Or a few years later in 2013 when 4% mortgage rates were widely described as “soaring”?

Pepperidge Farm remembers.

Mortgage rates have been a frequent topic of discussion on these pages over the years since they have such a large impact on the housing market. Here are a few of our headlines over the years…

April 2012: Will Higher Interest Rates Kill the Housing Market?

September 2015: Affordability Will Be Destroyed if Interest Rates Increase

September 2020: Plunging mortgage rates held off a Seattle home price crash

Ten years ago I said that “eventually rates will climb back up above six percent” but that I didn’t expect it to happen “for at least another four years.” Even the timeline of that prediction was far too short, but to be fair it was in a post titled People Stink at Predicting Interest Rates and people includes this guy.

In my opinion, the absurdly low mortgage rates of the past 10+ years have basically held the housing market in a perpetual state of artificial demand inflation. The Federal Reserve has been the drug dealer, continuallly supplying the market with cocaine in increasingly higher doses while we all just kept coming back for more every time we saw the slightest hint that we may be coming down off that high.

But now, after more than a decade of rates under 5%, we’re finally going to see how a more “normal” mortgage rate will impact the housing market. It’s finally time to detox, and we don’t get to come down easy—we’re going cold turkey.

To try to get some idea of what this might look like, it may be informative to review the 2010 post Do Rising Interest Rates Lead to Falling Home Prices? Here’s the tl;dr – Yes, there have been times when a spike in mortgage rates led to a decline in inflation-adjusted home prices. Most notably the period between 1979 and 1985, when rates shot up nine points and inflation-adjusted home prices fell 20%.

A lot of factors are different now than they were in the early ’80s. For one thing, home prices going into that period were not obscenely inflated the way they are now. Our current situation is also very different from 2008, when far too many homebuyers were leveraged to the hilt with liar loans and interest-only mortgages that they could only “afford” if prices kept rising in perpetuity. It’s impossible to predict exactly what the coming housing recession will look like, but I am fairly confident that real home prices will not be able to remain at the astronomical heights they have climbed to over the past few years with mortgage rates back above 6%.

We are already seeing a lot of weeping & gnashing of teeth about “high mortgage rates” and the Fed “killing the housing market” but in my opinion the mistake was holding rates so absurdly low for so absurdly long. Mortgage rates eventually going back to the 6-8% range was inevitable.

In closing, here is a mortgage rates haiku:

Seems it may be time
to finally pay the price
for keeping rates low.

If you’re a Seattle Bubble Member, the full data for these charts and more are uploaded to the members-only data repository.

Want to join a conversation about this or other local real estate topics? We’re on Twitter at @SeattleBubble.

The post Time for the housing market to detox from low mortgage rates appeared first on Seattle Bubble.

Here’s the Consumer Confidence data as of June:

The overall Consumer Confidence Index currently sits at 121.5, down 7.5 percent in a month and down 4.4 percent from a year ago.

At 162.6, the Present Situation Index also fell between May and June, down 4.7 percent, but is up 0.6 percent from a year earlier. The Present Situation Index is currently up 705 percent from its December 2009 low point, and is still 18 percent higher than the pre-bust peak in July 2007.

The Expectations Index also fell in June, down 10.4 percent from May, and dropped from a year earlier by 9.5 percent.

All three parts of the index have declined quite a bit from their late-2018 high points. They didn’t quite reach the same level of high as the high water mark set back in 2000.

Click below for the interactive Consumer Confidence chart in Tableau.

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence has been stagnating, and fell in June appeared first on Seattle Bubble.

Here’s the Consumer Confidence data as of September:

The overall Consumer Confidence Index currently sits at 138.4, up three percent in a month and up fifteen percent from a year ago.

At 173.1, the Present Situation Index increased less than one percent between August and September, and is up eighteen percent from a year earlier. The Present Situation Index is currently up 757 percent from its December 2009 low point, and is now 25 percent higher than the pre-bust peak in July 2007.

The Expectations Index also rose in September, up five percent from August, and is up from a year earlier by twelve percent.

All three parts of the index are approaching the highs that they hit in 2000. It’s interesting to me that despite the apparent widespread confidence in both the present situation index and the expectations index we’re seeing a non-trivial drop-off in home sales this year, leading to a steady climb of inventory.

If everyone is so confident about the economy, why would home sales be falling off? Again, I’m brought back to near-record-low affordability levels. It doesn’t matter how confident people are if they simply can’t afford to buy a home in their market.

Click below for the interactive Consumer Confidence chart in Tableau.

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence blows past 2007 highs, approaches 2000 levels appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of March:

The overall Consumer Confidence Index currently sits at 127.7, down two percent in a month and up two percent from a year ago. The current levels are higher than any point since late 2000, just as the dot-com bubble was bursting.

At 159.9, the Present Situation Index fell one percent between February and March, and is up eleven percent from a year earlier. The Present Situation Index is currently up 695 percent from its December 2009 low point, and is up sixteen percent from its pre-bust peak in July 2007.

The Expectations Index also declined slightly in March, down three percent from February, and is down from a year earlier by five percent.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate was at 4.44 percent, and has been climbing steadily since last September. Current interest rates are roughly on par with where they were in August 2011 and still two points below the 6.41 percent average rate during the height of the housing bubble through 2006.

With the Federal Reserve finally raising rates, it is likely that mortgage rates will follow suit later this year. We may finally be past the days of sub-four-percent rates.

Click below for the interactive Consumer Confidence chart in Tableau.

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence at levels not seen since the dot-com bust appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of June:

The overall Consumer Confidence Index currently sits at 101.4, up 7 percent in a month and up 17 percent from a year ago.

At 111.6, the Present Situation Index increased 4 percent between May and June, and is up 29 percent from a year earlier. The Present Situation Index is currently up 452 percent from its December 2009 low point, but still down 19 percent from its pre-bust peak in July 2007.

The Expectations Index also rose in June, up 10 percent from May, and is up from a year earlier by 10 percent.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate was at 4.04 percent, up slightly from the 3.74% January through May average. Current interest rates are roughly on par with where they were in September 2011 and still nearly two and a half points below the 6.41 percent average rate during the height of the housing bubble through 2006.

Enjoy the stupidly low interest rates while they last, it looks like that gravy train may finally be coming to an end later this year:

You heard it from the Federal Reserve Chair herself: interest rates will soon go up.

In prepared testimony to the House Financial Services Committee on Wednesday, Federal Reserve Chair Janet Yellen will say that as the U.S. economy continues to improve, “conditions likely would make it appropriate at some point this year to raise the federal funds rate target.”

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Keeps Climbing, Rates Inching Up appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of October:

The overall Consumer Confidence Index currently sits at 94.5, up 6 percent in a month and up 31 percent from a year ago.

At 93.7, the Present Situation Index increased 1 percent between September and October, and is up 29 percent from a year earlier. The Present Situation Index is currently up 364 percent from its December 2009 low point, but still down 32 percent from its pre-bust peak in July 2007.

The Expectations Index also rose in October, up 10 percent from September, and is up from a year earlier by 32 percent.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate was at 3.98 percent, down slightly from the 4.14% level it has been averaging between late May and early October. Current interest rates are roughly on par with where they were in November 2011 and nearly two and a half points below the 6.41 percent average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Hit a Seven-Year High in October appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of September:

The overall Consumer Confidence Index currently sits at 86.0, down 8 percent in a month but up 7 percent from a year ago.

At 89.4, the Present Situation Index decreased 5 percent between August and September, and is up 22 percent from a year earlier. The Present Situation Index is currently up 343 percent from its December 2009 low point, but still down 35 percent from its pre-bust peak in July 2007.

The Expectations Index also fell in September, down 10 percent from August, and is also down from a year earlier by 1 percent.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate was at 4.12 percent, the same basic level it has been holding at relatively steadily since late May. Current interest rates are roughly on par with where they were in August 2011 and nearly two and a half points below the 6.41 percent average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Dipped in September appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of August:

The overall Consumer Confidence Index currently sits at 92.4, up 2 percent in a month, 13 percent from a year ago, and at its highest point since October 2007.

At 94.6, the Present Situation Index increased 8 percent between July and August, and is up 33 percent from a year earlier. The Present Situation Index is currently up 368 percent from its December 2009 low point, and sits at its highest level since February 2008, but still down 32 percent from its pre-bust peak in July 2007.

The Expectations Index fell slightly in August, down 1 percent from July, but up 2 percent from a year earlier.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate was at 4.10 percent, still virtually unchanged since late May. Current interest rates are roughly on par with where they were in August 2011 and nearly two and a half points below the 6.41 percent average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Expectations Dip Slightly in August appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of July:

The overall Consumer Confidence Index currently sits at 90.9, up 5 percent in a month, 12 percent from a year ago, and at its highest point since October 2007.

At 88.3, the Present Situation Index increased 2 percent between June and July, and is up 20 percent from a year earlier. The Present Situation Index is currently up 337 percent from its December 2009 low point, and sits at its highest level since March 2008, but still down 36 percent from its pre-bust peak in July 2007.

The Expectations Index rose in July as well, up 8 percent from June, and 8 percent from a year earlier.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate was at 4.12 percent, nearly unchanged since late May. Current interest rates are roughly on par with where they were in August 2011 and nearly two and a half points below the 6.41 percent average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Up 12 Percent From Last Year appeared first on Seattle Bubble.

The post Poll: How does the economy feel to you today compared to 2006? appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of June:

The overall Consumer Confidence Index currently sits at 85.2, up 4 percent in a month, and at its highest point since January 2008.

At 85.1, the Present Situation Index increased 6 percent between May and June, and is up 24 percent from a year earlier. The Present Situation Index is currently up 321 percent from its December 2009 low point, and sits at its highest level since April 2008. The Expectations Index rose in June as well, up 2 percent from May.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of this week, the 30-year mortgage rate sits at 4.14 percent, down almost half a point from the recent high of 4.58% set back in August, roughly flat at the same level for the last month or so. Current interest rates are roughly on par with where they were in August 2011 and nearly two and a half points below the 6.41 percent average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Hits 6.5-Year High in June appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of March:

At 81.0, the Present Situation Index increased 0.7% between February and March, and is up 34% from a year earlier. The Present Situation Index is currently up 301% from its December 2009 low point, and sits at its highest level since April 2008. The Expectations Index rose even further in March, increasing 9.2% from February.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate sits at 4.40%, down slightly from the high of 4.58% set back in August, but up more than a point from the low set in May of last year. Current interest rates are roughly on par with where they were in August 2011 and still two points below the 6.41% average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Keeps Climbing appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of November:

At 79.1, the Present Situation Index increased 5% between December and January, and is up 41% from a year earlier. The Present Situation Index is currently up 292% from its December 2009 low point, and sits at its highest level since April 2008. The Expectations Index rose again in January as well, increasing 3.5% from December.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of this week, the 30-year mortgage rate sits at 4.31%, down slightly from the recent high of 4.58%, but up almost a point from the low set in May of last year. Current interest rates are roughly on par with where they were in August 2011 and, and still over two points below the 6.41% average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Interest Rates Dip, Consumer Confidence Climbs appeared first on Seattle Bubble.

In November the Seattle area’s unemployment rate broke a four-month streak of increases, dipping just slightly from 5.7% in October to 5.6% last month. We are still in much better shape than the national job market, which had an unemployment rate of 7.0% in November.

On the flip side, our labor participation rate fell slightly in November, dropping from 69.4% to 69.3%. The national labor force participation rate in November rose 0.2 points to 63.0%.

For reference, in 2006 when everyone imagined the economy to be in great health, the local unemployment rate averaged 4.3% and the labor participation rate averaged 69.5%. Our labor force participation rate is still on par with the pre-bust period, but the unemployment rate needs to drop another percent and a half to reach the pre-bust levels. I still expect to see both measures back to early 2006 levels some time next year.

Next week we’ll take a look at job growth in the usual sectors around Seattle.

The post Unemployment & Labor Participation Flat in November appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of November:

At 72.0, the Present Situation Index decreased 0.8% between October and November, but is up 25.4% from a year earlier. The Present Situation Index is currently up 256% from its December 2009 low point. The Expectations Index had been losing more ground lately. It was down 4.0% from October and down 14.3% from a year ago.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate sat at 4.46%, up over a full point the November 2012 low of 3.31%. Current interest rates are roughly on par with where they were in June 2011 and, and still nearly two points below the 6.41% average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Expectations Dip as Rates Rise appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of September:

At 73.2, the Present Situation Index increased 3.2% between August and September, and is currently up 262% from its December 2009 low point. The Expectations Index fell slightly in August, losing 5.5% from its August level.

Here’s your chart of home mortgage 30-year interest rates via the Federal Reserve:

As of last week, the 30-year mortgage rate sat at 4.22%, down about a quarter point from where it sat between mid-August and mid-September. Current interest rates are roughly on par with where they were in September 2011, and still over two points below the 6.41% average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Sputters, Interest Rates Retreat appeared first on Seattle Bubble.

First up, here’s the Consumer Confidence data as of August:

At 70.7, the Present Situation Index decreased 4% between July and August, but has gained 250% from its December 2009 low point. The Expectations Index rose slightly in August, gaining 3% from its July level.

