Confidence Slows Recovery, Housing Bottom Still to Come

It would appear that our old friend Bill Virgin (formerly of the print P-I), is now writing a weekly column for the Tacoma News Tribune. Here are a few excerpts from his latest piece regarding what we may expect to see in store for the local economy in 2010: 2010 recovery will hinge on confidence

What will get the economy going in 2010?

Conditions would seem to be ideal for a decent recovery, if not a sharp snapback. Interest rates are low. Energy prices are comparatively low. Deferred spending and depleted inventories mean pent-up demand. A weak dollar against other currencies ought to make our exports more attractively priced and our products more competitively priced here at home.

What’s missing is an intangible – confidence. Lots of companies report increased activity in the form of requests for quotes. But everyone’s waiting for everyone else to make the first move to translate those queries into actual orders and purchases. They all want to be convinced the worst is over and the rebound will be real – and they’re waiting for proof in the form of someone else taking the lead. Get confidence back, you’ll get your recovery.

It’s good to see Bill’s voice getting out there again. It’s interesting that he brings up confidence. The problem of confidence is something that seems to be coming up a lot lately

In another article posted today by the Bellevue Reporter, Seattle economists predict slow recovery in 2010

The days of banking on high-risk investments are over, at least until our short-term memory problems allow for the next economic bubble.

But don’t expect history to repeat itself any time soon. Economic forecasters predict a slow recovery from the massive recession that tore through world markets last year.

Pent-up demand normally creates high levels of snap-back growth after a recession, like the one in 1982. But that isn’t likely to happen this time around, according to Michael Dueker, head economist for Russell Investments North America.

“It’s time to pay the piper for the fact that we’ve had a financial crisis,” he said during a recent economic-forecast conference in Seattle.

Bottom line: credit is hard to come by, and 90 percent of the U.S. gross domestic product is dedicated to bailouts and stimulus funding, which keep our economy afloat, but make it hard to bounce back.

The future doesn’t look so bright for real estate and development.

Around 38,000 construction jobs were lost last year, and home values dove a minimum 25 percent in most cases.

Jim DeLisle, director of graduate real-estate studies at the University of Washington, predicts the housing market may take another 18 months to bottom out, while it could be another four years before anything significant happens on the development front.

Worse yet, DeLisle predicts a debt crisis on the horizon for commercial real-estate owners.

“We’re not out of the ballpark,” he said. “This isn’t over yet.”

DeLisle also suggests a new crisis looms in the form of bullet loans coming due within the next few years.

Sounds like the graduate real estate studies program at UW may be a little more unbiased than the industry-funded Washington Center for Real Estate Research over at WSU.

(Bill Virgin, Tacoma News Tribune, 01.24.2010)
(Joshua Adam Hicks, Bellevue Reporter, 01.25.2010)

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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

    Calling A 2010 Bottom to Seattle’s Real Estate Bubble

    Is like predicting America will regain its old 2006 domestic automotive manufacturing in 2010.

    Article in part:

    “….“In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog,” said James J. Saccacio, chief executive officer of RealtyTrac….”

  2. 2
    CCG says:

    “Bottom line: credit is hard to come by, and 90 percent of the U.S. gross domestic product is dedicated to bailouts and stimulus funding, which make it hard to bounce back, since it creates more moral hazard and malinvestments that guarantee even worse pain down the road (unless you think you can “bounce back” from a hangover by chugging another bottle of vodka).”

    Fixed it for them.

  3. 3

    Even Bill Gates Agrees with Tim and SWE

    No bottom for a long, long time folks.

    2009 Article in part:

    “…MICROSOFT co-founder Bill Gates has predicted it will take up to 10 years to weather the current global economic storm in a 20-page letter….”,20797,24968731-3122,00.html?from=public_rss

  4. 4
    Jillayne says:

    Hi The_Tim,

    WSU’s real estate program receives some of their funding directly from the Department of Licensing’s Real Estate Division. The Real Estate Commission consists of mostly licensed real estate agents.

