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.

22 responses to “Distressed Inventory Shortage to Blame for Listings Drought”

  1. whatsmyname

    I really like this idea, but I am having one problem understanding the data. If we added over 4700 new listings in the first four weeks of the year, but we only had around 1350 sales in January, shouldn’t we have seen a very substantial increase in inventory?

    Thanks

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  2. Erik

    This is a great indicator that we are on our way to recovery.

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  3. whatsmyname

    RE: The Tim @ 2 – That makes sense. It is interesting to me that metro-wide we are currently seeing about 4700 residential units coming into the market and about that many being sold out of the market in the month of January.

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  4. Mike

    A significant # of bubble resales from 2006-2008 are hitting the market this month in north seattle – and they’re not short sales. Too soon to tell if they’re overpriced, but people seem to be trying to sell with a 5-10% loss on purchase price. Perhaps these were people that put 20% down originally and saved up another down payment over the last 5 years.

    I see 3 possibilities – they sell, they de-list, or they re-list as a short sale. My guess is these owners are mostly testing the water and will only move if they get close to asking price. Will buyers be so desperate as to jump on these potentially overpriced listings?

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  5. Howard

    By Mike @ 5:

    A significant # of bubble resales from 2006-2008 are hitting the market this month in north seattle – and they’re not short sales. Too soon to tell if they’re overpriced, but people seem to be trying to sell with a 5-10% loss on purchase price. Perhaps these were people that put 20% down originally and saved up another down payment over the last 5 years.

    I see 3 possibilities – they sell, they de-list, or they re-list as a short sale. My guess is these owners are mostly testing the water and will only move if they get close to asking price. Will buyers be so desperate as to jump on these potentially overpriced listings?

    In Kirkland they are asking more than paid in 2006..

    We went to look at house that was listed at 830am today. At 345 pm the price was raised 20k, by the time we looked at it (515pm) there were 15 agent business cards on the counter. As we were leaving there were 3 agents and their clients standing outside waiting to get in. We won’t be getting involved but they are doing the “will review all offers on 2/25 BS”

    WTH, it wasn’t a typo listing this morning, just a lot of interest in the house. It was priced what it would have been priced at in 2012, 7 weeks into 2013 and it will probably sell for $30-50k over that.

    It is ugly in certain desirable locations.

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  6. Mike

    I’m seeing some over 2006, 2007 and 2008 prices – but there is quite a bit of variability based on the type of house and the price range it sold in back then. It seems like damaged houses on arterials were being sold at the same PPSF as decent houses on a side street.

    So you might see a $600K house from 2007 at $500K, and a $425K house now at $450K.

    Some of this variability is no doubt due to the mix of 100 year old houses vs 50 year old houses.

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  7. David Losh

    RE: Mike @ 5

    I noticed the same thing. It seems prices are at 2006, 2007 levels with some wiggle room.

    The national picture from this morning quoted a 12% increase in prices: “The median price for a home sold in January was $173,600, a 12.3 percent increase from a year ago.” That’s double digit appreciation in housing prices.

    What’s even more interesting to me is that “distressed inventory” would be to blame for the listing shortage: “Analysts say purchases would be higher if more homes were available. The supply of homes for sale dropped to nearly an eight-year low in January.”

    I don’t dispute the premise, but I can’t think of another time in history when banks would have so much control over the inventory.

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  8. No Name Guy

    “…but I can’t think of another time in history when banks would have so much control over the inventory. ”
    Losh at 8.

    Ding, ding, ding! Hit the nail on the head.

    The Tim Said:
    “Non-distressed listings are up 14%, while short sale and bank-owned listings are both down double digits. It would seem that the driving force behind the listing shortage this year is that the market has improved enough to dramatically cut distressed inventory, but not enough to lure in equity sellers.”

    The Tim – I must respectfully disagree. The market hasn’t improved enough to cut bank owned distressed inventory (and to take it one step further, the JOB market is, IMO, a more important driver of if one goes into foreclosure or not) – the inventory, and it’s out there if one merely looks around their own neighborhoods (yes, yes, yes, NOT in Ardell’s territory, nor in Greenlake where a turd filled dump goes for 500k with a bidding war if I recall Ira’s comment, but in the more sanely priced ‘hoods).

    The Banks are holding their inventory OFF MARKET. Your own numbers point right toward that thesis – bank owned listings DOWN 29% YoY.

    Now, I’d certainly agree that the increase in prices result in fewer short sales – that’s a “duh”. Prices go up, some one who was marginally underwater is now about break even and poof….one less “short sale” and one more “non-distressed”. Notice how those two numbers line up pretty well? +14% non distressed and -15% short sale.

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  9. softwarengineer

    RE: Erik @ 3

    Tell That to Our Possible Furloughed Federal Force in Seattle

    And the lower tiered new Boeing engineers [technicals too?] with just an inadequate approx 0% interest bearing matching fund, no pension and Social Insecurity to retire on. Let alone the experienced local area technicals and past retirees [most not in the real estate market BTW, they already bought a home] looking at a shrinking “slower motion Enron like” pension fund to go insolvent in about 8 years.

    The economy is bottoming out, that’s why we have “Greece Type Austerity” measures now to deal with and a concurrent possible federal budget sequestration on Mar 1….

    Put the medical marijuana down and switch to coffee….

