Local Media Roundup: Doom and Gloom, Etc.

We’ve been focusing more on original content here lately, which means that as articles crop up in other local news sources, we haven’t been posting every single one. Of course, there are some interesting things being said about the local housing market in other news sources, so it’s good to touch base with them once in a while.

So, here are excerpts from some of the interesting real-estate-related articles that have been printed elsewhere in the last week.

Debra Smith, Everett Herald: Area’s housing isn’t doom and gloom, experts say

Area real estate professionals and politicians want to clear something up.

Now is a good time to buy and sell real estate in Snohomish County, no matter what people may be hearing about the national market.

“There is no shortage of information or opinions, and so many reports seem to conflict with each other,” said Ron Sparks, a moderator of the panel and a vice president at Coldwell Banker Bain. “It’s no wonder people are confused.”

Many of the speakers, including Sparks, pointed the finger of blame firmly at the media, which he said are confusing the public by publishing headlines designed to appeal to emotions and reports that “mix and match” local and national information. Sparks compared the real estate market to the weather: What’s happening in San Diego isn’t helpful here.

Yeah, it’s that dog gone confusing media. If not for them, the housing market would be just peachy. Give. Me. A. Break. Talk about grasping at straws.

Seattle P-I Editorial Board: Housing Bubble: Listen to Japan

Politicians in Washington, D.C., seem stalled on how to tie up more strands of an unraveling economy. They should listen to advice from Japan, a land that knows how the bursting of a housing bubble can make a mess of an entire nation’s prospects.

Japan’s financial services minister, Yoshimi Watanabe, told the The Financial Times that using public money to strengthen the U.S. financial system will prove “unavoidable.” As The Financial Times noted, the central banks of Europe and the United States already are considering purchase of mortgage-backed securities.

Wait, what? The P-I Editorial Board seems to be suggesting that we basically handle things in basically the same way that Japan did: use government intervention to attempt to soften the inevitable consequences of the last few years of stupid. As everyone knows, this led to a 20-year economic and housing downturn in Japan, so how does it follow that we should do the same?

Aubrey Cohen, Seattle P-I: Seattle home prices post decline

The Seattle-area housing market became more like the dreary national market in one more way in January, posting its first year-to-year price drop since 1991, according to a leading index.

Given that the Seattle area’s annual appreciation has been declining since February 2006, the fact that it finally is negative is no shock.

“I’m surprised we hadn’t seen a decline actually a couple months ago,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

The Seattle area has declined 5.6 percent from a peak in July, already exceeding an earlier forecast by Moody’s Economy.com that area prices would decline 5 percent from the peak to a trough at the end of this year or early in 2009.

“I guess our forecast was maybe a little too optimistic,” Andrew Gledhill, an associate economist at Economy.com, said on Tuesday.

Crellin did not offer any numerical predictions, saying: “I think we’re going to continue to see some rough times for the next several months, but I’m hoping it’s not going to get much worse.”

Glenn Crellin seems to be singing a different tune than what we’ve been hearing from him recently. It used to be all “our economy is strong, the housing market is strong, we’re the greatest.” Now we’re hearing more “I think” and “I’m hoping.” Interesting.

David Brewster, Crosscut: Good news! Seattle housing prices drop!

One of today’s top stories is the decline of housing prices in the Seattle area, where the average price has dropped 1.3 percent, comparing January 2008 with the previous January. It’s the first such year-over-year drop since 1991. Not to worry, says The Seattle Times’ story, “others across the nation fared much worse.”

Why “worse”? Shouldn’t the term be “better”? Haven’t we been deploring high housing prices for years, saying how they are driving off residents and preventing our children from ever returning to Seattle? Why don’t we think of dropping prices as a blessed public good?

Hypocrisy, that’s why. The lamentations about affordability are mostly just pious hand wringing, usually by people who are secretly pleased at how much their home values have been going up. Our local papers follow right along, boasting about how much better we do in keeping prices high than other cities.

