Seattle-Area Foreclosures Rising Rapidly

Right on schedule, as home price declines in Seattle really start in earnest, foreclosures begin to “soar.”

Seattle-area foreclosures were up 54 percent in August from a year earlier, according to a new report.

The area, defined as King and Snohomish counties, had 1,185 properties with foreclosure filings, up 15 percent from July, according to RealtyTrac, an Irvine, Calif., company that tracks foreclosures.

The area’s rate of one filing for every 906 households put it 133rd out of 230 areas RealtyTrac ranks, up from 147th in July.

Statewide, properties with filings were up 64 percent from a year earlier and 15 percent from July. Washington’s rate of one filing for every 851 households put it 21st among states, up from 26th in July. U.S. foreclosures were up 27 percent from a year earlier and 12 percent from July, with one in every 416 households receiving a filing.

Also note coverage in the Everett Herald:

Snohomish County no longer seems immune from the wave of foreclosures that have affected homeowners nationwide, as the number of filings last month rose 39 percent compared with a year ago.

Across Washington, foreclosures rose by 64 percent last month, while the growth in filings across the nation was only 27 percent, according to RealtyTrac Inc. That national number was significantly lower than in previous months.

“There were some areas that were insulated a little bit before that are now catching up,” said Daren Blomquist, spokesman for RealtyTrac.

I guess we had plenty of folks jumping into dangerous loans here in the Puget Sound afer all.

(Aubrey Cohen, Seattle P-I, 09.12.2008)
(Eric Fetters, Everett Herald, 09.12.2008)

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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.

107 comments:

  1. 1
    maverick says:

    Realtytrac usually exaggerates their foreclosure rates to gain more subscribers like what you are doing to your website. Out of that 1.185 “foreclosure”. how many do you think will end back to banks? BTW, don’t you have better things to do except to find the most bad news out there and link it to your website?

  2. 2
    The Tim says:

    maverick, do you have any evidence to back up your claim that they “exaggerate their foreclosure rates”? Here’s their methodology, from the bottom of their latest press release:

    Report methodology
    The RealtyTrac Monthly U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing reported during the quarter — broken out by type of filing at the state and national level. Data is also available at the individual county level. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). If more than one foreclosure document is filed against a property during the quarter only the most recent filing is counted in the report. The report also checks if the same type of document was filed against a property in a previous quarter. If so, and if that previous filing occurred within the estimated foreclosure timeframe for the state the property is in, the report does not count the property in the current month.

    Even if you disagree with this methodology, at least we’re comparing apples to apples when we look at YOY data from them.

    As far as the “bad news” comment, perhaps you would feel more at home here.

  3. 3
    NotaBull says:

    “I guess we had plenty of folks jumping into dangerous loans here in the Puget Sound afer all.”

    This may or may not be true (I suspect it is) but the information you present does not mean that dangerous loans are responsible for the rise.

    There are some people that can’t afford their style of living, whether that’s because they’re spending more than they earn or because they lost their jobs. These people will *sell* their house during the “good times” and have no option but to foreclose when they can’t sell for more than they owe (like now).

    I think the question is what is the natural rate of foreclosure in normal times (say, normal appreciation of 3-4% a year) and what is the natural rate of foreclosure during the beginning of recessions? Perhaps we’re following that natural rate, perhaps it’s more…

  4. 4
    Scotsman says:

    Great link, thanks for the laugh, Tim. I especially like the “happy graphs!” However, I noted Seattle wasn’t on the list. Maybe next month.

  5. 5
    deejayoh says:

    Maverick. Like John McCain.

  6. 6
    Alan says:

    I’ve been tracking KC NTS’s in the forums for several months. RealtyTrac doesn’t mesh with my data. I wonder what their numbers actually mean.

    July NTS filings were huge — up 143% YOY (meaning 2.43 times 2007 numbers). August was only up 66%.

    http://seattlebubble.com/forum/viewtopic.php?f=1&t=1552
    http://seattlebubble.com/forum/viewtopic.php?f=1&t=1737

    If RealtyTrac is counting homes that have actually been foreclosed on then we can expect a bumper crop three months after July.

  7. 7
    The Tim says:

    Scotsman @ 4:
    My favorite part of the Happy Graphs is how none of them have values listed on the y-axis.

  8. 8
    deejayoh says:

    I saw that too. I assumed the scale ran from “not happy” to “giddy”

  9. 9
    robroy says:

    As people who HAVE TO sell see their home rot on the market into the slow season (now) this should really ramp up.

    I also expect this Christmas to be a historic retail disaster.

  10. 10
    Garth says:

    RealtyTrac is NOD + NTS + REO if I remember correctly.

  11. 11
    The Tim says:

    Garth, see comment 2 above.

  12. 12
    robroy says:

    I wonder if the strikes will have an impact on the area’s economy…

  13. 13
    Joel says:

    Maverick. Like John McCain.

    No, that would be a Mavrick.

  14. 14

    MORTGAGE FASCISM

    I believe [as well as almost all other scientific types like me] that the mess we’re in is due to uncontrolled population growth of low wage/skill workers in America and greed mongers shoe horning the uncontroled growth hoards into homes they couldn’t afford. Hence, the high foreclosure rate is absolutely no surprise to Tim and I….see our past blogs.

    Here’s an interesting blog from Dr. Roubini’s website on the root cause of this conundrum that led to this foreclosure mess from another scientific type [do they still call us Frankensteins?]:

    “….@ Joe Average: “So in affect aren’t the liability for other peoples mortgages being indirectly, unvolunteerly, and unfairly placed on the tax payers… And if so do the tax payers get fair use of the assets they are paying for?” on 2008-09-10 15:57:21

    The power brokers who run America’s financial system have started the most aggressive financial moves in America’s history and these aggressive moves have not shown anything but that they are going to make our lives worse.

    You, Joe Average, are now going to finance, directly and indirectly, high-end housing for corporate America’s flood of incoming low-wage laborers competing for your job. It’s called Medicaid for housing. And you and your salary, Joe, are going to underwrite mortgage investment risk for Wall Street.

    We are not talking about warren-like government housing here, to the contrary. Many of the foreclosed houses that China’s central bankers and Bill Gross invested in, at no risk to themselves but certainly to you, cost up to $800,000 (or more) and were “sold” on the basis of no income, no credit, no down payment, no job documentation, and no proof of citizenship. And, of course, no enforcement of one-family residential restrictions.

    I live two counties from the highest foreclosure county in the nation. Billboards at that time lined the highways offering $5000 cash or more to “qualified buyers,” and mortgage rates of 3% and under. Cheaper than renting! An additional feature was and is reduced property taxes and subsidized utility bills for those who “qualifiy.”

