Weekend Open Thread (2010-07-23)

Here is your open thread for the weekend beginning Friday July 23rd, 2010. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.

Be sure to also check out the forums, and get your word in the user-driven discussions there!

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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.

43 comments:

  1. 1
    Sniglet says:

    Several ex-Microsoft employees are joining me at 12:00pm today (i.e. Friday, July 23rd) to talk about their views on Microsoft today, and its future. This show will be streamed live (via Blogtalkradio), and we will be taking calls from listeners. What happens to Microsoft has a big impact on our regional economy.

    It should be fun!

    You can find the links to the show in a featured discussion on the Linked:Seattle on-line community (http://bit.ly/LinkedSeattle).

  2. 2

    Here’s a good example of how tax policy can affect local jobs. I really doubt that Sen. Kerry is the only one doing this.

    http://www.msnbc.msn.com/id/38378992/ns/politics/

  3. 3

    And here’s a good example of why businesses are wary of expanding their operations in today’s political climate.

    http://www.msnbc.msn.com/id/38376709/ns/business-us_business/

  4. 4
    JJG says:

    Question:

    As an aspiring first-time home buyer should I be for or against the government’s continued support and funding of Fannie and Freddie?

  5. 5

    By JJG @ 4:

    Question:

    As an aspiring first-time home buyer should I be for or against the government’s continued support and funding of Fannie and Freddie?

    Depends on whether you’re guided by ethics or by enlightened self interest, or whether you’ve got all cash to pay for your home.

  6. 6

    RE: JJG @ 4 – More information is required, particularly how much cash do you have to put down, what price range, etc. Also, why are you not mentioning FHA?

    Edit: I actually received an email on the topic as I was typing this, purporting to be about F&F. And surprisingly, the shortened (blind) link wasn’t to a porn site! ;-)

    http://www.economist.com/node/16640359?story_id=16640359&fsrc=rss

  7. 7
    pfft says:

    what the heck will microsoft do with all that cash?

  8. 8
    JJG says:

    I meant to leave the question broad. Not a lot of cash here, 10% would be a stretch at this point. Time frame: hopefully within next year, 3yr max.

    More specifically, should I support continued gov’t funding so I can get a low cost FHA loan when I’m ready, or would dissolving those entities result in market price drops to make up the difference (enough for me to afford a higher down conventional loan)?

    Futher, do you think its inevitable that they will eventually dissolve or be restructured?

  9. 9
    BillE says:

    Seems to be a lot of new pendings on my favorites list. Some of them have been on the market for a very long time with no real price drops.

  10. 10
    Sniglet says:

    Can someone explain why some landlords will put up with non-productive assets for long periods of time rather than reduce the price? The quote below, from an article about vacant office space, is an extreme example, but I have seen this even take place in residential rentals. I have seen vacant homes in Bellevue with For Rent signs go unoccupied for up to a year.

    What can the owners of such properties possibly be thinking? Isn’t it better to at least some a tenant paying a lower than desired rent rather than let the property sit unoccupied for long periods of time?

    Some of these standoffs between prospective landlords and would-be tenants have been going on for years, with no sign of abating. In the most extreme case, the top two floors of a premier Westwood high-rise have been empty since the building was completed in 1989.

    http://www.latimes.com/business/realestate/la-fi-commre-room-20100718,0,7163150,full.story

  11. 11

    RE: Sniglet @ 10 – If you’re talking a long term lease (over say 3 years), agreeing to a “low rent” lease will affect the value of the property going forward for most of the period of the lease. Showing low income for the current period is less damaging to value, because most buyers assume that they can do a better job managing the property than the current owner. It’s almost a leverage type situation.

    Now if you’re talking about a 1 year lease of residential property, there it probably makes no sense at all, absent special circumstances.

  12. 12
    Sniglet says:

    RE: JJG @ 8

    should I support continued gov’t funding so I can get a low cost FHA loan when I’m ready, or would dissolving those entities result in market price drops to make up the difference (enough for me to afford a higher down conventional loan)?