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  10. softwarengineer

    RE: David Losh @ 8

    The Banksters Play By a Different Set of Laws and Rules Than We Do Dave

    They are like out two party politicians the foreign/corporate lobbyists/funders pick out for us; immune from the American laws on the books they don’t like.

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  11. Ira Sacharoff

    By softwarengineer @ 11:

    RE: David Losh @ 8

    The Banksters Play By a Different Set of Laws and Rules Than We Do Dave

    They are like out two party politicians the foreign/corporate lobbyists/funders pick out for us; immune from the American laws on the books they don’t like.

    I think the banksters have more in common with those foreign/corporate lobbyists/funders than they do with the politicians. The politicians are doing their bidding too.

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  12. Saulac

    I supprised this came from the Tim: “…the market has improved enough to dramatically cut distressed inventory…” Could have mistaken that it came from one of the “real estate professionals”.

    No Name Guy @ 9 said it very well, banks are controlling the inventory.
    While it may be true that people are less likely to stop paying their mortgates now, I think it is a bit too early to say banks have no more defaults to foreclose. If this is what Tim meant.

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  13. tk

    The property price might be at 2006 ~ 2008 price range, however, the monthly mortgage payments are definitely lower due to the lower interest rates. Personally, I would like to see how the property price behaves when the interest rates go back to the bubble year level.

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  14. billybeer

    Exactly, tk! Buyers are constrained by the affordability of the monthly mortgage costs, not the overall sale price of the house itself. The sale prices we see right now are not an apples-to-apples comparison to where they were in 2006 because interest rates are stupidly (artificially) lower right now.

    For instance: a $320K loan on a $400K sale price ($80K down payment) at 3.8% interest rate yields a monthly payment of roughly $1800/month, including PMI and taxes. Bump that interest rate back up to 4.8% (still pretty low in historical terms!) and that same loan now costs $2100/month. To get it back down to $1800/month with the same down payment of $80K, the sale price would need to be $350k. It’s now 12.5% lower in price to have the same monthly payment just due to a mere 1% increase in interest rates!

    If you ask me, housing prices will tank the second interest rates start going back up to historical norms. But who knows when the Fed will be forced to take their foot off the gas pedal….

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  15. Mike

    By billybeer @ 15:

    Exactly, tk! Buyers are constrained by the affordability of the monthly mortgage costs, not the overall sale price of the house itself. The sale prices we see right now are not an apples-to-apples comparison to where they were in 2006 because interest rates are stupidly (artificially) lower right now.

    The % of earned income people were spending in 2006 may have been lower even though interest rates were higher. The average homeowner was cashing out equity somewhere on the order of 10% of their earned income. (Some were much higher than that, and a scant few were actually paying down their mortgage!) Combine that with all of the loan options that were available that didn’t require principal or interest payments and I think it’s difficult to conclude that today’s fully amortized payments at 3.5% are significantly less than the IO/Option/Cash Out/HELOC fortified payments during the bubble.

    I knew many people that were cashing out more than a years worth of fully amortized payments – repeatedly.

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  16. Lo Ball Jones

    Strange, it’s like all the laws of market economics are violated.

    If inventory shrinks does that mean a lot of people are buying it up?

    Hence the pool of buyers shrinks and there’s less demand and lower prices?

    Or wait, maybe an infinite number of people want to buy homes, maybe two, three…or six homes!

    But that would mean the prices should be doubling…tripling.

    That must be happening then!

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  17. corndogs

    you should rename this thread “The TIM to blame for Seattle bubble posting drought”

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  18. whatsmyname

    By Lo Ball Jones @ 17:

    Strange, it’s like all the laws of market economics are violated.

    If inventory shrinks does that mean a lot of people are selling it up?

    Hence the pool of sellers shrinks and there’s less supply and higher prices?

    Or wait, maybe an infinite number of people want to sell homes, maybe two, three…or six homes!

    But that would mean the prices should be halving…going to 1/3rd.

    That must be happening then!

    Look. I held your post up to the mirror.

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  19. Ryan

    This is somewhat speculative, but I think the decrease in bank owned properties being listed may have to do with the change in ratio between judicial and non-judicial foreclosures. Washington is a non-judicial foreclosure state, but the recent decision by the state Supreme Court regarding MERS has made several of the lenders/servicers blink and take their foreclosures to judicial foreclosure.

    Judicial foreclosure has a process called “redemption” built in, whereby the borrower and other lienholders have some time after the sale to payoff the loan and take the property back. The title insurers won’t insure any loan on the property for a new buyer until after the redemption period is over. Thus, the properties sit.

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  20. Drone

    RE: billybeer @ 15 – Probably won’t happen quite like that, as the seemingly obviously link between increasing rates and decreasing prices has not held up historically. I think that in an increasing rate environment you’re likely to see transactions grind to a halt as inventory COMPLETELY implodes. Those that own won’t move (they can’t afford to), but will stay put. Anyone that tries to sell will find that financing makes their property unaffordable for buyers at a price that covers the existing loan balance. Most renters will be squeezed with ever-higher rent, unavailable financing, and no inventory. I’m in that happy category too, for what it’s worth.

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  21. billybeer

    Can’t say I disagree with that logic, Drone. What a tangled web we have weaved.

    I also ignored the fact that if interest rates were to return to the land of the normal, our government financing would instantly implode. But who cares!? That’s at least another few years away….

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