Duh. It’s nice to see someone other than Seattle Bubble actually come out and say it, though. Thanks, David. As I’ve said before, labeling predictions of home price declines as “doom and gloom” is utter nonsense. Decreasing home prices is a good thing. Really.

(Debra Smith, Everett Herald, 03.22.2008)
(P-I Editorial Board, Seattle P-I, 03.25.2008)
(Aubrey Cohen, Seattle P-I, 03.25.2008)
(David Brewster, Crosscut, 03.26.2008)

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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.

35 comments:

  1. 1
    FreedomLover says:

    Ah they’re hoping to reel in a few knife-catchers.

  2. 2
    James says:

    Home prices dropping, lenders reforming, and borrowers getting smart are not just good things but necessary things to return to a ‘normal’ housing market. I bought 9 years ago, if I sell for 20% under peak, proceeds would cover PITI, maintenance, and upgrades and I would net zero. This does not neem ‘normal’ and it tells me that we probably have a long way to go to the bottom.

  3. 3
    FreedomLover says:

    James – until prices get much lower and 20% down payment becomes THE norm again, I won’t believe sanity has returned.

  4. 4
    drewba says:

    I’d be surprised if 20% down becomes the norm again. You’re talking about saving a huge sum of money in a savings-adverse society already saddled with too much debt. Meanwhile, there are plenty of companies desperately competing for their business.

    I’d expect to see the risk of low down payments more accurately priced (no more skirting around PMI with home equity loans), but I think single digit down payments are here to stay.

  5. 5
    vboring says:

    first, it is “savings-averse”, not “savings-adverse”

    second, house prices falling nationally has the potential to be catastrophic for our economy/currency. Japan’s point is that a slow deflation of a bubble over a decade or two is preferable to a collapse. slow or no growth for 10-15 years is less traumatic than negative 10% growth for 2-3 years.

    but those appear to be our choices today. trillions of dollars were added to the economy by unsupported asset appreciation and now those trillions are being taken back out. this is inevitably impacting economic growth.

  6. 6
    FreedomLover says:

    drewba:

    We can continue to fool ourselves about the affordability of mortgages with single-digit down payments. It won’t make those people any less knife-catchers.

  7. 7
    NotaBull says:

    “I’d expect to see the risk of low down payments more accurately priced (no more skirting around PMI with home equity loans), but I think single digit down payments are here to stay.”

    Getting a 2nd mortgage is not really “skirting around PMI” because the higher interest of the 2nd loan is essentially the “insurance” against default. OK, so it’s not called PMI and it’s not called “insurance” either, but it’s essentially the same thing. It’s just tax deductible so people figured that it was the best option.

    I don’t disagree with your assertion that single digit down payments are here to stay. In fact, it never *was* 20% as your only option. Before the recent credit boom you could always do FHA, PMI, etc.

    What we’re returning to is *some* element of down-payment (3-10%?), realistic underwriting based on the capacity to repay (job!), and a realistic assessment of whether you’re the kind of person that it likely to repay (credit history/score). Returning to these sane underwriting standards is a big deal, of course, and I don’t want to underplay it. I just don’t want everyone thinking that they *must* have 20% down in order to buy a house right now or in the future.

  8. 8

    THE WAY OUT OF THE SUBPRIME MESS

    Its simple, lets get real estate prices properly butcher axed. Then the buyers will be back.

    But some say, but ohhhhhh….what about the ones that lose their shirt? Would if we fall into a recession?

    I’m laughing now…..”fall into a recession”…..wake up and smell the coffee, we’ve been in a recession for a long time now and to quote Bruce Springsteen, “…and those jobs ain’t comin’ back….”. Get used to it.

