Link Roundup: Incentives, Economic Woes, Alt-A, and More

Here are a few stories from the last week or so that are worth pointing out.

First up a TV report from KOMO News: “Open House” — sign of the times in Snohomish County

Real estate agents in Snohomish County are now resorting to a “shock treatment” for slouching home sales in their area.

Realtors advertised more than 400 open houses over the weekend. Agents say they hope playing the numbers game adds-up to more home sales.

“It’s to get the public excited about all the great listings they can see out here today,” said Rich Williamson, President of the Snohomish County Association of Realtors. “It’s a chance to see more homes than they ever saw in one day or one weekend.”

Chris Lamoreaux says the housing market story is more than just numbers.

“We’re going fight the media that’s been negative about the housing market,” he said. “The real estate market in Snohomish County and the Puget Sound is excellent.”

That darn media, always being so negative about the housing market. I wonder if anyone can find me a quote from a real estate agent thanking the media for all the positive press when the housing market was gangbusters? Let me know if you come up with anything.

Moving to the opposite end of the Sound, down in Thurston county the “incentives” are flowing strong. The Olympian reports: Home sellers turn to incentives to draw buyers

A new Honda scooter, a trip to a Caribbean destination and a chance to win free gasoline are just some of the incentives that South Sound real-estate agents are using to entice prospective buyers in a slower housing market.

Some agents, though, are split on whether such incentives and other marketing efforts are worthwhile. Re/Max Four Seasons broker and owner Dean Stohl says the best approach for home sellers in this cooler housing climate is to think carefully about the sale.

“The most important ‘non-gimmick’ are sellers pricing the property competitively and making sure it is in ‘tip-top’ condition before putting it on the market,” he said.

Still, some agents are rolling out increasingly creative hooks to land that next sale because sales have cooled since the piping-hot years of 2005 and 2006.

Sounds like Dean Stohl has it figured out. Good luck to all those salesmen thinking that the prospect of paying 30 years of interest on a scooter will sell houses, though.

Another great column from the P-I’s Bill Virgin popped up last week as well: Economic woes could run deep in the region

As large and influential as those companies [Washington Mutual, Weyerhaeuser, Starbucks, Costco] are, there are less-visible layers of small and medium-sized companies that also keep the region’s economy moving.

Or not.

Those smaller outfits are dealing with the pressures and headaches of a slowing economy, some generated by the same factors plaguing large companies, others the result of cutbacks and retrenchments by larger companies with which those smaller firms do business.

“In today’s deteriorating economic climate, the ranks of companies feeling the pinch are growing,” writes Michael Newsome, a principal with Seattle-based investment banking firm Zachary Scott, in a recent newsletter. “Even in a fairly buoyant Northwest economy, we are entering a period of rationalization that will cut across industries. For a number of companies, depressed consumer confidence, ballooning energy costs, restricted credit access and, before long, higher interest rates will trigger sufficient financial distress to mandate restructurings and, in some cases, business sales or outright liquidations.

It’s nice to have at least one voice of realism in the local press. Too bad it seems like nobody is listening. Most people would rather believe that pink ponies will dance through the streets of Seattle forever and ever than consider the possibility that economic slowdown might actually affect us here.

Here’s one a few people pointed out. The latest top-ten list from Forbes’ Matt Woolsey is America’s Most Overpriced ZIP Codes. Guess who gets #3?

3. Seattle, Wash.

ZIP code: 98104
Purchase-to-rent spread: 30.3

Until recently, Seattle has been held up as the example of a city immune to price drops as its market posted price increases from 2006 to early 2008. But as transaction volume has slipped and prices have flattened or fallen in many neighborhoods, the downtown area, near Pioneer Square, which experienced some of the most rapid price escalations during the boom, particularly in condos, appears vulnerable to correction.

Hooray for Seattle.

Lastly, here’s one from the national news scene. New York Times: Default rates for “alt-A” loans increasing

The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.

Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

But I thought subprime was contained.