    Government funding/subsidy of real-estate just drives up the over-all prices. The flip side of very low mortgage rates is higher over-all prices for real-estate than would otherwise be the case. I would argue it is preferable to have lower base prices and higher mortgage rates than the other way around.

    High prices, driven by subsidized credit, send incorrect market signals which result in over-investment, which leads to bubbles and busts.

  13. 13
    softwarengineer says:

    RE: Kary L. Krismer @ 2

    Another Good Example of Politicians Talking the Talk

    But refusing to Walk the Walk themselves….LOL

    Spend someone elses money, but leave mine alone.

  14. 14
    softwarengineer says:

    RE: Kary L. Krismer @ 11

    Makes Sense Kary

    Albeit landlords can imagine qualified tennants exist, but 2010 is not a good year for this pipedream. Article in part:

    “…According to the 2010 National Apartment Report by Marcus & Millichap commercial real estate brokerage, asking rents (what a landlord asks for) in 2010 are forecast to fall 2.8 percent to an average of $928 per month, and effective rents (what a tenant actually pays) are expected to drop 3.9 percent to $852 per month.

    In Seattle, developers this year are expected to deliver 2,600 apartments, down from 4,510 delivered last year, and the vacancy rate is expected to rise to 8.4 percent….”

    http://seattle.bizjournals.com/seattle/stories/2010/02/01/daily33.html

    It might also likely pay to be cautious, keep lease payments mitigated, rather than vacant units eating the profits dry to retain value.

  15. 15
    ARDELL says:

    RE: BillE @ 9

    Can you give us a couple of specific examples by mls#?

  16. 16

    By softwarengineer @ 13:

    RE: Kary L. Krismer @ 2

    Another Good Example of Politicians Talking the Talk

    But refusing to Walk the Walk themselves….LOL

    Spend someone elses money, but leave mine alone.

    Imagine how many more people are doing that–people that don’t care at all about adverse publicity that might result.

  17. 17
    pfft says:

    By Sniglet @ 12:

    RE: JJG @ 8

    should I support continued gov�t funding so I can get a low cost FHA loan when I�m ready, or would dissolving those entities result in market price drops to make up the difference (enough for me to afford a higher down conventional loan)?

    Government funding/subsidy of real-estate just drives up the over-all prices. The flip side of very low mortgage rates is higher over-all prices for real-estate than would otherwise be the case. I would argue it is preferable to have lower base prices and higher mortgage rates than the other way around.

    High prices, driven by subsidized credit, send incorrect market signals which result in over-investment, which leads to bubbles and busts.

    so what you’re saying is we should look for the corresponding sector that is underinvested in?

  18. 18
    Racket says:

    “Several ex-Microsoft employees are joining me at 12:00pm today (i.e. Friday, July 23rd) to talk about their views on Microsoft today, and its future.”

    Who cares, thats like a bunch ex-girlfriends sitting around blabbling about the new girlfriend.

  19. 19
    Sniglet says:

    RE: Racket @ 18

    Who cares, thats like a bunch ex-girlfriends sitting around blabbling about the new girlfriend.

    Don’t knock it. Lot’s of people seem to like watching Opra. The great thing about the internet is that you don’t have to listen to things that don’t interest you.

  20. 20
    David Losh says:

    RE: BillE @ 9

    I’ve noticed the same thing. As a matter of fact one of the most over priced properties I see is now pending. Several properties that have been on the market a very long time are now getting activity.

    There is a sucker born every minute, and today they are buying residential Real Estate.

  21. 21
  22. 22
  23. 23

    When you see price action with a periodic and steady reduction scheme, it’s almost certainly either a short sale of a REO property. If it’s an REO you can try to use the pattern to time an offer if you think the property is priced too high.