    Builders, lenders, teachers’ unions, utilities, retailers, CEOs, debt-packagers, Wall Street, everybody with a finger in the pot, was happy…

    In contrast, I, a single male aged 31 in 2001 with a master’s degree in electrical engineering and employment at a top R&D firm, with excellent credit, no debts, and a 20% down payment in my pocket, needed the co-signatures of my parents to qualify for a $620,000 in San Jose where the median price in 2000 was $537,550. The house I “bought” still had its original 1926 kitchen and bath fixtures and had been used as a rental for years. It was five rooms and one-bath squeezed into 1200 square feet, but sat in a decent neighborhood.

    After rate shopping, my best bet was a fixed interest rate of 8% with a points payment of $12,000 (I have since refinanced). My “Prop 13” property taxes touched $8,000 a year and now have surpassed $9,000. For 7 years I have been a house-poor homeowner.

    You ask, Joe, “do the tax payers get fair use of the assets (other people’s mortgages) they are paying for?” Well, I guess you do, Joe: you get to use a great deal more of your time paying for them….”

    You won’t get this news from the media or the DNC/RNC platforms….LOL

  15. 15
    TheHulk says:

    Maverick,

    Dont Realtors have anything better to do than to endlessly spin lies on the current market? Oh thats right, just because its their bread-and-butter they can say anything they want to (new) homebuyers who implicitly trust them?

    3 couples I know bought homes based on realtor advice in the last 2 years (one of them in Dec 2007). Today, everyone is at least 30K under, the family that bought in Dec 2007 is at least 60K under. Do you know they sunk almost their entire life savings into at least a 10% downpayment on their houses? Heck, I nearly did the same until I came upon Tim’s fantastic effort to present facts.

    I only wish I had known about seattle bubble back then, so I could have at least shown them this website and asked them to wait and make an informed decision. Tim, please continue posting facts and news with full disclosure the way you always do.

    At recent count you have saved me from going 50K under.

    Thank you!!

  16. 16
    tacomarenter says:

    Can anyone comment on the foreclosure laws in WA state? How long does one typically take?

  17. 17
    Ubersalad, Ph.D says:

    2 months between trustee sale notice and actual sale, and I am assuming one have to miss at least 2 months of payment to result in trustee sale notice. So overall, 4-5 months I think.

  18. 18
    singliac says:

    Software Engineer,

    Can you please give the overpopulation rhetoric a rest? I’ve heard you talk about your kid(s?) in the past. I guess it’s ok for you to have kids because you are educated. What a prideful position to take. I don’t think that this is the proper forum to engage in class warfare.

  19. 19
    Civil Servant says:

    TheHulk @ 15 — It’s the old “Do you ask a barber whether you need a haircut?” question. Of course you don’t, or if you do and he says yes, you get a second opinion. Why *do* people implicitly trust realtors, knowing that they depend on you and your as-large-as-possible transaction for a paycheck? People should never, never be buying houses based solely on realtor advice, because that is inviting exactly the kind of equity loss you describe. A haircut, if you will.

    I echo your gratitude to this site, however. During my grad-school exile I was sitting in a lecture one day, in despair because our encouraging friends in Seattle kept sending listings for $450K crack shacks and saying Oh look, maybe you will be able to afford something like this when you move back to town, that’s not so bad. (It WAS.) I Googled “Is now a good time to buy a house in Seattle” — and, lo, thus was I led to knowledge and understanding.

  20. 20
    Jimmythev says:

    I love that HappyRE site… They should really put some interactive games on it though to drive traffic… maybe games like “pin the tail on the pink poney” :)

  21. 21
    BanteringBear says:

    Where are all of the shills who used to frequent the blog, spewing their “it’s different here” mantra? Perhaps they’re back to waiting tables, or worse, now that the cash cow has vanished. [name-calling deleted by editor]

  22. 22
    Marc says:

    tacomarenter,

    In Washington the typical foreclosure is a “non-judicial foreclosure” which takes a solid 6 months from the recording of the notice of trustee sale to the actual sale. It can take longer if any mistakes are made along the way or if the trustee or the lender postpone the sale which is not uncommon.

    Less frequently pursued is a “judicial foreclosure.” One reason is that it takes considerably longer – they can easily take a year plus there’s the issue of the statutory right of redemption the defaulting borrower has after the sale is ultimately completed.

  23. 23
    Ben says:

    Does RealtyTrac publish a history of their stats, or do they just have a “current status”? I wanted to find monthly foreclosure data for seattle, but I couldn’t find it on their website (or anywhere, really)

  24. 24
    Dave0 says:

    Does anyone know of a good method of finding pre-foreclosures? It seems like the best deals out there would be to make offers to struggling owners before the banks get a hold of the properties.

  25. 25
    Ubersalad, Ph.D says:

    Short of knocking on doors of those that have subprime loans from scrolling through KC website, or do the obvious of surfing through trustee sale notices, there wouldn’t be any other way.

  26. 26
    singliac says:

    Dave0,

    I don’t know how to find them, but if you stay up really late tonight, maybe you can catch a Robert Allen infomercial. He’ll show you how to find those desperate sellers and become a millionaire!!!

  27. 27
    Ubersalad, Ph.D says:

    Usually those that look for these distressed home owners are scam artists…

  28. 28
    Marc says:

    Not to mention the massive disincentive created by the recently enacted Distressed Property Law (RCW 61.34, et seq.). Anyone considering buying a home from a distressed homeowner should absolutely get competent legal counsel concerning the ramifications of this law.

  29. 29
    Sniglet says:

    It seems like the best deals out there would be to make offers to struggling owners before the banks get a hold of the properties.

    Not really. The “struggling” home-owners are usually under-water and have no say in the matter anyway (i.e. the lender has to decide whether to accept offers for less than the value of the mortgage), and short-sales are always a pain in the neck.

    The best deals happen after the foreclosure process is completed and the properrty is listed as an REO. However, there just aren’t many REOs in our local market yet since our downturn is so new. By this time next year that should start to change.

    I will say again: there is NO such thing as a good deal in the Puget Sound right now. When properties are set to drop another 50% (I personally believe we’ll exceed 80% drops from median peak), even getting a 10% discount from current market prices will seem expensive a couple years from now.

  30. 30
    The Tim says:

    Ben @ 23,

    Funny you should mention that. I’m actually current in communication with somebody over there that’s digging up their data back through 2005 for me. I’ll post a graph of it once I have it.

  31. 31
    Dave0 says:

    From a quick look on redfin, It doesn’t seem to me like REO listings are any cheaper than normal MLS listings.

  32. 32
    Ubersalad, Ph.D says:

    Logically that seems correct for a market like today. MLS listing price is adjusted for today’s market, and REO reflects discount at 2005-2007 market price.

