Here’s the link: Statewide rezoning of single-family neighborhoods is a terrible idea

Now, before we start it’s worth noting that this piece is described as a “Special to The Times” and the author is not a journalist. He’s not an economist, either. He’s also not an urban planner, and as you’ll see he’s obviously not a historian. He’s an architect whose primary accomplishments listed on his bio attached to the piece are having “served on public historic preservation and design review boards.”

So with that context, let’s get into it. Here’s the opening paragraph:

The current debate about major changes to single-family residential zoning has become politically polarized, like every other issue. Clearly much more affordable housing is needed, and as soon as possible, but because there is a housing affordability problem, single-family housing has suddenly been declared “racist” by some groups as a convenient but inflammatory and erroneous way to justify a radical, top-down, across-the-board redefinition of our residential land-use patterns.

He really comes in guns blazing right out of the gate, with scare quotes around “racist” and an angry defensive stance taken right off the bat. Given the tone of that opening, I am sure you will be shocked to learn that Christopher Kirk is a 73-year-old white guy.

To be clear, I’m not suggesting that old white guys are all prone to make self-serving, foolish, intellectually dishonest political arguments, but it’s not exactly rare among that particular crowd.

And to be clear on the point of single-family zoning and racism: Yeah, single-family zoning is an inherently racist practice. That’s not up for debate. It’s a documented, historical fact.

Single-family-only zoning was invented by racist white landowners as a way of keeping Black people out of their neighborhoods. When redlining and other more explicit methods were made illegal, zoning became the primary tool to enforce this kind of racial discrimination, and it has the same practical effect today. I’m not going to get into the whole history here, because this subject has been covered very well many times over by others. At the end of this post I’ve embedded a series of videos that explain the racist history and the racist modern impacts of single-family zoning.

Anyway, moving on…

The fastest and most efficient way to develop housing is to build large, multifamily projects

Ahh so obviously every other way of adding more housing should be illegal. Got it.

Wait, no. That’s idiotic. To claim that the only two choices should be super-dense areas packed with large multifamily homes or sprawled-out single-family-only neighborhoods is absurd. The U.S. needs to legalize the “missing middle” housing. Again, I’m not going to get into this in depth, because others have already done the job much better than me. Here’s a video on that topic from the excellent YouTube channel Not Just Bikes.

Going back to the garbage heap that is this editorial:

More, denser housing won’t necessarily mean more affordable housing. Many large cities are denser than Seattle, yet their housing costs are often much higher.

Oh look, it’s a strawman argument! Nobody is saying that allowing denser neighborhoods will “necessarily mean more affordable housing.” But one thing we do know is that artificially limiting what can be built in 75% of the city is definitely a contributing factor to our current housing affordability problem.

Also, even massive housing construction will not fix problems related to inadequate mental-health care, drug addiction or people choosing to live outside normal society.

You have to love a good non sequitur. Again, nobody is trying to claim that eliminating single-family zoning will somehow magically fix problems with mental health or drug addiction. This guy is literally arguing against nonsense points that he’s making up on the spot.

Increasing density beyond ADUs and DADUs is a leap to the common “four pack” and “six pack” projects. These generally level whole sites, eliminating most trees, open space and privacy. They completely change the nature of neighborhoods while creating housing that doesn’t work well for families with children, or most older people, and they are not particularly affordable.

Appealing to “the nature of neighborhoods” is code language used by NIMBYs to keep “undesirable” people out. It’s gross, nebulous, and ultimately meaningless.

Imposing zoning law changes across an entire city or state without review with respect to local conditions ignores a multitude of ethical, legal and environmental principles, as well as decades of planning for the environment, transportation, utilities, parks, schools and other public services.

His implication here that local control is superior to state-wide lawmaking is especially rich, given his previous Seattle Times editorial appearance, which was entirely dedicated to demonizing Seattle city government.

I especially loved this part:

Further, massive, one-size-fits-all rezoning is unprecedented and a terrible shift in public policy. … There is a 100% chance of unintended major negative consequences.

Redlining and discriminatory covenants affected many single-family neighborhoods in the past, but that does not mean single-family neighborhoods are inherently discriminatory today.

Literally in back-to-back paragraphs he decries mysterious, unnamed “unintended major negative consequences” and then immediately pivots to hand-waving dismissal of the 100% intended consequence that single-family zoning continues to have to this day of keeping Black people out of certain neighborhoods. Truly astounding.

Single-family housing is more expensive because it has more open space and vegetation, more living space, more peace and quiet, and more stable populations of long-term neighbors who know each other — all reasons why people pay more to live in single-family neighborhoods.

No ignorant housing rant would be complete without throwing in the implication that filthy renters are lousy, unstable neighbors and generally bad people that nobody wants to be around.

Finally, he closes by calling the proposal to eliminate single-family zoning…

radical, ill-conceived, statewide rezoning which will have unpredictable effects on the character of your neighborhood and the value of your home

It’s like NIMBY buzzword bingo. Again with the “neighborhood character” dog whistle, and an explicit appeal to homeowner greed for the almighty “home value.” Just all-around disgusting.

Well, at least Christopher Kirk’s garbage editorial had one good outcome: It gave me the motivation to finally come back here and post something fresh. So… good job, I guess.

Anyway, if you’re not a selfish jerk and you’d like to support eliminating crappy single-family-only zoning, contact your state legislators and tell them they should support HB 1782.

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

Videos About the Racist History of Single-Family Zoning

The post Eliminating single-family zoning is a good idea, and Christopher Kirk’s Seattle Times editorial is a steaming pile of garbage appeared first on Seattle Bubble.

For the article I spoke with a Redfin Seattle agent who has had some interesting conversations already with buyers…

“From my conversations, it seems that some would-be buyers are waiting on the sidelines for the announcement of where HQ2 will be located,” said Seattle Redfin agent Jessie Culbert. “If they work for Amazon now, they may decide to relocate to be closer to family and friends. If they don’t work for Amazon and plan to stay in Seattle, they may wait to see how additional inventory on the market could impact pricing.”
…
Once Amazon announces the location of its HQ2 and begins hiring there in earnest, it will inevitably slow the Seattle housing market, at a time when inventory is already on the rise and a historic rental building boom is leading to a surging apartment vacancy rate.
…
So what could Amazon HQ2 mean for Seattle? Let’s consider some hypotheticals on opposite ends of the spectrum…

We touched on it a little in the post, but I think we’re already starting to see these effects in the Seattle area, and HQ2 may be a big part of why Seattle has slowed down so suddenly this year compared to many other markets.

Read the whole post over on the Redfin blog.

The post Amazon HQ2 may already be turning Seattle into a buyers market appeared first on Seattle Bubble.

Came upon this website a couple months ago and find everyone’s perspectives interesting. I see a lot of wondering on what potential regular, non-speculating, non-investor sellers and buyers are thinking and doing. People who just want to live in a nice house.

I can’t speak for others, but I can share my thoughts / experiences recently as well as some anecdotal stories.

I find the current environment frustrating as a buyer.

We are in Pierce County and lived in unincorporated Pierce County – we sold our manufactured house and 1 acre land Spring 2017 to move to a better school district. After our experience selling (and shock at cost of houses last year) we decided to rent a year to see what the market does.

We first went on the market in Fall of 2016. I was a bit shocked when the Realtor said if there is no offer the first week we should lower by $5,000 – $10,000 each week until we sell. I didn’t want to go down in value and was not in a rush to sell – so after turning down a few lower than asking offers we took our house off market to save more on a down payment for the next house. We put our house back on market Spring 2017 – but raised the price by $5,000 assuming people would go lower again (then we could just counter at what we originally wanted). We got two offers on the first day of listing. After asking for their best offers we accepted the offer that was $25,000 more than what we were asking! We collected our winnings (er, I mean investment results) and moved to the better school district. (Sumner School District for those wondering)

During the last housing bubble I remember distinctly knowing things were off because:

1. All the people around me who I voiced my concerns on prices and environment told me things were different this time, prices will never be lower, or told stories on so-and-so who quit their job to flip houses. You can’t lose! I finally stopped voicing my opinions as it seemed to make people mad. (Incidentally, I had the same reaction during the Dot Com bubble when I stated how dumb some of these websites were and how they had no business model, etc. I’m a tech guy – hardware and software and yet all the people around me apparently knew better than me! lol)
2. I also took a look at the ghetto meth house prices in certain areas in the Bonney Lake area and nearly lost my lunch at the prices that were being asked for.
3. On the radio and HGTV every other ad or show seemed to be about getting rich quick with real estate, or refinancing into the new, improved, [insert very long name for some sort of mortgage thing] so you can have lots of money to retire with, live that life, blah, blah, blah.

The above is obviously not any scientific, methodical approach to investing – but it spared me some financial heartache and hardship considering them. Sadly, all three points above seem to be repeating – except now higher than last time. Did you know Dean Cain is looking for a few good investors to learn the secrets to house flipping – no need for good credit or experience? Also – if you have that house with lots of equity you can do that reverse mortgage and if your house is more than a $million you can get the new improved jumbo reverse mortgage! And apparently, 5% down is still being allowed (and I have been told when pre-qualifying for a loan that if I have to do less than 20% down and do not qualify for 5% down – there are creative ways to get that house of my dreams!) And people seem to still get upset when even hinting that perhaps we are back in a bubble or at least getting unhinged with reality…

Long story short, last year I balked at the cost of the nice houses in our new area so decided to wait a year to save more of a down payment and hope things lowered to a realistic level. Based on how much I got approved for on a pre-qualified loan last month I could afford one of the houses I actually like – but then I couldn’t save for my kids college, go on vacations, and would need to eat bread and water. And when the correction happens I could possibly owe more than the house could sell for – possibly a lot more!

So considering the amounts I’d prefer to pay for a house – October-December there were houses in $300,000 – $325,000 range that I wouldn’t mind – 4 months later they are in the $375,000-$425,000 range! Everything rose higher and faster than I could save so now all I seem to be able to afford are the meth houses!

So we’re going to continue to rent, continue to save for a down payment, and hope reality and prices comes back down to earth. If it doesn’t – I’ll never be able to save fast enough to buy so will look to eventually move somewhere more affordable – hopefully somewhere warmer. Maybe somewhere out of state (but probably not since family is here). Maybe we’ll just end up renting for the rest of our lives – it’s cheaper and safer than buying the meth house!

One other anecdotal story – my wife’s co-worker heard we were looking to buy. She shared that their house went up a lot in value – but if they sold they couldn’t even afford a down payment on any of the other houses in their neighborhood so would have to move somewhere else. So they are not even considering selling even though they’d love to get the equity.

I’ll stop typing as I feel my negative sarcasm bubbling up and I’m trying to stay more positive these days…

The post Reader Comment: “Now all I seem to be able to afford are the meth houses!” appeared first on Seattle Bubble.

• Monday morning: The Washington Post publishes a story and video about McMansions, heavily featuring Kate Wagner and her blog McMansion Hell
• Monday morning: A Zillow employee (or possibly a major Zillow customer) reads the Washington Post story, visits McMansion Hell, and sees the “Copyright Disclaimer” at the bottom of many of the blog’s posts stating that “All photographs in this post are from real estate aggregate Zillow.com.” The employee/customer then notifies Zillow’s legal department.
• Monday afternoon: Zillow lawyers send a threatening email to Kate, accusing her of copyright infringement and “fraud and interference with Zillow’s business expectations and interests” and demanding she delete all Zillow-sourced content from her site.
• Monday afternoon: Kate takes McMansion Hell offline while she seeks legal help and archives the site.
• Monday afternoon: A number of legal experts reach out to Kate, offering support in defending her against Zillow’s spurious claims.
• Tuesday morning: Zillow’s PR department sends Kate a follow-up letter in a lame attempt at damage control.
• Tuesday afternoon: Kate announces that the EFF has agreed to represent her should Zillow actually make the incredibly moronic decision to sue.

Since I’m not a lawyer, I’m not going to go into detail about the specific inaccuracies and overall stupidity of Zillow’s arguments against McMansion Hell. If you want to read about that, check out this piece by Techdirt, or their follow-up story, or this (shudder) Buzzfeed piece with quotes from actual attorneys with expertise in copyright law, including the Ken White of Popehat fame.

https://twitter.com/Popehat/status/879705727828230150

The main purpose of this post is to simply and publicly state that Seattle Bubble is one hundred percent in support of McMansion Hell in this dispute. Zillow’s threats are wrong, and they fully deserve the universally bad press they are getting for this move.

Speaking of the bad press, Zillow stock fell 4.25 percent on Tuesday (the first news of this fiasco broke after the close of trading on Monday). The Nasdaq was down just 1.59 percent and the S&P 500 fell just 0.79 percent that day.

There could definitely be another reason for this (correlation is not causation, etc.) but it’s certainly interesting that a loss of $274 million in market value coincided so neatly with all that negative public sentiment.

Here’s hoping that McMansion Hell comes back online and Kate is able to keep doing what she’s been doing. If you’d like to support Kate’s fight with Zillow’s abusive lawyers, she has asked that you donate to the EFF. If you like what Kate is doing with McMansion Hell and want to support that work directly, you can support McMansion Hell on Patreon.

Update: EFF eviscerates Zillow, Zillow promptly backs down

The EFF has posted their official response to Zillow (backup screenshots for broken link). Here’s an excerpt from the letter they sent to Zillow’s lawyer:

Our client has no obligation to, and thus will not, comply with Zillow’s demands. Zillow’s legal threats are not supported and plainly seek to interfere with protected speech.
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In our phone call yesterday, you suggested that Zillow’s primary complaint against Wagner is based on Zillow’s Terms of Use, which purports to prohibit any reproduction or modification of images found on Zillow’s website. You stated that Zillow’s agreements with third parties requires it to include such provisions in its Terms of Use and to enforce them. But Wagner is not bound by your Terms of Use and, even if she were, the relevant provisions are unenforceable.

Courts routinely decline to enforce “browsewrap” agreements like Zillow’s Terms of Use, which fail to present terms except via a hyperlink and without a checkbox to signal assent.
…
Even if an agreement were formed, paragraph 14 of the Terms of Use, asserting Zillow’s right to alter the contract without notice or justification, would render the agreement illusory and void for lack of consideration. … Further, to the extent that Zillow’s Terms of Use purport to undermine Wagner’s freedom to operate the McMansion Hell website, such terms would be unenforceable under contract law doctrines that restrict surprising, unfair, or speech-restrictive terms, particularly in contracts of adhesion like the Terms of Use.

The EFF’s takedown of the legal trash from Zillow was extreme and thorough. It took less than a day for Zillow to back down. Via GeekWire: Zillow drops complaint against ‘McMansion Hell’ blog after backlash over copyright claim

“We have decided not to pursue any legal action against Kate Wagner and McMansion Hell,” a statement from the company said Thursday. “We’ve had a lot of conversations about this, including with attorneys from the EFF, whose advocacy and work we respect. EFF has stated that McMansion Hell won’t use photos from Zillow moving forward. It was never our intent for McMansion Hell to shut down, or for this to appear as an attack on Kate’s freedom of expression. We acted out of an abundance of caution to protect our partners — the agents and brokers who entrust us to display photos of their clients’ homes.”

Good.

The post Zillow’s asinine threat to McMansion Hell is costing them appeared first on Seattle Bubble.

There was a time when something could have been done to avoid its entry into the locked cycle of asset value inflation, but that was a few years ago. We now have to face the fact that this city will become another Vancouver, B.C. or San Francisco (or Miami, for that matter). The soft city is gone for good; the hard city is here to stay.

The opinion piece is very thin on details explaining exactly why he believes this to be the case. In fact, I’ve quoted twenty percent of the entire article above. Mudede just makes a series of emotionally-framed declarations and apparently doesn’t feel any particular obligation to explain to the reader how he came to these dramatic conclusions.

Here’s the main part of the article that I’d like to focus on:

And the idea of building our way out of this bad situation, as the urbanists propose, will not produce the desired results in reality because the market is not structured in that way. It does not answer to the basic laws of supply and demand.

To put it plainly, that is complete and utter nonsense. The real estate and housing markets absolutely do answer to the laws of supply and demand. Can they occasionally be warped by other external factors? Sure, definitely. We saw an extreme example of that ten years ago during the last housing bubble, which is what motivated me to start this site. In fact, if you looked only at housing prices as Mudede does in his piece you would have come to a similar conclusion that we were stuck in a “locked cycle of asset value inflation” in 2007 as well.

But prices alone do not paint a complete portrait of the real estate market. Despite Mudede’s unfounded assertion to the contrary, the housing market does respond to supply and demand. And it’s funny that he should mention San Francisco, because just a few days ago a gentleman named Eric Fischer published a great piece exploring an investigation of nearly 70 years of San Francisco rental price data.

Housing, it appears, gets expensive either when people get paid more or there are more people getting paid, and more steeply than simple linear increase. … If you add [housing inventory] to the model, it does a better job of explaining the swings in rent over the past 20 years through the additional prediction that housing gets cheaper than employment alone would predict when you build more of it, and doesn’t when you don’t.

Using housing inventory (supply) plus wages and total employment (demand) he was able to build a very good model that predicts housing prices for San Francisco:

In other words, housing does “answer to the basic laws of supply and demand.” Even in San Francisco, where a 390-square-foot apartment currently rents for $3,200 (link). The source of the problem of high housing prices is simple: Demand (employment and wages) is increasing faster than supply (new housing inventory).

Even San Francisco is not in a “locked cycle of asset value inflation.” If they built more housing at a fast enough rate, the city would become more affordable. The problem in San Francisco is that most of the city’s wealthy, entrenched interests don’t want to build more housing.

San Francisco does not have enough places to live. Sonja Trauss, a local activist, thinks the city should tackle this problem by building more housing.

This may not sound like a controversial idea. But this is San Francisco.
…
Across the country, a reversal in urban flight has ignited debates over gentrification, wealth, generational change and the definition of the modern city. It’s a familiar battle in suburbs, where not-in-my-backyard homeowners are an American archetype.

In San Francisco, though, things get weird. Here the tech boom is clashing with tough development laws and resentment from established residents who want to choke off growth to prevent further change.
…
Those groups oppose almost every new development except those reserved for subsidized affordable housing.

Here’s Eric Fisher’s conclusion about San Francisco:

San Francisco is an expensive city because it is an affluent city with a growing population and no easily available land for development. Sonja Trauss is right that building more housing would reduce rents of both high- and low-end apartments. Tim Redmond is right that building enough housing to make much of a dent in prices would change the visual character of most streets, although the result could be more like Barcelona than like the Hong Kong that he fears. The unsettled question is which of these is the higher priority.

Building enough housing to roll back prices to the “good old days” is probably not realistic, because the necessary construction rates were never achieved even when planning and zoning were considerably less restrictive than they are now. Building enough to compensate for the growing economy is a somewhat more realistic goal and would keep things from getting worse.

…if price stability is the goal, the city and its citizens should try to increase the housing supply by an average of 1.5% per year (which is about 3.75 times the general rate since 1975, and with the current inventory would mean 5700 units per year).

Similarly here in Seattle, building more housing would help prevent it from becoming even more expensive. That said, even if we dramatically relaxed regulations and ramped up incentives for development, we’re not likely to see builders add new housing at a rate that would be required to begin driving prices down. Builders want to make a profit, after all. However, with enough new housing we could absolutely level off price increases and allow employment and wages to catch back up. There is zero reason to believe that’s not possible.

Of course, this all assumes that the economy—and specifically the tech economy—is not currently in another big bubble. If it is, and if said bubble pops, expect housing prices to drop again, regardless of how special Seattle may seem right now.

The post No, Seattle Affordability Is Not “Pretty Much Game Over” appeared first on Seattle Bubble.

Therefore, I’m happy to present a point-counterpoint on the topic of Zillow’s value in the real estate marketplace. Rather than participating myself, I’ve invited two long-time Seattle Bubble regulars and local real estate professionals to debate the subject for us all.

Presenting the “anti-Zillow” position: Kary Krismer. Kary is an attorney and Managing Broker at John L. Scott/KMS Renton. Kary is also an occasional guest author here on Seattle Bubble.

Presenting the “pro-Zillow” position: Craig Blackmon. Craig is an attorney in Seattle, where he has practiced real estate law for over a decade. He owns and operate his law firm, the FSBO Law Center, where he helps people buy and sell homes without an agent (as well as handle other legal issues relating to owning a home). He is also the founder, designated broker, and managing broker of Quill Realty, a new model real estate firm.

Full disclosure: Craig is a Seattle Bubble advertiser, but no money or other consideration was exchanged for participation in this post.

Point: Zillow is Inaccurate and Adds No Value

by Kary Krismer

People who dislike Zillow probably do so for many different reasons, but my primary complaint regarding Zillow is inaccurate listing information.

While not true for every MLS, Zillow does not receive direct feeds from the NWMLS. This has several drawbacks for buyers using Zillow. Some listings will never appear on Zillow, some will only appear after another buyer is in contract, and some will remain on Zillow weeks or even months after a listing is pending.

There is a simple solution to all of these problems. Seattle is a tech city where the regional broker sites are significantly better than those of most national firms. Broker sites like Redfin.com, JohnLScott.com, Windermere.com and Estately.com will give buyers both better data and better search options. Those sites will be updated multiple times per day and contain every NWMLS listing. As to which site is best, that would largely be personal preference, but it would also likely depend on a buyer’s needs.

This is not to say there are not some things Zillow does well in its search functions. Zillow is certainly better than some of the national brokerage websites, which is probably the reason Zillow even exists! But in the NWMLS area Zillow is not better than the local options, and thus would not be a likely first choice of informed buyers even if their data was accurate.

I have other complaints regarding Zillow. The most significant is that the reason Zillow exists is not to help buyers find homes and owners sell homes, but instead to provide a medium for agents to advertise. While that is also true to some extent for the broker sites, the broker sites are also trying to sell their clients’ listings. A buyer picking an agent based on advertising on either type of site is hardly desirable, but that is Zillow’s primary purpose.

Does this mean buyers should ignore Zillow? No. Zillow has other uses, including allowing FSBO listings (Trulia and Realtor.com do not) and has some limited information on foreclosures (although better sources probably exist). Also, “Zestimates” is a source of automated valuations, although those are of limited use. And clearly sellers should not avoid Zillow—they should pick an agent whose listings appear on Zillow, as well as all the other major sites. That Zillow is desirable for sellers does not make Zillow good. It just means some buyers are looking in the wrong place!

Zillow Provides an MLS Alternative – A Very Good Thing

by Craig Blackmon

The data provided by Zillow is of lower quality than the data available via the NWMLS. Kary is correct on that point. Zillow is a good thing for a very different reason.

There is widespread recognition that real estate needs innovation. Because of Zillow, new and more efficient business models in real estate are possible.

Here in the Northwest, literally every licensed broker is also a member of the NWMLS (but one, my firm, Quill Realty). As with any MLS, to list on it a seller must hire two brokers: one to list the property, and one to “sell” it. This “selling commission,” paid to the buyer’s agent, is inefficient and bad for buyers.

Until the Internet, buyers had to hire brokers just to know what was for sale. Today, most buyers search the listings themselves.

As result, there has been price pressure on the listing commission, and today there are lower-cost alternatives. Sellers can list the house themselves on the MLS (essentially paying one broker instead of two) for a few hundred bucks, or get full service from Redfin for 1.5%. Yet the typical selling commission remains stuck at 3%.

It will remain there as long as brokers maintain their monopoly on market data. Unlike other industries disrupted by the Internet, real estate brokers create and maintain the electronic marketplace. This allows brokers to set the rules. The biggest – and unofficial! – rule: Sellers gotta offer the full 3% selling commission.

Theoretically, the “buyer rebate” model popularized by Redfin should have led to a reduction. The initial value proposition – rebates well into the thousands of dollars – should have been enough to disrupt real estate. Large numbers of buyers should have turned to Redfin, leading large numbers of sellers to reduce the selling commission accordingly.

But it didn’t happen. Perhaps the rebate model is too complex. Or perhaps market and price pressure must be applied directly by the consumers that actually pay the inefficient fee. Regardless, the “Redfin Lesson” is clear: Buyer rebates will not lead to widespread innovation or a reduction in the selling commission.

So innovation must be driven on the listing side. Thought-leaders have for a long time believed the MLS would be “replaced” by technology.

Zillow allows both owners and non-MLS member brokers the ability to effectively market a home online. This gives consumers the opportunity to sell without offering a selling commission.

The seller may be asked to pay one by the buyer in the offer. It is then a negotiated term. Because it is negotiated, the commission will be reduced and the seller ends up paying less than 3%. Plus, the cost is effectively passed through to where it belongs, the buyer, via the negotiations over price.

Yes, the MLS works well, better than Zillow. At a cost. Specifically, the 3% selling commission. Zillow gives all consumers an alternative. That means Zillow is a good thing.

Response: A False Sense of Empowerment for Buyers

by Kary Krismer

Craig is correct that the Internet has allowed buyers to more easily search for listings, but he is mistaken thinking a different form of advertising will somehow drive innovation that impacts commissions. The Internet has merely replaced the Sunday newspaper for real estate advertising. The information available on the Internet may make consumers feel more empowered, but for most buyers that is a false sense of empowerment. Making buyers feel good is the goal of Internet sites, because they want viewers to come back to their sites.

Although Internet listings are undoubtedly better than newspaper listings, the better information does not allow anyone to adequately judge a house. That requires an on-site visit. Even when a buyer sees a property in person, most buyers generally still need significant help beyond just “opening a door.” It takes experience to understand the pros and cons of each property, and most non-flipper buyers lack that experience. Buyers need that experience and it does not come for free. Having buyers deal directly with sellers without expert guidance would only lead to problems.

As to Zillow changing commission structure, the first mistake is thinking finding listings is a significant or difficult part of an agent’s job. That is easy, and many buyers are not good at it, making their agent’s job more difficult. But Zillow’s underlying purpose is selling advertising to agents, so Zillow is not attempting to change the industry; they are part of the industry. Zillow is merely trying to capture clients for agents.

Response: Zillow Allows Fundamental Change in Real Estate

by Craig Blackmon

According to Kary, the Internet is just “a different form of advertising.” He could not be more mistaken.

The Internet has fundamentally changed the way the world works. As to information-based industries in particular, there are two types: those that have changed fundamentally as result of the Internet, and those that will eventually. Real estate falls into the latter category (travel agents and stock brokers fall into the former). Real estate has yet to see fundamental change driven by the Internet.

Today, Zillow allows for that fundamental change to occur. Will change result? I hope so, but it may not. Maybe it just isn’t time for change, or Zillow for some unknown reason isn’t the right catalyst. Perhaps someone else will find the right combination of data and service that will lead to change. In the meantime, though, Zillow provides an opportunity for widespread and long-needed improvement.

Do buyers need to tour a home before they buy it? Duh. Of course. Do buyers benefit from having an agent represent them? Again. Duh. Of course. Do agents need to be compensated for this service? Yep, there is a pattern here….

The question is, who should pay the buyer’s agent? The seller-paid commission creates a classic conflict of interest. It is a significant flaw in the traditional model that undermines the modern expectation of representation.

Regardless of Zillow’s income stream, it provides an opportunity for sellers to pay the listing agent, and buyers to pay the buyer’s agent. The terms “selling agent” and “selling commission” can be relegated to where they belong, the dustbin of history. Zillow is a very good thing.

The post Point-Counterpoint: Is Zillow a Valuable Tool? appeared first on Seattle Bubble.

As I write this, I’m waiting to hear from my realtor on whether or not I just bought a house. It’s my sixth attempt at purchasing a home in Seattle this year, and you know what they say: The sixth time is the charm! Or maybe it’s the 16th?
…
There’s nothing quite like waiting for the call from your Realtor to find out whether you just spent your entire savings and then some on a house that may or may not survive even a minor earthquake. (You won’t know until said earthquake hits because you had to waive the once-standard opportunity to have the house properly inspected because inspection contingencies are so 2015.)

Nevertheless, you hope beyond hope that you get this house, despite the fact that the foundational supports are shimmed up with a log, a brick, a wedge of plywood — and is that a stack of plates? And if you have to write one more sickeningly earnest letter about why you’re the best buyer for this home, you might have to call it quits and move back to Iowa, where hundreds of thousands of dollars buys you an entire operational farm.

