More Homes Sold In Cheaper South King Neighborhoods

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It’s been quite a while since we took a look at the in-county breakdown data from the NWMLS to see how the sales mix shifted around the county.

In order to explore this concept, we break King County down into three regions, based on the NWMLS-defined “areas”:

  • low end: South County (areas 100-130 & 300-360)
  • mid range: Seattle / North County (areas 140, 380-390, & 700-800)
  • high end: Eastside (areas 500-600)

Here’s where each region’s median prices came in as of January data:

  • low end: $310,000-$429,500
  • mid range: $469,250-$800,000
  • high end: $649,995-$1,508,750

First up, let’s have a look at each region’s (approximate) median price (actually the median of the medians for each area within the region).

Median Price of Single Family Homes Sold

Only the low tier saw a month-over-month gain in its respective median-median price, while the middle and high tiers both fell slightly. All three tiers are currently at a level lower than their respective all-time highs. Month-over-month, the median price in the low tier rose 0.3 percent, the middle tier decreased 3.3 percent, and the high tier lost 1.2 percent.

Twenty-five of the twenty-nine NWMLS regions in King County with single-family home sales in January had a higher median price than a year ago, while Fifteen had a month-over-month increase in the median price.

Here’s how the median prices changed year-over-year. Low tier: up 19.2 percent, middle tier: up less than 0.1 percent, high tier: up 13.8 percent.

Next up, the percentage of each month’s closed sales that took place in each of the three regions.

% of Total King Co. SFH Sales by NWMLS Area

Sales in all three tiers fell between December and January, with the middle and high tiers seeing the biggest dips. Month-over-month sales were down 21.8 percent in the low tier, down 30.1 percent in the middle tier, and down 29.0 percent in the high tier.

Meanwhile, year-over-year sales were up considerably in all three tiers. Compared to a year ago, sales increased 25.1 percent in the low tier, rose 25.8 percent in the middle tier, and gained 8.7 percent in the high tier.

The interesting thing is the strong shift in the sales mix in recent mix away from the high tier and into the low tier.

As of January 2017, 41.3 percent of sales were in the low end regions (up from 39.7 percent a year ago), 31.8 percent in the mid range (up from 30.4 percent a year ago), and 26.9 percent in the high end (down from 29.8 percent a year ago).

Here’s that information in a visual format:

Bank-Owned: Share of Total Sales - King County Single-Family

Finally, here’s an updated look at the percentage of sales data all the way back through 2000:

% of Total King Co. SFH Sales by NWMLS Area since 2000

With sales shifting strongly into the lower-priced regions, it’s no surprise that the county-wide median price fell slightly. The last time this large a share of sales were in the low-tier parts of the county was in November 2007, just a few months after home prices peaked.


About 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.

96 comments:

  1. 1
    uwp says:

    South King and Eastside seem to diverge every January. I wonder why.

    The Tim points to late 2007, but also check out Jan 2004 as a possible parallel.

  2. 2
    Brian says:

    On the last chart, it’s interesting that the divergence between the three tiers looks similar now as it did in 2007.

  3. 3
    Deerhawke says:

    This is the kind of pattern you expect late in an expansion. Core neighborhoods are fully priced given certain levels of incomes so people move out toward the periphery where there not only are lower prices but more inventory.

    So do these trend lines mean that we are at 2007 again?

    It is a question worth asking, but I would want to see some other indicators that were similar. Starting in 2005, inventory stopped dropping and rose pretty quickly along with sales. Nobody paid much attention because sales were so robust. In 2006 and the first quarter of 2007, sales and inventory were both rising rapidly. It was a heck of a party until the music stopped.

    Right now, with a much greater population, we are at a level of inventory that is less than half of the 2005 level. If I start seeing it rise rapidly like in 2005, that will really get my attention.

    In the meantime, I am convinced that if we have a recession in this real estate market, it will be caused by the end of the business cycle (soft landing) or political incompetence at a national level (hard landing). Either way we will see that played out in the equities markets first.

  4. 4
    Sid says:

    By Deerhawke @ 3:

    ……..
    So do these trend lines mean that we are at 2007 again?
    ……

    We will not be at “2007” kind of conditions for another few decades. 2007/8 crash was once in a generation event. Anyone expecting another crash will be very disappointed.

  5. 5

    RE: Sid @ 4 – 18 year cycles, once in a generation, etc., reminds me of picking stocks by chart patterns. The past only tells you what happened, it does not tell you what will happen.

  6. 6
    N says:

    That may be. But one could also say the 75% increase in the last 5 years is also a once a generation event.

    By Sid @ 4:

    By Deerhawke @ 3:

    ……..
    So do these trend lines mean that we are at 2007 again?
    ……

    We will not be at “2007” kind of conditions for another few decades. 2007/8 crash was once in a generation event. Anyone expecting another crash will be very disappointed.

  7. 7
    Panda says:

    RE: Kary L. Krismer @ 5

    Yes, economics and climate science are flawed because they use models with assumptions based on the past and it is always the assumptions which make the predictions of the future flawed.

  8. 8

    By N @ 6:

    That may be. But one could also say the 75% increase in the last 5 years is also a once a generation event. .

    Well you could say that, but since it hasn’t happened it might be called a not in a generation event.

    Yes you can find REOs and short sales that went for incredible prices in the not so distant past, but that just means they were relative bargains.

  9. 9

    By Panda @ 7:

    RE: Kary L. Krismer @ 5

    Yes, economics and climate science are flawed because they use models with assumptions based on the past and it is always the assumptions which make the predictions of the future flawed.

    I would say it’s simply not being able to account for all the possible variables, rather than assumptions (unless you maybe assume all the other variables will be the same).

  10. 10
    Deerhawke says:

    I am always fascinated by people who predict the end of the world. Somehow the date and time has been revealed to the elect and they announce it to the rest of us so we can repent.

    And then that date and time comes, the sun comes up, the birds start singing and everybody just goes off to school or work. The prophet gets a big eraser and goes back to his calculations to find out why his revelation’s timing was off target. Believe it or not, a guy by the name of Harold Camping did this a couple of times. He got people to believe him so he must have been a heck of a salesman.

    I am similarly skeptical of 18 year cycles and other cyclical theories about real estate or the stock market.

    The people who will call the next big downturn are likely not to be people who see repeating multi-year cycles, but repeating patterns of human folly.

    If you haven’t read them, pick up these two books.

    Manias, Panics, and Crashes: A History of Financial Crises, Seventh Edition Oct 13, 2015
    by Charles P. Kindleberger et al.

    Irrational Exuberance 3rd edition Revised and Expanded Third Edition
    by Robert J. Shiller

  11. 11
    Panda says:

    Is that what a computer model does? Assumes all variables will be the same except the ones you determine to be an active part of the algorithm of your model. So the assumptions are equally those which you do and don’t account for in the future of your model?

