Weekly Twitter Digest (Link Roundup) for 2013-05-10

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.


  1. 1
    Erik says:


    I learned more from you on that little 1 minutes and 44 second blurb than I have learned from you in months on this website.

    Fact 1: Condos crash harder and pick up faster post bubble
    Fact 2: The market could stay this tight (Low Inventory) for 3-5 years

    It would be nice if you would divulge some of this information to your loyal readers in a direct post.

  2. 2
    The Tim says:

    RE: Erik @ 1 – Thanks for the feedback. I’ll try to think of some additional post types that are more conversational and discuss current market dynamics like that.

  3. 3
    The Desponder says:

    Here is some classic hysteria:

    It’s really rich how the panel was trying to convince millennials to buy a house RIGHT NOW because interest rates are low RIGHT NOW. It might be an attractive proposition now, but what about after 2015?

  4. 4
    Erik says:

    RE: The Tim @ 2
    That would be great. Thank you.

  5. 5
    Erik says:

    RE: The Desponder @ 3
    I really like the logic that this guy has…. Alan Kendall

    This seems logical to me and I want to get rich, so I subscribe to his logic. We may see a plateau that he doesn’t, but I think his idea is right. Corndogs was stating earlier that foreclosures don’t drive prices down, but I disagree because I don’t see why it wouldn’t.

    In another very similar video, he says the inflation that we see today is going to sky rocket real estate prices. This happened a while back and he says it will happen again. Makes good sense to me.

  6. 6
    whatsmyname says:

    RE: The Tim @ 2 – Wow, that was a blockbuster! How many years do you think the SFR market will stay tight?

  7. 7
    corndogs says:

    RE: Erik @ 5 – Pretending that you are stupider than you really are Erik doesn’t mean you’re not stupid…

  8. 8
    Erik says:

    RE: Corndogs @ 7

    Here is what corndogs said.. “Foreclosures are not a primary driver of inventory, never have been never will be.” This may be true, but foreclosures seem to be a primary driver of prices decreasing.

    I thought I may slide one past you corndogs since it is the weekend. I misunderstood the first time.

    I’m not pretending to be stupid corndogs, this is my real intelligence level. That’s why I improved my degree, so nobody would question me anymore at work. I want them to think… oh he has this degree so he must know something I don’t. Then I collect my paycheck and hit the door or change groups before I’m figured out. This is how it’s done. Movement is key. In fact, i’m moving to the 787-10x this friday before they figure me out and I start not meeting expectations on my review.

  9. 9
    Erik says:

    RE: Corndogs @ 7
    Why are you calling me stupid? Did you watch the video and not agree? I think it is a pretty good analysis, don’t you?

  10. 10
    corndogs says:

    RE: Erik @ 8
    So in 2009 the guy said his Redondo Beach price target would be 450K in 2013/2014 once prices dropped another 30%. Well, prices didn’t drop 30% they actually went up 25%… the median price is now 720K. Certainly, you have the ability to check that out yourself don’t you? Here’s a link.


    If foreclosures are the driver of inventory why did the peak in inventory precede the ramp up and peak in trustee notices? take a look at the chart for King County – can you see how inventory grew and peaked in the complete absence of foreclosures? Can you also see that during the time period that foreclosures were occurring inventory was decreasing?

    Surely, someone taught you at Central that correlation is not the same as causation, no? You need to look at the details

  11. 11
    erik says:

    RE: Corndogs @ 10
    Please don’t associate me with central anymore. I was 18 when I made that decision and I have paid for it ever since. My masters degree is uw. I got it so I can be referred to as a uw student and not a central/four loco guy anymore. We all have skeletons in our closet.

    I will look into the real estate thing later because I have a pretty girl coming over who is 8 years my junior. I need to roll off this bed and shower.

  12. 12
    ARDELL says:

    RE: Erik @ 8

    Erik said: “This may be true, but foreclosures seem to be a primary driver of prices decreasing.”

    Not really. The primary driver of prices decreasing in the Seattle Area was the change in lending standards. The lending standards changed just before the prices started dropping and the prices continued to drop in response to:

    1) The almost immediate and without notice temporary disappearance of jumbo loans in August 2007
    2) The virtual disappearance of zero down loans except for VA loans.

    The credit crises caused the drop in prices. The drop in prices coupled with the credit crises made it virtually impossible for people to refinance as interest rates lowered due to the inability to appraise for refinance purposes. The inability to refinance at more favorable rates forced people to sell short or let it go back to the bank. That is still playing out and a major source of distressed property as prices and rates decreased.

    One of the major movers of this upwardly mobile market is the favorable rates on jumbo loans which are insanely low at present in the over $506,000 loan product via several big players, most notably Chase.

    Foreclosures will impact median prices and median price per square foot, but they are not nor have they been “driving the market” except in areas or products where foreclosures ARE “the market”.

  13. 13
    erik says:

    I see. I guess I am 0/2 today. Thank you for the clarification.

  14. 14
    drshort says:

    RE: ARDELL @ 12 – RE: jumbo rates.

    I just refinanced a jumbo (through Provident Funding) at a lower rate than the conforming rate. I was shocked.

  15. 15
    ChrisM says:

    RE: ARDELL @ 12 – “The primary driver of prices decreasing in the Seattle Area was the change in lending standards.”