(Eric Schudiske, KOMO News, 07.28.2008)
(Rolf Boone, The Olympian, 08.04.2008)
(Bill Virgin, Seattle P-I, 07.30.2008)
(Matt Woolsey,, 07.29.2008)
(Vikas Bajaj, New York Times, 08.04.2008)

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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.


  1. 1
    Demersus says:

    I’m just reading the Seattle P-I story today about the Kaminsky DNS exploit and I noticed an ad on page A7 for West Water Condos in West Seattle. They guarantee 5% annual appreciation. I’d like to know the details on that claim…

  2. 2
    softwarengineer says:


    I can’t add much to it, you covered most of the salient points. Its almost like the realitors preaching “pink ponies” in Seattle are calling part of the media and most of the American voters “whiners” for being intelligent and pragmatic about our current recession [yes, be in denial all you want, we’re in a recession in my opinion and its apparently getting much worse too].

  3. 3
    Buceri says:

    The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

    Exactly – for 2 years now they’ve been concentrating on sub-prime; but a ton of people with good credit were warned about being left out and jumped with both feet into bad loans. They all know these families; they got in at the wrong time.

    To me, this will be a much larger issue than sub-prime. Much larger.

  4. 4

    …And I was just looking at some stats from the second quarter of 2006, which stated that something like 55% of the new home loans in the Seattle area for that quarter were ARMS.. …And isn’t a 3 year term fairly typical for an ARM?

  5. 5
    Chris says:

    Demersus, I wonder if they’re running into some problems securities law by making that claim.

  6. 6
    victorchai says:

    Ira Sacharoff
    Link please, show us the evidence…..

  7. 7

    The recent news is that zip codes in downtown Seattle are still rising. More homes valued over 2.5 million on Queen Anne and Magnolia sold this year than last. Because of the increase in the job market here, the downtown area continues to hold its value- condos and homes alike.

  8. 8
    deejayoh says:

    Charles Grimes // Aug 4, 2008 at 5:21 pm

    The recent news is that zip codes in downtown Seattle are still rising. More homes valued over 2.5 million on Queen Anne and Magnolia sold this year than last. Because of the increase in the job market here, the downtown area continues to hold its value- condos and homes alike.

    Wait, you think that the increase in the job market is causing the number of $2.5mm+ homes in QA and Magnolia (went from 12 to 24 sales) to go up? Which jobs? I want one of those?

    Only 27 more listings to go…

  9. 9
    deejayoh says:

    how about this data

    Mag + QA >$1mm value properties sold:
    Last 12 months: 128
    12-24 months: 159
    off 20%

    REAL downtown properties (since when are QA and Magnolia DT?) over $2.5mm
    Last 12 months: 16
    12-24 months: 48
    off 67%!!!

    Yep. those jobs are doing the trick

  10. 10
    Angie says:

    Another interesting real estate factoid that hit the news wires this week is that the Housing Assistance Bill drastically changes the captal gains treatment for rental properties starting in January 2009. A tip of the hat to Bili for asking about this on Rain City Guide the other day, which is what brought it to my attention. I haven’t seen it discussed here, at least in the main posts and aftermath….

    For the past several years, if owners occupied a house as a primary residence for two of the past 5 years, they would be exempted from capital gains taxes upon sale of the house, for up to $250K if single or $500K if married. Lots of folks used this tax dodge during the runup.

    After January 2009, the clock gets reset, so to speak, and the degree to which capital gains are paid depends on what fraction of time the owners actually reside in the house from that point on. A house that’s always a rental after Jan 2009 will see no capital gains tax exemption.

    This may well spur investors who can meet the “two in the last five” requirement to try to unload properties between now and the end of the year, to avoid a big tax bill. We’ll see!

  11. 11
    deejayoh says:

    ooh. thx for the tip angie. that would be my landlord!

  12. 12
    Alan says:

    This may well spur investors who can meet the “two in the last five” requirement to try to unload properties between now and the end of the year, to avoid a big tax bill. We’ll see!

    Wow. That could be a huge driving force for lower prices this year.

