June Reporting Roundup: Renewed Bottom Calling Edition

It’s time once again for the monthly reporting roundup, where you can read my wry commentary about the news instead of subjecting yourself to boring rehashes of the NWMLS press release (or in addition to, if that’s what floats your boat).

Strangely, as far as I can tell the NWMLS has still not yet published their press release this month. When it eventually is, it should be found here. In the meantime, it was sent to me, so here’s an excerpt:

Pending sales around Washington State at mid-year surpass year-ago levels; industry leader says "It feels like we have hit the bottom of the market"

Continuing the double-digit gain in home sales during May, last month’s pending sales surpassed the volume for June 2010 by nearly 36 percent .

Oops, let’s pause again to look at the pending sales chart in order to make sense of this claim of “continuing double-digit gains.”

King County SFH Pending Sales

As you can see, “double digit gains” doesn’t really indicate that this year is seeing particularly strong sales, but rather it’s just a result of sales falling off a cliff post-tax-credit last year. Also, don’t forget that “pending” doesn’t mean what it used to. Back to the press release…

“It feels like we have hit the bottom of the market,” remarked Lennox Scott, chairman and CEO of John L. Scott Real Estate. He described sales activity as being at “healthy levels” for the past seven months across all price ranges close to the Seattle-Bellevue job centers and up through the median price range in the surrounding markets. “Buyer confidence has definitely returned,” he proclaimed.

This from the same professional that in late 2007 boldly declared that there was no way prices would fall 25%, but at most “they may come off ever so slightly off the peak.”

But let’s not focus on the past… Read on for my take on this month’s local news reports.

Christine Harvey, Seattle Times: Local home prices slide again, but market may be stabilizing

The trend that drew the most attention among market observers was that pending sales have been fairly steady since March at a much higher level than they had been since April 2010’s expiration of federal tax credits.

Tim Ellis, editor of the real-estate blog Seattlebubble.com, said the change in pending sales isn’t impressive because the June 2010 totals were so low.

Pending sales can be misleading, however. They have become a less reliable measure of future sales as contracts often don’t pan out because of difficulties in financing, or lenders don’t agree to short sales, for example.

Thanks to Christine for getting in touch with me and taking the time to understand what’s going on as she sits in for Eric on the real estate beat.

Aubrey Cohen, Seattle P-I: Seattle area’s housing market heats up

The latest home sale numbers give local real estate professionals confidence that the Seattle area’s housing market has bottomed out.

“It feels like we have hit the bottom of the market,” Lennox Scott, chairman and chief executive officer of John L. Scott Real Estate, said in a news release accompanying the Northwest Multiple Listing Service’s report on June home sales, released Wednesday.

Of course, local real estate professionals have mistakenly called the bottom more than once since the market peaked in 2007. And the expiration of a homebuyer tax credit in April 2010 meant the subsequent months were the peak of the post-credit hangover, with particularly low sales. That may make this June look particularly rosy compared with a year earlier.

…there still appears to be a large inventory of distressed homes that are on the market or waiting to enter the market. That could hold back prices for some time.

Great job as usual from Aubrey. I especially appreciate that he pointed out the repeated bottom calls we’ve seen from various professionals over the last four years. Kudos.

Mike Benbow, Everett Herald: Pending home sales up in county, but prices still low

Pending home sales in Snohomish County rose dramatically in June, prompting at least one industry leader to suggest the region’s housing industry may be rebounding.

Completed sales in June were down, but only slightly. There were 866 homes sold in the county last month compared to 898 a year ago, a 3.6 percent drop.

While sales appeared to be leveling off, prices continued to fall as foreclosed homes and short sales continued to load the local market.

Mike rightly points out that closed sales are not seeing any sort of surge and prices are still down, but he seems to have forgotten what he reported last month about the reason behind the “dramatic” rise in pending sales year-over-year.

Rolf Boone, Tacoma News Tribune: Monthly data: Pierce County home prices drop again

The South Sound housing market showed some improvement in June as more homes sold than in the month before, but year-over-year sales dropped. And median sale prices dipped yet again.

Windermere real estate agent Mark Kitabayashi, who works in Pierce and Thurston counties, said prices are lower in Pierce County because it “still has a tremendous amount of short sales.”

Part of this is due to the county’s slower economy and a jobless rate that has hovered around 10 percent. There also was more subprime borrowing during the housing boom, he said. Still, softer prices have resulted in some competitive pricing for new construction, such as homes in south Pierce County that sell between $150,000 and $220,000, Kitabayashi said.

