Monday Open Thread (2010-08-02)

Here is your open thread for Monday August 2nd, 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.

39 comments:

  1. 1
  2. 2
    cjmorgan says:

    I thought that I would share my recent experience with the housing crisis:

    I rented a condo in may 2008 from a builder who had a glut of unsold units. My rent was about 60% of what a mortgage would have been at the time. In February of 2009, I started to recivied notices from the bank regarding failure to pay the mortgage. I still made my rent payments however, I was not a “timely” in future payments knowing that he was pocketing my rent. In September 2009 I recieived the second notice of auction. At this point, I hadn’t seen nor heard from my landlord. I tried to call and there was no answere at his office anymore…not even a voicemail – must have had many creditors and renters calling as well. Well my lease ended in December 09 and several other tenants left that month as well due to all of the uncertain bank letters and notices. I stayed since I knew I could pack up and leave in a week if I needed to. Fast forward last week. Fannie mae finally sent a property management company to my place and gave me the option to resign a lease. I did – at 40% less than my previous lease. It’s a 12 month “lease” with a one month refund at the end of 12 months for “moving expenses”. There are NO latefees, and I can cancel the lease with a 2 week notice and no penaltys. I don’t feel I used the system, I feel that I have taken advantage of the fact the banks cannot sell, and for all of use who are paying the banks a “bailout”, the bailout trickled down to me.

    Now – the reo condo in my building that has been for sale for a year – remodeled in 2007 granite, stainless, 2 br 1 bath, topfloor, vaulted ceilings, built in entertainment system, largest deck in the bldg. Was marketed for 285k in 2008 now going for $148,000 I’m thinking in a few months I’ll throw a 130k offer and be able to ride out any future declines and probably make a few in 5-10 years.

  3. 3
    David Losh says:

    Shadow inventory seems to be the big story this week end. I have set Novenmber as the month that I think we will start seeing banks sell foreclosed homes for whatever they can get.

    Banks, at some point, are going to have to clear the inventory they have. With the good news about bank profits, earnings, and volume, there must be some way to project when, and how, the inventory will be doled out.

  4. 4

    RE: David Losh @ 2
    I’ve seen a number of vacant homes with signs on them indicating that they’re bank owned, but just sit there for many months on end before anything happens. There’s one at the end of my block that just sat there for almost a year. Finally, it got put on the market, and after that they came in and put on a new roof. I went in before they did the roof , and there was a tarp on the roof and buckets on the floor and bulging ceilings. It was a pretty nice house a few years ago, and I have no doubt that many neighborhoods have something similar going on. What’s wrong with these banks? Couldn’t they go in and do the roof as soon as they take the house over? Why wait until there’s more damage?
    Kary mentioned another house in Fairwood with roof problems, a house that finally saw roof repairs and eventually sold. Huge, and elegantly appointed, but those blue tarps on the roof don’t exactly sell the place.

  5. 5

    RE: David Losh @ 2 – I wouldn’t necessarily look at news stories as being a sign of anything. Shark attacks were the big story prior to 911, and they were occurring at below average levels. News stories just mean some reporter somewhere became aware of something. It’s somewhat amazing that there aren’t more news stories about how the sun rises in the East.

  6. 6
    WestSideBilly says:

    RE: Ira Sacharoff @ 3 – Banks aren’t in the business of property management…

  7. 7

    RE: WestSideBilly @ 5 – I suspect what the issue is though is one of who owns the loan. If it’s been sold to a third party, they aren’t in the business of advancing funds to fix a place up, and whoever is servicing the loan probably doesn’t want to advance the funds to increase the recovery of a third party. It it is really held by a bank, or better yet, Fannie or Freddy, then they would have funds to fix the place up.

  8. 8
    TheHulk says:

    RE: WestSideBilly @ 5
    Considering how many banks have failed in the past 2 years, it looks like they aren’t doing too much in the business of money management either.

  9. 9

    RE: Ira Sacharoff @ 3

    I Know What You Mean Ira

    The house next door to me has depressed all my neighborhood home owners, the bank owned unit couldn’t sell as a fixer upper at an approx 33% drop from 2007 price highs, so instead of doing the logical thing, dropping it 50-60% in price, the bank dummies completely remodeled it at [my guess] a 50-100% cost [from it’s 33% drop] and got only 40% more for it.

    They obviously can’t do the simple math like you or I. Perhaps they waste money to mask the fact that fixer uppers have collapsed 50-60% in price from the 2007 peaks? It’s depressed all the owners in my neighborhood, we figure now, all our older homes [unremodeled] are mostly upside down loans, even bought cheaper in the mid to late 90s. I bought mine in 1999 and using the next door house as an approximate comparison, the price I paid back then is all its worth now.

    A family that bought in 2000, just handed their upside down loan keys to the bank yesterday.