Perhaps this slight dip is the result of increasing interest rates finally sinking in among the public. Here’s your chart of those rates:

As of last week, the 30-year mortgage rate was up to 4.57%, where it has been hovering for about three weeks. To give you some context on that number, current interest rates are roughly on par with where they were in June 2011, and still nearly two points below the 6.41% average rate during the height of the housing bubble through 2006.

Click below for the interactive Consumer Confidence chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Flat, Rates Back to Mid-2011 Levels appeared first on Seattle Bubble.

At 73.6, the Present Situation Index increased 7% between June and July and has gained 264% from its December 2009 low point. The Present Situation Index now sits at its highest level since May 2008. The Expectations Index fell slightly in July, losing 7% from its June level.

Still no apparent detrimental effect on consumer confidence from the big surge in interest rates that we had in June. Despite interest rates rising from 3.4% in late May to 4.4% in late July, the Present Situation Index has gained 14% over the same period.

Click below for the interactive chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Unfazed by Interest Rates appeared first on Seattle Bubble.

At 69.2, the Present Situation Index has gained 243% from its December 2009 low point, and sits at its higest level since June 2008. The expectations index also rose in June, gaining 11% from its May level.

Apparently rising rates haven’t had an effect yet on consumer confidence. Of course the biggest spike came in the last week or so, just before this data was released, so we may see somewhat of a dip next month.

Click below for the interactive chart (only works in Google Chrome).

You can use the sliders under the interactive chart below to zoom in on the data for a specific period.

The post Consumer Confidence Hits 5-Year High appeared first on Seattle Bubble.

Here’s the data as of March:

At 57.9, the Present Situation Index has gained 187% from its December 2009 low point, but fell 6% from its February level. The index is at roughly the same place it was in September 2008. The expectations index also fell in March, dropping 16% from its February level.

It will be interesting to see if the ongoing “sequestration” cuts combined with the increasingly noisy posturing from North Korea have an effect on Consumer Confidence this month.

The post Consumer Confidence Dips Again in March appeared first on Seattle Bubble.

Here’s the data as of February:

At 63.3, the Present Situation Index has gained 213% from its December 2009 low point, and rose 13% from its January level. The index is at roughly the same place it was in September 2008. The expectations index also shot up in February, gaining 23% from its January level, but is still 12% below where it was in October.

The post Consumer Confidence Bounces Back Up in February appeared first on Seattle Bubble.

Here’s the data as of January:

At 57.3, the Present Situation Index has gained 184% from its December 2009 low point, but fell 11% from its December level. The index is now back below the pre-crash low point of 59.7 in September 2003, and at roughly the same place it was in September 2008. The expectations index also took a dive in January, falling 13% from its December level. In just the last three months, the expectations index has given back 29%, falling from 84.0 in October to 59.5 in January.

The post Consumer Confidence: Surprise Dip in January appeared first on Seattle Bubble.

Here’s the data as of December:

At 62.8, the Present Situation Index has gained 211% from its December 2009 low point, but still sits well below 100. The index is now slightly above the pre-crash low point of 59.7 in September 2003, and at roughly the same place it was in September 2008. Meanwhile, the expectations index took a dive in December, probably thanks to the “fiscal cliff” nonsense that was dominating the media all month.

The post Consumer Confidence: Expectations Dipped in December appeared first on Seattle Bubble.

At 56.6, the Present Situation Index has gained 180% from its December 2009 low point, but still sits well below 100. The index is now just 5% below the pre-crash low point of 59.7 in September 2003, and sits between levels seen on the way down in September and October 2008. Meanwhile, as expectations for the future continue to climb, they have hit 85.1 as of November.

No big surprises in this data. The slog continues, with slow but steady improvement most months.

The post Consumer Confidence Inching Back to Normal appeared first on Seattle Bubble.

The post Poll: What’s your favorite economics blog? appeared first on Seattle Bubble.

At 51.4, the Present Situation Index has gained 154% from its December 2009 low point, but still sits well below 100, and even 14% below the pre-crash low point of 59.7 in September 2003. Meanwhile, although expectations for the future have been slowly climbing as well, they too sit well below 100.

It still looks like we’re just going to continue this slow climb out of the gutter for quite some time.

The post Consumer Confidence Slowly Climbing Out of the Gutter appeared first on Seattle Bubble.

Nice little spike there between October and December, but January fell back off again, and the present situation index still site below where it was in late 2008. If you zoom all the way out to 1998 on the chart above, it’s interesting to note that this is by far the longest the present situation index has been lower than the expectations index. The only other time that has happened since 1998 was in mid-2002, but by mid-2004 the two had already flipped back around. This time it’s been over three years and counting since the two inverted, and they’re still nearly 40 points apart.

It has been, and will continue to be a long slog.

The post Consumer Confidence: The Long Slog Continues appeared first on Seattle Bubble.

As I have mentioned before, consumer confidence is tied pretty closely to residential real estate, and as long as confidence remains in the gutter, we won’t be seeing a recovery in real estate.

After dropping below 30 in January 2009, the present situation index spent two full years below 30. Prior to this slump, the lowest the present situation index had ever been was 59.7 in September 2003, which was the last month of a 7-month trough. In January this year the present situation index finally made it back above 30, and although it has slumped a bit in the last few months, the current level of 37.6 is definitely a better place than during the worst of the crash.

I have been saying it for a while, but it’s worth repeating that I still think we’re in for a very long, drawn out, Japan-style economic slog over the next decade or so, so I expect that like home prices, we’ll see consumer confidence bounce along the bottom for some time to come.

The post Consumer Confidence: Still Rolling Along the Gutter appeared first on Seattle Bubble.

Since dropping below 25 in February 2009, the present situation index has spent 20 months below 30. Prior to this slump, the lowest the present situation index had ever been was 59.7 in September 2003, which was the last month of a 7-month trough.

Although the expectations index has risen to 65.4 from its February 2009 low of 27.3, the current level is still a far cry from the 1998-2007 average level of 95.7.

With consumers’ confidence about their current situation still treading water at historic lows, what is the rationale for people who believe a housing recovery is just around the corner?

The post Trashed Consumer Confidence = No Housing Recovery appeared first on Seattle Bubble.

The post Poll: Do you think you will lose your job in the next year? appeared first on Seattle Bubble.

Financial Blogger On Ethics Of Mortgage Modification

A full transcript is available at the link above. Here’s an excerpt.

SIEGEL: But what’s the risk of providing some kind of mortgage relief, whether it’s a suspension of full monthly payments, or whether it’s a reduction in the principal for somebody whose house plummeted in value and who is also unemployed and really will have a very hard time making the payments regardless?

Mr. RITHOLTZ: From a broad perspective, again, you’re keeping them in a house that they can’t afford, and they’d be much better off going to a place that leaves them a little spare change in their pocket, as opposed to just draining everything they have to make those payments.

Secondly, if these banks have their balance sheets just festooned with bad loans, we’re not allowing them or not forcing them to do what they’re supposed to do, which is take the write-down, get it off their books, free up some capital and move forward as a healthy lending institution.

Barry also wrote some additional thoughts on this issue on his site last week: More Foreclosures, Please…

It may sound counter-intuitive, but the best thing for the nation (but not necessarily the banks) is to allow the foreclosure process to proceed unimpeded.  We need more, not less foreclosures.
…
We should allow the real estate market to experience a healthy price normalization process. Even though home prices have fallen dramatically, they have yet to reach their historical means relative to income or the cost of renting. This is to say nothing of the usual careening past the median towards under-valuation that typically follows a massive mis-allocation of capital.

I agree with Barry 100%.

Also related: with all the foreclosure prevention and delay programs going on, it’s hard not to feel like you’re basically a chump if you pay your mortgage. Many stay at home for free as banks defer evictions

It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their home in Perris, Calif.

It’s been 11 months since the notice got slapped on their front door, warning it would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.
…
Throughout the country, people continue to default on their home loans — but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.

The post Foreclosures: Better to let them happen appeared first on Seattle Bubble.

There have been a few changes since our last update in February. Rainier Pacific Bank of Tacoma failed in late February, North Cascades National Bank in Chelan and The Cowlitz Bank in Longview were added to the troubled list, and in mid-February, four banks (including one troubled bank) merged to form the Bank of the Northwest. Also, a couple weeks ago Kirsten Grind launched her own list over at the Puget Sound Business Journal keeping track of our state’s troubled banks and the various enforcement actions they are operating under.

Here’s our updated map of all of Washington State’s banks and credit unions. For the banks, troubled banks are in red, non-troubled are in green. The size of each circle represents the total assets of each institution:

Hit the jump below for a visual of where our state’s troubled banks are located, as well as a national look at banks by Texas Ratio and Capitalization Rate that I assisted Mish in developing.

Washington’s twenty-five troubled banks are now in nine of thirty-nine counties, with the bulk of the problem still centered in King, Snohomish, and Spokane counties.

Spokane County has only two troubled banks, but with the biggest in the state based there (Sterling), the size of the problem is somewhat overwhelming. 36% of Washington’s banks (by size) are currently on the unofficial problem bank list. 38% of that total is Spokane-based Sterling. The next-largest troubled bank in Washington is Everett-based Frontier (whose CEO insists that things aren’t that bad), representing just 14% of the assets in troubled banks.

Also, if you’d like to play with a full-screen version of the map that allows the selection of multiple counties, you can do that here.

Lastly, here’s a similar interactive map of banks across the country, with “troubled” being represented by an inordinately high Texas Ratio. This viz was created by Mish (with a little help from yours truly), and posted on his site last week.

The post WA Troubled Banks Update (Plus National Bank Bonus) appeared first on Seattle Bubble.

Historically the best leading indicator for the economy (and employment) has been housing.
…
So here is a review of the three monthly leading indicators:

• Housing Starts: Housing starts are moving sideways…
• Builder Confidence: More moving sideways…
• New Home Sales: …it would be generous to even call this “moving sideways”.

So these leading indicators suggest any growth will be sluggish and choppy.

So what are your expectations for near-term economic growth, both nationally and here in the Seattle area? I think most people would agree that the currently-available economic indicators are not pointing to another dramatic leg down, but does it necessarily follow that we are headed for a convincing recovery? I for one don’t really think so, especially when it comes to home prices.

So is flat the new up?

The post Leading Housing Indicators Point to a Flat Economy appeared first on Seattle Bubble.

• The Big Picture: What Happens When Consumer Confidence Falls 10-Points?
• Zero Hedge: Spinning The Consumer Confidence Number
• Mish’s Global Economic Trend Analysis: Consumer Confidence Plunges To 46
• Mish’s Global Economic Trend Analysis: Is Consumer Confidence a Contrarian Indicator?

Click through below for an updated look at the Tableau viz I created of the Consumer Confidence Index data from the Conference Board.

The post Consumer Confidence Falls 10 Points in February appeared first on Seattle Bubble.

Christine Gregoire, January 2008:

“The only thing we have to fear is fear itself,” Gregoire said, quoting former President Franklin Roosevelt and referring to national recession fears. “It is a very frustrating time, I know, for you, and it is for me. … I’m struggling to get the message out to Washingtonians. The economy is strong. Buy your home.” (The Olympian, 01.25.2008)

“There is no good reason for a slowing of home purchasing in the state of Washington today” (Associated Press, 01.25.2008)

In the twenty-two months between the Governor’s declaration that “there is no good reason for a slowing of home purchasing” and the latest data on Seattle’s Case-Shiller home price index (November 2009), home prices have fallen 18%. Some “strong economy,” huh?

Just eight months later… Christine Gregoire, September 2008:

“This is the worst economic situation we’ve faced since the Depression.”
…
“When you’ve got tough economic times, it’s not the time to raise taxes,” she said. “Nobody is talking about taxes but [Dino Rossi].” (Seattle Times, 09.19.2008)

Gregoire was quickly proven dead wrong about how strong the economy was and how we should all go out and buy overpriced houses. In January 2008 she was obviously either lying or oblivious to the growing problem. Neither option seems like a quality we would want in a Governor.

But hey, at least she promised not to raise taxes in these suddenly “tough economic times.” Note that at the time of the above quote, Washington’s state-wide unemployment rate was 5.5% (seasonally-adjusted).

Wait now, what’s this?

Democrats in Olympia are getting ready to play right into their stereotype as lovers of taxes.

They are preparing for a final vote to overturn initiative 960, the initiative which requires a 2/3rds vote of both houses to raise taxes or in fact ANY additional revenue.

And which ALSO requires the legislature to send out an e-mail anytime a bill is proposed that even MIGHT raise revenue.

Those of us who subscribe to that list have received a steady stream of e-mails in the past month warning us of bills that will raise revenue, most of them sponsored exclusively by democrats.

By voting to suspend the 2/3rds requirement and to stop those e-mails, it looks like they’re not only are they hell-bent on raising taxes in a recession, but hell bent on keeping it secret. (Dave Ross, 02.10.2010)

So now, with the state unemployment rate at 9.5% (as of December), not only are Gregoire’s comrades in the state legislature planning “a steady stream” of bills to raise taxes, but they’re also taking measures to make sure that it is more difficult for the public to keep track of such actions. Again, Mrs. Gregoire was either lying or completely oblivious.