Nice, Rolf avoids the “pending sales surge” nonsense entirely and focuses on some stats that have more meaning.

Rolf Boone, The Olympian: Is Thurston’s housing market ‘starting to firm up’?

Washington Realtors Association President Phil Harlan, a real estate agent for Keller Williams, thinks the bottom of the housing market is “starting to firm up.”

The Thurston County housing market has shown improvement from May, Harlan said, although it still is a bit delicate and susceptible to outside influences.

One concern he has is that lending, once so lax that all one had to do was “fog a mirror” to get a loan, he said, has swung too far in the opposite direction. Not everyone has a 700 or higher credit score, but that doesn’t mean they aren’t qualified borrowers. There still are prospective homeowners who can show a stable income and that they can manage money, he said.

“We’re leaving some people out of the equation,” Harlan said.

I keep hearing this refrain from real estate agents lately, that lending is suddenly “too strict.” I’d like to see some specific examples of people that they think should be able to get financing but have been denied, and what exactly the threshold should be. Is it really such a bad thing if we have high standards for people to be able to obtain a loan many times larger than what they earn in an entire year that will take them thirty years to pay off? I would argue that it is not.

(Christine Harvey, Seattle Times, 07.06.2011)
(Aubrey Cohen, Seattle P-I, 07.06.2011)
(Mike Benbow, Everett Herald, 07.07.2011)
(Rolf Boone, Tacoma News Tribune, 07.07.2011)
(Rolf Boone, The Olympian, 07.07.2011)

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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.

38 comments:

  1. 1

    I really haven’t seen tight lending being an issue at all. I’m not really sure what’s driving those claims.

  2. 2
    The Tim says:

    By the way, I wanted to briefly address this portion of the Seattle Times article:

    Ellis, of Seattlebubble.com, said he expects prices to level out rather than continuing to slip another year.

    However, he said, “It’s going to be a long, slow climb for prices and for sales.”

    The first paragraph is not an entirely accurate representation of what I said. What I said was that I don’t expect this time next year we’ll still see prices down 10% YOY, but likely no lower than 5% down, and that we’ll roll along the bottom for quite some time whenever we hit it.

  3. 3
    Scotsman says:

    ““It feels like we have hit the bottom of the market,”

    Atta boy, Lennox! Gotta appreciate a guy who calls ’em as he needs ’em.

    Anyone who thinks this is close to the bottom hasn’t been paying attention. The national macro picture is headed for a major negative shift as additional QE appears to have been cancelled, budgets are being reeled in, debt loads haven’t budged and lending standards toe the traditional line.

    It’s a simple sequence- unemployment falls, wages increase, then housing stabilizes. Until then the slow drift down continues. I’m still thinking another 20% down, combination of price decreases and a tiny bit of inflation.

    Note: there’s no /sarc tag on this comment. ;-)

  4. 4
    ray pepper says:

    “Anyone who thinks this is close to the bottom hasn’t been paying attention”

    Agreed……less and less buying activity at The Trustee Sales each week and the banks taking back more and more on the books. This along with an increase in Loan Mod activity keeping homeowners upside down we are pushing the “inevitable” further and further into the future..

    Seems everyone is getting or attempting a Loan Mod now and the sheer ugliness will become transparent many years out.

    I disagree with you here Tim: ” It’s going to be a long, slow climb for prices and for sales”….I would emphasize we will not be climbing at all instead a trendline down yoy in property values for many years to come with NO recognizable “climbing” in prices that will sustain. Just too much negative attitude toward home ownership and it will be TOXIC to home appreciation for a VERY VERY long time.

  5. 5
    Scotsman says:

    If this is true home prices will tank:

    “One of the outside economic-analysis firms that the White House likes to quote is Macroeconomic Advisers. Here’s what the firm said yesterday about where the U.S. economy is heading:

    Assuming current fiscal policies remain in force, our economic model suggests that interest rates will rise considerably over the next decade, with the yield on the 10-year Treasury note reaching nearly 9% by 2021.”

    http://blogs.reuters.com/james-pethokoukis/2011/07/07/u-s-debt-crisis-might-be-on-fast-track/

  6. 6
    One Eyed Man says:

    RE: ray pepper @ 4RE: Scotsman @ 3

    Scotsman says “I’m still thinking another 20% down, combination of price decreases and a tiny bit of inflation.”

    Just for clarification, would that be another 20% down from the current CS index value for Seattle, or would that be another 20% off from the peak index value (less accumulated CSI increases over the relevant period in each case)? The former would be approximately another 14% further off peak for a total of 44% off peak where as the later would be a total of 50% off peak. And in either case, would that be less the accumulated CPI increase for the additional period?