    About 5 years ago, I was on the Cultural Diversity Committee for the Sea King Co Assoc of Realtors and someone from the UW real estate program came to speak to the committee. I asked if Ethics was a required core course for the real estate school graduates and they said no, but thought it was a good idea. I see that it’s still not required and seems to be geared mostly toward commercial real estate.

    I thought that Glenn from WSU was nearing retirement but maybe I’m mistaken. The last few times I’ve seen him quoted, he’s not been so positive about the residential market recovery.

  5. 5
    The Tim says:

    RE: Jillayne @ 4 – My description of the WCRER as “industry-funded,” comes from some research I did a few years ago. Check out this pdf that I received from them in 2007 in response to a public records request, which shows that in fact the vast majority of their funding (~80%) comes from the state Dept. of licensing.

    Specifically, note page 5 which lists $1.2 million in funding spent on “Licensee Research.” This money of course comes from the license fees charged to real estate salespeople and brokers.

    In other words, the WCRER exists primarily to perform research for “licensees,” i.e. real estate agents.

  6. 6
    Jillayne says:

    Well, I almost typed “all” their funding comes from DOL but I was pretty sure that it wasn’t 100%. Have you also noticed Glenn toning down his predictions over the last 6 months?

  7. 7
    The Tim says:

    RE: Jillayne @ 6 – I have noticed that. It’s quite interesting. I wonder why?

  8. 8
    Ray Pepper says:

    RE: The Tim @ 7

    Most likely because hes contemplating a nice juicy short sale. Even “smart” people will only remain stupid for so long!

  9. 9
    Cheap South says:

    “Seven things about the economy that everyone should be more worried about than they are”

  10. 10
    Scotsman says:

    RE: Cheap South @ 9

    Well that was uplifting. Snark! Must be Monday..

  11. 11
    Anon says:

    Well, that’s because UW is superior to WSU in every way.

  12. 12
  13. 13
    Ray Pepper says:

    Walking through Short sale after Short sale and foreclosures today in Issaquah I believe the “contagious” feeling is in the air. Homes that sold for a million are now 600k and they are running not walking away from these homes. On two streets alone I saw 10+ signs on these beautiful 4500 sq foot homes.

    The disease will continue to spread. We have seen NOTHING yet!

    “Writing in the NYT, Richard Thaler provides the disturbing potential conclusion on homeowners changing their viewpoint and strategically defaulting: “An important implication is that we could be facing another wave of foreclosures, spurred less by spells of unemployment and more by strategic thinking. Research shows that bankruptcies and foreclosures are “contagious.” People are less likely to think it’s immoral to walk away from their home if they know others who have done so. And if enough people do it, the stigma begins to erode.” If enough people do it, the housing market collapses.”

  14. 14
    Maria says:

    After going to a few open houses in Sammamish on the weekend, I can tell you all that confidence has returned to the real estate market. All of the open houses were flooded with people and the agents are saying that they are receiving multiple offers for any property listed under 700K. Market is taking off in the area. I expect a decent market here in Seattle by summer. There will be foreclosures still. But that does not seem like deterring the buyers1!
    Good Luck!

  15. 15

    RE: Ray Pepper @ 12 – What’s that have to do with Cramdown? You got my hopes up.

    BTW, I’ve heard that banks really aren’t working that hard to contest cramdown of the 20 in 80/20 situations in Chapter 13. They probably realize that it’s a losing proposition because if they win, the debtor might just stop paying, especially where their budget doesn’t allow payment of the second. They might spend $10-20k defending a 40k mortgage that never receives an additional dime of payments.

  16. 16
    AMS says:

    RE: Maria @ 14 – You give me $700k, and I’ll have no problem finding a home in Sammamish!

  17. 17
    AMS says:

    RE: Kary L. Krismer @ 15 – The idea, so it seems, is that it’s happening in the commercial area so much that it will be extended to residential. Basically the climate has changed to the point where it’s accepted that there will be massive losses, so society might as well let a bankruptcy judge help the lender realize it.

    Or that’s my take on what the connection is, but I am not sure.