The whole piece has an eerily familiar ring to it… Here’s an excerpt from a piece that ran nearly 10 years ago in the Seattle P-I, the famous “last spaceship flight” piece:

But with friends who have not yet “squeezed in” to the housing market, I am reminded of how I felt when I got accepted by my first choice for college and my best friend got nothing but rejections. What do you say to each other? I try to offer soothing assurances: “I hear there are still some great deals up north.” “600 square feet is plenty of room!”

But no matter what I say, I know we all feel like they have probably missed their chance, like they didn’t buy their ticket on the last spaceship flight off a planet that’s about to explode. I fear they’re doomed to move back to Missouri in order to afford more than a studio condo on the fringes of the city.
…
Fortunately, none of my friends have left town — yet. And even if they don’t, even if they all hit the jackpot and land their cramped little dream homes, I guess I’ll never know who else may have left.

The author of the 2016 piece has apparently been getting lots of advice from her friends:

Well-meaning people keep offering unsolicited advice.
…
I wish people would stop telling me I need to keep the faith because my perfect house is right around the corner. I need them to stop suggesting I look for houses in neighborhoods they would never set foot in, let alone purchase property in. I would appreciate it if people stopped recommending fixer-uppers and tear-down-ers. And if one more person suggests that I include a heartfelt letter and photo of my adorable children in my offer packet, I will lose my mind.

The one piece of advice it seems nobody is giving her: Maybe you should just hold off and don’t buy a home in a ridiculously frenzied market. Just a thought.

The post “You hope beyond hope that you get this house…” appeared first on Seattle Bubble.

If we’re in the beginning of a serious bear market, will Seattle’s crazy real estate market finally start to slow?

One of the major causes of the last real estate bubble was capital flight from stocks into real estate, so it is possible that a crash in the markets will just heat things up even more. However, if a tanking stock market takes down the overall economy this year, it seems unlikely that already-high home prices will be able to keep increasing. Also, I haven’t done the in-depth research on this, but I feel like markets like Seattle and the Bay Area that are home to lots of tech companies probably have a soaring stock market to thank for much of the recent frenzy in the real estate market.

What say you? Assuming for a moment that the recent dip in the market isn’t just a temporary setback, will a bear market apply the brakes to Seattle’s speeding real estate market?

The post Will a Prolonged Bear Market Slow Seattle Real Estate? appeared first on Seattle Bubble.

It’s not explicitly stated, but since most people aren’t referring to the price of food or clothing when they complain about a specific place being unaffordable, I think it’s safe to assume that Sawant is talking about housing affordability—probably mostly focusing on rentals. I was very curious how she intends to “make Seattle affordable,” so I headed over to her campaign website to read her measured, thoughtful opinions on this economic conundrum.

Let’s have a look at her “issues” page on the “Make Seattle Affordable for All” topic:

Our city is becoming increasingly unequal and unaffordable. In one Seattle, glittering fortunes are being made for the super–rich and the major corporations that dominate its landscape. The other Seattle, where the rest of us live, faces skyrocketing rents and underfunded services.

I think most people will agree with this sentiment, at least on a high level. I mean, it’s blatantly populist and I don’t think the “us versus them” mentality is a particularly productive form of politics, but at least she’s on-topic so far.

While the Mayor and City Council give sweetheart deals to billionaire developers, we’re left with “stakeholder” committees and empty promises.

All right, what exactly are these “sweetheart deals” that the “billionaire developers” are getting from the Mayor and City Council? Can you cite them specifically?

Instead of investing in desperately needed mass transit, this same arrogant political elite is doubling down on the Bertha boondoggle, threatening to rack up hundreds of millions of dollars in cost overruns while safety concerns mount.

Wait. Hold on. I thought we were talking about housing affordability. You know, “billionaire developers” and whatnot. What does the Highway 99 tunnel fiasco have to do with this? Please explain the connection.

The political system in our city and throughout the country is beholden to corporate cash. A Republican-controlled Congress brazenly champions the interests of Wall Street. Here in Seattle, where the Democratic Party has governed for decades, big developers and downtown business interests nonetheless dominate city politics.

I am starting to get the feeling that she is not even going to attempt to explain how she hopes to address affordability on this page titled “Make Seattle Affordable for All.”

I am committed to building an alternative to this model of corporate politics. We need political representatives who are independent of corporate cash and corporate parties, who will give voice to the needs and aspirations of working people.
…
In line with the principles of the political party I represent, Socialist Alternative, I pledged to stay accountable to working people by taking only the average worker’s wage. Seattle City Councilmembers pay themselves $120,000 per year – the second highest amount of any city council in the country. Inevitably, such a salary removes councilmembers from the realities of life for poor and working people.

I only accept $40,000 per year after taxes. This amount is roughly the full-time take-home pay of an average Seattleite. The remainder of my salary goes to a Solidarity Fund to help build social justice movements.

And that’s the end of this page on her site. I am rather curious if she is really living on just $40,000 a year, since the mortgage payment on the house she bought last year and refinanced a few months ago would likely eat up about half of her $3,333 monthly pay. But I digress.

If you click through to the fourth page of the “Issues” section of her campaign website, you finally come to a page titled “Affordable Housing for All.” Maybe we’ll have better luck learning her plan here.

Seattle is facing a severe housing crisis and District 3 is at its epicenter. The for-profit housing model is not working, with big developers and speculators pushing workers and even middle-class families out of the city. Meanwhile, the City Council is working on behalf of big business rather than ordinary renters and homeowners.

This sounds more promising. We’re finally getting to the meat of her plan to “Make Seattle Affordable.” Here is what appears to be the crux of her plan:

• We need rent control as an immediate step to address the crisis of out-of-control rents. The city council should immediately pass a resolution demanding the state government remove the ban on rent control, and bring a legal challenge to it. Most importantly, tenants, unions, and community organizations need to organize, building for major protests in Olympia to demand an end to the undemocratic state ban.
• Make big developers pay the maximum “linkage fee” possible to help fund affordable housing.
• Working and middle-class people need an affordable alternative to the skyrocketing private housing market! The city should provide a public option by building thousands of high–quality, city-owned housing units, rented at below-market rates. This can be financed by selling municipal bonds and making use of currently vacant city land.
• Seattle needs a Tenants’ Bill of Rights!
  • Tenants should have six months’ advance notice of a major rent increase, rather than the two months currently legally required.
  • Expand relocation assistance to those being economically evicted by out-of-control rent hikes. Tenants should receive the same $3,200 relocation assistance currently available for those evicted due to major construction.
  • Cap security deposits and move-in fees at no more than one month’s rent.
• Housing is a human right! Fully fund an emergency plan to immediately offer decent shelter for the more than 3,000 homeless people on Seattle’s streets.
• Mortgage relief for homeowners! Over 16,500 Seattle families have lost their homes to foreclosure since 2008. The city needs to stop dragging its feet and finally implement a principal reduction program for underwater homeowners to keep more families from losing their homes.

I’m not going to go over every one of these points, but I do want to address a few of them.

Good article linking #FightFor15
w/ affordable housing. We got the min wage ball rolling. Now we need #RentControl! http://t.co/jhDXpEN7wt

— Kshama Sawant (@cmkshama) June 1, 2015

At the top of her list is rent control—the idea that the government can just dictate a ceiling on rent prices or rent increases. Despite being totally illegal here in Washington State, rent control definitely makes for great hashtags and soundbytes. Unfortunately, economists are near-unanimous in their agreement that rent control does not work. You can read study after study after study after study and they all say more or less the same thing. The really strange thing here is that Sawant has a PhD in Economics. This is something that she should understand better than most people.

Sawant also says that the city should “implement a principal reduction program for underwater homeowners.” This too is a terrible idea. If you took out a mortgage that you can’t afford to pay back, there already exists a “principal reduction program” for you: either sell the home or walk away and give it to the bank. The city should not be in the business of bailing out bad borrowing decisions.

Her plans to improve tenants’ rights and build more homeless shelters both seem relatively reasonable, and will definitely help some people. But it’s her suggestion for “building thousands of housing units” that really comes closest to a solution that would actually help make Seattle more affordable. The housing market is subject to supply and demand. Prices are currently rising sharply because demand is increasing more quickly than supply.

You can solve this basic problem in one of two ways: Decrease demand or increase supply. Building lots and lots of new housing units so that supply can catch up to demand is the only reasonable way to address affordability. Now, I’m not sold on Sawant’s suggestion that these units should be city-owned and “rented at below-market rates,” but she does at least get close to the actual solution to the affordability problem with this proposal.

It doesn’t have the same populist appeal as rent control, but dramatically increasing housing supply is something that would actually work, and if Sawant really wants to “Make Seattle Affordable for All,” that is where she should be focusing her energy.

The post How Does Seattle City Councilmember Kshama Sawant Plan to “Make Seattle Affordable for All”? appeared first on Seattle Bubble.

This story by KUOW’s Joshua McNichols is a couple weeks old, but he hits the nail on the head, and I wanted to make sure it wasn’t overlooked. Why This Rickety Building Lost The Fight Against Rising Rents

Frustrated renters often blame developers. But the reality is more complicated…
…
The Summit Inn started out as housing for people with mental health problems. It morphed into an artists’ hub over time because of its former owner, Peter Sikov, whose motto was to “create places where things can happen.”
…
Rents at the Summit Inn stayed low because Sikov didn’t maintain the building much. Over time, it slid into disrepair.
…
Last year, the Seattle City Council passed a law requiring that all rentals meet a standard. Apartments would be subject to random inspections.

Sikov balked. And at the end of 2014, he sold the Summit Inn for twice what he paid in 1998.
…
That’s when Brad Padden entered the picture.

“We bought the building at today’s market rates,” Padden says. “There was no discount to us so that we could continue with that kind of patronage of the residents there.”

Padden and his business partner bought the building for almost $3 million.
…
“When you buy a $3 million building, and you put $2 million into it, you have to recoup those costs,” he says.

You should read (or listen to) the entire story.

As Joshua points out, an investor can’t buy an apartment and increase the rents if the previous owner doesn’t first put it up for sale. If you insist on having someone to blame, perhaps you should be blaming the sellers, not the buyers.

The post KUOW Nails the Problem of Placing Blame for Rising Rents appeared first on Seattle Bubble.

…Eve and Charles told us they were putting the property up for sale. Who could blame them? The building is a century old and so much work went into maintaining it, especially for a couple of people who, also, are aging. But it’s prime real estate, right on the water with a view that would make even Donald Trump drool. So we had a good idea of what would happen after the sale went through. Skyrocketing rents and a landlord we’d never see, much less ever know.
…
No one begrudges your interest in a profit. After all, spending millions on a building is no small thing; you should indeed expect a sound return on your investment. But if that means that low-income, older tenants who have lived in the same place for decades must leave their homes, and likely their city, in search of affordable rents, then let’s be honest. You aren’t just in the real-estate business. You’re in the business of creating unaffordable housing.

Yes, it is sad that the long-time tenants of this apartment will need to move. No, it is not the investor’s fault. If you must assign blame, point the finger at basic supply and demand.

On the supply side, building policy in the Seattle area makes new construction expensive, time-consuming, complex, and in some places thanks to restrictive zoning and height restrictions, downright impossible.

On the demand side, the Seattle-area economy is currently booming, with high-paying tech jobs leading the way. People are moving to King County in record numbers.

Investors are not causing unaffordable housing. They are an effect of an economic system running on overdrive.

When the timer expires on your longtime bargain on a water view rental it feels good to have someone to point the finger at, but blaming the investors is just dumb.

The post Don’t Blame Investors For Unaffordable Housing appeared first on Seattle Bubble.

None of these listings have been posted on Zillow in Seattle since the launch of the service on June 12.

Why?

The Northwest Multiple Listing Service — an association of more than 21,000 real estate agents in Western Washington — actually forbids agents from engaging in the pre-marketing of properties. In other words, agents can’t drum up interest in a property before it hits the NWMLS database.
Here’s the relevant part of the rule from the NWMLS:

Members shall not promote or advertise any property in any manner whatsoever, including, but not limited to yard or other signs, flyers, websites, e-mails, texts, mailers, magazines, newspapers, open houses, previews, showings, and tours, unless a listing for that property has been delivered to NWMLS, or input by the member.

Katie Curnutte, a Zillow spokeswoman, said that they were aware of the NWMLS rules when they launched the service. She said they respect those rules, and are not actively encouraging agents to break them.

“It is a marketing tool for agents, so they need to follow the marketing rules of their own MLS and brokerage,” she said. If agents are not acting within the rules of the local MLS, Curnutte said they will remove the “coming soon” listing. She also noted that agents must check a box that they are complying with local MLS rules before posting.

The really amusing bit about all this is how Zillow has stated in the past that they are not trying to compete with MLSs or become their own MLS, but if this feature were widely adopted, Zillow would effectively become an MLS (which is itself nothing more than a marketing platform for advertising listings). Since Zillow is not a brokerage, and therefore not a member of the MLS, they can release features like this that fly in the face of MLS rules, but any agent who attempts to market a listing as “Coming Soon” will no doubt swiftly incur a hefty NWMLS fine.

The box-checking bit is also especially hilarious. Oooh, agents have to check a box! Surely they won’t use the feature in violation of MLS rules now!

I’m certainly no big fan of some of the rules and data practices of the NWMLS, but in this case they’ve got it right. The only one who would benefit from “pre-marketing” a listing is the listing agent. It’s in the best interest of the seller and potential buyers to list the home on the MLS for maximum market exposure.

I could go on, but this Inman News guest post by Doug Miller, executive director of Consumer Advocates in American Real Estate, pretty much sums it up.

In a hot market, pocket listings will almost always generate offers. That is not “test marketing” to gauge demand or pricing. Worse, when that offer comes in, the seller is placed in the undesirable situation of either accepting an offer generated by a semiclosed marketplace or rejecting that offer and putting the house on the MLS. The result is to place the seller in a decision clouded by duress. No fiduciary should ever put their clients in such a situation. And no fiduciary (broker or agent) who is financially biased with a double fee should ever “advise” their clients in this situation, as such advice would certainly be construed to be self‐serving.

Pocket listings exist to generate a double fee. That’s it. Every argument in favor of pocket listings is little more than self‐serving rationalizations that do not survive logical analysis.

If this is a subject that interests you, it’s worth reading the whole thing.

The post Zillow’s “Coming Soon” Won’t be Coming to Seattle appeared first on Seattle Bubble.

Let’s take a tour of a shameless rip off, shall we?

Home Page

The home pages are very similar, but not so identical as to arouse too much suspicion. After all, Redfin, Zillow, and Trulia all have very similarly laid out home pages. Dig a little deeper though, and the all-out copying becomes evident.

Listing Page

Identical layout, same horizontal table of contents with a moving arrow that marks your place in the page, literally identical default avatars (far upper-right). They even duplicated the agent’s left-hand-on-the-hip pose! Speaking of the agents…

Agent Page

Here’s where it gets really ridiculous. Not only is the Asset Realty Group agent page a total rip off of Redfin’s agent page, but when you view the page source, you’ll find 54 instances of “Redfin” still in the code. They literally copied and pasted large amounts of Redfin code and didn’t even bother to do a find and replace.

According to the Internet Archive, this shameless clone version of their site appeared some time between October and early February. So far there appears to have been no repercussions.

At the very least, there should be a very large fine in store for them from the NWMLS. If instead, the NWMLS chooses to sit on their hands and do nothing, here’s the message is the NWMLS sending to it’s members: Write about another brokerage’s listings, get a $50,000 fine and a threat of your listing feed being cut off. Completely clone another brokerage’s website, literally copying and pasting their code as well as at least some of their image assets… hey no problem, go for it!

Apparently sleazy tactics are nothing new for Asset Realty Group, wholesale website copying is just their latest scam. Here’s a sampling of Asset Realty Group reviews on Yelp:

After we took our house off the market, i started receiving numerous phone calls from this service, despite me asking them not to call again. Their representative was rude and pushy. Phone spam.

Every time my house goes off the market I get a call from this company. Sometimes they leave messages. Today they did not. I’ve asked them in the past not to call me, my number is listed in the ‘Do Not Call Registry’ yet they continue to call.

I too listed a property in Washington on the MLS and after removing it have been hounded by calls from this company.

I have no doubt that Asset Realty Group is a dues-paying member, but the NWMLS is not doing themselves or the rest of their membership any good by allowing brokerages that engage in sleazy, unethical, bottom-feeding tactics like these to remain part of their organization.

Full disclosure: The Tim is currently a Redfin shareholder. This content is not endorsed by Redfin.

The post Sleazy Kirkland Brokerage Rips Off Redfin Design & Code appeared first on Seattle Bubble.

Your main objection seems to be based on a belief that there are large numbers of homes with mortgages that the borrower has stopped paying months or years ago, but for which the banks aren’t even filing a notice of trustee sale.*

The problem I have with the claim that “shadow inventory is there, but it’s just not measurable” is the same problem I had back in 2006 with claims that Seattle home prices were not in a bubble. These claims are based on gut feelings, rumors, and anecdotes—not the data.

It’s true that we can’t measure the number of borrowers who have stopped paying their mortgage but have not even reached the first quantifiable step in the foreclosure process (notice of trustee sale). However, we can look at what data we do have available to see if it implies something else going on that we can’t measure.

Foreclosure filings surged from ~250 a month in the years before the housing bubble burst to over 1,600 in a single month in 2009, when home prices were falling over 16% year-over-year. That’s a peak level four times higher than the highest level ever recorded before 2007 and nearly six times higher than the pre-bubble average. Does that sound like banks holding back foreclosures?

From January 2005 through July 2007 (when Seattle home prices peaked), 100,533 homes were sold in King County. From July 2007 through September 2013, 23,441 homes have been foreclosed. That volume of foreclosures represents nearly one in four homes sold during the bubble years. Does that sound like banks holding back foreclosures?

There is nothing in the data that we do have that suggests that large numbers of defaulted mortgages are being withheld from the foreclosure process. On the contrary, the foreclosure data looks just like you would expect it to during a massive collapse in home prices following years of increasingly dangerous lending.

How many foreclosures would have to have occurred for you to believe that there was no large backlog of shadow inventory being withheld by banks? 50% of homes sold during the bubble? 75%? 100%?

I’m not buying it any more than I was buying the “Seattle is special” anti-bubble argument in 2006.

*There were also a few of you who consider homeowners who are current on their mortgages but either underwater or otherwise unable to sell as “shadow inventory.” I consider those homes to be “pent-up supply,” and I think that number is probably quite large (but also not measurable). For the purposes of this discussion though I’m going to limit the definition of shadow inventory to homes where the borrowers have stopped paying their mortgage(s).

The post Shadow Inventory Gut Feelings, Rumors, & Anecdotes appeared first on Seattle Bubble.

Obviously, I love a good contrarian argument. Unfortunately, this piece is far from good.

Take the consumer confidence numbers, which are measured every month by the Conference Board and act as one of the more foolish hinges on which to hang our hopes. Consumer confidence in May jumped to 76.2, on a scale of 100.

Just three paragraphs into the article and we’ve already run into the first error. Consumer confidence is not measured “on a scale of 100.” It’s indexed to 1985 = 100. She might know that if she had bothered to look at the Conference Board’s public documentation (pdf).

In the popular interpretation, that indicates that consumers believe the economy is improving.

No, all it means when the consumer confidence index reads 76.2 is that consumers are ~24% less confident than they were in 1985. What’s important is the direction the index is moving, which is definitely up. Less than two years ago the index sat at 40.9. Is she seriously trying to argue that 76.2 is not a dramatic improvement from 40.9?

The May data shows the highest measure of consumer confidence since February 2008. That was a time in which a housing crash was already well underway, and only a month before before Bear Stearns collapsed and confirmed that the country was in a financial crisis. At least six months before that, in August 2007, three major hedge funds invested in subprime real estate had to be bailed out by the French bank BNP Paribas, and the Federal Reserve and other central banks started pumping $300bn into the global banking system. Any collective confidence back in February 2008 was foolish and unwitting of the crisis that had already started in the higher rungs of finance.

Again she completely misses the point. In February 2008, consumer confidence was plummeting, having dropped 35.5 points in just 8 months. The current rising trend is obviously good news. To imply that it isn’t is either dishonest or ignorant. Things aren’t great, but they’re getting better.

Housing prices have risen at the fastest rate in seven years, as the Case-Schiller Index of national housing prices showed today.

Apparently neither she nor her editor knows how to spell Robert Shiller’s name correctly.

The housing recovery, for instance, seems to be just another stage of the foreclosure crisis. Note that the areas where house prices have risen the most – Arizona, Las Vegas and California – are all areas that were hurt most deeply by the housing crash. So pry between the boards of the housing recovery and the termites start crawling out.

Home prices are rising fastest in these areas for a number of reasons. These places are where prices fell the furthest, overcorrecting in some cases, so it’s natural for prices to come up a bit to match local incomes.

Also, foreclosures were a huge share of sales in these markets, but over the last year foreclosures have dramatically declined, so the mix of sales has shifted toward non-distressed inventory, which is naturally higher-priced.

There is evidence that lenders are controlling the housing supply by reducing the number of houses for sale. Last year, AOL Real Estate’s reporting suggested that as many as 90% of available properties were not even really on the market, but just polished for sale and being held back to keep supply low.

Then, last month, three major banks, including Citigroup and Wells Fargo, halted all their sales of homes in foreclosure; this also reduced the supply of homes on the market. The reduction in housing supply, then, is largely artificial, designed by the banks and institutions that hold thousands of houses and thus have the most to gain from higher house prices.

It couldn’t be that the number of foreclosures on the market is decreasing because the number of homes being foreclosed is decreasing, thanks to rising prices and a gradually improving economy. No, there must be a conspiracy by the banks to withhold inventory! Yeah! I’ve looked into this data and found nothing to suggest that banks are doing anything other than putting foreclosures on the market at the same rate that they’re foreclosing on homes.

A recovery allows real estate agents and banks to tell Americans that they can’t borrow money for the home they want, that they can’t participate in the housing market, while wealth private investors scoop up as much as they can.

Um, what? That doesn’t even make any sense.

Anyway, if you’ve read any contrarian arguments recently that aren’t rambling illogical messes full of basic factual errors, I’d love it if you shared them in the comments.

The post The Guardian Needs a New Finance & Economics Editor appeared first on Seattle Bubble.

All of these claims focus on the just-foreclosed home—an empty, run-down shell with an overgrown lawn, missing appliances, and disconnected utilities. But the fact that a home was foreclosed at one point in time doesn’t mean that it will remain vacant and derelict forever. In fact, I contend that foreclosures benefit a neighborhood, and areas that have experienced the most foreclosures are poised to improve the fastest during a recovery.

Before I get into the benefits of foreclosure for a neighborhood, I want to be clear that the personal experience of foreclosure is not positive. Going through a foreclosure is disheartening, and losing your home takes an emotional toll, no matter the circumstances. I have a handful of friends who have been through foreclosure. It was not something any of them enjoyed, and I would not personally wish the experience on anyone.

At the national level, consider the markets that were the hardest-hit by foreclosures after the bubble burst. Las Vegas and Phoenix were both overwhelmed with foreclosures a few years ago, and yet today they are experiencing some of the largest price gains in the nation—15% and 23% year-over-year as of the latest data from Case-Shiller.

Just in the handful of blocks around my home there have been at least half a dozen foreclosures in the last few years. Instead of becoming worse with each new foreclosure, the overall character of the neighborhood has been noticeably improved through these foreclosures.

Some foreclosures are purchased, fixed up, and lived in by the family that bought from the bank. Some are bought by flippers, dramatically refurbished (often after being gutted to the studs), and sold for a decent profit. Others have been bought, fixed up, and are now rentals. In every case, within a year of being repossessed by the bank each the foreclosed homes in my neighborhood has become nicer, as evidenced by the photos throughout this post.

Homes that—even before foreclosure—were the most run-down and neglected in the neighborhood have often become the nicest home on the block. Former homeowners who could not afford even the most basic maintenance have moved on to more affordable rentals, replaced by investors and families who have both the resources and the motivation to keep these homes looking nice.

Here’s a quick rundown of what’s happened with a few of the foreclosures near my home. The homes listed below appear in the same order as their photos in this post.

• 3431 Oakes: Purchased by a family. Since foreclosure they have refurbished the interior, added a railing to the front porch, put in a nice fence, and cleaned up the yard.
• 3609 Wetmore: A small investment group that has fixed and flipped a number of homes in Everett bought this home. After their high quality work was complete, the home sold to the new owner for over double what they paid.
• 3331 Wetmore: Totally gutted, remodeled, and refinished over the course of nine months. Major work includes a whole new front porch, all new windows and doors, a new back porch, and an all new interior. Currently on the market.
• 3616 Rockefeller: The family that bought this home built a matching garage with second floor living space on the back of the lot (not seen in the photo) and is completely renovating the main house.
• 1710 36th: Purchased by a small investor, totally gutted and refurbished with new windows, doors, insulation, floors, all-new kitchen, etc. The finish work was nice enough that he was able to charge above-market rent.

The house directly across the street from mine was foreclosed in January. Rather than causing me concern about the detrimental effect that this will have on the “value” of my home or worrying about how the neighborhood is going downhill, instead I am excited to see how the home will be improved by its eventual new owners.

Foreclosures are not the dark cloud over neighborhoods that they are claimed to be. On the contrary, they are the leading edge of positive changes that improve the character of a neighborhood and lay the groundwork for a sustainable recovery.

The post Foreclosures Benefit a Neighborhood, Not Hurt It appeared first on Seattle Bubble.

Nick Timiraos noted this in the Wall Street Journal in early September. Here we are in late October, four debates later, and nothing has really changed. Barely a peep about housing from Obama or Romney.

Here’s one possible explanation: Neither wants to have a serious discussion about housing because they would have to talk about the mortgage interest deduction, which more and more is looking like it will need to be severely limited or possibliy even eliminated no matter who gets elected.

The burgeoning federal debt makes it unlikely that the mortgage interest tax deduction will survive in its present form, but any proposed changes to the tax break for homeowners will likely spark a fierce debate over the fundamentals of the U.S. housing market, the value of homeonwership, and consumer behavior.

That’s according to panelists at a housing forum hosted Friday by real estate search and valuation company Zillow Inc. and the University of Southern California’s Lusk Center for Real Estate.

“I think its entirely likely that something big is going to happen (with the MID) starting next year with either administration,” said Jason Gold, director and senior fellow at the Washington, D.C.-based Progressive Policy Institute, an independent think tank.

The idea of eliminating or reducing the mortgage interest deduction has been popping up for the last couple of years. A year ago I said that it was “unlikely that any of the current talk of eliminating the mortgage interest deduction will come to pass,” but the notion seems to be gaining some serious momentum.

MARTIN: Why is it that economists seem to be pretty – I would not say united on this point, but there seems to be a growing consensus among economists that this is bad public policy, this is bad economic policy.

GEEWAX: Well, we have to make choices among different kinds of ways of dealing with the budget deficit and they say this is a good one to go after because it really doesn’t make all that much economic sense in today’s climate to continue to push this. For example, one might argue that, yes, the American dream of the 1950s was to buy a home, but if you talk to young people today, their American dream might be quite different. What they really want is a great education and mobility so that they could pursue the jobs they want.

Could it be that both candidates realize that the mortgage interest deduction’s days are limited, and neither wants to go on record supporting its demise? If I were a political strategist, that would be a good reason to encourage my candidate to avoid housing as a topic.

The post Are Obama & Romney Avoiding Housing to Avoid Talking About Killing the Mortgage Interest Deduction? appeared first on Seattle Bubble.

Dear marketers,

Congratulations. You’ve located a popular, well-read site with frequently updated content and an engaged user base. Unfortunately, while you have demonstrated a basic proficiency in reading a list of popular blogs you found somewhere online, you seem to be incapable of basic reading comprehension. Allow me to explain, using short sentences and small words.

This is a site about real estate. We write about the Seattle area. That is all we do. This means that no matter how great they may be, neither I nor my readers are interested in your products, services, or accomplishments if they are not related to real estate in the Seattle area.

Based on the breathless press releases you incessantly email me—about two a week, usually addressed to “Whom It May Concern,” “FOR IMMEDIATE RELEASE,” or “Editor,” but occasionally “Tim,” as if we’ve been pals for years—I can tell that you are clearly very excited about the company you’re pimping. Great. Good for you. Here’s the thing, though. I do not care.

