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Lenders’ Tightening Standards Even Hit Seattle

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)

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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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

41 comments:

  1. 1
    Matthew says:

    Tightening standards will now start to be reflected in all data moving forward. The game starts now.

  2. 2
    MacAttack says:

    Don’t know if anyone caught this – from Ben Jones’ blog – read the LAST SENTENCE.

    Some housing bubble news from Wall Street and Washington. USA Today, “The end of the real estate recession seems nowhere in sight, in light of a slew of bleak news Tuesday of falling sales and prices, a severe decline in construction and deep losses and layoffs at one of the nation’s largest builders. The NAR says it expects more dismal figures for September as the housing market reels from the crisis in the mortgage industry.”

    “But the September figures might be much worse. Re/Max International, which analyzed existing-home sales in five major cities for USA TODAY, says September totals so far are down sharply from last year. In Baltimore, Tucson and Seattle, for example, sales in the first three weeks this month are off more than 40%.”

  3. 3
    The Tim says:

    Psst, MacAttack… I mentioned that in the post, even linking to the same USA Today article.

  4. 4
    patient says:

    Tim, I remember Angie pointing out a mistake in the wording of your post on the August MLS numbers where you instead of lowest sales for any August had put lowest number overall. I was half joking that you could keep that wording for next month. How close would a 47% Sept. YOY drop in sales be to an overall lowest number? From the graph it looks like the lowest number was ~1200 Dec 2000 and that last years Sept was ~2200. 2200 x 0.53 = 1166… Do you have the exact lowest number and the Sept. 06 number?

  5. 5
    on topic says:

    and sept is the last big volume month before the winter drought. anybody forced to sell in the next 6 months will have to price aggressively to find buyers.

    maybe we’ll see negative YOY appreciation (according to C-S) before the new year.

  6. 6
    patient says:

    I can see a good potential for further decreasing YOY sales if/when frustrated sellers pull homes off the market ( decreasing the pool of homes that could potentially sell ) and when all loans approved prior to the main tightening are exhausted.

  7. 7
    The Tim says:

    Pending Sales (KC SFH only)

    December 2001: 1,220
    September 2006: 2,271

    To be lower than 1,220, next month would have to see no more than 1,219 sales, which would be a drop of approximately 46% YOY. Possible, but I’m still thinking that it’s pretty unlikely at this point.

  8. 8
    The Tim says:

    In related news, has anyone been watching the stats on the Estately (formerly ShackPrices) front page? I don’t know where they get the figures, but they show total properties for sale, total new listings today, and total sales today.

    That last number ain’t lookin so hot:

    Like I said though, I don’t know where they get this info from, and it seems like there’s a high likelihood that it’s an incomplete picture.

    P.S. (I know a few of you have said that you tried to post a pic in the comments and it wouldn’t let you. I don’t know what the problem is, as it seems to work fine for me…)

  9. 9
    patient says:

    Thanks Tim!

    Do you think it’s unlikely that KC SFH follows the Seattle metro data of a 47% decline or do you think the last days of Sept 07 will have less of a difference than the first 24 days?

  10. 10
    Pegasus says:

    Must see video that explains it all with pink and lavender unicorns(real estate agents).

    Charlie Goes To Candy Mountain

    http://www.youtube.com/watch?v=Q5im0Ssyyus

  11. 11
    TJ_98370 says:

    Yes you too can predict real estate trends for fun and profit, in your spare time!

    U.S.Housing Prices Since 1987

    Mean Reversion

  12. 12
    NotaBull says:

    Question: When we refer to “Seattle” prices, I know that we normally refer to the city of Seattle. However, when Case Shiller refers to Seattle, my understanding is that they are actually referring to King, Snohomish and Pierce County. That’s my understanding at least.

    So, when we say that Seattle YOY is down more than 40% in sales, which “Seattle” are we referring to?

  13. 13
    The Tim says:

    Good question, NotaBull. Unfortunately, the USA Today article doesn’t say. It does get confusing, which is why when I quote stats, I always try to make it clear exactly which area I’m referring to. My standard is the whole of King County, but who knows what specific area RE/Max’s data describes.

