The Supply Side of Real Estate

I’ve been reading a tremendous amount recently on the subject of building and it’s impact on local real estate markets. Over the past several weeks, at every opportunity both privately and out on the town, I have talked with people who are involved in the supply side of housing: builders, contractors, and suppliers (big box stores, retail, specialty flooring goods, roofing, paint, cabinet suppliers, lumber stores etc.).

Here is a glimpse into the local Puget Sound market from an individual heavily immersed into building and who I would characterize as exceptionally credible. Below are a few of the weekly e-mail updates I’ve received over the past several weeks. The individual works for a large builder and has agreed to let me post some of the e-mails:

End of September update:

…and I don’t ever read about the builder’s side of things on your blog or any blog about Seattle. The newspapers never talk about it. It is very wierd. Our inventory around the sound has increased 85% from last year. Sales have totally fallen off. Some builders are planning on functioning on fewer neighborhoods but increasing their sales rates to stay at the same level. So instead of have 8 communities selling 5 a month you have 4 selling 10/month. The problem with that is that you have 1-3 field managers per neighborhood and 1-2 sales agents and so on. We just had just about every sales agent buy a new 35k-60k car in teh last 8 months. The average age is probably 30.

1st week of October Update:

Last week, we had 8 sales and 7 cancellations. This is beginning to be the story everywhere. We still have quite a bit of traffic but for other builders it is different. It has dropped off 75%. Builders are using incentives but it is not working. They can’t even get people to show up. The poeple that didn’t buy contingent I feel sorry for. Land prices have come down, but it still doesn’t pencil

2nd week of October Update:

….Standing inventories are becoming a big problem for some.

3rd week of October Update:

They have a lot of inventory down there. We aren’t planning on buying anything unless it is of compelling value. I have been tracking standing inventory, specs, which is getting interesting. Most site agents I talk to all say the same thing. Traffic has stopped, not declined, stopped. The further out markets are feeling it first. 80% of our buyers are on ARM’s, not the toxic kind. It’s the only way they can afford to buy.

Today (Oct. 25th) Weyerhauser announced a decline in earnings.

“While anticipated, the housing market decline was more abrupt and drove wood products prices and demand into a deeper plunge than expected,” said Weyerhaeuser Chief Executive Steven Rogel in a statement.”

So, if there are any small builders, contractors or supply side people that would like to comment on local experiences, please fill us in.

In other news

Our escrow office has experienced a lot more refinances lately. I am seeing more fixed rates than in months past, but ARM’s are still king. Refinance business has sustained our business over the last two years. While our market share has increased by taking baby-steps and being very fiscally conservative, we do know of companies (escrow & mortgage) that are showing the earmarks of struggling.

Today, Fidelity National Title announced it will eliminate 650 jobs. Personally, while I understand they answer to Wall Street, I find this hard to stomach because title companies have been absolutely raking in obscene amounts of income while riding the appreciation wave over the past few years. For those new to purchasing, title insurance premiums are based upon the sales price of a home, generally speaking. When home prices go up, premiums tag along for the ride.

In contrast, when you close a home sale at a escrow company like ours, our price is generally fixed, irrespective of the sales price. In other words, there is not necessarily more work in closing a $250,000 home vs. a $800,000 home. Same goes for refinances. I just can’t understand why consumers fall for all the fluff out there. I don’t care where people go to do business, just shop for crying out loud. Sorry for the rant, I just can’t believe some of the settlement companies are charging people $250.00 for loan document e-mail fees. In years past, loan documents were delivered overnight by UPS or FedEX. Today, they are e-mailed which is highly streamlined to save time. So now you see these junk e-mail fees. Total garbage. I wonder what junk fee will be invented next?

This week I had the pleasure of telling some clients that they would not be receiving more money back than anticipated when their cash-back refi closed. Why? $10K ‘n change pre-payment penalty. That takes the cake this month.

More to come…

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About S-Crow

"S-Crow" (Tim Kane) is co-owner (with spouse Lynlee, LPO-Designated escrow Officer) of Legacy Escrow Service, Inc., an authentic independent escrow firm closing residential purchase/sale and refinance transactions.


  1. 1
    dalas says:

    Explain to me again why Fixed is better than ARM? Most people, especially now, simply do not reside in the house more than few years. Why pay higher interest rate?

    I love how the marker is set on the amount of ARM loans. Option ARM on the other hand is a different story…

  2. 2
    Crashcadia says:

    Reasons to avoid ARM’s

    Reason Number 1.
    ARM’s would not be as big of a problem if the barrower could qualify for the highest interest rate that could possibly occur with the ARM. This is currently not the case. A fixed rate loan will protect you from this.

    Reason Number 2
    ARM’s do not let the barrower escape inflation. The barrower can only hope that wage inflation can keep up with the adjusting ARM. Outsourcing has kept wage inflation flat.

    Reason Number 3
    With house prices falling year over year, if the barrower finds that he/she is upside down, and unable to afford the ARM when it adjusts, then the only way out is a short sale or foreclosure. There is simply too much risk in a down market.

    Reason Number 4
    You will be labeled as an idiot once the housing bust is in full swing.

    Reason Number 5
    The label will fit.

  3. 3
    synthetik says:


    Excellent and important information. Builder problems have been shown to trickle down to sfh resales in other bubble markets.

    supply-side bubblenomics!

  4. 4
    Matthew says:

    I think that the “Seattle is different” is eventually going to make us crash even harder. It seems builders are actually buying that mantra. It seems as if they are flocking to us like the last safe haven of bubble land. Probably the same is true for the investors…..

  5. 5
    rentalbliss says:

    The 3rd quarter results are in from the title insurance company I am with. reported third quarter 2006 results of $15.2 million, or $0.89 per share last night compared to $42.4 million, or $2.35 per share for the same period in the prior year.

  6. 6
    Joe Consumer says:


    Don’t be a smartass. Dalas asked a legitimate question. Do you think your response had an influencial impact on dalas given your reasons #4 & #5?

    I thought this blog was about ‘helping people avoid the crash’. Your response is about mocking people. More proof that this blog is an echo chamber – or, proof that among the constructive critics, there remain idiots.

  7. 7
    duh65432 says:

    The guy can’t even spell “borrower” correctly. Geesh.

  8. 8
    synthetik says:

    I see no legitimacy to that “question”; time to set the cleartype option on your lcd…

    its trollish and devisive.

  9. 9
    Richard says:

    Explain to me again why Fixed is better than ARM?

    I’ll take a stab at it.

    While many people have chosen to move frequently, this is cyclic behavior. In a bear market people stay put, usually out of necessity. The huge drop in sales volume indicates that we’re starting a trend of people living in their homes longer. (unless foreclosures really pick up!)

    If you NEED to take out a mortgage (especially an ARM) to buy your home, it’s safe to say you’re not wealthy enough to insulate yourself from market fluctuations.

    Fixed rate loans have the added benefit that your payments will most likely (almost certainly) decrease over time due to inflation. ARMS only have this benefit if inflation overshoots your rate cap!

  10. 10
    Richard says:

    I’m not sure, can ARMs be advantageous in a bear market?

    Say you bought using an ARM at the previous peak in 1989. Over the next 4 years, your interest rate would have dropped from roughly 10% to 7%.

    In this bear market, it’s unlikely we’re going to see a 30% drop in rates to soften the landing – but who knows. 3/1 ARMS bottomed out below 3.5% in early 2004.

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