  33. 33
    Yesler Hill says:

    If you look around Seattle, at the expensive cars for instance, and 1st Ave full of boutiques and such fluff (as compared to the taverns, pawn shops and strip joints of my youth), and just the general attitude of entitlement among the technosoftic nouveau riche; I’d say absolutely Seattle’s bourgeois has spent themselves well beyond their means.

    My question is; what of these new developments on paper (like the mall they want to build at Dearborn and Rainier)? And all the tax spending proposals being bantied abt by Seattle City Hall? I can’t figure how the devlopers will get the cash to even start this tuff, and I can’t imagine Seattleites voting to approve all this stuff? Of course, we’ve done it before!

    I’ll also be very interested in seeing how Nickels’ reelection goes?!

    Softwarengineer is on his petit bouregois high horse because he fears he, or his children, may be delivering pizzas in the nearish future, and he doesn’t want there to be lower wage earners already doing those jobs! I’m expecting this economic depression to be very green grass for the labor unions. I see the IWW making a comeback around here!

  34. 34
    Garth says:

    For foreclosures to really impact price like they have in some other markets you need numbers at 1 in 300 and below, and developments where the distressed homeowners are concentrated so they can chase each other down. If a lot of the homes in an area are investment properties that can speed things up too, as there are no laws protecting 2nd homes.

  35. 35
    reader says:

    It seems to me that no new single family homes were listed today in the King-east area (e.g. if you search on johnlscott.com with 1 day criteria). Is that true?
    Thanks.

  36. 36
    Ray Pepper says:

    Tacoma renter we have found from the date of the 1st missed payment a good Attorney will get you just short of a year in the home. Give or take a couple months.

  37. 37
    david losh says:

    Foreclosure and preforeclosure are getting longer. I have a short sale transaction where the seller hasn’t received a Default Notice after four months of no payments to the lender. The lender wants the seller to work something out to get current.
    Realty Trac is lax in the way they present data. It’s probably OK as a guide.
    The thing about pre forclosure is that there are too many variables to say what’s good. The best deals are from people who want to sell and don’t care about the money. Banks can be in that position depending on when they close the year.
    As an example December and January may be good months to look at REOs. A lender may want to generate cash, get rid of a dog, or take a right off against other income.
    Investors, or people who have leveraged into other properties, people who inherit property, people divorcing, or people who own a property free and clear are the places to make the best deals.
    Really I hate to say it but the way the system is set up for the elderly, in some cases, it makes little difference what price they sell for. If they are headed for a guardianship situation, or into a government subsidy program the government or guardianship will deplete the assets before the person is eligible for assistance. All are a matter of public record.

  38. 38
    economist says:

    This may or may not be true (I suspect it is) but the information you present does not mean that dangerous loans are responsible for the rise (in foreclosures).

    There is really only one cause for foreclosures and that is falling prices. Regardless of the type of loan or situtation of the borrower, in a rising market houses have equity and can be sold for cash if the “owner” has problems making the payments.

    This is exactly why an uptrend in foreclosures serves as an indicator of falling prices, independently of price statistics.

  39. 39
    shawn says:

    I just want to repeat that what some see as doom and gloom is actually great for me. I was feeling priced out, now I am seeing myself getting priced in. So, let the banks fail, let the foreclosures continue, let prices drop, it is all good for me. I don’t like others suffering, but finally I am at the one who is at the right place at the right time. So, keep the doom and gloom coming.

  40. 40
    King County Homeowner says:

    Quick question: Tim, is that http://www.happyrenews.com site in your comment #2 for real? The graphs are a joke and the data that they present actually has a disclaimer that, “only positive changes over the previous month are shown (%).” I am mathematically and statistically challenged but it looks a bit dodgy.

  41. 41
    Notabull says:

    “There is really only one cause for foreclosures and that is falling prices. Regardless of the type of loan or situtation of the borrower, in a rising market houses have equity and can be sold for cash if the “owner” has problems making the payments.”

    I agree and disagree. While it’s obviously true that falling prices means the owner can’t sell and so has to foreclose (or short sale), the owners are doing this for different reasons.

    1) Unfortunate circumstance. HAVE to move, lost job, illness in the family, etc. These people may have got a sensible mortgage, put 10% down (YMMV regarding if that is sensible), and so on. Right now if prices are down 10% or so, then these people will probably foreclose.

    2) Bad financial decisions/dangerous loans. ARMs with huge resets, option ARMs, zero down, or some combination of the above. These people could never “afford” their mortgage in the first place and were existing on refis or their “teaser” payment (or option ARM minimum).

    In normal good times there is a natural rate of foreclosure, assuming that prices are not skyrocketing. We were well below that natural rate for the last 5 years because your appreciation would cover any circumstance or bad decision.

    In bad economic times (job losses) the natural rate of foreclosure goes higher. Again, this is the circumstances category. If you lose your job, even an affordable mortgage instantly becomes less affordable, and we all know how good Americans are at having adequate emergency funds!

    Right now we’re in worsening economic times so the natural rate will go higher as I described above. The question I have is: How much higher than the natural rate will we go due to category 2 above, and what *is* the natural rate of foreclosure during bad economic times?

    I’m asking the ether here. Ether, please respond.

  42. 42
    Ray Pepper says:

    notabull over the next 5 years the term foreclosure and shortsales will be as common water cooler talk as CSCO, SUNW, FFIV, MSTR, CMTN, INSP, WBVN, EGGS in 2000,…you get the picture. In Washington being a non recourse state. Good Lord. Even higher. 3% before its all said and done.????
    The joy is we will hopefully ALL see. We are writing the history books now.

  43. 43
    Bubble Watcher says:

    Sniglet @ 29:

    A follow-up question for you: As a fairly new reader of this site, I’m interested in your comment about a possible 50-80% drop in median peak property prices. Can you elaborate?

    Let’s say someone bought a Seattle house during last year’s peak, purchased for $775K during Summer 2007. Now, $775K is admittedly far above the Seattle area’s median price. But are you suggesting that the value of such a property might drop to $387K (50% below purchase price) or even $155K (80% below purchase price)?

    Or if I’m misunderstanding you, can you please give an example and explain why you anticipate such a large drop?

  44. 44
    jonasb says:

    OT: how do you purchase a house all cash? Imagine that everything falls into place & we are able to pay for a house in all cash, how do we make an offer? How do we prove that we have that much money available – something similar to a loan pre-approval that will assure sellers?
    Just curious… and thanks for all serious responses.

  45. 45
    LumpyDreams says:

    You put down a earnest money deposit when you make an offer. It’s your business to bring a Cashier’s check to escrow closing. The owner only needs to know that you are bringing cash to the table, and that you won’t have a finance contingency. You don’t have to prove anything to the owner. If you can’t come up with the money at closing, you lose the deposit, and open yourself to possible lawsuits for performance.