  12. 12
    N says:

    Interesting, the 75% number has been widely reported and looking at latest charts from Tim it looks like we were around $300k 5 years ago which would put today’s medium price in the range of 75%+ higher. By hand picking select properties you find things more in the range of 100% but the medium home price is a better measure.

    By Kary L. Krismer @ 8:

    By N @ 6:

    That may be. But one could also say the 75% increase in the last 5 years is also a once a generation event. .

    Well you could say that, but since it hasn’t happened it might be called a not in a generation event.

    Yes you can find REOs and short sales that went for incredible prices in the not so distant past, but that just means they were relative bargains.

  13. 13
    Deerhawke says:

    RE: N @ 12

    N, the 75% figure you are quoting for the past five years may or may not be entirely accurate, but to anyone who has been dealing with real estate in Seattle, it might seem rather arbitrary.

    If you choose the bottom of the recession until the present, that choice seems artificial and contrived to show the maximum percentage gain. This is the kind of thing that our city council people do for political effect. (“This is a crisis of affordability. Something must be done to address this crisis!”)

    Why not choose a longer time horizon? Why not choose 2004? Or 2000? Perhaps you would come to see that the once in a lifetime event was actually the tremendous loss of equity between late 2007 and late 2011 rather than the tremendous gains in the period since 2012.

    Just for reference, my family and I arrived in Seattle in late 1990. Everyone told us that we had missed the opportunity to buy a really nice home in Seattle since everything had doubled (doubled!!) during the 80’s. I am not sure if it is actually true, but it was the received wisdom of the time. That doubling of prices, they said, was a once in a lifetime event.

  14. 14

    By N @ 12:

    Interesting, the 75% number has been widely reported and looking at latest charts from Tim it looks like we were around $300k 5 years ago which would put today’s medium price in the range of 75%+ higher. By hand picking select properties you find things more in the range of 100% but the medium home price is a better measure.

    I’m not sure where you get the $300,000 figure, but looking at Tim’s charts the last time that occurred was sometime before 2006. It did dip briefly to $308,000 in February 2012, but was back up to $360,000 two months later and $380,000 two months after that because of the next topic.

    The issue with the median (as well as Case-Shiller) is it is affected by the short sales and REOs, just as Tim points out that the current median is affected by more sales occurring in the south end. The median for non-distressed sales was hanging out between $380,000 and $420,000 for a long time. But in February 2012 the volume was relatively low, while short sales and REO sales plugged along at a fairly steady level, thus dragging the median down. The sales four months later were about 900 more units, thus being largely responsible for the $72,000 gain. If you just look at non-distressed sales the King County median in February 2012 was $382,000 and the non-distressed median in June 2012 was $430,000.

    Some numbers sort of though NWMLS sources directly or indirectly, but not guaranteed by the NWMLS.

  15. 15

    RE: Kary L. Krismer @ 14 – Just to carry those numbers forward a bit, the non-distressed median in December 2016 was $565,000, so just barely above the total median, but in January 2017 is was $542,000, which was a bit more above the total median. So the because the distressed sales are making up a smaller portion of the market they are having less of an affect today, but they still have more of a seasonal effect.

    Same disclaimer as in prior post.

  16. 16
    Erik says:

    RE: Deerhawke @ 10
    Thanks for the references. I read irrational exuberance, but it got a little boring for me towards the end because I don’t understand stocks and all of that. I just like the real estate. I’ll try Mr. Kindleberger’s book and let you know what I think.

    We can tell what part of the cycle that we are in, right? Housing prices can’t be going down when we are in the expansion phase, right?

    https://www.extension.harvard.edu/inside-extension/how-use-real-estate-trends-predict-next-housing-bubble

  17. 17
    Deerhawke says:

    Erik, I read the article you referenced. It is interesting, but I would forget about the 18-year cycles.

    Anyone who was around for the 1973-74 downturn would have thought that they were good until 1991. But they would have been wiped out by the 1979-81 downturn.

    In point of fact, in Seattle we have had a lot more than the number of downturns predicted by this model. There was a double-downturn in ’69-70 caused by the Boeing bust followed rapidly by a 73-74 downturn caused by the first oil shock. There was the 80-81 real estate meltdown caused by the second oil shock. In 1991 there was a downturn caused by (your theory here) but triggered by the Gulf War/Desert Storm. We often forget the 2001 mini-downturn caused by the tech meltdown– it mainly only really affected the East Side. And then there was the big one in 2008 that still has us scratching our heads.

    Just so you know, for a very long time people in Seattle real estate talked about the 9-10 year cycle. This is not just because they were cutting your longer cycle in half. In fact, Seattle real estate was heavily dependent on Boeing and the aircraft industry did have a 9-10 year cycle expansion/contraction cycle.

    Anyway instead of focusing on the years predicted by the cycle (which I think is bogus) I would focus on the 4 phases noted in the article, which fit into the economic literature– recovery, expansion, hypersupply and recession.

    This is all easy in theory, but even taking recent events into account, how do you chart it?

    From Q3 2007 we were clearly in a real-estate recession, since a lot of major lenders (Countrywide, etc) had stopped making loans. Then 2008 through 2010 were just a nightmare. I think you could make the argument that 2011 marked the beginning of recovery although it wasn’t that apparent to market participants until late Q4. People actually started to talk about a recovery in 2012 and really felt like they could be sure it was taking hold in 2013. By 2014, home prices and land values started shooting up so it felt like we were out of recovery and full-on into the expansion stage. Vacancy rates were dropping. There were construction cranes all over the place. Everywhere you looked, you saw notices of impending land use all over the city.

    So… by 2016 the talk about whether we are in a bubble was pretty common. It sure felt like a bubble. Multiple offer situations were the rule rather than the exception. And all of that apartment inventory was starting to come on line.

    So the real question here in the first quarter of 2017 is– where do we stand? Continued Expansion or HyperSupply? Are we still growing stably? Or are we overstepping common sense and getting ready for the next downturn?

    Economists and historians have the advantage of hindsight. Recessions do not even get declared until they are mostly or fully over. I am a spec builder so these are real questions for me and I have to take a stand in real time in advance.

    For me, there is no clear answer to the question. If you look at the rental market, it seems we have some real elements of hypersupply. I think rental rates will drop a bit or at least stop rising. Most of the people I know in that world feel confident that they can get rented up if they give away some freebies like parking or a free month of rent. Most do not feel it is a good time to be building now.

    On the other hand, the for-sale market (which this website focuses on) still shows a pretty vibrant expansion. There is a truly weird lack of inventory that throws off all calculations. There is not a lot of vacancy and new construction is barely keeping up. Perhaps this lack of inventory is what will keep us in a stable expansion mode and help us avoid the kind of hypersupply that is always the prelude to a correction.