  14. 14
    Ira Sacharoff says:

    Another thing that is way, way up are the expired listings. The houses were on the market for 60, 90 + days, the listing expired, and very often they don’t re-list it. Sometimes it’s the sellers who are being obstinate and refusing to lower their prices, and I think sometimes it’s the agents who are living in the glory days of a couple of years ago where houses would just magically seem to sell, and are refusing to be honest with the sellers, or just suggest some very minor changes to make it sellable, and you CAN put lipstick on a pig, but…

  15. 15
    MacAttack says:

    Sorry Tim!!! Too many balls in the air!

  16. 16
    Garth says:

    To me this is just broker fraud or complete stupidity.

    Sawyer, a file clerk at Group Health, refinanced into an adjustable-rate mortgage in December, after hearing a radio ad promising low payments and no closing or appraisal costs.

    “Now I know it was too good to be true,” she said last week.

    Her new payment was lower than her old one, but higher than expected, and she didn’t realize it added $1,100 a month to her principal because it was less than the interest charge.

    To get financial advice on a huge transaction and leave the office after signing 25 + documents having no idea where the payment is going is just mind blowing to me.

    She heard it on the radio, I wonder if it sounded like the ad on family guy :)

    Hi, I’m Darth Harrington of Darth Harrington’s Intergalactic Proton Powered Electrical Tentacled Advertising Droids Emporium & Moonbase! Due to a garbled subspace transmission, I am currently overstocked on all Intergalactic Proton Powered Electrical Tentacled Advertising Droids, and I am passing the savings onto YOU!!!!!

  17. 17
    just_checking says:

    Ira –

    I think you are right on with your comment about the Sellers/RE agents denial. We put an offer out for a house recently, at a price that was equal to late 2005/early 2006 prices in that area. The sellers agent had lengthy emails with us about how this was not the market etc. etc. and in the end we just walked away.

  18. 18
    jon says:

    We can all see the the supply of houses building up, but what about pent-up demand? During times of deflation, people will put off buying until the last minute. Once buyers think the bottom has been reached, many will jump in. That could lead to a v-shaped bottom. I don’t know if the 9-month supply they are talking about is with the currently depressed volume, or the a longer term average. If it’s just short term, then the same inventory level will jump to a shorter number of months once buyers are no longer holding out for a lower price and the rate of sales goes up.

    Also, now that people are facing a higher interest rate because of tighter financing rules, they can afford a less expensive house. In growing areas, builders can respond by building less expensive houses. That would drive down the average price of a houses sold without necessarily affecting the price of existing houses. Again, once the market stabilizes, and buyers who can qualify for existing unsold new house jump back in, that inventory could quickly clear out.

    One other thing I’ve been thinking about is the 18 month lag of prices in Seattle vs. SoCal. There’s probably also a 18 month delay in SoCal following the Seattle market, but you just can’t see it because this market is so much smaller there’s not enough people moving out to have an effect down there.

  19. 19
    what goes up comes down says:

    jon, have you been pay any attention at all? simply stated if supply exceeds demand — all prices drop, that is what happens in a market. Also I don’t know if you have paid much attention to the economy but there is a good chance we may go into a recession. I know some people think Seattle will be immune from a national recession but I think that is just wishful thinking, because this national recession ression may just end up being a global one.

  20. 20
    jon says:

    My point is that it that it is easy to see a high supply, but there is no similar visibility into the demand. Some of that pent up demand can be seen on this blog where some people seem anxious for a buying opportunity.

    Also, for a recession to be official takes 6 to 9 months of negative growth. Have we had even one yet?

  21. 21
    what goes up comes down says:

    jon, your right there has not been a single quater yet of negative growth. However, why do you think the fed cut rates? Do ya think the future is bright and that is why? The last recession in 2001 the fed was behind the curve not ahead of it — and this is the trend — the fed cuts rates to late. The market is already starting to talk about an additional cut. So my point here is why in the world would someone want to buy at this point. If you have not bought already WHY would you buy now. Of course people like to wait for a buying opportunity — that is why it is a market. But usually a buying opportunity is when the market has went down, right? So people will sit on the side lines until the market rolls over, then of course the psychology starts — is this the bottom or not, will I buy and then watch as my equity diminishes, etc… Do you think when spring time rolls around everyone will start buying? Myself I think when spring time rolls around you may see some panic selling. The funny thing about housing is it does not take much on the margin to send things up or down. Just as in the past when people were in bidding wars the opposite also can happen — houses can sit on the market for months.