  10. 10
    Sniglet says:

    instead of doing the logical thing, dropping it 50-60% in price, the bank dummies completely remodeled it at [my guess] a 50-100% cost [from it’s 33% drop] and got only 40% more for it

    Maybe this is the “logical” thing. If banks are concerned about the book value of their delinquent portfolio dropping, then anything they can do to keep those list prices high is worth it. Lenders could also be concerned about seeing increased numbers of foreclosures from borrowers who find themselves under-water and will therefore go to extraordinary lengths to maintain the fiction that prices haven’t fallen.

    Of course, this could just be the result of stupidity. Maybe I try and give the banks too much credit for convoluted strategies.

  11. 11

    By Sniglet @ 9:

    instead of doing the logical thing, dropping it 50-60% in price, the bank dummies completely remodeled it at [my guess] a 50-100% cost [from it’s 33% drop] and got only 40% more for it

    Maybe this is the “logical” thing. If banks are concerned about the book value of their delinquent portfolio dropping, then anything they can do to keep those list prices high is worth it. Lenders could also be concerned about seeing increased numbers of foreclosures from borrowers who find themselves under-water and will therefore go to extraordinary lengths to maintain the fiction that prices haven’t fallen.

    Of course, this could just be the result of stupidity. Maybe I try and give the banks too much credit for convoluted strategies.

    I obviously don’t know which house is being discussed, but the bank probably didn’t spend over $10,000 or $15,000 to fix up the house. They can paint, recarpet and refloor pretty cheaply.

  12. 12
    deejayoh says:

    By softwarengineer @ 8:

    RE: Ira Sacharoff @ 3
    A family that bought in 2000, just handed their upside down loan keys to the bank yesterday.

    Do you think the family that bought in 2000 is upside down because of the price they paid, or because of serial refinancing? Pretty easy to look it up and verify whether or not they were underwater vs. their purchase price.

    I’d put my money on the latter. Prices haven’t dropped that far.

  13. 13

    RE: deejayoh @ 11 – They possibly have in some areas. But your thoughts otherwise were the same as mine. Another possibility is that they were comparing a short sale or distressed sale for their value.

  14. 14
    hoary says:

    By Cheap South @ 1:

    Shadow Inventory piece.

    http://www.npr.org/templates/story/story.php?storyId=128923334

    What are the sources of supply side data?

    I listened to this story and they quoted some figures — the MIT economist who was bullish quoted some figures too. I’m just curious if anyone knows how to get supply side data? And how can you model shadow inventory?? Sounds like an futile enterprise.

  15. 15
    The Tim says:

    RE: hoary @ 14 – Funny thing. As an assignment for. Glenn, I actually pointed that NPR reporter toward the neighborhood she used for that piece.

    I don’t know about where they’re getting the nationwide stats, but the data on the % of listings in that neighborhood that are bank-owned and short sale were something I just pulled right off of a Redfin search of the neighborhood.

  16. 16
    Scotsman says:

    Wow- let’s hear it for the State! Funding ski trips to Aspen?

    http://hotair.com/archives/2010/08/02/video-time-to-end-civil-forfeiture/

  17. 17

    RE: Kary L. Krismer @ 11

    Add In Replaced the Outside Wood.

    They worked on it all Summer, 2-3 men crew….even a bank couldn’t do that for much less than $50k. I was my own contractor and I couldn’t do it for much less than $50K.

  18. 18

    RE: softwarengineer @ 17

    All Glueboard Rots at the Bottom

    Even the cheap plywood they make now-a-days does in about 10 years. The contractors see rot or ants and they see dollar signs….LOL

  19. 19

    RE: softwarengineer @ 18

    I Remodeled My House Myself Before It Rotted and Now Its Sealed Better Than New

    Let’s just say ole SWE knows some cost savings tips contractors would never use [but a good engineer could figure out]….why would they? LOL

  20. 20

    RE: deejayoh @ 12

    Probably a Little of Both

    But let’s face it, our cars and spouses are just like our houses…..they’re fine machines and beautiful until we dump them for something better….LOL

  21. 21
    deejayoh says:

    By The Tim @ 15:

    RE: hoary @ 14 – Funny thing. As an assignment for. Glenn, I actually pointed that NPR reporter toward the neighborhood she used for that piece.

    I don’t know about where they’re getting the nationwide stats, but the data on the % of listings in that neighborhood that are bank-owned and short sale were something I just pulled right off of a Redfin search of the neighborhood.

    Just read that piece. I liked Glenn’s point that there isn’t some plot by banks to titrate the inventory on to the market. The MIT guy claims the foreclosed homes are basically snapped up as fast as they can be by investors. It would be interesting to see what days DOM looks like for bank-owned vs. private properties. If the MIT guy’s claim is correct then the bank-owned properties (not short sales) should be selling faster than average.