  24. 24
    SammamishRenter says:

    Very interesting statistics here:
    http://static.businessinsider.com/image/4c4594bb7f8b9a10719e0000/table.jpg
    Out of 946 repossessed homes in Seattle area, only 51 are on the market and only 8 are over $300K

    http://www.businessinsider.com/banks-cant-hold-back-highend-mortgage-repos-for-long-2010-7?utm_source=patrick.net.net

  25. 25

    RE: SammamishRenter @ 23 – That’s already been discussed, and I think the consensus was the article was wrong.

  26. 26

    RE: Kary L. Krismer @ 24 – Well, maybe there wasn’t a consensus, but check out the Mid-Week thread, starting at posts 60, 70 and 72.

    https://seattlebubble.com/blog/2010/07/21/mid-week-open-thread-2010-07-21/#comments

  27. 27
    softwarengineer says:

    Why Extending the Bush’s Tax Cuts [capital gains on stocks] to Rich Elite Dem/Reps are a Moot Point to Real Estate

    Article in part:

    “…83 percent of all U.S. stocks are in the hands of 1 percent of the people….”

    http://finance.yahoo.com/tech-ticker/the-u.s.-middle-class-is-being-wiped-out-here%27s-the-stats-to-prove-it-520657.html?tickers=^DJI,^GSPC,SPY,MCD,WMT,XRT,DIA

  28. 28
    pfft says:

    anyone reading a bubble blog could have figured this out years ago.

    FICO: Not a Great Default Predictor
    http://www.ritholtz.com/blog/2010/07/fico-default-predictor/

  29. 29

    RE: pfft @ 28 – I’ve been saying that for years. You can have a good FICO score with $20,000 of credit card debt. That should ruin your credit score unless perhaps you make 7 figures a year.

    The FICO scores are really designed to let banks know who they are more likely to make money off of when issuing credit cards. Again, that’s indicated by the fact that having the same credit cards for years raises your score, and replacing one credit account with another in the exact same amount lowers your score.

    The credit score people have even realized this and created a separate score that is designed to be used for mortgage lending decisions. I’m not sure how many, if any, banks use that alternative score.

  30. 30
    softwarengineer says:

    RE: pfft @ 28

    We Need to Vote Our Current State Insurance Commissioner Out Too

    The current Commissioner made car insurance rates tied to the FICO score too….totally absurd to imagine bad credit scores has any correlation at all with unsafe driving. Just another way for car insurance companies to theoretically pick our pockets.

    I don’t even look up my credit score anymore, I just call my car insurance company and it’s on their computer [and if your rates go down, don’t bother calling]….LOL

  31. 31
    Dirty_Renter says:

    The current real estate crisis continually harkens me back to the 88-92 financial/real estate crisis, and I continually make comparisons, some relevant and some, not so relevant. With the onslaught of the internet, the current crisis is continually talked about….the old one, not so much.
    In fact, I will buy a cookie to the SB borrower who can explain the root cause for the ‘older’ S&L crisis. I remember in 2007, I posted on a S. California bubble blog (Real Men of Genius?) that I sold a Greek Revival mansion-type house in Houston, circa 1991, for ~$36/sq ft. No one believed me. Oil well. Mind you, Houston was being pummelled by not only the S&L crisis, but the oil downturn as well, and perhaps sprinkling in a bit of Latin America debt crisis.

    Let’s enjoy the beautiful Puget Sound summer.

  32. 32
    pfft says:

    The political genius of supply-side economics
    http://blogs.ft.com/martin-wolf-exchange/2010/07/25/the-political-genius-of-supply-side-economics/

    all you need to know about supply-side economics is this. clinton had a surplus and bush had a deficit.

  33. 33
    David Losh says:

    RE: pfft @ 32

    I’m just waiting for my wife to get ready so we can go when I see this, once again with the long winded explanation of surplus, and deficit.

    One thing Scotsman got right was that Clinton made good fiscal policy, but never created a surplus. Reagan had a better chance of creating a true surplus than Clinton ever did. The Bushes were only generating personal wealth, and power, for the Bush family legacy. Look out for Jeb, he’ll be in the hot seat next, but I digress.