    3% annual CPI inflation with 3% CSI drop each year for 3 consecutive years would exceed the later and nearly meet the former. I think that’s close to being within the realm of what The Tim was talking about, although it might be slightly different than what either Scotsman or Ray predict as the most probable. I don’t necessarily see that large a difference between what Scotsman and Ray predict and what The Tim said in #2.

  7. 7
    toad37 says:

    Distressed sales and non-distressed prices have a big divergence right now. Some of the DISTRESSED sale prices are near the bottom it looks like to me, when you factor in rent and build costs of a similar property. Fannie Mae is fire selling a lot of their portfolio. This process will drag non-distress, therefore overall prices down most likely, don’t see how it can’t. For anyone that doesn’t want to consider foreclosures Fannie Mae is making it easy to find deals in any zipcode. I would reconsider… there are some deals to be found.

    http://www.homepath.com/

  8. 8
    David Losh says:

    This week I have paid closer attention to sales of residential properties in Seattle, and it is distressing. People are paying way too much for housing this year. It seems that anything will sell if it’s pretty enough.

    One I have been watching for two years is a remuddle over a bad foundation that has settled. Never mind that; there is a sold sign on it.

    There are a lot of sold signs on properties of extremely, I mean extremely questionable value.

    In my opinion there is a confidence this year that the economy has stabalized. In another couple of months it should be clear that nothing changed other than politicians taking it easy for the summer.

    What I think is that the home purchases since 2008 are going to be coming back as foreclosures, or short sales, or some type of modification. I can easily see a 20% decline from where we are today for property pricing. My hope is that it will happen quickly.

  9. 9

    RE: toad37 @ 7 – Homepath properties are typically in reasonably good condition too. I made the mistake a few weeks ago of cold showing a Fannie property, and it was the exception. But of all the REO entities they seem to be doing the best job.

  10. 10
    toad37 says:

    RE: Kary L. Krismer @ 9 – Interesting Kary. I’ve been giving this website to friends and they are excited to use it and buy if the right house pops up for them.

  11. 11
    toad37 says:

    RE: Kary L. Krismer @ 9 – Interesting Kary. I’ve been giving this website to friends and they are excited to use it and buy if the right house pops up for them. If I was a realtor I would specialize in using Homepath to find properties for my clients that are buying.

  12. 12
    Hugh Dominic says:

    By Kary L. Krismer @ 1:

    I really haven’t seen tight lending being an issue at all. I’m not really sure what’s driving those claims.

    Uh oh, I just spent a whole thread trying to raise an example. I’ll try to summarize the thread.

    Applicant to Wells Fargo has 700+ fico / $1m+ verifiable liquid assets / $0 debt / $100k+ income for ten years = DENIED. Sorry, that $180k you pulled in over the past 12 months was as an independent consultant rather than with a firm. Go get a couple paystubs from an employer or call us next year.

    Ardell – you need two years of self employment income to qualify.
    Hugh – yeah, that’s a blanket standard set a hundred years ago when people worked in factories and any rational person could tell you this guy is qualified for some kind of loan.

    Ardell – but you need two years of self employment income to qualify.
    Hugh – that’s because the banks don’t know anything about risk, they just want to churn loans and flip them to the government, which buys them based on one blanket set of standards. The loan originator does nothing but fill out paperwork and transfer risk to the public. They should be playing a big role in assessing the applicants and distributing all that bailout money we gave them. They failed to do that during the bubble because their role was reduced to taking a pulse, and they are still that useless but now with the opposite effect.

    Ardell – but you need two years of self employment income to qualify.
    Losh – what Hugh said.
    Whatsmyname – I own bank stock. I prefer that they profit from loaning money back to the US Treasury rather than figure out how to do anything complicated or useful with it.

  13. 13
    Scotsman says:

    RE: One Eyed Man @ 6

    20% from where we are now, easy, maybe more for the questionable, odd, or way out in the country stuff.

  14. 14
    Scotsman says:

    RE: David Losh @ 8

    “In my opinion there is a confidence this year that the economy has stabalized. In another couple of months it should be clear that nothing changed other than politicians taking it easy for the summer.”

    Exactly. What has really changed? Nothing, just continuing to head in the same direction while talking and spinning.

  15. 15
    ARDELL says:

    RE: Hugh Dominic @ 12

    But…you need two years of self employment income to qualify. :)

    That’s not “tight” lending. That’s “lending”.