    For 2017, I have decided that we are still in an expansion and that we will see strong demand meeting limited supply. I believe prices will go up by around 8 percent, but that is 8 percent on top of a pretty substantial base.

    As I have said, I am going to be keeping a close eye on inventory levels. If I see a sudden change, I will be looking for an exit.

  18. 18

    Both Samamish and SE King County Have Something Seattle and Bellevue Lacks

    A much newer infrastructure of roads and water lines….while both Seattle and Bellevue both need to be tore apart and rebuilt due to aging corrosion.

    Why do you think I moved from Bellevue to Kent?

  19. 19
    Blurtman says:

    First, the sportsmen came to Sammamish, and then the settlers came. Folks who were self sufficient, or able to be employed by local industries. Then came gentrification and loss of trees and open space. Then came the immigrant workers.

  20. 20

    On the Zillow front, they’re apparently going to stop individual agents from posting listings, only accepting listings from an MLS or firms. That will reduce the number of listings they have, but it should probably really help with their stale listing problem. Sorry I don’t have a link to the complete article.

    https://www.inman.com/2017/02/15/zillow-group-nixes-manual-listing-entry-real-estate-agents-doubles-direct-listing-feeds/?utm_campaign=AddThis&utm_source=facebook&utm_medium=social#.WKSPRX6u_qE.facebook

  21. 21

    RE: Deerhawke @ 17 – I would add not all areas follow the same schedule, even if you accept that their is a schedule. I don’t have something to pin down any of this timewise, but back when I was practicing bankruptcy law I did have some clients who came from other parts of the country where their real estate markets had collapsed while ours was chugging along without a concern. I remember one client who had several rental houses he bought while things there were going well, and by the time he came here it was difficult to even rent them.

  22. 22
    Deerhawke says:

    Erik there is a good list of US recessions (and explanations) at
    https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States.

    Again, if you ask someone in real estate in Seattle when the recessions started and stopped, they might remember quite accurately but their perception of when the recession occurred is different from what NBER says. The main reason is that there is a lag. Here in Seattle, we are behind the rest of the country going into a recession and late coming out as well.

  23. 23
    Deerhawke says:

    RE: Kary L. Krismer @ 21

    I referenced this in my previous post. I agree there is a differential effect by region. We always seem to experience a lag. I am sure that different parts of the country experience a recession more strongly while other parts hardly experience it at all.

    What I can say for sure is that when the recession starts to effect the rest of the country, people quoted in the Seattle Times will say that this time is different and it will have little if any effect on Seattle at all. This always happens and it is always a delusion.

    Wow. Bankruptcy law to real estate agency. What a segue!

  24. 24
    Scotsman says:

    Cycles, charts, crystal balls and dark magic! Forget all of it. What matters is demand- and the quality of that demand: Can buyers actually afford what they buy with traditional terms, ratios, etc. Is the employment base financially solid, diverse, and expected to grow or at least maintain? Is the effective supply likely to change for any reason- geographical expansion thanks to changes in transportation choices, zoning changes, government incentives/disincentives, etc? At this point people can afford the homes they buy without having to resort to tricky financing gimmicks, supply remains constrained, the economy continues to grow. Seattle looks good for the coming years.

  25. 25

    By Deerhawke @ 23:

    Wow. Bankruptcy law to real estate agency. What a segue!

    In most personal Chapter 7 bankruptcies the only asset worth selling is the personal residence, at least in Washington state, so a lot was very familiar. And in other bankruptcies liquidating real property was also important, and a not insignificant part of the practice involved verifying that deeds of trust were proper. If not the bankruptcy trustee could sell the property. Finally, some Chapter 13s were done just to allow additional time to sell, or otherwise save the house from foreclosure.

    I do wish though that I had some of the tools then that I have now as a real estate agent. They would have made it much easier to deal with clients and check out what they were telling me.

  26. 26
    Brian says:

    RE: Kary L. Krismer @ 20

    That would definitely help them. If they could get rid of or filter the auction.com listings that would benefit them as well. As a person looking for homes, I hate using Zillow because of all their useless listings and inability to filter them.

  27. 27
    Deerhawke says:

    RE: Scotsman @ 24

    “What matters is demand- and the quality of that demand.”

    Well demand does matter, but of course it is only part of the equation. Others might say… What matters is supply- and the quality of that supply.

    Really it is demand relative to supply and supply relative to demand.

    My way of tracking this is to look at the monthly numbers of active listings, solds and pendings.

    When I see a pattern where there are more pendings than solds and more solds than actives, this is a classic indicator– the market is heading up and prices will rise.

    When I see a pattern where there are more actives than solds and more solds than pendings, that is also a classic indicator– the market is heading down and prices are going to drop.

    Track it for a while. This gives a pretty balanced perspective on demand (and future demand) relative to supply.

  28. 28
    jon says:

    This article breaks down the salary increases since 10 years age by different areas in Seattle. The fact house prices are slightly more than they were at the previous peak seems much less significant when compared to the increased average income that has resulted from the influx of tech jobs.

    http://www.seattletimes.com/seattle-news/data/seattle-neighborhoods-wage-growth-hot-spots-getting-richer/

  29. 29
    Andrew says:

    RE: Erik @ 16 – Thanks for sharing the link. I often hear about that cycle and you seem to have deeper understanding in the cycle.
    To me personally, though it’s clear that there have been ups and downs (most likely there will always be), I’m having difficulties determining actual interval (i.e. how many years) until the next phase comes when we’re not at a turning point, and what is the magnitude of the upcoming phase.
    With my limited knowledge of future projections for all contributing factors to the cycle, looking at historical data alone I’d feel like using roulette winning numbers board to decide what my next bet should be.
    How did you calculate those figures? Your input would be greatly appreciated.

  30. 30
    Erik says:

    RE: Andrew @ 29
    I’d love to take credit for having a deep understanding, but that is not the case. I just read on this site that the number of houses for sale is super low, which represents supply. I then read the number of houses sold per month and I can see it is slightly above average, which represents demand. I’m sure it is much more complicated than that, but it’s good enough for me. If supply is low and demand is high, prices will likely go up. If you want to reference the 18-year cycle, you could say we are somewhere in the expansion phase. I read somewhere that the expansion phase is usually the longest of the phases. As long as we are expanding, prices of houses should be going up.

    When supply goes up and demand goes down, we are heading toward Hypersupply. You want to be very scared in Hypersupply, because the bubble could pop as any moment. Therefore, you can deduct that when supply is low and demand is high, we are in the recovery phase or the expansion phase. Right now it’s time to party because we are likely in the expansion phase. It would have been nice to buy in previous years, but it’s still going up and could keep going a while.