In what universe is it a good marketing strategy to email the editor of a Seattle real estate news site your press release about idiotic adult onesies, a coffee exhibition, a Houston homebuilder, a spay/neuter clinic, or a comic book art show? How did you think that was going to work?

In closing, I would like to specifically shame the last twenty-five lame press releases I have received.

• HOMETEAM PEST DEFENSE RECEIVES THE RENOWNED “PARTNERS OF CHOICE” AWARD FROM DAVID WEEKLEY HOMES
• News from David Weekley Homes and Boise Cascade
• Temporary Museum for New Design 2013
• UW undergrad company ft. Jon Brockman — “Swagga Suit”
• Coffee Fest First Time Attendee program announced
• Courage Campaign Applauds Brown, Calls Homeowners Bill Rights A Major Victory
• ONCE ENERGY INEFFICIENT, 100-YEAR-OLD PLACENTIA FARMHOUSE, NOW A SHELTER FOR THE HOMELESS, IS HAILED AS A MODEL OF ENVIRONMENTAL SUSTAINABILITY
• DAVID WEEKLEY HOMES CELEBRATES 70,000TH CLOSING
• Mindy becomes the 75,000th cat altered by Lynnwood spay/neuter clinic!
• RAYGUNS & ROBOTS! a Tribute to Classic Science Fiction
• UW undergrad company ft. Jon Brockman — “Swagga Suit”
• UpNext Maps for iPhone
• Luxurious Tuscan villa for auction from Williams & Williams in Barga, Italy
• DAVID WEEKLEY HOMES NAMED ONE OF THE LARGEST PRIVATE HOME BUILDERS IN AMERICA!
• Cross District Three-Day Starets Tomorrow!
• Bored To Death Creators kick off WebVisions Wed
• Webutante Ball After Party + Prom Committee + More!
• You’re Invited to trivago’s Meet Seattle Writers Day on June 6th!
• News Release: 600 home community launch Sunday in Puyallup
• HEY GEEK GIRL! a Tribute to Women and Pop Culture
• CityClub to Host Colin Powell June 6th
• Wonder Northwest May 26th & 27th Portland, Oregon
• Dachis Group Launches Content Insight Functionality on Social Performance Monitor and Facebook Insights API integration
• Greenpod Shipped to Seattle from Port Townsend for Earth Day
• Sneek Peek at New Bachelorette Pad

Unless you want me to start a new blog designed just to shame you and the companies you represent for infesting the internet with such poorly-written, poorly-targeted, junk, you really should stop it.

Sincerely,
-The Tim

The post Dear Marketers: I Don’t Care About Your Press Release appeared first on Seattle Bubble.

Here’s an example of the rhetoric floating around out there regarding the latest round of budget tightening, with the governor making the case for a “temporary” sales tax increase:

Seattle Times, November 21: Gregoire proposes half-cent sales-tax increase

Gregoire wants lawmakers to put a referendum on the March ballot asking for a temporary half-penny boost in the sales tax, which would bring in nearly $500 million a year. The tax would expire after three years and largely would go toward education, with smaller amounts for public safety and social services.

The governor’s proposal came after she outlined more than 160 proposed budget cuts to fill the gap. The cuts included eliminating state-subsidized health insurance for the working poor; reducing the K-12 school year by four days; and allowing early release of prisoners who are at low to moderate risk of reoffending.

Some reductions would be rescinded if the tax increase is approved.

“I have seen the ramifications of the cuts,” Gregoire said. “I can’t live with it.”

Today, protesters descended on the state Capitol in Olympia to protest these allegedly intolerable cuts.

Here’s a look at Washington’s total budgeted spending for each biennium, with the budget hole that everyone is making a big deal about overlaid in green:

When the total budget is $74 billion, cutting $2 billion doesn’t seem like quite as big of a deal. We’re talking about 2.7% of the budget. It also seems worth noting that even with these annual cuts we keep hearing about, the total budget has still managed to grow 5.2% since the 2007-2009 biennium.

Of course, straight dollars don’t quite tell the whole story, so here’s a chart in which I’ve indexed total state spending to 100 in the 1999-2001 biennium, and plotted it alongside an index of population, multiplied by the growth in national CPI (less shelter):

State spending has managed to grow a total of 61.7% over the last twelve years (after the $2B in cuts), vs. a total growth of 55.5% for population times inflation. So I can’t help but wonder… where exactly is the pressing need to increase state taxes or cut vital services?

The post Washington State Budget Woes: Where’s the Beef? appeared first on Seattle Bubble.

Personally, I would not feel comfortable leveraging into a $360K loan on a $100K income at a time where a significant risk of price declines exists. But, apparently many people have no problem with this. From what I’ve read, many people actually consider 28% of gross annual household income to be a conservative amount.

My question is, how do other Seattle Bubble posters feel about the 28% affordability measure? Is this realistic as an affordability measure?

Because what article isn’t improved by a generic stock photo? (credit: s_falkow)

I’ve always heard it as 30% of gross annual income, which is the number I used for my Simple Affordability Calculator, and the number I use when calculating the Affordability Index.

On the other hand, my personal opinion is that families that take out a mortgage whose payments eat up 30% of the gross of two incomes are putting themselves in a precarious position should either breadwinner lose their job or even take a pay cut.

My family’s threshold is quite a bit more conservative than the “traditional” measure of affordability. When we bought our house this year, we kept our total monthly payments (PITI) at around 15% of gross income—half of what is traditionally considered “affordable” by most. We also only counted one income, and have no other debt whatsoever.

So what does “affordable” mean to you? Would you take out a mortgage that required 30% of your gross income to make the payments, or is your threshold 20% or even lower?

The post What Does “Affordable” Mean to You? appeared first on Seattle Bubble.

LAS VEGAS — President Barack Obama offered mortgage relief on Monday to hundreds of thousands of Americans, his latest attempt to ease the economic and political fallout of a housing crisis that has bedeviled him as he seeks a second term.
…
His jobs bill struggling in Congress, Obama tried a new catchphrase — “We can’t wait” — to highlight his administrative initiatives and to shift blame to congressional Republicans for lack of action to boost employment and stimulate an economic recovery.
…
While Obama has proposed prodding the economy with payroll tax cuts and increased spending on public works and aid to states, he has yet to offer a wholesale overhaul of the nation’s housing programs. Economists point to the burst housing bubble as the main culprit behind the 2008 financial crisis.

Wait, what? No, the main culprit behind the crisis was all the insane financing, derivatives, bogus ratings, leveraging, and all of the other nonsense that went on during the housing bubble run-up. The bust and financial crisis were just the inevitable consequences of the near-universal death of responsibility at both the personal and the corporate level.

Moving on…

Under Obama’s proposal, homeowners who are still current on their mortgages would be able to refinance no matter how much their home value has dropped below what they still owe.

Because there are so many people whose homes are worth half what they owe who just want to refinance to a lower interest rate. Or something.

“Now, over the past two years, we’ve already taken some steps to help folks refinance their mortgages,” Obama said, listing a series of measures. “But we can do more.”

At the same time, Obama acknowledged that his latest proposal will not do all that’s not needed to get the housing market back on its feet. “Given the magnitude of the housing bubble, and the huge inventory of unsold homes in places like Nevada, it will take time to solve these challenges,” he said.

Please, don’t “do more.” Hasn’t the government already done enough? Killing financial oversight, over-promoting “ownership,” over-expanding Fannie & Freddie, bailing out irresponsible banks…

Presidential spokesman Jay Carney criticized Republican presidential candidate Mitt Romney for proposing last week while in Las Vegas that the government not interfere with foreclosures. “Don’t try to stop the foreclosure process,” Romney told the Las Vegas Review-Journal. “Let it run its course and hit the bottom.”

“That is not a solution,” Carney told reporters on Air Force One. He said Romney would tell homeowners, “‘You’re on your own, tough luck.'”

I’m certainly no Romney fan (he’s probably my least favorite potential 2012 challenger), but he’s right on this one, and Mr. Carney has got it backward. Foreclosures are not the problem. The problem is over-inflated values that got completely detached from all sound economic fundamentals. Foreclosures are the solution, not some sort of government-forced refinance plan that helps people to continue throwing good money after bad for decades to come.

[Update]

It seems I was a little unclear on why exactly I think this is a bad plan. The main reason I’m not a fan of this “help people refinance their underwater mortgage” program is what I said just above: It only “helps people to continue throwing good money after bad for decades to come.”

Let me try to explain via an example. Let’s say you bought a 3-bed, 1.75-bath Seattle-area home in 2007 for $419,000. You put down 20% and got a 6.6% rate on a 30-year fixed-rate mortgage. That puts your total monthly PITI payments at about $2,600.

Today your house is worth about $280,000. You still owe about $314,000, so despite putting 20% down, you’re 10% underwater (more if you count the costs of selling). If you refinance into a new 30-year mortgage at today’s rate of 4.2%, you can drop your payments from $2,600 to about $1,900.

Pretty good, right? $700 a month savings!

But what if instead you were able to do a short sale (or default, if the bank won’t play ball), rent for a few years, then buy a home at today’s lower prices?

Going rent for a home like yours in your neighborhood is around $1,400 a month—$500 a month cheaper than what you’d be paying if you refinanced your underwater mortgage. Five years of renting at that price (even allowing for some increases in rent) will cost about $25,000 less than five years of paying the $1,900 a month refinanced mortgage, and $67,000 less than paying your original mortgage.

If you take the $67,000 you save by renting for five years and put it into a $280,000 home comparable to what you used to own, your monthly payment (if rates go back up to 6%) will be just $1,600—$300 less than if you take the government’s deal and refinance today. The numbers work out even worse for you to take the deal if you originally put no money down or have a home that is even further underwater.

Here it is in table form:

That’s what I’m talking about when I say that continuing to pay an underwater mortgage is “throwing good money after bad.” It’s short-sighted and in my opinion a larger drain on the economy than encouraging people to get face the consequences of their poor purchase decisions, get out of these houses and move on with their lives.

The post Obama “Can’t Wait” to Screw with the Market Even More appeared first on Seattle Bubble.

In the comments on the proposal I made yesterday, Doug asked a reasonable question:

Have you figured out what the deduction would be if you did this, and made it deficit neutral? That would be an interesting exercise.

Good question. Let’s do that.

According to various sources, the current cost of the mortgage interest deduction is about $131 billion, so let’s use that as our baseline cost. According to the U.S. Census Bureau, there are about 75 million owner-occupied homes in the country. So, let’s do the math.

$131,000,000,000 divided by 75,000,000 gives us about $1,750 per household to work with. If we assume that the average homeowner is in the 28% tax bracket ($139,350 – $212,300 of income for married filing jointly), that translates to a flat homeowner deduction of $6,250. If the average homeowner is in the 25% tax bracket ($69,000 – $139,350, which seems more likely to be closer to the nationwide average), we can give them a $7,000 deduction.

So, how does that compare to the mortgage interest deduction? According to Q2 data from the NAR the nationwide median price of homes sold in Q2 of this year was $171,900. If a buyer purchased said home with just 3.5% down at a 4.5% interest rate, they would pay approximately $7,410 in interest during the first year of their mortgage. If they put 20% down they pay $6,143 in interest. If you are in the 25% tax bracket and you deduct $6,143 from your income, your tax savings is $1,536—about $200 less than the flat homeowner deduction I am proposing. And don’t forget that the amount of interest you pay decreases every year of your mortgage, consistently shrinking and eventually eliminating your tax savings under the current system.

Obviously people who pay far above the national median price will get a much smaller benefit from this system than they do under today’s policy, but again, so what? If you’ve got the money to pay two or three times more than the average American for a home, why should the government be obligated to subsidize your purchase to a larger degree than for people who can only afford a more modest home?

It looks to me like the numbers work out. A revenue neutral deduction at $7,000 (~$1,750 tax savings) per owner-occupied home would be fair, or we could give the budget a bit of a boost and just make it a $5,000 deduction (~$1,250 tax savings). What do you think? Is my math screwed up, or would this actually work?

The post Running the Numbers on the Flat Homeowner Deduction appeared first on Seattle Bubble.

The Problem
There are numerous problems with the methods the government has used and is using to promote homebuying. One-time homebuyer tax credits just shift demand around, getting people to buy a few months or a year before they would have otherwise bought. The mortgage interest deduction is more of an encouragement for people to borrow money than it is to buy a home. Thankfully the tax credits seem to stand little chance of returning, but given the fact that the National Ass. of Realtors is the fourth-largest buyer of politicians in the nation, it seems unlikely that any of the current talk of eliminating the mortgage interest deduction will come to pass.

The Assumptions
Let’s assume for a moment that the government is never going to get out of the business of social engineering when it comes to the housing market. However, let us also assume that it is possible to replace inefficient policies with more efficient ones that achieve the same social engineering goals.

The Proposal
What if instead of just eliminating the mortgage interest deduction, we replaced it with something more fair that could achieve the goal of encouraging home ownership (thus placating the Realtors and their bought-and-paid-for legislators) without also encouraging massive, ever-increasing debt? Here’s my proposal: Replace the mortgage interest deduction with a single flat deduction for owning your primary residence.

My flat deduction would work the same way the dependent exemption works today. One flat amount applies to the whole nation, available to anyone who owns their primary residence. You can only take it on one home at a time, and it doesn’t matter if you have a mortgage or not, you get the deduction as long as you keep your home.

The Benefits
Having a flat homeowner deduction instead of a deduction based on how much mortgage interest one pays would encourage home ownership without promoting excessive debt. This program would reward people for actual home ownership, not just home indebtedness, as they would continue receiving the deduction even after they have paid off their home.

You could also build additional features into this plan to encourage other aspects of responsible home ownership, such as if you have a foreclosure on your record, you’re not eligible for the deduction for at least seven years. This would discourage people from the “buy and bail” strategy that some have been employing to get out of paying the mortgage on a home they overpaid for.

The Objections
“But what about the fact that homes are more expensive in San Francisco than they are in Topeka? Shouldn’t buyers in more expensive cities get a larger deduction?” – Why should they? If you choose to live in an expensive city, you know what you’re getting into. It also costs a lot less to raise a child in Topeka than it does in San Francisco, but the Dependent Exemption isn’t any different. Why should the home owner deduction get special treatment?

“The mortgage interest deduction is sacred. Any attempt to eliminate or adjust it will destroy the economy, and possibly the entire universe.” – Hmm, it is rather difficult to argue with such impeccable logic. How about we just give it a shot and see what happens?

The Conclusion
So, that’s my proposal. What do you think? What objections come to your mind? The main reason I can think of that it will never happen is that it is just too practical, not complicated enough, and doesn’t result in enough kickbacks to powerful industries. But maybe I’m just too jaded about politics.

[Continue Reading – Part 2: Running the Numbers on the Flat Homeowner Deduction]

The post Proposal: Replace the Mortgage Interest Deduction with a Flat Homeowner Deduction appeared first on Seattle Bubble.

• End (or greatly scale back) the mortgage interest tax deduction.
• Require at least a 20% down payment for purchases.

Here’s a recent article that covers the arguments in favor of ending the deduction: Mortgage-interest tax break in spotlight

Ending tax breaks for oil, corporate jets and hedge-fund managers is nearly every Democrat’s favorite way to reduce the federal debt.

But one of the biggest tax breaks is the mortgage-interest deduction, and its benefits are heavily concentrated in a handful of pricey cities, none of which votes Republican.

As Congress’ new deficit-reduction committee sets about finding up to $1.5 trillion to trim by Thanksgiving, tax breaks of all kinds, including the interest deduction, are getting new scrutiny. Beloved by the public and the real-estate industry, the deduction will cost the government more than $1 trillion over the next decade.

But few homeowners know how skewed it is by region and by income.

Three metro areas — New York, Los Angeles and San Francisco — receive more than 75 percent of the subsidy, according to a 2004 study by economists Todd Sinai and Joseph Gyourko.
…
The bigger the mortgage, and the higher one’s income, the bigger the deduction. A person in the top tax bracket of 35 percent who borrows $1 million can receive a tax break of $17,500. That’s on top of a slew of other subsidies, such as preferential capital-gains taxes on the sale of a primary residence, deduction of local and state property taxes, and subsidies to mortgage giants Fannie Mae and Freddie Mac.

By comparison, those earning less than $75,000 receive less than $200 in savings from the deduction. More than three-fourths of taxpayers do not itemize and so don’t claim the deduction. Those who rent or have paid off their mortgages, most of them seniors, get none.

The chief recipients are younger, well-off households that receive “a big incentive to increase the size of their mortgage or house,” said Eric Toder, co-director of the Tax Policy Center, a joint research group of the Urban Institute and Brookings Institution.

The deduction’s value increases with the cost of a home, suiting pricey real-estate markets such as San Francisco and Manhattan, or hot vacation spots such as Aspen, Colo.

I’m sure you can guess where most real estate salespeople fall in this debate. Here’s a recent piece from the NAR that lays out their position: What We’re Fighting For

“We’re at a turning point,” said Phipps, “not just because our livelihood is at stake, but because home ownership in an absolute sense is at stake. The privileges we’ve had, our parents had, and our grandparents had since World War II are being eroded, and our children face having [those privileges] denied to them.”
…
The ­public policies that enshrine home ownership as part of the American dream, including the mortgage interest deduction and readily available 30-year financing, can’t be counted on unless the nation’s citizens become engaged in the political process.

Wow, that is some thick rhetoric. Nothing like appealing to emotions when you can’t make a rational argument for your position.

The other good idea, requiring 20% down payments from most buyers just makes sense: Don’t buy stuff you cannot afford, right?

From the Wall Street Journal: Regulators Push 20% Down Payments on Homes

Banking regulators are pushing for mortgage-lending rules that require homeowners to make minimum 20% down payments on loans classified as lower-risk, according to people familiar with the matter.

The proposal is being floated as a way to rewrite the rules for mortgage lending to prevent a rerun of the housing bubble and financial crisis that resulted from years of easy credit. The Dodd-Frank financial overhaul law enacted last year enabled regulators to define a so-called gold-standard residential mortgage that would be exempt from costly new rules.

At least three agencies—the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—back a proposal to require home buyers to put down at least 20% of the sales price in order to obtain one of these “qualified residential mortgages.” One proposal would also require borrowers to maintain a 75% loan-to-value ratio for refinances, and a 70% loan-to-value for cash-out refinances in which the borrower refinances into a larger loan, according to people familiar with the matter.

To hear real estate salespeople tell it, requiring 20% down would be Armageddon for the housing market. From the same REALTOR link above: What We’re Fighting For

[Buyers] hear regulators talking about the need for skin in the game, so they think QRM is great. But when they hear a minimum 20 percent down payment would be required, they say, ‘That’s ridiculous.’ None of them have 20 percent to put down.”

Efforts to limit or eliminate the mortgage interest deduction, do away with the government-sponsored secondary mortgage market, or require 20 percent down for an affordable mortgage are just a few of the ways the financial crisis and today’s federal budget debate are upending the generations-old consensus in Washington about the central place of home ownership in the United States.

I especially enjoyed the headline and some of the quotes this article that popped up in my inbox last week: Get ready to rent: If home buying rules change, more than half can’t afford it

Future homebuyers could have to make a down payment of 20 percent under new rules proposed to prevent another financial meltdown.
…
[Ohio Association of Realtors CEO Robert] Fletcher said the 20 percent rule has the potential of knocking 60 percent of the buying public out of the housing market. Because the housing market is a key part of the economy, eliminating low risk buyers from the housing market will create another severe obstacle for the economic recovery to overcome, Fletcher said.
…
However the potential impact if the rules were to go through on the rest of the economy is less people could afford to buy a house if they have to pay 20 percent down or banks might be less willing to lend to them for less. Then demand for houses will decrease.

That last sentence really gets to the heart of the matter for real estate salespeople. It’s not about what’s good for the economy, homebuyers, or neighborhoods in the long term, it’s all about selling more houses. Who cares if they can actually afford it or not, right? Just move the goods, right?

The post Good Ideas that Home Salespeople Hate appeared first on Seattle Bubble.

Over in the Weekend Open Thread, Pegasus points out a story in yesterday’s New York Times: U.S. Is Set to Sue a Dozen Big Banks Over Mortgages

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Meanwhile, as seen in the chart at right from American Banker (via Consumerist), big banks are dramatically cutting back on customer-friendly offerings like free checking.

I could go on and on about how evil and anti-consumer the big banks are, and how great credit unions are, but I’m sure you’ve heard it all before. So I’d like to just put a question out there: Are you still banking with a big bank? If so, why? I seriously would like to know, because I literally have no clue why anyone would give their business to one of these institutions.

The post Have You Given Big Banks the Boot Yet? appeared first on Seattle Bubble.

Searching for registered sex offenders is easy with sites like CrimeReports, which puts links to your local law enforcement’s detailed offender info right on a map. However, just because it’s easy doesn’t mean it’s particularly useful.

Before I go on, I want to be very clear that sex crimes are serious business, and I’m not downplaying the seriousness of the crimes in any way. That said, in my opinion it’s silly to fret about the number of registered sex offenders living in an area, and even more ridiculous use it as a major deciding factor in your home search. Here are a few reasons why:

• Most sex offenders assault people they already know.
• They’re registered, so you know exactly who they are.
• If they want to re-offend, they aren’t limited to the neighborhood they live in.
• It’s the unregistered and uncaught criminals that you should really worry about.

Allow me to illustrate some of these points. Using the aforementioned CrimeReports, I pulled up a map of my own neighborhood and started clicking through to the first ten offender detail pages nearest to my home. Here are some excerpts from the descriptions of their crimes:

• …sexually assaulting the unknown 14 year old male victim… grabbed his buttocks…
• …sexually assaulting the known 13 year old female victim… sexually assaulting the known 14 year old female victim…
• …entered a on-line chat room. Once in this chat room he committed his lewd offense by exposing in front of his web cam…
• …sexually assaulting the known six year old male victim…
• …was 21 years of age at the time of the crime molested a 14 year old female. His vehicle was parked in a posted no trespassing area and he and the victim were watching a pornographic DVD inside the vehicle. Both were naked…
• The victim in this crime was a 11 year old female who was molested when the victim was taken on walks… His next victim was a 12 year old female who had gone to his home to play video games…
• …was on line and talking to what he believed to be a 12 year old and in fact was a detective.
• …sexually assaulting the known female victim from her age of one to five years old…
• The victim in these crimes were both 14 year-old females, known to the offender.
• …he harbored the known (he had known her about a month) 14 year old female victim after she had runaway from home.

Again, all of the crimes described above are inexcusable, but do any of these guys really sound like people you should live in fear of just because they happen to live a couple blocks away from you?

The majority of registered sex offenders (and seven of the ten in the list above) commit their crime against someone they already know (a friend or family member). Since a registered sex offender is, well, registered, it’s pretty easy to make sure your wife and kids aren’t spending time with him, even if he lives just down the block.

In the specific examples I pulled up from around my home, two of the three offenders who did not assault people they already knew committed their crimes online. I understand that with this newfangled internet thing you can go anywhere you want right from the comfort of your own home. Do you think that by living in some sterile suburban protective bubble you can avoid these online predators?

Speaking of mobility, you realize that the internet isn’t the only way for a sex predator to find potential victims, right? Sex offenders can drive cars & ride buses just like normal people. Just because you don’t have any living within a mile of your home doesn’t mean that there aren’t any hanging out in your neighborhood or in the parks or businesses you frequent.

But really when it comes down to it, this whole registered sex offender thing is a misdirection anyway. People worry about it because the information is out there and easy to find. But how many registered drunk drivers, registered drug dealers, registered car thieves, registered assaulters, or registered burglars do you have in your neighborhood? Oh right, none, because most of the crimes that home owners should be worried about don’t require offenders to register their location for life. And what about the sexual predators that just haven’t been caught yet? For all you know one could be living right next door to that home you just made an offer on.

Worrying about registered sex offenders is silly. Sure, if everything else is equal, anyone would rather not live in a neighborhood with a handful of known creeps. But everything else is never equal. It’s better to know what you’re getting into than to be ignorant, but if you’re ruling out a neighborhood just because of registered sex offenders, you’re limiting yourself unnecessarily, and possibly missing out on a great home for no good reason.

The post The Sex Offender Bogeyman appeared first on Seattle Bubble.

Timing Closing?

One question that frequently comes up when meeting with clients to sign loan documents is the question of “timing.”   Is it financially beneficial to close earlier in the month or later in the month?  In most cases the answer is that it makes no difference.

Interest is paid on the existing loan through the payoff date and interest is collected or “prepaid” on the new loan from the closing date through the end of the month.  The reason people often think that it is “cheaper” to close at the end of the month is because they are only looking at the “prepaid” interest.  For example, if you’re closing on the 10^th, then the settlement statement would show 21 days of prepaid interest.  If you’re closing on the 20^th then there would only be 11 days of interest.

However, if you’re also selling a home at the same time, you need to remember to look at the number of days of interest being added to the payoff balance of your existing loan. Typically the interest rate on the existing loan is higher than the interest rate on the new loan, so it would be slightly more beneficial to close as soon as possible.

Skipping Payments

Many people like the idea of “skipping” a payment.  Yes, you may not be making a payment directly to your mortgage company for one month (or sometimes 2 months) but interest is still being collected on the old loan until the time of payoff and interest accrues on the new loan from the closing date forward.  You are not getting out of paying interest.

One exception to this rule is if your existing loan is FHA.  FHA does not prorate interest on a daily basis.  The payoff balance will include interest through the end of the month.  Therefore with FHA specifically, it is very beneficial to close your refinance at the end of the month to avoid paying interest on both loans at the same time.

The post Financial Closing Strategy: Is there a better time of month to close on a refinance? appeared first on Seattle Bubble.

2005 through 2008 was definitely a pretty terrible time to buy—the signs were easy to spot: bidding wars, waived inspections, skyrocketing prices… But does dramatic improvement in market conditions for buyers necessarily mean that today is a great time?

Obviously one can make an argument that there are still too many negative macro factors (unemployment, massive national debt/deficits, inflation/deflation, etc.) hanging over the market like the Sword of Damocles to make today a great time to buy, but I would like to make a different argument today. I contend that even if every possible economic and market measure were positive, it still would not be “a great time to buy,” because there is no such thing as a generic, “great time to buy” that applies to every potential homebuyer.

There is never “a great time to buy.” There is only “your time to buy.”

If home prices are at rock-bottom, interest rates are at one percent, the economy is booming, is it a great time to buy? Not if you’ve got a hundred thousand dollars of school debt and you’re working part-time at the Sizzler, it isn’t!

Likewise if some of the macro-economic factors are still in the toilet, but your personal situation is secure and you find a great home that you love, at a price you feel is fair, and can easily afford. Is it “a great time to buy”? Probably not, but it may indeed be your time to buy.

When I’m thinking about whether or not it’s my time to buy, here are a few of the factors I take into consideration:

• income & job stability
• availability of nice, affordable homes
• current & near-future family situation (i.e. – kids, pets, etc.)
• desire for stability
• tolerance for risk (future price declines)

The stuff we spend every day talking about on this site generally falls into that second category, which is only one of the many personal factors that go into determining whether or not it’s my time to buy.

So, what are your factors? Is it your time to buy? I’m especially interested in hearing from readers that have bought in the last year or so. What led you to decide that now was finally the time to jump in?

The post There is no such thing as “a great time to buy.” appeared first on Seattle Bubble.

We coach people who are underwater in their homes.
We don’t do loans, we don’t sell real estate.

We teach our members how to deal with their underwater homes.

If you have to deny a loan for an underwater homeowner, we are the next logical step for them.

Once you deny them, you’re done. You can’t help them. If you can’t close it, you can’t make a commission on it. On top of that, you may never get them back again.

Now you can tell your client that the banks don’t have a solution for them but you do. You can refer them to the only company in the region that specializes in helping underwater homeowners.

Wow, does that ever sound fishy. The email goes on to promote a pair of upcoming events being hosted by this company. One of the events is being presented by “Howard Bono, Founder.”

Howard Bono… Where have I heard that name before… Oh yeah: Friday Flashback: "The Traditional Advice is Outdated"

Many dream of being millionaires, while others work hard toward that goal.

Howard Bono [owner of Old West Mortgage in Everett], on the other hand, wants to help others – 1,000 other people, to be exact – amass that kind of wealth.
…
When it comes to the long-term goal of retirement, Bono doesn’t offer the traditional advice, however. That’s because the traditional advice is outdated, he said.
…
…Bono suggests, in addition to preaching everyday financial fitness, that people use property as a tangible investment for retirement.

