June Stats: Inventory Edges Up Despite Record Sales

Now that June is behind us, let’s have our first look at how the month’s real estate stats stack up. First up, here’s the snapshot of all the data as far back as my historical information goes, with the latest, high, and low values highlighted for each series:

King & Snohomish County Stats Preview

June was a mixed bag. Sales hit their highest level since 2007 in King County and a new all-time high in Snohomish County. Despite this, active listings saw unusually large month-over-month increases in both counties. Foreclosures are still at or near lows.

Next, let’s look at total home sales as measured by the number of “Warranty Deeds” filed with King County:

King County Warranty Deeds

Sales in King County increased 19 percent between May and June (a year ago they rose 15 percent over the same period), and were up 3 percent year-over-year. Warranty deeds broke the 5,000 marke for the first time since June 2007.

Here’s a look at Snohomish County Deeds, but keep in mind that Snohomish County files Warranty Deeds (regular sales) and Trustee Deeds (bank foreclosure repossessions) together under the category of “Deeds (except QCDS),” so this chart is not as good a measure of plain vanilla sales as the Warranty Deed only data we have in King County.

Snohomish County Deeds

Deeds in Snohomish rose 8 percent month-over-month (vs. a 17 percent increase in the same period last year) and were up 4 percent from May 2015. June’s level of 2,039 sales was the highest on record.

Next, here’s Notices of Trustee Sale, which are an indication of the number of homes currently in the foreclosure process:

King County Notices of Trustee Sale

Snohomish County Notices of Trustee Sale

Foreclosure notices in King County were down just slightly from a year ago and Snohomish County foreclosure notices were up 10 percent from last year.

Here’s another measure of foreclosures for King County, looking at Trustee Deeds, which is the type of document filed with the county when the bank actually repossesses a house through the trustee auction process. Note that there are other ways for the bank to repossess a house that result in different documents being filed, such as when a borrower “turns in the keys” and files a “Deed in Lieu of Foreclosure.”

King County Trustee Deeds

Trustee Deeds were up 23 percent from a year ago.

Lastly, here’s an update of the inventory charts, updated with previous months’ inventory data from the NWMLS.

King County SFH Active Listings

Snohomish County SFH Active Listings

Between 2000 and 2015, active listings increased an average of 3.4 percent between May and June in both King and Snohomish counties. This year over the same period there was a 17.9 percent increase in King County and a 13.8 percent increase in Snohomish County. The surge still was not enough to bring us into positive year-over-year territory, but it is definitely unexpected with sales as strong as they are.

Active listing inventory was down 7 percent from a year ago in King County. Snohomish County had a 23 percent drop in inventory from a year ago.

Note that most of the charts above are based on broad county-wide data that is available through a simple search of King County and Snohomish County public records. If you have additional stats you’d like to see in the preview, drop a line in the comments and I’ll see what I can do.

Stay tuned later this month a for more detailed look at each of these metrics as the “official” data is released from various sources.

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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.

88 comments:

  1. 1
    Justme says:

    Inventory is a leading indicator of trends. Higher inventory usually translates into lower prices. One thing that caught my eye was that in Jan-Mar, inventory was flat in 2016 but sloped down in 2015. Also, sum the inventory with the sales and the supply has been higher, it seems, In 2016.

    I did some spot-checks in California and saw the same trend, more inventory. But there it started at least 3 months ago.

  2. 2
    Justme says:

    Kyle Bass on hometown psychology (from zerohedge):

    >>Bass: I think the behavioral psychology plays a huge part. And you’ve hit it right on the head. I give you an interesting anecdote. Again, back to the U.S. subprime crisis, I went all over the country raising money for a subprime, two subprime funds and some advisor relationships. And what was absolutely hilarious to me, looking back at the meetings that we had, is we would go to Chicago, and we would say…we’d lay out the thesis, and they would say, “You’re exactly right, this is absolutely going to happen.” It’s not going to happen here in Chicago because of one, two, three and four these points. But that’s because they live there, the NIMBY, the not in my back yard scenario or psychological profile of events, was not going to happen. But it was going to happen to everyone else but them.

    And now the kicker: Seattle

    >>Bass: And then I’d go to Seattle and I’d lay that thesis out and they’d say, “Oh, you’re absolutely right. Never going to happen here because Microsoft’s here and Amazon’s here, and but our houses are fine, but everybody else’s homes, they’re going to drop 35%, and we’re going to invest with you.” And then I’d go to Southern California and I’d go to Texas, and everywhere I went, not one organization or group of investors would agree that it would happen to them, but it was going to happen to everyone else. And that’s again, I think the beginning of what you and I were just discussing with regard to the psychological profile, or more importantly, the behavioral psychology that plays into one’s thought process. Because the first thing…I think the first inalienable right of human nature is self-preservation, and when you get into a thought of, okay, Hugh’s position, is if it…if this were to happen, it would be so globally terrible that therefore, they’re going to not let this happen. I understand that logic and I think you do too, but I believe it’s flawed. And the reason it’s flawed is again, it’s just this…It’s almost like the Kahneman’s availability heuristic, where you only have this certain data set, and you only look at history back…I think the brevity of financial memory is only about three years.

    Yeah, this ought to sound VERY familiar to anyone reading the comment section in this blog.

  3. 3
    Doug says:

    RE: Justme @ 2 – So you’re comparing subprime to today?

  4. 4
    Doug says:

    RE: Justme @ 2 – I know you’re only interested in information that fuels your bear narrative, but don’t conveniently leave out the bull case from the same article:

    Bass: “The spreads between U.S. 30 year treasuries and 10 year treasuries, and Japanese 30 years and 10 years, and European 30 years and 10 years, is as wide as it’s ever been. And so what does that mean? That means that I think U.S. rates are coming down, regardless of what kind of inflationary pressures we have, which is something that we’ve never seen before.”

    I’m not trying to create a bull case, but let’s balance the rhetoric as we all try to figure out where we’re headed.

  5. 5
    Justme says:

    RE: Doug @ 3

    >>So you’re comparing subprime to today?

    With VHA and FHA loans at 3% down and low FICO scores, we are already in subprime territory again today. I refer you to the posts by S-Crow 3 days ago, one of which I would like to quote

    “The housing ATM machine is alive and in 5th gear being used to finance flipping. FHA and VA loans are your 100% or near 100% financed loans…..lots of them with low FICO’s and with enormous funding fees that get lost as a closing costs “cuz it’s not out of pocket expenses!”.

    https://seattlebubble.com/blog/2016/06/29/case-shiller-tiers-low-tier-still-previous-peak/#comment-256130

    This man does escrow services in the Seattle metro are. Read his posts and get informed.

  6. 6
    Justme says:

    RE: Doug @ 4

    There is already a small horde of developers, bubblers and assorted propagandists on this site. They post entirely enough bad bubble propaganda, and you want me to post for them? How about instead you hold the bubblers to the same standard as you are holding me?

    As to your remark about bond rates: ZIRP, NIRP and falling bond rates is a sign that the economy is awful. Labor participation rates are terrible, wages as fraction of GDP is terrible, everything is terrible. I don’t now how to include an image here, but look at the wages/GDP plot in this article:

    http://www.oftwominds.com/blogjuly16/crisis-capitalism7-16.html

  7. 7
    whatsmyname says:

    By Justme @ 5:

    With VHA and FHA loans at 3% down and low FICO scores, we are already in subprime territory again today. I refer you to the posts by S-Crow 3 days ago, one of which I would like to quote

    You equate government insurance or partial guarantees with private label subprime? I’m glad you’re not managing my money. FHA has been around since the ’30’s; VA since the ’40’s. I guess it’s never safe to buy a house when the bubbles exceed 80 years. Keep renting my friend.

  8. 8
    whatsmyname says:

    By Justme @ 1:

    Inventory is a leading indicator of trends. Higher inventory usually translates into lower prices.

    The converse is that lower inventory usually translates into higher prices. Watch for Tim’s NWMLS post in the next week. I believe June will be the 20th consecutive month of “lowest inventory for the month on record”.

    Seems like the market is working just as you would have it.

  9. 9
    Scotsman says:

    Let’s not confuse generally consistent seasonal variability with indications of some new break-out trend. People more often than not see what they want to see, that pesky old confirmation bias. But if we take the emotion out of it there’s very little hard data to suggest this current trend in prices is anything like the last- despite claims of flagrant cash-out loans and people stretching budgets to buy. People were stretching budgets to buy 30 years ago when I worked in the industry, and in my opinion, taking cash out for stupid reasons. That didn’t cause the problems leading to 2007and the subsequent market collapse. The truth remains that the vast majority of buyers at this time can actually afford to make their payments without the benefit of neg-am loans, teaser rates, etc. Prices may not continue to rise at the pace we’ve seen over the last 4 years but they do seem to be sustainable. Foreclosures are low, interest rates will continue to be low, and incomes for the typical Seattle buyer (if not the average citizen) are stable or rising, as are employment opportunities. That’s not a bubble- it’s a favorable local economy. I’d be bullish on Seattle housing for the foreseeable future. Now the national/global economy- that may be a different picture. Personally I’m a bit more of a bear there- but it’s not yet clear exactly how the coming contraction may play out- especially as it impacts our local economy.