    I don’t have statistics at hand, but I’m sure most SFR transactions in the US are financed. Thus, lending standards are a proxy for effective value. If lending standards change, then value effectively changes.

    An interesting intellectual exercise is to imagine what would happen to housing prices if US lenders adopted British or German standards. Another interesting exercise is to imagine how US banks forecast risk for a 30 year loan on a SFR property. Given front-loading, how do banks manage risk for 7 years on a SFR property given our current unemployment & demographics???

    I eagerly await for the time when the economy recovers so that QE can end, and interest rates immediately return to 6% (or higher). Will be “interesting” to see what happens to housing prices under that scenario. Assuming we ever get out of QE….

  16. 16
    ARDELL says:

    RE: drshort @ 14

    I don’t know why banks are pushing high loans at low rates, but that has been going on for quite some time. I expect they are trying to pull the market share from mortgage brokers and court the high end home buyers for other banking services.

  17. 17
    ARDELL says:

    RE: ChrisM @ 15

    “Another interesting exercise is to imagine how US banks forecast risk for a 30 year loan on a SFR property.”

    Historically they manage (vs forecast) risk by lending only 80% of the value at time of purchase, requiring insurance on any loan amount over 80% of value. In the bubble years they decided to be self-insured by charging higher rates on the amount over 80% with 9% to 11% second mortgages. They also charged a higher rate on the 80% first mortgage when there was a 2nd mortgage than they would charge if there were 20% cash down from the buyer.

    That overage of interest was supposed to be set aside to cover losses instead of being covered by insurance for their losses.. But they never balanced the excess interest collected against the losses, so not having insurance hit them harder than it should have.

    The experiment of being self insured failed and they are now back to, for the most part, conservative lending standards as to risk above 80% of value requiring Private Mortgage Insurance to manage risk. That protects them if the market falls by up to 20%.

    The insurance companies dodged a bullet there, purely due to the banker’s greed. The high interest rates in the near term were traded for sound long term strategy. Those that spent the high interest rate profits during the bubble years might not agree that the self insured experiment failed. :)

  18. 18
    ChrisM says:

    RE: ARDELL @ 17 – “The experiment of being self insured failed and they are now back to, for the most part, conservative lending standards as to risk above 80% of value requiring Private Mortgage Insurance to manage risk”

    I agree, but imagine if US banks decided to return to 1920’s lending standards, which are far more conservative than today. There is (IMO) a significant risk (to a buyer!) of lending standards changing significantly in the next 10 years. I should say that, as an investor, I welcome conservative lending standards…

    I also suspect (but have no numbers to back me up) that 80% isn’t good enough, esp. given carrying costs of property taxes & expected govt pension shortfalls…

    In other words, I think that our assumptions of “conservative lending standards” may not be conservative enough!

    You state “That protects them if the market falls by up to 20%.” and I immediately think of Taleb’s Black Swan. Given what I see in U6, demographics, Fed activity & shadow market inventory, I think there is a massive amount of uncertainty in the market.

  19. 19
    wreckingbull says:

    Love the stand-up desk/workstation/lair, Tim. Now we know where it all goes down.

    All you need is a green curtain and your plans for world domination will be complete.


  20. 20
    ARDELL says:

    RE: ChrisM @ 18

    Actually the next change back will not happen at the consumer level. 80% LTV + PMI will be the end of that road. The next change will be to reverse the late 90’s decision to eliminate the Glass-Steagall Act that has protected us from failing institutions since after The Great Depression. It was enacted in 1933 as a means to prevent another Great Depression, and worked, but was chipped away starting in the 80s and completely eliminated by 1999.

    This time it is called “The Return to Prudent Banking Act – Restore Glass-Steagall”.

    There is a petition…


  21. 21
    ARDELL says:

    RE: ARDELL @

    In fact that petition and the fear of return to Glass-Steagall may be why the banks are pushing the jumbo product. They will be the first to be kicked out of the mortgage business if Glass-Steagall comes back.

  22. 22
    Blurtman says:

    RE: wreckingbull @ 19 – Hemorrhoids. That is why Rumsfeld was so bellicose.

  23. 23

    RE: ARDELL @ 20
    Thanks for bringing up Glass Steagall. Repealing it only had negative consequences, as far as I’m concerned. It should be restored.

  24. 24
    Mike says:

    RE: ChrisM @ 15 – Maybe it wasn’t the intent here or I missed it in the other responses, but in terms of managing risk on a 30 year SFR, I am still amazed at how banks are managing the yield curve risk much more than I’m worried about home price risk. Banks always face the risk of borrowing short and lending long, but with rates at record lows how does anyone expect them to stay solvent holding a bunch of 3.5% debt on their books when they have to fork out a whopping 4% interest on deposits? You don’t have to be a gold bug expecting 10% inflation any day now to fear that (a) nobody is going to want to ever repay these free money loans unless they really have to and (b) that sometime over their 30 year term interest rates needed to maintain depost balances will “spike” all the way to 4%. In all the fear over the last bubble with crushing principal losses, it seems everyone has forgotten that little S&L crisis, which was driven by interest rates not home prices. Banks have all sorts of ways to fail…

    And it isn’t just the big banks like Chase that are pricing Jumbos low. BECU is pricing Jumbos at the same rate right now.

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