His rationale? Real estate values in the Puget Sound region grow, on average, by 7 percent a year. Which means if you buy a second property and hold onto it for a couple of decades, its value is bound to grow to three or four times what you paid. In the meantime, the second home can be rented out for additional income to cover its mortgage.

The key is to hold onto property long enough for it to dramatically rise in value.

So in 2007, when real estate was hot, Howard Bono was operating a mortgage company and telling anyone who would listen that buying real estate is the way to become a millionaire. Now that things have turned around, he’s running a “coaching group” whose website describes its mission as:

Our mission is to coach you through the process of strategically eliminating your burdensome mortgage(s), put cash in your pocket, minimize the damage to your credit and prepare you for the new financial arena.

In other words, if you listened to Howard Bono’s nonsense “non-traditional” advice in 2007 and got your finances into a giant mess, he’d love to give you some advice in 2011 about how you can get out of that mess. What a deal.

I also really love the bold disclaimer at the bottom of every page: “LEGAL INFORMATION IS NOT THE SAME AS LEGAL ADVICE.” Looks to me like these guys are basically trying to charge people money for basic advice er, I mean information on how to walk away from their mortgage or file a deed in lieu (hey guys, someone beat you to that). Hard to say for sure since they’re really not clear anywhere on their site about what exactly they do.

Personally I think if you’re looking for a good financial coach, smarmy hucksters that shift to a new opportunistic business model every couple years might not be the best choice. But that’s just me.

The post You Can’t Keep a Good Huckster Down appeared first on Seattle Bubble.

Note: The opinions expressed in this post are in no way legal advice nor should anyone take any commentary on this topic through this or any other blog as a substitution for legal advice. Sellers who are considering or currently engaging in a short sale should consult with an attorney.

If a lender refuses to forgive a deficiency in a short sale (will not provide letter of forgiveness), can the seller file bankruptcy and name the lender even if the lender does not pursue the deficiency?

Some thoughts:

• Let’s face it: Many sellers file bankruptcy after a short sale is completed to be rid of their debts and start with a clean slate. Can the seller list the “deficiency” as part of their bankruptcy even if the lender is not pursuing the debt? I think many would like to know.
• The banks that are not providing forgiveness of debt letters as part of a routine short sale are in effect reserving the right to pursue the deficiency at some time in the future.
• Would it be prudent for the seller to file bankruptcy right after the short sale when they don’t have assets or wait until they are pursued for the debt (if they ever are)?

The post Short Sales: What happens when the seller’s lender doesn’t provide a forgiveness letter for the deficiency? appeared first on Seattle Bubble.

It is obviously impossible to achieve all three of those goals, so the key to a successful project was to figure out which of those ideals the customer was willing to compromise in order to get the other two. Are the most important goals to have a reliable, feature-packed device with designs delivered in a week? No problem, but it’s going to cost you (a lot). Does the device have to be cheap and delivered fast? We can do that, but we’re going to have to cut features and sacrifice some testing.

The saying we used to describe this process is one you may have heard before: “Fast, good, cheap: pick any two.” This concept is sometimes known as the project triangle. When it comes to real estate, I believe there is a corollary to the project triangle that can help you set more realistic expectations when shopping for your home: “Price, quality, location: pick any two.”

Just $250,000 on Capitol Hill. Hah, just kidding—it’s $8 million. And also in Tacoma.

Everyone would love to buy the $100,000, brand-new, 3,000 square foot home on an acre lot at the top of Queen Anne. Clearly no such home exists, nor will it ever exist. If you are actually serious about buying a home, you are going to have to set appropriate, attainable goals for your search.

Price
Even though lending standards have become more conservative, and banks are unlikely to approve a debt-service-to-income ratio of more than 30%, it is also becoming more common for borrowers to be even more conservative than that. Maybe you can “afford” to take out a loan big enough to buy a $750,000 home, but it is important to you not to go above $400,000. Figuring out whether you are able and (more importantly) willing to compromise on price is usually pretty straight forward.

Quality
Quality can mean many things to many people. Here, I’m using it to mean things like the size of the house, the size of the land, and the finish quality of the house. Is one of your top priorities to have the perfect kitchen the day you move in? Or perhaps your family of six needs no less than 2,000 square feet to fit everyone and their stuff. Maybe quality should be one of the two priorities you pick.

Location
Obviously location is a priority that most people don’t want to—or shouldn’t—compromise. “Drive ’til you qualify” is a trap that all too many people fell into during the bubble, and now they’re stuck commuting from Marysville to Redmond. However, if price and quality are really so important to you, maybe location should be what you give up.

Obviously decisions on price, quality, and location are not a simple yes or no choice, but a give and take. If you’re willing to give up the perfect kitchen, you can pay a little less. If you look in Ballard instead of Queen Anne, you can get a better house for the same price. You get the idea.

The price, quality, location equation is probably the way most people intuitively shop for a home already. With this semi-formal framework, you should be able to make better, more intentional decisions as you search for the home that has just the right combination of factors for your budget and lifestyle.

The post Fast, Good, Cheap: Pick Any Two appeared first on Seattle Bubble.

Here’s their conclusion (emphasis mine):

If governmental policy does not change, over 11.5 million borrowers are in danger of losing their homes (1 borrower out of every 5). Politically, this cannot happen. Successive modification plans will be attempted until something works. The success rate on mortgage modifications can be raised by making greater use of principal reductions. The moral hazard (strategic default issue) must be addressed by first recognizing it as an economic issue, not a moral one. The costs of default must be made explicit. The 2nd lien issue must also be addressed.

However, supply side actions alone will be insufficient to address the housing crisis. Demand side actions are needed: providing leverage for investors to buy real estate, and increasing credit availability on prudent terms to borrowers with less than pristine credit.

I’d like to briefly discuss the ideas proposed in this paper. Even though it isn’t a Seattle-specific topic, I think that proposals like this are worth some print here. Let’s take the sections I emphasized in their conclusions one at a time.

First, let’s talk about the reasoning that is presented for making the dramatic changes suggested. Here’s an excerpt from the first section of the paper:

There are roughly 80 million homes in the US, 55 million of these have a mortgage.

…we conservatively conclude that 11.57 million borrowers are in danger of losing his/her home. That is about 1 out of every 5 borrowers; an impossible number, and one that is politically unfeasible. Moreover, if the resolution of the currently delinquent loans is not handled well, home prices will drop further thus reinforcing the cycle.

When you throw around phrases like “1 out of every 5” it sounds like you’re talking about really big numbers, but I contend that the “crisis” is not nearly as dramatic as they make it out to be.

According to 2006-2008 data from the US Census Bureau, there are roughly 115 million households in the USA (there are certainly more today, but we’ll use this number for the sake of discussion). If 11.57 million of those households are in danger of foreclosure, we’re talking about 10% of the population. How is allowing something to happen that affects only 10% of the people “politically unfeasible”?

Furthermore, to even arrive at our 10% number, we must assume that every one of the 11.57 million homes in danger of foreclosure is actually owned by a separate borrower. Many, many people took out crazy mortgages during the bubble to buy “investment” properties that they never have and never do intend to live in. This paper assumes a 1:1 relationship between homes and homeowners that is certain not to exist. In reality, 10% is the maximum amount of the population that would be affected if all of these homes were “lost” to foreclosure.

Since over 90% of the people in the country will not be losing their homes, anyone proposing major changes to the way foreclosures are treated is going to have to do better than “Politically, this cannot happen.”

Obviously I don’t think they have made the case that anything needs to be done about this “crisis,” but let’s briefly address some of their proposed “solutions.”

The costs of default must be made explicit.

Here they are suggesting various penalties for strategic defaults, including taxing missed mortgage payments as income. I doubt this would prevent anyone from defaulting, but it might stop them from living rent-free for a couple years, boosting the economy in other ways as they spend the money that they are no longer paying on their mortgage.

…providing leverage for investors to buy real estate…

This is a suggestion for a sort of Public-Private Investment Program (PPIP) in the real estate sector. Because that plan worked so well when we tried it last year. (Hint: No, it didn’t.)

…increasing credit availability on prudent terms to borrowers with less than pristine credit.

Translation: If you play nice with the bank, you get special super-easy financing to get you into another mortgage immediately after you leave your current underwater home. Extending more easy credit to people who have proven that they are not capable of responsibly handling credit. Sounds like a great plan, doesn’t it?

In summary: The growing number of foreclosures is not a “crisis.” It is a necessary market clearing that should be allowed to take place so home prices and sales volumes are allowed to naturally get back to a sustainable, sane level. Furthermore, the solutions proposed in this paper are misguided at best, and would be counter-productive at worst.

The post 11.5 Million More Foreclosures? Bring Them On! appeared first on Seattle Bubble.

Everyone seems to want to “stick it to the man” and make the banks pay for making false claims about having all the right paperwork and following all the right procedures.

I get that there are legal processes in place for a reason, and I agree that it’s not okay for the banks to just ignore the law when it happens to inconvenience them, but here’s something that’s been bugging me about all this outrage.

How is what the banks are doing today any different from what they did throughout the years that the housing bubble was inflating?

photo by Casey Serin (Remember him?)

Many of the people who are losing “their” homes today are the same people who were only able to get loans that allowed them to overpay for those homes in the first place thanks to the exact same sloppy procedures at the banks. They were more than happy to take advantage of lousy (or often a complete lack of) documentation when it got them into a home, but when the same set of rules are applied to kick them back out, suddenly they are crying foul.

Obviously not everyone fits my description of the typical foreclosure crisis “victim.” Those who are losing homes on which they never missed a payment or that they own outright clearly have every reason to be outraged at the banks. However, people who stopped paying their mortgage and are hoping to take advantage of some technicality to get “their” home back are only kidding themselves.

Here’s my proposed solution to the whole mess. Forget foreclosure freezes. Forget endless reviews of millions of documents. Here’s my 3-point plan:

• Free legal counsel for anyone who is current on their mortgage but has been truly wrongfully foreclosed.
• Every time a bank is found by the courts to have initiated any degree of foreclosure proceedings on someone who was not behind on their mortgage, a $10 million fee is levied against the bank.
• Fees collected pay for the legal representation of future legitimate claimants against the bank.

The basic idea is to make it easy for people who have actually been victimized (not just the victims of documentation technicalities) to obtain appropriate recourse against the banks, and to make it really hurt when the bank actually screws up. This provides a strong incentive for the banks to get things right and a just outcome for the times that they get it wrong.

What do you think? Would something like this be reasonable, or have I yet again displayed my ignorance of complex legal and economic issues?

The post A Simple Solution to the Foreclosure Paperwork Mess appeared first on Seattle Bubble.

The Bubble Sitter
Thought about buying during the housing bubble, but realized that prices were severly detached from the underlying economic fundamentals and decided to hold off. Saved a lot of money by renting during the housing bubble, often at half the cost of a mortgage on a comparable home.

Pros and cons for bubble sitters today:

• Pro: Large down payment saved up
• Pro: Home prices fallen and still falling to reasonable levels
• Con: Crazy low interest rates makes it hard to grow savings
• Con: Tax money being spent by government to bail out individuals and institutions that took irresponsible risks during the bubble

The Earnest Bubble Buyer
Bought a home during the housing bubble. Didn’t really realize that homes were overpriced, possibly because they believed real estate agents and the media when they were told that home prices never go down, housing is always a great investment, a home is a forced savings account, etc. Got a mortgage they could afford, but probably didn’t buy the home they really wanted or in the neighborhood they really wanted.

Pros and cons for earnest bubble buyers today:

• Pro: Able to enjoy the benefits of home ownership with a mortgage payment that is still affordable
• Con: Mortgage payments much higher than people buying the same homes today
• Con: Still paying high mortgage while strategically-defaulting neighbors live rent-free
• Con: Tax money being spent by government to bail out individuals and institutions that took irresponsible risks during the bubble

The Opportunistic Bubble Buyer
Bought a home during the bubble despite having no money saved for a down payment and not really having an income high enough to pay back the loan under any sane amortization schedule. Basically bought a home as a get rich quick scheme, fully believing the bubble hype about the riches waiting to be made through home appreciation.

Pros and cons for opportunistic bubble buyers today:

• Pro: No money down means nothing to lose by walking away
• Pro: Overwhelmed banks taking so long to process foreclosures allows rent-free living for a year or more
• Con: Black mark on credit after walking away
• Con: Foreclosure on record may make renting harder

The Equity Addict
Bought before the bubble at a reasonable price. Proceeded to refinance every year or two, extracting tens of thousands in home equity each time. Eventually ended up with a mortgage twice as large as when the home was originally purchased, and probably now has a mortgage payment that is no longer affordable.

Pros and cons for equity addicts today:

• Pro: Able to spend hundreds of thousands of dollars cash with no strings attached
• Pro: Nothing to lose by walking away since all possible equity has already been extracted
• Con: Black mark on credit after walking away
• Con: Foreclosure on record may make renting harder

Winners and Losers
By my accounting, despite making the more responsible decisions during the bubble, the bubble sitters and earnest bubble buyers don’t feel much like big winners today. The opportunistic bubble buyers and the equity addicts were able to live it up during the bubble, and hardly seem to be experiencing any negative consequences during the bust.

As a bubble sitter myself, I definitely empathize with other bubble sitters and with earnest bubble buyers who lament the way things are panning out during this bust. Maybe it’s just my bias showing through, but it does seem pretty screwed up that our system is basically rewarding irresponsibility and punishing prudence. Screwed up, but unfortunately not unexpected.

It turns out my parents were right. Life isn’t fair. Go figure.

The post Housing Bubble Winners and Losers appeared first on Seattle Bubble.

From Reuters: No Decision on Reviving Homebuyer Credit: Donovan

“It’s too early to say whether the tax credit will be revived,” Donovan said in an interview on CNN’s “State of the Union” program. He said the administration would “do everything we can” to stabilize the shaky U.S. housing market.

…
It would be far better for housing and the economy to announce “There will be no further housing tax credits.”

I could not agree more. Enough with the credits, subsidies, and stimulus already. And I say this as someone who is seriously considering buying a home within the next year. I would much rather have a rationally-functioning market than a few grand in my pocket.

To me, the homebuyer tax credit was like an invasive species that was introduced to an ecosystem to try to control a different invasive species that was introduced earlier.

I think I’ll name them Fannie & Freddie.

Pardon my pop culture reference, but I can’t help thinking of the Simpsons episode “Bart the Mother,” in which Bart released a pair of “Bolivian tree lizards,” which destroy the town’s pigeon population. In order to eradicate the lizards, the people of Springfield plan to release “Chinese Needle Snakes,” followed by “snake-eating gorillas.”

In the real world, the government wanted to encourage home ownership, so they beefed up Fannie and Freddie, loosened lending regulations, and held interest rates low. Things got overheated, so they began jacking up interest rates. High interest rates cooled things off, but that exposed the underlying weakness in the economy. Of course, when people realized how weak the economy was, the housing market crashed. In order to combat the crashing housing market, they dropped rates to the floor and introduced tax credits. Once the credits disappeared, sales fell hard, sending the housing market back to the gutter.

Yes, I realize that I am oversimplifying and leaving out a lot of steps, but I think that at its core, the invasive species analogy really works well.

It’s time to stop screwing with the ecosystem by introducing one invasive species after another.

The post Time to Let the Snake-Eating Gorillas Freeze to Death appeared first on Seattle Bubble.

First, a little background on my perspective. My parents bought their first house in 1987, when they were about 30 years old. They paid $45,000 for the modest 1,288 square foot, 3-bedroom, 1.75-bath house pictured below.

They refinanced once in the ’90s to get their ~10% rate down to around 7%, payed extra on the mortgage whenever they could, and paid the house off entirely in 2007. They would still live there today if Clark County hadn’t bought them out in 2008 to re-route the neighboring high school’s driveway and put in a retention pond. With the money the county paid them for their house they found another house that they could pay cash for.

By their early 50s, my parents were completely mortgage free. Their only housing expenses are property taxes, utilities, and maintenance. In my mind, this is one of the biggest benefits of buying a home—the ability to eventually pay off the mortgage and dramatically reduce your cost of living.

However, today it seems that everyone I know or hear about has little to no intention of ever actually paying off their mortgage. The typical home buyer’s process seems to look something like this:

1. Buy a home.
2. Live there for 3-10 years.
3. Get the urge to move up the “equity ladder” to something bigger.
4. Go to step 1 (and get a whole new 30-year mortgage in the process).

By the time someone has finally “settled down” and stopped moving to a new home and starting a new 30-year mortgage every few years, they’re probably as old as my parents were when they paid off their mortgage.

If you’re stuck in this loop, can that really even be called home ownership? Aren’t you just perpetually renting money from the bank and paying 6% to the real estate industry every few years to support your nomadic lifestyle? How is constantly resetting to a new 30-year mortgage any less “throwing away money” than renting (especially when, during the first five years, nearly 80% of your mortgage payments are applied to interest, not principal)?

Does anyone pursue actual home ownership anymore, or are most people just interested in home buying and perpetual debt? I’m genuinely curious. Do you or the people you know think of home ownership in terms of buying a home and eventually paying it off, or are you more focused on climbing the equity ladder until you retire?

The post Does anyone pursue actual home ownership anymore? appeared first on Seattle Bubble.

The Cycle of Market Emotions

Last time, in late 2007 as prices just began to decline here in the Seattle area, I pegged our location on the curve at somewhere between anxiety and denial. Today I’d guess that we’re holding fairly steady between fear and desperation.

Here’s a quick highlight of where the market is at today:

• foreclosures still increasing
• prices declining slowly
• sales boosted through the spring
• Post-tax credit, mortgage purchase applications have dropped to a 13-year low
• interest rates still at record lows
• banks failing at an increasing rate

While there may be signs of a bounce-back off the bottom for the economy as a whole, I have a hard time believing that the Seattle-area housing market has really “hit bottom” yet, either in terms of home prices or with respect to the cycle of market emotions.

What do you think? Have we hit capitulation or despondency yet, or are we still treading water somewhere between fear and desperation?

The post Treading Water Between Fear and Desperation appeared first on Seattle Bubble.

As is often the case, I find that I am learning the most from the people that disagree with me and present their opinions in a well-thought-out, rational manner. Specifically, the best argument that I read in yesterday’s discussion that makes the case for walking away being an unethical choice is that when you sign a mortgage contract, it is assumed that both parties are “acting in good faith,” and have an obligation to do so for the entire term of the contract.

While there are definitely buyers out there who were not acting in good faith from the beginning, I believe that most people probably were. I’m not sold on the idea that when circumstances dramatically change and continuing to make payments no longer makes sense, deciding to walk away means you are no longer acting in good faith, but let’s set the buyer’s position aside for a moment.

A rather detailed story popped up on ABC News yesterday that I think has some bearing on this discussion. Here is an excerpt from Mortgage Meltdown: How Banks Silenced Whistleblowers

In early 2006, Darcy Parmer began to worry about her job. She was a mortgage fraud investigator at Wells Fargo Bank. Her managers weren’t happy with her. It wasn’t that she wasn’t doing a good job of sniffing out questionable loans in the bank’s massive home-loan program. The problem, she said, was that she was doing too good a job.

The bank’s executives and mortgage salesmen didn’t like it, Parmer later claimed in a lawsuit, when she tried to block loans that she suspected were underpinned by paperwork that exaggerated borrowers’ incomes and inflated their home values. One manager, she said, accused her of launching “witch hunts” against the bank’s loan officers.
…
Amid the frenzy of the nation’s mortgage boom, the back-of-the-hand treatment that Parmer describes wasn’t out of the ordinary. Parmer was one of a small band of in-house gumshoes at various financial institutions who uncovered evidence of corruption in the mortgage business—including made-up addresses, pyramid schemes, and organized criminal rings—and tried to warn their employers that this wave of fraud threatened consumers as well as the stability of the financial system. Instead of heeding their warnings, they say, company officials ignored them, harassed them, demoted them, or fired them.

In interviews and in court records, 10 former fraud investigators at seven of the nation’s biggest banks and lenders—including Wells Fargo (WFC), IndyMac Bank, and Countrywide Financial—describe corporate cultures that allowed fraud to thrive in the pursuit of loan volume and market share.

Were the banks acting in good faith during the housing bubble when they handed out mortgages to anyone and everyone, regardless of qualifications? If the systemic problems described in this article are accurate, doesn’t that indicate that the banks were the ones not acting in good faith when the mortgage was written?

Consider this hypothetical. It is the summer of 2006 and you are a naïve first-time homebuyer. You have watched home prices skyrocket over the last few years and are genuinely concerned that if you don’t buy a home soon, you will be priced out forever. You go to your bank, get pre-qualified for a loan, and buy your first home. None of your paperwork was falsified, and you got a loan you can afford that you have every intention of paying back.

However, unbeknownst to you, the bank couldn’t have cared less about whether you could really afford the loan payments or if you intended to pay. All they cared about was originating the loan so they could collect the fee before repackaging and selling your loan into the secondary market.

I am not claiming that this scenario describes 100% of loan transactions during the housing bubble, but as the above-linked article demonstrates, it was certainly not uncommon.

So here is my question for the readers making the “good faith” argument. If you were acting in good faith when you obtained your mortgage, but the bank was not, are you ethically bound to continue making payments even if it makes no financial sense to continue doing so? I contend that the answer is no.

The post Did Banks Act in Good Faith During the Bubble? appeared first on Seattle Bubble.

With the subject of “walking away” finally hitting the mainstream media in full force this weekend with a dedicated segment on Sunday’s 60 Minutes, it would appear that the idea of giving the keys back to the bank to get out of a financial death spiral continues to gain some serious traction.

Of course, even though walking away would massively improve their financial situation and should be a no-brainer for many people (several such people are profiled in the 60 Minutes segment), strategic default (choosing not to pay your mortgage even though you can afford to) still carries something of a social stigma in many people’s minds.

For example, “walking out on a mortgage” was recently listed among “8 money missteps” by USA Today, which was then repeated without question and escalated to a “financial deadly sin” by my favorite personal finance blog, Get Rich Slowly (P.S. – buy J.D.’s book). Here in my neck of the woods, Kenmore real estate agent James Lupori called the notion “disturbing” in a recent post.

However, while some individuals may still be fretting about their “moral obligation” to pay their mortgage, a growing number of recent high profile examples have demonstrated that strategic default is really nothing more than a smart business decision.

In January, the owners of the massive 11,227-unit Stuyvesant Town and Peter Cooper Village apartment complex in Manhattan announced they would be handing the property over to their creditors. Closer to home, Boston-based Beacon Capital Partners announced last month that they will be intentionally defaulting on the $2.7 billion loan that they used to buy the Columbia Center—Seattle’s tallest skyscraper—and 8 other towers in the Seattle area (as well as 11 in the DC area).

“We’re seeing a lot of these ‘strategic defaults,'” said Ben Thypin, senior market analyst with Real Capital Analytics, a commercial real-estate research firm in New York. “Beacon could probably pay the mortgage, but the properties are worth less now, and they don’t want to make payments based on outdated values.”

If you’re one of the people that is still not convinced that walking away is a strictly business decision in which ethics and morals should not even enter the conversation, allow me to point you toward an excellent pair of recent papers by Brent T. White, legal professor at the University of Arizona: “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis” and “Beyond Guilt in the Housing Crisis: The Morality of Strategic Default.”

Here’s a particularly compelling passage from the second paper that specifically addresses the lack of any moral component in the decision to walk away:

Think of it this way: when you got your cell phone, you likely signed a contract with your carrier in which you “promised” to pay a set monthly payment for two years. Let’s say, though, that two months after you sign your contract, the price of cell phone service drops by half – meaning that the same cell phone service you pay $100 a month for could be had for half of that with another carrier. You decide that you would be financially better off paying the early termination fee of $300, rather $100 a month for another 22 months for the same service that you can now get for $50.

Would it be immoral for you to break your contractual “promise” to pay $100 for two years, and elect instead to pay the early termination fee? Of course not. The option to breach your “promise” to pay is part of the contract, as is the consequence of breach – a $300 early termination fee. There is absolutely nothing immoral about exercising your option to breach, and you’d be financially wise to do so.

Though a mortgage contract is more substantial, and involves a home, it is simply a contract, just like a cell phone contract. Like a cell phone contract, a mortgage contract explicitly sets out the consequences of breach.

In other words, the lender has contemplated in advance that the mortgagor might be unable or unwilling to continue making payments on his mortgage at some point and has decided in advance what fair compensation to the lender would be. The lender then wrote that compensation into the contract. Specifically, the lender probably included clauses in the contract providing that the lender may foreclose on the property, keep any payments that have been made, and may opt to pursue a deficiency judgment against the mortgagor, if state law so allows.

By writing this penalty into the contract, and then signing the contract, the lender has agreed to accept the property, and (in most states) the option to pursue a deficiency judgment, in lieu of payment. Of course, even in states where they can, lenders frequently don’t pursue borrowers for deficiency judgments because it’s often not economically worthwhile to do so.

Nevertheless, that’s the agreement. No one forced the lender to sign that contract. Indeed, they wrote it. And, to be sure, the lender wouldn’t hesitate to exercise their right to take a person’s house if it was in their financial interest to do so. Concerns of morality or social responsibility wouldn’t be part of the equation.

In short, as far as the law is concerned, choosing to exercise the default option in a mortgage contract is no more immoral than choosing to cancel a cell phone contract. The borrower just has to be willing to accept the consequences – which, in the case of a mortgage contract, typically include being subject to foreclosure and, in most states, the risk of a deficiency judgment.

Banks and corporations like Beacon Capital Partners understand what Mr. White is talking about here, that a mortgage is merely a legal contract, not some sort of sacred vow. They will continue to do what is in their best financial interests, and you should too.

If you find yourself in a situation where you have run the numbers every way you can and the best decision for your family’s financial future is to walk away from your mortgage, don’t let a misguided sense of ethics lead you to the wrong decision. Continuing to pay a mortgage that is hopelessly underwater is throwing good money after bad. If you already made the mistake of buying a massively overpriced house, that doesn’t mean you need to continue paying for that mistake for the next twenty years when there exists a way out.

Please note that this post is absolutely not intended to be legal advice. If you are considering walking away, it is imperative that you seek experienced legal council that can fully explain the legal ramifications of strategic default in your specific state or municipality.

It has been a couple of years since we last ran a poll on this subject, so here’s a new poll:
Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

[Continue Reading – Part 2: Did Banks Act in Good Faith During the Bubble?]

The post On Misguided Ethics and Walking Away from a Mortgage 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.

Here’s an update to the post-WWII job loss chart, courtesy of Calculated Risk, in which I’ve added a mark so you can see where the “stimulus” was passed.

Wow, good thing we changed direction to the tune of $787 billion*, huh?

*(Actual cost: much, much more)

If there is any doubt about who the stimulus was really directed at saving, just take a look at an update to the stock market crash comparison:

Woo, go Wall Street!

Finally, speaking of bailouts for Wall Street and the banks: Congress Poised to Keep Homebuyers’ Tax Credit

The Senate and House are poised to agree on a compromise measure to extend unemployment benefits that also would expand a popular $8,000 tax credit for homebuyers, despite a recent government report on extensive mistakes and suspected fraud in the program.

The Senate might pass its version as early as Wednesday, and aides to Congressional leaders say the House could accept it this week, sending the bill to President Obama to sign into law. After weeks of partisan delay in the Senate, Democrats are eager to show progress before Friday, when the October jobless report is again expected to show high unemployment.

Super! So while people continue to lose their jobs, and absolutely zero of the underlying problems in the economy have been fixed, let’s pour another ten or twenty billion dollars into the housing market to try to keep prices propped up (i.e. – keep homes as unaffordable as possible) a little longer so our buddies in the big banks that got us into this mess can avoid taking losses.

Sounds like a plan to me!

The post Job Loss Crash Comparison Update / Stimulus Rant appeared first on Seattle Bubble.

In news first broken by local REALTOR® Marlow Harris, the NWMLS will apparently be adding two new ways to fine their members via a pair of new fields on the listing input sheets. In essence, new checkboxes have been added to the listing sheet: “buzz off Zillow” and “beat it bloggers.”