  10. 10

    RE: Justme @ 5 – S-Crow is just that, an escrow. That sort of an opinion would better come from from someone in the lending industry, like perhaps Rhonda. Not a topic I would care to take a position on, because it’s not part of the job of being an agent (like it’s not part of the job of being an escrow). But I would say that down payment is only a part of the issue, and it is not necessarily all that important. Supposedly zero down VA loans don’t have that high of default rates.

    Also, Ken Harney recently hit on the topic, addressing one consumer group claiming that the add-on fees for low credit are excessive, particularly over time. That would indicate that lenders are trying to account for risk. http://www.telegram.com/article/20160630/NEWS/160639991

    What I have noticed is more people imposing their own limits well below what their lender sets. I’m not sure whether that’s due to lenders increasing what they’re willing to lend or just the people I’ve been dealing with. That too would be a topic more for someone in the lending industry.

  11. 11
    AJT says:

    RE: Scotsman @ 9
    I don’t really disagree with most of what you said and most certainly do not think there is going to be another 2007 bubble burst but I do think there are some ingredients in the world (and to some extent local) economy that may put some downward pressure on RE prices or at least curb meteoric rise.
    First, if the influence of foreign capital flight (renminbi) has been to increase US assest prices including RE, than the repatriation of that same capital may have the opposite effect.
    http://www.investopedia.com/articles/stock-analysis/070216/china-red-flag-us-equities.asp?partner=YahooSA&yptr=yahoo
    From the article:
    “One potential outcome prior to the bursting the debt bubble is the sale of offshore assets as liquidity tightens in China. Due in large part to the country’s slow rate of growth, Chinese investments in the United States set a record in 2015 at $15.7 billion. This trend could be reversed if a falling yuan necessitates the repatriation of dollar-denominated investments” China is WA biggest trading partner.
    If that source of upward pressure is removed….?
    Also our local economy is ostensibly impervious to global factors. Sarc alert. Here is another factor that by itself is probably not enough to douse the flames of emotion that seems to be becoming an integral component of the bidding wars but if there are enough minor insults to our local economy may become cumulative.
    http://www.kiro7.com/news/local/panama-canal-expansion-could-spell-doom-for-local-ports/367423459
    I just think the horizon that was present in 2013 and 2014 has transformed into some storm clouds that WILL have an impact on our little bubble of paradise.
    Full disclosure, I am looking at this market through a more bearish prism as I am anticipating buying in the next 12-18 months and have lived through and been effected by the last crash therefore am looking for chinks in the armor of this market to be as informed a buyer as I can be. Also, this is the WORST buyers market ever therefore I am looking for factors that will change that.

  12. 12
    ess says:

    By whatsmyname @ 7 Keep renting my friend.

    As almost everyone acknowledges, there is always risk in buying real estate. Prices can rise, but there are periods when prices can fall. As amazing as it seems, prices in Seattle may fall in the immediate or distant future! If there is not a decrease in housing values in the Puget Sound area in the next few years I will be most surprised. But all in all, over time prices will go up, except for a few exceptions such as Detroit. This is the just the nature of investing (and my view is that any house – even one’s own should be viewed in a greater context rather than “I want it’) more investment risk – more possible reward. Basic economics

    There are inherit risks in renting that are usually ignored such as rent increases over time, huge rent increases in times of residential shortages and forced relocations in the event of a sale or if the landlord requires your particular unit for some reason. But there is one factor in the rental equation that there is absolutely no risk and is ABSOLUTELY certain. That is that one will pay a certain amount of money over a given period of time in order to lease a residence.

    But as with many other financial arrangements, most people are not cognizant of the underlying costs of money. Although there are disclosure requirements, not only do most people not know what the cost of their various loans are, but are shocked to discover how much those loans are costing them. I believe this is also true for the cost of rents.

    The average rent for a one bedroom residence is approximately 1969 dollars a month, and the average two bedroom residence will cost the renter approximately 2739 dollars every month. But for our example, lets assume our renter has located more modest digs for 1500 dollars a month. That renter may not be cognizant of the amount of money that is paid over different periods of time. So I have provided the figures here in dollars allocated for rent. For ease of discussion, I have not included any rent reductions or increases, both possible, although net rent increases over time are more probable than rent decreases

    1 year – 1500 x 12 = 18000
    3 years – 1500 x 12 = 54.000
    5 years – 1500 x 12 = 90,000
    10 years – 1500 x 12 = 180,000
    20 years – 1500 x 12 = 360,000
    30 years -1500 x 12 = 540,000

    Takes one’s breath away when viewing the costs of renting over various time periods, with no tax breaks and no chance of possible financial gains of owning a house. But other than the risks outlined above – there are no risks in renting, as a renter will know what they will pay over time.

    One of my tenants gave notice, as he stated that he had bought a condo. When we were talking, he explained that he was “tired of paying my mortgage”. He had it almost correct. Not only did his rent pay for my mortgage, it paid my real estate taxes, my insurance, any upkeep I made to the premises, any really neat tools that I bought, and probably part of our annual vacation. And the government was nice enough to provide me with various tax write offs. In addition, as a combination of being a softy and good business practices, I almost never raise rent on good tenants. Thus with the vacancy, I was able to re-rent the premises at a significant rent increase.

    I am sure I am not the only one who has noticed a deterioration of civility when debating various issues of the day. Some, as I do, believe that the market is presently being driven by market forces. Other don’t, and hopefully we can all express our opinions without ad hominin attacks. But alternatively, the advocacy of my personal opinion is in opposition of my financial interests. As a limited rental property investor, I should actually encourage those who believe that we are in a severe bubble crisis to continue to rent, and not buy. After all, most individuals who are qualified to buy but choose not to are most able to afford a rental without financial difficulties.

    So as to the statement “continue to rent my friend”, I would add one more letter –

    “Continue to rent, my friendS”

  13. 13
    ess says:

    Keep renting my friend. whatsmyname @7

    The perils of owning real estate have been well documented here and elsewhere. Prices can fall, there are associated expenses in owning real estate, and personal life situations can change. While I believe that Puget Sound real estate prices as well as rent will continue to rise , I would be stunned if prices and rents in the Puget Sound area didn’t suffer a decline in the future. as they continue their overall upward trajectory. That is what has happened in the past, and it will happen in the future But unless there is a total failure of the market (think Detroit) the real estate market should continue on its upward price trend with a occasional pauses and even some decreases.

    Renting on the other hand allegedly has no such investment peril. One pays their rent monthly, and all the other expenses of operating the residence other than utilities are the landlord’s responsibility.

    The perils of renting have been less documented, but are also as real. Rents can rise, apartments can be converted to condos, houses can be sold, and landlords can retain the rented premises for other needs or purposes with the tenant suddenly requiring new digs with very short notice or at the end of the lease.

    Much debt is financed for housing, autos and other items and is often not totally understood by the purchaser how much the interest on the loan can add up until the disclosure statement is provided. But I believe that also applies to rents.

    There has not been much discussion as to the amount of rent a long term renter actually pays. Over a number of years, the amount can be substantial, and one wonders if renters actually give much thought and actually calculate the amount they will pay over any given length of time.

    The average rent for a one bedroom unit in Seattle is approximately 1969 dollars per month. A two bedroom unit will average approximately 2739.

    Our hypothetical renter has found a reasonably priced place to rent for 1500 dollars a month. Not terribly outrageous by Seattle or Eastside standards. While rents can increase or decrease in any given period, they tend to increase over time. But for ease of this example, the amount will remain constant over time , although the reality of both inflation, increased taxes and housing shortages will most likely produce rent increases over the coming years.

    one year rent – 18,000 dollars
    three years rent – 54,000 dollars
    five years rent – 90,000 dollars
    ten years rent – 180,000 dollars
    twenty years rent – 360,000 dollars
    thirty years rent – 540,000 dollars

    Gives a new perspective on the amount of money one must expend for rent over time, especially if one is a long term renter by choice or circumstances. And the percentage of renters in the US is increasing, not decreasing, so the competition for (relatively) small single family houses like the two we currently operate as rentals, will only become more intense.

    One of our tenants gave us notice, as he was purchasing his own residence. He said in passing that he was tired of paying our mortgage. He was only partially correct. Not only did his rent cover the mortgage, it also paid the taxes, insurance, a new appliance, minor repairs, really great new tools that were needed for the house, and some if not all of our vacation expenses for that year. Furthermore, as combination of being softies and good business practices we usually don’t raise the rent on our tenants (unless there is a need – ex – another outrageous tax increase initiative adding to real estate taxes). When that tenant moved out, we obtained another tenant at a higher rent. And better yet – we obtained various tax benefits that are available to owners and not renters. That was some time ago, and that tenant bought a condo on the east side. No doubt his investment has paid off handsomely, so everyone came out ahead.

    But if those individuals, especially long term renters who believe we are in a dangerous bubble territory, whom am I to dissuade? After all, owning rental property is a business, and I don’t know of too many businesses who try to dissuade their potential customers from obtaining their product. After all, one of the most secure tenancies is one with a renter that is able to purchase their own residence but chooses not to because there is a belief that prices will decline in the near future.

    So to the statement

    “Keep renting my friend”

    I would add one letter to that sentence

    Keep renting my friendS.

  14. 14

    RE: ess @ 12 – I think you need to deal with the fact that there are three distinct groups.

