Seattle Bubble

Here’s the latest from Aubrey Cohen over at the P-I: Mortgages harder to get for local borrowers

Lenders who previously approved mortgages to people with bad credit, no down payment and little or no documentation of income now are refusing loans if even one of those three factors is questionable. This is true even in Seattle, where homes have so far continued to appreciate.

“I see a number of individuals even in our existing pipeline that maybe a month or two ago were being choosy,” said Adam Stein, president of American Brokerage in Auburn, and the Washington Association of Mortgage Brokers. “Now they’re realizing that maybe they held out too long.”

Lenders had less incentive to screen out risky borrowers during the go-go real estate market of the past few years because they quickly turned around and resold mortgages on the secondary market. And, while home values were increasing fast, borrowers who could not make payments could still sell for more than they owed.

But that’s changed.

In recent months, home prices have declined in much of the country, borrowers increasingly are defaulting, and investors are fleeing from the home market.

Consider this story a precursor to next month’s news that sales have continued the historic slide that began with last month’s 26% YOY drop in pending sales. Speaking of which, as was pointed out in the forum by AmazedRenter, according to RE/Max (via USA Today), sales in Seattle so far this month are down 47% from last year. Yikes.

But don’t worry sellers, I’m sure prices will just keep on rising. Everybody wants to buy a home in Seattle. If only they could get a loan, that is…

(Aubrey Cohen, Seattle P-I, 09.25.2007)

A thought (actually I LOL) just popped into my brain moments ago after reading all the quotes and comments over the last few weeks both here and at Rain City Guide, particularly since mid August when the liquidity crisis hit. This is meant to have fun on the Blog a bit, but I’m also sincere. “Who is going to be Tim Ellis’ Realtor when he decides it is time to buy?” I thought.

Tim Ellis (”The Tim”) is probably among the very top informed first time homebuyers when it comes to market knowledge, housing economics and mortgage finance…..and how to build those handy Genie Lifts we see all over the place on construction sites.

There have been many instances where Seattle Bubble readers have purchased over the last year. Today, I met another at our office. Thanks for supporting small authentic independant escrow firms (not owned by real estate broker, mortgage broker, title company or any other financial services business). So, when The Tim decides it is time to buy a home, I wonder how he is going to qualify the market knowledge of the Realtor (and Loan Officer) he works with, provided he utilizes a Realtor’s expertise. Working with a knowledgeable Realtor is advantageous, but, my understanding is that consumers rarely REALLY interview the individual assisting them in a very large purchase.

From my recent observations

Some of the consumers are leveraging the market conditions in their favor:

• watching time on market of subject home they are interested in
• being represented (buyer agency)
• closing costs paid by seller
• negotiating price down
• shopping for best service & price for third party services involved:
  • inspectors
  • repair contractors
  • title insurance
  • escrow service (those who finalize and close your transaction)
  • mortgage loans
• Use of rebates by individual Realtors or other’s such as Redfin.

Continuing with my premise

One the one hand, a Realtor working with The Tim will probably be easy because he may have all his ducks lined up and ready to go. He will probably have financing already approved prior to jumping into the fray.

On the other hand, Realtors talk quite a bit about how difficult it can be to work with an “engineer” type buyer: those dang-gum-number-crunchers!. In addition, will he be a “marked” man, tongue-in-cheek, as a contributor to the demise of a local market and the idea that if enough people say we are in a Bubble, then mass psychology may start the self fulfilling prophecy? After all, Economist Robert Shiller was at it again today indicating that the unraveling of the market could be the worst since The Depression. Psychology is certainly a factor: we heard no objections when the media continually talked up the market and today it is quite a different story.

So who will be Tim Ellis Realtor? How would you qualify those service providers involved in your purchase? What questions would you ask of a Realtor to find one that is experienced, knowledgeable and works well with you representing your best interests?

You know that the local housing slowdown is essentially undeniable when even the local TV news starts to pick up the story…

It’s not exactly a slump, but some of the wind has left the sails of the local real estate market. What used to sell in two weeks is now taking as long as 45 days. That’s leading some sellers to employ new strategies.

The multiple listing service reports that in King County, there are about 3,000 more homes on the market this year than last year and they’re staying there longer.

“It’s a buyer’s market. They have so much to choose from,” said Tavis Gaudet. When put up his ‘for sale’ sign, he wasn’t alone.

“There were two signs, one across the street and one up the block,” said Gaudet.

There’s direct competition in his West Seattle neighborhood. Just go a couple of blocks away and you’ll find three houses in a row for sale.

Sadly, what could have been an opportunity for an actual interesting piece that looks at recent statistical trends and actual evidence of where the market is headed turned into nothing more than yet another cheerleading, realtor-advertising puff piece. The article wraps up with encouragement not to worry, and advice that sellers “consult a realtor.”

Update: I just noticed that you guys already started a thread about the King5 report over in the forums. You beat me to the punch.