    Here’s a great URL documenting the top 30 occupations in America for the next 10 years from the Bureau of Labor Statistics:

    http://www.bls.gov/news.release/ecopro.t05.htm

    Note: Most of them do not require a degree. None of them are for engineers. The list is horrifying isn’t it. It tells me household wages are going way down in the future and so are real estate prices. There’s no soft landing for real estate, just more lowering of prices to get used to continue for many years to come.

    If you have a kid in college and they aren’t working right now, I’d put ’em to work right now, while they finish college…..or don’t clean their room out right away, just yet.

  9. 9
    Sniglet says:

    I’d be surprised if 20% down becomes the norm again. You’re talking about saving a huge sum of money in a savings-adverse society already saddled with too much debt. Meanwhile, there are plenty of companies desperately competing for their business.

    Sorry, but I think big down-payments will be the norm by the time we hit bottom. The degree to which lending standards (including required down-payments) are tightened is directly correlated to the percentage that real-estate prices decline. Lenders do NOT want to get stuck with borrowers who have negative equity, and will take whatever it takes to prevent that from happening.

    If national home prices drop 20% to 25%, as many economists are now predicting, then lenders will begin demanding down-payments of that magnitude, since they will have seen that such drops are indeed possible. If national home prices drop 30% or more, then we could even see down-payment requirements go above 20%.

  10. 10
    Dave says:

    Many are lamenting the lack of savings in this country. An oft-mentioned solution is to increase the limits for tax deductible savings. However, this just benefits people who already are big savers. If large (10-20%) downpayments were required, then everyone who wanted to buy a home would be compelled to save significantly more money. This would greatly increase capital formation in this country, and would have a host of positive side effects.

  11. 11
    FreedomLover says:

    Dave:

    Our economy is not savings-based. It’s consumption NOW based. Whole industries would collapse overnight if the American people decided to save, starting with renting.

  12. 12

    BOTH FREEDOMLOVER AND DAVE ARE RIGHT

    What impacts future house prices and no one is talking about it, even Dr. Roubini, is the massive impact of 80 milllion Baby Boomers retiring on annuities based on the current dinky interest rates the banks give us for saving.

    The 80 million 401K Baby Boomer incomes is the interest; unless you suck the principle dry faster too, which creates a harsher effect on real estate prices as the interest income plummets toward zero. The Boomers won’t be spending if they make a crummy income. That means they won’t be travelling in Boeing jets, buying cars, eating at restaurants, buying computers, etc, etc…..imagine the job destruction on Seattle’s economy and further real estate price decreases with retired Boomers unplugging their local spending, because their retirements’ saving interest is a joke, to bail out the banks’ subprime messes.

  13. 13
    Dave says:

    The fact that increased savings would have some negative side effects is no reason not to encourage it. Savings do not prevent consumption, only delay it. And buying something with cash instead of borrowed money saves you the interest.

    Besides, there are a number of whole industries that we can probably do without.

  14. 14
    Ray Pepper says:

    Never underestimate “FEAR”. A group of investors who have utilized 500 Realty in recent months have all been withdrawing the funds out of their HELOC’s. It appears B of A, Countrywide, USB, and a host of other banks are closing the lines due to decreasing assets held as collateral. Wells Fargo (one of the Kings of HELOC’s) has yet to implement but the situation is being “monitored”.

    Many holders of these HELOC’s now state they lost their cushion for possible layoffs and medical problems. This adds to even more fear.

    I asked the investors what they are doing with their cash because they are obviously paying about 7-8%. All are not even looking at Real Estate at this time which leads me to believe I must start looking again. Many are stuck with homes they couldn’t sell and the smell of blood is just everywhere. We are early in the game but GEMS are popping up everywhere I look in Pierce County and Nevada.

    Off to an Investor tour of Reno, Vegas, and Phoenix with people that have very deep pockets. I will report back the carnage as I see it.

    Ray Pepper
    http://www.500Realty.net

  15. 15
    Alan says:

    Ray, maybe if you are seeing GEMS everywhere then some of the things you are seeing are not really gems.