    1. Those who rent forever.
    2. Those who pay mortgage forever.
    3. Those who pay off mortgages in 15-30 years.

    I’m not sure the end result for groups 1 and 2 are that much different.

  15. 15
    ess says:

    By Kary L. Krismer @ 13:

    RE: ess @ 12 – I think you need to deal with the fact that there are three distinct groups.

    1. Those who rent forever.
    2. Those who pay mortgage forever.
    3. Those who pay off mortgages in 15-30 years.

    I’m not sure the end result for groups 1 and 2 are that much different.

    Yep – you are correct. Using one’s house equity as a substitute ATM has its own difficulties.

  16. 16
    Justme says:

    RE: Scotsman @ 9

    >>The truth remains that the vast majority of buyers at this time can actually afford to make their payments without the benefit of neg-am loans, teaser rates, etc.

    >>Foreclosures are low, interest rates will continue to be low, and incomes for the typical Seattle buyer (if not the average citizen) are stable or rising, as are employment opportunities. That’s not a bubble- it’s a favorable local economy.

    The above statements are examples of a meme that is now spreading and echoing around in bubbler circles: In 2016, even though prices are just as high as the previous peak around 2007, the quality of the buyers has somehow risen remarkably, although wages/GDP is in the dumps. These buyers supposedly all have good and safe and well-paying jobs. Everything is good, or at least it is good in special location X, where special bubbler Y lives, for local special reasons A, B, C, and D.

    I just don’t see much solid evidence that the above is true. Bubblers ignore the fact that wages as fraction of GDP is bouncing around historical lows.

    https://fred.stlouisfed.org/graph/?g=2Xa

    In particular, the Seattle job market is VERY sensitive to nationwide and worldwide demand. Amazon depends heavily on nationwide demand. Boeing depends on worldwide demand. Microsoft depends on worldwide demand. Amazon and Microsoft are locked in a battle with Google for the Cloud Computing market, which by the way is the only market where Amazon makes any meaningful profit. Amazon has so much beggared their retail neighbors around the country that said retail employees have lost jobs or income and are in a weak position to buy stuff from Amazon. There is no more oil-bubble-driven retail demand from Texas and the Dakotas. All in all, it takes a real bubbler to concoct a bullish story for Seattle. I’d say low interest rates is all you’ve got for an argument, and as we know, record low interest rates is an indicator of a fundamentally bad nationwide (and worldwide) economy.

    As a former president once said, “It’s the economy, stupid”.

  17. 17
    Green-Horn Investor says:

    I was also looking for the kind of charts that our gracious host provides that include a data range extending back into the 1970s and 1980s.

    I was unsuccessful. But I did find this.

    http://www.paragon-re.com/3_Recessions_2_Bubbles_and_a_Baby

    Look at the charts and it’s pretty obvious it would have been pretty good to have one’s savings socked away in San Francisco property. Notice also that during the most recent housing bubble collapse from 2007 – 2010 rents hardly dipped. Now that’s stable income!

    Obviously past performance is no guarantee of future returns. Starting next year, SF could begin turning into Detroit or Youngstown. The way Seattle government and civic institutions are run, I wonder if Detroit and Youngstown might be better managed. With our elected brilliance in Seattle we may actually all be on the trajectory to move into the Jungle.

  18. 18
    MntGoat says:

    Human beings fall into many psychological traps investing. Housing permabears fell into the common psychological trap called “recency bias” post 2008 crash. Meaning they made the common human cognitive error of projecting the recent past into the future (market crashed in 2008, therefore prices will keep going down in the future indefinitely). Therefore many bitter permabears missed out on both the stock market recovery and real estate run up the past 5-6 years. And permabears keep thinking that the next downturn will look exactly like the past and they keep thinking it is always “right around the corner”. It’s not their fault, human beings are all subject to many common psychological traps (“confirmation bias”, “hindsight bias”, “clustering illusion”, “anchoring bias”, “loss aversion”, etc….).

    But there is no data to support that any type of housing correction is anywhere in sight. Notice of defaults are still falling, inventory is still incredibly low, in migration in Seattle is still really strong, rates are actually falling, lending is still very tight…marginal buyers CANNOT get in the market like they did 2003-2007, etc….

    Guys like Kyle Bass who became famous with some big call they got right like subprime, can many times fail for years after that. I believe Bass’s hedge fund has lost money the last few years. Same with Henry Paulson who because famous shorting subprime….he then went long on Gold and got killed. These guys suffer from the same human psychology biases.

    By the way housing permabulls also fell into “recency bias” in 2006 thinking the market would always go up.

  19. 19
    greg says:

    RE: ess @ 12

    It is not magic ess. $540K looks big in 2016 dollars and most likely look like a much smaller sum 30 years from now.

    Renting tends to cost more than owning, but given that average home owner has to move and sell up about every 7-10 years (depending who you believe) For many people the costs of buying and selling actually make it much cheaper to rent for much of their lives. In fact many people could save a small fortune by never buying a home. others of course have the money to buy, and buy again while retaining existing homes for that much smaller group avoiding selling and the costs that go with it, is a huge win.

    ess you appear to apply your myopic view of the world to everyone. Sure it suits you and in fact me to own properties but for many it just ends up costing them money…

  20. 20
    MntGoat says:

    Also since zerohedge was mentioned ….ZH is a huge source of “confirmation bias” for permabears. It tells them all what they “want” to hear. ZH has now been on the wrong side of the markets for about 7-8 years now. They have been claiming for about 8 yrs on monthly basis that this great crash “is right around the corner”. They jumped on the permabear bandwagon in 2009 like all the usual suspect PB’s/gold bugs (James Grant, Peter Schiff, Harry Dent, James Rickards, David Stockman, Mish Shedlock, Fleckenstien, Jim Rogers, Sam Zell, Richard Fisher, Kiyosaki, Prechter, Ron Paul, etc…). ZH just cherry picks any article that supports their confirmation bias and posts that on their blog.

  21. 21
    Scotsman says:

    RE: ess @ 12 – There’s no doubt China is a player in local markets. But it’s hard to know the potential impact without first knowing why the money is here. Is it investment, leveraged, and looking for returns or is it cash seeking security against political upheaval? I don’t have any numbers but my hunch is it’s for security, a hedge against confiscation or future capital restrictions and is more, not less, likely to stay put in the U.S. as China’s economic/political scene degenerates. I’m sure some Chinese view U.S. real estate the same way some here may view gold- a last attempt to preserve capital and buy escape from what ever may come.

  22. 22
    Scotsman says:

    RE: Justme @ 15 – You’re right that wages as a percentage of GDP have been falling. Automation is replacing/displacing a lot of people and the trend is consistent. But it hasn’t hit the distinct sub group we’re talking about here- Seattle home buyers. To buy a home in Seattle now, as in San Jose, etc., you need the kind of income only available to established professionals or managers, mid career civil servants- (teachers/administrators, police, specialty nurses, etc.)- in short total household income for a working couple in the $150-200K range. Those jobs aren’t being automated and won’t be soon. So the overall statistic is meaningless.

    As for Amazon and collapse- take a look at revenue growth for the last decade and show me the lull, let alone the contraction. It’s not there and won’t be as Amazon drives more and more of its competitors out of business. But assume sales suddenly go flat. Seattle home prices don’t collapse- they stabilize. If you are waiting for a big dip to buy in it will likely be a while…. unless some black swan in the form of major war, asteroid strike, etc. comes along. I wouldn’t plan my life around the 2% that may never happen.

    On a personal basis the only thing that matters, assuming one can afford to buy, is the cost delta between renting and owning. If you can’t afford to buy and really want to then it’s time to move- Spokane, Eugene, Savanah, etc. There’s a whole big world outside Seattle that’s just as full of opportunity, happiness, et al. Good luck.

  23. 23
    ess says:

    By greg @ 18:

    RE: ess @ 12

    It is not magic ess. $540K looks big in 2016 dollars and most likely look like a much smaller sum 30 years from now.

    Renting tends to cost more than owning, but given that average home owner has to move and sell up about every 7-10 years (depending who you believe) For many people the costs of buying and selling actually make it much cheaper to rent for much of their lives. In fact many people could save a small fortune by never buying a home. others of course have the money to buy, and buy again while retaining existing homes for that much smaller group avoiding selling and the costs that go with it, is a huge win.

    ess you appear to apply your myopic view of the world to everyone. Sure it suits you and in fact me to own properties but for many it just ends up costing them money…

    Actually, we agree more than we disagree.

    I only used the same rental expense in my example in order to keep the exercise simple. Personally I think those figures I provided are way too low, based upon inflation, demand, increased taxes, and limited supply. I think for any longer period in a thriving city, rents tend to escalate over time, and the final tally will be much greater.

    540K will have a lesser purchasing power in thirty years, in fact something between 40- 60% of the purchasing power it has at present based upon historical inflation rates. And if that is the case, that 1500 dollar a month example that was provided will be as much a distant pleasant memory as renting a room in a UW rooming house when I was a young undergraduate student for under 100 dollars a month. (Go Dawgs).

    I don’t think I have a myopic view, I have constantly stated that buying a house is predicated upon each individual’s financial, emotional and personal situation. While I don’t know how many years one should live in a house until one breaks even as compared to renting, and those figures are subject to a variety of particular factors, I perfectly understand why one who has a more nomadic professional lifestyle would rent and not buy. The only point I was trying to make (perhaps not as elegantly as I hoped to) was that there are dangers not only in buying a residence, but in the long term costs of renting. And we haven’t even explored the favorable tax advantages accorded homeowners, or the equity that renters don’t accumulate and homeowners do if they stick around for a while.