    Average inventory for SFR for king county is about 7500. We are somewhere around 1380 last time I looked which is way below the Hypersupply phase. I would say keep partying until we get to atleast 5000 SFR for sale in king county. At that point, you may want to think about selling something. When credit loosens and supply is up, you know this thing is gonna blow at some point. It’s a game of chicken because bubbles accelerate at the end when the mania really sets in. You may just want to take your profits and run at this point. I’d sell a couple houses and keep pushing to the top of the market.

  31. 31
    justme says:

    >>I just read on this site that the number of houses for sale is super low, which represents supply. I then read the number of houses sold per month and I can see it is slightly above average, which represents demand.

    That can only mean that more houses sold than there were houses for sale?? That’s quite a feat, even for attempted reformed bad-boy Erik!

  32. 32
    Erik says:

    RE: justme @ 31
    ……………………

  33. 33
    Brian says:

    RE: Erik @ 30

    Inventory can go up very quickly, as 2007 pointed out. 5000 could be achieved in a few months if enough people suddenly have reason to sell.

  34. 34
    Erik says:

    RE: Brian @ 33
    Yeah, that’s the scary part. It’s certainly not a full proof plan. If everyone suddenly had a reason to leave, you wouldn’t have a chance to sell. Low inventory makes me feel safer though.

  35. 35
    Sid says:

    Looking at AMZN & MSFT stock, foreign investment interest and good outlook for local tech jobs, another 10+% year for Seattle real estate is very likely.

  36. 36
    Blurtman says:

    And don’t forget legal weed. Why, you’d have to be high to buy at that price. Tee hee.

  37. 37

    RE: Erik @ 16
    Read This Book Today

    Its available used and shipped [hard bound copy] to your home for about $4 from Amazon:

    Dark Rivers of the Heart by Dean Koontz [1997]

    It totally explains much of today’s NWO by a world renown Fiction Writer with references to REAL SURVEILLANCE the NWO is using against citizens….his Odd Thomas series is good too, emphasizing California’s Milenial economy: youth sponging off Baby Boomers with incomes collapsing. A refreshing best seller author and a good read too!!!

    Real answers for flipping planning and future real estate investment strategies in 2017!

  38. 38

    RE: Blurtman @ 19
    Yes Blurtman

    Cheap foreign replacement labor is nothing but “federal tax evasion” by Sanctuary Cities protected by the Fake News cloak of real democracy? LOL….try another description, Sanctuary Cities are selfish greedy tax evaders, its that simple…

    God forbid we prosecute the massive FELONY identity theft [duplicate use of your Social Security Numbers] abuse of legal citizens opposed by the Chamber of Commerce, ACLU, establishment Rinos/Progressives, Mexican Drug Cartels, SSA, our 3 Credit Bureaus and the banks….get Life Lock and more xray radiation surveillance at airports???

    Lock ’em all up???? LOL, or are they too big to fall???

  39. 39
    ess says:

    By Sid @ 35:

    Looking at AMZN & MSFT stock, foreign investment interest and good outlook for local tech jobs, another 10+% year for Seattle real estate is very likely.

    From your writing to my retirement plans.

    Will there be an eventual reduction of housing prices in Puget Sound in the future? Probably. The history of housing prices in most areas is that of two steps higher, one step back. But what is of interest to me will be the scope of any future decrease in prices. Will it be another 2007-2011 where many homeowners walked away from housing where they had little or equity? Or will the next turndown be less severe because more home purchases were for full price or a significant down payment? I guess we will see. But hopefully it won’t be for a number of years.

  40. 40
    justme says:

    RE: Sid @ 35

    >>Looking at AMZN & MSFT stock, foreign investment interest and good outlook for local tech jobs,

    Amazon had a terrible Q4 in 2016, with a massive increase in general and administrative (G&A) costs
    There’s growing suspicion that AMZN is increasingly hiding their capital/depreciation expenditures in their G&A costs, in order to make AWS look good and perhaps present seemingly good numbers for Free Cash Flow in the AWS segment, which traditionally is the metric that AMZN chooses to brag about.

    Cloud computing is becoming a commodity, and indeed AMZN and MSFT are locking horns over the cloud market, along with Google and a slew of smaller vendors, like Digital Ocean.

    http://seekingalpha.com/article/4042924-amazons-margin-situation-5-charts

    QUOTE from 2016 10-K annual report:

    General and administrative expenses primarily consist of payroll and related expenses; FACILITIES AND EQUIPMENT, SUCH AS DEPRECIATION EXPENSE AND RENT; professional fees and litigation costs; and other general corporate costs for corporate functions, including accounting, finance, tax, legal, and human resources, among others.

    Summary: I don’t think the above bodes well either for stock gains or tech employment in the Seattle area.

  41. 41

    RE: ess @ 39 – A couple of points.

    Prior to 2007 the Seattle area went something like 20 years without a YOY decline (based on Jan 1 numbers, I believe). So you can have extended periods one direction.

    Beyond just the market level, I don’t think you can overlook those buying houses today at well over market prices. It’s a very small part of the market, but the combination of bidding wars and desperate buyers can create some situations where houses go for some pretty crazy prices. I should start checking to see how many of those are cash buyers–the one I checked most recently was, but I don’t check that with any regularity. Hopefully if they ever do take out a loan the appraiser will realize that what they paid in cash wasn’t representative of what could necessarily be expected.

  42. 42
    justme says:

    FedEx is getting into the fulfillment business, as a direct competitor to Amazon. And Amazon has been getting into the package delivery business. Amazon is desperately expanding into unprofitable businesses just to increase revenues, making steps such as entering into a 50-year lease on an airports in Kentucky.

    Does that sound like a recipe for big Amazon (or FedEx) profits? I very much doubt it will be.

    http://seekingalpha.com/article/4044962-amazon-finally-getting-competition

  43. 43

    I actually wish Amazon would let you select which carriers your stuff would be delivered by. I’d deselect FedEx and OnTrac. They make the USPS look good!

  44. 44
    jon says:

    Amazon will start making money when they replace their 100,000s of warehouse workers with robots. I see they are growing a robotics group in their Boston office.

    The drones are already a start, by going after the delivery people. Drones seem pretty limited now, but when you couple them with self-driving trucks that serve as a base for the drones, that will help with the range problem.

    They are going after market share now to keep the competition out.

  45. 45

    RE: jon @ 44 – I have a hard time seeing how drones will be a significant portion of their delivery business. Including the obvious inventory issues (not everything sent to me is sent from their Kent Fulfillment Center), I’d question the energy use. Not only do you need to maintain the object in the air, but the entire route and back presumably just serves one customer. That might compare well to the situations where they have a driver in a private beat up car deliver your package, but I don’t think it would compare well to UPS, etc.

