Seattle Bubble

First, something to lighten the spirits of everyone:

Tales of homeownership:

If you are on a septic system, don’t drive over a waste line with a 10 ton truck loaded with gravel.  I did and just learned that PVC waste lines will indeed pancake.  The result is rather disgusting.  - SCrow

No one is lending money:  that is false.

Although the pace of transactions is meaningfully lower than what we have seen, the idea that no-one is lending money is not the case.   Our office is closing routine sales, closing short sales and refinance transactions.  The difference is that closings are taking longer, authentic underwriting is taking place and FHA is appearing to be very much the type of financing people are using.   And, yes, borrowers are asking for and receiving concessions.

Some of the loan officers (still in business) we have worked with during the last 4-5 yrs. have jumped from one firm to the other that is FHA approved.  FHA is the name of the game right now.

In the area in which I live (Snohomish and vicinity), we have had several sales take place over the last month  or so, and, among those, a couple properties closer to where I live sold for $750K and up.   So, there are some people who are snooping around and finding very good values for the current market we are in.  My guess is that if you asked, “why in the world would they buy in this market”, they would reply, “talk to me in 15 -20 yrs.”  And that is one of the primary real estate mindset shifts I’m discovering:  few are those who are not looking at a long-term horizon in their purchase.

There are some absurd decisions being made

The unique view from the escrow seat allows for a lot of discussion in the S-Crow household, some of it funny and some of it just remarking about how foolish some people have been.

For example, a seller purchased a home within the last year to flip it.   The seller made improvements and put it back on the market.  The seller then obtained an offer and the transaction moved towards closing.   Once escrow disclosed proceeds, the seller evidently did not like the net proceeds after expenses:  not enough (code for potential paper loss).  Buyer is ready to close and the seller refused to sign closing documents.  You’d think that a seller would know within a small range what the proceeds would be before putting the home on the market and wasting everyone’s time and money.  Result: highly probable legal action moved the seller to sign.

There are a number of people in our society (save the politics for another blog) that just refuse to take personal responsibility for stupid personal financial decisions.  This is an issue that Mrs. S-Crow and I argued a lot over in months past.  I’m starting to come to the conclusion that her analysis has more merit than my “it’s not all the borrower’s” fault mentality circulating in my head.  Some borrowers did put too much trust in the people guiding them along the way.  But, in the end, their signature is on the Note and Deed of Trust.

We are at the bottom, locally:  I don’t think so.

I have no data to back this up, but my anecdotal evidence of closings is the best I can come up with.   Based upon what I see in the refinancing realm over the last three quarters of this year,  I see some existing homeowners delaying the inevitable.   Refinancing costs thousands of dollars and there is a pervasive thought (I don’t know where some people get their information…either they are terribly not paying attention or someone is giving them false hope, which in many cases is more dangerous and damaging than being honest about where the chips are falling) that the market will turnaround within the next year or two.  Possible?  Anything is I suppose.  Likely?  Nope.

Real scenario:  It is not realistic that a borrower can purchase a home late in 2006 for $500K+,  now owes in the realm of $540K on the property and think that in two years time (2009-2010) they can have an equity gain to pay routine closing costs.   And this is in a development that was birthed in 2005 that has already experienced a foreclosure and another distress sale (as so disclosed by the very borrowers that were signing their closing documents!).   It is a classic example of a potential, not to distant, distress sale staring at me in the face.

Are the closed sales-price-to-list-price ratios accurate?:  a question for local agents.

For example, if you have a listed price at the time of the sale of $100K and the sale closed at a price of $95K, you would have a 95% list-to-sales-price ratio.  This is used a lot by agents to gauge how well priced a home was and another metric to show that homes in an area are selling on average, for example, about 97-99% of the list price.   Does the NWMLS use the ORIGINAL list price in this metric or the last posted list price?

What’s up with all the Steve Tytler negativity?

Steve was was of the severely few locals in the business of lending that was reporting publicly that we were going to experience lower housing prices.   Straight shooting integrity is what we need in this industry.

Questions about transactional things?:   Just drop me an e-mail as many recently have and in the past.  I may not have all the answers, but I’ll do what I can.

- S Crow

Interest rates have fallen into the 5.5% 30 yr fixed range.  This is quite a sweet spot for those who are considering refinancing and purchasing.   At the beginning of this year, when rates were around 5% for a 30 yr fixed, many people took advantage of the opportunity.

Please contact your local loan officer.  Our office works with many.

Side Commentary and thoughts: Sorry I’ve been unable to post much over the summer here and at RCG.  I’ve been exceptionally busy with lots of projects and family stuff.   Plus, I’m freaking out that one of my kids is going to be a Freshman in high school starting in a week or so.   But, I’m intensely following the developments of the Agencies (Freddie and Fannie) and the changing mortgage guidelines (FHA, Conventional programs) and how it will impact the market and what it means for positioning our small business going forward.   Unfortunately, in the escrow business, our business is highly dependent upon how real estate agents and loan officers perform and have positioned their business to weather this storm.  If they do no business, we follow suit.   There are some exceptions to this, but it is mostly the way it is.

I could write lots of posts on the challenges escrow firms (true independents like our office that are not owned by mortgage brokers or real estate brokers or title companies) face when our incomes are derived from our customers (agents and lending industry) and not our paying clients: buyers, sellers and those refinancing.  It is one of the other great wonders of the world and in my view, costly to consumers.  I suppose you could say, “when in Rome, do as the Romans do.”