What this means is that sellers are now given the option of whether or not Zillow estimates will be allowed to appear on their listings that are posted on NWMLS member sites, and also the option of whether or not NWMLS members are permitted to blog about their listing. For the full official description of the two new listing parameters hit Marlow’s September 25th post for an excerpt from the NWMLS bulletin.

Obviously the point of the first one is obvious. Giving the potential seller an option to prevent Zillow and other “automatic valuation model” price estimates from appearing next to their listing is no doubt something that some sellers and agents have wished for for some time. Despite the fact that Zillow is a completely automated system based on sometimes incorrect inputs, and the company openly admits that their estimates should not be treated as a gold standard, some sellers and seller’s agents have convinced themselves that if a Zillow estimate displayed on the same page as their listing is lower than their asking price, it’s Zillow’s fault if nobody wants to buy their house.

The second option is actually opening up their rules just slightly, as they previously had a blanket prohibition on NWMLS member agents blogging about any listings that were not your own. That’s what the $50,000 fine slapped on Redfin in 2007 was all about. With this new checkbox, sellers will now be able to “opt-in” to blogging.

Not surprisingly, the anti-Zillow move has stirred up some in the industry, especially among those that have had it in for Zillow since day one. Since Zillow is not a member of the NWMLS themselves, insiders there insist that the new rule will have little effect on their business. I have pointed this out when people have asked in the past, but this is a prime example of why I have no interest in Seattle Bubble becoming a member of the NWMLS, even though it would gain me direct access to their database for some prime number-crunching.

In an amusing twist on the whole thing, Marlow followed up her post on these new rules with another angle on the subject yesterday: Can new technology make some MLS rules unenforceable?

It could be that technology will trump all of these new NWMLS rules, and blogging/comments/AVM restrictions will become ineffective and impossible to enforce with the new Google Toolbar application called Sidewiki.

…anyone who installs the Sidewiki will be able to add comments to your real estate webpage, including individual property pages that you may have created to help market your properties.

There is no “opt-out” tab, no way to eliminate the sidebar comments, no way to edit out objectionable material, porn, spam links, comments on the personal character of the sellers or the agent or the home or the neighborhood.

It seems to me that the NWMLS rules are set up to attempt to restrict and stifle as much conversation about listings as possible in a misguided attempt to give the seller absolute control over how their home is “marketed.” Unfortunately for the NWMLS, fancy technology or not, people are free to talk about home listings in real life in whatever way they choose.

If I wanted to start a weekly tour of the most overpriced homes in Seattle, where we drive around town and gather outside homes for sale through the NWMLS and mock the granite countertops and other such faux-luxury “upgrades,” the NWMLS can’t stop me. And once you move the conversation online, it becomes even less possible to control it.

If I wanted to start a website that provided a searchable map of every house for sale on the market, linked to open forum threads on every house where people could say whatever they want about the agent or the home or the neighborhood—again, the NWMLS couldn’t do a thing about it.

The NWMLS can certainly exert control over their members by levying ridiculously large fines for seemingly innocuous conversations, but in my opinion, the more they attempt to stifle and restrict the free flow of information and ideas relating to their precious listings, the more they will encourage another, more open competitor to step up and make their entire system obsolete.

The post Can the NWMLS Control Online Conversations About Listings? appeared first on Seattle Bubble.

First up, we’ve got the National Ass. of Realtors pushing hard on their members to “Write Congress Now”:

The National Association of REALTORS® is calling upon its 1.2 million members to urge Congress to extend the successful homebuyer tax credit into next year.

Since its inception earlier this year, the $8,000 first-time homebuyer tax credit has brought 1.2 million new buyers into the market—350,000 of whom would not have purchased a home without the credit, according to NAR. The credit is due to expire November 30.

As Calculated Risk has been pointing out, if the NAR’s numbers are accurate, that translates into a cost to (future) taxpayers of over $43,000 per additional sale (that would not have happened anyway). What a deal, right? Plus, how many of these “additional sales” are sales that would have taken place anyway in 2010 or 2011 (i.e. – borrowed demand)? I’d bet quite a few.

Here’s some more from Calculated Risk:

…if we actually look at the numbers, this is a poor choice for a second stimulus package.

…the program cost is about $43,000 per additional buyer. Very expensive.

Now the National Association of Home Builders estimates that expanding and extending the credit through 2010 would generate 500,000 additional sales at a cost of about $30 billion. So this is approximately $60,000 per additional house sold. And I think the cost will be much higher.

REMEMBER: Many homes will be sold to buyers who would have bought anyway without the credit. These buyers will still receive the credit. This year almost 2 million home buyers will claim the tax credit, but only 350,000 were additional buyers. That means this was a poorly targeted tax credit since so many people receive it who would have bought anyway.

Meanwhile, even as the NAR is urging their members to encourage Congress to extend the credit, rank-and-file members seem to have reservations. Check out this post from a Realtor on ActiveRain (basically MySpace for real estate agents):

While I am glad that the tax credit has probably helped stimulate the real estate market and the economy some, I also wonder about the longer-term effects of this so-called “stimulus” money on this nation’s deficit and national debt.

I would rather see the money in the hands of the people as opposed to Wall Street fat cats or failing banks though. However I also hear stories on the news and elsewhere of people using the $8,000 to pay for frivolous items. Kind of a windfall shopping spree. I also don’t like mortgaging the future of this country by giving free money to people while increasing massive debt that may end up crushing our nation one day (if it hasn’t already). Kind of “socialized” real estate buying if you can call it that. Take from my pocket and put it in yours.

The comments to that post (pretty much entirely left by real estate agents) are also an interesting read.

At this point, I’m not even convinced that extending the existing credit will even have much of an effect. Everyone knows that the current credit expires at the end of November. People who were “on the fence” about buying for whom the tax credit was enough to spur them to action are already dashing to get their purchase in before the deadline. How many people are really out there thinking, “you know, I wasn’t planning on buying a house at all, and the 2009 tax credit was not enough of an incentive, but if they would just extended it into 2010, I would definitely jump in there and buy!” Probably not very many.

So what do you think? Should the tax credit be extended? Is it likely to be extended? Why or why not?

The post $8,000 Tax Credit: To Extend or Not to Extend? appeared first on Seattle Bubble.

Jane Kim of the Wall Street Journal wrote an excellent article in this past weekend’s issue regarding Wall Street brokers (selling investments) being placed under Fiduciary standards in dealing with customers.

Currently, Wall Street brokers are held to what is termed “suitability standard,” which is a more lenient standard than that of a fiduciary.  In contrast, Registered Investment Advisers have operated for a long time under the more stringent “fiduciary” standard—a legal standard that compelled them to act in the best interests of customers.  The proposed higher standard forces disclosure of potential conflicts of interest (i.e., if they make more money off of an investment offered vs. others) and promotes recommendations of investments that may be less costly to the consumer and more tax-efficient.

While Wall Street struggles with reform as part of its regulatory overhaul, the mortgage industry has also implemented reform by introducing a similar “fiduciary standard” for mortgage brokers and loan officers.  Prior to this reform in the mortgage industry, those who originated loans had no obligation to work in the best interest of their customers.

“In most states, mortgage loan originators still have no fiduciary obligation to work on behalf of their client’s best interests. The state of California mandated fiduciary duties for only mortgage brokers even during the height of the real estate bubble and Washington State added fiduciary duties for mortgage brokers and loan originators in 2008 but this still leaves consumer loan company loan officers (LO’s) and bank loan officers with more of a salesperson’s status.  I’m sure there are some LOs who work at a bank, credit union, or consumer loan company (they like to say “mortgage banker” or “correspondent lender”
because it sounds better) who do regularly look after their clients’ best interests but this is just mere subjectivism.”

– Jillayne Schlicke,  Founder of the National Assn. of Mortgage Fiduciaries

[post continues, click below]
Much of today’s economic problems are directly associated with lending-gone-wild.   Countless cases of fraud both locally and throughout the country have been exposed resulting in massive losses for lenders and consumers, even those caught innocently in its wake.

One of the questions unanswered: How can the mortgage community effectively work the way a fiduciary standard is intended when the current lending structure is one in which incentives provided to the loan originators seem to undermine their ability to work in the best interest of their client?

For example, if you have two perfectly credit worthy borrowers, gainfully employed and with similar financial resources that are purchasing a home, it is common that you can have one borrower obtain a loan interest rate at about 1/4 to 1/2 percent less than that of the other borrower.  Sometimes the spread may be larger.  Why?  It may have to do with incentives commonly called yield spread premiums or rebates from the lender paid directly to the mortgage broker/loan officer for originating the loan at a specific interest rate.  This is retail lending. There was nothing wrong with this system when it operated under the prior “salesperson” framework where a Fiduciary duty was absent.  Today, the Washington State licensed loan originators, working under a Fiduciary standard with the incentives at hand, may have an inherent conflict that didn’t exist before.  I find this terribly ironic.

A loan sold to the consumer at 5.0% interest rate may provide a payout/rebate to the loan originator of only .125% (1/8^th of one percent) of the loan amount but a loan sold to the consumer at 5.25% may bump that paid incentive to the loan originator up to .5% (1/2 of one percent) of the loan amount (note:  the rebates are earned fees over and above the commonly standard 1% fee charged).   If the interest rate is sold at 5.5%, the incentive provided for the loan originator may be even greater.  The checks and balances to this scenario is that consumers shop and therefore a loan officer must compete in fees and rate or they will have little chance of making the loan.  In addition, there is no way of knowing what rate will be offered to the consumer at loan application including any rebate back to the loan originator until the loan program and rate is locked.  Rates can and do change daily and even several times within the day.

“During the bubble run up and predatory lending days, loan originators would routinely lowball their Good Faith Estimates or simply not disclose this rebate existed. At closing the consumer would see the higher fees but have no time to object.” – Jillayne Schlicke

What is the solution?

It could be that a loan originator could guarantee their rate and fees (subject to restrictions and conditions) on the new Good Faith Estimate or GFE (coming this January 2010) that has been recently overhauled by HUD to provide a clearer understanding of the fees and loan program that is being offered.   There has been push-back resistance of this new Good Faith Estimate by the lending industry, and some of it for arguably good reason.   According to Jillayne Schlicke, the National Association of Mortgage Brokers (NAMB) has lost this round to influence a change in the newly proposed GFE.

Many in the lending industry have elected to avoid the disclosure of yield spread premiums (shown on a Settlement Statement) by working at a company that is licensed as a consumer loan company or by working at a bank.  In other cases, the loan officer may work under a correspondent lending company or other similarly structured business model.  Under these business models the loan is originated and closed in the name of the lending firm where the loan officer works and shortly after closing (almost simultaneously) the loan is sold to an investor such as Wells Fargo or Chase Bank.  This business structure avoids disclosure of any rebates or yield spread premiums and, if the loan was brokered and not closed in the name of the correspondent or consumer loan company name, the awkward situation when a consumer may ask (while signing their closing papers) what the separate figure or YSP disclosure is on their Settlement Statement.

Working within a framework of a “Fiduciary Standard” is not an easy task because of so many competing interests, potential conflicts of interest and regulatory standards that may or may not be practical in all situations.   Jane Kim, in the article she writes in this weekend’s edition of the Wall Street Journal summed up the problem facing Wall Street brokers well:

“Trying to define what constitutes a fiduciary duty is like trying to define the duty to not commit fraud—any application of it depends on the client’s particular facts and circumstances.”

New Era?

On January 1^st of 2010 (the date that HUD begins requiring use of the newly updated Good Faith Estimate document), it could be new era when a loan officer says to their client, “I charge “x” amount to make your loan and when I lock your rate if there is a rebate or yield spread premium excess beyond what I charge in aggregate, you will receive the benefit of that money in the form of a credit or partial credit to reduce your closing costs.  We won’t know that that amount is until your loan is locked.   I don’t control what those rates and rebates offered will be.  The ability for you to float your lock and play the market may also work in your favor and also work against you if rates rise.  Together we will communicate to make sure we obtain the very best terms for you.”  That would foster long-term business relationships like no other.

To conclude, I don’t think there has to be over-concern in the lending community with regards to the new Good Faith Estimate and properly disclosing earned fees.  From my perspective, a lot of the uproar and concern by the mortgage broker community is energy misplaced.  Consumers have no qualms about paying for services provided they know what to expect and can appropriately budget for their expenses if they are informed in a transparent way.  Since late 2003, when our escrow office opened, there have been only a select few cases where clients have chosen not to close a loan because of confusion over fees or under disclosed matters that have come to light after receiving their Settlement Statement.  I would argue that in those few cases, had the consumer been communicated with properly and all earned fees were explained in a manner that made sense, the loans would have closed and everyone would have been happy, including the escrow and title firms that are paid only if a loan closes.  There is nothing more frustrating for title firms and escrow companies closing transactions than to have a client across the table walk away because of rates, fees or “unknowns” that take the consumer by surprise.

(thanks goes to Jillayne Schlicke for collaborating with me and editing this post)

The post Fiduciary Standards in Lending and on Wall Street: Can it Work? appeared first on Seattle Bubble.

The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society” and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.

The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.

Analysts say the approach takes a wrecking ball to Bush’s heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities. Housing and Urban Development Secretary Shaun Donovan’s recalibration of federal housing policy, they said, shows that the Obama White House has acknowledged that not everyone can or should own a home.

So far, so good. I’m not personally a big fan of most of Obama’s policies to date, but this is a concept I can get behind (in principle, at least). The federal government played no small part in the inflation of the bubble with policies that encouraged home ownership above all else, even well before the Bush administration.

One quote in the article really grated on me, however:

“I’ve always said the American dream should be a home – not homeownership,” said Representative Barney Frank, chairman of the House Financial Services Committee and one of the earliest critics of the Bush administration’s push to put mortgages in the hands of low- and moderate-income people.

Pardon me? I don’t think so.

Barney Frank in 2003:

So let me make it clear, I am a strong supporter of the role that Fannie Mae and Freddie Mac play in housing… I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals.

Barney Frank in 2005:

You’re not going to see the collapse that you see when people talk about a bubble and so those of us on our committee in particular will continue to push for home ownership.

So please, spare us the “I’ve always said” BS, Barney.

Hat tip: Market Ticker

The post Federal Government Shifting Focus to Rentals appeared first on Seattle Bubble.

I’m not convinced, but rather than just dismissing these predictions out of hand, I thought I’d try to compile a list of factors for and against the notion that local home price drops are over.

Seattle-area home price drops are probably over because:

• King County’s single-family median price rose over $30,000 from March to June
• Pending sales are up around 25% from a year ago.
• Closed sales are up slightly from a year ago.
• Inventory is down around 20% from a year ago.
• There’s a lot of wealth in the Seattle area.
• Mass psychology could suddenly turn and drive up prices again (i.e. – Robert Shiller’s Animal Spirits)

Seattle-area home price drops are probably not over because:

• Median prices can be a poor indication of actual short-term home price movement.
• Foreclosures are through the roof and still rising.
• Vacancy rates are still climbing.
• Many pending sales are turning out to be illusory.
• On-market NWMLS inventory excludes large amounts of new construction and bank-owned inventory.
• Sales have been rising in San Diego for over a year, but prices still fell another 20%.
• Local employers are cutting thousands of jobs.
• Financing requirements are tightening.
• Interest rates are rising.
• Thousands of empty lots sit ready to build on the slightest hint of a recovery.
• Virtually none of the excess debt in the system has been cleared.
• The $8,000 tax credit expires in November.

Personally I’m not convinced that home price drops are over, despite the slight upticks we’ve seen this spring and early summer. There are just too many factors at play that continue to put downward pressure on home prices, and too few factors pushing them up.

Of course, it’s entirely possible that I may have missed something, so let’s hear from some of you who believe that price drops are mostly over. What am I not considering? What’s your best argument for the claim that the bottom is in? What about those of you that think prices will continue to fall even further—have I left anything out of that side of the argument?

Let’s hear the best comprehensive arguments from both sides, so we can come to an informed conclusion.

The post Are Home Price Drops Around Seattle Mostly Over? appeared first on Seattle Bubble.

Reuters, June 22:

Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

SeattlePI.com, June 25:

Are new appraisal rules holding back the nation’s real estate markets?

Lawrence Yun, chief economist for the National Association of Realtors, sure seems to think so.
…
“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” Yun said. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

What do you suppose folks like Laurence Yun mean when they use the phrase “housing market recovery”? Given the types of things they are objecting to, I’m inclined to conclude that what they really mean by “housing market recovery” is a return to the days of double-digit appreciation, frenzied buyers engaging in bidding wars and waiving inspections, and flippers snatching up pre-sales to turn a huge profit once construction completes.

Newsflash folks: It ain’t gonna happen.

You can cry all you want about the new tighter standards that are slowly but surely coming online in lending, appraisals, and other aspects of the home-buying process that were allowed to get wildly out of control during the bubble, but even without these new standards, we’re not likely to see a return of a real estate bubble in our lifetimes.

Too many people have been burned—and continue to be burned—by the rampant dangerous excesses of the housing bubble for things to just ramp right back up into an out-of-control mania again after just a few years of contraction.

Tighter regulation is just one of the necessary consequences of the housing bubble. Real estate professionals need to spend less time complaining and more time finding ways for their businesses to thrive within the framework of a housing market in which people buy reasonable homes, for a reasonable amount of money, as a place to live not a super-leveraged jackpot mega-investment.

The post Boo-Hoo: Tighter Standards Help Kill Chances of Bubble Returning appeared first on Seattle Bubble.

Debt is not a good product

I just had a great hour-long phone conversation with an old friend, Will Dana (now editor of Rolling Stone), who has strongly encouraged me to come up with one-liners that tell the truth about the economic/banking fiasco – but that do it in almost zen-koan fashion. He thinks this might be the only way to penetrate ongoing confusion and resistance to moving beyond our falsely held assumptions about money and business.

So, I figured I’d start with the generally unrecognized fact that finance is America’s biggest industry – our biggest business sector. How does banking make its money? In short – over-simplified, yes, but ultimately true – interest. It sells debt. And, like I’m arguing in my book, this whole scheme was arranged by 14th Century monarchs as a way of making money by having money, rather than providing value. So “Debt is not a good product” helps encourage that line of thinking, sound-byte style.

I like this idea. Let’s apply it to real estate. Here are my entries:

• Your house is not an investment.
• Falling home prices are not abnormal.
• House debt is not wealth.

I’m sure some of the commenters here can do better. Let’s hear it.

[Update]
Great comments, everyone! My favorite one-liners from the comments (so far):

• If you can’t pay cash, you can’t afford it. – Scotsman @ 17
• Debt and interest steal choices from a future that is uncertain. – Scotsman @ 17
• A recession is a terrible thing to waste. – Greg Perry @ 25
• Declining home prices creates affordable housing. – Dave0 @ 32

The post Economic and Real Estate Truth One-Liners appeared first on Seattle Bubble.

San Diego, CA
Central San Diego County SFH resale median: $300,000
Central San Diego County SFH new construction median: $355,000
Central San Diego County SFH + condo median: $270,000
March ’09 San Diego metro area unemployment rate: 9.3%

Notes: All King County home price info via NWMLS, San Diego home price info via DQNews. All home price info for March 2009. Unemployment data for Seattle via Workforce Explorer, San Diego via Workforce Partnership. No, I don’t want to move to San Diego—I personally like the rain. This post is an attempt at humor, intended to lighten up the mood on a rainy day.

The post Public Service Announcement: Seattle vs. San Diego appeared first on Seattle Bubble.

Today the Fed announced a significant plan to purchase an additional $750 Billion in mortgage backed securities from agencies Freddie Mac and Fannie Mae. The proposal is hopeful in that it will stimulate the housing market and refinance business by producing exceptional mortgage rates lower than where they are today.

Will this impact the markets in a meaningful manner that will stimulate home sales and refinance activity? I believe it may and one reason is this:

A stumbling block to overcome in refinancing relates to the challenge of finding viable sold comps to support favorable LTV’s (loan to values) needed to move forward with the refinance. An enormous number of existing homeowners have two mortgages that encumber their homes. I’m told of appraisals that have comments from the appraiser indicating specific market areas have essentially stalled in home sales along with falling home values. This produces LTV problems and can derail a refinance transaction. One alternative is for high LTV households to consider FHA which has higher LTV guidelines.

With that in mind, the additional $750 Billion in stimulus is meant to drop the rates to such attractive levels that it will encourage home sales and refinance activity. The sales going forward will theoretically place a building block or foundation for holding values at a point that will at least slow or level off further declines. This is a positive development for those both refinancing and for sellers, if it can take root. Whether or not it will take root remains to be seen due to many other factors.

Have a great day,

S-Crow

The post Today: Fed announces $750 Billion to purchase Freddie & Fannie MBS. appeared first on Seattle Bubble.

I’m really not convinced Marlow Harris of Coldwell Banker Bain feels that Seattle Bubble is all about fear mongering and scaring the public away from buying a home.  I know she mentioned it, but I don’t believe it.   Marlow and many other agents and loan officers have not had a chance yet to meet several of the commentator’s and readers as I have.  I think most agents and brokers would find that the readership at Seattle Bubble and those active in looking to buy, sell or refinance are very similar to, well, any other client they’ve ever had—pretty well rounded in housing issues.

You see, I have tangible evidence to the contrary that Seattle Bubble is fear mongering.  In fact, I have referred numerous Seattle Bubble readers to loan officers and agents.  Some have worked out, some have not.   When is the last time an agent or loan officer generated business from title and escrow referrals?   They do at Legacy Escrow Service.    As I recall, we even had one transaction where a referred Seattle Bubble reader obtained financing from Rain City Guide’s Rhonda Porter, who was gracious to turn around and have our office close the transaction.  This is what goes on behind the scenes. One client who bought a home remarked on the way out of my office that he really enjoyed the discussions at Seattle Bubble, but felt it was the right time for his family to purchase.  You can’t argue with that.  It is a very personal decision to buy.

Why does Seattle Bubble inherently rub the real estate community the wrong way?

• Gives a counterpoint to claims by NAR and others in the real estate community both nationally and locally.
• Provides open data, opinions and …open for criticism.
• From time to time points out miscues, miscalls, and gaffs from local professionals  and economists.
• An amateur citizen is providing data in a meaningful manner, more comprehensive than much of what I’ve ever read by agents and local brokerages.
• Key:  Tim Ellis was sounding the alarm, among other minions, myself included that we were in a Bubble.   When 2/3rd of your purchase business was financed 100%, it was pretty obvious to me.  For example, many in the real estate business remarked that Seattle was not in a real estate bubble.   We keep hearing, for example, that all real estate is local.  We’ll, tell that to the several thousand local WaMu employees that will lose their jobs by year’s end.  Where were most of WaMu’s loan’s originated?  Outside of Washington State.
• Blogging was not around during the last major correction.  Information is now instantly available for dissemination.

How has Seattle Bubble helped consumers?

• Tim Ellis has built his community where consumers are residing.  And it’s growing as he evolves the blog.
• This blog has, at minimum, given consumers pause prior to entering into a purchase.  For some, it may have saved them tens of thousands in possible financial losses if they are buying with a short ownership horizon or were to suddenly have to move for whatever reason.  In a declining market, you can’t put a price tag on that.

• Likewise, the blog has warned sellers, to their benefit, that they should not sell if they don’t have to—this has to be a tremendous gift to the local real estate establishment in keeping inventory somewhat stable. We’ll see how inventory goes after the Holidays are over.
• Earlier this year I warned about the advantage of reduced interest rates.  It helped several save money by refinancing.   A few even sent me thank you’s.  One even sent me a gift certificate (thanks Angie!)

There are probably countless examples from the readership where Seattle Bubble has been helpful.  We are all rascals at Seattle Bubble, myself included, but my commentary and others here and at Rain City Guide is never intended to hinder the real estate community, put off sellers who believe the website is hurting their chances at selling,  but to shine a light on what goes on in the business in a public way, so that professionals in the business can become better agents, better loan officers and better escrow owners.  Much of this is to help build a foundation on solid ground as opposed to the dry-rot we have now discovered was under our feet.

Those frustrated at this blog, the market or their listing agent, should direct their frustrations at those who perpetrated fraudulent transactions that impact communities across the country.  Perhaps they should look in the mirror themselves.  They should direct their frustration at those loan officers and lenders who engaged in putting people into toxic loans, many times because the yield spread premiums “were so good.”   Direct your frustration at the ratings agencies, Freddie and Fannie and their corrupt leadership in recent past years or the excessive greed that had a choke hold of CEO’s souls.

Nobody wanted this result, but collectively, we are all responsible for this mess.   A frank conversation I had with a very long standing managing Sno. Co. real estate Broker this past Friday was almost therapeutic for me and the Broker—the Broker spoke of the real estate market correction as a “crash.”  That Broker get’s it.

Nothing discourages me more than seeing the financially destructive (self inflicted or not) nature of this correction destroy families and marraiges of those whom we have worked with over the past 5 yrs.  It really sucks…and I’m constantly trying to think of ways to get title and escrow people back to work, even part-time.   Perhaps I’m naïve.

The post Seattle Bubble: Hindering the Market? appeared first on Seattle Bubble.

Tales of homeownership:

If you are on a septic system, don’t drive over a waste line with a 10 ton truck loaded with gravel.  I did and just learned that PVC waste lines will indeed pancake.  The result is rather disgusting.  – SCrow

No one is lending money:  that is false.

Although the pace of transactions is meaningfully lower than what we have seen, the idea that no-one is lending money is not the case.   Our office is closing routine sales, closing short sales and refinance transactions.  The difference is that closings are taking longer, authentic underwriting is taking place and FHA is appearing to be very much the type of financing people are using.   And, yes, borrowers are asking for and receiving concessions.

Some of the loan officers (still in business) we have worked with during the last 4-5 yrs. have jumped from one firm to the other that is FHA approved.  FHA is the name of the game right now.

In the area in which I live (Snohomish and vicinity), we have had several sales take place over the last month  or so, and, among those, a couple properties closer to where I live sold for $750K and up.   So, there are some people who are snooping around and finding very good values for the current market we are in.  My guess is that if you asked, “why in the world would they buy in this market”, they would reply, “talk to me in 15 -20 yrs.”  And that is one of the primary real estate mindset shifts I’m discovering:  few are those who are not looking at a long-term horizon in their purchase.

There are some absurd decisions being made

The unique view from the escrow seat allows for a lot of discussion in the S-Crow household, some of it funny and some of it just remarking about how foolish some people have been.

For example, a seller purchased a home within the last year to flip it.   The seller made improvements and put it back on the market.  The seller then obtained an offer and the transaction moved towards closing.   Once escrow disclosed proceeds, the seller evidently did not like the net proceeds after expenses:  not enough (code for potential paper loss).  Buyer is ready to close and the seller refused to sign closing documents.  You’d think that a seller would know within a small range what the proceeds would be before putting the home on the market and wasting everyone’s time and money.  Result: highly probable legal action moved the seller to sign.

There are a number of people in our society (save the politics for another blog) that just refuse to take personal responsibility for stupid personal financial decisions.  This is an issue that Mrs. S-Crow and I argued a lot over in months past.  I’m starting to come to the conclusion that her analysis has more merit than my “it’s not all the borrower’s” fault mentality circulating in my head.  Some borrowers did put too much trust in the people guiding them along the way.  But, in the end, their signature is on the Note and Deed of Trust.

We are at the bottom, locally:  I don’t think so.

I have no data to back this up, but my anecdotal evidence of closings is the best I can come up with.   Based upon what I see in the refinancing realm over the last three quarters of this year,  I see some existing homeowners delaying the inevitable.   Refinancing costs thousands of dollars and there is a pervasive thought (I don’t know where some people get their information…either they are terribly not paying attention or someone is giving them false hope, which in many cases is more dangerous and damaging than being honest about where the chips are falling) that the market will turnaround within the next year or two.  Possible?  Anything is I suppose.  Likely?  Nope.

Real scenario:  It is not realistic that a borrower can purchase a home late in 2006 for $500K+,  now owes in the realm of $540K on the property and think that in two years time (2009-2010) they can have an equity gain to pay routine closing costs.   And this is in a development that was birthed in 2005 that has already experienced a foreclosure and another distress sale (as so disclosed by the very borrowers that were signing their closing documents!).   It is a classic example of a potential, not to distant, distress sale staring at me in the face.

Are the closed sales-price-to-list-price ratios accurate?:  a question for local agents.