    Or to put it another way, the simple answer is that there are no simple answers.

  24. 24
    ess says:

    By Scotsman @ 20:

    RE: ess @ 12 – There’s no doubt China is a player in local markets. But it’s hard to know the potential impact without first knowing why the money is here. Is it investment, leveraged, and looking for returns or is it cash seeking security against political upheaval? I don’t have any numbers but my hunch is it’s for security, a hedge against confiscation or future capital restrictions and is more, not less, likely to stay put in the U.S. as China’s economic/political scene degenerates. I’m sure some Chinese view U.S. real estate the same way some here may view gold- a last attempt to preserve capital and buy escape from what ever may come.

    Scotsman – while there has been some purchasing of real estate going on in the Puget Sound area by the folks you mention, I am visiting my in laws in the greater Vancouver BC area in a few weeks. And oh boy – am I going to get an earful about the real estate situation up there. Compared to what has happened to the prices, as well as the annoyance and disruption experienced on the part of many in that community, our housing situation is a calm rationale almost boring market by comparison.

    If foreign buyers – Chinese and otherwise start to buy property in the Puget Sound area as they have in the greater Vancouver market, I can only defer to that great real estate sage, Al Jolson, who stated “You ain’t seen nothin yet”.

    As to why Chinese money is here? I believe all of your suggestions are correct. And don’t forget that clean air and environment which the Chinese treasure as their own environment has become so degraded over the years. And which city had a song about “the bluest skies you ever saw……..”? Yeah – THAT city!!

  25. 25
    MntGoat says:

    Why doesn’t Canada, Australia, NZ and the U.S. ban foreign buyers for all 1 family SFR residential real estate to help make it more affordable/available for American citizens/families? Surprised I have not seen that idea reach political circles or the media yet with how unaffordable areas with large amounts of Chinese buying have become (Vancouver, Sydney, Auckland, Seattle, Toronto, NorCal and SoCal coast, NYC, etc…). Foreigners could still buy all the commercial rental property they want, just not SFR’s/condos. What wouldn’t make sense about that???

  26. 26
  27. 27
    Justme says:

    Alrighty, then. Nobody attempted to explain the sudden supposed increase in quality of the buyers and loans involved in house purchases. Never mind record low labor participation rate nationwide, and near record low wages/GDP. No response to the fact that Seattle and the Seattle economy is highly dependent on the rest of the nation and the world. Apparently, local municipal employees like teachers, nurses, police will pick up the slack of regional exports.

    Moreover, people who remember 2007 just have a memory bias against SUCCESS. In fact, the bad economy is GOOD for Seattle. Yes, we are at the vanguard of automation and jobkillers! It is those other suckers around the country that will now suffer our might! And don’t forget China! My, my, how can they resist us?

    Yes, indeed, Seattle is special.

  28. 28
    MntGoat says:

    By AJT @ 25:

    RE: MntGoat @ 24
    Or at least tax the heck out of the transaction
    http://www.bloomberg.com/news/articles/2016-04-21/foreigners-face-higher-property-taxes-in-australia-s-second-city

    Yes agreed, a massive tax on foreign national homes purchases (and sales) might also do the job. It just doesn’t make a lot of sense that local families get priced out of buying homes to live in as their primary residence, raise their families, and be part of the community, Yet foreign national multi-millionaires/billionaires get a place to park their money. Not saying this would solve the affordability problem, but it might help a little. Besides inflating prices how does foreign nationals buying SFR’s help local citizens? Again, there would be plenty of investment opportunities for foreigners in large apartment buildings, office buildings, retail strip centers, industrial, REIT’s, etc…. I just don’t see how it helps anyone when they inflate condo and SFR prices. This would be difficult to enforce though, as foreign investors would then just work with American citizens to form corporations, and then take title to the SFR/condo in the corporations name. I especially cannot see how Vancouver is letting this happen as Chinese buying has distorted their market so radically.

  29. 29
    Green-Horn Investor says:

    RE: Justme @ 26

    Seattle IS special.

    Much of the country is stagnating.

    I don’t argue that it is possible that some unforeseen shock or surprise could cause Seattle real estate valuations to collapse like tulip bulbs in 17th century Golden Era Holland. More likely I expect a deceleration to stagnation than any big crash. Justme’s critics are right when they suggest that our minds are fixating on the last crisis. The next crisis will inevitably come, but chances are that it will be completely different. Nevertheless you must acknowledge the possibility that the market in Seattle also might first join San Francisco and Vancouver on cloud 9.

    I want to share some maps that might be interesting to the gang here.
    https://www.washingtonpost.com/graphics/business/wonk/housing/overview/

    If you examine the maps, you’ll notice two trends.
    1) Some cities and markets are winners.
    2) Central areas are appreciating more dramatically than suburbs and far flung exurbs.
    For example Loudoun County, Virginia outside of Washington, DC was home of booming growth of McMansions from the 80s – 90s but has stagnated in the most recent decade while more “challenging” neighborhoods in the District have completely transitioned and taken off.

    These trends may continue or some disruption may cause a completely new development trajectory. My money is on a transformation of transportation to a public fleet of shared autonomous vehicles. What that might mean for how and where we live is hard to predict.

  30. 30
    ess says:

    For most people, their home is their single largest asset. Even if that residence only keeps pace with inflation, that is important. One can easily view the corrosive nature of inflation on paper assets with this handy website provide by the US government

    http://www.bls.gov/data/inflation_calculator.htm

  31. 31
    Anonymous Coward says:

    RE: Justme @ 26 – As I understand your logic, you’re making a case for a bubble and near-term crash based on two factors: incomes can’t support the current SFH prices in Seattle and the world economy is going to crash soon and take Seattle’s economy with it. Do you have any local data to support the first assumption that Seattle buyer’s can’t afford their purchases? Because only things I’ve seen you post here are *national* surveys of all people, not just buyers. Do you think income inequality is increasing as globalization has hollowed out the middle class? Because if you do, then median household incomes are close to useless in assessing affordability of SFH. If income inequality is increasing because the middle class is being hollowed out, then we can expect the income distribution to be non-normal and consist of two peaks (one for the poor and one for the well to do). You’ll have to look at data for income deciles and quintiles. And if you look at that data, you’ll see that SFH prices are, in fact, not out of line with incomes in the Seattle area.

    So your first bubble condition (that incomes can’t/don’t support current prices) is simply not met at this time. It might be met at some point in the future, but not now. So you’re simply left with a global economic crash leading to a crash in the local economy. Ok, it could happen. But I’m not betting my financial future on it, although I did from purchase a home at least in part as an inflation hedge ;-).

  32. 32
    Doug says:

    Just noticed the 30y UST is at its all-time low. Wow.

  33. 33
    whatsmyname says:

    RE: ess @ 12
    You captured my meaning with less snark and more eloquence. Bravo.

    RE: MntGoat @ 19
    Can’t be said often enough.

    RE: Justme everywhere.
    For a person with a fixed rate, 30 year mortgage; what is the difference in housing cost between $371,000 at 7% and $550,000 at 3.5%?

  34. 34
    Doug says:

    RE: whatsmyname @ 32 – What’s interesting about your affordability question posed to Justme, and in the absence of helicopter money, is we’re presumably approaching some limit.

    Let’s pretend that we enter full bizarro world and you could get a 0% mortgage. Median homes prices could go to $889,000 if we solve for the same affordability. That’s about 62% from here which will take about 4-5 years at current pace.

    Then what? That’s when this blog will get really exciting.

  35. 35
    Justme says:

    RE: Anonymous Coward @ 30

    There should be no need to exaggerate what I said. If you have to do that, it means you have no argument.

    >>incomes can’t support the current SFH prices in Seattle and the world economy is going to crash soon and take Seattle’s economy with it.

    Those are your words, not mine. It was someone else, namely Scotsman@9, that claimed

    >>The truth remains that the vast majority of buyers at this time can actually afford to make their payments without the benefit of neg-am loans, teaser rates, etc.

    So I suggest you ask him to prove his contention, or prove it yourself. I also did not claim that the world economy is about to crash soon. It might, but I did not claim that it will. I can claim that the word economy is weak, and that Seattle depends highly upon it. Likewise with the national economy is weak, and Seattle depends highly upon it.

    In short, please address my contentions, and not some gussied up strawman versions of them that you made up yourself. I think it is pretty clear that the facts are bad enough.

  36. 36
    Justme says:

    RE: Kary L. Krismer @ 10

    >>S-Crow is just that, an escrow. That sort of an opinion would better come from from someone in the lending industry,

    I’d say an escrow agent is in a unique position to view all of the sources and all of the sinks of the money that makes a deal come together. After all, it is their responsibility to ensure that everyone gets paid, and that the buyer gets the title. In some ways Escrow agents may be even better positioned than the lender. I wish I could be a fly on the wall in an escrow/title office, but lacking that I find the observations posted by S-Crow highly informative, and I believe them.