The important thing to note in this most recent development is that as Dave Ross (a former Democrat candidate for the US House) points out, the legislature could have suspended only the 2/3rds requirement portion of I-960. In fact that was what the state Senate originally did on Tuesday. However, that was not enough for them. They have instead decided to go the extra mile to spite the people of Washington and eliminate the legislative transparency portions as well.

I-960 has other provisions the people want. One is that Office of Financial Management must calculate the 10-year cost of every revenue-raising bill introduced. For every such bill, OFM must send out an e-mail to interested members of the public and the press of the costs, hearing dates, legislative votes and contact information for lawmakers. (Seattle Times, 01.13.2010)

Not only that, but the state Senate and House are pushing these votes through the Legislature in late-night and weekend votes, seemingly to keep things as under-the-radar as possible. The House takes up the bill tomorrow morning (Saturday), during the weekend break in the news cycle.

I will grant that this is only tangentially related to real estate—some of the tax proposals floating around Olympia include expanding the sales tax to include services, such as those provided by a real estate agent. However, the Governor has been so two-faced, and the state legislature so underhanded on this matter that this deserves to be mentioned.

If those in charge down in Olympia want to raise taxes on real estate services, soda, chocolate, or whatever—fine, let’s have that discussion. But why all the sneaking around and lying? Why not be forthright about your intentions and hold an open dialogue on the issue?

The post Olympia on the Economy: Liars, Fools, or Malefactors? appeared first on Seattle Bubble.

The following charts are based on data from the FDIC, the NCUA, and Calculated Risk’s latest Unofficial Problem Bank List (updated 01/29).

First up, here’s a map of all of Washington State’s banks and credit unions. For the banks, troubled banks are in red, non-troubled are in green. The size of each circle represents the total assets of each institution:

Next, here’s a visual of where our state’s troubled banks are located. Washington’s twenty-five troubled banks are only spread through eight counties, with the bulk of the problem centered in King, Snohomish, and Spokane counties.

Spokane County has only two troubled banks, but with the biggest in the state based there (Sterling), the size of the problem is somewhat overwhelming. 37% of Washington’s banks (by size) are currently on the unofficial problem bank list. 40% of that total is Spokane-based Sterling. The next-largest troubled bank in Washington is Everett-based Frontier (who recently posted a $34 million Q4 loss), representing just 13% of the assets in troubled banks.

Also, if you’d like to play with a full-screen version of the map that allows the selection of multiple counties, you can do that here.

The post Interactive Map of Washington’s Banks and Credit Unions appeared first on Seattle Bubble.

What will get the economy going in 2010?

Conditions would seem to be ideal for a decent recovery, if not a sharp snapback. Interest rates are low. Energy prices are comparatively low. Deferred spending and depleted inventories mean pent-up demand. A weak dollar against other currencies ought to make our exports more attractively priced and our products more competitively priced here at home.

What’s missing is an intangible – confidence. Lots of companies report increased activity in the form of requests for quotes. But everyone’s waiting for everyone else to make the first move to translate those queries into actual orders and purchases. They all want to be convinced the worst is over and the rebound will be real – and they’re waiting for proof in the form of someone else taking the lead. Get confidence back, you’ll get your recovery.

It’s good to see Bill’s voice getting out there again. It’s interesting that he brings up confidence. The problem of confidence is something that seems to be coming up a lot lately…

In another article posted today by the Bellevue Reporter, Seattle economists predict slow recovery in 2010

The days of banking on high-risk investments are over, at least until our short-term memory problems allow for the next economic bubble.

But don’t expect history to repeat itself any time soon. Economic forecasters predict a slow recovery from the massive recession that tore through world markets last year.

Pent-up demand normally creates high levels of snap-back growth after a recession, like the one in 1982. But that isn’t likely to happen this time around, according to Michael Dueker, head economist for Russell Investments North America.

“It’s time to pay the piper for the fact that we’ve had a financial crisis,” he said during a recent economic-forecast conference in Seattle.

Bottom line: credit is hard to come by, and 90 percent of the U.S. gross domestic product is dedicated to bailouts and stimulus funding, which keep our economy afloat, but make it hard to bounce back.
…
The future doesn’t look so bright for real estate and development.

Around 38,000 construction jobs were lost last year, and home values dove a minimum 25 percent in most cases.

Jim DeLisle, director of graduate real-estate studies at the University of Washington, predicts the housing market may take another 18 months to bottom out, while it could be another four years before anything significant happens on the development front.

Worse yet, DeLisle predicts a debt crisis on the horizon for commercial real-estate owners.

“We’re not out of the ballpark,” he said. “This isn’t over yet.”

DeLisle also suggests a new crisis looms in the form of bullet loans coming due within the next few years.

Sounds like the graduate real estate studies program at UW may be a little more unbiased than the industry-funded Washington Center for Real Estate Research over at WSU.

(Bill Virgin, Tacoma News Tribune, 01.24.2010)
(Joshua Adam Hicks, Bellevue Reporter, 01.25.2010)

The post Confidence Slows Recovery, Housing Bottom Still to Come appeared first on Seattle Bubble.

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The post Poll: National Economic Crisis: Which Inning are We In? appeared first on Seattle Bubble.

Raha said the nation’s big banks are in better shape and are mostly back to normal in terms of lending money to customers with good credit. But he said regional banks continue to struggle because they had so much invested in real estate and other sectors that were seriously hurt by the recession.

He noted that small businesses get their money from regional banks, so when they hurt, so do small businesses. That’s important, he said, because small businesses account for 64 percent of the new jobs in this country.

“Credit remains particularly tight for small businesses because they depend mostly on community banks,” Raha said, adding, “For growth we need private business spending to drive the recovery.”

He noted that if we don’t get private job growth we might get a second recession. “We’re not out of the woods yet,” he said. “We could get a double dip in the fourth quarter.”

We have been following the growing problem with Washington-based banks for a while now. This is definitely one of the biggest issues to watch for the state’s economy in the coming year.

The economist noted the federal tax credit for home buyers has been a help, something he referred to as incentivized growth. But he said there are a lot of homes and a lot of commercial buildings that are vacant now.

It will take at least a year for homes and longer for commercial buildings to be sold to the extent that they promote self-sustaining construction growth, he said.

Raha expanded on his outlook for real estate in a speech to the Washington Realtors yesterday in Olympia.

Raha said he expects the residential housing market to improve in 2011, while the commercial real estate market could take until 2012 to recover. Helping both will depend on the pace of economic recovery and some areas of the economy that still need to show improvement, he said.

This includes the easing of credit from community banks, consumer confidence and the absorption of excess housing, Raha said.

Although large, national banks have started lending again, credit still is tight at state-chartered community banks because they are “disproportionately” exposed to the slower commercial real estate market, he said. Consumer confidence also hasn’t improved because consumers are largely influenced by unemployment rates and the price of gasoline, Raha said. Washington’s jobless rate hit 9.5 percent in December, according to state Employment Security Department data.

Here’s a look at consumer confidence via the Conference Board:

I find it interesting that the disparity between the Present Situation Index and the Expectations Index continues to grow. The Present Situation Index hit a new low of 18.8 in December, while the Expectations Index has increased dramatically from a low of 27.3 in February to 75.6 in December.

So I guess the big question for the real estate market is whether people will be willing to (or if they are able to) buy homes on expectations alone.

(Mike Benbow, Everett Herald, 2010.01.21)
(Rolf Boone, Olympian, 2010.01.22)

The post State’s Chief Economist: Real Estate to Rebound… in 2011 appeared first on Seattle Bubble.

President Barack Obama outlined major new government stimulus and jobs proposals on Tuesday, saying the nation must continue to “spend our way out of this recession.”

Without giving a price tag, Obama proposed a package of new spending for highway, bridge and other infrastructure projects, deeper tax breaks for small businesses and tax incentives to encourage people to make their homes more energy efficient.

“We avoided the depression many feared,” Obama said in a speech at the Brookings Institution, a Washington think tank. But, he added, “Our work is far from done.”

That makes about as much sense as this:

Area partygoer Joe Sixpack outlined major new beer and whiskey purchases on Tuesday, saying that the party must continue to “drink itself sober.”

Brushing aside concerns about liver poisoning, Sixpack proposed a package of excessive new drinking of Budweiser, Coors, other cheap alcohol, and harder mixed drinks in a variety of drinking games to encourage partygoers to get totally plastered.

“We avoided the hangover many feared,” Sixpack slurred in a half-coherent rant. But, he added, “Our work is far from done.”

What got us into this mess? Out of control spending on every level—individuals, corporations, and government all spending more and more and more, assuming that future gains would somehow magically make everything work out.

So now, in order to fix things, we’re going to… spend… more?!?

Oh, and if Obama’s nonsense sounds a little familiar, it may be because we’ve heard similar talk before…

While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.

President Herbert Hoover, May 1, 1930 (i.e. – 1 year into the 10-year Great Depression)

I can’t help but feel we’re going to “rapidly recover” in the same way today.

Hat Tip: Karl Denninger

[Addendum]
I’d like to briefly address a few of the comments that are coming up on this post.

First is the notion that somehow since the subject of this site is real estate, discussing politics should be off-limits. In an ideal world yes, real estate and politics would be totally separated. Unfortunately, that is far from the case today.

With the capital gains tax exemption for home sales, mortgage interest deduction, home equity loan interest deduction, deductability of points paid on mortgage, $8,000 tax credit for first-time buyers, Fannie & Freddie lending, FHA lending, government manipulation of interest rates, etc… real estate and politics are inextricably intertwined. It is inevitable that politics will come up once in a while on a blog dedicated to real estate.

So far this year, a whopping 25 out of 379 total posts (not counting open threads) have been related to politics. In other words, 93% of posts here are apolitical. Considering how intertwined politics is with real estate, it doesn’t seem unreasonable that we would bring politics into the discussion 7% of the time.

Second, name-calling (e.g. – “Obama is a fascist!” or “you just want to see the economy fail”) is pointless and counterproductive. Let’s drop the nonsense implications that anyone who disagrees with your politics must want bad things to happen to the country.

You’ll notice that nowhere in my posts or comments have I accused any politician of acting out of a secret desire to intentionally destroy the economy. I’m operating on the assumption that they genuinely want what’s best for America, I just strongly disagree with their ideas of how to get out of this mess.

How about let’s start from the assumption that we all want what’s best for America? We obviously have disagreements on the best methods, but why don’t we discuss those methods instead of jumping into name-calling and tired political stereotypes?

[Addendum 2]
Thought I’d add this comment that I posted below.

Allow me to at least briefly explain why I think [Obama’s comment] is relevant [to real estate].

The comment that we must “spend our way out of this recession” to me is indicative of an overall strategy of spend, spend, spend by the administration that demonstrably includes moves such as the $8,000 tax credit, which is estimated to have cost $15.2 billion through November (compared to an original estimate of just $6.6 billion).

If the government’s plan is to “spend our way out,” who is to say we won’t see even more home buying incentives, spending more money we don’t have to entice people to spend money they don’t have on homes that are still overpriced?

The strategy of spending loads of borrowed government dollars in an attempt to get people and corporations back into their debt-fueled free-spending bubble habits is a dangerous one that is likely only to lead to further problems down the road, including a possible re-inflation of the housing bubble.

That’s why I think Obama’s statement is relevant for discussion here.

The post Spending our way out of a spending-induced problem. Huh? appeared first on Seattle Bubble.

If I tried to excerpt some of the post here, I probably wouldn’t do it justice. You should just go give it a read yourself, and see if afterward you still think that a 60% gain in the stock market means the economy is out of the storm.

To provide a little balance, here’s a more lighthearted take on the mess we’ve gotten ourselves into.

The post Economy: Back from the brink, or poised for a greater collapse? appeared first on Seattle Bubble.

From the real estate news source Inman News: Final push for tax credit

Real estate industry trade groups are mounting a final push for an extension of the first-time homebuyer tax credit, with Sen. Johnny Isakson planning to tie the issue to an extension of unemployment benefits.
…
In testimony before the Senate Banking Committee today, Isakson, R-Ga., said he plans to introduce an amendment to legislation extending unemployment benefits that would make the current $8,000 tax credit available until June 30.

Isakson’s amendment would raise the income limits for the credit to $150,000 for individuals and $300,000 for a couples. The existing tax credit can’t be claimed by individuals making more than $95,000 or couples with adjusted incomes of more than $170,000.
…
The estimated cost of his latest proposal would be $16.7 billion over five years, Isakson said, citing the Joint Committee on Taxation.

So apparently the latest plan is to pull a common DC trick and tack the bill onto something else that would be political suicide to vote against. This disgusting ploy usually works, and if they pull off adding it to the unemployment bill, it is almost guaranteed to be passed. Also, considering that the current credit is probably going to cost in excess of $15 billion versus an original estimate of $6.6 billion, it seems likely that if passed, this proposal would cost us another $30 billion or more that we don’t have.

Next up we have a different outlook on the credit, via Calculated Risk: Home Buyer Tax Credit DOA?