    Deficit spending is a good thing if there is a return. In Reagan’s case he beat the living snot out of the global military complex. At the same time he attacked military waste with the Grace Commission. Reagan actually showed the American public the budget, and problems with passing it blindly. I think he let the budget expire on more than one occasion, and wanted the line item veto.

    Clinton raised some taxes, cut a little spending, and was a glad handing kind of guy.

    We need an over all fiscal reform that will once and for all put the American economy on a path to sustainable government spending, with fair taxation.

    It is really an easy process, but Congress is always blaming each other for what isn’t getting done, rather than doing anything positive.

    We can cut spending by billions of dollars, and put in a tax system that doesn’t punish success. Let’s face it, not every one wants to be rich, but if you are, you should pay back to the system that made that possible.

  34. 34
    pfft says:

    By David Losh @ 33:

    RE: pfft @ 32

    I’m just waiting for my wife to get ready so we can go when I see this, once again with the long winded explanation of surplus, and deficit.

    One thing Scotsman got right was that Clinton made good fiscal policy, but never created a surplus. Reagan had a better chance of creating a true surplus than Clinton ever did. The Bushes were only generating personal wealth, and power, for the Bush family legacy. Look out for Jeb, he’ll be in the hot seat next, but I digress.

    Deficit spending is a good thing if there is a return. In Reagan’s case he beat the living snot out of the global military complex. At the same time he attacked military waste with the Grace Commission. Reagan actually showed the American public the budget, and problems with passing it blindly. I think he let the budget expire on more than one occasion, and wanted the line item veto.

    Clinton raised some taxes, cut a little spending, and was a glad handing kind of guy.

    We need an over all fiscal reform that will once and for all put the American economy on a path to sustainable government spending, with fair taxation.

    It is really an easy process, but Congress is always blaming each other for what isn’t getting done, rather than doing anything positive.

    We can cut spending by billions of dollars, and put in a tax system that doesn’t punish success. Let’s face it, not every one wants to be rich, but if you are, you should pay back to the system that made that possible.

    under clinton the deficit went down as a % of GDP and under Reagan it went up.

    http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms#Gross_federal_debt

    contrary to popular belief Reagan did raise taxes.

    Reagan’s Tax Increases
    http://www.ritholtz.com/blog/2010/07/reagans-tax-increases/

  35. 35
    One Eyed Man says:

    RE: Dirty_Renter @ 31

    Just like this financial crisis there were a lot of causes for the S & L crisis, but one of the main triggers was the de-regulation of the S & L’s by the Reagan administration. In So Cal, real estate developers and syndicators holding paper profits in properties would buy an S & L and drop their development company with the paper profits into the S & L as a subsidiary. That created a lot of additional capital in the S & L that they could loan against. Unfortunately many of them let bad loan officers do bad deals with 100% financing on construction loans with little or no builders control. I saw a north San Diego Co water front condo project that had the entire construction loan disbursed before the framing was completed. By the time they foreclosed, the framing had warped in the salt air and had to be torn down so all the lender got back was the piece of ground and a foundation.

    In 1990 we had 2 California real estate syndicators who wanted us to do a Reg D Private Placement for several million to go to Houston and buy houses as rentals. They could buy 3 and 4 bedroom homes that cost 80K a few years earlier for 40K. They were going to hold them for 5 years and figured they could more than double the investor money by then. Unfortunately they never came up with the retainer money so we didn’t do the work. I don’tknow if they ever did the deal.

  36. 36
    BondsOfSteel says:

    RE: BillE @ 21

    Maybe they’re all short sales and the bank finially accepted some lowball offers?

  37. 37
    David Losh says:

    RE: pfft @ 34

    Once again you are missing the point. Surplus, and deficit, are a function of the broader economy. You have to have an over all program. Clinton had the peace dividend, couple with, as you say, the Reagan tax programs. Clinton simply built on what Reagan gave us.

    The Bushes, just mucked around.