The IndyMac debacle was interesting because we received work from their Bellevue office.  It was interesting because about a week prior to their FDIC takeover (which many argue quite effectively due in large part to the lovely Senator from New York, Mr. Schumer’s letter to the OTS which subsequently initiated some $1.3 Billion in depositor withdrawals in an 11 day time period) we e-mailed staff that we worked with and they indicated no talk of problems at all.   Why is it that staff sometimes is the least likely to see the writing on the wall?  Anyway, the rest is history.   Losing the IndyMac work was not helpful.

Money is what drives this real estate market folks and the tougher it is to obtain financing the tougher time this market will have, both nationally and in our Puget Sound region.   Following all the developments in the local and national scene has been exhausting to keep up with, but I must comment that I’ve really enjoyed the conversations here and the active debates.

I have to confess that I have never been so fascinated by this economic-environment-lesson in business, banking, finance and how it all works.  I have learned so much, and yet still feel as if I’m not even scratching the surface of understanding it all.   I know I don’t understand it all.  If there is any discouragement or frustration I have about this correction, it is still centered and pointing clearly at the real estate industry’s moving parts (with emphasis on the lending community) for creating and fostering this mess.   There are still countless industry participants that still blame the media for this (I heard this again at a BBQ I attended a few days ago).   And, there are a lot of frustrated sellers who just can’t sell in this environment.  Got some friends in that situation.  It is not fun observing  the financial bleeding and you can do nothing, never mind the social impacts and families being broken up over finances.   The social-economic issue is for another blog.

WAMU

A few days ago Mrs. S-Crow received an e-mail from a loan officer/customer who is at WAMU.  I presume that we were one of many recipients of the e-mail that discussed WAMU’s offer of 5% CD’s which is higher than most banks and credit unions are offering.

Calculated Risk also mentioned the development this afternoon.    Lots of speculation about what this means for WAMU.

Mike Benbow reports from The Everett Herald.

[Addition from The Tim]
As noted in the forums, local construction equipment manufacturer Genie Industries is also laying off “120 full-time workers and an undisclosed number of temporary workers.” The P-I has the story.

Genie employs roughly 3,000 people, making it the second-largest employer in Redmond. For what it’s worth, it is also where I worked until January (when I left of my own volition).

Speaking of economics, I’d like to hear from people who are in the trades: small general contractors, electricians, plumbers, siders, framers, painters, masonry/hardscapes, landscapers, flooring installers, heat/HVAC contractors, small remodeling contractors, etc..

I spoke recently with a client of ours who is an electrician and the individual mentioned that there were recent incidences of builders either not paying or delaying payment for services.

• How are fuel prices influencing your small business?
• Has work dropped off in a noticeable manner?
• Are bid requests still robust?
• Have you been asked by builders or Gen. contractors to drop your prices as a sub?
• Are you getting paid in 30, 60, 90 days or longer?

For homeowners that are doing remodeling or home improvements this Spring/Summer season:

• Are you scaling back your projects?
• Are you going to do more work yourself?
• Are you receiving more bids, more promptly?
• How far out are contractors scheduling your projects?

Thanks,

S-Crow

I was out looking at commercial property and I ventured around Everett’s Silver Lake neighborhood where I bumped into a street (block and a half ) with five real estate signs, indicating five homes for sale. I pulled over and took a flier from a yard sign—a dated rambler, vacant with the yard a mess. $400K. Out loud, I said, “insane.” Hmm. What could it rent for? Gosh, just a rough guess would be that I’d have to come up with about $200,000 as a down payment to get the PITI to break even. Maybe more. Oh, and I’d need to put probably about $30K into it to just get it up to today’s modest standards.

Last night, I pulled into Top Foods to get some milk and other things for my kids lunch. On the way, adjacent to the store are a Chevron and Shell gas station. One gas price sign was illuminated, the other darkened, but both stations were open. Both stations increased their prices to a $4.03 9/1Oth. per gallon for regular unleaded. We finally hit over $4. in Snohomish. Diesel? $4.89/gal! I have a John Deere tractor to help mow my lawn and do other yard work. Takes Diesel. Does anyone know the per capita ownership of trucks in Snohomish Co? It is fairly high. A lot of F-250’s, SUV’s, Chevrolet Duramax Diesel’s. Lot’s of big rigs. I recently read that Ford was ramping down their SUV and Truck lines this July for a period longer than normal due to poor sales (evidently they stop the production each July for re-tooling purposes).

Ok , I’m now a bit grumpy pulling into Top Foods. I pick out four Gala Apples, my two gallons of milk and a couple other things.

I look over at what a gallon of Minute Maid Juice is going to cost. I do a double-take. I can’t believe it. $7.30! Seven dollars and thirty-cents!

I still can’t believe it when I’m typing this. I said outloud, to be overheard by two other patrons in the isle, “this is insanity!” For a basic fruit tray, they want $24.99! Do you think an agent in their right mind is going to buy a basic fruit tray at that price for their broker’s open? No chance.

Lawrence Yun, I have a message for you: the idea of your recent comment suggesting we are not in a recession is beyond me. Soon, you will be parody on Saturday Night Live. I’m still waiting for our 30-40% increase in median prices for 2007.

My father-in-law put his two kids through college and law school at Pepperdine. He is still working (driving local routes throughout Washington delivering potatoes, hay, apples etc…) although he retired recently from BP-ARCO doing of all things (for 30 plus years), delivering our fuel! I asked him what it takes to fill his big-rig up and he says about 15. That’s $1,500. But, he says he never keeps it full. Why? People are siphoning.

By the way, those Gala Apples….all four of them……a sliver under $4.00!!