From Reuters: White House skeptical on renewing home buyers credit
…
And more from Reuters on the widespread fraud: IRS warned again of U.S. homebuyer credit fraud
…
From Diana Olick at CNBC: HUD Hints on Home Buyer Tax Credit . Olick reviews Donovan’s testimony and writes:

[T]hat sounded more like a “No” to me than a “Yes.”

And Rex Nutting at MarketWatch reviews many of the arguments against the tax credit: Kill the wasteful home-buyer tax credit

Note in the second story CR points out that the IRS “has opened 107,000 civil cases related to the credit.” If we go by the NAR estimate that around 1.9 million buyers “will take advantage of the $8,000 tax credit this year,” the 107,000 civil cases represent a potential fraud rate of over 5%. Who could have guessed that when the government starts handing out free money, people would race to game the system?

I apologize for the overload of posts recently regarding the $8,000 tax credit, but I feel strongly this is an important issue related to real estate. The tax credit is wasting money, harming potential buyers by hampering the natural correction of the market, and helping to push the rental vacancy rate higher, which causes further pain for local and regional banks. The government needs to stop trying to prop up a broken market and let home prices fully correct.

Here is the contact info for our senators. I encourage you to call or fax them and encourage them to vote against any form of extension, renewal, or expansion of this wasteful and counter-productive spending spree.

Patty Murray
Phone: 202.224.2621
Fax: 202.224.0238

Maria Cantwell
Phone: 202.224.3441
Fax: 202.228.0514

[This story was corrected on 10/20 at 11:00 AM to indicate that the 107,000 civil cases opened by the IRS represent potential fraud, not necessarily actual fraud.]

The post Extension to Fraud-Laced $8k Homebuyer Tax Credit to Piggy-Back on Unemployment Bill? appeared first on Seattle Bubble.

Despite what some of my readers in the real estate industry may think, I’m a generally upbeat, optimistic kind of guy. I like to believe that things will be better tomorrow than they are today; that American ingenuity and hard work can overcome any obstacle in our path.

That being said, it has been difficult recently to maintain a positive outlook on the future, and not just because of the inevitable mathematical conclusion of ever-increasing debt.

How is it even possible for so many people to be this disgustingly, colossally lazy?

Bear with me for a moment while I attempt to explain where I’m coming from here. Consider the photo at right. What you see pictured here is the shoe section of the Nordstrom Rack on Alderwood Parkway at about 8:30 last night. This is not the aftermath of some sort of blowout sale—it’s is just the end of the day on a regular weekday at this mid-range retail outlet (the shoes I looked at were priced $50-$100). Throughout the course of the day dozens and dozens of people pulled a shoe off the shelf, tried it on, and just left it on the ground.

If your average American is so colossally lazy that they won’t even expend the near-zero effort required to put the shoe back on the shelf where they found it, is it any surprise that so many people failed to read their mortgage documents before signing and are now honestly surprised that their teaser rate interest-only mortgage payment has skyrocketed? Is there any hope that these same Americans that are leaving messes like the one pictured at right in their wake every day will be able to pull together and clean up the mess created by twenty years of drunken economic partying?

Will Americans finally buckle down, stop spending more than they earn, give up on get rich quick pyramid schemes, and learn to live within their means on a sustainable path to long-term prosperity? So far I haven’t seen any evidence to suggest that this is in our future.

Consider the latest data from an annual home-buyer survey administered by Robert Shiller and Karl Case:

In our survey, we ask, “On average over the next 10 years, how much do you expect the value of your property to change each year?” The average answer among 311 respondents in 2009 was an increase of 11.2 percent. The median response — with half above, half below — was 5 percent, also high.
…
In our survey data from one year earlier, when prices were falling at an annual rate of nearly 20 percent, buyers were still expressing long-term optimism. Then, the average answer to the question about expected yearly increases in home values was 9.5 percent a year, with a median of 5 percent — high figures indeed for that time. The bubble thinking is not new.

Even with the biggest housing bust in pretty much anyone’s memory, people still think that buying a home will be a magical path to 10% yearly returns—no effort required. Unbelievable.

I truly hope that we can somehow escape this economic death spiral of ever-increasing debt, destroy the prevailing sense of entitlement, and return to a time when financial responsibility is admired and hard work is rewarded. I just have a hard time finding any evidence that we’re headed in that direction.

The post Desperately Searching for a Truly Positive Sign appeared first on Seattle Bubble.

Here’s the latest news on the status of a possible extension: Democrats May Extend Tax Credit for Homes

Democratic Congressional leaders are working with the White House to extend an expiring $8,000 tax credit for first-time home buyers, and aides said Wednesday that they were considering making it available to current homeowners who purchase a new residence.
…
The Democratic leaders met with the president to discuss a broad range of options to combat persistent high unemployment, officials say.
…
Keeping the home-buyers credit and broadening it has been a priority for real estate agents and the home builders lobbies, and for [Senator Harry] Reid, who faces a tough re-election race next year in a state [Nevada] that has been among the hardest hit by the housing crisis since mid-2007.

Okay first off, let’s drop the nonsense notion that somehow propping up home prices will “combat persistent high unemployment.” That’s a complete non sequitur. Now, before we really talk about extending the credit for another year, let’s have a look at its effectiveness and cost this year.

In February, when the “$787 billion” stimulus plan was passed into law, the CBO estimated that the $8,000 first-time homebuyer tax credit would cost around $6.6 billion (source, source). That would have been 825,000 first-time buyers claiming the $8,000 credit. As of September, the NAR is estimating that “1.8 to 2.0 million” first-time buyers will claim the credit, with a mere 350,000 of those being sales that “would not have taken place without the credit.” That would be a total cost of about $15.2 billion. Here’s a visual of those numbers:

To me, that looks like a program that has been pretty poor at actually “stimulating” people to do something, and pretty good at giving a nice fat $8,000 handout to people who were planning to buy a house anyway, at a cost well over double the original estimate.

However, apparently to organizations like NAR and NAHB, that looks like a rousing success story that should be both extended and expanded. According to Calculated Risk the NAHB is pushing to up the credit to $15,000, expand it to all homebuyers, and extend it another year. Because, you know, We The People can afford it, right? It’s not like the federal government is facing a massive budget deficit and a mind-blowingly enormous debt.

If we’re going to use the kind of anti-logic that NAR and NAHB are apparently high on, I like the plan that (ironically) was suggested by a Georgia Realtor: Let’s increase the tax credit to $100,000! Heck, why not make it permanent, and up it to $500,000, or even a cool $1 million? Apparently cost and effectiveness are not factors in this decision, we should just do whatever it takes to get those pesky homebuyers “off the fence,” right?

The constant argument that is raised in favor of extending the tax credit is that because home sales are a major driving force in our economy, stimulating the real estate market is a critical ingredient to economic recovery. Is it just me, or does that way looking at the problem seem obviously inherently flawed?

Allow me to explain by way of analogy. Let’s say I decide to quit my job as an engineer and instead get into a full-time Ponzi scheme that has me selling “business secrets” to an ever-growing pyramid of underlings, who themselves re-sell the “business secrets” to their own underlings, passing on a commission to me. Eventually the scheme collapses (as all Ponzi schemes inevitably do), and my income drops to zero. Now, I could go back and get a new engineering job again, but instead I decide to focus all my effort on figuring out ways to get people buying “business secrets” again so I can get my income back to where it was at the peak.

Sounds insane, right? Yet that is exactly what the government is attempting to do with the various “stimulus” plans directed at the real estate market.

Meanwhile, as Calculated Risk points out, “stimulating” people to move out of rentals and buy their own homes has some rather unpleasant unintended consequences:

And that means even more pressure on rents (rents are already falling). This is good news for renters, but this will also lead to more apartment defaults, higher default rates for apartment CMBS, and more losses for small and regional banks.

What I don’t understand is why aren’t major REITs that own rental units across the country (e.g. Equity Residential) lobbying congress just as hard as NAR and NAHB against extending the tax credit? You would think they would have a pretty strong interest in not defaulting on their loans due to too-low occupancy rates.

So basically what we’re looking at in the $8,000 tax credit is an inefficient, massively expensive, and quite probably economically damaging program. I can’t imagine why Congress hasn’t expanded it already.

The post $8k Tax Credit: Inefficient, Expensive, Economically Stupid appeared first on Seattle Bubble.

Here are a few transcribed excerpts.

Scarborough: “Are we out of the woods when it comes to toxic assets?”
Warren: “No.”
Scarborough: “How bad is it still?”
Warren: “…by and large, the toxic assets that brought us to this point are still on the books of the banks.”

Buchanan: “Are you saying that if they mark to market, and these assets were priced at what they’re really worth now, these banks would still be under water?”
Warren: “…once the folks changed the accounting rules… that means you can carry them on your books at a higher level than the market would treat them. And now the problem is the banks say: ‘In fact, why do I want to sell them? Because if I sell them, I can’t sell them at that value, I’m gonna have to sell them down at the lower market value. That means I have to recognize the loss.’ Recognize enough losses, and some of them are going to be gone.

Buchanan: “If all these banks, or an awful lot of these great big banks are under water if you price their assets what they’re worth, you could have a second big hit here, couldn’t you?”
Warren: “You could have real trouble.”

Warren: “If the idea behind rebuilding the economy is: ‘let’s use a lot of the bad practices we’ve used over the last five years, and see if maybe we get a little bubble going…’ I have to say, much of what is wrong and needs to be fixed is not rocket science.”

The blunt truth is that the policies that have been enacted in response to this financial crisis to date are nothing more than “extend and pretend,” where we hope that the banks can just fake it until the economy somehow magically rebounds.

The post Elizabeth Warren: We’re Not out of the Woods appeared first on Seattle Bubble.

One thing you don’t hear many people talking about with these “successful” programs is where are all these buyers coming from?

The people buying cars and houses because of these programs are almost certainly not individuals that were previously not in the market for a new house or car to begin with. Neither the $8,000 first-time homebuyer tax credit nor the $3,500-$4,500 would make any sense as a strictly financial proposition for someone who was not previously interested in buying.

As we have discussed on these pages before, an $8,000 credit is barely over 2% of the price of the median King County home. The chance that comparable homes will be more than 2% cheaper next year is extremely high at this point, meaning it is a better value proposition for the first-time buyer to wait for prices to fall on their own much more than the piddly $8,000 of your money the government is offering to give back to you.

As far as $4,500 toward a new car goes, most people buying into this program would probably save far more money by either buying a 2 or 3-year-old car or simply keeping their so-called “clunker.” This is especially true in light of the reports of widespread dealer mark-ups of cars since this program began, in amounts that are suspiciously close to the “CARS” rebate amount (e.g. – a car that was being offered for $20,000 three weeks ago now has a sticker price of $24,500).

So if they’re not being pulled completely off the sidelines into the new car and new home markets by these tax giveaways, where are the people taking advantage of these programs coming from?

My theory: All the government is succeeding in doing with these programs is to borrow even more demand from the future.

This is exactly what caused real estate demand (i.e. sales) to spike so high during the heyday of the real estate bubble: low interest rates and lending with fog-a-mirror standards drew buyers out of the woodwork—buyers that otherwise would have waited a few years until they were in a better financial position to take on the responsibility of a massive mortgage.

The same thing happened with demand for cars. People were withdrawing equity from their homes at never-before-seen levels and spending it on cars, TVs, and vacations. Dealers were offering 0% here and no-payments-for-36-months there, driving people who would have otherwise made do with their perfectly good car to trade it in for a brand new ride that they didn’t really need.

Today’s sagging demand for houses and cars is merely the demand debt from the boom years being paid back. Of course, debt repayment is never enjoyable, and big daddy government seems hell-bent on doing whatever it takes to prevent individuals, corporations, and the government itself from having to feel the inevitable pain.

So what do we do? We create nonsense tax credit programs to borrow even more demand from the future, compacting thousands of sales that would have taken place spread out over the next year or two into just a couple of weeks or months.

Does anyone truly believe that this path is sustainable, or are our politicians merely attempting to delay the real fallout of this mess until they have secured their own personal fortunes and pushed through their pet projects and agendas?

We cannot keep borrowing demand (or money) from the future forever. Eventually the bill comes due.

The post Tax Giveaways Succeed in Borrowing More Demand from the Future appeared first on Seattle Bubble.

Here’s a look at the table of contents:

• Overview of the Great Mortgage Bubble
• Causes of the Great Mortgage Bubble
• Consequences of the Bursting of the Great Mortgage Bubble
• The Outlook for Home Prices is Grim
• Economic Weakness Creates an Additional Headwind for Home Prices
• There Are Only a Few Bits of Good News
• What Does the Future Hold?
• A Primer on Option ARMs
• A Primer on HELOCs and Closed-End Seconds
• A Closer Look at Mortgage Loans That Were Securitized: Quantity and Quality
• A Closer Look at Mortgage Loans That Were Securitized: Defaults
• Where Did the Securitized Mortgages End Up? A Primer on ABSs and CDOs
• The Opportunity in Distressed Debt

All in all it’s a great paper that I recommend for anyone that is still confused about how we ended up here and why this was never a “normal housing cycle.”