    The owner may want to counter and ask to see a bank statement or something, but I can’t see that happening very often.

  46. 46
    economist says:

    Notabull, there’s also:

    3) People who can afford the payments but walk because the house is underwater and renting is cheaper.

    Loads of these in California.

  47. 47
    El Pollo Poco says:

    @43: “Let’s say someone bought a Seattle house during last year’s peak, purchased for $775K during Summer 2007. Now, $775K is admittedly far above the Seattle area’s median price. But are you suggesting that the value of such a property might drop to $387K (50% below purchase price) or even $155K (80% below purchase price)?”

    I’ve never forgotten a comment someone made on this site a couple of months ago when I first began reading it. Someone said, “I have a healthy nest egg and no debt, and I’m waiting for the market to bottom out so I can get into real-estate investing here in Seattle. How will I know when it’s here?” The answer was, “You’ll know the bottom’s here when even you won’t want to buy.”

    Any circumstances that see the price of an $800K house in Seattle falling to $400K would not constitute a downturn, a recession, or a depression. They’d constitute an apocalypse. If you bought such a house, you’d also need to buy guns to defend it.

    Not saying it’s not going to happen… just saying you don’t want it to happen, no matter how much money it saves you on the mortgage.

  48. 48
    waitingforseattletocool says:

    This question coming from a homeowner and housing market bear: can anyone name one mls area or zip code in the greater King County area that [1] has a housing stock similar to Compton CA (find a home for sale in Compton that does not have bars on the windows) [2] has a higher crime rate [3] has a higher unemployment rate [4] where the median price of a home more than tripled ($125K to over $400K) in less than 5 years prior to the current correction?

    The foreclosure problems in King County will never approach those of California short of a total economic meltdown, which I am not completely dismissing.

  49. 49
    Richard Thompson says:

    Dave O,

    Pre-forclosures would be great if the people getting foreclosed didn’t owe a gazillion dollars on it :)
    I speculate thats why som many of them are reverting to lender. Who in there right mind would pay half a million for a dump.
    Check out
    http://www.usa-foreclosure.com/home.aspx

  50. 50
    david losh says:

    Comment #47 by waiting for Seattle is very to the point about Real Rstate in general, not just Seattle versus Compton.
    Yes Real Estate prices went up in Compton. Detroit was another place that has always captured my imagination. Who would pay full price for a house in Detroit? Was it the factory retrofitting to build SUVs that made the employment picture in Detroit attractive?
    Better yet, and closer to my heart, is Nevada. Houses there were about $100K when they exploded to $320K, over night. In Seattle it seems as though the price increase were more gradual, but I think the declines will be just as dramatic as other parts of the country.
    Let’s pretend that the banking industry or lenders are taken out of the picture. What if all transactions are for cash? What if the only recourse is to pay a property off rather than refinance? For that matter how did banks and lenders get such a strangle hold on our economy? Why aren’t we fighting for our own right to own property rather than share that property with a bank? I think foriegn oil is half the threat that the banking industry is. So I think more people will be letting the banks take the house rather than to pay for an asset the bank owns, rather than the home owner.

  51. 51
    Jonny says:

    this fall comes the beginning of the big crash

  52. 52
    Sniglet says:

    A follow-up question for you: As a fairly new reader of this site, I’m interested in your comment about a possible 50-80% drop in median peak property prices. Can you elaborate?

    Yes, I believe that the average Puget Sound home that sold for $1 million dollars in 2006 or 2007 (at the peak) will wind up only being worth $500,000 and quite possibly less than $200,000 by the time this real-estate downturn has run its course.

    My belief for this is due to the fact that the credit bubble of the last 20 years has created completely unprecedented weakness in both the financial system and consumer balance sheets. The explosion of loans requiring little or no equity have resulted in the most fragile real-estate environment that’s ever been seen. A higher portion of home-owners in the Puget Sound have little or no equity than has ever been seen in the past. This makes them particularly vulnerable to defaults if they run into trouble.

    As far as the financial industry goes, we are seeing institutions all over the globe pull back on lending as defaults increase and they struggle to raise capital to compensate for write-downs. This has created a negative feedback loop, where write-downs and losses in one place lead to further losses and write-downs elsewhere. When a bank pulls a line of credit from a hedge fund, the fund is then forced to sell whatever assets it has to pay down the debt. This causes a fall in the prices for that class of assets, which then hurts other funds that own those assets, which leads lenders to make margin calls on them to reduce their debt…

    We aren’t even CLOSE to seeing a bottom here. Last week Fannie Mae and Freddie Mac needed to be bailed out. This week it is Lehman brothers. But people are already talking about how WaMu is on its deathbed too. You don’t have to look to far to see other lenders also in trouble (Merrill Lynch, CitiGroup and Wachovia jump to mind).

    Look at it this way: there are MANY large US financial institutions that would already be insolvent if they were forced to value all the assets on their books to actual market values. CitiGroup (just to pick one example, has hundreds of billions of dollars in assets that it currently claims have only lost 20% of their value, yet those some assets are only selling for 10 cents on the dollar in the actual market place.

    This is why we see more and more write-downs, quarter after quarter, as financial institutions SLOWLY downgrade their toxic assets one chunk at a time.

    This is a GLOBAL phenomena, hurting every region and economy. We are already seeing severe economic head-winds showing up everywhere from Ireland and Holland to China and India. Heck, just look at how the Shanghai stock market is down some 60% this year!

    What’s really worrying is that all the chaos in the global financial industry has only NOW begun to play out in the real economies. Once we see out-and-out economic contractions occur in the world’s biggest economies, things are going to be really bad indeed.

    All this is just to pain the broader macro-economic picture (which isn’t good). But if you want to just discuss real-estate prices, homes in the US (and the Puget Sound in particular) have been priced way out beyond any rational basis. Whether you look at median incomes or rent vs ownership costs Puget Sound homes have no basis in reality. Prices will have fall significantly just to bring ownership costs in-line with renting.

    In the end, however, I am more bearish than most because I believe the over-all global macro-economic state is in such a terrible condition. We experienced a global boom of unprecedented proportions (e.g. homes booming in price from South Africa and Canada to China and the Ukraine) and we are now going to see a recession of unprecedented proportions.

    Don’t forget that major price declines are not some freek phenomena. Many places in Asia saw their real-estate prices drop more than 50% in the ’90s, and still haven’t fully recovered. There is no reason similar things can’t happen in the US.