  22. 22

    SWE Is In a Good Mood Today

    His stocks went up 2% today….LOL

  23. 23
    hoary says:

    RE: The Tim @ 15

    OK thanks.

  24. 24
    hoary says:

    RE: deejayoh @ 21

    Funny aside. I wanted to read the transcript of the NPR story so I googled “NPR shadow inventory”. Same story by same author this time last year. Nothing new in the journalism industry, I just wonder how many years the author will get to recycle this story. Five? Ten?

    http://www.npr.org/templates/story/story.php?storyId=106113137
    http://www.npr.org/templates/story/story.php?storyId=128923334&ft=1&f=1003

    And if you are a Mariners fan and haven’t seen this, it’s pretty funny:

    http://www.theonion.com/articles/espn-writer-changes-city-names-from-previous-story,17520/

  25. 25
    Willy Nilly says:

    RE: softwarengineer @ 19

    Give it up! What are the SWE’s special techniques that outperform the contractors?

  26. 26
    David Losh says:

    Professor Wheaton’ comments were used in a “discussion” I had over the week end.

    http://econ-www.mit.edu/files/2396

    This is a link to his Real Estate cycle paper. It’s not really a theory, and long story short, it’s very basic. He does make the point that Real Estate agents are charged with knowing future value. That’s what they are paid for.

    Whatever, but banks are in the business of asset management. This whole idea that banks are just overwhelmed so they should be given another free pass is stupid.

    Banks own, and control, huge swaths of Real Estate around the world. Where the professor’s speculation falls apart is his thought that the United States will continue to be the most desired place on earth to be.

    I was in South Lake Union today, and there are people working in those office buildings from all over the world. I don’t see why American companies have to continue to bring people here to work, when they can telecommute from anywhere. There’s constant speculation here that American jobs are being shipped over seas. Factories can be built anywhere.

    There must be data on how many housing units banks own in this country. There again there must be some way to find out the number of rental units, compared to housing units that people are making payments on. There should also be stats on how much equity there is in American housing units.

    What I think is that this year banks will unload as much inventory as they possibly can before the end of the year. If they wait until next year they will get less, and less, the year after. I also think the number of foreclosed properties will continue to increase as it settles in that appreciation is a long way off.

    From what I think, any one would be smart to get rid of as much property as they possibly can while prices are still this high.

  27. 27

    RE: Willy Nilly @ 25

    It’s Called Minimization of Material Removal Through Seal Treatments

    You think contractors could make money doing it that way? LOL

    If contractor’s had engineering degrees or chemical sealant application knowledge, they could do it on the cheap too [the seal material(s) I use can be bought, but the sources of the good stuff are limited]….I’ll give you a hint, do not steam clean glueboard then paint and seal….traps rot in. Do not use plastic paneling [carcinogenic and horrifying indoor fumes], also the trapped moisture rot conundrum.

    My techniques only work after a long bone dry/hot spell all the way to the 2×6 frames, like right now. So if you wanted to make a thriving business using my techniques and replacing costly contractor work, it’s clearly a seasonal job only.

    Here’s one technique I’ll give you on the cheap: Outdoor carpet over glueboard porches are great ant and rot breeding spots from rain and wind….the preventive there is my dry sealing timing and lots of Thompson Water seal soaked/sprayed on the outdoor porch carpet [BTW, it does not discolor the carpet and it lasts forever in fabric, on wood it’s only good for a year].

  28. 28
    David Losh says:

    RE: softwarengineer @ 27

    OMG!

    I wrote one of the original opinions about LP siding here in the Northwest for a paint manufacturer who was blamed for a mildew problem. When I saw the product my opinion was that it should be primed on both side, and the butt joints sealed during application. Extensive caulking was the manufacturers recommendation because it put the cost onto the installer.

    Now, twenty year later, I don’t see priming as an answer. I think keeping moisture away from the glue products is the only way to have them last for any amount of time. Air flow engineering is the best solution, but no one, no home owner, builder, or contractor is going to pay for the cost.

  29. 29
    Dirty_Renter says:

    RE: Willy Nilly @ 25

    Is your avatar a picture of Aurora?

  30. 30
    Scotsman says:

    Timmy G. says unemployment may get worse before it gets better. No sh#t!

    Actually he explains it away as a consequence of the way the number is calculated- more people seeking to re-enter the work force as they see the economy “improving’ (or benefits run out) drives the number up. Too many of these statistics are “Alice in Wonderland” constructs to have any real meaning.

    http://abcnews.go.com/GMA/treasury-secretary-timothy-geithner-unemployment/story?id=11308157

  31. 31
    RoflCatDown says:

    RE: softwarengineer @ 9 – Well, the bank knows how many properties nearby that they have on their books. It might be worth it for them to prop up the price of one REO property by spending 50-100% of sale cost to remodel in order to keep the value of the neighboring homes that they hold the mortgages for worth more thus preventing further write downs on the portfolio’s value.