The post An Overview of the Housing/Credit Crisis appeared first on Seattle Bubble.

The Great Reset

A recent New York Times headline read:

“Consumers Increase Savings While Spending Less”

That sounds like a GOOD thing doesn’t it?

It used to be that savings and thrift were basic, core, American values. Check out Tom Brokaw’s the Greatest Generation if you can’t remember a time when Americans valued thrift and savings. The media is so focused on “reviving” the economy that it is now seen as a negative sign when saving increases and spending declines. I know the economy as we have known it over the last 10-20 years depended on consumer spending, but the problem was THAT WAS MONEY WE DID NOT HAVE!

Part of the problem is that we are still viewing this as a recession. Hopefully this is not a recession. Hopefully this is the GREAT RESET.

The word recession implies that it is a temporary decline and that things will return to “normal.” If we define normal as the last 10-20 years, “reviving” that version of the economy would be the definition of insanity (doing the same thing and expecting a different result). That version of of the economy was not REAL. That version was on the wicked, performance-enhancing drug LEVERAGE. That version was not sustainable.
…
Now in real life this GREAT RESET is a very painful process, but to ignore the reality won’t help. We can’t go back to the levered up version because it is not REAL. As Thomas Friedman said recently, “…there is no easy escape here, except taking our medicine, getting our fundamentals right again and working our way out of this, brick by brick…”

Carl hits the nail on the head.

Over the last few decades, we have constructed a sham economy that was not sustainable.

When the pyramid scheme failed (as all such schemes are destined to do eventually), rather than the healthy response of “whoops that was stupid, now let’s rebuild a sustainable, sound economy,” we’re hearing nonsense like “we need to prop up housing prices” and “we need to spur more consumer spending.”

Let’s put a stop to the delusion that things can just magically go back to the way they were when everybody (individuals and corporations alike) was hopped up on leverage. It’s not going to happen, nor should it.

Falling home prices and consumer spending are the necessary medicine that must be taken to return to a fundamentally sound and sustainable economy.

The post Declines in Home Prices & Consumer Spending are GOOD THINGS appeared first on Seattle Bubble.

Brad Wong, Seattle P-I: Tough economy forces cutbacks for area residents

The economic shocks to the nation’s banks, stock markets, credit industry and real estate business have forced Seattle-area residents to review their finances and save what they can.

Thoughts about how to pay for bills — from mortgages and rent to higher food and gas prices — have consumed area residents fearful their quality of life could diminish.

As residents — including those not in immediate dire straits — hatch new plans to weather the turmoil, even young people said they are learning how quickly national problems can affect daily life.

Donna Gordon Blankinship, AP: WA people worried but not desperate about economy

People worried about the economy are more likely to seek help paying their bills or feeding their families than turning to suicide or violence as one man did in Los Angeles this week, mental health experts in Washington state said Tuesday.

“I don’t think the average response to the downturn in the economy is more people thinking of suicide because they can’t pay their bills,” said Kathleen Southwick, executive director of the Crisis Clinic in Seattle.

Southwick said her nonprofit agency’s 24-hour crisis line has not seen an increase in calls these past few weeks, but the “211” non-emergency line has seen about a 50 percent increase in the number of people calling to find out where they can get help paying the rent and keeping the lights on.
…
The last time the help line saw such a sharp increase in calls was a few years ago “when the tech bubble burst,” Southwick said.

So much for the theory that we’re better prepared to weather the storm than we were when the dot-com bubble popped. Who could have guessed that seven years of pretending everything is fine and that we’re magically immune wouldn’t be enough to stop economic calamity from arriving in Washington State?

The post Seattle Economy Maybe Not So Isolated After All appeared first on Seattle Bubble.

That took less than 4 months, for those of you keeping score at home. Also note the July 13 follow-up, in which only 30% guessed incorrectly.

I just thought I’d point this out to those that are accusing this site of being “too negative” or all “doom and gloom” lately. Unfortunately, negative news is the reality these days. Better to face it head on than close our eyes, plug our ears, and pretend everything in the short term will just magically work out great.

The post Poll Update: Dow Drops Below 10,000 appeared first on Seattle Bubble.

…the national slowdown is finally hitting the Puget Sound region, slowing job creation as well as pressuring would-be home-sellers, the construction industry and credit-strapped homeowners.

As recently as last year, employment growth here was more than twice the national average, according to Dick Conway, a Seattle economist and co-publisher of the Puget Sound Economic Forecaster. Now, he forecasts it will decelerate from a peak of 3.2 percent in the first quarter of 2007 to less than 2 percent this year. On a quarter-to-quarter basis, job creation could be essentially flat, something backed up by recent state job numbers.

It’s nice to read a somewhat realistic article once in a while, instead of constantly being fed the feel-good fluff stories about how special and different we are in Seattle.

What are the chances of a state like Washington… avoiding a recession?

…the economic model of Pacific Northwest economies maintained by Jeremy Piger, associate professor of economics at the University of Oregon, showed a 99.4 percent chance of recession for Washington in its latest reading. The model is based on data from the Federal Reserve Bank of Philadelphia.

So you’re telling me there’s a chance… Yeah!

My one problem is that Talton quotes Dick Conway as some sort of expert on the local economy and housing.

“The picture did change substantially with housing,” Conway said. “Ours held up pretty well for a while. We’ve finally succumbed.” Price appreciation has stalled and inventory is swelling as potential buyers try to time the bottom of the already favorable market.
…
Conway compares today’s climate to 2001’s and uses the term “rubber-band effect.” The faster you drop into recession, the faster you bounce out. This has been a slow slide. He said the Puget Sound region may touch bottom in the next few months and begin growing again.

I’m not sure why he would be quoting Dick Conway as any sort of expert, considering how off base he has been with his 2008 real estate predictions so far this year.

Conway anticipates average Puget Sound-region home prices will decline less than 1 percent next year, and sales will be down about 5 percent, before rebounding in 2008.

Let’s see… According to NWMLS July data, “Puget Sound-region” (King, Pierce, Snohomish, Kitsap, & Thurston Counties) average prices are already down nearly 5 percent, while sales are down over 35 percent. Even if you just look at King/Pierce/Snohomish, prices are down over 3 percent and sales have dropped 37 percent.

The bottom line seems to be that the local economy is not bulletproof, despite what the papers and real estate agents have been saying for the last few years.

(Jon Talton, Seattle Times, 08.26.2008)

The post Local Economy in for a “Long Slog” appeared first on Seattle Bubble.

Well, it didn’t take long for Washington to catch up with the nation.

Unemployment in Washington state last month jumped to its highest level in 3 1/2 years, as job seekers surged into an economy that is having trouble generating enough new jobs for them.

The state jobless rate was 5.7 percent in July, up from a revised 5.4 percent in June (it was originally reported at 5.5 percent), according to figures released today. Washington now has the same jobless rate as the United States as a whole, after 13 straight months of outperforming the nation.

The state’s economy gained 3,300 payroll jobs in July, after losing a downward-revised 1,800 jobs in June. July was the fifth straight month of little to no change in the nonfarm payroll figures, suggesting that Washington’s jobs engine is stuck in first gear.
…
In the Seattle metro area, the unemployment rate rose to 4.3 percent last month from 3.9 percent. About 8,500 people reported entering the labor force in July, but only 1,800 of them found work right away.

When/if our unemployment rate reaches 5 or 6 percent, I wonder if local real estate agents will still be extolling the virtues of our “strong employment” that “holds up the local housing market?” Or maybe they will start to realize that the strong housing market has been at least partly responsible for holding up the area’s strong employment.

(Drew DeSilver, Seattle Times, 08.12.2008)

Update: Here’s a more in-depth article from Drew DeSilver in today’s Times.

The post Local Unemployment On the Rise (Wait, Still?) appeared first on Seattle Bubble.

Here’s another take on the weekend news:

Now here’s the problem – while Fannie and Freddie are claimed to be all 80/20 full-doc loans this is in fact a lie.

In fact, a huge percentage of the loans they took on or guaranteed in the last five years were packed with fraud or serious deficiencies in underwriting in some form, whether it be appraisal fraud, claimed income fraud, LTVs as high as 100%, or all three!

So how bad could this get?

Very bad.
…
In reality I believe that Fannie and Freddie could suffer as much as $900 billion in losses as this all plays out. This assumes that 10% of their portfolio turns out to be essentially worthless and 20% is impaired by at least 10%, with the rest being 100% “money good.”

Frankly, I think that’s a bit optimistic…
…
See, there are reportedly 75 (or more) banks on the “troubled” list. The FDIC doesn’t publish that list. Gee, I wonder why, especially after Friday, when IndyMac went under.

Not that this should have been a surprise to anyone, given that it was trading at well under a buck for about a week. Do ‘ya think that’s a good stock price?

No, the real 900lb Gorilla is that IndyMac was not on the FDIC’s “troubled bank list”!

So here’s a thread to talk about the banks. Was the IndyMac failure the worst of it, or have we just seen the tip of the iceberg?

P.S. (RE: the title of the post – original comment (#10) / ongoing conversation / Sorry Ardell, I just couldn’t resist.)

The post Who gives a RA about the banks, anyway? appeared first on Seattle Bubble.

[Addition from The Tim]
As noted in the forums, local construction equipment manufacturer Genie Industries is also laying off “120 full-time workers and an undisclosed number of temporary workers.” The P-I has the story.

Genie employs roughly 3,000 people, making it the second-largest employer in Redmond. For what it’s worth, it is also where I worked until January (when I left of my own volition).

The post Local employer Intermec announces 180 to lose jobs. appeared first on Seattle Bubble.

Unemployment in Washington state took its biggest jump in nearly 28 years last month, as employers cut payroll jobs for the third straight month.

The unemployment rate rose to 5.3 percent in May from 4.7 percent in April, after adjusting for seasonal variations, according to the state Employment Security Department. In the Seattle metro area, unemployment leapt seven-tenths of a percentage point last month, to 4.1 percent.
…
“This report may skewer the notion that Washington is immune to the downturn,” said Bill Conerly, an economist and business consultant in Portland. “The state has done better than the nation for a number of reasons, but immune — no.”

Dang. I guess everybody must have ignored Gregoire’s advice and bought into the self-fulfilling dire talk. We should have tried to believe harder.

The P-I also has a story on the spike.

The primary reason for the job numbers is the housing slowdown, which has turned the booming industry of construction into a lagging one and spills into other areas of the economy. Year-over-year construction employment fell in May, particularly in the residential sector. Financial services jobs are also taking a hit.

It sounds like they’re saying that the argument that a strong economy will prop up the housing market is backward, and in fact the housing market was propping up the economy. I believe that we have been warning of that since 2006:

So here’s my thesis: Jobs (at least partly) drive housing. The job situation in Washington (and the Seattle area) has been doing pretty well lately. However, a large amount of the job growth has been in housing-related industry. Therefore, when housing slows due to other forces (such as increasing interest rates or higher lending standards), the job market will slow, thus causing housing to slow further.

That sounds like exactly what’s happening right now. And before someone breaks out the “stopped clock” nonsense, note that in 2006 we didn’t say “the slowdown will happen this year,” we just warned that the economy was propped up on housing, and when housing slowed down, the economy would too.

As an added bonus, here’s one more local take on the spike.

Major cutbacks in the building industry in Snohomish County are blamed for a sharp increase in unemployment in May, the state Employment Security Department reported Tuesday.

Local unemployment increased from 3.6 percent in April to 4.6 percent last month.

“We dodged a bullet for quite a while,” said Donna Thompson, a regional labor economist with the department. “But unfortunately, it’s catching up with us.”

Thompson was talking about the national housing crisis.

Thompson said the local construction industry is doing poorly because of the slowdown in home sales. “There are a high number of homes that haven’t sold and are still in the market,” she said, noting that those homes need to be cleared out before builders can start on new ones.

Last month, the county lost 300 construction jobs. During the past year, it’s lost 3,300. “Construction workers are losing their jobs and it’s really having an effect,” Thompson said.

It sucks, but it’s not like we can say it comes as a surprise.

(Drew DeSilver, Seattle Times, 06.18.2008)
(Andrew James, Seattle P-I, 06.17.2008)
(Tim Ellis, Seattle Bubble, 05.17.2006)
(Mike Benbow, Everett Herald, 06.18.2008)

The post Housing Slowdown Begins to Trash Local Economy appeared first on Seattle Bubble.

More than 3,000 jobs were lost in Washington last month, pushing the unemployment rate to 4.9 percent, up from a near record low of 4.5 percent in February, the Employment Security Department said Tuesday.

The change is statistically significant, because it lies outside of the margin of error, the state’s chief economist, Evelina Tainer, said.
…
Half of the jobs lost, or about 1,500, were in the Seattle region, she said. That makes sense because the Seattle region accounts for about half of the jobs in Washington.
…
The leisure and hospitality sector lost 1,200 jobs. Transportation, warehousing and utilities jobs declined by 700, and construction lost 500.

“We were surprised at the strength of construction in most of 2007,” Tainer said. “We are now starting to see a consistent drop.”

I don’t think that a consistent drop in construction employment should come as a surprise to anyone.