  18. 18
    Scotsman says:

    RE: Ray Pepper @ 12

    Really, Ray- default is not the same as cramdown. Cramdowns will never happen. Defaults will be ever more common. But there is a huge difference between a court/government forcing the revaluation of a private contract and default within the terms of said contract.

  19. 19
    AMS says:

    RE: Scotsman @ 18 – It’s true that default and bankruptcy cramdown are different, but the underlying property value is the same in both cases.

  20. 20

    RE: AMS @ 17 – I had forgotten about the 1111(b) election that a secured creditor can make in Chapter 11. That basically allows their entire claim to be treated as secured, even if they’re under-secured. What’s odd though is I remembered the code section is 1111(b).

    I’ve also forgotten whether they’re entitled to interest on that claim in the event of a non-solvent estate.

  21. 21
    HappyRenter says:

    RE: Maria @ 14

    I’m wondering who the potential buyers might be. Median household income in Seattle is 60’000$. My impression is that most families cannot afford a 700K home.

  22. 22
    Ray Pepper says:

    RE: Scotsman @ 18

    “Really, Ray- default is not the same as cramdown”/ Scotsman please. You are way behind the curve here and do NOT know whats happening around you. Without cramdown you WILL get unrelenting default. Shortsales and foreclosures will spike to levels that will floor us all until the Fed enacts Mtg Cramdown on a widespread scale. The cramdown will have many caveats to it including loss of profits if sold in a certain period of years etc, rate variances, tax implications . Its happening as we speak and I know of 2 people already in the Bay Area that have had their principle already crammed down from 1,200,000 to 700k- 830k. Its all coming out and Scotsman never say never until you have all the facts!

    You have seen nothing yet!

  23. 23
    Ray Pepper says:

    BTW…. Watch the regionals for widespread Mtg cramdowns. It will all be coming out in CC’s this year what they have been doing with justification of taking a 300k loss on the books instead of no payment at all with an end result of a foreclosed property.

    Oh Yes! They are cramming em down down down with or without the FED!

  24. 24
    corncob says:

    RE: HappyRenter @ 21 – Very rich people. If the bubble showed us anything it is that people believe there is a huge and unlimited amount of rich people who are willing to pay slightly less rich people enormous sums for bowl sinks and granite countertops in order to make those people more rich, thereby increasing the amount of rich people available to buy properties from the other rich people. It is fool proof.

  25. 25
    ivan says:

    RE: Maria @ 14

    “and the agents are saying that they are receiving multiple offers for any property listed under 700K. ”

    The ease with which re agents lie and exaggerate about “multiple offers” and everything else is amazing to me. It is very common to got to an open house, or have them show you a property, and they will say that they already have an offer in hand, but you should also make an offer in case it falls through. And then two months later, the property is still on the market and they’re dropping the price.

  26. 26

    RE: Ray Pepper @ 23 – In what context are you using the term cramdown?

  27. 27
    julie says:

    RE: Maria @ 14

    Seems like there are a lot of people looking. But they will only make offers if it’s a good deal.

    We had made an offer for a view house in bellevue. But was told that another buyer had out bid us. So we decided no to get into the bidding war. Then the agent came back a few days later and told us that the first buyer decided that their financing was not as strong as they thought… But we decided to pass after calculating the money and work needed to put into this house to bring it up to date.

  28. 28
    shawn says:

    RE: softwarengineer @ 3 – Until I hear Bill say he agrees with you, let’s error on caution and assume he in fact does not agree with you on anything, anywhere, anyhow.

  29. 29
    HappyRenter says:

    RE: corncob @ 24

    And the collapse of the bubble proves that this belief exists.

    Quod Erat Demonstrandum

    (I have always liked elegant proofs)

  30. 30
    TheHulk says:

    RE: ivan @ 25

    The audacity and brashness of some RE agents never ceases to amaze me. I was out looking at open houses over the weekend and happened to talk to one of these agents. No doubt the agent was thinking about me as a prospective “customer”, until I happened to mention I had been looking at houses for a couple of years. I made the mistake of explaining how we were in an immense bubble market, which had only been propped up thanks to government intervention. The only response I got back was and I do quote – “The government has done nothing for the real estate market”.