    Warehouse automation though . . ..

  46. 46
    justme says:

    RE: Kary L. Krismer @ 45

    >>I’d question the energy use. (of drones)

    That is spot on. Drones are helicopters, and helicopters are massively ineffective flying machines. Google “helicopter MPG” and be prepared for a shock. And no, being electric does not help much. A hybrid UPS truck will do much better than a swarm of drone helicopters with the same delivery capacity and throughput.

  47. 47
    ess says:

    By Kary L. Krismer @ 41:

    RE: ess @ 39 – A couple of points.

    Prior to 2007 the Seattle area went something like 20 years without a YOY decline (based on Jan 1 numbers, I believe). So you can have extended periods one direction.

    Beyond just the market level, I don’t think you can overlook those buying houses today at well over market prices. It’s a very small part of the market, but the combination of bidding wars and desperate buyers can create some situations where houses go for some pretty crazy prices. I should start checking to see how many of those are cash buyers–the one I checked most recently was, but I don’t check that with any regularity. Hopefully if they ever do take out a loan the appraiser will realize that what they paid in cash wasn’t representative of what could necessarily be expected.

    If we can have a 20 year period of real estate price increases – that would be wonderful for a majority of homeowners , not to mention my retirement plans!

    Perhaps the prices that some of these buyers paid were not over market prices -but as a result of changing market conditions. Too many buyers chasing too few houses will necessarily fuel bidding wars. But if the market does fall – an all cash buyer is not going to walk away from his or her investment unlike a buyer who has purchased with nothing down and is facing a life altering situation preventing the ability to make the monthly payment.

    And time heals overpriced purchases. There was one house sold in my neighborhood a few years ago at a price that I thought was overpriced. These days – not only has the market caught up with that purchase, but it is starting to look like a pretty good deal compared to similar properties in the area.

    And if one wishes to view properties that really appear to overpriced, view some of the housing for sale in the SF area or back east. Those lofty prices make this area appear reasonable.

  48. 48
    Brian says:

    RE: justme @ 46

    If you couple a drone with a self-driving delivery truck, using the drone to take the package from the truck to the delivery spot, then we’re talking profit. But we’re also talking no time soon.

  49. 49

    By ess @ 47:

    Perhaps the prices that some of these buyers paid were not over market prices -but as a result of changing market conditions. Too many buyers chasing too few houses will necessarily fuel bidding wars.

    Those are the conditions that set up what I’m talking about, but I’m focusing on a very small part of the market–one where the sales price is not in line with the rest of the market.

    Sometimes that occurs because the location or the house is relatively unique–I’m not addressing that. Unfortunately I don’t think it would be proper for me to give specific examples of what I’m thinking of.

  50. 50

    By Brian @ 48:

    RE: justme @ 46

    If you couple a drone with a self-driving delivery truck, using the drone to take the package from the truck to the delivery spot, then we’re talking profit. But we’re also talking no time soon.

    I could see that. It wouldn’t even need to be a self-driving truck. You could have the drone as a helper for the driver, sort of like what happens during the holiday season.

  51. 51
    Blurtman says:

    RE: softwarengineer @ 38 – I know illegals need a SS # to work. But can they also take out a loan using that number? That can really screw up the real holder’s credit rating. ID theft is a felony, isn’t it?

  52. 52
    Brendan says:

    Another way to look at the likelihood of price increases is as a matter of policy.

    Baby boomers have their retirements locked up in housing, so they want to protect that investment. Millenials own real estate at much lower rates, so they have no incentive to pump up housing prices.

    I’d like to buy property to be insulated from changes in the market and have predictable monthly payments, but I don’t view owning a home as an investment. I view it as an expense.

    Clearly mutual funds are a superior investment. They provide a better rate of return when you consider the cost of maintenance on a house, and they offer liquidity.

    From my position, policies that increase housing production, increase property tax, and lower housing prices are good for my bottom line. Even if I purchase a home, I’d like it to be as small a fraction of my asset mix as possible.

    Since millenials are the majority in Seattle, and their numbers are skyrocketting nationally, I’d say those policies will start to win over time. So I would expect the rate of return on SFH ownership to go down.

  53. 53
    Ione says:

    I enjoy reading your articles being that they are mostly on the positive side of real estate; but what about the massive amount of shadow inventory that the banks and real state company’s keep off the books. When will that market bear it’s ugly head and totally collapse the US housing market. There are plenty of empty condos and condo tower and empty homes that are not on anybody’s real estate list.

    Thoughts

  54. 54
    Deerhawke says:

    By Ione @ 53:

    But what about the massive amount of shadow inventory that the banks and real state company’s keep off the books?

    You must have been reading really really old Seattle Bubble posts (or going through stacks of old magazines and newspapers).

    Wow, talk about a zombie theory rising up from the grave!

  55. 55
    StupidLifeDecisions says:

    By justme @ 42:

    FedEx is getting into the fulfillment business, as a direct competitor to Amazon. And Amazon has been getting into the package delivery business. Amazon is desperately expanding into unprofitable businesses just to increase revenues, making steps such as entering into a 50-year lease on an airports in Kentucky.

    Does that sound like a recipe for big Amazon (or FedEx) profits? I very much doubt it will be.

    http://seekingalpha.com/article/4044962-amazon-finally-getting-competition

    Amazon is the most disgusting company around right now. People should really open there eyes to how dangerous a company like this is if it’s not brought down many notches. Facebook and Google are very close seconds and thirds.

  56. 56
    sfrz says:

    RE: Deerhawke @ 54 – Just a couple of hours South:

    I don’t think they would want us to flood the market again with less desirable homes at cheaper prices, which then turn around and make other homes worth less,’ she said.
    http://www.nrtoday.com/news/local/homelessness/zombie-homes-drag-down-values-increase-crime-in-roseburg-district/article_06f55a3a-9fb2-5548-bd44-55e215e2e871.html

  57. 57
    GoHawks says:

    RE: Ione @ 53 – If the banks had extra inventory to part with, they would be selling them now. The mythical second wave of foreclosures never washed ashore.

  58. 58

    By Ione @ 53:

    I enjoy reading your articles being that they are mostly on the positive side of real estate; but what about the massive amount of shadow inventory that the banks and real state company’s keep off the books. When will that market bear it’s ugly head and totally collapse the US housing market. There are plenty of empty condos and condo tower and empty homes that are not on anybody’s real estate list.

    Out of curiosity, what do you think they’re waiting for?

  59. 59
    Deerhawke says:

    If banks have any shadow inventory, it is bound to be in places like Douglas County. Somehow I don’t think that will have any effect on the market here in King County.

  60. 60
    Deerhawke says:

    RE: sfrz @ 56

    Just a couple of hours EAST of here, you mean.