For example, if you have a listed price at the time of the sale of $100K and the sale closed at a price of $95K, you would have a 95% list-to-sales-price ratio.  This is used a lot by agents to gauge how well priced a home was and another metric to show that homes in an area are selling on average, for example, about 97-99% of the list price.   Does the NWMLS use the ORIGINAL list price in this metric or the last posted list price?

What’s up with all the Steve Tytler negativity?

Steve was was of the severely few locals in the business of lending that was reporting publicly that we were going to experience lower housing prices.   Straight shooting integrity is what we need in this industry.

Questions about transactional things?:   Just drop me an e-mail as many recently have and in the past.  I may not have all the answers, but I’ll do what I can.

– S Crow

The post In the trenches update appeared first on Seattle Bubble.

I’m not personally obsessed with catching the very bottom, but I also am not interested in buying something less than ideal that I can barely afford based solely on a false notion that prices will keep rising, only to have them drop another 10-20%. I outlined one possible strategy in this post, where one would wait for three years or 6 consecutive months of price increases, whichever comes first.

Reader Sniglet pointed out a possible flaw with this strategy in yesterday’s comments:

Personally, I would suggest waiting for more than 6 months of consecutive price increases before buying, as Tim suggested (if you are trying to time the market, and buy at the bottom). If you look at Japan’s price decline in the ’90s there were some periods where prices seemed to have stopped dropping for about a year, but yet the decline continued anyway.

One thing that is consistent at all housing downturns is that it takes years for prices to really pick up significantly. My advice would be to wait until it looks as if prices haven’t declined anymore for a couple years. There is certainly no rush to jump in once a market has hit bottom, so patience is the best policy.

There certainly exists the possibility that there will be “false bottoms” that last longer than six months. How long you set the horizon is really a matter of your personal assessment of the risk.

What it really comes down to for me is this: “can I afford a decent house that I will be happy with long-term at today’s price?” If the answer to that is yes and I am comfortable paying today’s price knowing that I could possibly get a better deal by waiting, then I’ll probably buy anyway—bottom or not.  For my family, I expect that time will probably come around 2010, even if prices are still declining.

So what is your strategy? Are you waiting for a specific price point, or are you more interested the overall direction of prices? Or perhaps something else entirely? Let’s hear your suggestions.

The post What’s Your Housing Bust Strategy? appeared first on Seattle Bubble.

Financially speaking, I have to say I can’t really buy that. I’ll use a somewhat extreme scenario to illustrate why. Let’s say you’ve got a 30-mile commute from Sultan to Redmond (one of my former coworkers did that—yuk), and that your car gets a decent but not great 25 miles to the gallon. At $2.50 per gallon, you were spending $30 a week (~$120 a month) on gas for the commute. At today’s $4.00 per gallon, that is up to $48 a week (~$192 a month), a difference of $72 per month, or $900 more per year.

So lets say you decide to move in closer, to Kirkland or Woodinville. Now your commute is just 6 miles, and a week’s worth of commuting costs you just $10, saving you a grand total of $1,900 per year.

That doesn’t seem like nearly enough of a price difference to make up for the much more expensive cost of living close-in. It’s certainly possible that most people don’t actually do the math, and make irrational decisions based on their gut and that “pain at the pump” feeling, but mathematically the decision to move closer just because of higher gas prices doesn’t really make sense.

To me, what’s far more important than gas prices is commute time. I personally would never want to live much further away than about a half hour from my place of work. Time with my family is more important than having a huge house that I never get to spend any time in.

What about you? Do gas prices really figure into your decision about where to buy, or are things like commute time, neighborhood, schools, etc. more important?

The post Gas Prices & Home Buying appeared first on Seattle Bubble.

I spoke recently with a client of ours who is an electrician and the individual mentioned that there were recent incidences of builders either not paying or delaying payment for services.

• How are fuel prices influencing your small business?
• Has work dropped off in a noticeable manner?
• Are bid requests still robust?
• Have you been asked by builders or Gen. contractors to drop your prices as a sub?
• Are you getting paid in 30, 60, 90 days or longer?

For homeowners that are doing remodeling or home improvements this Spring/Summer season:

• Are you scaling back your projects?
• Are you going to do more work yourself?
• Are you receiving more bids, more promptly?
• How far out are contractors scheduling your projects?

Thanks,

S-Crow

The post Contractors & Tradesmen APB: what’s going on in the trenches? appeared first on Seattle Bubble.

Last night, I pulled into Top Foods to get some milk and other things for my kids lunch. On the way, adjacent to the store are a Chevron and Shell gas station. One gas price sign was illuminated, the other darkened, but both stations were open. Both stations increased their prices to a $4.03 9/1Oth. per gallon for regular unleaded. We finally hit over $4. in Snohomish. Diesel? $4.89/gal! I have a John Deere tractor to help mow my lawn and do other yard work. Takes Diesel. Does anyone know the per capita ownership of trucks in Snohomish Co? It is fairly high. A lot of F-250’s, SUV’s, Chevrolet Duramax Diesel’s. Lot’s of big rigs. I recently read that Ford was ramping down their SUV and Truck lines this July for a period longer than normal due to poor sales (evidently they stop the production each July for re-tooling purposes).

Ok , I’m now a bit grumpy pulling into Top Foods. I pick out four Gala Apples, my two gallons of milk and a couple other things.

I look over at what a gallon of Minute Maid Juice is going to cost. I do a double-take. I can’t believe it. $7.30! Seven dollars and thirty-cents!

I still can’t believe it when I’m typing this. I said outloud, to be overheard by two other patrons in the isle, “this is insanity!” For a basic fruit tray, they want $24.99! Do you think an agent in their right mind is going to buy a basic fruit tray at that price for their broker’s open? No chance.

Lawrence Yun, I have a message for you: the idea of your recent comment suggesting we are not in a recession is beyond me. Soon, you will be parody on Saturday Night Live. I’m still waiting for our 30-40% increase in median prices for 2007.

My father-in-law put his two kids through college and law school at Pepperdine. He is still working (driving local routes throughout Washington delivering potatoes, hay, apples etc…) although he retired recently from BP-ARCO doing of all things (for 30 plus years), delivering our fuel! I asked him what it takes to fill his big-rig up and he says about 15. That’s $1,500. But, he says he never keeps it full. Why? People are siphoning.

By the way, those Gala Apples….all four of them……a sliver under $4.00!!

The post I finally said it. Twice. And loud enough to be overheard at the grocery strore. appeared first on Seattle Bubble.

So much could be said about this issue. One of the most fascinating developments to see unfold and the one theme I keep coming back to is how powerful blogging has been in shaping the mind-set of the public when it comes to the real estate market, both nationally and locally. Not only is it powerful in the psyche of the buying or selling consumer, but also to those who actively work in real estate.

For example, there has been an enormous effort within the real estate community to combat negative housing sentiment. It is understandable. But, I also think that the effort serves two purposes. First, it is to combat a deteriorating market perception for the public. Second, it is to thwart the potential fallout from within the rank and file who work in the industry.

What’s so different about our market correction today than last time?

• Access to information.
• Bloggers vs. NAR. (real estate industry unable to counter bloggers using both video and blogs)
• Bloggers vs. Newspapers.
• Bloggers breaking down data.
• Bloggers sharing news or breaking news.

Rather than have circa 1990 technology to obtain information regarding all things real estate related, today we have what I consider information overload. I can’t keep up with it myself. It’s overwhelming.

Zillow.com, for my money, was instrumental in removing the price curtain from the real estate machine. This forced an entire industry to change or adapt. While people will argue about current value accuracy or Zestimates, the compelling number of immeasurable value is the disclosure of what a property recently sold for. Armed with this information, consumers can make decisions along with their real estate agent as to how to best position offers or whether or not purchasing is best for them at a given time.

In a classic case of blogging for mind share, I see countless references by real estate agents locally and around the country arguing to “put the market into perspective, only 1 percent of all outstanding mortgages are in default.” Quite swiftly, a contrarian blogger responds, that’s “good news, because if it were more than one percent, I can’t imagine how bad things would be. Bear Stearns would be only one of scores of financial players to collapse, and who knows, maybe we will have more to come?”

To conclude:

If contrarion bloggers on Seattle Bubble find that the market has shifted in a positive direction, it could very well be that those very contrarions will lead the charge to a swift and meaningful recovery, one of which could rival anything we’ve seen to date.

And then, The Tim will have a conundrum on his hands. What then to do with the “bubble” part of the title.

S-Crow

The post The most valuable real estate is that of the mind: bloggers are having an impact. appeared first on Seattle Bubble.

Appraisers, please chime in.

Fake Scenario: A home is sold as a short sale. It was purchased with 100% financing (1st & 2nd) just 13 mos. ago. for $990,000. The short sale is for $610,000. It has now closed.

I would like to ask appraisers what the impact is on immediate neighbors? What is the impact on comparable sales (both purchases and those who may try to refinance)? Here are some possible outcomes:

• No impact on neighboring values.
• Modest impact on neighboring values.
• Will clearly set the bar for sales in the neighborhood.
• Will show the home may have been purchased fraudulently.

Several short sale transactions our office has been involved with are homes that are only three years old or newer. This must have an impact on listings and sales in newer developments. What will this mean to existing homeowners in newer developments where short sales exist?

————–

Thanks and everyone enjoy the great weather! See you down at Safeco Field!

The post Short Sale Impact on neighbors: Appraisers please advise. appeared first on Seattle Bubble.

Stare Down is when you and your brother or sister touch nose-to-nose, staring into each other’s eyes to see who blinks first and loses the game. In real estate, there are times when questions arise that create that same type of tension. I’ve written over at Rain City Guide about a variety of issues that deal with transactional problems. Some topics are based from experiences our office has had, other topics from discussing transactions with other colleagues in the escrow business. The hope is for those real estate professionals to look inward to challenge them on effective ways to create smooth transactions.

How to potentially save hundreds of dollars or more

This discussion is geared towards providing suggestions to the audience at Seattle Bubble which involves mostly consumers who are both homeowners and those who are looking to buy or refinance an existing mortgage.

When selling a home, buying a home or refinancing, you are intimately involved in the process that revolves around money. It is imperative that you check and double check your estimated fees with the Settlement Statement that is provided to you when you are signing your paperwork. The Settlement Statement is the form escrow provides that is a itemization of debits and credits in connection with your transaction.

During the frenzy, much was on the line. Borrowers had little time and leverage on their side when making decisions about a purchase or in questioning fees when at the signing table. Borrowers knew that they had to perform or lose out on the purchase of their home. Any deviation from that could have detrimental consequences both financially and personally. After all, who wants to start the buying process all over again? In that environment, next to zero. There are probably stories from readers here that could empathize with the pressure cooker of signing documents that are foreign and difficult to understand.

For example, last evening my wife signed a client in their comfort of their Windermere neighborhood home at 7:30 pm. Their loan package was just shy of 200 pages. One of the bigger packages we see. How in the world can someone in the scope of an hour or so, have an opportunity to digest and understand all that they are signing?

Recently, a client did reference their GFE (Good Faith Estimate) with the actual broker fees as itemized by the Settlement Statement. A large enough discrepancy was found that it triggered further scrutiny by the borrower. Escrow does not have borrower GFE’s. We are not in a role to advise a client whether to proceed or not or whether a loan is a good program depending upon the borrower’s financial circumstances.

Naturally, the discrepancy for this client created a situation in which the loan officer needed to explain why the overage. In the meantime, the borrower did what many do not know they have the capacity to do. They gave written instructions to escrow to not close the transaction until this issue was resolved.

Thus, the Stare Down game began in earnest. The Loan Officer blinked and the client saved a lot of money. A lot. It pays to shop and it pays to be patient and it pays to be informed.

S-Crow

The post Stare Down: who blinked first? The loan officer or the borrower? appeared first on Seattle Bubble.

In the great American sport of finger pointing and blame shifting, a new villain has emerged to explain the mortgage-finance crisis.

The fault, it turns out, lies not with incompetent, deceptive lenders, naïve, speculating borrowers, greedy, reckless Wall Streeters, slumbering regulators, bubble-creator Alan Greenspan or all of the above.

Instead, the root cause is something far more fundamental: the American belief in the value of homeownership.

Or so says an emerging theory that argues that the attributes of owning a home have been, pardon the phrase, oversold, and had the U.S. not been so hellbent on getting people to buy, much of the current debacle could have been avoided.

So now is probably a useful time to review some basics about American attitudes toward homeownership, and whether they did, in fact, contribute to the economy-shaking mess we’re now in:

1. Homeownership is good. Homeownership — for the individual and for society — works.
2. What’s not so good, and what consequently hasn’t worked, are the methods for encouraging homeownership and the expectations of what ownership would accomplish financially for the buyers.

…
Homeownership was also considered a financial virtue, being one of the few ways average Americans could achieve long-term financial solvency. Once they saved up for a down payment on that starter home, they could use the equity they slowly built up, from their own payments, price appreciation and improvements to the property, to move up to larger or nicer homes, to maybe even — and here’s a novel concept today — to enjoy the income freed up by paying off the mortgage.

Which is about the point in our story where the trouble begins.
…
Eventually the markets will correct, although the price of that correction is likely to be steep in lost jobs, houses, savings and economic health. If our present calamity strips away the excesses and false assumptions, and returns an appreciation of the merits of home ownership, that might be one of the few good things to come out of this.

Bill continues to be one of the few in the local mainstream press that actually seems to get what’s really been going on, and where we’re headed as a result of this mess we’ve gotten ourselves into. As usual, you should read the whole article. Kudos to Bill.

(Bill Virgin, Seattle P-I, 03.24.2008)

The post Bill Virgin: Homeownership has been oversold appeared first on Seattle Bubble.

Snohomish Co. Update:

My wife is off providing sterling service tonight in Issaquah for clients who are buying/selling a home, (yes, we do business all over) so I’ve got some free time to do a bit of blogging and research.

There are a quite a few homes both listed and FSBO that are short sale candidates. That means that if the existing homeowner were to get an offer, the lender would have to agree to take an amount less than the sum of their encumbrances.

After researching about 15 properties that were short sale candidates, I stopped. What’s the point. The story kind of repeated itself. Basically, the gist of it is that I see home prices “softening” further. Many short sales are in neighborhoods that were recently built in 2004, 2005, 2006, early 2007. 100% financing was the primary type of mortgage on just about all of these short sale candidates. Lots of sub-prime lenders financed these homes, some of which are no longer around. This really is the story that we are going to have to get used to.

If interest rates continue to stay low and prices continue to have downward pressure, those who can buy will be receiving much more house for their hard earned money. So that is the silver lining if you are on the buyers side of the HUD-1 Settlement Statement.

I would love to report that the market in Snohomish Co. is earnestly in the Spring groove for buying but the truth is that the first quarter of the year is coming to a close with sales volumes down YOY , so unless we have quite a change in the credit markets to get things moving along as we enter the prime selling/buying season of April, May and June, it may not be any better than the existing pace we are on.

As it stands, lending requirements have become stringent enough that it is exposing quite nicely how much of the buying in months past really was a function of consumers obtaining mortgages that were setting many up for financial distress. In other words, eliminating the loose lending (I know everyone has read this ad nauseum) has exposed the frenzied market for what it really was—a foundation of quicksand via toxic financing that could only be rescued by ever escalating housing prices. The unraveling of the credit markets, billions in losses and subsequent bail out of Wall Street superfortresses such as Bear Stearns and others (more to come?) shows that on every dollar lost there was an address somewhere in America tied to it.

In January, refinancing did take a very big jump when rates dropped dramatically to about 5% and many people took advantage (those that could anyway).

My belief is that inventory will continue to increase (outpace sales) as some of those listings that were taken off the market in Fall and Winter of 2007 try again this Spring.

In conclusion, the fallout from the mortgage binge and foolish lending is really disrupting markets across the country. It is not different here in the Puget Sound region and I hope the seriousness and disappointment in my tone comes across. Is this really what was intended when we think of the American Dream? I know, I know, it’s just a natural market cycle and I need to get over it.

S-Crow

The post Snohomish Co. update & thoughts appeared first on Seattle Bubble.

Do yourself a favor. Just because someone was referred to you by a close friend, someone at Church, someone at work, school or wherever, it does not mean you will be getting a fair shake.

When today’s rates are around 5.375% and your Note indicates a rate at 6.25-6.5% for a thirty year fixed rate, it should raise a question—you’d think? And people wonder why so much consternation for the lending industry?

Once your transaction is placed in escrow and we are ready to have you sign your documents, escrow is a neutral party and cannot give advice about your loan or whether or not you are getting the best deal you can. That’s the fact, Jack! But, as a fellow blogger and dude who genuinely wants people to get a fair shake, this is the best I can do for you.

Please excuse me as I’m going to my basement to use some fresh bales of hay as a punching bag and listen to some Foo Fighters.

Discuss amongst yourselves.

The post Time to crank some Foo Fighters: Would you please shop for loans people. Please. appeared first on Seattle Bubble.

Agency (who is representing who in a purchase and sale transaction for those new to buying) is a tough thing to sort out for some consumers. In Washington State, agency law has gone through several variations and changes throughout the years.

But, when an agent is actually representing a buyer in a fiduciary capacity and then places their loan officer hat on, with no fiduciary duty as of today (could be changing), it makes for some potentially serious complications when things go sideways during a transaction.

Speaking solely for myself, if I were an agent, knowing what I know about the challenges they encounter, there is no way I would ever want to put myself, livelihood or assets at risk by playing a dual role.

I’ve never played with a live grenade before…..but, sheesh, acting as a buyer’s agent and arranging their financing is just not my recipe for fun. It’s exciting enough working in the escrow business thank you very much.

PS. If any of you have not had a chance yet this season to grab your boards out of the basement, do so, because the snow has been superb this season.

The post Ever met someone who likes to play with live grenades? Here’s somebody: Agents Who Originate Loans appeared first on Seattle Bubble.

I’ve learned and received much more than I’ve provided on this blog I assure you, but the common theme I’ve come away with is that consumers want authentic advice and to trust the people who are assisting them with their real estate endeavors. They want value and to know how real estate professionals will earn their business. The following is what consumers want:

Dear Real Estate Professional,

• I want to be treated like a partner, not a “lead” or a means to an end.

• I want relevant information, fast and accurate.

• I want to know why I shouldn’t buy a particular home and why I should.

• If my objective is to build equity, I want solid advice based upon my ownership horizon.

• I want to know exactly how my agent is being paid and by whom.

• I want to know if my mortgage broker’s company or my agent’s brokerage firm has any financial interests in the referrals they give me for third party providers (mortgage, escrow, title, insurance, etc….). I want to know these disclosures at the start of our working relationship, not when I’m signing my loan or closing papers.

• I want to know how my mortgage broker is being paid or if any of the associated fees are duplicate in nature or unnecessary.

• I want my best financial and personal interests to be looked after in my transaction.

• I want to know exactly what the market conditions are. I don’t want to learn about the market conditions from other sources after the fact……

…..Three factors caused this decade’s housing boom to spiral upwards: 1) a run-up in home price valuations that spurred a high sense of urgency in home buying and selling; 2) poor lending practices, which caused many homebuyers to secure loans that they ultimately couldn’t afford over the long term; and 3) speculative purchases of homes also increased, with buyers investing in real estate with the hope of a quick return-on-investment.

• I want to know what the benefits and detriments are of entering into a multiple offer situation.

• I want to trust you.

• I want to know if there is an incentive of any kind, financial or other benefit, from a seller to you (my agent) and how it impacts me.

• I want my agent to be responsive, authentic and collaborative with everyone in my transaction.

• I want to work with a professional.

• I want you to anticipate potential problems before they occur, not react to them as they are upon us.

• I don’t want to receive my loan documents to sign at the very last possible moment.

• I don’t want to pay for inexperience at the same rate as I do for an experienced professional.

Comment Add on’s:

• I would like choices in the service levels I would like to receive/purchase.

If you do this you for me you will have my business for life and I won’t have to go here when I decide to sell, buy or refinance again.

Sincerely,

Consumer

The post Consumers wish list appeared first on Seattle Bubble.

Reality:

Conclusion: Er… Um… Jobs! Population Growth! Mountains! Lakes! Pretty Pretty Pink Ponies!

We now return you to your regularly scheduled programming.

The post Nobody Panic. You Live In Seattle. appeared first on Seattle Bubble.

My own guesses as well as predictions from most of the frequently-quoted local real estate insiders were covered in this post from last January, save for Steve Tytler, whose predictions are covered here. Let’s see how we all did.

The Contenders:

• Bill Riss, chief executive of Coldwell Banker Bain
• Randy Bannecker, consultant housing specialist for the Seattle-King County Association of Realtors
• Glenn Crellin, director of the Washington Center for Real Estate Research
• Matthew Gardner, local land-use economist
• Steve Tytler, owner, Best Mortgage
• Tim Ellis, editor-in-chief, Seattle Bubble

You can go back to the post to see the full context of all of our predictions. However, for this post, I have condensed everyone’s predictions into a convenient table format for your convenience:

And the person whose predictions most closely matched the 2007 outcome was… Tim Ellis of Seattle Bubble! Steve Tytler gets the honor of being the only other person to be at all accurate, with his generic prediction of a “big increase” in inventory and a general reduction of buyers.

Note that the final reported median price change was almost exactly in the middle of my estimated range of -5% to +3%. And although my inventory and sales forecasts were the closest of the bunch, reality was unbelievably even more extreme than my predictions. So I either got pretty darn lucky, or after one year of following the market in my spare time, I had a better sense of where it was headed than the majority of those whose very livelihood is the market.

2008 Prognosticated
So that brings us to the 2008 forecast. First up, let’s check out what some of the same local real estate insiders are guessing this year:

Glenn Crellin:

Year-to-year drops should continue “for a little while,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University. “I think that the next several months are still going to be challenging, but it’s a little hard to tell,” he said, adding that he also expects interest rates to increase during most of the year, potentially wiping out any savings gained by waiting.

Glenn also made some more specific predictions for the Pierce County market in a Q&A with the Tacoma News Tribune.

Matthew Gardner:

For 2008, Gardner is predicting anywhere from zero appreciation to home prices falling as much as 5 percent. “Do I think we’re going to see pain next year? Yes, I do. If there’s some glimmer of hope, it’s the fact we didn’t get terribly overbuilt because of the expense of land,” Gardner says.

Steve Tytler:

I expect home prices to drop about 10 percent to 20 percent over the next year or so, and then the housing market will flatten out with very little appreciation or depreciation for a few years.

Dick Conway:

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. “Given that we had a pretty good run-up in prices, some downward adjustment shouldn’t be surprising,” he says.

It would appear that after being so off base with last year’s optimistic forecasts, most of this year’s predictions are a bit more down to earth. The general concensus seems to be price declines of up to five percent. As with last year, Mr. Tytler is the most bearish of the bunch, and will probably be the most accurate as well.

The Tim’s Predictions
Personally, I’m expecting to see a continued surge in inventory, with year-over-year increases between 10% and 25% throughout much of the year. As prices stagnate and drop, the number of “must-sell” homes will only increase. Furthermore, when public sentiment shifts from “buy now or be priced out forever” to “sell now or be stuck there forever,” listings will continue to increase further.

Sales will probably continue their slide as lending standards continue to tighten (regardless of which direction interest rates go). I would guess that sales will be down at least 5% to 15%. Think of it this way: The record sales that we saw in 2005 and 2006 were basically just the housing market borrowing sales from the future. Well, the future is here, and the debt must be repaid.

I do not expect prices to drop like a rock, but I think that 5% is the minimum drop we’ll see in the median, not the maximum. I’d put the range at -5% to -10%.

So there you have it. Your doom and gloom for 2008. I may be way off base, but at least I’m willing to stick my neck out there and give it a guess. I have yet to see any signs that the market is “bottoming out” or at any kind of turning point. 2007 was the turning point, and we’re pretty plainly headed down into 2008. I don’t expect this mess to work itself out before the year is out.

What say you, the readers?

The post Predictions: 2007 Revisited, 2008 Prognosticated appeared first on Seattle Bubble.

Let’s have a look inside.

Three factors caused this decade’s housing boom to spiral upwards: 1) a run-up in home price valuations that spurred a high sense of urgency in home buying and selling; 2) poor lending practices, which caused many homebuyers to secure loans that they ultimately couldn’t afford over the long term; and 3) speculative purchases of homes also increased, with buyers investing in real estate with the hope of a quick return-on-investment.

Actually it doesn’t start off too bad. That’s an accurate assessment of the boom, with a rare admission that speculative purchases played a part, implying that this is even the case in our area (since Seattle is where JLS is based).

Like the dot com bust, the housing market has begun to correct itself after a number of years of unwise purchasing, but unlike what the media would have us believe, a correction in the housing market doesn’t equate to a crash. Unfortunately, the ongoing negative news about the troubled areas in the U.S. has caused a ripple effect, with home buyers and sellers on a national level exercising caution before making a decision.

Ok hold on. Did you catch what they said just there? “Unfortunately… buyers and sellers [are] exercising caution…” (emphasis mine). Huh?!? How is it “unfortunate” that people are being more cautious? Oh, right. John L. Scott sells real estate, so they would prefer it if all caution was thrown to the wind. Also, they’re blaming the downturn on “negative news.” That is so laughable it’s not even worth a detailed rebuttal. Here’s a hint though guys: it’s the other way around—the downturn is real, so the news is negative.

The rest of the paper focuses on superficial points that are unlikely to sway any but the most gullible (page numbers refer to the number printed on the page, not the actual pdf page number):

• We’re not as bad as Arizona and California! (p. 2)
• High inventory means more choices for buyers! (p. 2)
• Mortgage rates are low! (pp. 2-3)
• Did we mention we’re not as bad as California? (pp. 3-4)
• Subprime is like practically non-existent. For reals. (p. 5)
• We are so much better than other places in the US like, say… California. (p. 6)
• Never mind the fact that you could wait a year and buy at a lower price—real estate is a long-term investment. (p. 7)
• Here, look at some historical price drops in which the factors of the preceding booms were nothing like they were recently. Those weren’t so bad, so this drop won’t be bad either! (p. 8)
• In summary: Buy, buy, buy! (p. 9)
  

Take a few minutes to read through the pdf. It’s not that any of the things they’re saying are necessarily untrue, it’s just that this is definitely not an “objective assessment.” It’s quite clearly a marketing document intended to dupe cautious home buyers into throwing their money into a freshly-declining market. I hope nobody takes this document seriously.

I’ve added this paper to the library for future reference.

The post John L. Scott: “Now Is A Smart Time To Buy” appeared first on Seattle Bubble.

Regarding consumers capacity to understand loan documents, Peckhammer remarked :

“The loan documents they signed could have been reviewed by an attorney and explained if there were questions.”

Here’s the problem when looking under the hood at the transaction work flow. May I present you the true world of real estate and high finance:

The facts

• It is Friday, January 11th, at 4:00 pm, about 1hour prior to the escrow office closing.
• Escrow has been promised loan documents on a transaction since early in the week.
• By law, borrowers refinancing have a three day right of rescission (meaning 3 days, not including holidays or Sundays) after signing loan documents to cancel prior to closing.
• The wrinkle: loan documents can be time sensitive. For example, if you are refinancing, you may have an interest rate lock (a term used in the industry where a borrower is guaranteed a specific loan interest rate for a specific loan program) that may expire very soon. Therefore, the loan documents must be signed within the 3 day rescission period and the transaction must close prior to the interest rate lock expiring.
• Escrow receives loan documents at 4:30pm. What in the world?!…..says escrow staff.
• Escrow is “expected” to drop all other transaction work (escrow is very time stressed due to a lot of other things going on “under the hood” for other people) and work up the loan documents, prepare a settlement statement (HUD-1 Form for those unfamiliar which is a detailed itemization of fees and credits associated with the transaction) and schedule the clients to sign their paperwork.
• Are the clients at work? Have an evening planned? Guess who gets to call the clients with the urgent message which will more than likely put the borrowers into a, how shall I say, grumpy mood. And yes, it’s escrow’s fault; after all, escrow just pays the water bills (sacrcasm & humor on).
• To escrow, this is a frequent and absurd scenario that plays out all too commonly.

How does it impact you as a borrower?