    I was speechless. I wish I had said something.

  31. 31
    patient says:

    By ivan @ 25:

    RE: Maria @ 14

    “and the agents are saying that they are receiving multiple offers for any property listed under 700K. ”

    The ease with which re agents lie and exaggerate about “multiple offers” and everything else is amazing to me. It is very common to got to an open house, or have them show you a property, and they will say that they already have an offer in hand, but you should also make an offer in case it falls through. And then two months later, the property is still on the market and they’re dropping the price.

    Exactly, and it’s a shame how easy they still after everything that has happened lure prey like Maria into believing their dangerous propaganda that has so often proven to be a financial death trap. Follow the housing data and economic fundamentals and never-ever the self-serving propaganda from agents and their likes.

  32. 32
    Cheap South says:

    RE: patient @ 31

    Patient – something tells me Maria IS part of the propaganda.

  33. 33

    RE: Cheap South @ 32

    That’s my feeling. I don’t think that Maria is simply a potential homebuyer who goes to open houses because she’s looking for a house to buy.
    My guess?
    1. She’s a real estate agent.
    2. She’s married to a real estate agent.
    3. She was kidnapped from an open house and brought to J Lennox Scott, who hypnotized her, and sent her out onto the world to spread the news of the new real estate resurgence..
    4. Her name’s not Maria. She’s actually Scotsman’s evil twin.

  34. 34
    AMS says:

    RE: Cheap South @ 32 – She could have picked out a much lower price. Oh, poor me, I have $700,000 and cannot find a single home–all gone before I arrive. What shall I do?

  35. 35
    AMS says:

    RE: TheHulk @ 30 – Next time you have to act far more interested in the home, at least initially. Then start asking the questions, but slowly. Don’t show your cards so soon.

  36. 36
    The Tim says:

    RE: Cheap South @ 32 – Let’s see, here are all the comments left on this site by “Maria” so far:
    January 14:

    RE market in Seattle area is certainly rebounding regardless of what your statistics says. The sales are very local. Certain pockets are doing very well – Bellevue, Sammamish, Issquah, Queen Anne etc are doing very well. Less desirable areas have a much more inventory. You just can’t generalize.

    January 16:

    Hey bubble predictors,

    You guys have been predicting the big bang for over 5 years now. Where is the bubble burst? 25% below peak and that’s it? In many areas in Seattle, the bubble seems to be nonexistent. people are still buying…

    January 25:

    After going to a few open houses in Sammamish on the weekend, I can tell you all that confidence has returned to the real estate market. All of the open houses were flooded with people and the agents are saying that they are receiving multiple offers for any property listed under 700K. Market is taking off in the area. I expect a decent market here in Seattle by summer. There will be foreclosures still. But that does not seem like deterring the buyers1!
    Good Luck!

    I’d say you’re probably right.

  37. 37
    Scott Weitz says:

    RE: Cheap South @ 32

    Maria, if you’ll notice, many of the people on this site still believe the bubble has yet to truly burst. When all the govt aide is pulled, the market will finally bottom out…it will take many years.

  38. 38

    RE: The Tim @ 36
    Do you think she fits one of my four possibilities in post 33?

  39. 39

    RE: shawn @ 28

    Show Me Your Article

    That says Bill thinks Seattle real estate and the economy have bottomed out in 2010.

    Otherwise you’re the one with allegations and I’m the one with a 20 page written report to the contrary.

