Seattle Bubble

Lots of local real estate related news over the weekend worth mentioning. Here’s a brief roundup of the stories you might be interested in.

Let’s kick things off with some good news via Aubrey Cohen at the P-I. Looks like the state’s irresponsible plan to pre-distribute $8,000 tax credit is dead in the water, thanks to the IRS.

SeattlePI.com: State clarifies state of tax credit loan plan

There has been a lot of information circulating in the past few months regarding a possible Tax Credit bridge loan program that would have potentially “monetized” the currently available $8,000 federal tax credit for qualified first time homebuyers. This potential program would have allowed these first time homebuyers to actually come to the closing table with their credit in hand, as opposed to waiting to have these funds available until after closing.
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On June 2, 2009, the IRS formally declined this request citing long-standing regulations requiring refunds be paid only to the person or persons filing the tax return. Due to significant financial risks associated with the Tax Credit bridge loan program and recent guidance published from the Department of Housing and Urban Development, the Commission discontinued the development of the Tax Credit bridge loan program.

Next up, a bit of humor from SmartMoney.com, who you may recall last October labeled Seattle as “in the best shape for a rebound.”

SmartMoney.com: 5 Housing Markets That Have Further to Fall

In the Northwest, median home prices are down but they remain above the national average. Portland’s prices fell 2.1% in March. Home prices in Seattle were down 2.0% for the month.
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The Pacific Northwest bubble was among the last to burst, which could mean the market will be among the last to recover.

And here’s a handful of additional stories for you to digest this post-holiday Monday morning…

Seattle Times: Landmark Smith Tower mostly vacant

Thanks to the recession and Washington Mutual’s collapse, there’s no shortage of vacant office space in downtown Seattle. One of the emptiest buildings also is one of the region’s best-known and most-loved.

The 95-year-old Smith Tower, once the tallest building west of Chicago, is at least 70 percent vacant, according to online listings and commercial real-estate databases.
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Walton Street bought the 257,000-square-foot Smith Tower for $43 million in April 2006, when the market was nearing its peak and the tower was 92 percent occupied, according to its previous owner.

Less than a year later the new owner sought — and ultimately received — city approval to convert the entire building to condos, a move prompted, in part, by the impending departure of the tower’s two largest office tenants.
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When the downtown condo market began to cool later in 2007, Walton Street scaled back its condo-conversion plans to just the top 12 stories.

But it hasn’t pursued permits for that scenario for more than a year, city records indicate.

The Smith Tower has always been my favorite building in downtown Seattle. It’s a shame to see it sit unused like this. I actually like the idea of converting it to condos, although I’m not sure there would be all that much appeal to live in Pioneer Square…

Seattle Times: Lynnwood’s City Bank gets tighter scrutiny

City Bank of Lynnwood, hurt by heavy lending to developers and homebuilders, on Thursday became the latest local bank to submit to tighter oversight from federal and state regulators.

It signed an agreement, called a cease-and-desist order, that requires City Bank to shrink the volume of nonperforming loans and foreclosed real estate it’s carrying on its books; reduce its dependence on brokered deposits; increase its capital levels; and make other operational and organizational changes.

Puget Sound Business Journal: Lexas believes condo buyers will show up

Call him a contrarian. Escala developer Eric Midby expects to move ahead with a pair of high-rise hotel and condominium towers at a time when nearly every other developer has decided to sit out this market because of the recession.

Midby, a principal and development manager at Lexas Cos., is betting that by getting the company’s next condo project under way now, he can exploit a two-year gap in the delivery of new condominium units in downtown Seattle that starts next year.

“We firmly believe that Seattle very soon is going to have a shortage of housing, that all the units in downtown will fill up and there will be continued demand,” Midby said.

Seattle Times: Property taxes: Appeals shoot up is King, Snohomish Counties

Homeowners complained in near-record numbers about high valuations last year. Appeals of property values shot up more than threefold in King County, from 3,767 in 2007 to 13,156 in 2008. The last time there were that many appeals was 1991, when a sluggish real-estate market followed several years of rapidly climbing home values.

Appeals also increased in Snohomish County last year — from 1,688 to 2,347.

Appeals resulted in lowered values about half the time in King County and about a third of the time in Snohomish County, according to the assessors.

I remind any Seattle Bubble readers that are considering appealing their assessment that S-Crow posted a useful “how-to” on this process that would be a good starting point.

West Seattle Blog: City Council townhouse talk in West Seattle: Less (rules) is more?

…As in, less (fewer) restrictions could mean more variety in housing units. Or, so said the architects from whom City Councilmember Sally Clark and her Planning, Land Use and Neighborhoods Committee heard at Youngstown Arts Center Tuesday night.
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The West Seattle meeting addressed only a slice of the Multi-Family Code Update, townhouses and “low-rise” zoning in particular.

And finally, here’s a national story on the subject of “strategic defaults,” which we have been discussing lately.
Wall Street Journal: New Evidence on the Foreclosure Crisis

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.
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…the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures.
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…although only 12% of homes had negative equity, they comprised 47% of all foreclosures.

Yow.