  53. 53
    Sniglet says:

    By the way, Nouriel Roubini has a fantastic write-up describing what is happening to the global financial system. In the end, it is the broader global financial/credit crisis that will determine what happens to Puget Sound real-estate prices than anything that happens in our local area.

    http://seattlebubble.com/forum/viewtopic.php?f=5&t=1804

  54. 54
    david losh says:

    Some one signed me up for an online subscription to the Roubini news letter, thanks. It’s pretty funny.
    The problem, as I see it, is that people want to forget that there is a larger conspiracy theory that provides for funnelling the world’s wealth into the hands of a very few.
    The lending institutions, banks, hedge funds, and venture capital, if you take the conspiracy theory to the next level, are all controlled by the very few.
    Roubini is just saying that the long term hold aspect of money has been lost. Everybody has a get rich quick mentality.
    We want profits today. When we buy stocks we want to see profits, dividends, and rising prices. It’s our nest egg and we want it to grow so some day we can retire. What’s the incentive for the people controlling the wealth to allow you to retire? Why wouldn’t they simply suck the money out of the global economy and convert it to cash, gold, oil futures, corn, rice, or land?
    So if you follow the conspiracy theory, we are seeing a natural conclusion to a decade of huge profits being converted into commodities, or liquidated for a cash position.

  55. 55
    hzg says:

    sniglet,

    You write of things I am not expert in and therefore I give the benefit of the doubt and consider that what you say may, in fact, reflect reality.

    But then you write:…….”This has created a negative feedback loop, where write-downs and losses in one place lead to further losses and write-downs elsewhere.”……

    Now, having designed numerous feedback control loops in my career, I am quite certain that what you describe is a POSITIVE feedback loop, not a negative feedback loop. Upon reading this term used completely incorrectly, I lose considerable faith in the areas that you write of that I am not experienced in.

  56. 56
    Sniglet says:

    Now, having designed numerous feedback control loops in my career, I am quite certain that what you describe is a POSITIVE feedback loop, not a negative feedback loop. Upon reading this term used completely incorrectly, I lose considerable faith in the areas that you write of that I am not experienced in.

    Would you be so kind as to enlighten me as to the correct usage then? I certainly do not proclaim to be correct all the time, and you might well be right that I am wrong in my usage of the term “positive feedback loop”. I was trying to think of a term that would describe a system that feeds on itself getting worse. What would be a better phrase?

  57. 57
    jon says:

    “I was trying to think of a term that would describe a system that feeds on itself getting worse. What would be a better phrase?”

    Just say feedback loop. No one but an engineer is interested in a real negative feedback loop. The classic example of a negative feedback system is a thermostat and a furnace. Pretty exciting huh?

  58. 58
    Alan says:

    A simple feedback loop looks something like:

    x(t) = k*x'(t)

    The solution to this differential equation is:
    x(t) = (1/k) e^kt

    If k is negative then x(t) is a decaying exponential and is a negative feedback loop.
    If k is positive then x(t) is a growing expential and is a positive feedback loop.

    Negative feedback loops can be as interesting as positive feedback loops.

  59. 59
    deejayoh says:

    Whether you look at median incomes or rent vs ownership costs Puget Sound homes have no basis in reality. Prices will have fall significantly just to bring ownership costs in-line with renting.

    Read back through the posts on this blog. Both of these measures have been discussed at length, and looking at the numbers indicates that at the peak, King County was overpriced by ~30-40%. They triangulate quite nicely, actually,

    And if a 40% premium was reversed in a day, it would only mean a 28% decline in real estate prices. But of course, it won’t happen in a day – it will happen over a couple years, during which time incomes will continue to rise – mitigating some of the decline.

    Talk of 50-80% declines in home prices is tin-foil hat territory, IMHO

  60. 60
    hzg says:

    A positive feedback system is one where the effect reinforces the cause.
    A negative feedback system is one where the effect negates the cause.
    What you described was positive feedback.
    The modifiers “positive” and “negative” never relate to whether the effect is desirable or undesirable, but rather the polarity of the gain around the entire loop.

    Positive loops generally latch up in one state.
    Negative loops can be used to control and stabilize an otherwise inaccurate or unstable system.

    When you steer your car, you steer to the left when the car is too far to the right and vice versa. Negative feedback.

    I find it a little humorous that Jon suggests that “No one but an engineer is interested in a real negative feedback loop” in the context of the topics presented here. The Federal Reserve forms a feedback loop when they do the voodoo that they do. They THINK and WISH that it will be a negative feedback loop leading to a stable, on-track result. But they pay no attention whatsoever to the well known principles that make a stable system. Ever read about the Fed considering Nyquist? or Gain margin? or Phase Margin? …..nope. It’s no wonder that their efforts are so ineffectual and often counterproductive.

  61. 61
    Sniglet says:

    Talk of 50-80% declines in home prices is tin-foil hat territory, IMHO

    That’s me. Although the tinfoil does tend to cause scalp itch sometimes, especially when I am sleeping.

    Of course, anyone suggesting that the GSEs would go bust 8 years ago was considered a quack. The unthinkable seems to be happening with alarming regularity lately.

  62. 62
    economist says:

    Any circumstances that see the price of an $800K house in Seattle falling to $400K would not constitute a downturn, a recession, or a depression. They’d constitute an apocalypse. If you bought such a house, you’d also need to buy guns to defend it.

    House prices in Merced, California, have already fallen 50%. There is no need to defend your house, because there are so many empty houses that people can move into pretty much at will.

    http://www.nytimes.com/2008/08/24/business/24house.html?em

    So basically you’re claiming either that (a) Seattle is so special that only some kind of catastrophe can bring down prices 50% or (b) people in Seattle are a lot less civilized than people in Merced.

  63. 63
    BanteringBear says:

    “Any circumstances that see the price of an $800K house in Seattle falling to $400K would not constitute a downturn, a recession, or a depression. They’d constitute an apocalypse. If you bought such a house, you’d also need to buy guns to defend it.”

    This is the sort of myopic thought which helped to drive prices into the stratosphere. It’s the idea that real estate only goes up. What makes you think that house prices can double and even triple, but they can’t be halved? Such an event would not be an apocalypse, but rather a healthy return to a more sustainable market where people can afford shelter and still live within their means. The apocalyptic event was when people were buying $800k homes when their salaries couldn’t even afford half that.

  64. 64
    Herman says:

    Are 50% declines realistic?

    We reach the “affordability” point with a 25% decline, so let’s assume that housing prices are headed there. With the destruction of 25% of paper wealth, that’d erase $4.2 trillion (on paper) from homeowners and lenders net assets.

    That is like $14,000 for every US citizen. What if everyone in the US got a check for $14,000 instead of $600 – imagine how that would drive our economy. Well this is the opposite.

    Losses on the stock markets have wiped out about $10 trillion worldwide. Derivatives markets are 12x the paper value of stocks, but I don’t understand them. But anyway, it all came off someone’s balance sheets.

    Keep in mind that the total net worth of the US in 2007 was $57 trillion, meaning we lost something like 8-12% of our national net worth.