• It is inconvenient as !#!*%!! for the borrower to be called at 5:30pm on a Friday to tell the borrower they MUST sign their loan docs or…. dominoes start falling.
• Or, worse, if this is a purchase, you have the pressure of signing because this little thing called losing earnest money is eating you up in the back of your mind, never mind the fact your belongings are in boxes and the seller is nearly moved out, and your newborn child has started crying in the office where you are trying to sign loan papers.
• Call an attorney to review your loan documents? Not going to happen.
• How can you have time to digest the loan docs when the only time you’ve seen them is when I show up with them? Remember, escrow tells you the facts, we don’t dispense legal advice or advice about how the loan will impact you financially.
• Thankfully, in a refinance transaction you have a 3-day right of rescission. For purchases, you get NOTHING. Zippo.

Solution?

• Enforce RESPA (Real Estate Settlement & Procedures Act) to include a provision for a borrower to receive loan documents 3-5 full business days prior to closing when PURCHASING. If they don’t, fine the lender. Currently, as it stands, borrowers are required to have 24hrs review of their Settlement Statement (HUD -1 Form) prior to closing. That’s a joke IMHO. In Washington State, generally, closing occurs when funds are available for disbursement and recording of documents (Deed of Trust, Statutory Warranty Deed) have been completed.

• Ask your loan officer that you would like a full week prior to closing to review loan documents and your Settlement Statement. This puts the transaction management squarely where it should be, on the “Conductor of your Orchestra:” loan officer and or agent. If the loan officer waffles at getting loan documents to escrow to prepare for you well before closing you should ask them, why not?
• Also, never forget to go shopping, even for third party providers such as escrow.

Is this scenario based upon a real transaction (s) ?

True or False. I’ll give you a hint. It starts with a “T.”

S-Crow

PS. I’ve seen rates today at 5.375% for a 30 yr fixed.

The post Looking under the hood: How to save yourself aggravation and money when refinancing or purchasing. appeared first on Seattle Bubble.

#1) Buy something that you can improve.

Not a disaster, but a home that is priced right for the condition of the home.

If you are a do-it-yourselfer, have some home improvement skills and don’t necessarily mind some effort and sore muscles, locate a home that may need some improving.

Benefits of improving a home:

• saving tens of thousands of dollars over time
• gaining more skills
• obtaining pride of ownership
• realizing sweat equity
• making improvements that suit your style and tastes

Challenges:

• dedicating enough time to do it right (been there)
• costly mistakes (been there)
• poor budgeting & planning (no comment)
• marital tension (been there, been there again, and will in the future).
• it costs more than you think (can’t discuss this on a public blog due to potential for more marital fireworks, please forgive).
• throwing in the towel and hiring contractors (never done this, but have threatened so by yelling curses out towards the sky or at snickering neighbors peering through their kitchen window as I work in the mud and rain; cursing particularly after nearly cutting off my left forefinger and middle finger (Dr. said very important to save that finger for I-5 freeway discussions with other motorists). Note to self: place blade onto drywall, not human flesh. Props to Swedish Med. Ctr. in Ballard. I digress.)

The advantages of sweat equity really do outweigh the challenges. Patience and perseverance will pay off.

#2) Buy the right location with the end game in mind (ie, life happens, so you may have to move).

Because housing is not necessarily a quick sale, as many are finding today, it is important to never lose “location” in the midst of your search.

Although location has been an cliche for so long, it really has lasted the test of time. Location means a lot of different things to people. It could mean reasonably close to employment, school or school district. Perhaps you prefer a newer development.

So, when the time is right for you to buy your first home or move up to a home that meets your needs today, then don’t be afraid of being patient enough to find the right house in the right location and getting your hands a little dirty. It can pay off handsomely and may put you in the drivers seat through market ups and downs.

Bonus: #3) Invest in Case-Shiller Index Hedge Fund

Bonus #4) Rent

-S-Crow

The post Hedging Real Estate appeared first on Seattle Bubble.

Seattle Bubble was started in August 2005, during a time when the “common knowledge” among those following Seattle-area real estate was that the Seattle market was hot (which it was), and that it would continue to be hot for a good long while, only possibly slowing down slightly sometime down the road. This blog began with a bias toward the notion that the market was in a bubble and a goal to collect as much information as possible to test that theory.

Throughout 2006 this and other housing bubble sites grew in popularity and the Seattle market (mostly) continued its hot streak. During this time, when local real estate agents commented or mentioned Seattle Bubble in their own blogs it was primarily with a tone of amusement. The general sentiment came across as something like: “Oh, that silly bubble blogger. He doesn’t know what he’s talking about. There is no real estate bubble in Seattle, and the market will only slow to 5-10% appreciation.”

These days though, the tone of the remarks is a little… different. Instead of “Seattle Bubble is wrong,” now it has turned to “Seattle Bubble is only right because they are like a stopped clock. If you keep saying the same thing all the time, eventually you’ll be right.” Here are a few recent examples:

With respect to the Seattle Bubble blog site my guess is that like a broken clock you can be right at least 2x a day.
– Reba

You have to chuckle though. Isn’t it like standing outside and saying it’s 42 degrees day in and day out for three years? One day you are bound to be more right than others. And for a few moments here and there you are bound to be spot on.
– Ardell

Keep in mind that Seattle Bubble (and most other bubble blogs out there) has only been in existence for a little over two years. Given the slow-moving nature of the real estate market, is it really that unreasonable that we should be making the same point–that the market is overheated and ripe for a correction–for two years?

Let’s also not misrepresent what Seattle Bubble and other bubble blogs have been saying during the past few years.

What we haven’t been saying:

The housing market is tanking right now! By the end of [insert current year here], prices will be down by 30 percent! Homeowners, get out now while you still can!

If we had been saying those sorts of things then yeah, the “broken clock” analogy would make some sense. However, that’s not what we’ve been saying at all.

What we have been saying:

The housing market is overheated. A slowdown is coming, and not just to 5% appreciation. Home prices will most likely drop, quite possibly by a significant amount. It might not happen tomorrow, but it will happen.

If we are right now, we were right two years ago. The only way broken clock type comments make any sense is if our perspective was unchanging and based on clichés and gut feelings. We’re not perma-bears here, we’re realists. When the market returns to sanity and healthy appreciation is on the horizon again, you’ll probably hear it here first. If anything is broken, it is the broken record of real estate agents that continue to claim the present market is not in trouble.

The post Are Bubble Bloggers a Stopped Clock? appeared first on Seattle Bubble.

Doom and Gloom Apocalypse Fun Time

First up is the incessant refrain that anyone predicting a decline in house prices is forecasting “doom and gloom” and/or a “housing apocalypse.” How do lower prices translate to “doom and gloom”? Isn’t it a good thing that people will actually be able to afford to buy a house without entering into a self-destructive financial death trap? Are falling gas prices “doom and gloom”? What about falling flat-screen TV prices?

When the cost of something falls, it is a good thing that leads to greater affordability and frees up money for people to spend on other things. Apparently I’ve got it backward. To me, a rapid escalation of prices leading people to make extremely risky financial decisions and putting them in a situation where all they can afford to do is pay the mortgage (if that) is “doom and gloom.”

Convenient Opinion Boxes
This is one I see a lot on blogs, and I’m sure I’m even guilty of it as well: stereotyping opinions. For example, someone comments that they don’t think prices will fall 20% next year, so someone else labels them as a “housing cheerleader” that doesn’t think prices will fall at all, ever. Or on the other side, someone remarks that they expect prices will continue to drop for the next year and therefore don’t intend to buy right now, and the response is something to the effect of “renting forever is stupid.”

The fact is, you can’t put people’s opinions into convenient boxes. The fact that I don’t intend to buy a house right now does not imply that I think nobody should ever buy a house. Likewise, someone who doesn’t have a problem buying now doesn’t necessarily think prices will keep going up.

Let’s try to avoid making assumptions about people’s opinions based on one or two comments. The discussion is much more productive when we actually address what people are really saying, not what we imagine they might say if they were a certain “type of person” that we assume them to be.

“Won’t you feel silly…”
Lastly, it has been said that if prices “only fall 20%,” won’t I feel so silly, because that would put them back at 2005 levels, which is when I started the blog, tee hee hee.

Of course I won’t feel silly. First off, what did I say when I started the blog? Did I claim that prices were going to plummet from their current levels? Did I predict fifty cents on the 2005 dollar? Nope.

Here’s what I did say:

One thing I do know for certain is that the recent trend of rapidly increasing property values (double-digit increases year-on-year) cannot possibly continue indefinitely. If it did, eventually everyone would be priced out of real estate. There has to be a slow-down sometime, and I think it’s coming fairly soon (within the next 3-5 years). I don’t know if it will take the form of a leveling off of values, or a slow decrease, or a sudden decrease (bubble bursting), but I know it is coming.

By not buying a home in 2005, I have been able to pay all my debt (which was 90%+ school loans), purchase two cars with cash, give generously to charity, and build up a decent amount of savings—retirement, stocks, and enough liquid cash to live over a year with zero income. Why would I feel silly about that?

Furthermore, prices retracting to their 2005 levels in 2008 does not really mean that prices were “flat.” When you account for inflation, it’s actually a decline. In fact, according to the Bureau of Labor Statistics inflation calculator, just to keep up with inflation, a home in 2007 would have to sell for 7.6% more than it did in 2005. You can’t ignore three years of wage increases and savings built up by renting.

That being said, my guess is that prices will fall by at least 20%. I suspect that they will fall further, but even if 20% off the peak is the lowest they go, it still makes far more sense to buy at 20% off the peak with sound financing in 2008 than it would have to buy for the same price with a shaky loan in 2005.

Back to Business
So there you go. Now that I’ve gotten those things off my chest, we can get back to the business of bashing real estate agents and mocking home sellers. (It’s a joke, people.)

The post Doom and Gloom, Stereotypes, and Predictions appeared first on Seattle Bubble.

Nowadays, it’s impossible to watch the 1946 holiday movie “It’s a Wonderful Life” and not feel a twinge of respect for Henry F. Potter, the villainous banker played by Lionel Barrymore. Potter was not above drawing the last drop of blood, but at least borrowers knew whom to hate. And if they were late paying, they knew where to crawl.

That’s not necessarily the case today. Mortgage companies often ship the loans to Wall Street, which repackages them into securities sold around the globe.

So if you’re a borrower in trouble, and your loan is diced up into some mortgage-backed security, you’d be hard-pressed to find a lender’s ear. How’s your Chinese?
…
Remember the scene where Potter chews out Bailey for giving a mortgage to Ernie the cab driver? He accuses Bailey of lending money to any pal he shoots pool with.

Bailey responds, “I can personally vouch for his character,” but also notes that Potter had the papers documenting Ernie’s salary and life insurance benefits. That established his friend as creditworthy.

In other words, Ernie did not have a “no-doc” loan, a modern invention that doesn’t require borrowers to provide proof of their financials. Because applicants could put any income number they wanted on the forms, these mortgages soon became known as “liar loans.”
…
…Bedford Falls turns into Pottersville, an evil place full of bad people and good jazz.

Fewer residents owned their home in Pottersville, but that nightmare town had some things over today’s Greenspan City. Pottersville didn’t have block after block of boarded-up houses lost to foreclosure, as is currently seen in many American communities.

Former Fed Chairman Alan Greenspan had cheered on the housing bubble that raised home prices to ridiculous levels. And despite the warnings, he ignored the recklessness and downright cons that would inevitably push mortgage market into crisis.

The weak borrowers who couldn’t get a mortgage from the sourpuss Potter — and probably not Bailey — were better off than the moderns lured by the happy dancing figures. The latter were sucked into paying inflated house prices and fleeced by stiff fees and punishing interest rates. Then they lost their homes.

Which is less attractive, Pottersville or Greenspan City? It’s a real tossup.

Crazy things happen when people buy things that they cannot afford. Go figure.

(Froma Harrop, Seattle Times, 12.19.2007)

The post The Quaint Mortgage Standards of Bedford Falls appeared first on Seattle Bubble.

I am in the process of relocating to the Seattle area from the Midwest and have been monitoring your blog in an attempt to get some insight into the local real estate scene.

First, thank you for your highly interesting and informative blog. Knowledge is power and you certainly are providing some interesting information for the consumer.

Here are my questions for you. What is with the psyche of local home buyers and sellers in the Seattle market that they are willing to overpay for housing (at least that is my impression)? Am I crazy to pay what people are asking for a home?

Let me elaborate. I have been scouring every information source I can for real estate information in order to become the most informed consumer I can. Here is what I have learned in a nut shell. Nationwide housing is in a slump (to put it lightly). For example the recent announcement that U.S. median sales price of a new home fell 13 percent in October, compared with a year ago. There are some markets however (Seattle, Salt Lake City, San Jose) whose home prices actually rose YOY. I get that Seattle is somewhat special in terms of real estate markets.

An additional piece of information is that I’m one of those people that wants to be a home owner. I appreciate that home ownership may not be the smartest financial move when compared to renting (especially at this time) but I put a great deal of value on the intangibles. I have two small children and the concept of “home” is very important to me so I accept the potential financial downside of home ownership.

BUT as you have stated on your blog, Seattle prices rose 4.69% YOY as of September. So here is my conundrum. I have been monitoring housing prices on the internet using various real estate tools. I have been specifically monitoring a few houses to see if their asking prices are dropping, how long they stay on the market and what the actually sell for. I have noticed a disturbing trend that I simply can’t figure out and would like your insight. I have monitored a couple of houses (in Issaquah and Bellevue for example) that were purchased in September of 2006 for around $600,000. They were put on the market in the fall (September-ish) and the asking prices were about $720,000. My calculations show that these people were expecting a 20% increase in the value of their property in one year. Is that realistic for Seattle regardless of the market – prior to 2007 were people really getting 20% annual growth. The interesting thing is that I have seen the asking price for these properties now drop to about $695,000. This is still a 16% increase. If the numbers show that Seattle prices rose 4.69% YOY as of September, why would anyone pay more than $628,140 for a house that was previously purchased in 2006 for $600,000? Furthermore, I’m thinking for that house that was purchased in 2006 for $600,000 I would pay about $610,000 right now because even though it gained 4.69% in 2007 it will probably lose value in 2008. Are Seattle home purchasers crazy enough to pay $700,000 for a house that was just purchased a year ago for only $600,000?

Andy seems to have three basic questions: Do you have to be crazy to pay today’s home prices in Seattle? Is an asking price 20% over last year’s purchase price realistic? And lastly, how does the median home price relate to specific houses?

To address the last two questions, I will point out the statistics only tell part of the story. We primarily focus on the median single-family home price in King County when discussing prices here, but that number is useful only in gaining an overall picture of market direction, and is fairly useless when trying to determine a reasonable price for a specific home. There are a few reasons for this. First, as has been discussed here a couple of times before, the median price can easily be (and has been) skewed by a change in the demographic mix of homes sold.

Secondly, while the market in general tends to build momentum and move together in the same general direction, every neighborhood has its own unique considerations that will result in larger or smaller changes in price. For example, looking at the county-wide statistics (or even the more local NWMLS areas within a county) won’t tell you that a particular neighborhood just had a big box store approved to build two blocks from a home you’re looking at, causing its value to drop like a rock. When you are seriously interested in a particular home or neighborhood, you really need to look at all the factors that affect that particular location.

That being said, if the county-wide median is flat year-over-year (which it is), it’s a pretty safe bet that someone asking 20% over last year’s price has got their head in the clouds (to put it politely). Maybe that neighborhood has had some significant improvements in the last year, making them more desirable relative to other choices in the Seattle area, and a 5% would be realistic. You can’t tell just by looking at median prices though. Statistics are useful for gaining a high-level view, but to know whether a particular house should be appreciating and by how much, you have to look at that particular house.

As far as the more general question about the sanity of those that would shell out $600,000 for a run-of-the-mill house in Seattle, my personal opinion is that most people paying these prices have been caught up in the “bubble mentality.” It’s the little voice that says:

Look how fast prices are going up! Don’t you want to get in on that action? You know, if you don’t take advantage of it and buy now, you’re going to be priced out forever! You don’t want to be the only one of your peer group that doesn’t get a ride on the equity train, do you? Buy now before it’s too late!

For a great example of this mentality in action, check out this article I highlighted in 2006. It’s that mentality coupled with the easy, standards-free lending we saw 2004-2006 that pushed prices up to their present ridiculous highs.

However, as I’ve said many times before, if you have the finances, place a high value on the “intangibles,” and can tolerate the downside risk of buying now, more power to you. I’d at least hope that you will take your time home shopping and not pay full asking price for whatever place you end up selecting.

The post Reader Question: Are Seattle home purchasers crazy? appeared first on Seattle Bubble.

You were the careful, responsible sort of home buyer. You took out a plain-vanilla, fixed-rate, 30-year mortgage, shunning exotic loans with low teaser rates, coupled it with a substantial down payment, bought only as much house as you could afford with monthly payments that were within your income. Maybe you’re even paying a little extra each month or have converted to a biweekly schedule to get the loan paid off in advance.

Silly you.

Or perhaps you were the careful, responsible sort of banker, one who got nervous over loans in which borrowers put nothing down, or paid so little that the principal owed grew every month, or signed up for loans whose payments they could never afford once the low teaser rates reset. Maybe you even shied away from making such loans, much less buying paper backed by them.

Silly you, too.

Because you, Ms. Prudent Home Buyer, and you, too, Mr. Cautious Banker, sure missed out on the party. While you were playing the role of the ant, everyone else was enjoying the life of the grasshopper.

And now you, directly or indirectly, will get to help pay to rescue those who had the fun — without getting any break as a reward for your frugalness.

As I have made abundantly clear here in the past, I couldn’t be much more strongly against bailouts. The fallout from the housing/credit bubble is not going to be pretty for anyone, including those of us that did not participate in the irresponsible run-up, but the best way to discourage something similar from happening again in a decade or two is to, as Bill says (but doesn’t necessarily advocate) “let people feel, however painfully, the consequences of their screw-ups.”

That being said, I can’t bring myself to be especially concerned about this latest plan. Many other people in the real estate blogging scene have spent far more time than I can afford to studying the plan, and the general consensus seems to be that it amounts to little more than a publicity stunt, designed to give the appearance that something is “being done” about the “housing crisis.”

Relatively few people will qualify for the freeze, and even fewer will bother taking advantage of it. Why would you lock in your payments on a house in which you have little to no equity, and is now worth 20% less than what you paid? Why would an ARM freeze be more appealing than just walking away? (Actually, according to Deejayoh’s forum post, someone in that situation wouldn’t even qualify, so I guess that just reiterates my point that few will qualify at all.)

Here are some good write-ups on the plan from around the web:

• Housing Doom – Most ARMs Not Likely To Be Affected By Reset Freeze
• Bubble Markets Inventory Tracking – Uncle W’s Subprime Freeze: Actual Results May Vary Among Users
• Calculated Risk – The Plan: My Initial Reaction

Also be sure to check out the Seattle Bubble Forum discussions:

• Could industry-wide work-out of subprime mortgages help?
• Banks/Fed Swing to the Rescue.
• Analyzing the Bailout

So is there something wrong with me, that I can’t seem to muster up any rage about this apparently-just-for-show bailout? I’m just not feeling it.

(Bill Virgin, Seattle P-I, 12.05.2007)

The post Mortgage Freeze Bla Bla Bla appeared first on Seattle Bubble.

I will be getting married next August and am beginning to look at buying my first home that we could be in for 5-7 years before children would demand a bigger home. My fiancée and I have a combined income in the ballpark of $90,000 and have 50k available if needed to down payment and closing cost. However, I would like to keep the 50k invested where it will make me 8% annually but at the same time keep my monthly down. I have found that zero down and a low monthly can be conflicting goals. However, in my research I came across a fixed 30 year interest only loan with 100% financed and lender payed PMI. This would allow me to keep my 50k invested and take the saving from the interest only loan and pump back into the same or new investments where my money is working for me to prepare for the future. Also, I know that interest only loans are not for everyone and can be risky and have thoroughly researched the pros and cons. I am looking for unbiased feedback from someone completely unrelated to my situation. Now that I have explained my situation I have three questions.

1. From the the above description do I sound like a good candidate for an interest only loan? I should also mention that I am fortunate to have significant upside for compensation in the years to come.
2. From your knowledge do you feel that the Seattle real estate market will hold for 5 to 7 years when I look to sell or refinance my interest only loan? Obviously, my fears are depreciation and significantly higher interest rates at the time of sale or refinancing. I know that I don’t want to take the interest only into the 11 year but I want to be comfortable that I can refinance or sell at that time even though I will be carrying the original principal amount after 5 year of interest only payments.
3. Do you think it would be a good idea to make the extra payment every other month on principal to decrease the amount of risk I carry?

First off, I should point out that while I obviously do not have an emotional attachment to Malcolm’s decision, I’m certainly not “unbiased.” Everyone has biases to one direction or another. The best I can do is try to give rational advice based on my own perspective. Here is a slightly condensed version of my response to Malcolm’s questions:

From the scenario you describe, it sounds like you and your future spouse have made the decision that buying a home is the way to go, and the advice you are looking for is about what kind of mortgage to get. Personally, I would look into renting a nice house for at least a few years (see this post for a strictly financial comparison between renting and buying similar homes in the Seattle area). However, if you have the funds, the “intangibles” of buying are more important, and you can stomach the financial downsides of buying in today’s market, then buying would be your best bet.

That said, I’m afraid I can’t offer much specific advice about loan types, except to offer a general warning to stay away from adjustable rates if at all possible. For the best advice on mortgages, I would have to recommend that you talk about your situation with a mortgage professional. I highly recommend Rhonda Porter, who has a website here that contains information on how to contact her. I’ve met with her a couple of times, and she is both knowledgeable and personable.

To address your second question, a lot can happen in 5-7 years. My “gut feeling” is that we’re going to see 3-5 years of 5-10% price drops, followed by another 3-5 years of stagnation. It could be better than that, or it could be worse. Alternatively, you can believe those in the real estate industry, who are much more optimistic, and are not expecting price declines to last beyond next year, followed by a return to 3-5% yearly appreciation. Personally I have a hard time accepting their predictions, given that they have been calling the “bottom” since December of last year.

As for your third question, my personal financial inclinations are decidedly anti-debt. I will most likely be taking on a home mortgage some day, but I will be making every reasonable effort I can to start with a large down payment and pay the debt off early. I highly recommend making extra payments whenever possible, as long as it’s not at the expense of a prudent retirement savings plan, and whatever other savings plans your personal budget entails (e.g. – emergency fund, stock investing, etc.).

Malcolm replied with a few more thoughts:

It sounds like you feel as if the Seattle housing market will slow and depreciate or stay flat in the coming years. That being said am I correct to think that interest-only loans may not be the best idea in a depreciating housing market? For example, if I buy at home at $370,000 and prices drop 20% over 3-5 years I am left owing $370,000 while my home may be worth considerably less. Is that the correct thinking? It seems that interest only loans are only advantageous if you are in a strong market that is on the up swing where you can be confident in the home’s appreciation. Anyway, I am curious to see what comments we get on the blog after Monday.

He also pointed out a few upbeat articles in the Seattle Times as possible reason to believe that “Seattle will continue to be stable riding a strong economy.” In order to keep the comments on this post more focused, I will address those in a separate post. For now, let’s hear your advice for Malcolm’s situation.

Personally, I’m of the mind that you really can’t lose right now by renting for at least a year or two while all this nasty stuff plays out. 2007 was really just the beginning of the unwinding, and things seem likely to get worse throughout 2008, before they get better. What advice do you have for Malcolm?

The post Reader Question: Market Stability & Interest-Only Loans appeared first on Seattle Bubble.

rose-colored-ghoulaid:

I for one don’t want misfortune to shine on others. At least not indiscriminately. But I do think a return to rationality will mean some particularly vocal cheerleaders will receive their comeupance. But in my mind, this is more akin to hoping the heads of Enron become felons, or that history books correctly cite Greenspan as the source of more economic problems than he ‘solved’.When a single mother is foreclosed out of a house (she had no business buying), I still feel sorry for her. But when a serial flipper loses his home due to gambling on the market, I feel no pity. Nor am I happy he lost the house, it is just how markets work, and that person played a game they didn’t understand. At that point I remember I’m in the catbird seat, and I might derive some joy out of that.

Jonny:

My main feeling about hoping for a market decline is simply that I will be happy to see affordable housing again. In the unlikely event that a decline doesn’t happen, it is extremely remote that I will ever own a home in this lifetime. I am, BTW, over 40 and well-employed. Think about that.
…
However, if you must insist on seeing things this way, it seems to me that the logic works in reverse: people who currently own overpriced homes have been enjoying a feeling of schadenfreude with respect to those without them for years. So, when we return to a normal market and those with overpriced assets are forced to sell them, just don’t forget all those years that these unfortunate sellers enjoyed those assets while the rest of us have been forced to rent and endure this idiotic bubble. There will be casualties on all sides of this before it is over. Just don’t forget that the real villain is Greenspan.

disbelief:

I want to chime in and say that “schadenfreude” is not a fair term based on what I feel, and what the majority here have written. This seems to also be the main accusation of the RE cheerleaders who visit this blog. The only motive I have is to be able to own a house again without sacrificing virtually everything else.

Angie:

Schadenfreude is enjoyment of the misery of others. Despite the protestations today, there is a wide streak of that running through this blog.
…
I think that if housing prices in this area get to the point that they’d be affordable by traditional standards, the economy in general will be in the toilet. So, be careful what you wish for.
…
About being 40, well-employed, and never able to buy a house—there’s a lot more there to think about. My first thought is, unless there’s more going on in the background ($100K in law school debt, four kids and a disabled wife, whatever), there is no reason why you couldn’t sock away a big down payment and buy a modest place.I’m going to presume that you’re single and without those major encumbrances, and that “well-employed” means “over median income”, which is ~$54K for a single head of household in Seattle. (If it’s not true for you, Jonny, I gather that it applies to not a few other people who frequent this site.) People in this situation should easily be able to put together a substantial down payment (say $30-40K) in two to three years, even while shoveling away 10-15% for retirement. Just grow a backbone, show a little restraint, and start being fiscally responsible.

notabull:

Angie, there are not just two choices:a) Buy a house immediately.
b) Never buy a house, and continue to rent forever

You seem to think that most on this board are choosing (b), hence your stupid comment about being fiscally responsible. Ultimately, it *would* be fiscally irresponsible for most people to never buy a house.

However, and please try to understand, there is a THIRD choice:

c) Save a down-payment, wait for prices to return to fundamental levels (whatever you deem them to be), and then buy a house.

Sure, I could go out and buy a house right NOW. I have a ton of money in the bank earning decent interest, but I’m not going to. Why? Because I’m being fiscally responsible, am saving $6000 in CASH a month (after tax) by TEMPORARILY renting, and then I will buy once the market softens some more, which I fully expect it to.

If it doesn’t soften more, I’ll just shrug my shoulders and buy a house anyway. But I’m not about to do so when all indications are that prices are heading down and about to head down some more. I didn’t get my big bank balance by being stupid.

Notabull accurately summarizes most of my sentiments quite succinctly. When prices are higher than any logical and sane measure indicates they should be (as they are now), and all signs point to an extended period of price declines (as they do now), the best way to “show a little restraint, and start being fiscally responsible” is by not buying, rent for a massive discount, and save the difference. That’s what I’m doing, and what many others who frequent this blog are doing as well.

I would also like to address Angie’s comment that prolonged and/or large home price declines will result in an economy that is “in the toilet.” In my opinion, the source of the problem is that the prosperous economic times that we have enjoyed for the last 5-10 years have been largely (not entirely, but largely) funded by a massive, unprecedented accumulation of debt. A large portion of that debt was the result of the housing bubble, which allowed people to “extract equity” from their homes (i.e. – take on more debt) to fund spending on vacations, plasma TVs, cars, and other non-necessary purchases. This was great for the “economy,” but the problem is that you can’t just keep borrowing your way to prosperity forever. Unfortunately, we (as a nation) borrowed prosperity from the future so we could enjoy ourselves in the here and now.

Eventually the bill will come due, and it will indeed be painful; even for those that did not participate in the irresponsible run-up in any way. That sucks. But when everything does shake out, and eventually homes are priced reasonably* again, is it “schadenfreude” to be grateful that insanity no longer reigns?

Is it schadenfreude to point out that while others were accumulating more and more debt, I was eliminating debt and accumulating liquid assets? Is it schadenfreude to point out the inevitable result of our nation’s debt-fueled spending spree? Is it schadenfreude to look forward to a time when people who have been and continue to be financially responsible—who didn’t buy things they couldn’t afford and actually regularly saved money—will receive the economic rewards they deserve?