  37. 37
    Mike says:

    RE: Justme @ 34 – Has anyone found a good source of aggregate loan stats for the Seattle area? Last time around there was an analyst at Credit Suisse that released a bunch of reports that showed how over-leveraged certain metros were. At that point in 2006 Seattle was something along the lines of 32% “hybrid” products (Neg am, IO, etc…) and 30% subprime in originations. Not the worst, but among the worst. Much of this industry doesn’t exist anymore, not on the scale it did a decade ago. I’m not seeing the evidence of it this time around either. Back then, a lot of homes were bought and left empty with no work being done. Now, the empty houses either tend to be awaiting tear down or permitting and there’s no shortage of renters willing to pay top dollar.

  38. 38
    C. Brown says:

    RE: MntGoat @ 24 – Because, in the US, due to the Fair Housing Act, discriminating against a buyer based on several factors, including nationality is illegal. http://www.equalhousing.org/wp-content/uploads/2014/09/2012-Immigration-Status-FAQ.pdf

  39. 39
    C. Brown says:

    RE: MntGoat @ 24 – Because, in the US, due to the Fair Housing Act, discriminating against a buyer based on several factors, including nationality, is illegal. http://www.equalhousing.org/wp-content/uploads/2014/09/2012-Immigration-Status-FAQ.pdf

  40. 40
    Justme says:

    RE: Mike @ 36

    I have not found such a source. Come to think of it, given that FHA and VHA are government enterprises, should their business not be a matter of public record?

  41. 41
    whatsmyname says:

    RE: Doug @ 33
    I think your point is solid on a forward looking basis. I don’t think rates will go down to nothing, (or stay down forever). As you say, things sure would get interesting around here. But this particular change historically happened between July of 2007 and now. My point was to contrast what has happened in terms of the question “what is price?” as it is experienced by most homeowners. I don’t think Justme gets that.

    I know that this is a simplified look at P&I only; ignores down payment, property tax, income tax, and insurance considerations. And there are also liquidation risks, although that is a whole other argument. But the effect is huge. And demonstrated. Anyway, Happy Fourth.

  42. 42

    By Justme @ 35:

    RE: Kary L. Krismer @ 10

    >>S-Crow is just that, an escrow. That sort of an opinion would better come from from someone in the lending industry,

    I’d say an escrow agent is in a unique position to view all of the sources and all of the sinks of the money that makes a deal come together. After all, it is their responsibility to ensure that everyone gets paid, and that the buyer gets the title. In some ways Escrow agents may be even better positioned than the lender. I wish I could be a fly on the wall in an escrow/title office, but lacking that I find the observations posted by S-Crow highly informative, and I believe them.

    I don’t know what you base that on. They only know X dollars are coming in from Y bank and the type of loan in the broadest terms (conventional, FHA, VA, etc.). They could read the deed of trust and note, but I doubt they ever do. I’m almost certain they never see a credit report. They don’t typically see any financial documents of the buyer, and in many cases don’t even know where they work.

    As an agent I probably know more about my clients’ situations than the escrows I deal with do, and I don’t begin to think I know enough about their situation to make the type of claim originally made.

  43. 43
    Mike says:

    By Justme @ 38:

    RE: Mike @ 36

    I have not found such a source. Come to think of it, given that FHA and VHA are government enterprises, should their business not be a matter of public record?

    it is: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/oe/rpts/fhamktsh/fhamktqtrly

    What’s import is that FHA makes up a significantly higher portion of the market now than it did during the bubble of 2003-2007. FHA now has 3-4 times the market share now vs then. The reason? Back then private non-bank mortgage companies were handling most of the lending to marginal borrowers. Look at 2005 in particular, the total mortgage market for that year was $3T and FHA was less than 2% of it. Private label securities backed with subprime mortgages was huge business then. Now it’s not, as all of those lenders went out of business by 2008.

  44. 44

    RE: Mike @ 41 – Your data doesn’t go back far enough to support those claims. FHA clearly had a larger market share from about 2009 to 2012 or so, but I’m not so sure that’s been true for the last couple of years. Part of the reason is that conventional now goes down to a 3% down payment (or even lower), while FHA is 3.5%, and the cost of FHA loans is now much higher (basically their version of PMI, which now lasts the life of the loan). That latter change really reduced the popularity of FHA.

  45. 45
    Mike says:

    By Kary L. Krismer @ 42:

    RE: Mike @ 41 – Your data doesn’t go back far enough to support those claims. FHA clearly had a larger market share from about 2009 to 2012 or so, but I’m not so sure that’s been true for the last couple of years. Part of the reason is that conventional now goes down to a 3% down payment (or even lower), while FHA is 3.5%, and the cost of FHA loans is now much higher (basically their version of PMI, which now lasts the life of the loan). That latter change really reduced the popularity of FHA.

    It’s there. If you look at the Q42015 report it contains tables that go back to 1996 for volume comparisons.

  46. 46

    RE: Mike @ 43 – Thanks–I didn’t open the files because I didn’t see the early ones to compare to the recent ones.

    You’re right there was a huge drop off starting in 2002. I’m surprised there was an increase in 2015 from 2014–that doesn’t make sense to me. Seemingly the decline should have continued, getting us back to the levels of the 1990s. I wonder what caused that bump? Regional differences?

  47. 47
    Mike says:

    By Kary L. Krismer @ 44:

    RE: Mike @ 43 – Thanks–I didn’t open the files because I didn’t see the early ones to compare to the recent ones.

    You’re right there was a huge drop off starting in 2002. I’m surprised there was an increase in 2015 from 2014–that doesn’t make sense to me. Seemingly the decline should have continued, getting us back to the levels of the 1990s. I wonder what caused that bump? Regional differences?

    Someone working in the mortgage industry might have a more precise answer but the MIP’s were reduced for 2015. Whether that reduction was enough to make the loans more competitive and hence more appealing IDK. I’d guess that, easier qualifying standards vs conventional and the 3 year exclusion period for defaulted prior owners may have pushed FHA back in favor for 2015. Last time I looked at FHA they were priced so ridiculously high they only made sense as an absolute last resort – but that was back a few years ago when the MIP’s were being used to bail out the bad loans from 09-10.

  48. 48
    ess says:

    Although article below is about San Francisco, I found it interesting for a number of reasons. Seattle is starting to exhibit the same housing issues and accompanying debates as San Francisco. It also raises other issues,:

    who ultimately pays for the housing
    zoning issues
    employment issues
    supply and demand issues
    government involvement
    income issues/stash issues, potential fraud, voluntary reduction of income to qualify
    government involvement in micromanaging income issues
    the “right” of people to live in a highly desirable area that they can’t afford
    etc etc

    Lots of interesting stuff here!

    http://www.marketwatch.com/story/how-i-bought-a-condo-in-san-francisco-for-268000-2016-07-05

  49. 49
    MntGoat says:

    By C. Brown @ 37:

    RE: MntGoat @ 24 – Because, in the US, due to the Fair Housing Act, discriminating against a buyer based on several factors, including nationality, is illegal. http://www.equalhousing.org/wp-content/uploads/2014/09/2012-Immigration-Status-FAQ.pdf

    We are talking U.S. citizens vs. non US citizens here. My point is about foreign nationals who are not U.S. citizens, not green card holders, do not have H1b Visas, and do not live here, etc…. The powers that be need to look at whether allowing “foreign nationals” to buy large amounts of condos and SFR’s in certain cities is really beneficial to the cities they are doing this in. Does it distort the market in certain cities. inflate prices, and price out U.S. citizens who want to live in these houses as their primary residence, send their kids to the local schools, raise their families? Fair housing laws we enacted to protect U.S. citizens from discrimination. I don’t think the creators of the Fair Housing Laws had overseas multi-millionaires and billionaires in mind who want to get their cash out of their home country and park it in U.S. assets when they created Fair Housing Laws. There are many countries around the world that do not allow foreign nationals to go on title and own certain types of real estate.

  50. 50
    ess says:

    RE: ess @ 46

    whoops – forgot to mention my favorite part of the article. That was when the mother told the daughter when learning the daughter was purchasing a condo for herself way below market value –

    “This is the best Christmas present you will ever give yourself”

    A more accurate statement would have been

    “This is the best Christmas present you will ever receive from others”.

  51. 51
    Eastsider says:

    By Doug @ 31:

    Just noticed the 30y UST is at its all-time low. Wow.

    It’s even lower today! I’d be surprised if we don’t enter a recession this year.

  52. 52
    Doug says:

    RE: Eastsider @ 49 – Huge bond rally today. 30y could have a one-handle within days. 10y might be sub-one at some point this summer.

    As flat as the curve is, you have to wonder if it would actually be inverted if short term rates weren’t so heavily anchored. Which then begs the question, can you have a recession without the curve being inverted?