  32. 32
    Willy Nilly says:

    RE: Dirty_Renter @ 29

    I snapped this at the Point Defiance Zoo. The name tag was smeared so I do not know the name of the fine specimen representing me.

  33. 33
    David S says:

    Remember, banks are not loosing anything. They get:
    1. Original loan origination fees
    2. Interest paid through time of default
    3. PMI payout if used to generate original loan product
    4. The tax deduction for ‘loss’ writeoff
    5. And the deed to the property to sell off.
    6. There are also scores of others who profit from another transaction.
    7. Banks did not use their savings account to finance homes, they used their ledgers.

    Who looses? WE DO! Not the banks.

    By RoflCatDown @ 31:

    RE: softwarengineer @ 9 – Well, the bank knows how many properties nearby that they have on their books. It might be worth it for them to prop up the price of one REO property by spending 50-100% of sale cost to remodel in order to keep the value of the neighboring homes that they hold the mortgages for worth more thus preventing further write downs on the portfolio’s value.

  34. 34

    RE: David S @ 33

    The Fear Factor Too

    When banks have to go to extraordinary financial lengths to sell fixers, all the neighborhood is wondering how their older fixers will sell for more than 50% of their 90s values. Remember, my HOA was built by King County originally to allow middle incomes into the housing market….now the banks are horrifying the owners to just hand the keys back and rent?

    Sometimes [IMO] the effort to artificially prop values up with wasteful spending creates a domino effect of fear.

  35. 35

    Geithner Admits Unemployment May Go Up When We Count More of ‘Em

    “….Treasury Secretary Timothy Geithner acknowledged that it is still a “tough economy” for most Americans, and warned it’s possible the unemployment rate will go up for a couple of months before it comes down as more people enter the labor force….”

    http://abcnews.go.com/GMA/treasury-secretary-timothy-geithner-unemployment/story?id=11308157

    IMO, his “couple months” assumption likely means they give up again and we don’t count ’em again?

    He’s also for eliminating the old Bush tax cuts:

    “…But Secretary Geithner rejected those claims by saying a short extension on all tax cuts could lead to an indefinite one….”

    IMO, come the October budget and the tax cuts are theoretically gone, here comes the Bears to the stock market with no stock income capital gain tax exclusion anymore. I’d call it slamdunk.

  36. 36
    Sniglet says:

    RE: David S @ 33

    banks are not loosing anything

    Not quite. Any loss a bank has to take on it’s books, due to the inability to sell the collateral for the value of the loan, eats away at their capital reserves. If the reserves drop below a certain minimum the bank is insolvent and will be seized by the FDIC (unless they are a HUGE bank, in which case the regulators pretent that they didn’t notice the capital reserves had fallen below acceptable levels).

    If it was all so rosy for lenders we wouldn’t be seeing new banks closed every Friday by the FDIC. Over 800 banks US banks are in glaring trouble, and likely to be closed.

    http://www.calculatedriskblog.com/2010/07/unofficial-problem-bank-list-over-800.html

  37. 37
    David S says:

    Maybe I just don’t understand the language, but I do wish I had books I could write money into or out of like this. Also, if they wrote more money into the books than they had in capitol reserves to cover, shouldn’t they just get charged a $35 overdraft fee and be done with it?

    By Sniglet @ 36:

    RE: David S @ 33

    banks are not loosing anything

    Not quite. Any loss a bank has to take on it’s books, due to the inability to sell the collateral for the value of the loan, eats away at their capital reserves. If the reserves drop below a certain minimum the bank is insolvent and will be seized by the FDIC (unless they are a HUGE bank, in which case the regulators pretent that they didn’t notice the capital reserves had fallen below acceptable levels).

    If it was all so rosy for lenders we wouldn’t be seeing new banks closed every Friday by the FDIC. Over 800 banks US banks are in glaring trouble, and likely to be closed.

    http://www.calculatedriskblog.com/2010/07/unofficial-problem-bank-list-over-800.html

  38. 38
    Alan says:

    Stats suggestion:

    Using the stats from

    https://spreadsheets.google.com/pub?key=0AtUURAEOltXSdC1jMnRtVUF1YW9pTDZhTEFRbDczbVE&authkey=CL70kJEL&hl=en&output=html

    Compare the combination of “Rent as % of Income” with “Median Household Income” to “Median Home Price” for the cities listed.

    I predict they will be fairly constant.

  39. 39
    Cheap South says:

    RE: Alan @ 38

    That Miami “Rent as % of Income” is out of whack.

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