    Say someone bought a house for $300k that is worth $500k today. They can sell it by December this year tax free or in January next year and pay taxes above $300k (assuming they didn’t depreciate it). Say their tax rate is 30%. The should be willing to discount the $500k market price up to around $440k. Everyone competing will have to follow suit.

    We may see an additional 10% drop by the end of the year with an uptick in price in January.

    I may have to buy a house this December.

  13. 13
    Angie says:

    Deejayoh, are you my tenant?!?!

    Just kidding; I am CERTAIN you are not.

    My husband and I fit those requirements. We don’t have any plans to sell the rental house–it pays for itself just fine, it’s the backup plan for paying for kids’ college as it’ll be paid off just before kid #1 hits college age. But it does change the parameters of the endgame, if and when we do ever decide to sell.

  14. 14
    thelongwait says:

    Alan, you’re assuming the gain is taxed as income? Shouldn’t it be capital gain whose rate is 15%?

  15. 15
    Alan says:

    Good point, thelongwait.

  16. 16
    EconE says:

    Downtown condos doing well Charles?

    Can you tell me exactly how many 400k+ 1BR’s sold in the last 6 months?

    Can you tell me exactly how many are for sale?

    Can you tell me how many are for sale but not listed (Olive8, Enso, Rollins, Veer, Escala, etc etc etc)?

    Sorry…Seattle’s condo market is a bust. If it weren’t, I wouldn’t see a Windermere Broker trying to off a condo that she paid more than 600k for in 2006 for less than 500k.

    But I guess that 100k+ loss is a good thing eh? Tax write off?

  17. 17

    It’s from the book “Successful Real Estate Investing in a Boom or Bust Market” by Larry Loftis, Appendix B, p 188.: First quarter 2006, new loans with ARMS was 47%, compared to the national average of 28%.

  18. 18
    D-in-Ravenna says:

    Angie, thanks for the info on capital gains changes. Here is a bit more information. The new tax will be based on the amount of days the house was not a qualified personal residence divided by the total number of days you owned it. This ratio is multiplied by the amount of gain realized on the sale of the property.

    Yes, the law becomes effective on Jan. 1, 2009. But the clock doesn’t reset to 2009. The ownership period to take into account as the “numerator” for nonqualified use starts on Jan. 1, 2009. In other words, if you rent your house out for 2009 and lived in the house for the 4 years prior, you pay taxes on 20% of the capital gains. This law is really geared towards rental or vacation home owners who try to move into their second properties for two years to avoid paying. You’re not going to get charged capital gains on a home you’ve owned for ten years, just because you began renting it out January 1, 2009.

    Here’s a link to more info from Marketwatch:

    Great posts, everyone!

  19. 19
    Buceri says:

    Charles –

    That’s the problem with this site. When someone like you comes along with some extremely ridiculous statement pulled out of their asses; some moron like deejayoh comes back with actual statistics and facts. And facts suck!!!

    I have to admit that I had to e-mail you statement that the job market drives the sales of 2.5mil homes to a few friends. It was priceless.

    Then again; car salesmen are probably telling people SUVs are making a comeback.

  20. 20
    jason says:

    I have a question about a potentially growing trend in real estate. It seems that many in the baby boomer generation will soon be retiring. I suspect that many of them will try to down size and some will move to warmer, dryer climates. It seems that it was the baby boomer generation that drove the prices of real estate through the roof. With at least a percentage of them looking to down size, it seems that real estate in some sectors could become substantially cheaper over the next 5-10 years and it will be more difficult to rebound from the current credit crunch.

    I suspect that as baby boomers see the values of their stocks diminish, inflation rise, interest rates go up, they will become increasingly interested in selling their larger homes and becoming more conservative. This seems an expected trend, but I almost never hear anyone in the national media discuss this possibility. Does anyone else suspect a similar trend?

  21. 21
    b says:

    jason –

    I agree and think this will be a long term (next 5-15 years) trend in both real estate and equities. The boomers are going to be cashing out of both over that timeframe and there isn’t enough population or wage growth in non-boomers to make up for the balance.