Here’s some additional commentary from the Times’ story:

…nonfarm employers shed 3,200 payroll jobs in March, the first monthly decline since September 2007; most economic sectors posted declines. And the 3,500-job gain for February that was reported last month was revised down to a more modest 1,300-job increase.

All in all, the March jobs report showed Washington’s jobs engine downshifting into first gear. But Employment Security economist Evelina Tainer said she didn’t think the state was necessarily heading into reverse.

“I think we’re going to see a few months where things are very sluggish, but I’m still not convinced we’re due for a recession in the state,” Tainer said.

Let’s not forget that official state policy appears to be “close your eyes, plug your ears, and wish your problems away,” as laid out from the top by Christine Gregoire.

(Andrea James, Seattle P-I, 04.15.2008)
(Drew DeSilver, Seattle Times, 04.15.2008)

The post State Economy Continues to Slow appeared first on Seattle Bubble.

I guess this is a surprising discovery for some people—something that is considered big news. Here are some choice excerpts from the article:

“If things get really bad, we’ll have all sorts of problems,” said Dick Startz, an economics professor at the University of Washington, who thinks a recession is still unlikely.

Michael Parks, publisher of Marple’s Pacific Northwest Letter and the dean of regional economy watchers, said, “We’re obviously not immune to what’s happening in the national and global economy. We [the nation] came awfully close to systemic failure over the weekend” of the Bear Stearns debacle.

And these are the optimists.
…
WaMu’s troubles endanger a major corporate headquarters, meaning a potential loss of large numbers of well-paid jobs and local giving. And that’s what Wall Street would consider a good outcome — a buyout, which looks unlikely. Otherwise, WaMu will be left to work out its troubles, leaving the area without the economic boost from the institution’s growth years. And if history is a guide, it will still be acquired at the end of the process.

WaMu won’t be the only part of the local backbone to suffer if the recession is prolonged.

Boeing, already stunned by the loss of the Air Force tanker program, could begin to pay a serious financial price for delays in the 787, undercutting its best selling point as fuel-efficient.

Cuts in consumer spending also could damage such leading companies as Microsoft, Amazon and Starbucks.

These companies are responsible for vast wealth creation, through everything from payrolls and the returns for their many local shareholders to their contracts with local vendors.

A continuing credit crunch will reach Washington businesses and could even influence venture capital, a key component of Seattle’s innovation machine.

All these “what ifs” might have seemed alarmist even two months ago. Not now.

Of course none of this really comes as much of a surprise to anyone that has been really paying attention to this irresponsible run-up over the last few years. Smart people like Peter Schiff and Bill Fleckenstein have seen all this coming miles away. Here’s a quote from Peter Schiff in August 2006:

The United States economy is like the Titanic and I am here with the lifeboat trying to get people to leave the ship …I see a real financial crisis coming for the United States.

Some people seem to want to draw some sort of distinction between the impending recession and the housing bubble. That is nonsense. The housing bubble is a direct result of the credit bubble. All sorts of insane risks were taken, loans for hundreds of thousands of dollars were given to people simply because they asked, and now the consequences are finally catching up with us.

Those that say “Seattle didn’t have a housing bubble,” apparently think that the rapid, reckless expansion of credit and all the temporary benefits that came from it did not have any positive effect on Seattle’s real estate market or general economy, and therefore the inevitable retraction will have little to no negative effect here. Again, that is nonsense.

What began as the pricking of a housing bubble has spread over the past seven months into most parts of the economy. Even solid companies and municipalities have had trouble getting loans or selling bonds. The complexity of many financial instruments and the interrelationships among banks have made it difficult to root out the bad bets and keep them from contaminating the system.

The housing bust presents perhaps the most serious obstacle to recovery, according to Douglas Cliggott, chief investment officer for Dover Management. “It’s hard to have an interest rate that makes it attractive to buy an asset that’s going down,” he said.

Indeed. Amazingly, these economic realities hold true everywhere, even here in Seattle.

(Jon Talton, Seattle Times, 03.23.2008)

The post Seattle Clearly At Risk in Credit Retraction appeared first on Seattle Bubble.

Washington continued to defy the multiple drags on the U.S. economy in February, as state payrolls added 3,500 jobs and the unemployment rate held steady at 4.5 percent.

“We’re really different from the national economy at this point,” said Evelina Tainer, the state’s chief labor economist.

Few sectors illustrate that difference better than construction. Overall, the nation has lost 222,100 construction jobs over the past 12 months, as the collapsed boom in housing idled thousands of carpenters, roofers and drywallers.

But in Washington, construction continued to add jobs — 400 last month, and 1,600 since February 2007. Weakness in residential construction has been outweighed by robust nonresidential construction activity — office buildings, malls, factories and the like.

Much of the growth in construction jobs last month occurred in Eastern Washington, Tainer said. Two large projects, the nuclear-waste vitrification facility at Hanford and the expansion of a polysilicon plant near Moses Lake, together are employing hundreds of workers.
…
Job growth in Washington has been decelerating for several months; the average growth rate in 2007 was 2.5 percent. In the four-county Puget Sound region, year-over-year job growth in February was 2.1 percent, down from an average 2.8 percent last year.

Still, said Tainer, “Slow good news is better than bad news.”

Indeed. I don’t wish for our state to start shedding jobs, but it should be noted that despite the common myth to the contrary, overall job growth has little to no relation to home price increases or decreases.

We’ve covered this subject pretty thoroughly here before, and a present-day example can be seen down in San Diego, where employment is still growing (slowly), but prices are down nearly 20% from their peak as of December. Granted, if a local economy is in bad shape, it can definitely be reflected in an exceedingly crappy housing market (see Detroit), but the converse is clearly not always true.

(Drew DeSilver, Seattle Times, 03.19.2008)

The post Washington Job Market Still Growing Slowly appeared first on Seattle Bubble.

With a cooling economy pinching tax revenue even as government costs rise, King County faces a $45 million budget deficit in 2009 unless services are cut below current levels, county officials said Tuesday.

That projection is gloomier than the $25 million general fund shortfall for 2009 forecast by County Executive Ron Sims in October. And the years beyond 2009 look worse still, county Budget Director Bob Cowan said.
…
The general fund relies primarily on sales and property taxes. The recent rapid growth in sales tax revenue is slowing with the economy. Property tax growth also is faltering: Although overall tax increases on existing property are capped at 1 percent in any event, new construction is exempt from that limit, and the housing slowdown has put a crimp in that revenue source, Cowan said.

So much for our special immunity. But as long as Microsoft and Boeing keep hiring, everything will work out, right?

How about instead of sticking our heads in the sand and pretending everything will just be okay, we get in gear and start looking for ways to work through the hard times that are almost certain to be just around the corner?

Along those lines, I received an email from a reader that wanted to discuss “where people should spend their tax rebate checks in a way that will truly benefit our economy.” Personally I think the problems with our economy are beyond the point where putting a few thousand dollars in everybody’s pocket is going to help things. I’d suggest using the money to pay off a little debt, do a little contrarian investing, or just plain save it… pretty much anything but spending it.

Anyway, how do you think individuals, families, and local governments can best prepare for a serious economic slowdown?

(Gregory Roberts, Seattle P-I, 03.11.2008)

The post Strong Local Economy Faltering, County Facing Large Deficit appeared first on Seattle Bubble.

Boeing:

• Loses out on $40 billion Air Force tanker contract

Microsoft:

• Facing class-action lawsuit for Vista hardware requirements
• Cutting boxed Vista prices (possibly due to disappointing sales?)
• Still trying to buy Yahoo!

Not exactly a heaping helping of good times for the area’s two flagship employers, frequently touted as having the fortitude to maintain the local housing market entirely under their own economic power.

What are your thoughts about how Boeing and Microsoft are doing, and what effect it will have on people buying and selling houses?

The post Boeing & Microsoft Holding Up the Market? appeared first on Seattle Bubble.

Washington CEO: Is Seattle facing a recession?

Technically, no – Seattle isn’t likely to experience actual economic contraction in 2008. But with inflation rising and economic growth slowing, it may feel recession-like in the next couple of months for many in Washington’s business and population center.

First the good news: King County should continue to experience job growth. Boeing and Microsoft both have been expanding, and their most recent quarterly reports indicate this should continue, at least in the near term.
…
Now the bad news: Slower economic growth rates may not keep pace with inflation.

Consumer prices increased 4.6 percent in the Seattle-Tacoma-Bremerton metro area last year. That’s higher than the CPI increase for United States as a whole, which was 4.1 percent.
…
If your paycheck, or sales revenue, isn’t growing that fast, it’s still going to feel like a recession, even if the numbers show slight growth. And make no mistake, while the economy continues to grow, that growth is much slower.

I would be interested to hear a real estate agent’s explanation for how home prices in our area will continue to go up, despite increasingly tight household budgets, still-tightening lending standards, and the death of the “buy now because the market is red hot” mentality. As economic growth slows to below the rate of inflation, I think the top-end scenario for home prices would be that they remain flat. More likely I think that even if Seattle only experiences a “growth recession,” we’re likely to see prices declining at least moderately.

Seattle Times: No equal-opportunity recession

It’s difficult to believe the housing meltdown won’t at least singe Seattle. You can see some of the ashes already in the difficulties at Washington Mutual. Yet the region is in a stronger position than most.

That doesn’t guarantee a downturn won’t be contagious. Anything connected to the housing slump is vulnerable, and a deep trough could cause wider damage. But global demand for Washington products, such as airplanes, software and grain, and strong population growth remain advantages.

The more intriguing question is what happens during and after the downturn. Recessions are transformative events, no less for cities and states than for individuals and companies. They wring out imbalances and create winners and losers, sometimes unpredictably.
…
Seattle’s biggest exposure to a downturn may be complacency. Economic memories can be short amid so much prosperity. But it took years for the region to recover from the 2001 tech bust, a mild recession by national measures.

Like others, I question whether we can count on continued strong demand for airplanes and software in the midst of a recession. In fact, it would seem that many of the major products produced by Seattle fall into the “expendable” category when push comes to shove: airplanes, software, online shopping, gourmet coffee…

In the last recession, Seattle was hit harder than many other places. Don’t take my word for it, read this 2002 Seattle Times piece for yourself. Has the economic layout of our area changed in some significant way that will cause the opposite to be true this time around?

(Bryan Corliss, Washington CEO, 02.11.2008)
(Jon Talton, Seattle Times, 02.10.2008)

The post Will Seattle avoid recession, or feel the brunt? appeared first on Seattle Bubble.

Gov. Chris Gregoire, at a Seattle economic forum Thursday, boasted she has found that Washington is “literally the envy of other states.”

“I ask all of us to make sure that we do not buy into, or even for that matter, listen to, the dire talk internationally and nationally, because it can become a self-fulfilling prophecy for us,” Gregoire said. “We must be optimistic. We must understand our economy is strong and growth is going to continue to be the future.”

The news, however, hasn’t been rosy for some local employers.

Eddie Bauer has cut 123 positions, including 76 at its Bellevue headquarters. Macy’s said Wednesday that it would cut 750 office workers from its Northwest headquarters in downtown Seattle. Wilcox Family Farms in Roy said it was cutting 130 jobs, while other employers in the Seattle area have made smaller job reductions.

And Seattle-based Starbucks, while not having layoffs, is reducing the number of store openings in the U.S. and is shuttering 100 underperforming stores as consumers are cutting back.

“Everything is slowing down on the back of the national economy slowing down,” said Andrew Gledhill, an economist for Moody’s economy.com, an analysis firm outside Philadelphia. “But it’s not all doom and gloom. Everything in Washington is slowing, but you have to put it in perspective. It’s not like other states like California, Nevada or Arizona.”

And just think, even when things do start to get undeniably bad, we’ll always be able to point to Michigan and Ohio and say “well, at least things here aren’t that bad!”

It seems to me that talk like Mrs. Gregoire’s “it won’t happen as long as we believe hard enough” speech is really counter-productive. Shouldn’t we be planning on the inevitable, and figuring out what we’re going to do to get through it the best we can? Instead of wishing on a star that the housing mess and resulting recession won’t ever hit us in the Evergreen State, why don’t we talk about things like ways businesses can scale back operations without laying people off, or helping people shape their family budget such that they can save up some money so they’re not totally screwed if they lose their job.

If we keep saying “it won’t happen here,” when it does we’ll all be unprepared and it will hurt even worse.

(Craig Harris & Andrea James, Seattle P-I, 02.08.2008)

Update: Are we really “literally the envy of other states”? A commenter below links to an an excellent article at The Economist titled The Geography of Recession. This map is included in the story:

Judge for yourself whether Washington is at the top of the heap.

The post Gregoire: Don’t buy into the self-fulfilling dire talk. appeared first on Seattle Bubble.

A slump in the housing market and low lumber prices have resulted in shutdowns at 18 sawmills in the Pacific Northwest, industry experts say.
…
All told, [Analyst Claudia Shank Hueston of JP Morgan] said, 18 mills in the region are being shut down for varying periods, including indefinite closures of Hampton Lumber operations in Morton and Willamina, Ore., Seneca in Eugene, Ore., and Rosboro Lumber in Vaughn, Ore.