  16. 16
    turf says:

    my father-in-law bought in 1954, at age 92 still lives there, payment free for the last 30+ years. if one has bought shrewdly particularily in a down market, A HOME, not an investment, the next 2 or 3 years events are irrelevant. no doubt the majority of the bears commenting on this blog, are home owners themselves. the prices are back to 2000 in my book. for someone who arrived here in fall 2008 thats a considerable change.

  17. 17
    Cheap South says:

    RE: turf @ 16

    Point taken; but the 1950s were very, very different times.

  18. 18
    David Losh says:

    RE: Hugh Dominic @ 12RE: ARDELL @ 15

    “Whatsmyname – I own bank stock. I prefer that they profit from loaning money back to the US Treasury rather than figure out how to do anything complicated or useful with it.”

    Let’s repeat that because it is worth repeating: “to do anything complicated or useful with it.”

    Lending is for a profit, at a determined risk.

  19. 19

    By toad37 @ 11:

    RE: Kary L. Krismer @ 9 – Interesting Kary. I’ve been giving this website to friends and they are excited to use it and buy if the right house pops up for them. If I was a realtor I would specialize in using Homepath to find properties for my clients that are buying.

    That would be like a Keller Williams agent only trying to sell listings that are from their own office. It would be too limiting.

    Sometimes though there are reasons for such a limit. For example, Homepath will do 10% down financing for investors. So for those who want to be more leveraged, they might want to only look at Homepath properties.

  20. 20

    By Hugh Dominic @ 12:

    By Kary L. Krismer @ 1:

    I really haven’t seen tight lending being an issue at all. I’m not really sure what’s driving those claims.

    Uh oh, I just spent a whole thread trying to raise an example. I’ll try to summarize the thread.

    Applicant to Wells Fargo has 700+ fico / $1m+ verifiable liquid assets / $0 debt / $100k+ income for ten years = DENIED. Sorry, that $180k you pulled in over the past 12 months was as an independent consultant rather than with a firm. Go get a couple paystubs from an employer or call us next year..

    I responded to that thread indicating that I had run into that years ago when I started my own law practice, although I think back then it was one year. As I noted, income is important in getting home loans and the other assets don’t matter unless they are collateral for the loan, in which case you’d no longer be dealing with a home loan (unless maybe it was a portfolio lender).

    BTW, not certain, but I don’t think a couple of paystubs are going to do it, unless you’re working in the same field as what you were previously. So, for example, you can move cities and get a new job in the same field and that will allow you to get a loan. If it’s an entirely different field, I’m not so sure that’s the case.

  21. 21

    By Cheap South @ 17:

    RE: turf @ 16

    Point taken; but the 1950s were very, very different times.

    Yes, for one thing people would buy a 3 bedroom, 1 bathroom home not as a starter home, but as one they intended to live in indefinitely.

  22. 22
    whatsmyname says:

    By David Losh @ 18:

    RE: Hugh Dominic @ 12RE: ARDELL @ 15

    “Whatsmyname â�� I own bank stock. I prefer that they profit from loaning money back to the US Treasury rather than figure out how to do anything complicated or useful with it.”

    Let’s repeat that because it is worth repeating: “to do anything complicated or useful with it.”

    Lending is for a profit, at a determined risk.

    While I enjoy seeing myself quoted, this grossly distorted paraphrase is not recognizable to me as any part of my argument. Different banks do different kinds of lending. The “casualty” in question went to the wrong kind of bank for the product he wanted. Then Hugh reports that he thought it would be too much trouble to go through application to the right sort of bank. WFC did not want to book a loan that they would not have wanted to book 5 years ago, or 10 years ago, or 20 years ago. It is absurd to quote this example as supporting the notion that lending is tight.

  23. 23

    By whatsmyname @ 22:

    It is absurd to quote this example as supporting the notion that lending is tight.

    If I’m right that 20 years ago it was one year of self-employment and now it’s two, that would be a tightening. But in the example given the person would have not qualified under either standard.

    But there are two things going on. Have lending standards tightened? Clearly they have in that things like no-doc and sub-prime loans have largely gone away. Have lending standards tightened too much? I’m not really seeing evidence of that.

  24. 24
    Scotsman says:

    Umemployment increases to 9.2%. Recovery is a mirage. Housing prices continue to fall. No leadership in sight. No budget for two+ years, no plan except “steady as she goes.” Bridge out ahead.

    Bears rule, realtors drool.