    Our economy won’t take that sort of “account deduction” without shedding some jobs and cutting some salaries, just like you trim your own expenses if you lose some money. Then, unemployed people dump their homes on the market and people getting paid less has the effect of lowering affordability, go back to step 1.

  65. 65
    economist says:

    “What if everyone in the US got a check for $14,000 instead of $600 – imagine how that would drive our economy. Well this is the opposite.”

    No it’s not. An increase in house prices is not an increase in real wealth, nor is a decrease a decrease in real wealth. Real wealth is the ability to produce something or buy something.

    Homeowners sell houses to each other. Thus any gain someone gets from selling their house is at the expense of another homeowner. It is impossible for everyone in the US to sell their houses, because there would be nobody to buy them. The only real wealth represented by the housing stock in the US is its rental value, not its aggregate market price.

    The increase in “wealth” due to the housing bubble (or any other bubble) is a complete illusion – they are Ponzi schemes. A return to prices based on fundamentals does not represent any change in real wealth.

  66. 66
    Markor says:

    economist: Notabull, there’s also:

    3) People who can afford the payments but walk because the house is underwater and renting is cheaper.

    Loads of these in California.

    deejayoh: And if a 40% premium was reversed in a day, it would only mean a 28% decline in real estate prices. But of course, it won’t happen in a day – it will happen over a couple years, during which time incomes will continue to rise – mitigating some of the decline.

    Talk of 50-80% declines in home prices is tin-foil hat territory, IMHO

    I tend to agree with Sniglet #52 on the not-so-low probability of a > 50% drop. Economist provides a clue above. People will increasingly walk away from their mortgages as prices drop, creating a feedback loop (positive or negative I don’t know). Buying could be cheaper than renting for a long time, as strange as it sounds. Or rents could fall as house prices fall. Or homelessness could spike… All sorts of things can happen as a multi-$trillion Ponzi scheme unravels, that seemed impossible a few years ago (but not during the Great Depression).

  67. 67
    Markor says:

    economist: The only real wealth represented by the housing stock in the US is its rental value, not its aggregate market price.

    And let’s keep in mind that rental value is dependent somewhat on market prices. There’s upward pressure on rents during a housing bubble, when more people can’t afford to buy. So during a housing bubble, a house’s long-term value as a rental is even less than current rents show. Rent is relatively cheap in south Florida, compared to during the peak of the bubble there.

  68. 68
    economist says:

    There’s upward pressure on rents during a housing bubble, when more people can’t afford to buy.

    That’s not the reason. If someone can’t afford to buy a house or condo to live in, it has to be rented out by an investor. One or the other. As long as the total number of dwelling units keeps up with households there is no upward pressure on rents.

    The reason rents went up during the bubble is that a lot of rental stock was lost to demolition or condo conversions. But now that the new units are finished and have to be rented out, rents are falling.

  69. 69
    Herman says:

    An increase in house prices is not an increase in real wealth, nor is a decrease a decrease in real wealth.

    I think you’ve missed the point. We lived in a land of easy credit where paper value can easily be converted to cash. When the paper value of the assets increased, people borrowed against it. And spent it. And that fuelled the economy just like getting a plain check for the money.

    When the paper value decreased, in foreclosure the lenders have to write the bad debt down. And the homeowners lose equity that they can borrow against, roll into a new home, or just make them “feel” rich enough to spend. That is the opposite effect.

  70. 70
    economist says:

    Right that’s the “wealth effect”, but it was based on the illusion of wealth, not real wealth. That’s my point.

    The growth of the economy was not driven by an increase in real wealth, but by a decline in the savings rate. The country was living beyond its means, financed by foreign lenders. Both the public and private sectors.

    The loss of wealth in bursting bubbles is not due to the fall in the price of the bubble asset itself, which never represented real wealth to start with, but to overconsumption by bubble asset owners (“wealth effect”) and losses by lenders whose loans were secured against the assets.

  71. 71
    Markor says:

    economist: That’s not the reason. If someone can’t afford to buy a house or condo to live in, it has to be rented out by an investor. One or the other. As long as the total number of dwelling units keeps up with households there is no upward pressure on rents.

    True, someone must own the house that is rented. But I don’t see why owners can’t charge more for rent when more people can’t afford to buy. Consider a pool of landlords before the bubble. During the bubble, house prices have risen dramatically. The pool of landlords should be able to charge more in rent for something that is perceived to be worth more, and now they have a more captive audience of renters who can less afford to buy. If renters’ wages have not risen, they can pay a greater percentage of their income in rent, and eat out less or whatever. But likely their wages will have risen due to the bubble, as homeowners have spent more freely, and renters have demanded higher wages to keep up with rising rents.

  72. 72
    deejayoh says:

    Just to put this in context, per Tim’s spreadsheet, KC SFH prices peaked in 07/07 at $481k.
    – 50% off puts us at $240.5k – a price last seen in February 2000 – 8+ years of appreciation
    – 80% decline puts us at $96k – a price level last seen at some point in the late 80’s. Tim’s records don’t go back that far.

    Mathematically, a 50% decline would wipe out a 100% increase in prices. An 80% decline would wipe out a 500% increase in prices.

    Prices in Seattle were tracking incomes up to about 2004. Since 2004 we have seen a 64% increase in prices. Reversing that would equate to a 39% decrease in prices – assuming incomes had not risen at all (which they had)

    And using Merced as a proxy indicating what might happen here? Puhlleazzze! Prices in Merced rose over 2x what they did in Seattle. The increase was almost all based speculative/infestor buying in new developments, it is entirely an “outer ring” commuter town, and the foreclosures rate is one of the highest in the country. It’s an apples and oranges comparison

    Sniglet, I know you have your tin-foil hat on pretty tight ;^) (and to your credit you put your money where your mouth is) but I just want to put some facts in front of our newer readers so they can make an informed call.

  73. 73
    deejayoh says:

    Some charts that support my point
    Radarlogic show’s long term price trend diverged in 2004
    https://seattlebubble.com/blog/wp-content/uploads/2008/04/radar-figure-1.png
    Comparison of Disposable Income/Interest rates to OFHEO Index
    https://seattlebubble.com/blog/wp-content/uploads/2007/11/washington.png
    Comparison of income growth to median prices for KC SFH
    https://seattlebubble.com/blog/wp-content/uploads/2008/01/housing-vs-income.png

  74. 74
    Sorin says:

    Don’t forget that people will share rentals and owners will rent rooms when prices are too high or they are in a financial pinch. This itself acts as a forcing function to keep rents in-line with incomes as it effectively reduces demand and increases supply respectively for the number of rental units.

    In hard economic times it is also not uncommon for multi-generational families to re-consolidate to a single residence. So, as people sell, get foreclosed on, or walk away, they don’t necessarily enter the rental market. Some will also leave the rental market for this reason. It depends in large part on jobs and how our economy holds up. From my view, it isn’t looking all that great.