In other news, here’s an excerpt from an email I just got from a friend that (no joke) became a loan originator about a year ago:

Many of you have watched and wondered about the changes in the housing and home financing market in recent months. There is definitely a shift. Hundreds of lenders have gone out of business and loans are much harder to obtain than in the past. Only agencies that are diversified are able to stay afloat. Many loan originators are walking away from the field because of the financial hardship they are in right now. Here in Washington, the new regulation that calls for the Loan Originator to take a test has caused some to walk away. In fact the swelled number of 15,000 loan originators in Washington is estimated to shrink to 7,000 or less.

In talking with him over the weekend, he expressed confidence that the market would turn around next spring. His reasoning included the usual spring bounce as well as today’s predicted Fed rate cut. While I admire his optimism, I found myself less than convinced.

(Kim Holcomb, King5 News, 09.17.2007)

Okay so this is old news to any of you that have been following the mortgage mess as it unfolds, but it’s worth bringing up again to point out the fact that Elizabeth Rhodes at the Seattle Times has finally admitted what a mess we’re in:

The evening before their home purchase was to close, Gary Becker and his wife, Amy Dacus, learned their mortgage to buy a Woodinville home had evaporated.

Unlike subprime borrowers defaulting on loans, the couple had a stellar credit score, a 20 percent down payment, strong employment history and had effortlessly purchased three prior homes.

But their new home’s $670,000 sales price was large enough to require a “jumbo” loan, so named because it was for more than $417,000, the limit the nation’s largest mortgage backers will fund.

Their California mortgage broker had unexpectedly lost its ability to provide jumbos — an event being repeated by lenders nationwide as the underlying funding for these large loans grows scarcer.

Now wait just a minute here. Didn’t anyone tell the nation’s largest mortgage backers that Seattle is Special™? It’s just not fair that “jumbo” here means the same thing as it does in Ord, Nebraska. “Jumbo” in Seattle should be, like, $4.17 million, or something. Just because we’re buying ridiculously expensive houses up here doesn’t mean that we’re a higher credit risk. Come on!

Seriously though, here’s the most interesting part of the article, where Ms. Rhodes provides some actual statistics… (emphasis mine)

Nearly half of the single-family houses for sale in King County, plus 21 percent of the condos, have sales prices high enough to require jumbo loans — and that’s if buyers reduce their loan amount by putting 20 percent down.

Despite the dire tone of the article, jumbo loans are not disappearing entirely. However, they are certainly becoming much more difficult to obtain. Is there anyone out there that thinks making mortgages for nearly half the houses in the county exceedingly harder to obtain isn’t going to result in a strong downward pressure on prices? Anyone rational, I mean.

(Elizabeth Rhodes, Seattle Times, 08.26.2007)

Warning: Mild sarcasm ahead

Look what happens when you let someone other than a seasoned real estate reporter write articles about the market. You get the frightening truth—Washington State and the Seattle area are not exempt from feeling the effects of the national lending meltdown. Go figure.

Ongoing turmoil in the subprime mortgage industry could wipe out many Washington-based mortgage brokers, and it will dramatically narrow the choices available to homeowners seeking loans or refinancing, mortgage and real estate experts said Thursday.

Also hurt could be home builders, home inspectors, title insurance companies and appraisers.

“It will have a broad impact over the next year,” said Adam Stein, president of the Washington Association of Mortgage Brokers.

Washington state had about 1,200 independent mortgage brokers as of last summer. Of those, “30 percent may not survive the year,” he said.

Yowch. Bad news for mortgage brokers. Actually, bad news for people looking for mortgages, too. Hope you have a down payment, and don’t need a mortgage larger than $417,000…

Loan seekers with solid credit ratings seeking agency loans shouldn’t be affected by the subprime brouhaha, [mortgage broker Jason] Bloom said.

Those with worse ratings, or those seeking Alt-A or subprime mortgages, will have a tougher time getting money. Even those seeking jumbo loans — 30-year fixed-rate mortgages with a balance of more than $417,000 — may find interest rates up and eligibility criteria tightened.

“Consumer choice in Washington right now is being dramatically restricted,” said Stein, head of the mortgage brokers’ group. “For alternatives for someone with less than perfect credit, the rate has gone through the roof — if they’re available at all.”

But of course, there’s still room for some optimism because, you know, the real estate salespeople say so.

Real estate giants John L. Scott and Windermere said they have seen no downturn in sales because of the subprime-mortgage crunch.

“We’re not turning buyers away in droves. A few loan programs have gone away.”

Possibly the most interesting part of the article was this little tidbit of information nestled near the end:

As of mid-June, 6 percent of Washington mortgages were subprime adjustable-rate loans, compared with 6.6 percent for the country as a whole, according to the Mortgage Bankers Association in Washington, D.C.

Ooooh. We’re 0.6 points less exposed to sub-prime than the rest of the nation. Go us!

(Dan Richman, Seattle P-I, 08.16.2007)

Dang, my inbox has been flooded with stories lately. Here’s a recap of some of the more interesting ones related to the local housing market. Click below to read tales of rising rents, flaming hot office markets, expensive and stale listings, virtual property tours, disappearing mortgage options, booming condos, and more!

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