  22. 22
    notabull says:

    “If you have not bought already WHY would you buy now. Of course people like to wait for a buying opportunity — that is why it is a market. But usually a buying opportunity is when the market has went down, right? So people will sit on the side lines until the market rolls over, then of course the psychology starts — is this the bottom or not, will I buy and then watch as my equity diminishes, etc…”

    There really is no reason to buy right now if you’re an educated observer. However, most people don’t fall into that category. They hear about “subprime” and watch the markets bounce up and down, but then their realtor tells them “Seattle is fine. Boeing. Microsoft”. Also, they’ll trust the local media over those crazy types on Wall Street any day.

    IMO, the only thing that’s putting a *serious* dent on demand right now is the significantly curtailed ability to borrow money at silly terms. The vast majority just don’t have more than 10% down, and couldn’t afford the house unless they had some kind of “creative” financing. The *desire* to buy is no longer equivalent to the *ability* to buy.

    Without the credit crunch I think we would have continued our slow decline in sales, and this would have translated into a slow decline in prices. The credit crunch is likely going to accelerate this process significantly.

  23. 23
    Ira Sacharoff says:

    I think what’s most of all put a dent on demand is the lack of affordability…yes, it’s the inability to get loans, but they’re just not going to ( nor should) make a loan on a 400,000 dollar house to someone earning 15 dollars per hour. Yes, Seattle has some highly paid folks out there, but enough to justify little fixer pieces of crap in bad neighborhoods for 300K. And yes, if I get a listing for one of these, I will call it a little fixer piece of crap.

  24. 24
    johnnybigspenda says:

    i’d be interested to know the stats of the folks on this board: renter? owner? bought when? agent? looking to buy in the next X months? ect ect… I’ll bet you dollars to donuts half the folks here are renters just hoping (possibly even trying to propegate the bubble theory) that prices drop so they can finally own…

  25. 25
    The Tim says:

    jbs,

    It’s a bit outdated now, as the readership has more than doubled since this was taken, but you might be interested in checking out the poll from August last year.

  26. 26
    Mike2 says:

    half the folks here are renters just hoping that prices drop so they can finally own…

    Well, I’ve been looking and found SFH’s close to work that would cost about 2-3X gross income. Problem is, these properties and many, many (I mean ALOT) of other homes in the area have plummeted in value already. We’re talking 2 years of appreciation GONE. As much as the prices have already fallen, there are so many homes on the market that aren’t selling even at these reduced prices. And to top it off, even with 2 years of apprecition gone, prices are still way above 2002 levels. (Though I am seeing some of the REO’s and short sales dipping to 2003 levels) Note, this is in an area with significantly higher median incomes than Seattle.

  27. 27
    deejayoh says:

    Note, this is in an area with significantly higher median incomes than Seattle.

    Mike2 – just to clarify, you’re in DC area, right?

  28. 28
    uptown says:

    re: Pent up demand

    If you had the money and interest in buying, you would have bought when fixed interest rates were rock bottom. The few people who post on this blog and like to time the market, are such a small percentage of the buying public that we don’t count as pent up demand.
    As has been said many times: entry level buyers are driven by affordability, which then sets the base market price for all other up market purchases (ie, you own a house and want to move up, the price you can sell your house for sets the limit on what you can pay).

    A new factor that will put downward pressure on prices is the greying of the baby boomers, who will likely want to downsize in the coming years. Many have owned their houses for years and will be very willing to sell for less, as they will be purchasing for less and still be making a handsome profit.

  29. 29
    CCG says:

    “I’ll bet you dollars to donuts half the folks here are renters just hoping (possibly even trying to propegate the bubble theory) that prices drop so they can finally own…”

    Don’t feed the trolls, kids.

  30. 30
    Mike2 says:

    deejayoh, yes. And the median household income in the city and county I work in is just over $100K.

  31. 31
    Dave says:

    That line that Baby Boomers will sell for less because they will still be making alot of money is a load of horse pucky. Most baby boomers have way undersaved for retirements – for many their only nest egg is the value of their house and they will feel obliged to try and get every dime they can. Unfortuately the very low saving rate means that some of them will be stuck asset rich/cash poor. They will be forced to sell at a reduced price because that money is funding the retirement and the need it now – not later. They are going to be millions of elderly in poverty or workign as walmart greeters until they are 90.