With homebuilding drastically reduced, lumber prices fell to $238 per 1,000 board feet at the start of the month, 15.6 percent lower than a year ago, according to the trade publication Random Lengths.

Obviously it would take a while for lower material costs to be reflected in completed construction, but if material costs are dropping 15 percent per year, doesn’t it follow that the price of new construction homes will soon be dropping as well?

(Associated Press, Seattle P-I, 02.05.2008)

The post Falling Lumber Prices Shutting Local Sawmills appeared first on Seattle Bubble.

Gov. Chris Gregoire told about 400 Washington Realtors on Thursday that she has been working to meet goals the group has for transportation, affordable housing, education and quality of life.

Gregoire, who spoke a day after Republican gubernatorial challenger Dino Rossi went before the group, cited a report in Fortune magazine and said the state is a good place to do business. She also offered encouragement for an industry slowed amid recession fears.
…
“The only thing we have to fear is fear itself,” Gregoire said, quoting former President Franklin Roosevelt and referring to national recession fears. “It is a very frustrating time, I know, for you, and it is for me. … I’m struggling to get the message out to Washingtonians. The economy is strong. Buy your home.”

From the Associated Press account of the same meeting:

Addressing the politically powerful Washington Realtors, the Democratic governor said she sometimes wishes people wouldn’t watch the evening news because of all the “doomsday” talk of a home mortgage meltdown and a pending recession.

Gregoire said that in actuality, the state economy has seldom been so strong, with record low unemployment, 222,000 new jobs created in the past three years, and national publications praising the business climate here.

She conceded that the national news is having a psychological effect on home buyers, even though there are relatively few mortgage failures here.

“This is a very frustrating time,” the governor said, adding “Our economy is strong — buy your home. … There is no good reason for a slowing of home purchasing in the state of Washington today.”

Now why do you suppose Mrs. Gregoire would promoting the idea that Washington State residents go out there and throw caution to the wind, ignore the warning signs of declining prices, and jump into that real estate market right now? Obviously one likely reason is the usual pandering of politicians telling people what they want to hear. In this case, the people in question are a room full of “professionals” whose income depends on suckers consumers continuing to buy homes all the way down the declining price slope.

I think there may be another reason though. I think Mrs. Gregoire may really be on the Realtors’ side here, not just talking the talk. Here’s a story that appeared in yesterday’s P-I… (emphasis mine)

Gov. Chris Gregoire and leading Democrats in the House and Senate have reached one early agreement in this year’s budget negotiations: It’s time for a reality check.

Anticipating a bleak revenue forecast, they’ve agreed to start looking for places to trim the $33 billion budget they passed last year. They say they want to have their priorities in order in case the slowing economy forces them to find efficiencies or even cut programs altogether.
…
Gone are the halcyon days of a skyrocketing real estate market and a ballooning economy that had led to back-to-back-to-back upward adjustments in the state’s revenue forecasts.

And gone is the free and easy feeling about spending, the unflinching commitment to “targeted investments” that Democrats have enjoyed for the past three years.
…
Gregoire already has called for frugality this election year and has asked lawmakers to adopt her budget that leaves $1.2 billion unspent.

But her budget also calls for $244 million worth of new spending.

Is it really any surprise that Mrs. Gregoire, who has overseen a 33 percent increase in state spending since taking office (source), would want people to ignore the “doomsday talk” and just buy, buy, buy? What do you suppose has enabled spending to increase by so much? Could it perhaps have been the high-flying home prices and red-hot pace of home sales in 2004-2006 (every one of which puts more money into the state coffers)?

And now Mrs. Gregoire wants us to ignore reality so she and her pals can fund their pet projects. Yeah, that sounds like a great reason to keep this bubble alive. Who’s with me?

(Brad Shannon, The Olympian, 01.25.2008)
(David Ammons, Associated Press, 01.25.2008)
(Chris McGann, Seattle P-I, 01.28.2008)

The post Gregoire: “The economy is strong. Buy your home.” appeared first on Seattle Bubble.

The home has long been the bedrock asset of most American families. Now, its value has become the biggest question mark hanging over the global economy and financial system.

Over the past decade, Wall Street built a market for more than $2 trillion in securities sold globally and backed by loans to U.S. homeowners on two long-accepted beliefs and one newer one. The prevailing logic: The value of the American home would never fall nationwide, and people would almost always make their mortgage payments. The more recent twist: Packaging mortgage loans and turning them into securities would make the global economy more resilient if anything went wrong.

In a matter of months, though, much of the promise of the new financial architecture — together with its underlying assumptions — has proven to be a mirage. As house prices fall and homeowners default on mortgages at troubling rates, the pain has spread far and wide. An examination of the resulting crisis shows that it is comparable to some of the biggest financial disasters of the past half-century.

It’s not specifically related to Seattle, except for this bit:

Ken Guy, finance director of King County, Wash., says the county’s investment pool bought short-term IOUs called commercial paper backed by several SIVs because they appeared to be low risk. “We relied heavily on the ratings agencies,” he says. About 10% of his $4.8 billion fund was invested in such paper. When the mortgage-backed assets held by the SIVs suddenly started going bad, some of his investments were downgraded all the way to “default.”

“How could this have happened so quickly?” Mr. Guy wondered with colleagues. “How could these be downgraded from top to bottom in a day or two?” Such questions have been raised repeatedly.

Whoops. So much for the new new economy.

(Greg Ip, Mark Whitehouse, & Aaron Lucchetti, Wall Street Journal, 12.10.2007)

The post WSJ: Mortgage Crisis Rivals S&L Meltdown appeared first on Seattle Bubble.

I guess you could look at the flying party as being either the national (or worldwide?) economy, or more specifically the Seattle real estate market. Either one could work (if your mind is as twisted as mine is, anyway).

The longest and most destructive party ever held is now into its fourth generation, and still no one shows any signs of leaving. Somebody did once look at his watch, but that was eleven years ago, and there has been no follow-up.

The mess is extraordinary, and has to be seen to be believed, but if you don’t have any particular need to believe it, then don’t go and look, because you won’t enjoy it.
…
One of the problems, and it’s one which is obviously going to get worse, is that all the people at the party are either the children or the grandchildren or the great-grandchildren of the people who wouldn’t leave in the first place, and because of all the business about selective breeding and regressive genes and so on, it means that all the people now at the party are either absolutely fanatical partygoers, or gibbering idiots, or, more and more frequently, both.

Either way, it means that, genetically speaking, each succeeding generation is now less likely to leave than the preceding one.

So other factors come into operation, like when the drink is going to run out.

Now, because of certain things which have happened which seemed like a good idea at the time (and one of the problems with a party which never stops is that all the things which only seem like a good idea at parties continue to seem like good ideas), that point seems still to be a long way off.

One of the things which seemed like a good idea at the time was that the party should fly — not in the normal sense that parties are meant to fly, but literally.

One night, long ago, a band of drunken astro-engineers of the first generation clambered round the building digging this, fixing that, banging very hard on the other and when the sun rose the following morning, it was startled to find itself shining on a building full of happy drunken people which was now floating like a young and uncertain bird over the treetops.

Not only that, but the flying party had also managed to arm itself rather heavily. If they were going to get involved in any petty arguments with wine merchants, they wanted to make sure they had might on their side.

The transition from full-time cocktail party to part-time raiding party came with ease, and did much to add that extra bit of zest and swing to the whole affair which was badly needed at this point because of the enormous number of times that the band had already played all the numbers it knew over the years.

They looted, they raided, they held whole cities for ransom for fresh supplies of cheese crackers, avocado dip, spare ribs and wine and spirits, which would now get piped aboard from floating tankers.

The problem of when the drink is going to run out is, however, going to have to be faced one day.

The planet over which they are floating is no longer the planet it was when they first started floating over it.

It is in bad shape.

“Floating over the treetops” = magical growth, unsupported by fundamentals.
“Looting and raiding” = ever-increasing, crushing personal debt (followed now by increasing foreclosures).
The time “when the drink is going to run out” = the point at which debt (both personal and national) reaches critical mass.

I admit, it’s not a perfect analogy, but I think it works.

In a lot of ways, the artificial economic high we have been on the last ten years (the dot-com bubble followed by the housing bubble) could indeed be described as “the longest and most destructive party ever held.”

The post When is the drink going to run out? appeared first on Seattle Bubble.

However, when I step back and look at the big picture, I can’t help but be a bit concerned about the effect the recent rate cuts will have on my dollars. Over the past year, the value of the dollar has already fallen over 10%, with the steepest declines immediately following the September Fed cut of 50bps:

Click to enlarge

Meanwhile, the government is reporting mild inflation in the 2-3% range, but when calculated using the method from 1980, we’re actually sitting on over 10% inflation.

Click to enlarge

So on the one hand, you have the government telling us that basically everything is fine, the economy is humming along nicely, inflation is under control, and housing—while definitely a bit of a drag right now—is sure to pick back up soon. On the other hand, you have bloggers and economic commentators that see us moving toward hyper-inflation and dollar “destruction.”

I’m not trying to be alarmist here, because frankly, I don’t follow this big picture stuff closely enough to have a good handle on what is really going on. However, given the unimpressive recent record of “economists” and government mouthpieces when it comes to predicting the direction of housing and the economy, I’m inclined to believe that the bloggers may be closer to the truth.

So let’s say that extreme inflation / dollar devaluation is indeed around the corner (or already upon us). What do we as financially responsible, saving individuals do to avoid having our savings become worthless? Socking away all the money we’re saving on rent into a 5-6% CD doesn’t do much good if inflation is 10% (or higher). Knowledge is power, and if we have the knowledge of major economic changes headed our way, we should use that to our advantage. The only question is how.

I don’t have any good answers here. I’m just thinking out loud, and hoping to spur a discussion that can be productive for all of us. So, what are some answers?

The post Protecting Our Assets From a Tanking Dollar appeared first on Seattle Bubble.

Early 2006 — We were told by “economists” that all is well in the housing market, and we were just headed for a soft landing. Definitely zero risk to the economy.

January 27, 2006
“All the hype about the housing market falling apart is exaggerated,” Tim Rogers, Boston-based chief economist for Briefing.com, an economic research firm, said in an interview. “Mortgage rates are around 6 percent and that’s going to keep supporting housing. It’s falling off of record highs but I don’t think anything is plunging here.”

Mid-to-Late 2006 — Whoops. Turns out the housing market is in fact slowing down faster than the economists expected. But not to worry, they say, there’s still no risk to the economy.

July 27, 2006
“The economy is still performing reasonably well,” said Michael Moran, chief economist at Daiwa Securities America inc. in New York. “The housing market is definitely slowing, but the drop is not precipitous enough to do serious damage.”

September 25, 2006
The Fed’s Fisher said aside from the housing market, which is experiencing a “serious correction,” the U.S. economy “is healthy and robust.”

Late 2006 – Early 2007 — Whew! That was a rough year. The housing slowdown almost started to affect the economy, but thankfully the economists assure us that it’s not a problem going forward. Now the economy is ready to roll without being dragged down by housing.

January 8, 2007
“The worst of the drag on the economy from construction is behind us,” says Chris Varvares, president of St. Louis-based Macroeconomic Advisers Llc. As a result, he says, growth should pick up to an annual rate of more than 3 percent in the second quarter, from 2-1/4 percent in the current quarter.

Subprime loans are defaulting by the thousands on the gates of the economy. But be assured, the economy is safe, protected.

Early 2007 — Whoa, where’d this subprime mess come from? Yuck! Nobody worry though, the economists assure us that it is completely, 100% contained. Zero effect on the overall economy—for reals.

April 3, 2007
Fed Chairman Ben S. Bernanke, who still expects the economy will expand at a “moderate” pace, last week told lawmakers he expects the subprime fallout “is likely to be contained.”

Mid-2007 — Economists: “Guess what guys? The economy is still going gangbusters! Anyone that tells you a recession is on the horizon is a fool. We have the data right here that proves it.”

July 27, 2007
As recently as May, traders were certain of a rate cut by the end of 2007, only to be dissuaded by continued growth in employment and comments by Fed officials that recession isn’t likely. Some economists said traders may again be getting ahead of themselves.

“The Fed should be pretty happy with these numbers,” said David Wyss, chief economist at Standard & Poor’s in New York, referring to the second quarter figures for gross domestic product. “I don’t think the Fed does anything this year.”

September 2007 — “Holy crap! If the Fed doesn’t cut rates RIGHT NOW, we’re headed for a certain recession.” Fed cuts rates 50 points. “Whew! The Fed has come to the rescue! Now the economy is in the clear!”

September 18, 2007
The Federal Reserve lowered its benchmark interest rate by a half point to 4.75 percent, the first cut in four years, to protect the U.S. from sinking into a recession sparked by fallout from the housing-market collapse.

“Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,” the Federal Open Market Committee said in a statement after meeting today in Washington. The central bank will “act as needed to foster price stability and sustainable economic growth.”

Just look carefully, I only want you to look carefully. Do not repeat the lies of liars. Do not become like them.