  38. 38
    Scotsman says:

    RE: pfft @ 34

    Too funny. Your own link shows that indeed Clinton never really ran a surplus, despite the great lie to that effect, and indeed he added to the debt just like every president before him. It was all just accounting gimmicks and more robbing of the social security trust fund. Trying to put some lipstick back on the pig by claiming that Clinton reduced the deficit as a percentage of GNP is laughable.

    http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

    The only number that counts when talking about a surplus or a deficit is what happened to the total outstanding debt. And it has gone up every year for more than 50 years. Get it right.

  39. 39
    pfft says:

    By David Losh @ 37:

    RE: pfft @ 34Clinton simply built on what Reagan gave us.

    The Bushes, just mucked around.

    When Clinton raised taxes the Republicans predictably went crazy. they said it would ruin the economy and ruin the job market. the exact opposite happened.

    why does Reagan get credit for the economy even when he wasn’t in office. he’s a tremendously overrated president.

  40. 40
    pfft says:

    By Scotsman @ 38:

    RE: pfft @ 34

    Too funny. Your own link shows that indeed Clinton never really ran a surplus, despite the great lie to that effect, and indeed he added to the debt just like every president before him. It was all just accounting gimmicks and more robbing of the social security trust fund. Trying to put some lipstick back on the pig by claiming that Clinton reduced the deficit as a percentage of GNP is laughable.

    http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

    The only number that counts when talking about a surplus or a deficit is what happened to the total outstanding debt. And it has gone up every year for more than 50 years. Get it right.

    that’s how you measure the deficit, as a percentage of GDP. that’s how it’s done. the calculations are the same for bush and he added to the deficit. you just don’t like the numbers because they show the opposite of your political views.

    bush added much to the deficit.

    “The only number that counts when talking about a surplus or a deficit is what happened to the total outstanding debt.”

    any economist worth his degree will tell you you are wrong. adjusted for inflation and as a percentage of GDP are very relevant. get it right!

  41. 41
    Scotsman says:

    RE: pfft @ 40

    Please explain how you run a surplus and increase the total debt outstanding at the same time. This information will be very valuable to the current administration.

    “any economist worth his degree will tell you you are wrong. adjusted for inflation and as a percentage of GDP are very relevant”

    I’m not sure what you mean by your lasst sentance, but no, they won’t. You are confusing annual budgets with debt effects over time. We are talking about what happens with the annual budget here, so inflation and debt/GDP ratios have no bearing at all.

  42. 42
    Dirty_Renter says:

    RE: One Eyed Man @ 35
    One eyed man won with the very first sentence. The deregulation of the liability side of the S&L’s balance sheet. Once they deregulated the interest you could pay on checking accounts(NOW accts), savings accounts etc, then their asset side, the 30 year fixed rate mortgages were an albatross around their neck once interest rates increased. That negative spread was hemlock. It is why banks buy Interest Rate Swaps as of this day. As you alluded to, another smaller reason was the increase of FDIC insurance to $100k, which made it easier for charlatons to obtain cheap insured funding for their nefarious enterprises.
    So, I owe OEM, a cookie at the next SB meetup, or give me an address and I’ll mail your prize. Hooray.

  43. 43
    David Losh says:

    RE: pfft @ 40

    You’re just not getting the idea here.

    Reagan outlined the problem of the deficit. He spent money to kill any idea that the United States was less than the dominant military force in the world. Once he started talking Star Wars the world was nervous. Never in the Reagan Presidency did any one in the world doubt he would push the button for a nuclear war.

    He showed the budget to the American people in a television presentation where the table broke under the weight of the document. He calmly said he did stage that. Even if he did it was a powerful image. I think more than twice he let the Federal Government run out of money rather than sign the budget. He asked for the line item veto.

    I could go on about why he was the greatest American President in my life time, but the fact is, that with what the Grace commission presented, he showed us a way to balance the budget. The Grace Commission, because you have absolutely no idea what that is, reported that the military was spending $400 for hammers, and $2K for toilet seats.

    Reagan did a lot, and Clinton was smart enough to follow what he outlined, but avoided giving Reagan the credit. As Scotsman said Clinton just put on a show.

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