  53. 53
    Thin-Skinned Masta-Beta says:

    RE: ess @ 46

    Whenever I read about “affordable housing” it always is a sad story of a few “lucky ones” getting the bargains while the vast majority get left out. Even when the government tries to intervene, it hardly seems fair. It’s just about as random good fortune as getting stock options or a trust fund.

    http://marginalrevolution.com/marginalrevolution/2015/07/rent-control.html
    https://www.bloomberg.com/view/articles/2015-07-27/rent-control-makes-sense-only-for-politicians
    In an open letter to Seattle, Stockholm shows the way that with more generous and enlightened regulation and control, struggling Seattleites too can look forward to registering to wait 10 – 20 years for an affordable apartment.

    http://crosscut.com/2016/02/housing-chances-draw-a-crowd-with-many-sure-to-lose-out/
    >450 camp out overnight to apply for 112 low income apartments

    http://www.seattletimes.com/business/economy/time-running-out-on-seattle-familys-golden-ticket-to-housing/
    19,000 applicants for 2500 spaces on the waiting list. Wait time 2 – 3 years.

    http://www.seattletimes.com/business/real-estate/four-approaches-to-affordability/
    Especially in the comments, we can see the envy of all those who wish they could get a crack at the new below market rate apartments. Indeed it’s not hard to understand… the couple in that article probably live better than I do in my crappy dump of a run down place down place much farther from central city. However I guess I should be grateful for my own good fortune that my mortgage payment is less than the “affordable” rent on their subsidized 847 sq ft apartment. Fortune shines on us in its arbitrary ways. We should accept it with grace, humility and gratitude.

    At the same time you’ll usually read in the comments about the “greedy developers and investors.” I speak with investors and developers. Sure they’re greedy. They also never stop complaining about the complexity of arbitrary regulations and interventions that make their lives hard. But I always remind them that all that wonderful complexity and regulation is what is posing such a significant barrier to entry for more competition. Thus the regulation makes their lives difficult but it is what is making them rich. Now I want a piece of the action! So whenever the dummies and the leftists demand regulations to make housing more affordable, I cautiously and silently cheer them on. As an economist I know that many of their well-intended but naive initiatives will backfire delightfully and profitably for us existing property owners.

  54. 54
    Justme says:

    RE: Mike @ 42

    Mike, I took a look at the FHA mortgage market share numbers for SFH and they are (purchase,refi,both)=(17.1, 11.0, 14.3) (unit is % of whole market dollar volume).

    Some people claim FHA is the largest player in the mortgage market this time around. That might be, but there must be lots of other smaller players if FHA only has 17.1% of the purchase market.

    What is interesting that government-backed Guarantees appear to have a very big market share, some say 80%. More below.

  55. 55
    Justme says:

    http://www.npr.org/2016/07/03/484562969/if-some-homeowner-trends-continue-signs-of-another-housing-bubble-ahead

    “Oliner: So there are really two types of indicators. The first concerns the risk that’s in the mortgage loans that are being made today. So at the American Enterprise Institute, where I have a position as well as at UCLA, we analyze about 80 percent of the individual home mortgage loans made every month to purchase homes. And many of these loans are very risky, subprime-style loans that are now being made with government guarantees rather than being held by private investors. But nonetheless, they’re quite risky.”

    “The element of fraud that was rampant during the financial crisis in the lead-up to the bubble, that’s basically gone. But there still are other ways for loans to be risky in many dimensions, and that is still happening. So let me give you just a couple of specifics. Now, we normally think that people in a prudent lending situation will put down 10 or 20 percent. That’s so old-school. That’s not happening now. The median down payment for a first-time buyer in the United States is 3 and a half percent.”

    “If they were to turn around and need to sell the house, they wouldn’t get enough money to repay the mortgage. So they’re actually underwater on day one of the mortgage. There are other ways in which the mortgages are risky. One is that people are still stretching to buy bigger houses with larger monthly payments than is really safe given their incomes, and that is completely allowable under our current mortgage regulations.”

    “Martin: Which is good and bad, right? After the housing crisis, people were so scared that nobody wanted to buy anything. And now you’re saying we’ve overcompensated and people are living beyond their means again.”

    “Oliner: Yes, that is what I’m saying. And we tend to think that a very strict, regulatory framework was put in place that would prevent this from happening again. And the problem is the following – 80 percent or so of the loans that are being made in the United States today are loans that have a government guarantee of some kind, federal government guarantee, and those loans are exempt from the regulations.”

  56. 56
    Justme says:

    RE: whatsmyname @ 7

    >>You equate government insurance or partial guarantees with private label subprime? I’m glad you’re not managing my money. FHA has been around since the ’30’s; VA since the ’40’s. I guess it’s never safe to buy a house when the bubbles exceed 80 years. Keep renting my friend.

    Please see post 55. Oliner at UCLA is saying that loans with government insurance (guarantees) are exempt from the strict regulations enacted after 2007.

  57. 57
    Thin-Skinned Masta-Beta says:

    RE: Justme @ 55

    And then there’s this too:

    http://www.bloomberg.com/news/articles/2016-07-05/blackstone-s-tenants-get-a-chance-at-buying-their-rental-houses

    Blackrock’s “Invitation Homes bought Suniga’s house for $83,000 in 2013, according to property records. Values in Phoenix have since risen about 25 percent, and rents in the area have climbed 15 percent in the same period.
    Now, Suniga is buying the renovated place for $150,000 with a loan from the Blackstone-owned Finance of America Mortgage LLC. A bankruptcy from more than a decade ago, along with a past sale of a home for less than what was owed on it, had raised flags with other lenders Suniga talked to, even though she’s brought her credit score up to 660, she said.

    Suniga’s monthly mortgage payment will be $920, about $65 less than her rent, she said. Her down payment wouldn’t have been large enough without the help of the Maricopa County, Arizona, homebuyer-assistance program, which required both her and her mother to take an eight-hour online course. She also received a $5,000 credit from Invitation Homes for closing costs and used her security deposit toward the down payment.
    That kind of help might lead to questions from lawmakers and regulators in Washington, according to Isaac Boltansky, an analyst in Washington with Compass Point Research & Trading LLC.”

  58. 58
    Justme says:

    RE: Thin-Skinned Masta-Beta @ 57

    Nice profitable deal for Blackstone. Not so sure about the rebound buyer.

  59. 59

    RE: Scotsman @ 9

    Yes Scotsman

    Old family money can keep Seattle going even if a $15/hr middle class is a complete joke here…..until the kids squander it all on bad investments or spend thrift it away….real workers [with no golden spoon in their mouths] buying in Seattle [with no past equity]?….now I’m rolling on the ground in laughter….

  60. 60
    ess says:

    RE: Thin-Skinned Masta-Beta @ 53

    Thank you for posting those interesting articles. Add another city where rent control doesn’t work, I had not known about Stockholm and the incredible long wait for government controlled housing there. If anyone at all can post information about a city where rent control has worked insofar as it has not skewed the market and resulted in very expensive housing for a majority of residents, or have caused other problems, I would love to read about it .

    Furthermore, to your description of “lucky ones getting the bargains while the vast majority gets left out”, I would also add those folks who have inside knowledge of what is going on, as well as those folks who are sophisticated enough to operate within the “system”. It takes a certain amount of sophistication to shepherd a successful application through the bureaucratic labyrinth, and yesterday’s poor starving student often is transformed into today’s successful lawyer or businessperson who refuses to give up their (subsidized) digs, as rent control is never means tested as public housing is.

    Thomas Sowell, is another economist who has written extensively about the pitfalls of rent control. Another issue that he discusses that does not readily come to mind is that rent control prevents people from moving out of their oversized apartments that they can’t maintain, and that also causes a housing shortage. For example in places such as NYC there widows residing in three bedroom apartment by themselves although their husbands have passed on, and the kids are long gone. Although inappropriate in a city where there are so many shortages, these folks can’t leave their oversized apartments because they can’t obtain anything smaller that is nearly as inexpensive. So they stay in the three bedroom apartment by themselves, rather than obtaining a one bedroom apartment and thus preventing a family from moving into the three bedroom apartment. Furthermore, families hand down their rent controlled apartments from generation to generation, and sometimes those apartments are rented out for much more money than the landlord is getting.

    As to politicians, I will have you know that I lobbied an individual running for Seattle city council about rent control. I was at a lecture he was presenting, and I grabbed a seat in the front row. While we were waiting for the lecture to start, he introduced himself to me, and mentioned he was running for city council. After some pleasantries and chit chat about the rigors of running for office, I mentioned that when he was elected, I really hoped he would work to bring rent control to Seattle. He asked why, and I explained that as a property owner with a few rentals near Seattle, the introduction of rent control would make me rich. He laughed, and unfortunately he was not elected. But I am sure rent control is on everyone’s mind in Seattle. So in that way I totally agree with your last sentence and have moved upon it to benefit myself.

  61. 61
    whatsmyname says:

    RE: Justme @ 56
    Read the article again, and remember the word conflation.

    Large scale private label subprime was about 10 years in the market, and were formerly unregulated. Fraud plus lack of a floor on the investor end meant cascading risks and wholesale panic. They were the heart of the problem, and the regulations were directed at them. The close tie of exploding, uninsured subprime securities to the great recession is explicit, but that is not remarked upon.

    FHA and VA loans operate under their own sets of regulated rules on the origination end. Guarantees limit loss given default on the investor end. They have been successfully doing this for 70-80 years. For a VA or FHA borrower to be underwater, if for some reason they had to sell immediately after closing, is also 70 to 80 years of noncontroversial history. Odd that this feature is explicitly tied to events unique to a very few years of that time.

    FHA and VA together are small beans, not close to 80% of the market referenced as having government guarantees. For that we have to include Fannie and Freddy. But Fannie and Freddy are prime lenders. They also were not the problem that the regulations were correcting. So again, why is it noteworthy that regulations for a different situation were not applied here? While we are at it, should we be concerned that the automobile industry is exempt from maritime life preserver requirements?