Is it just me, or have the so-called professional economists pretty much lost all credibility at this point? They were wrong about the extent of the pain the housing market would endure. They were wrong about the containment of the subprime mess. They were wrong about the effect of housing on the overall economy. They were wrong about the risk of a recession.

But now we’re supposed to believe them when they say that the Fed can wave their magic wand and keep the economy from experiencing all this bad stuff that wasn’t supposed to be a risk in the first place? Huh?

Somebody please explain this to me. Seriously, what the heck.

The post Who Are You Going to Believe on the Economy? appeared first on Seattle Bubble.

Is Legacy Escrow Service, Inc. the only escrow company in the area that closed a lopsided amount of home loans and refinances that were sub-prime vs. traditional conventional transactions? Was Legacy Escrow Service, Inc. the only company working with loan officers in the sub-prime arena? Hardly. We are a small fry compared to the volume of more established companies and title insurers.

As I mentioned over at RCG, how can I explain away the fact that our refinance volume is down about 70% YOY and that is not due to working with only two loan officers. We worked with scores of LO’s, as any escrow firm does. It means that with the sub-prime market essentially relegated to the “intensive care unit” due to Wall Street liquidity problems and the severe delinquency rates reported, the loan officers that sent work our way are doing significantly less originations. And that “Domino” has squarely hit escrow and ancillary real estate service providers in the rear end.

Seventy one percent of the purchase transactions closed by our office in 2005 alone was 100% financed (largely 80/20 with pre-payment penalties, etc..) and while the number dropped as 2006 went forward we did not see a healthy decline in 100% nothing down purchase transaction until 4th Quarter of 2006. Don’t forget that in EVERY single 100% nothing down transaction our office closed, the purchase price was increased to offset closing costs paid by the seller on behalf of the buyer due to their loan program. And to really make you super dizzy, a few of those were increased AFTER being involved in multiple offer situations. The 100% loan programs played a very central role in housing price escalation. And they will play a central role in making many of these homeowners renters again—-but that is just one fellow’s opinion.

Regarding the sub-prime loans in the region, Jillayne Schlicke remarked in a recent comment:

That’s because Eliz Rhodes was looking at only Seattle and the Eastside.

I have always said that the entire Puget Sound area has been populated with upwards of 8 to 9,000 loan originators whose sole income was only originating subprime: Starting from Pierce, up through King and Snohomish, if you add all three counties in together, there has to way more subprime loans that what she originally stated several months ago.

These folks never learned how to originate prime, conforming, A paper conventional loans and never wanted to learn because they could make so much more money shafting people into a subprime loan due to the high yields being offered by investors.

The cool map is only for the year 2005. Would love to know their data source. My guess is that it came from Firstam/CoreLogic

Jillayne’s comment inspired this post. But the question remains: If our small business was doing a large volume of closings with sub-prime terms, how many did First American, Chicago Title, Pacific Northwest Title, Old Republic, The Talon Group, TransAmercia/Land Title, Fidelity Title, Stewart Title and all the other escrow firms close? I suppose the market will tell us.

The good news is that to an extent, Seattle is certainly not experiencing the problems I witnessed in New England a week or so ago.

“It was an idiotic decision to buy in Massachusetts. I should have bought in Seattle.”- my brother as he was taking me to the airport.

The post Sub Prime fallout: Ok. Really. How many sub prime originations took place in the Puget Sound area? appeared first on Seattle Bubble.

Good Reading: Via Jessica Swesey at Inman News blog gives us a glimpse into the mechanics of the bubble. She cites a paper released last week by Dean Baker of the Center for Economic & Policy Research asks:(PDF document & very easy reading with excellent analysis)

• What about the fundamentals that were at odds with forecasts, particularly those economists from NAR (National Assoc. of Realtors), NAHB (National Association of Home Builders) and the MBA (Mortgage Brokers Assoc.)?
• What role did the media play?
• Why was it so difficult for many to see that housing prices were spiraling to absurd heights?

“In many cases, the experts worked for organizations that had a direct material interest in sustaining the bubbles. Voices of caution were rarely presented. When it came to some of the most fundamental financial decisions that families face, investing retirement funds and buying a home, the media were badly misinforming the public.”

– Center for Economic & Policy Research, August 2007.

In other news: I’ll be visiting Massachusetts late this week and into next week and will compare and contrast market conditions in New England vs. Washington State. I expect it to be interesting and I’m crossing my fingers I can talk with the CEO of one of the largest investment management companies in New England to discuss the recent liquidity crisis. Wish me luck because it is intimidating talking to someone who manages literally billions.

Your real estate market enthusiast,

“S-Crow” (Tim Kane)

Legacy Escrow Service, Inc.

The post Center for Economic Policy Research paper: highlight’s fundamentals (largely ingnored) and the media’s role. appeared first on Seattle Bubble.

Well, as you all know, we’ve beat this subject to death around here, but Seattle Times business reporter Drew DeSilver brought some excellent statistics to the table yesterday that simply cannot be ignored.

Four years into the recovery from the steep recession of the early 2000s, the state’s economy is by most accounts humming like a well-tuned V-6 engine. More Washingtonians are working than ever before, the state unemployment rate hovers near a 30-year low, and last year the state’s average wage rose 5.3 percent.

But those top-line measures don’t tell the whole story: A Seattle Times analysis of state jobs data shows that most of the new jobs created in the current expansion don’t pay all that well, and fewer high-wage jobs have been generated than during the late-1990s boom.

Consider:

• Of the 240,000 jobs created in Washington between 2002 and 2006, almost 70 percent were in fields where the average weekly pay was less than $832 a week (or $43,264 a year). That’s the income calculated as a “living wage” in Washington for a family of two adults and two children, according to Penn State’s Poverty in America project.

• Several of the fastest-growing job categories — in retail, hospitality, agriculture and social services — were at the lower end of the wage scale.

  For instance, more than 26,000 administrative and support jobs have been created, with an average weekly wage of $605 — about $31,500 a year. General retailers added almost 9,900 jobs, paying on average $460.53 a week, or less than $24,000 a year. Bars and restaurants generated more than 20,000 jobs, paying an average of about $280 a week, or $14,550 a year, though those workers rely on tips for much of their pay.

• The current recovery has so far generated far fewer high-paying jobs than the last boom, which ran roughly from 1995 to 2000.

  
  those heady dot-com years

  During those heady dot-com years, businesses statewide created more than 99,000 jobs paying more than $50,000 a year — 30.6 percent of all new jobs — primarily in Internet, telecommunications and other high-technology fields.

  But between 2002 and 2006, just 57,000 jobs paying above $50,000 were created in Washington — 23.7 percent of the total.

• Many high-paying industries — notably telecommunications, electronics manufacturing and air transportation — have continued shedding jobs during the current recovery. Statewide, those three sectors combined to lose more than 11,000 jobs, with an average weekly wage of $1,275.59, between 2002 and 2006.

Keep in mind that in order to afford the median house in King County ($470,000 as of June), an family must have a gross yearly income of $95,000, assuming they have the $94,000 down payment. If they’ve only got enough for 5% down, it would take $115,000 in yearly income.

If the Times’ analysis is to be believed, there is pretty much no way that high-paying jobs have been the driving force behind Seattle’s housing boom. In fact, it’s just the opposite:

As a rule, economists say, higher-wage jobs support lower-wage ones: The Boeing machinist buying camping gear helps sustain the sales clerk who sells it to him. As high-paying jobs boomed during the 1990s, so did those further down the wage scale: The same tech boom that generated 14,485 software jobs (average pay, including options payouts: well over $250,000) created 36,430 administrative-support jobs (average pay: about $23,560).

But until fairly recently in the current expansion, lower-paying jobs were being created without much of a bump in higher-paying jobs. So where was the support coming from?

Housing. More specifically, the housing boom that has boosted home values across much of the state and sent Seattle-area home prices into the ionosphere.

As house values soared and mortgage rates fell, homeowners had the best of both worlds. Even if you lost your dot-com job and were temping to pay the bills, you could refinance your mortgage or tap into your home’s equity to maintain your spending levels. And tens of thousands of people did just that.

“The housing boom definitely brought about a different kind of growth,” said Andrew Gledhill, who tracks Washington for the research firm Moody’s Economy.com. Especially early in the recovery, he said, retail jobs grew much faster in Washington than in the nation at large.

“There’ve been few other periods in history when home values were appreciating so much and people were borrowing so aggressively on the value of their homes,” Gledhill said.

Until about 2005, the state’s fastest-growing job categories tended to be either real-estate related (construction, mortgage banking, real-estate brokers, etc.) or in the retail and hospitality industries.

But as Kriss Sjoblom, an economist at the business-oriented Washington Research Council noted, “Construction can carry an economy in the short term, but not in the long term.”

That sounds pretty similar to what I said about the whole jobs situation back in May of last year:

So here’s my thesis: Jobs (at least partly) drive housing. The job situation in Washington (and the Seattle area) has been doing pretty well lately. However, a large amount of the job growth has been in housing-related industry. Therefore, when housing slows due to other forces (such as increasing interest rates or higher lending standards), the job market will slow, thus causing housing to slow further. Lastly, high tech jobs—including Microsoft—are not growing at a fast enough rate to rescue us when/if construction and real estate experience a significant slowdown.

In conclusion, high-paying jobs at Boeing and Microsoft are not going to keep Seattle home prices afloat. It’s not that such jobs don’t exist, it’s just that they’re such a tiny percentage of the total number of jobs being created, that their effect on the housing market is extremely limited.

Take us home, Drew.

However, many of the state’s core industries — those that both employ a lot of people and pay well — haven’t grown at the pace seen in previous years.

Consider aerospace again. The last time the industry went on a hiring binge, between 1996 and 1998, it added 33,100 jobs in the span of 2-½ years.

Boeing, which employed 104,000 Washingtonians at the peak of the last cycle in June 1998, reported just 71,781 Washington workers at the end of July — despite the big buildup for the new 787 Dreamliner jet. The leaner payroll is a consequence of the company’s aggressive streamlining of its production processes and outsourcing of much work previously done in-house.

…

Even software, which barely took a breather during the recession, isn’t adding to payroll the way it used to. The software sector routinely posted job growth in double digits during the 1990s, but since the end of the recession growth has been mostly in the 6 to 7 percent range.

(Drew DeSilver, Seattle Times, 08.05.2007)

The post Gangbuster Job Growth, Lackluster Incomes appeared first on Seattle Bubble.

A morning of housing pep talks greeted builders, real estate agents and government folks Thursday: Build green. Be brave. If Coeur d’Alene, Idaho, can go urban, so can you.Economist Glenn Crellin, director of the Washington Center for Real Estate Research, kicked things off at the 2007 Housing Forum at the Rhodes Center in Tacoma with a slew of statistics to illustrate a healthy Puget Sound-area market, especially compared with some states.

“My bottom line is we don’t want to panic. We need to be brave. Real estate markets will see some softness, but they’re not going to disintegrate,” he said.

If we just close our eyes and wish hard enough, we can keep our housing market strong! Be strong, everybody! Wish hard!

Crellin, who last year bought a second home in North Carolina, did acknowledge the shrinking number of South Sound residents who can afford to buy. Crellin’s Charlotte town home cost less than $210,000, with upgrades.” It would be nice if we could import that kind of market” here, he said.

Funny you should say that, Mr. Crellin… I wonder how we could possibly end up with cheaper houses in the Puget Sound… Hmm… That’s a tough one.

(Devona Wells, Tacoma News Tribune, 05.25.2007)

The post “We don’t want to panic. We need to be brave.” appeared first on Seattle Bubble.

Click to enlarge

That’s Coalition warns of “mortgage tsunami”, followed by Accounting, executives at lender New Century investigated, Fraud charges at Metropolitan Mortgage & Securities settled, and of course Mess unlikely to break economy.

First off, I don’t think the term “mortgage tsunami” is appropriate, since a tsunamis come with little warning and through no fault of those in their path. I’d call it more of a “mortgage harvest,” considering that the mortgage banks and homebuyers are simply reaping what they have sown.

And why is it that they would like us to believe that the ongoing mortgage “mess” is not going to “break” the economy?

However, while stocks of subprime lenders have been pummeled, the industry’s effect on the broader market is likely to be muted. “All told, subprime mortgages are worth about $640 billion, and that isn’t chump change,” says Bob Gay, economist and managing partner of Fenwick Advisers. “However, it’s only 0.6 percent of annual gross domestic product. … On the consumer side, it’s not like every subprime mortgage is going to default and get repossessed.”

Delightful. An argument that basically amounts to “because we say so.”

Hold on tight and enjoy the ride, everybody.

The post Mortgage Mess Difficult to Ignore appeared first on Seattle Bubble.

Microsoft & Boeing

Click to enlarge

Update: By request, here is a graph of today’s stock performance for a handful of other locally-based companies.

Other Seattle-Area Companies

Click to enlarge

For those of you keeping score at home:

• Boeing: -1.95%
• Microsoft: -4.12%
• Amazon: -5.00%
• Starbucks: -3.94%
• Nordstrom: -7.59%
• Costco: -3.48%
• Washington Mutual: -2.25%

Some immunity.

The post Seattle is Different. We’re Totally Immune. appeared first on Seattle Bubble.