  32. 32
    PDX Renter says:

    They are going to be millions of elderly in poverty or workign as walmart greeters until they are 90.

    Or they will collectively vote us into socialism. The democratic party should take heed…there is an amazing opportunity coming to lasso in the millions of impoverished old by pandering to their “needs”…needs in this case being a euphemism for hand-out

  33. 33
    patient says:

    If many baby boomers marches towards such a sad future you would hope their kids (today’s homebuyers ) take note and load up their 401k’s instead of spending it all on a mortgage…if so it could create further downward pressure on prices.

  34. 34
    Ira Sacharoff says:

    I’m an agent, and I also hope that prices drop, and expect them too. There’s nothing wrong with renters hoping that prices drop so they can buy. House prices here are out of reach for so many people. Also, if prices drop the hysteria will die down and maybe some of the shysters in the industry (agents, lenders, appraisers, etc) will go elsewhere.

  35. 35
    what goes up comes down says:

    “I’ll bet you dollars to donuts half the folks here are renters just hoping (possibly even trying to propegate the bubble theory) that prices drop so they can finally own…”

    This must be one of the most idiotic statements I have seen. Yes johnnybigspenda, imagine people trying to get an advantage in a MARKET, I imagine that you try to buy stocks high and sell them low — right? Of course not, of course people here are looking at the RE market — isn’t that obvious by the topic — people here seem to want to EDUCATE themselves — imagine that, must sound crazy to you.

    But if you think this small number of people can as you say — (possibly even trying to propegate the bubble theory) — then you are at the very low end of the I.Q. scale. The “bubble theory” isn’t something invented on this blog — LOOK around it isn’t a theory — it is reality.

  36. 36
    notabull says:

    “But if you think this small number of people can as you say — (possibly even trying to propegate the bubble theory) — then you are at the very low end of the I.Q. scale. The “bubble theory” isn’t something invented on this blog — LOOK around it isn’t a theory — it is reality.”

    Boeing!

    Microsoft!

    Seattle has jobs. Nowhere else in the country has jobs. Seattle has mountains and lakes. Nowhere else in the country has mountains and lakes. Seattle has Starbucks. Nowhere else in the rest of the country has Starbucks.

    BTW, did you know that half the population has an IQ of less than 100? Amazing… ;)

  37. 37
    JohnnyBigSpenda says:

    WGU, I was wrong…. It was over 60% renters on this site…. you hear what you want to hear.

  38. 38
    deejayoh says:

    Meanwhile, back on planet earth – we finally hit the big-time with our first “if only I had waited” post over on BMIT

    you go Johnny BS.

  39. 39
    SLTO says:

    This is a sign of things to come…. bitter homeowners will dominate this blog and find somebody to blame for their loss…

    it wasn’t their fault they took a HELOC, the LO promised them they could sell in a year…

    Stop propagating lies… there is no bubble… (sarcasm)…

    this blog has been around for a while now and at the eve of the housing crash, it’s nice to see who’s coming to the party… folks drunk with kool-aide that are sobering up and blaming the non-drinkers for making them look dumb…

    the bubble did not start in seattle… everybody knows we’re way behind… so I don’t see how we’re propagating anything…

    sorry to feed the trolls but I find it amusing to watch the drunks sober up…

    by spring it will be a painful hangover…

    disclaimer – I’m an owner and my home already lost 30K based on comps from when I bought it last year… (I’m not selling either so it’s all paper losses… but I too am a bitter buyer, less so than some)

  40. 40
    MicrosoftBuyer says:

    I know some co-workers (Microsoft employees) bought houses in Issaque early 2007. They bought ~2000SQFT houses for high 500K ~low 600K.

    The exact same model, with better lot and location, is asking for only $529K!

    No bubble here in Seattle anymore. It’s burst already.

    So much Microsoft!

  41. 41
    JohnnyBigSpenda says:

    dj, you forgot the second part of your “sign of things to come”… the bitter renters will be all about “I told you so”. (even though they continue to pay my mortgage for me).

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