    If banks have any shadow inventory, it is bound to be in places like Douglas County. Somehow I don’t think that will have any effect on the market here in King County.

  61. 61

    Here’s an interesting piece basically reviewing a study on student loan debt. https://www.currentaffairs.org/2017/02/does-student-debt-matter

  62. 62

    RE: Blurtman @ 51
    Yes Blurtman

    Even the Washington DC Swamp Alligators [Congressmen and Senators] have all been sitting on their hands when it comes to protecting this country from identity theft….like they have been with failing Obamacare….until the establishment politician school punishment included the spanking board at press conferences….Trump….LOL

  63. 63
    justme says:

    RE: Deerhawke @ 3
    RE: Sid @ 4
    RE: Kary L. Krismer @ 5
    RE: Erik @ 16

    I counted the word “cycle” occurring 17 times in this thread so far. Some people are cycle astrologists and chart astrologists (Sid and Erik seem to be in that category. Some people are plain bubble boosters that will not quite write off cycle theories (Deerhawke has moderated his boosterism recently, but the damage he has done is already, well, done). Kary is a chart astrology skeptic, and so am I. This blog is otherwise full of petit rentier and grand rentier bubble boosters that will invoke charts and cycles as useful propaganda tools.

    Now, and here comes the important stuff, some people think cycles occur spontaneously, that they are intrinsic to human nature and all that. These people tend to overlap quite a bit with the chart and cycle astrologists, who read charts, study old cycles, and predict cycle periods based on previous cycles. While bubbles and manias (Kindleberger) are intrinsic to human nature, rapidly REPEATING or ROLLING bubbles are absolutely man-made and intentional, and not just a matter of pure social physics, to use a fairly modern term.

    Rapid reflation of already burst bubbles are caused (*) by one force and one force only, namely NADIR, Nearly Always Declining Interest Rates (just coined the acronym) and QE (Quantitative Easing), that is, forms of monetary manipulation. (*) By “caused” I mean, “could not and would not occur without”.

    All the bubbles since interest rates peaked in 1981 have been reflated by still lower interest rates. For reference, everyone can look at the following chart of historical 30-year mortgage interest rates since 1971. The NADIR concept , Nearly Always Declining Interest Rate, should be obvious. QE is not directly visible, of course. And everyone can look up historical 10-year bond interest rate themselves.

    https://fred.stlouisfed.org/series/MORTG

    (I wish I could post that chart as an image, but that is not allowed here, AFAIK.)

    While there are other factors at work, without NADIR+QE, there would be no bubble reflation. Once the bubble starts reflating, NADIR combined with social physics creates the positive feedback loop where prices rises without any connection to fundamentals such as income. Currently, prices in Seattle are completely disconnected from income reality. Rising interest rates will end 35+ years worth of bubbles with a big bang (the chart ends at Sep 2016 at the time I wrote this, so the starting rise is not so visible yet).

    A large number of people on this blog think there is something unique and special about Seattle and what goes on here that warrants endless and outsized housing price increases. I beg to differ. Without NADIR+QE, the bubble would not have reflated. And when NADIR ends, the current bubble will end with a bang.

  64. 64
    justme says:

    Better/newer version of the chart, that continues past Sep 2016:

    https://fred.stlouisfed.org/series/MORTGAGE30US

  65. 65
    jon says:

    An interesting list from Penske that lists the top ten cities that people are moving to. Seattle is number 7. What is interesting is that Seattle house prices are much higher, even in terms of ratio of avg house price to avg rent and avg income.

    http://www.businessinsider.com/top-us-cities-people-moving-to-penske-2017-2?utm_content=buffer282ff&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer/#-3

    Seattle has a lower percentage of home ownership, so owners are presumably drawn from the higher end of the income scale, but this seems even bigger than that.

  66. 66
    Sid says:

    http://www.reuters.com/article/us-sprint-corp-m-a-t-mobile-us-exclusive-idUSKBN15W26E

    This could have some impact on Eastside down the road if Sprint is the one acquiring and the usual (cost synergies) layoffs due to the merger happen in Bellevue. If T-Mobile is the one acquiring and the layoffs happen in Kansas City, then this will impact that city quite a bit as Sprint is one of their biggest employers.

  67. 67
    Brian says:

    RE: jon @ 64

    Yeesh, if that doesn’t make Seattle look overpriced, I don’t know what does.

  68. 68
    Travis says:

    Hi everyone, longtime lurker and am a first-time home buyer in this ridiculous market. Been bought out with all cash offers even when offering up to 12% over list. It’s been really frustrating…hoping for any signs of relief. Anyway, I read an interesting article recently and wanted to get people’s thoughts:

    https://www.mhanson.com/2-10-hanson-mismatched-housing-market-buyers-market/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MarkHansonAdvisers+%28Mark+Hanson+Advisors%29

  69. 69
    Ross Jordan says:

    By Sid @ 65:

    http://www.reuters.com/article/us-sprint-corp-m-a-t-mobile-us-exclusive-idUSKBN15W26E

    This could have some impact on Eastside down the road if Sprint is the one acquiring and the usual (cost synergies) layoffs due to the merger happen in Bellevue. If T-Mobile is the one acquiring and the layoffs happen in Kansas City, then this will impact that city quite a bit as Sprint is one of their biggest employers.

    Except that presumably Sprint is buying T-Mobile for its management and team. T-mobile’s market share and profits are up, Sprint is mostly down. I think it’s more likely the merged company would want to keep T-Mobile side over Sprint side, though I guess at the lower levels it matters less.

  70. 70
    Green-Horn says:

    RE: Deerhawke @ 27

    This is a great way to view it.

    Maybe a little bit of calculus and we can sum the health and trajectory of the market in a single key number quotient?

  71. 71
    justme says:

    RE: justme @ 63

    Comment 63 just came out of moderation. Thanks, Tim.

  72. 72
    justme says:

    By Brian @ 67:

    RE: jon @ 64

    Yeesh, if that doesn’t make Seattle look overpriced, I don’t know what does.

    Indeed. There is no connection with the income reality at all. Median price 2016 was 612k, median income 2016 was 75k, according to the article. That is more than 8X gross/pretax income. It would not happen without extreme monetary policy, NADIR+QE, as described in comment 63.

  73. 73

    RE: justme @ 63 – Must have sucked having all that in moderation! ;-)

    Here’s a thought. Are all the bubble asset classes you see productive assets? For example, buildings produce living and working space. Perhaps as interest rates drop the productive assets become more valuable, just as an interest bearing bond would become more valuable.

    Or another thought. NADIR is largely the result of extreme inflation prior to 1981. It’s easy to think of how assets will become nominally more expensive during periods of inflation, but your theory is basically that at least certain assets can continue to become more expensive in real terms for an extended period even as the inflation subsides.