    Oliner does not “analyze” 80% of each month’s mortgages at UCLA; he does that at his position with the American Enterprise Institute, America’s most prominent neoconservative think tank. Their problem isn’t with housing bubbles; it’s with gub’mint guarantees benefitting to the wrong people, but bubbles will do if you can make an anti-government program cudgel with one. Because their job is to sell an agenda.

    You did a good job of accepting his inference. How about looking at what he was willing to say outright:
    ” It’s not that we’re in a crisis today or in a bubble today, but there are trends underway that, if they’d run for a very long time, will put us back into a situation that will look a little bit like what we had in the last crisis.”

  62. 62
    Blake says:

    Rent vs. buy? It depends upon a lot of factors, but when house prices get this high it seems crazy to take on so much risk:
    http://www.doctorhousingbubble.com/renters-worse-off-today-rents-income-lease-rent-prices/
    -snip- $4,000 a month in rent or $6,202 for the monthly nut – plus they now have nearly $1 million in mortgage debt? That is a pretty big difference even for a high income household. So renters are worse off today. This argument has now been used as reason to leverage yourself into the grave on a crap shack.
    (end quote)

    RE bulls forget that these insanely high rental and mortgage costs suck the life out of consumer spending. Sure people sign these mortgage contracts and rental agreements, but the pain will be felt down the road even if they don’t default.

    RE bulls also cheer lower interest rates – – which are now in free fall!!
    As I have written here before… that is not a good sign, but a bad sign for the economy:
    http://blogs.wsj.com/moneybeat/2016/07/05/yield-curve-shows-60-chance-of-recession-deutsche-bank-says/
    elsewhere:
    … “May was a weak month for the factory sector as new orders fell 1.0 percent and show specific weakness in capital goods”
    … “Sales of North American-made vehicles fell 3.7 percent to a 13.2 million pace from 13.7 million with imports down 5.4 percent to 3.5 million.”

    We’re a long ways into this crappy “recovery” and we may already be in a recession for all we know!
    … but, but… Seattle is special… high tech… “New” economy!!

  63. 63
    Eastsider says:

    By Doug @ 52:

    RE: Eastsider @ 49 – Huge bond rally today. 30y could have a one-handle within days. 10y might be sub-one at some point this summer.

    As flat as the curve is, you have to wonder if it would actually be inverted if short term rates weren’t so heavily anchored. Which then begs the question, can you have a recession without the curve being inverted?

    The inverted curve is so old school. Did the current crop of economists learn ZIRP and NIRP in colleges? What would an ‘inverted’ curve look like in negative interest environment? Could the yield curve even ‘invert’? We now have one country with negative 50-year rate and a couple with negative 30-year rate! How can the economy grow when the cash under the mattress is more precious?! I have a bad feeling that this is going to end badly – 2007 is nothing in comparison.

  64. 64
    Justme says:

    RE: whatsmyname @ 61

    Okay, so the Oliner analysis is wrong, because he has funding from a “neocon” (*) think-tank, but Oliner’s conclusion is right, because he will not say outright we’re in a bubble this moment, Very well.

    (*) Neocon usually refers to foreign policy, but let’s not quibble about that one.

  65. 65
    Justme says:

    RE: Blake @ 62

    >>RE bulls forget that these insanely high rental and mortgage costs suck the life out of consumer spending.

    Yup. Those Amazon employees with their high wages and high rents and high mortgages may not be in a position to contribute similarly with high consumption of Amazon goods. But that’s ok, the rest of the country will pick up the slack. Uh, wait, the rest of the country has near record low wages/GDP. Hmmm…is there a solution to these sets of constraints and equations?

  66. 66
    Justme says:

    RE: Eastsider @ 63

    >>How can the economy grow when the cash under the mattress is more precious?!

    If there is ever a real and substantial NIRP on short-term bonds, say -0.5%, then one could start a cash mutual fund that holds bank notes in a vault, and charges 0.2% for the service. You’d be 0.3% better off that way. But that would probably be illegal, if not already, then soon :). Mattressbank.com might not be looked upon kindly by the financial elite. And we’d run out of physical cash quite soon. Then what :-)?

  67. 67
    Doug says:

    RE: Eastsider @ 64 – Don’t see a reason why it couldn’t happen in a negative yield environment. Japan’s current 2s-10s spread is only positive 7 bps (-0.34% and -0.27%).

    Agreed, this probably doesn’t end well. Asset prices might have a long way to go before it’s over, though.

  68. 68
    whatsmyname says:

    By Justme @ 65:

    The Oliner analysis is not “wrong” because he is a neocon think tank member, but it does explain why he might make a series of statements on semi-related matters which the unwary and incurious might conflate to their own conclusion; one that conflicts with simple and verifiable facts. (*) As Oliner is a person with a need for maintaining some level of credibility, we may surmise that the analysis he believes to be “right” is found in those things that he will state plainly.

    (*) If one supposes that neocons restrict themselves to foreign policy, one might at least look at their publications and websites before playing the fool in writing.

  69. 69
    Eastsider says:

    RE: Doug @ 68

    Japanese 20 year yield just turned negative. British pound is at 100 year low. US treasury yield continues to drop. I will out on a limb to predict the next Fed move is to LOWER the interest rate (instead of hiking by a QUARTER point.) You read it here first. IMHO the Recession has arrived.

  70. 70
  71. 71

    By Eastsider @ 70:

    RE: Doug @ 68

    Japanese 20 year yield just turned negative. British pound is at 100 year low. US treasury yield continues to drop. I will out on a limb to predict the next Fed move is to LOWER the interest rate (instead of hiking by a QUARTER point.) You read it here first. IMHO the Recession has arrived.

    Newt, is that you? ;-)

    http://www.thegatewaypundit.com/2016/06/newt-gingrich-will-probably-recession-late-summer-video/

  72. 72
    Justme says:

    RE: whatsmyname @ 69

    The median down payment for a first-time buyer in the United States is 3.5% right now. That is the issue here. Since almost all houses will be sold with a realtor commission of above 3.5%, it means that AT LEAST HALF of all new homedebtors start their career with NEGATIVE EQUITY. That is going to bite a lot of people when the party stops, and that may be soon.

    It is YOU that is conflating unrelated matters here, not me. It just means that you have nothing substantial to offer.

  73. 73
    Justme says:

    Have we reached the BNP Paribas (Aug 2007) moment, the Minsky Moment, the Lehman moment (Sep 2008), whatever you want to call it?

    —-

    http://www.bloomberg.com/news/articles/2016-07-05/m-g-investments-suspends-trading-in-property-portfolio-fund

    Three of the U.K.’s largest real estate funds have frozen almost 9.1 billion pounds ($12 billion) of assets after Britain’s shock vote to leave the European Union sparked a flurry of redemptions.

    M&G Investments, Aviva Investors and Standard Life Investments halted withdrawals because they don’t have enough cash to immediately repay investors. About 24.5 billion pounds is allocated to U.K. real estate funds, according to the Investment Association.

    Actually, there are now 5 (not 3) UK property funds that have frozen redemptions. Do people remember what happened next when the bad Lehman short-term notes necessitated a freeze in a US money market fund in Sep 2008? May I remind you? The bubble burst spectacularly that fall. Yeah, a property fund is legally not a money market fund, but how many people were counting on these property funds to be liquid?

  74. 74
    Justme says:

    Fund number 6 just clocked in a with a freeze.

    *CANADA LIFE SUSPENDS U.K. PROPERTY FUND

    No freezes in Seattle yet. Seattle is PRIME!

  75. 75
    Blake says:

    By Eastsider @ 64:

    By Doug @ 52:

    RE: Eastsider @ 49 – Huge bond rally today. 30y could have a one-handle within days. 10y might be sub-one at some point this summer.

    As flat as the curve is, you have to wonder if it would actually be inverted if short term rates weren’t so heavily anchored. Which then begs the question, can you have a recession without the curve being inverted?

    The inverted curve is so old school. Did the current crop of economists learn ZIRP and NIRP in colleges? What would an ‘inverted’ curve look like in negative interest environment? Could the yield curve even ‘invert’? We now have one country with negative 50-year rate and a couple with negative 30-year rate! How can the economy grow when the cash under the mattress is more precious?! I have a bad feeling that this is going to end badly – 2007 is nothing in comparison.

    The previous 5 recessions in the US were all preceded by an inverted yield curve…
    See graph here:
    http://www.businessinsider.com/yield-curve-great-at-predicting-recessions-2015-12

    But…with Fed intervention distorting the bond market and near zero interest rates, it is unlikely that the yield curve can invert today. It is coming close this week and is almost flat. Japan has been dealing with near zero interest rates for a long time and their experience is instructive:

    http://www.bloomberg.com/news/articles/2016-02-01/has-the-most-reliable-u-s-recession-predictor-lost-its-value
    -snip- “Over the last two decades, the Japanese yield curve has flattened ahead of each of the last four recessions (1997 to 1999, 2000 to 2002, 2008 to 2009 and 2012). Yet in each case, it did not invert,” the economist explains. “Consequently, we believe there is a high probability that whenever the next U.S. recession occurs, the 10s-funds curve is likely to remain positive, and perhaps significantly so, at least compared to past business cycles.”