  16. 16
    Sniglet says:

    The whole question of down-payments is very simple: what do you think lenders will do if we build up a track record of several years of 5%+ national price declines? Wouldn’t such a scenario almost guarantee lenders would increase their down-paytment requirements to protect themselves from having even more customers wind up with negative equity?

    Don’t forget that the very LAST thing a lender wants is to have customers with negative equity, since the incidence of foreclosure increases dramatically in these cases.

  17. 17
    Sniglet says:

    What impacts future house prices and no one is talking about it, even Dr. Roubini, is the massive impact of 80 milllion Baby Boomers retiring on annuities based on the current dinky interest rates the banks give us for saving.

    If asset prices keep falling then low interest rates, and annuities, won’t look so bad. You may actually be better off getting a .5% return on your deposits rather than a 20% gain if the prices you have to pay fall by 25%. During the ’90s you actually had people grateful to get a slight negative return on their deposits just for the assurance their capital losses wouldn’t were limited (i.e. you wouldn’t lose more than .5% or so). A .5% negative return looks very attractive when stocks, real-estate, and commodities are dropping in value like a rock.

  18. 18
    b says:

    Sniglet –

    That is already happening. Over at RCG, they have been posting new lender criteria as it comes out. Once an area moves into the prices falling category, the down payment requirements start to ratchet up. You might be able to find a 0 down load in Seattle still, but not by the end of the year. I recall that one lender had put into place something like 65% LTV requirements for Nevada and some California areas.

  19. 19
    TJ_98370 says:

    This is worth checking out IMHO –

    WaMu Alt-A Pool Revisited

  20. 20
    Runs With Scissors says:

    The challenge that I see is that one can only withdrawl, without penalty, $10,000 if a first time buyer, which as a down payment here in the Seattle area is a joke. While I certainly don’t advocate raiding ones 401k, if down payments are the issue, and home ownership is to be encouraged, this limit really needs to be looked at!

  21. 21
    Sniglet says:

    The challenge that I see is that one can only withdrawl, without penalty, $10,000 if a first time buyer, which as a down payment here in the Seattle area is a joke.

    It won’t be much of a joke if median prices drop 50% or more in the next 3 years.

  22. 22
    Scotsman says:

    Interesting times. My “Spidey Sense” is tingling. I think the reality of our economic and banking systems have really started to sink in with the general public. People are talking, and not much of it is positive. More and more people are starting to move money to safety, and look at ways to cut back on expenses. They know the game is over. Not everyone has a complete handle on the structure of the situation, but they get the gist of it. Like the Roaring ’20’s, the ’90’s et al are over, and the crash is on the horizon.

  23. 23
    old timer says:

    ” Reno, Vegas, and Phoenix with people that have very deep pockets”

    We all know how lovely ‘deep pockets’ are.
    And, could the locations be any more sublime?
    Let’s hope that he comes back all covered with the deliciously fragrant ooze of lucre.

  24. 24
    mike mcc says:

    Like the Roaring ’20’s, the ’90’s et al are over, and the crash is on the horizon.

    If this is true, why make payments anymore, at all?

  25. 25
    whats my name says:

    “Yeah, it’s that dog gone confusing media. If not for them, the housing market would be just peachy. Give. Me. A. Break. Talk about grasping at straws.”

    Someone is actually arguing that the MSM is deceiving the sheeple into wrongheaded real estate perceptions? Sheesh! Pathetic……although somehow it does seem vaguely familiar.

  26. 26
    The Tim says:

    Huge difference.

    I frequently said that the MSM was painting an unrealistically rosy picture of the market. What I did not say was that the landscape of the market was due to what they were saying. Real estate “professionals” are now claiming that the current market landscape is due to what they perceive as incorrect reporting by the MSM.