    As to your post #72 I would again just point out that median income isn’t the only factor at play, and probably not even that important of a factor (mean income would be more relevant).

  74. 74

    By Ross Jordan @ 69:

    Except that presumably Sprint is buying T-Mobile for its management and team. T-mobile’s market share and profits are up, Sprint is mostly down. I think it’s more likely the merged company would want to keep T-Mobile side over Sprint side, though I guess at the lower levels it matters less.

    More likely they would buy them for their infrastructure (equipment) and customer base. They probably think they are the superior management–regardless of the truth.

    One likely result of such a merger would be that in two years we’d only have a choice between Verizon and AT&T (that the two merged companies would go out of business).

  75. 75
    jon says:

    RE: Kary L. Krismer @ 74 – The way I read it, Son seems pretty frustrated, where Deutsche seems quite satisfied.

    There is obviously going to be a lot of consolidation in sales offices, but for the headquarters, it seems like you would pick one team or the other. Given T-Mobile’s recent performance, they seem like the much better bet.

    As for the anti-trust problem, unlike the previous attempted mergers this one has arguably a sound basis in avoiding billions of dollars in redundant investment in 5th gen upgrades. Perhaps that is what is behind Son’s talk with Trump, a promise that he would plow that savings back into US jobs.

  76. 76
    GoHawks says:

    RE: Travis @ 68 – Good luck out there Travis.

    Interesting article, but I am not sure it meshes with 1 months worth of supply. Where is there inventory that is sitting extra long right now? Why would sellers reach down for buyers when homes are getting bid up?

  77. 77
    ess says:

    By Travis @ 68:

    Hi everyone, longtime lurker and am a first-time home buyer in this ridiculous market. Been bought out with all cash offers even when offering up to 12% over list. It’s been really frustrating…hoping for any signs of relief.
    ————————————————————————————–

    Sign that the market is still strong and will be so this spring.

  78. 78
    screenname12345 says:

    @GoHawks. The banks are hording inventory in the Seattle area and will release it when everyone least expects it of course. I just saw a $2.6 mm house get listed and close in 1 week. The end is definitely near. I am off to read some zerohedge and continue to short this stock market rally. I know I can time markets and without a doubt smarter than all the bagholders out there. Back to the basement I go.

  79. 79
    whatsmyname says:

    RE: justme @ 63
    NADIR? Is that the fancy new pun for the boys who cried ZIRP?
    Speaking of “cycles”, did you know the US had over two dozen recessions even before the FED was introduced in 1913? I’d be interested if you could point to a period of history with no cycles. Even the Torah writers alluded to groups of fat years and lean years

  80. 80
    sfrz says:

    RE: Deerhawke @ 60 – How many communities are holding properties like this?

  81. 81
    justme says:

    RE: whatsmyname @ 79

    I did not say we did not have cycles. I said

    >>rapidly REPEATING or ROLLING bubbles are absolutely man-made and intentional,

    Some sort of cycles always existed. And they were generally always CREDIT cycles, even before the FRB and central banking became law in 1913.

    However, cycles were not always MANAGED cycles like they are now. That is the difference. Cycle astronomers are making a huge mistake by thinking of cycles as being naturally occurring phenomena that exist in some sort of vacuum of human folly. They do not. True, there is plenty of human folly to go around. But, cycles have, since 1982 or so, been actively managed by FRB using NADIR+QE. And need I mention that “managing” the cycles has come at a great cost to the average worker, taxpayers, savers, and many of those speculators that do not have a reserve account at the FRB and/or access to the discount window for loans, and (later) QE. It really is that simple. The last 35 years (at least!) have been nothing but monetary fraud and wage deflation, camouflaged as rising asset values.

  82. 82

    RE: justme @ 81 – I think the managing goes back further, and what happened in the late 70s early 80s was largely a result of mismanagement. But you’re right, whatever cycles there would be naturally are now being managed, and thus will not be the same rise/fall or the same duration as what they would have been otherwise.

    But in defense of those asserting a cycle theory, their views are probably based on fairly recent history when the cycles were being managed. So I’m not sure you’re saying the cycles are managed is something counter to their claims (which I don’t agree with).

    I’m not certain however that QE has ever been tried before at all, or on the scale done, so that would refute their theories.

  83. 83
    Go Hawks! says:

    RE: justme @ 72 – Zerohedge called for the real estate market to crash again in 2012 and the stock market in 2011. How has that turned out.

  84. 84

    RE: Go Hawks! @ 83 – It amazes me that anyone gives Zerohedge any credibility. I don’t think I’ve read a single rational thought on that site (but I don’t frequent it).

  85. 85

    On the topic of ST3, which was so popular here, the new license tabs are coming out and some people are freaking out. I saw this one person on Facebook before the articles started coming out. The license tab increase is .8% of value.

    http://www.seattletimes.com/seattle-news/transportation/sticker-shock-much-higher-car-tab-bills-landing-in-mailboxes/

  86. 86
    Deerhawke says:

    By sfrz @ 80:

    RE: Deerhawke @ 60 – How many communities are holding properties like this?

    I am not really sure. At one point, I tracked bank inventory and foreclosures in the Puget Sound area. It has stopped being a source of deal flow or a moving factor in the market here.

    I recently bought a property that was poised for foreclosure in the Seattle area. The homeowner had not made payments for 4 or 5 months. As soon as it went on the MLS, there were two dozen offers, a dozen all cash with no contingencies.

    So that is why when you talk about shadow inventory here, people laugh. There is no shadow and no inventory.

    Just as we live in two Americas, we live in two quite different Washington States. What is happening in the Seattle area is quite different from what is happening in Douglas County or Grays Harbor County.

    I am in touch with the agent for the seller of the near-foreclosure here in Seattle. He is looking to buy a house with the remaining equity out on the Kitsap Peninsula or out in the country up past Arlington. It looks like he will be able to buy a newer bigger better house for a third of what his house in Seattle sold for. And he will be the all cash buyer.

  87. 87

    RE: Deerhawke @ 86 – There are some (rare?) situations where a bank seems to take forever to foreclose or take forever to list after they foreclose. A federal tax lien might be a legitimate reason for them to do the latter, but I think mainly it’s incompetence. Banks are not well run entities.

    I remember a situation back in my bankruptcy attorney days where I couldn’t get a hold of one of my two clients to agree to an order allowing the bank to repossess a car. The bank’s attorney wouldn’t agree to delay the hearing, so I had to file a motion to delay it. After getting the court ordered continuance my second client agreed and an agreed order was entered allowing the repossession. Three or four months later I learned the bank had not come to get the car. It just dropped through the cracks.

