yields are rising across the curve. This drops values, which is a big problem if you are a bank that is stuffed to the gills with treasuries because it puts them underwater on the T-bills they own, and (more importantly) reduces the value they can put on these instruments for collateral for loans they need. If they have to hold them to maturity and they become less collateral-worthy, that is deflationary.

    Japan has announced their version of QE, which we will call Godzilla QE, because if we judge by its scope, it is exactly that – a GODZILLA QE. It doesn’t go into effect until Jan 2014 (that is one year from now). The sharper minds would be asking, “WTF is the BOJ announcing something like this one year out?” The answer is likely that they don’t want to devalue as a direct result, but want the market to anticipate and devalue for them, leaving them one year to figure out how to pull their heads out of their yakuzas. The market is behaving exactly in that way. Japan has exhausted their savings and now stands where we did in 2007, which if you recall, wasn’t a particularly enviable position.

    China and Japan seem not to be buying new US debt at the clip they were, but are simply allowing them to be redeemed. This ‘splains the rising yield (falling price due to lack of demand).

    Germany, Venezuela, Switzerland, and someone else have axed for their gold to be repatriated from places like London, New York, and Paris, but the price of gold hasn’t moved much, which indicates that the holding places were not short the gold and it can be returned.

    question: what is the largest gold depository in the world? (no fair peeking or googling)

    The Yankee Lira has been range bound during all this organized government stimulus, which I take as an indicator thereof. If the Yankee Lira breaks out north (increases in value), you are going to see some fireworks as people short dollars get a Bouncing Betty coming their way. Falling debt prices (higher interest rates) will make that a reality. If this doesn’t come back, and quick, the jig is up. Rising rates will kill off any economic and real estate recovery. Japan devaluing with GODZILLA QE will pressure the US peso higher – that ain’t good for anyone other than Japan trying to sell us stuff, which won’t happen if we are in a deflationary spiral, since the monetary multiplier will be falling. It should go from its current 56ish to the low teens – a 4x drop.

    The US economy has been powered higher on raw government deficit spending, and if the Treasury complex doesn’t heel, that will end pretty fast. Uncle Sugar won’t be able to roll his debt. Picture the world’s largest subprime mortgage and you get the predicament Uncle Sugar will find himself. Deficit spending accounts for the difference between the paltry “growth” we have and a clinically defined depression (-10% GDP).

    Remember, as Meshugy learned in 2008, all bubbles pop and do so at the most inconvenient time. We have been in a VERY LONG bubble in soverign debt, and it may be topping.

    Money may be moving out of treasuries and into the equity markets, which accounts for that rise. Bernanke did buy a bunch of MBS, liquefying that market in the short term (Dear Leader’s reelection).

    So, how does this ‘splain the low volume rise in prices in mid-higher range residential real estate? I have no idea, except that things have changed in the macro picture at the same time they changed in the lending institutions and with the declining inventory of homes in that bracket. There has to be some tie-in, and I am trying to find it. I still need to talk to the Currency Chair of the IER.

    Know this: if the US Treasury market continues to drop, we should see illiquidity in lending, as banks will have fewer things to pass back and forth to one another at full price. That happened in 2007-9 with the MBS market (CDOs and stuff) getting wiped out. Treasury debt won’t do that unless Dear Leader defaults, but it will be a slow and unrelenting burn (kinda like a financial tire fire) in the developing scenario. What could be used as 100c/$ as collateral becomes 92c/$, then 85, 78 and so on… If someone has to sell to raise cash, they will lock in a loss and have to carry it on their books.

    There are lots of moving parts and, as one of my mentors says, “cross currents and conflicting data happen at inflection points.”

    None of what I reported is bullish in the medium to long term for real estate, except for highly desirable Queen Anne and Ballard real estate, since Seattle is special and isn’t constrained by the same financial reality as the rest of the world.

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  10. David Losh

    RE: Eleua @ 9

    We don’t need housing to recover. All the housing market has done is play the same tired recording of 1980s style inflation, higher interest rates, economic growth, and then real value for the family home.

    The Real Estate Industry has created a myth of the housing market driving the economy, like it did after WWII. They have ignored the computer, global trade, currency changes, like the creation of the Euro, the fall of Russia, and now the absolutely over extension of China.

    I think people forget that we have a much larger, and robust economy after the deleveraging that banks have done, by dumping bad loans, and that they have recovered admirably.

    I just don’t see where banks, or any financial group has to play ball with housing. I think buyers of Real Estate are just racking up more debt, that will need to be paid back or defaulted on, but today I don’t see why the economy would care.

    Prices of property will come down, be paid off, or defaulted on. There is nothing economically that shows me why Real Estate prices would rise.

    Real Estate is a bubble, but what’s going to be next?

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  11. One Eyed Man

    RE: Eleua @ 9

    Query: Does Treasury need to keep Fannie and Freddie alive so they can turn TBills into TIPS?

    I don’t know if this works Eleua, but if its necessary in the minds of The Fed and Treasury to avoid another banking crisis, deflation and depression, this is might be a way they can rig the game and reflate the value on debt held by The Fed and its member banks.