  40. 40
    BottomFishing says:

    Me and one of my friend both bought house in good loaction and the house we want. The price is discounted but not foreclosure type. I bought it not even knew that Obama extent the tax credit. Our agent even rebate some of the comission. Complete satistied and happy to own a house we dream for years:good school, good neighbor, good price, good rate and good life style. My friend close the deal last week and there are 8 bidder there. The house is listed for a good price and my friend paid 20k above the asking. The value is there. People stay away from market last Market don’t even realize the best time to buy is when people are panic and scraed. Same for housing. Good value is always there. House will be sold if priced to sell. You will know the bottom when you are over it. But if your intend to live there for more than 5 years and not for profit flip, I think life of owning a house is much better than rent one. So economy is slowly recover, job loss is slowing or hiring is restarted. People’s confidence is increasing. People want to buy will still buy. People talking bubble will always talking. To me, I knew I won’t get the absolute bottom but I got the the house I want at fairly resonable price. To me, quality of life is more important than couple of percenage price change. I don’t invest in housing market. I invest in my family’s quality of life. By comparing to puting money in CDs, stock and housing in that last 10 years, housing still get you better return (if you not get into housing in 2005 2006). You can plot the ROE yourself, let number tell you the truth.

  41. 41
    Chris M says:

    Maria sounds suspiciously like “Marcia” who was a RE troll on the PDX RE bubble blog.

  42. 42
    The Tim says:

    RE: BottomFishing @ 40 – Yes, more of this please.

  43. 43
    Ray Pepper says:

    RE: The Tim @ 36

    In defense of “Maria” I must admit she is correct. Bellevue, Kirkland, and Redmond has had tremendous interest on short sales and foreclosures. I have been touring this area for the last month and there are many people attending the Open Houses and at times I have had trouble backing out of the driveways because of other vehicles pulling in.

    When you drop 200k+ off of a 750k home in Bellevue, Redmond, Kirkland home it does generate some serious traffic. I have also run into multiple offer scenarios on properties where I advised my Buyers to just take their time and keep looking.

    I assure you this is no Agent “fluff.” Its a fact. I can’t believe Maria and myself are the only ones who have seen this. Maria you maybe an Agent in disguise but you are correct with this “All of the open houses were flooded with people and the agents are saying that they are receiving multiple offers for any property listed under 700K. Market is taking off in the area”

  44. 44
    Scotsman says:

    RE: Ira Sacharoff @ 33

    Twins? Fess up, you’re the third leg on this stool… And mom says it’s time to come home to X2ndas. It’s too dangerous here now.

  45. 45
    Scotsman says:

    RE: BottomFishing @ 40

    Whoa, glad you’ve got your calculator out. But you should put your glasses on- I know it’s hard to see, but there’s a negative sign in front of your ROI answer on that little screen.

    P.S.- what the heck is ROE? Dinner?

  46. 46
    Fran Tarkenton says:

    RE: The Tim @ 42 – He was better as BacktoBasic, and even RentRloser.

  47. 47
    HappyRenter says:

    RE: Ray Pepper @ 43

    “Bellevue, Kirkland, and Redmond has had tremendous interest on short sales and foreclosures.”

    What about Seattle? There are less rich people in the big city?

  48. 48
    Packet says:

    RE: HappyRenter @ 47

    Here’s one of those houses:

    On the market for two days at $484k, 11 offers. Closed for $551k. Needed new siding, some new windows, a new roof, a new kitchen, carpets, and a bunch of other misc interior work done on it.

  49. 49
    HappyRenter says:

    RE: Packet @ 48

    Wish the new owner good luck! And also throw in some salt for the winter when they are trying to drive on that steep ramp in front of the garage.

  50. 50
    Scotsman says:

    RE: Packet @ 48

    Wow, lucky flip or..? Kary?

  51. 51
    Packet says:

    RE: Scotsman @ 50

    It’s an REO. Every single one of them that I end up looking at seems to have multiple offers. For some reason, buyers seem to automatically think that an REO is a fantastic deal even though everything is sold as-is. When I stopped by on day two, the bank had stopped taking offers and there were 2 other groups of people looking at the house.

    Here’s another one:

    It was on the market for 1 day and there 4 offers in already. A comp literally next door placed the house at 375k, and 2 more in the development at the same price. Yet, it’s going at or above asking last I heard. Problems with the house I saw was that it needed a bunch of paint, the deck was leaking into the garage, and the back yard needed to be regraded as it was pretty much a swamp.