  75. 75
    victorchai says:

    Deejayoh, are u saying we already hit the bottom? Since your first chart suggest 180/sf is the end of the mess, cause I have seen plenty of houses around King & sno county have their price listed at 180/sf or even lower…?

    deejayoh // Sep 14, 2008 at 11:09 am

    Some charts that support my point
    Radarlogic show’s long term price trend diverged in 2004
    https://seattlebubble.com/blog/wp-content/uploads/2008/04/radar-figure-1.png
    Comparison of Disposable Income/Interest rates to OFHEO Index
    https://seattlebubble.com/blog/wp-content/uploads/2007/11/washington.png
    Comparison of income growth to median prices for KC SFH
    https://seattlebubble.com/blog/wp-content/uploads/2008/01/housing-vs-income.png

  76. 76
    victorchai says:

    are you saying we are at the bottom?deejayoh, since I see tons of listings at 180/sf….

  77. 77
    Ray Pepper says:

    NEWS ALERT!! Barclays is out. B of A is out. **Moodys states LEH is Bankrupt!**

    Watch out MER!

  78. 78
    hzg says:

    an 80% decline wipes out a 400% increase in price

  79. 79
    deejayoh says:

    victorchai // Sep 14, 2008 at 12:44 pm

    are you saying we are at the bottom?deejayoh, since I see tons of listings at 180/sf….

    Victor – that’s radarlogic’s data – for 3 counties, and it’s an average. Are you suggesting that 180/sq foot is now the average? Do you have any data that would support this? Cuz radar logic says the average is still in the 300 range. Maybe you should call them and report your observations?

    and hzg, thanks for the math correction. I caught that after my 2 minute timer expired. point is still the same. Anyone calling for us to take of 4x? Still takes prices back to the 80’s.

  80. 80
    singliac says:

    victorchai, of course you can find listings at 180/sf, but that isn’t the median. DJO’s point is valid that with rising wages and inflation, housing prices won’t need to fall quite as much to be affordable. Prices declines will drag on for a while. I do agree with Sniglet though, that the run-up wasn’t just an anomaly of the 2000’s. It started in the 90s. Before that, housing followed CPI pretty closely.

  81. 81
    Seeker says:

    this winter will be tough for sellers. Hopefully prices will start going further down.. summer is over, schools just started..

  82. 82
    deejayoh says:

    Before that, housing followed CPI pretty closely.

    Housing cost is a component of CPI – probably the largest (although via some bizarre imputed rent formula). It seems a bit tautological to suggest that housing follows CPI when it is one of the largest components driving CPI.

    Most analysts believe housing prices are driven by incomes. And from what I have seen (and shown here multiple times) there is a very tight correlation between local measures of housing prices and income. I’ve tracked it back ~30 years, and the fit was great up until 2003-04.

    If you are suggesting there is a better relationship and there was some disconnect as far back as the 90’s (when Seattle had huge gains in income, btw) providing some supporting data seems to be in order.

  83. 83
    hzg says:

    As of last December,
    the Owners’ equivalent rent of primary residence is 23.942 % of the CPI-U
    Rent of primary residence is 5.765 %
    thus the total allowance for “paying for residence” is 29.707 % of the CPI-U

  84. 84
    rent for now says:

    LEH looks headed for bankruptcy. MER selling out to B of A.
    Bear
    Lehman
    Merrill
    Who would have guessed?

  85. 85
    shane says:

    Is everything still contained?

  86. 86
    singliac says:

    sorry for the unsupported statement, DJ. Shiller talks about how the national bubble began in the mid-nineties in “Irrational Exuberance.” I remember hearing Robert Shiller talk on NPR about the bubble long before it ever made headlines elsewhere. He said that we were seeing a huge runup in the 2000s, but that the runup began in the 1990s. He adjusted prices to some inflation index, but I just assumed it was CPI. I’d look into it more, but I need to go enjoy the remaining hours of the weekend.

  87. 87
    david losh says:

    I love this blog for these types of discussions. Price per square foot is one of the things investors look at. There are a lot of variables. Yes in 1998 to 2000 $120 a square foot was good. Pricing less than $100 per square foot was a longer time ago. There are of course other considerations. A view adds to the price per square foot. OK you have the idea.
    This post was about foreclosures and I would suppose the effect on housing prices. The foreclosure effect will be small. Lenders are going to hold out for as much as they can get. I don’t think there are many buyers for foreclosures in a declining market place. There is going to be a time, I think very soon when there will be very few buyers in general. That’s what’s going to drive down the price.
    A second thing is the rental market. I’ve never seen anything like what we have today. There may be more renters entering the market. More renters would mean higher rents. I do wonder about the number of housing units that have been created.
    More condo units are leasing, foreclosures I am absolutely certain will end up as rentals. Many lenders began having huge asset management departments as far back as five years ago. Asset management as in property management divisions. That is pure speculation on my part.
    As rentals grow, the price of homes, with dirt, a fenced yard, and a place for the kids will become a commodity worth having. Prices will go down, mortgages more precious, but we will all need to sacrifice for the good of our children.
    To bottom line this for you going down in prices from $220 to $120 a square foot seems fair, on average. The thing about lenders is that the one comment saying wealth is measured by rental income rather than paper equity is one hundred per cent correct. Lenders will hit a paper wall and begin renting units rather than sell them.
    The one thing though is that there will still be properties people have to have and they will be paying a premium for those.

  88. 88
    Markor says:

    deejayoh: Most analysts believe housing prices are driven by incomes. And from what I have seen (and shown here multiple times) there is a very tight correlation between local measures of housing prices and income. I’ve tracked it back ~30 years, and the fit was great up until 2003-04.

    Unemployment could easily spike as the economy craters. And the average homeowner is now far deeper in debt (as a percentage of income, and including federal/state debt) than they were between 1973-2003, which surely will affect house prices too.

  89. 89
    johnnybigspenda says:

    deejayoh @72 and 73… I really think you are onto something there. Most likely we will overshoot to the downside for a period of time before resuming the long term up-trend that you’ve shown has an R^2 of 91%.

  90. 90
    johnnybigspenda says:

    Singliac, Markor,

    I don’t think 80% declines are reasonable to expect… as mentioned my DJ, this would put prices back to the 80’s… and most people would agree that the 80’s should not be relived.:-)

    If prices were to fall that much, that would put 95% of all homeowners underwater… actually, that’s kind of an interesting question: are there stats available on equity levels across the US (or even better, specific to Seattle)?

    As prices fall, more and more owners will be submerged by their debt…. there is likely a ‘tipping point’ where the vast majority are underwater… which would likely propagate the issue further thus taking with them the few who were left over. If that were the case, I’d be most happy if I was one of the ones with only 5% equity today since almost no-one will be left above water.