    So how do you make a silk purse out of a sow’s ear?

    Answer: You do the original contract with a pig that owns a silk farm and who will agree to substitue silk for sow’s ears on your original contract to take delivery of 3 trillion sow’s ears.

    If you control both sides of the transaction and have the power and authority to do a redemption or direct refi (rather than only the normal auction process for new debt offered by Treasury) you probably have the ability to turn a TBill into a TIP.

    I don’t know if Treasury and The Fed have the power to do a direct refi but that’s where I’d start if I were looking to solve a new lending and capital crisis caused by The Fed and the member banks holding low interest rate debt from The Treasury, Freddie and Fannie.

    Do The Fed and Treasury (or perhaps Freddie and Fannie direcetly?) have the power and authority to do a redemption and refi of the debt instuments held by The Fed and it’s member banks at par in a transaction which is not done thru the usual Treasury debt auction process and doesn’t reflect current market value of the debt? If so, they will probably do it if they feel the banking system, and/or the economy require it to avoid deflation and depression.

    If the Fed and Treasury need to be able to rig the game again (to do an accomodation or bail out) by doing a very unusual “refi” that’s motivated by the creditor (the Fed and its member banks) its likely that they will do it. If interest rates rise too rapidly and the pool of debt held by the Fed and its member banks starts to lose value (a problem for bank capital if it needs to be “marked to market” on the member bank balance sheets or sold in a market value transaction) the answer, if the men behind the curtain have had the foresight to set themselves up with the power to do it, is to negotiate a debt restructuring that supposedly, in the explanation to the public, is necessary for both parties.

    So how do you explain to the public that the Treasury is buying back low market value debt at par? You probably don’t. Its probably beyond the scope of what 90% of voters can deal with so assuming you currently have the power and authority (and don’t need an act of congress) you do it and issue a press release that says:

    The US gov (perhaps thru Freddie and Fannie) wants to continue to borrow more money and sell more debt instuments. The Fed and/or its member banks (buyer of last resort) are holding some low rate long term crap that has a low market value because interest rates are rising. The US gov agrees to redeem (prepay, call, whatever makes the deal sound more palatable) the crap instruments at par in exchange for paper bearing a higher interest rate. The explanation by The Fed and Treasury will further say that Treasury is getting consideration to redeem the low interest rate paper because the Fed is agreeing to extend additional credit and buy more of the new debt instuments that bear a higher interest rate, and nobody else can provide that volume of additional credit.

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  12. whatsmyname

    RE: Eleua @ 9
    Not having access to the Currency Chair of the IER, I turned to the Undersecretary of the Assistant Director at the Airborne Medieval Fortifications unit of the LOL. She told me that she couldn’t make an informed response without a few clarifications. Now I don’t understand all this flim-flammery, but she assured me that you would, so here goes:

    “Since T-bills are short term debt issued at a discount, have you ever seen an instance where a bank was forced to mark them to market?”

    “Since T-bonds are typically laddered by sophisticated investors, (like banks), wouldn’t it require an outstandingly (read “unrealistically”) rapid rate increase to overcome gains from the downward rate trend of the past several years, to bring those portfolio values down to say, 2010 levels?”

    “What loans do the banks currently collateralize with treasuries? How significant to their overall asset base? Go ahead, you pick the bank.”

    And I like this one, ’cause it’s real estate:

    “If you agree that the market was overheated (bubbleicious?) in the 2004-2007 period, and therefore not typical, and you want to ‘splain the low volume rise in prices in mid-higher range residential real estate’, how do you establish that this rise in prices is taking place on low volume?”

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  13. Mike

    The solution to the low inventory problem is on display in Bryant this weekend. Three new listings all under $550 came on this weekend. Each one on for the first time in 40+ years. Yhea, they all need a little “cosmetic update” work and I kid you not one has a 1950’s bomb shelter buried in the back yard, but there were THREE new houses to look at! There is nothing to all this Fed and Treasuries nonsense, inventory levels will be back up and multiple bid silliness will pass as soon as we can get more old people to die.

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  14. Macro Investor

    By Kary L. Krismer @ 5:

    RE: AndySeattle @ 4 – A number of articles have mentioned the low supply.

    I don’t know that it’s inflated demand due to low supply, however. The prices in some markets may be inflated because of that supply, but if anything the low inventory is probably discouraging a good number of buyers, so that would be lowering the demand.

    The earth shaking news is this is one thread where you didn’t post a tsunami of useless comments that ruin the conversation.

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  15. Kary L. Krismer

    RE: Micro Intelligence @ 14 – 10:00 p.m. on a Friday night and a cowardly kitty apparently gets brave with a bit of alcohol. Unfortunately that alcohol makes him forget how little I care about his opinion, or realize that he is one of the top 5 posters of nonsense on this site.

    Useless comments? LOL. Just because you are incapable of understanding what I write, that doesn’t mean my comments are useless. If you want to see a useless comment, read your own post 14 for an example.

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  16. Macro Investor

    RE: Kary L. Krismer @ 15

    And then, moron that you are, you reply — proving that you care deeply about my opinions and they really hurt your fragile little feelings. Awww.

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