    Its ridiculous for two reasons. 1) The MSM has been under-reporting the local downturn until only the last month or two. 2) The MSM doesn’t drive the market, they react to it (very slowly). By the time you read about it in the paper, it’s been going on for a long time.

  27. 27

    It’s not simply the housing market, but the economy in general. I’ve heard some politicians accuse the media of ” making the recession come into being” by focusing on it. There’s such a lack of responsibility. In fact, real estate professionals contributed to the housing decline by going overboard with the hype about “buy now or be priced out forever” and colluding with lenders who were colluding with appraisers.
    Likewise, politicians have contributed to the economic mess by allowing record deficits and allowing the manufacturing base to disappear.

  28. 28
    whats my name says:

    Tim, Looking at the exerpt you reference, the causal link is provided by the reporter, not the RE “professionals”. It is derived by inference, as I think, could be done on the other side from postings here. Still, aside from you personally, I think you will admit many posters here are neither so circumspect nor subtle.

    Also, the MSM is not entirely the local media. I would argue that the national media is the greater force in the MSM, and they have been providing housing disaster headlines on a daily basis since long before prices here showed anything but strong growth. I absolutely agree with your last statement.

  29. 29
    The Tim says:

    Fair enough, but I think you have to admit that the way some real estate agents have been reacting to media reports of the housing slowdown has been pretty ridiculous. Here’s another great example from down in San Diego:

    The last portion of the conference, a question-and-answer session, admonished the media for depressing consumer confidence by focusing on only the negative aspects of housing data.

    George Chamberlin, a panelist at the event and columnist for the North County Times, said that some news reporters biased their reports because they are jealous of homeowners.

    Most real estate agents who spoke at the conference seemed to agree, with one agent suggesting that agents and builders pull all advertising from newspapers until positive articles are printed.

    “People think the market is down and the market will still go down. That’s not the truth. The market is down, but it’s not going down anymore,” said John Tuccillo, former chief economist for the National Association of Realtors. “I think it’s because consumers focus on national news and not enough on local news.”

    This is in San Diego, where the local news is worse than the national news.

  30. 30
    FreedomLover says:

    Well, the MSM definitely helped fuel bad behavior in RE, but we are in a recession because of a credit bubble burst.

  31. 31
    whats my name says:

    “Fair enough, but I think you have to admit that the way some real estate agents have been reacting to media reports of the housing slowdown has been pretty ridiculous…….”

    Isn’t it luck of the draw that FredomLover posted an overt blame on the media directly below your post?

    FL, what do you think of Tim’s argument? you can’t have it both ways.

  32. 32
    The Tim says:

    Hah, yeah well I obviously don’t agree with everything that commenters post on here.

    Personally I think “the media” had little to do with the crazy run-up. Blame for the run-up can be placed on the absurd availability of cheap money to anyone and everyone, and people’s willingness to jump head first into said financial products. Once the easy money got things rolling, mass psychology maintained and built the momentum.

    Perhaps the media may have been a small part of the mass psychology factor, but I think seeing people seeing their friends and neighbors sell their houses for 30% more than they paid 2 years ago, or moving into McMansions with zero down, etc… would have had a much larger effect than a newspaper stories.

  33. 33
    FreedomLover says:

    whats my name:

    I’m just saying that the MSM has its share of blame for not reporting on the credit bubble as it was happening. There should have been investigative reporters back 3-4 years ago exposing this stuff. They dropped the ball.

  34. 34
    uptown says:

    Higher interest rates would encourage saving, and discourage speculation. It might be painful for a short time, but better than a long slow downturn (Japan).

  35. 35
    WestSideBilly says:

    I think the reality of our economic and banking systems have really started to sink in with the general public. People are talking, and not much of it is positive.

    Definitely. The people in my circles are finally acknowledging what I was saying for most of 2007 – the ride is over. I have some acquaintances who as recently as January were still insisting that Seattle/Bellevue housing was a great investment. I think they’re finally seeing the writing on the wall.

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