    Hmmm…. this could get pretty crazy pretty fast.

  91. 91
    johnnybigspenda says:

    So I guess the question then becomes: if prices had been trending to a basic income/price ratio for years, and the bubble that overshot this trend will cause prices to fall well below that trend …what will be the drivers that will stop the decline in prices before the declines reach ‘critical mass’ and become unstoppable? (as mentioned in my previous post, there *must* be a tipping point on the horizon… if we stop short of that, I think we can probably look to the long term historical trend to predict the future… if not… who knows?)

    1. lending must become available
    -gov backed the biggest lenders and instantly made $ available to those still looking to buy a house.. standards don’t need to be eased to the degree that they were… but the biggest factor for lenders is most likely not the quality of the borrower, but the quality of the asset that backs it… so banks will begin to lend at more reasonable rates once they feel they forsee home prices stablizing.
    2. Fed interest rate drop and corresponding mortgage rate drop… to further increase affordability
    3. short and long term incentive for people to keep their homes that are currently ‘underwater’… gov must be creative here
    4. In the medium term (5 years lets say) realty fees must drop by 1/2 or more… this will instantly add 3% to house prices since the fees will be pocketed / saved
    5. weak US dollar to spur domestic production vs. foreign imports and domestic jobs
    6. containment of ‘toxic paper’ ect within the investment world… package it and resell it (at the right price for the level of risk in the package… this time)
    7. government program to convert ARM”s to 30 year fixed or alike
    8. return bank CEO’s and executives bonuses to the banks since they were ill-gotten
    9. first trends showing ‘slowing’ declines, then stabilization… to change future expectations from ‘the future may contain 80% price drops to… the worst is behind us and future looks like we are returning to the historic trends’
    10.

  92. 92

    hzg @ 55

    Sniglet posted a coherent, eloquent, well-informed post and you respond with that garbage…get a life….nobody cares about the difference between and positive and negative feedback loop except you and the other worthless cronies you work with. Your post oozed with arrogance…unjustifiable arrogance.

  93. 93
    Thomas B. says:

    From the Puget Sound Business Journal:

    For the last several months, as many other areas across the country sank deeper into the housing downturn, local real estate agents, housing market experts and financial leaders touted the Puget Sound region’s strong employment growth as a key factor keeping the area’s economy afloat.

    But a forthcoming report from the Puget Sound Economic Forecaster, which has not yet been released, predicts that job growth is slowing and will decline during the last part of 2008, a casualty of the worsening housing market and the tight credit markets across Washington.

    The forecast, scheduled for release in the upcoming September newsletter, is more grim than even the most recent state predictions. The state forecast shows growth slowing to 1 percent or less in King, Snohomish, Kitsap and Pierce counties from 2007 to 2009.

    I found about this article through the Q13 News. This is not good for housing. Fewer jobs, means fewer buyers. 1% growth is anemic. I think we are far from the bottom. The good news is that housing prices should be closer to reasonable and affordable next year. Housing prices right now are still way too high for the average person. I would like prices to decline another 15% to 20% before I buy.

  94. 94
    singliac says:

    @90 Just to clarify, that was Sniglet who believes in 80% declines. Sniglet was one of my nicknames in school though, so I get confused myself. As for me, I don’t think we’ll see 80% declines. We’ll have to see what happens in California before I make a guess. My hometown in LA county is 30% down from the peak, but it hasn’t stopped dropping. If they go further, I can see us 30% down as well.

  95. 95
    singliac says:

    BTW, Sniglet, are we long lost cousins?

  96. 96
    Markor says:

    I don’t think we’ll see 80% declines either, but I think it’s more than a remote possibility at this point. The whole worldwide housing bubble is just a symptom of a much larger problem that could spin out of control.

  97. 97
    economist says:

    It seems a bit tautological to suggest that housing follows CPI when it is one of the largest components driving CPI.

    Wrong, the purchase price of housing is not included in CPI at all. It’s not supposed to be, because it’s an asset price (like stocks), not a consumption price.

    This is the reason we saw a >100% increase in the price of housing in the last few years with no effect on CPI.

    The consumption price of housing is rent, which is included in CPI.

  98. 98
    Markor says:

    I’ve noticed more people at work lamenting about the fall in their home’s value. I feel bad that they don’t know that their 401K retirement plans are also part of a massive Ponzi scheme that is unraveling. The rich are moving to cash as quietly as they can.

  99. 99
    Buceri says:

    New week………..new bankruptcies..

    Lehman Bros survived the great depression, even the civil war, but could not survived Joe 6 Pack buying the American Dream..

    And we say good bye to Meryl Lynch…Bank of America is taking over.

    NOW, everything is contained…..maybe.

  100. 100
    LUC says:

    This isn’t over by a long-shot…AIG is down almost 50% as of 6:46AM

  101. 101

    Welcome to the United States of ‘Bank of’ America…apparently, BofA is going to take over the world.

  102. 102
    david losh says:

    The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far. Roubini predicted they could drop another 15 percent.

  103. 103
    deejayoh says:

    Economist said

    Wrong, the purchase price of housing is not included in CPI at all. It’s not supposed to be, because it’s an asset price (like stocks), not a consumption price.

    I said

    Housing cost is a component of CPI – probably the largest (although via some bizarre imputed rent formula)

    a bit of selective quotation, perhaps? I’d better not mention lipstick on a pig!

  104. 104
    economist says:

    Yes but the original posting by singliac (which we have been discussing) was about house prices versus CPI, not rents versus CPI. Rents are not a function of house prices. Rather in the long run house prices are a function of rents, which is the reason for the current bust.

  105. 105
    explorer says:

    The CPI also does not take into account the falling price of assets combined with rising REAL costs of living, combined with wage stagnation/declines. Maybe you could more properly call it stagflation, the word no one wants to utter, but a black rose by another name is still a turd blossom.

    Wages have not kept up with inflation for the most part for a long time for the majority of workers, even middle-class ones. It’s only recently with rapid and sustained price spikes that people are starting to pay attention (the MSM press that is). That and the lack of credit to make up for it, wisely or not.

    Markor, you supposition in #71 reads more like an ivory tower textbook analysis than from someone who is taking ALL the factors on the ground into account. If people are charged rents that too closely reflect the current, or will eventually become, higher than per square foot house costs and amenities, not to mention location and density, transportation options, etc, do you think those landlords will get it, especially after the first year?

    Looking at your statement in isolation seems much more plausible than after scrutinizing it. Unfortunately, A lot of landloards are operating that way.

  106. 106
    Joel says:

    I forget, where’s the article that compares monthly carrying cost to rent in the Seattle area?

  107. 107

    […] a follow-up to last Friday’s foreclosure news, let’s take a look at a couple charts of local […]

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