  22. 22
    Buceri says:

    The first wave of boomers is turning 63 this year; they have another 4 yrs (?) to be able to retire with full SS benefits. The current economic situation puts them as targets for “early retirement packages”. But by choice, I think they would rather work as long as they can.

    On the other hand, I am not sure about the PS area demographics; but I suspect the region’s median age is quite younger than the country’s general population. Most arrived in the late 1980s and 1990s while the were in their late 20s/early30s.

  23. 23

    I completely agree with Jason. In fact, some communities in the south see retirees as a cottage industry, and places like Hot Springs ,Arkansas ( a very pretty place full of artists) are devoting energy and money to also attract retirees.

  24. 24
    tarzanchuck says:

    “And isn’t a 3 year term fairly typical for an ARM?”

    For subprime loans, the typical ARM was 2 years when those loans were still around. The last of the subprime companies stopped offering those 2 years ago this January.

    However, for a more traditional conventional loan historically, a 5 or 7 year ARM is much more standard. VA ARM’s can only be 3 years, but mostly 5 year is what you see.

  25. 25
    jason says:

    Tim and fellow bloggers

    I will be moving from another state to Bellevue in December and have been watching the market for some time. I grew up in Bellevue and moved away for schooling ten years ago. I am amazed at the high cost of housing in the West Bellevue/West Kirkland and Medina regions. It seems to me that much of the increased cost of housing in these regions are based on speculators who purchased homes in the last several years with the expectation of a short term, less than 5 year, occupancy. I am not talking about flippers since I doubt anyone would try to do that in this environment. I believe this because many of the homes for sale now were purchased less than 5 years ago. These are not the typical home owners of the past who purchased a home for enjoyment.

    An interesting statistic would be to determine what percentage of for sale homes in a particular region were purchased less than 5 years ago. This would identify a particular market strength or weakness since speculators will soon become more desperate as they watch their neighbors loose equity. Is such a statistical analysis available? It would be interesting to compare Seattle to other cities. It seems that the more speculators in a market, the harder the crash will be.

    Many of the homes I have looked at are exceptionally over priced. Some home owners seem to be in fantasy land when they came up with a selling price. Some people actually think a purchaser would pay 20 or 30% more than they paid only 2 years ago. Thats ridiculous. I could afford an expensive home in a nice neighborhood, but I am not crazy. I plan to wait until prices come down.

  26. 26
    AndySeattle says:

    Jason (the one with the Baby Boomer questions)

    Another thing to keep in mind is when the BB’s start to downsize the will be looking for single floor residences as the stairs are too uncomfortable to traverse with old knees and hips. I’m predicting stronger value retention in rambler/rancher homes with flat lots and open floor plans for BB’s who may be abandoning multi-storied homes.

  27. 27
    Angie says:

    D, thanks for that link. I agree that someone who’s had a longtime rental isn’t going to find the consequences changing abruptly (though the two-years-and-homefree option is now gone.)

    In the runup of the last several years, though, there’s some subset of people who have significant capital gains on paper who do fall into the two-of-the-last-five-years group, and this could push them to sell if they’re on the fence.

    Funny you should invoke ten years as an example–my husband and I bought our first house almost exactly 10 years ago, and it’s been a rental for a bit over two. So, we’re right on the verge of losing that qualification. If we sold the house today for what Zillow says its worth (however likely that is), we’d pay nothing whatever for the CG tax. If we sold it a year from now at that same price, we’d owe at least a few thousand bucks in taxes and as time goes on the bite will be bigger.

  28. 28
    EconE says:


    Kirkland is full of speculators. Especially in the 800k+ New construction segment. Just go through the photos in the listings and you’ll be able to see how many “empties” there are. It’s an astoundingly high percentage. Some are staged (obviously), but have been on the market since they were completed in early 2007.

    Way too much built on the high end IMHO.

    Plus…I’d bet there were plenty of ARM’s (of many flavors) in 98033 over the last few years that contributed to some of the “fake” appreciation.

  29. 29

    […] If you like, you can read my 2008 comments on this article here. […]

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