    Yesterday the spread between US 10 year bonds and 2 years fell to about 0.8%…

    Meanwhile… Italian banks are failing and threatening the whole EU… not Brexit!
    $390 billion in bad loans… much worse than Greece!
    http://www.bloomberg.com/news/articles/2016-07-06/italy-could-spark-systemic-banking-crisis-socgen-chairman-says

    http://www.ft.com/cms/s/0/e3b53640-4108-11e6-9b66-0712b3873ae1.html#axzz4DZhhSMCV
    Italy is prepared to defy the EU and unilaterally pump billions of euros into its troubled banking system if it comes under severe systemic distress, a last-resort move that would smash through the bloc’s nascent regime for handling ailing banks.

    Matteo Renzi, the Italian prime minister, is determined to intervene with public funds if necessary despite warnings from Brussels and Berlin over the need to respect rules that make creditors rather than taxpayers fund bank rescues, according to several officials and bankers familiar with their plans.
    (end quote)

    “Italy faces a severe crisis that is exponential. This is not gradual and not linear,” said Francesco Galietti, head of the Policy Sonar risk consultancy and a former finance ministry official.

    Blake sez: Yup… creditors should just extend another couple hundred billion to Italy to service their current debts. That “fixed” Greece! No… defaults… EVER!
    I’ll go out on a limb now and state that the recession hits this year and not next year. Of course I already shifted a lot of my family’s financial assets into silver, gold, and a utilities fund (VPU) a few weeks ago… +10% in two weeks! :-)

  76. 76
    Blake says:

    By Justme @ 74:

    Have we reached the BNP Paribas (Aug 2007) moment, the Minsky Moment, the Lehman moment (Sep 2008), whatever you want to call it? Three of the U.K.’s largest real estate funds have frozen almost 9.1 billion pounds ($12 billion) of assets after Britain’s shock vote to leave the European Union sparked a flurry of redemptions. Actually, there are now 5 (not 3) UK property funds that have frozen redemptions. Do people remember what happened next when the bad Lehman short-term notes necessitated a freeze in a US money market fund in Sep 2008?

    It does remind me of 2007 when some large hedge funds started to close and ended redemptions… of course it took over a full year before things collapsed and then only when JP Morgan refused to roll over Lehman’s short term/overnight debt and set off the crisis… so this may take a while.

    btw: It is interesting that what Lehman alleged was essentially true… JPMorgan precipitated the crisis.
    http://www.chicagotribune.com/business/ct-jpmorgan-lehman-brothers-settlement-20160126-story.html
    JPMorgan Chase has agreed to pay $1.42 billion to settle allegations that it withheld critical funds from Lehman Brothers in the final days leading up to Lehman’s collapse during the financial crisis…
    Lehman Brothers’ bankrupt entity originally sued JPMorgan Chase in 2010 for $8.6 billion, alleging that JPMorgan used its position as Lehman’s clearing bank to extract virtually all of Lehman’s remaining liquid assets and establish an $8.6 billion “slush fund” for its own use. A federal judge ruled in favor of most of the allegations against JPMorgan in October 2015.

    In a separate settlement, JPMorgan reached an agreement with the bond insurer Ambac. That settlement is tied to several mortgage-backed securities that a JPMorgan subsidiary issued that Ambac then insured. Under the settlement, JPMorgan will pay $995 million to Ambac.
    (end quote)

    Only a billion to Ambac… peanuts! $2.4 billion in penalties and hardly a blip in their earnings! Wow… Crime pays.

  77. 77
    Doug says:

    RE: Justme @ 75 – This is a non-event. USTs are actually selling off. I assure you they would be rallying if UK property funds mattered.

    I too once lived on ZeroHedge, constantly hitting the refresh button in hopes of the next article validating my bearish views of the world.

    At some point you’ll finally realize that the Fed won’t let this ponzi die. They learned their lesson after Lehman and will never again let a bank fail.

  78. 78
    Blurtman says:

    By Doug @ 77:

    RE: Justme @ 75

    At some point you’ll finally realize that the Fed won’t let this ponzi die. They learned their lesson after Lehman and will never again let a bank fail.

    Correct! And Timmay knew that the casino must always pay out.

    Fraud, murder, child molestation – all will be tolerated. No bankers must be jailed. They know too much.

  79. 79
    Justme says:

    RE: Doug @ 77 – You should print that comment and hang it on the wall in a nice frame, for future reference, and to commemorate today’s non-event .

    A non-event? More than 9.1B in assets are frozen. The rest of the funds will likely soon follow, making it 24B frozen. The Reserve MM fund in Sep 2009 was 64B when it froze. We are near the same scale here, and UK is a smaller GDP. There had better be no ripple effects.

    I don’t think a US Treasury 10yr selloff today is a good sign. Could be some entities in UK needs to pay some demands or margin calls, and therefore are pulling out of UST10. Or could it be Italy?

    The Fed *is* now the Ponzi. Sure they will try not to fail.

  80. 80
    David B. says:

    RE: Justme @ 1 – Inventory is indeed often a leading indicator, but one month does not a trend make. Time will tell.

  81. 81
    Justme says:

    RE: Blake @ 76

    No disagreement from me. But about the JP Morgan and Lehman thing: Lehman was going to fail anyway. It was just a matter of time. What is interesting, though, is that JPM decided to speed up the process just a little bit, probably because they saw an opportunity to make a profit by beggaring Lehman.

    And THAT is the way the ponzi will unravel this time as well: Someone, somewhere will see an opportunity to profit, and then not realize, or not care, that the whole economy will unravel as a result.

  82. 82
    Justme says:

    RE: David B. @ 80

    I never said that one month made a trend. What I indicated was that Jan-Mar inventory flat versus normally sloping down was not a sign of strong demand/supply balance. I agree time will tell.

  83. 83
    Justme says:

    RE: Blake @ 75

    About the Italian Banks: The interesting thing is that EU regulations now forbids bank bailouts before the shareholders and bondholders are all bailed in (meaning wiped out). The Italian government is nevertheless trying to effect an illegal taxpayer-funded bailout.

  84. 84
    Blake says:

    By Justme @ 81:

    RE: Blake @ 76
    But about the JP Morgan and Lehman thing: What is interesting, though, is that JPM decided to speed up the process just a little bit, probably because they saw an opportunity to make a profit by beggaring Lehman.

    You think… gee, I guess that I’m just not so cynical to think that JPM would do that! ;-)

    But you’re right… A lot of big players are piling up wagers to make a fortune when the next crisis hits. So it’s only a matter and when… and where it starts? The authorities can paper over things only so long.

  85. 85
    Blake says:

    By Justme @ 83:

    RE: Blake @ 75

    About the Italian Banks: The interesting thing is that EU regulations now forbids bank bailouts before the shareholders and bondholders are all bailed in (meaning wiped out). The Italian government is nevertheless trying to effect an illegal taxpayer-funded bailout.

    Yes, that is interesting… but back in 2010, the European Central Bank threatened to pull the nearly $100 billion bailout of Ireland’s banks if Ireland insisted on senior bondholders taking their share of the losses!
    But if the Italian banks default on their bonds who knows where that ends up!?

  86. 86
    Justme says:

    RE: Blake @ 85RE: Blake @ 85

    Italy should now do what Iceland did in 2007-2008. Shareholders and bondholders of affected banks should be wiped out, and the banks be recapitalized. If capital cannot be raised in the open markets, the Italian public and taxpayer will buy in and become the new owner of the bank. That is much better than a bailout where the taxpayer gets nothing for their money.

  87. 87
    whatsmyname says:

    By Justme @ 72:

    RE: whatsmyname @ 69

    The median down payment for a first-time buyer in the United States is 3.5% right now. That is the issue here. Since almost all houses will be sold with a realtor commission of above 3.5%, it means that AT LEAST HALF of all new homedebtors start their career with NEGATIVE EQUITY.

    Wow! that’s impressive, but how big a part of the market are First time buyers?
    And how big a part have they usually been over the past 75 years?
    And what proportion of them were using 0% down VA or 5% down FHA financing (i.e. NEGATIVE EQUITY) during all of the decades of the last half of the 20th century? We had recessions then too you know. Where is the context?

    That is going to bite a lot of people when the party stops, and that may be soon.

    It won’t really be biting the holders of government insured mortgages though, will it? They won’t have a need to dump that paper pronto, will they? And glut the market causing a rapid disintegration in underlying bond prices, like the private label holders did? This is your second failure to understand the difference between government insured and uninsured paper.

    It is YOU that is conflating unrelated matters here, not me. It just means that you have nothing substantial to offer.

    Do, as I did above, and show what specifically was conflated – and what was the conclusion that required the confusion of the multiple matters? That is, if you have anything of substance to offer.

  88. 88
    greg says:

    By Blake @ 84:

    By Justme @ 81:

    RE: Blake @ 76
    But about the JP Morgan and Lehman thing: What is interesting, though, is that JPM decided to speed up the process just a little bit, probably because they saw an opportunity to make a profit by beggaring Lehman.

    You think… gee, I guess that I’m just not so cynical to think that JPM would do that! ;-)

    But you’re right… A lot of big players are piling up wagers to make a fortune when the next crisis hits. So it’s only a matter and when… and where it starts? The authorities can paper over things only so long.

    so how does the small investor profit from this upcoming “crisis”? I would really like to know and i am open to any ideas anyone has ….

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