  88. 88
    Blurtman says:

    RE: Kary L. Krismer @ 84 – It is wise to do your own homework and make up your own mind. One value of Zero Hedge is the links they provide to their stories. I may not agree with ZH’s interpretation, but frequently the links are from credible sources. Nowadays, and possibly it has always been that way, opinion has taken the place of facts in the MSM. But the MSM has lost their monopoly on reporting due to the internet, Twitter, etc. The local media is the worst. Read diverse sources and make up your own mind.

  89. 89
    justme says:

    RE: Go Hawks! @ 83

    I see what you’re doing here. Instead of discussing the substance of what I said about FRB+NADIR+QE, and the role they have in man-made bubbles (whether the reflated, recurring or rolling kind), you attempt instead to bait me into a discussion of ZeroHedge.

    If you have nothing intelligent to say, trying to conflate what I say with some unrelated perceived faults of ZeroHedge might seem like a tempting strategy. But, a good strategy it is not. Thanks for playing, as they say. Are you going to discuss anything substantial?

    May I also suggest you read what @Blurtman said in comment 88.

  90. 90
    justme says:

    RE: Kary L. Krismer @ 82

    >>I think the managing goes back further, and what happened in the late 70s early 80s was largely a result of mismanagement.

    Not disagreeing. And the mismanagement generally consisted of actions taken to enrich the bankster and capitalist class at the expense of everyone else. However, I was discussing the NADIR+QE era and NADIR+QE approach from 1982-2016(+?) specifically.

    FRB chairman Bernanke once gave a famous speech where he apologized for his predecessors in FRB “causing” the Great Depression in the 1930s by not enacting sufficiently forceful monetary policy in the 1930s (ZIRP, NADIR and QE would qualify as forceful and radical IMO). Bernanke had nary a word about what monetary mismanagement and mis-regulation that preceded, and was the ACTUAL cause, of the stock market and credit bubbles, (which eventually burst in 1929). The Great Depression happened because of the preceding bubbles, not because of a lack of bubble reflation. Bernanke is the kind of guy that does not hesitate interchanging cause and effect in his analysis of reality. There was a short time between, 1913 (FRB) and 1929, which is so far the biggest bubble implosion in history.

  91. 91
    whatsmyname says:

    By justme @ 90:

    RE: Kary L. Krismer @ 82

    Not disagreeing. And the mismanagement generally consisted of actions taken to enrich the bankster and capitalist class at the expense of everyone else.

    Please elaborate. Don’t be afraid to use examples.

    was discussing the NADIR+QE era and NADIR+QE approach from 1982-2016(+?) specifically.

    The low FED rate for 1982 was 8.5%.

    chairman Bernanke once gave a famous speech where he apologized for his predecessors in FRB “causing” the Great Depression in the 1930s by not enacting sufficiently forceful monetary policy in the 1930s (ZIRP, NADIR and QE would qualify as forceful and radical IMO). Bernanke had nary a word about what monetary mismanagement and mis-regulation that preceded, and was the ACTUAL cause, of the stock market and credit bubbles, (which eventually burst in 1929). The Great Depression happened because of the preceding bubbles, not because of a lack of bubble reflation. Bernanke is the kind of guy that does not hesitate interchanging cause and effect in his analysis of reality. There was a short time between, 1913 (FRB) and 1929, which is so far the biggest bubble implosion in history.

    To be clear, the MANAGING of the cycle by monetary policy is limited to some braking ability in an overheated economy, and funding some marginal limited demand in a weak one. That is the basic theory of the FED. Republican appointees are naturally and ideologically cautious about “interfering” in the free markets. So let’s not try to parse Bernanke into a different meaning. No informed person thinks that the western world was engaged in a huge depression due to the monetary policy of the USA.

  92. 92
    Deerhawke says:

    RE: Kary L. Krismer @ 87

    Kary for a while in 2011 I worked with some investors who wanted to buy foreclosures. They were not big enough to compete with the folks from Goldman Sachs or the hedge funds (who got the big tranches of deals in Washington). They were not nimble enough to compete with the folks who showed up on the courtroom steps and really knew what they hoped to buy. It was basically a waste of time but it led to some good connections that were productive.

    In the course of that exercise, I ran into the fools who were managing pools of foreclosed properties. They really had no idea what they were doing or how to do it. It was complete amateur hour.

    I remember talking to a young guy managing an $80 million portfolio of distressed assets. When I used the term “cost of capital” he asked me what that meant. When I said their appraisal was an old one that assumed the project was complete, he asked me what about it was not complete. (It was framed up and had a roof and windows, but that was it.) I tried to explain the difference between an “as is” and “as complete” appraisal, but he was convinced this was nonsense meant to confuse him. He made it a practice to immediately shred any offer that was not at least 100% of the appraised (complete) value.

    Eventually I heard through others at the bank that he was 23 years old and that other than some background in the fast food industry, an associate’s degree and a teller’s training program– no background in finance at all. All the adults had been fired to save money and he was taken straight from the teller’s booth to manage the portfolio.

    I have the feeling that even in normal times, the distressed asset section is where banking careers go to die.

  93. 93

    By Deerhawke @ 92:

    I have the feeling that even in normal times, the distressed asset section is where banking careers go to die.

    Based on what I saw back in my attorney days that very well could be.

  94. 94
    GoHawks says:

    RE: justme @ 89 – my response was not in regards to your post, but screenname12345’s. They said they are confident they can time the markets and while I disagree with their conclusions, I appreciate their gusto and being will to say what actions they are taking (shorting the stock market).

  95. 95
    Erik says:

    RE: justme @ 63
    I read Robert shiller’s irrational exuberance. I read a synopsis of the Kindleberger’s book cause deerhawk kept pushing it. Shiller is a student of Kindleberger, so no point reading both. The books both use many words to describe how credit becomes more and more available until the market collapses and prices go down. You should read one just to make sure you understand it, but it’s a lot of words to describe that simple concept.

    I don’t think it’s one or the other. I think people on here just want to find something to argue about. I believe they look at different aspects of the same thing. I like the 18 year cycle because it’s more quantifiable since you can look at inventory numbers and houses sold.

    I wouldn’t be surprised if there is some very wealthy person pulling the strings in the background somewhere by loosening up credit and watching it tumble. Next time credit is loosened and inventory is high, you may want to sell. Right now the real estate market seems pretty healthyou to me.

  96. 96
    N says:

    Credit has been loosened quite a bit. A 500 credit score can buy FHA, 5% down will get you a traditional (non FHA) mortgage although granted you will have PMI. Back in the great recession neither a 500 credit score or 5% or even 10% down would get you any where close to a deal. I keep reading how lending standards are so tough now and maybe UW is stringent but it doesn’t take much to qualify up to 40% of your GROSS income.

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