    That said, not everything will sell. This house has the same floor plan with a lot on the semi-busy street:

    The bank wants $549k for it and it’s not going to sell for that.

    If sellers price their houses right, they will sell and they’ll sell pretty quickly. Those that want to cling on to 2007 prices are going to sit on the house and it’s not going anywhere.

    My gut says a lot of this idiocy by buyers are people trying to get the new second time home buyer credit. At $551k for that Redmond house, I would hope they’re not first time home buyers. I guess we’ll see what the fallout is once May rolls around.

  52. 52
    HappyRenter says:

    RE: Packet @ 51

    I don’t understand the listing on the first house. It says:

    Nov 16, 2009 Sold (Public Records) $280,100

    But now it’s listed again?

    Jan 07, 2010 Listed $399,000

  53. 53
    Scotsman says:

    RE: Packet @ 51

    Thanks. So it’s the old “80% off on an item that’s normally 100% over market” gambit.

    After reading some of the comments over at the Times I was going to comment that folks seem to have a pretty good understanding of what’s really going on with real estate and the economy. Looks like I need to hold off- those who post on the Times’ web site must be a self selecting sample and not that indicative of the population as a whole.

  54. 54
    Packet says:

    RE: HappyRenter @ 52

    The house went to auction and no one outbid the bank over $280k, so it went back to the bank. The bank cleaned it up a bit and put it on the market.

  55. 55

    RE: Scotsman @ 44
    I won’t fess up to being Maria, but you got me: I am an extraterrestrial. People think it’s just a bluetooth coming out of my ear, but I must wear it to get commands from my home planet.

  56. 56
    Willy Nilly says:

    RE: Fran Tarkenton @ 46

    Yes Yes Yes! Tim is the long arm of the law here, perhaps there could be an investigation?

  57. 57
    shawn says:

    RE: softwarengineer @ 39 – Let me explain it to you.

    Proposition #1
    Bill Gates believes in x and publicly proposed it before you, and you later come to believe in x after reading his article, so it is you who believes in what Bill believes in. He does not believe in what you believe in.

    Proposition #2
    There is a common belief that the two of you have. However, Bill came to his independent of yours, regardless of any timeline. In other words he does not agree with you, you both have the same belief.

    Proposition #n
    Need I go on?

    You don’t know what it means when you say someone agrees with you. You confuse it with two people believing in the same thing. Agreeing with you and believing in some common held belief are two distinctly different things.

    What is most irksome is the rude things you recently said about Bill Gates, some slur about him that I forget other than it was rude. To then fast forward to today and you want to imply that he agrees with you is, to say the least, ridiculous.

  58. 58
    patient says:

    RE: Ray Pepper @ 43 – Ray even if it’s what you see we need to see those 2500+ closings a month for KC SFH before we believe in this so called super hot market. Open house traffic and offers means nothing if it doesn’t show up in the closings volume.

  59. 59
    patient says:

    RE: patient @ 58 – I’ll change that, it means that the time to even look at REOs is still far in the future. We seem to be in the phase were people think they will be limited in supply and that they need to hurry to get one.

  60. 60

    RE: Ray Pepper @ 43
    I too have noticed that some of the more reasonably priced REO homes are seeing multiple offers,it’s true. But that’s not the same thing as saying that everything’s recovered, everything’s honky dory.
    Yes, I showed a few homes recently where there were 8, 9, 10 offers, but it’s pretty disconnected from what’s going on elsewhere. There are still plenty of crappy, overpriced homes just lingering there on the market.

  61. 61
    Rena says:

    Instead of celebrating “Doomsday” why not celebrate that our country survived one of the most devastating events in World history? Home prices are up six months in a row, and we are coming back! If you were not able to afford a home in the past, now is your chance, but you must know that you will be making a profit off the backs of any hard-working American who invested in property between 2005 and 2007! We survived the Great Depression and we will survive this. I only hope that the investors do not convince the average homeowner that their home has no value. Hang in there everyone – don’t give up the fight!

  62. 62
    EconE says:

    RE: Rena @ 61


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