  25. 25

    RE: Scotsman @ 24 – Can’t you find the global economic thread? Here’s some help. ;-)

    https://seattlebubble.com/blog/2011/06/01/global-economic-june-thread/

  26. 26
    whatsmyname says:

    RE: Kary L. Krismer @ 23
    The standards for conforming loans are really about what nonbank lenders will buy. And WFC would probably be willing to spec out a loan that they could immediately sell. Changes in those standards, and the availability of those products, are really out of the bank’s control. I think that Hugh is talking about what the banks will underwrite to hold in portfolio. Hence, if this is something that they never wanted, it signals nothing that they don’t want it now.

  27. 27

    RE: whatsmyname @ 26 – Exactly. Conventional loans have standards. FHA loans have standards. VA loans have standards. If you don’t meet those standards (and a couple of others), then you need to find a portfolio lender, and there aren’t that many of those out there, but they do exist (e.g. Washington Federal).

  28. 28
    Scotsman says:

    RE: Kary L. Krismer @ 25

    We’re talking economic bottoms here, Kary- posts are relevant. Sorry if we scare off your clients. ;-)

  29. 29

    RE: Scotsman @ 28 – Only one sentence in that post was relevant to the thread, and the main piece made that point.

    Maybe I should post here about how Obamacare will bankrupt the country and drive down the price of homes. ;-)

  30. 30
    Scotsman says:

    RE: Kary L. Krismer @ 29

    “Maybe I should post here about how Obamacare will bankrupt the country and drive down the price of homes”

    Go ahead, give it a try. How about: “buy now before the rethuglicans cancel Obama Care and home prices soar!” I promise it will resonate in the Seattle market. Or use your time to look for a second job. ;-)

  31. 31
    Ed says:

    Without increased Federal support for home buyers, how can prices ever hit bottom without wage inflation? The only way I can think of is a return to speculation.

  32. 32
    ARDELL says:

    RE: whatsmyname @ 22

    It’s actually more like “asking for a variance”. Let’s say you want to build a house and the Code is for 5′ setbacks on the side. That IS the standard.

    Let’s say you want to be “grandfathered” at 3′. There is a possible exception so that you can do that, IF you jump through the right hoops, and find the right people to grant the variance or exception.

    Let’s say you want to have 4 foot 11’5″ setbacks for some reason and need a half an inch variance on each side. Well then it seems reasonable, but still the answer may be no for one house and yes for another. Because “asking” for an exception means the answer can be yes or no. It might take a few tries, and lots of explanation as to why you can’t conform to the 5′ requirement.

    That doesn’t make the 5′ requirement ridiculous just because you want “only 1/2 inch off of each side” variance. I think that’s called “you have to draw the line somewhere”.

    So when you don’t meet the conforming loan standard…you have to find someone who will do a non-conforming loan. Being mad about that or thinking it’s ridiculous is an emotional response, and yes, people are emotional. But that doesn’t make the standard and the process incorrect or “tight” or ridiculous.

  33. 33
    David Losh says:

    RE: whatsmyname @ 22

    Lending standards weren’t the point. Investment dollars buying money for .05% to lend at 5% was the point.

    There is way too much easy money to be made in the financial sector. It’s a joke.

    That was the point. Your quote only clarified it.

  34. 34
    SDATA says:

    RE: The Tim @ 2 – I read the initial article and had to lift my jaw off the floor. There it was, Tim Ellis quoted as essentially saying, we’ve hit bottom, or darn close. You have become the very thing you hate…yet another real estate expert giving the desired quote to all the papers, just to see your name in print.

    It’s a shame, but I guess it’s working for you. Of course, that still makes you a tool.

  35. 35
    The Tim says:

    RE: SDATA @ 34 – Read my comment at #2 again. I didn’t say what you think I said.

  36. 36
    whatsmyname says:

    By David Losh @ 33:

    RE: whatsmyname @ 22

    Lending standards weren’t the point. Investment dollars buying money for .05% to lend at 5% was the point.

    There is way too much easy money to be made in the financial sector. It’s a joke.

    That was the point. Your quote only clarified it.

    No Dave, that is a tangent. I think that the bank arbitrage bailout is dubious policy, but that is a side issue. During the many, many years a big commercial bank like WFC couldn’t arbitrage federal dollars at 5%/.05%, they had no interest in filling their portfolio with the sort of one off loan Hugh was talking about. It is not evidence that they have “forgotten” how to evaluate risk because they are not doing what they didn’t do before.

    Similarly, it is not an indictment of easy money in the restaurant industry that the large chain Italian restaurant hasn’t got “creative” enough to supply you with phad thai – even though you think it looks a lot like spaghetti.

  37. 37
    ARDELL says:

    RE: The Tim @ 35

    C’mon Tim…don’t fight it. It’s off to the Pink Pony tattoo shop we go.

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