If that is schadenfreude, then I guess the bubble blogs are schadenfreude central. To me, schadenfreude is what I felt when I watched the Yankees blow a three game lead and get beat in New York by the Red Sox in Game 7 of the 2004 ALCS (also when they blew a 9th-inning lead in Game 7 of the 2001 World Series). I derive no such pleasure from seeing poor people that should never have bought a house in the first place being foreclosed on and forced to go back to renting again. Watching people that bought at an inflated price who are now unable to sell because they are upside-down on their loan does not make me happy. I feel that these are the unfortunate, inevitable, and expected results of the mess we have gotten ourselves into.

* By “priced reasonably,” I of course mean relative to their location. I don’t think anyone ever expects homes in Seattle to sell for the same price as homes in Fargo.

The post Housing Market Schadenfreude appeared first on Seattle Bubble.

Can we please stop all of the doom and gloom?

As you have probably have seen in the news, the real estate market has been going through some big changes, good and bad. Our local market had years of double digit growth that became unsustainable. At the same time as the slow down, lenders were getting hit hard with record foreclosure rates. The driving force behind the problem was a meltdown of the sub prime mortgage market that had been making risky loans.

While many other areas of the country are reeling from all of this, Washington State has held strong with low unemployment and economic growth. Although, the pool of real estate buyers in our area has dried up, buyers from California with all cash offers and high risk loans for buyers with questionable credit scores have gone away the home values are NOT in a free fall as has been reported in some of our local papers. The high inventory is a direct result of the scarcity of buyers due to the stricter lender guidelines, seller’s high expectations and public opinion.

Recently a story was printed that the average sales price in Pierce County had slipped twelve thousand dollars yet, in reality, last summer and fall, it was difficult to find a jumbo loan. A jumbo loan is a purchase price over $417,000. The average reported on did not include many of the upper end properties we normally see selling in the late summer, thus greatly pushing down the average. I believe that the average prices on homes under $417,000. have been steady increasing, though not at the double digit rate that sellers have come to expect.

On a positive note, this situation has created new opportunities for investors looking to purchase rental properties that can cash flow now. The rental market is hotter than it’s been in years and the reality is people are working and everyone needs somewhere to live.

Buyers looking to move up from a starter home to a jumbo type property have lots of good properties out there to choose from. Mortgage interest rates have remained low and available for those with good credit and the jumbo programs have started to make a comeback. Analysts are saying that the market is poised to come storming back this spring.

Remember when the high tech stocks crashed, I still scratch my head and wonder why I didn’t buy, buy, buy!

Gregory Loe
Better Properties North Proctor
Tacoma, WA

I think Mr. Loe’s letter speaks for itself.

The post “Doom and Gloom” Counterpoint appeared first on Seattle Bubble.

“It’s not quite indentured servitude, because you can quit, but when you look at the mortgages and car payments, especially in Seattle, you’re not exactly free,” said the surveilled former employee.

Real estate salespeople are always talking about the “intangible” benefits of home buying, especially since today’s market makes it impossible to argue for the financial benefits. What they obviously won’t talk about are the intangible detriments that come from jumping head-first into a ridiculously large loan on an overpriced home. Detriments such as being trapped in a spirit-crushing job.

(Andrea James, Seattle P-I, 11.16.2007)

The post “It’s not quite indentured servitude…” appeared first on Seattle Bubble.

I enjoy discussions here because it’s where consumers are. It is like a laboratory of information. One area that is of interest to me, in a large way, is what makes people do what they do. I’m speaking of three groups primarily: consumers and the two primary players in our business, the loan officers and agents.

2007 has been quite a year in the real estate world. Blogging and transparency has been one of the hottest focal points in the business. Because of the obvious turmoil in the real estate industry as a whole, being that the market is in correction mode and the mortgage/credit markets are stressed due to “writing down” Billions (code for losses) and continues to unfold, many industry-wide issues are at the forefront.

In lending, the recent issue of licensing (both locally and nationally) and the hot potato YSP (yield spread premium or equivalent terminology) topic has been debated heavily. Locally, loan originators have to take a competency exam and go through a background check. Agents have their exam and clock-hour classes to obtain and maintain licensing as well. But, should it stop there? Ok, fine, you say. Where are you going with this? What I’m suggesting is this: is the licensing at it’s face value all you would be satisfied with to work with a real estate professional or allied pro’s such as loan officers, title, escrow, etc…?

“Why not ask them to disclose whether they have had a bankruptcy, or foreclosure or heaven forbid, ask them to disclose their own FICO score? Do you really want people who have a history of making poor financial decisions assisting you with advice on buying, selling or refinancing? Or, is it more complicated than that and therefore is not fair?” – me, S-Crow

For example, over the course of the past four years, our small business has bumped into an opportunity or two or three to expand the business. In all the cases, we were approached by mortgage brokers or agents or both. In each circumstance we passed. Why? A bit of due dilligence revealing situations we were uncomfortable with led us to our decisions. Plus, what was the rush? Get rich, lol?!! (eyes rolling.)

I think the thing that caused the most pause for our counterparts was a question I posed to those who wanted to enter in a business capacity with our small business: “If you want to enter into a business relationship with us then reveal your entire financial lives, personal and professional and we’ll do the same.” As you can imagine, that type of transparency is what I’m after if people want to do business with me in opening other offices in a partnership. And, as you can imagine, it is quite the turn off. Someday, we’ll bump into like minded business people. So far, that hasn’t happened as people don’t want us to see the “naked” financials. You see, in escrow, you deal with money all day long, not quite like a bank, but loosely in the same framework. Therefore, you don’t want people who are in financial hardship running an escrow company or having access to trust accounts. Not a good recipe.

Escrow is highly complicated with lots of moving parts. There is a reason escrow firms follow banking hours, so to speak. There is a reason mortgage funders and escrow staff look at the clock all day long as we have to meet very tight deadlines. Because escrow is a regulated business and actually has audits from the Dept. of Financial Institutions that we have to pay for (thank you not very much), it is an arena where many of our colleagues who wish to open an escrow company find themselves wondering why they even tried. Some days we ask ourselves the same thing, but for other reasons I’ll keep to myself. :)

Anyway, back to my point(s). A few things to consider:

• Wouldn’t you as a consumer (existing homeowners in midst of refinancing, first time buyers, etc..) having to divulge most of your financial lives to the loan officer or agent want to know that you are being represented by those parties in a fiduciary capacity? In other words, wouldn’t it be a good thing to know that they are working in your best interests?

• This is the crux of the consumer driven push resulting in an issue Congress is meeting about. It is to get lenders & brokers to work on consumers behalf and address the hot potato issue of compensation in the form of YSP (yield spread premiums). One of the questions being asked is when or how is it appropriate to use YSP’s? For those that don’t know, YSP is a compensation mechanism that the lender/investor pays to the broker for originating the loan or loan program at a specified interest rate, or with terms such as pre-payment penalties. Generally, to trigger this additional compensation in the form of a yield spread premium (YSP), the borrower is sold an interest rate higher than would be if there were no YSP. Again, this is a general definition.

I ask tough questions of those wanting to do business with me in a partnership and sometimes the answers received either by my own investigation or their disclosure reveals information that helps me make an informed decision.

So, all that mumbling to say this: will you interview the professionals that are assisting you in your real estate endeavors? Do you have it in you to ask the tough questions? Can you imagine the fallout if, say, a 700 FICO score, was the low end benchmark to qualify for licensing as an agent, loan officer or other professionals involved in your transaction? Now that would have some teeth!

How’s that for a softball pitch to our industry!

The post Can we talk? Full disclosure. What does it mean to you? appeared first on Seattle Bubble.

While I strongly sympathize with the difficulty that middle-class people have buying homes in King County, subsidizing middle-income housing just makes no sense…

…the tax burden for subsidizing middle-class housing would be borne mostly by the middle class.

In addition, subsidizing middle-class housing will not help the market readjust. The fact is, if middle-class people cannot afford middle-class homes, [it’s because] they are overpriced. This is the result of deregulation of the mortgage industry, which allowed people to pay more for homes than they could actually afford.

If we subsidize the cost of homes, this will mean that the value of homes will never readjust, and the portion of the cost of the home that is subsidized will be invisible to the market. (This is what happened to the cost of college when students could borrow unlimited money.)

Finally, subsidizing middle-class homes will not force wages to adjust to the real needs of working-class people. This is the real issue. Working-class people need to earn a decent living to afford a home, health care, saving for retirement and college for their kids.

While I don’t necessarily agree with everything Ms. Orth suggests, her point that subsidizing the purchase of overpriced homes is counter-productive is 100% correct, in my opinion. The fact that the middle class in Seattle has been priced out of prudent home ownership is unfortunate and unpleasant, but it’s a problem that most government intervention will only exacerbate.

(Maggie Orth, Seattle Times, 11.10.2007)

The post “If middle-class people cannot afford middle-class homes, it’s because they are overpriced.” appeared first on Seattle Bubble.

Regarding the Steve Tytler’s Everett Herald piece:

Steve & fellow bubble believers,

In the spirit of your article, I don’t disagree with your observations. But, as one of the folks that you reference as working in the marketplace or real world, I believe that if the Puget Sound area and Snohomish Co. where our office is located, experiences a 10-20% drop in housing prices, many clients of ours in which we closed their purchase transactions are going to be in a world of hurt. Many people in general will be in a world of hurt. I think of all the folks with piggyback/100% transactions and the countless “serial refinance” people who closed their transactions all across the country. It’s staggering to be honest.

A 10-20% drop in housing prices will put people into a major pickle to say the least. A less severe drop in the single digits will reach out and touch many as well. My belief is that homeowners who are selling need to hear that the market has changed in a meaningful way.

The key element that is absent in the comments from those in real estate leadership positions locally is this:

Our local region and more broadly, the country as a whole, has NEVER experienced the rate, scale and level of housing price inflation as we have over the last three years or so. There is no benchmark. The previous local correction in Spring of 1990 forward does not compare. In my opinion, those who suggest that this current correction will mimic corrections in the past may be underestimating the euphoria that drove our market to unbelievable heights. The recent lending absurdity was not present in our last correction. There was no better seat in the house to experience the market than being in the escrow business.

Look, I’m not in favor of the market changing gears as it affects our small business too, but it tires me to no end in hearing and reading local and national professionals in leadership positions (Lawrence Yun among many others) continually spin the “rates are great, economy is doing well and job growth is good.” Tell that to the thousands who will lose their homes across the country, the scores of people who can’t refinance because lenders are gone or standards have tightened enough that refinacing is not an option. Tell that to the thousands of honest, ethical loan officers who have no jobs because of the bull crap lending and behavior that enabled this market frenzy and subsequent and inevitable correction.

The idea of the “normal market” garbage rhetoric is meaningless to markets across the country experiencing severe corrections. What happened mid-August was not a “normal” event in the financial markets. I humbly ask as a small business owner in the real estate business that the real estate community start building their credibility back in a positive manner by discussing the market for what it is. True, currently the local market is not crashing and the sky is not falling, but housing prices are softening. We only started to hear no-nonsense analysis after the evidence was so obvious that those in leadership positions were seen publicly as foolish or worse.

The sooner everyone calls the market as it is, the sooner our correction will be over. People will continue to buy and sell homes in any market, but they won’t be buying because “real estate always” goes up. They will buy because it’s a place to call home, establish roots in and become part of the fabric of a community.

When people sitting across the table from me signing their paperwork to buy a home talk about everything BUT how much money they will make in “perceived equity”, I’ll let you know we are back to a “normal” market. When loan officers sitting across the table from escrow staff in offices across the country stop telling their clients “we can just refinance you again after your pre-payment penalty expires” in a year or three, then I’ll tell you we are back to a “normal” market.

Tim Kane
Co-owner
Legacy Escrow Service, Inc.
Blog Handle, “S-Crow”

The post A request for clarity. appeared first on Seattle Bubble.

Tim Ellis (“The Tim”) is probably among the very top informed first time homebuyers when it comes to market knowledge, housing economics and mortgage finance…..and how to build those handy Genie Lifts we see all over the place on construction sites.

There have been many instances where Seattle Bubble readers have purchased over the last year. Today, I met another at our office. Thanks for supporting small authentic independant escrow firms (not owned by real estate broker, mortgage broker, title company or any other financial services business). So, when The Tim decides it is time to buy a home, I wonder how he is going to qualify the market knowledge of the Realtor (and Loan Officer) he works with, provided he utilizes a Realtor’s expertise. Working with a knowledgeable Realtor is advantageous, but, my understanding is that consumers rarely REALLY interview the individual assisting them in a very large purchase.

From my recent observations

Some of the consumers are leveraging the market conditions in their favor:

• watching time on market of subject home they are interested in
• being represented (buyer agency)
• closing costs paid by seller
• negotiating price down
• shopping for best service & price for third party services involved:
  • inspectors
  • repair contractors
  • title insurance
  • escrow service (those who finalize and close your transaction)
  • mortgage loans
• Use of rebates by individual Realtors or other’s such as Redfin.

Continuing with my premise

One the one hand, a Realtor working with The Tim will probably be easy because he may have all his ducks lined up and ready to go. He will probably have financing already approved prior to jumping into the fray.

On the other hand, Realtors talk quite a bit about how difficult it can be to work with an “engineer” type buyer: those dang-gum-number-crunchers!. In addition, will he be a “marked” man, tongue-in-cheek, as a contributor to the demise of a local market and the idea that if enough people say we are in a Bubble, then mass psychology may start the self fulfilling prophecy? After all, Economist Robert Shiller was at it again today indicating that the unraveling of the market could be the worst since The Depression. Psychology is certainly a factor: we heard no objections when the media continually talked up the market and today it is quite a different story.

So who will be Tim Ellis Realtor? How would you qualify those service providers involved in your purchase? What questions would you ask of a Realtor to find one that is experienced, knowledgeable and works well with you representing your best interests?

The post Deep thoughts: Who’s going to be “The Tim’s” Realtor when he decides to buy? appeared first on Seattle Bubble.

I just happen to look up at the ticker when I was in Times Square about a week or so ago (8/17) after a quick subway train ride up from Wall Street. Then shortly after, the following message in the picture below showed and I quickly took a shot of it. This was on Friday after the Fed injected another round of Billions into the market. These photos pretty much sums up the market over the last couple weeks.

Click to enlarge

After arriving home at 2:30AM Wednesday last week I had but a few hours of shut eye and then promptly drove all the way to Idaho. On the way back home this past weekend I felt the urge to take it slow and go HWY 2 and visit the Grand Coulee Dam and then onward to the North Cascades Highway via the beautiful Methow Valley and Okanogan countryside. I told my kids that one of the trips this summer had to include some historical background for a bit of education. The Grand Coulee Dam was it.

Well, during the visit I came away absolutely awestruck. We all went upstairs to the visitors center Theater and watched a 50 minute documentary on why the Grand Coulee Dam was built: It was part of the New Deal by President Franklin D. Roosevelt to put people back to work after the devastation created by the Stock Market Crash of October, 1929. The documentary spent several minutes discussing, with actual 1929 footage of the floor in a frenzy at the NYSE, the events leading to the New Deal by FDR and subsequent Federal backing of building the Grand Coulee Dam.

While only a handful of people were in the Theater, I noticed an old couple sitting two rows down from us and I could not help but notice they were knodding there heads up and down (presumably in agreement with what was being said) and from side to side (presumably in agreement and disbelief that they or people they knew went through that period) during some intense footage of the desperation across America.

During the documentary I could not help but think, my gosh, I was at ground zero (Wall Street) just a few days ago where it all began, and then to see this monumental icon of American engineering, ingenuity, brutal work and symbol of both the dark days of America and at the same time the symbol of what is great about this country. Some of the quotes in the documentary by the financial elite are eerily similar to what we hear today about the economy and health of the banking system. There was even mention of how the FDIC was created back then to guarantee deposits and thus reduce the possibility of there ever being a run on banks.

The Grand Coulee Dam took many years to build and 12 Million Cubic Yards of concrete. It produces the most electrical power in North America and it currently is the largest concrete structure in America and the third largest Hydroelectic plant on earth. Excavation began in 1933 and it was essentially complete in 1941. Subsequent upgrades and pumping stations followed and now irrigates roughly a half million acres of farmland in what is today the Columbia Basin. It is a must see if you ever get a chance.

Click to enlarge

Photo of the Grand Coulee Dam (a mile long) this past Saturday. A symbol of both the dark and bright periods in American history. Sorry this post too long, but I hope some find the symbolism, as I did, very educational.

The post What a last two weeks of extremes: Wall Street & Mortgage Mess to a symbol of America’s dark days and accomplishment. appeared first on Seattle Bubble.

Home values here still rising (Elizabeth Rhodes, Seattle Times)
Seattle-area homes are holding value, Zillow says (Aubrey Cohen, Seattle P-I)
No, Chicken Little, the sky isn’t falling… (Reba Haas, Rain City Guide)

Many recent reports such as these seem to have a tone of: “I swear, the housing market in Seattle is still strong! The mortgage mess won’t affect us at all, really!” Who can blame them, really? What else are people whose income depends on the continued strong performance of the local market going to say?

You’ve probably all seen the “Cycle of Market Emotions” on other housing blogs:

The Cycle of Market Emotions

Although it takes an ounce of actual critical thinking to see the cracks in Seattle’s housing market as of now, I believe that those most involved in the market can feel it in their bones. Whether they are consciously aware of it or not, the fear of what’s about to happen is starting to come through in what they write. Based on what I’m reading out there, I would place the general market sentiment in Seattle right now at somewhere between “Anxiety” and “Denial.”

Of course, some people are more willing than others to be frank about the situation facing us today. To her credit, Jillayne Schlicke over at Rain City Guide appears to be one of them, recommending in a frank post about the snowballing troubles at Countrywide, she recommends that employees there “polish your resumes and quietly begin making inquiries.”

And let’s not forget our old friend at the P-I, Bill Virgin, who pipes in on the ongoing mess with his usual wit and insight:

You can’t help reading the accumulating horror stories in the mortgage market… without shaking your head and wondering, “What were they thinking?”

Not the borrowers. The people making the loans.

The borrowers certainly deserve to be asked, “What were you thinking?” The explanations offered in answer range from, “I didn’t read it” to “They didn’t explain this to me” to “Maybe I fudged the numbers a bit” to “I didn’t count on my job/the housing market/ interest rates/the economy going bad on me.”

If ignorance born of laziness is unattractive in consumers, it’s inexcusable for the industry that was generating and selling these loans. Alternative explanations are hardly more absolving: Inexperience (“Housing markets only go up, right?”), hubris (“I know what I’m doing, those other clowns don’t.”) or greed (“As long as I get the loan made and sold, it’s not my problem.”).

The real world is not tolerant of such excuses, and it is a harsh grader on those who ignored, or never learned, the principles of responsible financial management.

Of course, it’s my opinion that anyone who didn’t see this kind of mess coming years ago was either not paying attention or willfully ignorant. I leave it as an exercise to the reader to determine which group of people falls into each category.

Who can say how this is all going to unfold in the coming months and years. All I know for sure is that these are definitely interesting times.

(Elizabeth Rhodes, Seattle Times, 08.18.2007)
(Aubrey Cohen, Source, 08.13.2007)
(Reba Haas, Rain City Guide, 08.18.2007)
(Jillayne Schlicke, Rain City Guide, 08.20.2007)
(Bill Virgin, Seattle P-I, 08.20.2007)

The post Somewhere Between Anxiety and Denial appeared first on Seattle Bubble.

So why am I rambling on about my car? What could this possibly have to do with home prices in Seattle?

Every once in a while someone tries to make the case that high home prices in Seattle are justified (or even that prices are too low) on account of what a swell city this is. Their argument goes something like this:

Seattle is so awesome! In fact, Seattle is so swell that it is completely reasonable to compare home prices here to cities such as New York and San Francisco, where homes are much more expensive! Seattle is after all a hip, up-and-coming world class city, probably even the hippest, most up-and-coming world class city around. So you see, it totally makes sense for home prices to shoot through the roof around here. We’re just catching up to other comparable cities.

I definitely agree that Seattle is a great place to live. Much like my car, Seattle has many attributes that I really like: low pollution, beautiful scenery, proximity to nature, and a decent job market, to name a few. That being said, comparing Seattle to New York or San Francisco is just as ridiculous as comparing my Saturn SL2 to a BMW or Lexus. They’re just not in the same league.

Although I already knew this was the case, since I don’t travel much (never been to New York, Boston, San Diego, and have only visited San Francisco once), it didn’t really personally hit home with me until my recent business trip to Chicago. Even though I only spent one afternoon cavorting about and seeing the sights, I was immediately struck with the impression of “this is what a real world class city looks like.”

These are a few of the things I noticed (and later researched) about Chicago.

Chicago

• Density: 12,604 people per square mile (source)
• Extensive Rail system, with 8 different lines running through the heart of downtown (source)
• Over 2,100 acres of waterfront parks bordering the downtown core (Lincoln Park, Millennium Park, Grant Park, Burnham Park), over 2,800 acres of waterfront parks total
• 16 major sports teams, with 28 total championship wins (source)
• Strong blues, soul, jazz, and gospel music scene. Birthplace of House music. (source)
• World famous government center (Richard J. Daley Center), world famous skyscraper (Sears Tower)

Now here’s how Seattle compares in those same categories.

Seattle

• Density: 6,901 people per square mile (source)
• Patchwork rail system, with an independent monorail, various street cars, disconnected, infrequent north-south routes, and various in-progress light rail lines. (source)
• 18.1 acres of waterfront parks bordering the downtown core (Waterfront, Myrtle Edwards, Olympic Sculpture), over 600 acres of waterfront parks total
• 6 major sports teams, with 4 total championship wins (source)
• Alternative music scene. Birthplace of grunge. (source)
• World famous landmark (Space Needle), well-known market (Pike Place Market)

If I had thought of it, I would have asked some Chicago natives whether they think Seattle is an “up-and-coming world class city.” I bet they would have laughed at me.

While I was researching this post, I came across the Wikipedia page on world class cities (or “global cities” as they are referred to on Wikipedia). It cites an “inventory of world cities” compiled by a university group in England. In their list, cities can have up to 12 points, with 10-12 point cities being considered “alpha world cities,” and so on down the list. Here is the summary of the US Cities categorized on their list:

Alpha world cities (full service world cities)

• New York (12 points)
• Chicago (10 points)
• Los Angeles (10 points)

Beta world cities (major world cities)

• San Francisco (9 points)

Gamma world cities (minor world cities)

• Boston (6 points)
• Dallas (6 points)
• Houston (6 points)
• Washington, D.C. (6 points)
• Atlanta (4 points)
• Miami (4 points)
• Minneapolis (4 points)

Seattle shows up way down the list with 2 points, having “some evidence of world city formation.” Another categorization is quoted that lists “well rounded global cities” (such as New York, San Francisco, and Chicago) and “worldwide leading cities” (including Miami, Atlanta, and Denver), but Seattle is nowhere to be found on their list.

I mention these lists only to demonstrate that when I say “Seattle is not comparable to San Francisco or New York,” it’s not because I have some grudge against the city that I call home. I am not alone in my assessment of Seattle as a small city. It’s not my biased opinion, it’s a fact.

Again, I want to reiterate that I like it here. Seattle is great, and I am happy to call it home. But let’s be honest, it is disingenuous to compare Seattle to New York or San Francisco. Let’s enjoy Seattle for what it is instead of pretending it is something that it’s not.

Much in the same way that I would not pay $40,000 for a Saturn sedan, I am simply not willing to shell out $450,000 for an average house in Seattle.

Update: It seems I’ve got an ally in Seattle P-I columnist Bill Virgin.

The post On Luxury Cars and World Class Cities appeared first on Seattle Bubble.

Industry Extreme Makeover

Our state has recently enacted new rules by our Department of Financial Institutions to have loan originators get licensed, undergo testing and have background checks. Jillayne Schlicke, industry insider and commenter to this blog and Rain City Guide, is tuned in to this segment as her organization provids training, classes and pre-testing for those within the industry. Now, the candidates have to undergo testing (not in place yet, but coming later this year) and background checks ‘a la finger printing. Um, how about including credit checks, like required of escrow ownership? Real estate agent candidates take coursework and have to pass an exam to be licensed by the Dept. of Licensing.

The industry needs an extreme makeover. It has a public relations problem that has been ongoing for years. It truly boggles my mind why many industry insiders do not drop by this blog and others not hosted by insiders. It is a laboratory! Bloggers offer gems of information about frustrations, housing issues, buying issues, etc….the very best cross section of existing homeowners, past homeowners, renters, those looking to buy now or in the future—people of all walks of professional and personal life! I digress. An earlier blogger comment I read really hit home for me:

“in my line of work, the MOST bankruptcy’s I see on credit reports are from loan officers! hahaha, unbelievable. It’s just amazing that people who deal with this amount of money can’t keep their own finances in good standing. How can someone who cannot control their own situation give sound advice to anyone else?” – Matt

Here are some thoughts on what I would encourage to help mend the image of the real estate profession:

1. Minimum of a 4 yr college degree (a far cry from a GED or high school diploma)
2. Institutional training specific to the sub-set industry: financing, escrow, title, agents, etc..
3. Background check on all agents and loan officers INCLUDING meeting minimum credit scores—this would include screening for derogatory lates such as 30-60-90 lates, prior foreclosures/ NOD’s etc…do this ANNUALLY at the licensee’s expense.
4. Passing state licensing exams and annual continuing ‘ed classes.

I agree with Matt’s comment. There is nothing more dishonest and revolting than for those within the industry to market themselves as “trustworthy,” “would help you like I would my own family member,” “integrity filled,” etc…. when their own house is out of order.

How would you like ownership in an escrow company or mortgage brokerage/loan officer to have financial distress or have suspect backgrounds, counseling you on a major transaction? Real estate is not like buying a stereo on credit at Magnolia Hi-Fi or a car at your local dealership. It is a big deal. Can you discern who really needs a commission vs. those that don’t? I think you can. People can read body language, demeanor and professional image.

Now, before my colleagues get ready to write more hate mail to me, please know that not EVERY loan officer or agent has their house out of order. Realtors complain of weeding out the industry with new entry benchmarks, but they seem to be suggesting just softballs—increasing study hours etc….

If the industry wants respect, start giving it to consumers first by making it a profession, not a hobby. I truly believe that if as much time and money was spent on fundamental real estate knowledge and core customer service coursework vs. as much money and time is spent at a sales seminar on overcoming buyer/seller objections, this industry would be better off.

The post Industry Extreme Makeover appeared first on Seattle Bubble.

Thanks to yet another reply by Ms. Reed as well as a series of replies from Ardell, it has finally gotten through my thick skull that “cancel and relist” is different from “let expire and relist.” Ms. Reed is guilty only of the latter, which is technically not a violation of NWMLS rules.

Although I now understand the difference, it seems to me like a trivial distinction. Ardell claims that a seller’s agent that uses a short listing agreement in order to be able to re-list an unsold property “takes the risk of being replaced as the seller’s agent by having short contracts.” However, it seems to me that once the benefits of re-listing (falsely appearing to be a “fresh” listing) are explained to the seller, they would be more than happy to keep the agent on board, knowing that this is an agent that is willing to pull whatever kind of tricks are necessary to sell their house.

In fact, Ardell had an awful lot to say on the matter. Here are a few quotes that I found most interesting:

The general public’s perception [of the MLS], the one most focused on here…is really the least of our concerns.I am sorry that no one wants to understand that the mls system is not meant for the public to use as a means for purchasing property without an agent.

The public’s view [of the MLS] is an “advertisement” for the most part, and not a “sharing of the agent tool”. … It is just a small view of the big picture and one to give the public an “idea” of what is out there…not the whole story.

If the publicly-accessible portion of the MLS is an “advertisement,” shouldn’t it be held to truth in advertising standards? When a property appears as “new on market” despite having languished non-stop on the market for months upon months, how is that not a deceptive practice? To simply brush off such concerns by saying that the MLS is “not meant for the public” seems a bit cavalier to me.

Ms. Reed’s tactic, which Ardell describes as both something that “we [agents] hate” and “an excellent job” appears to have paid off. As Ardell pointed out, the listing has gone to “subject to inspection,” presumably meaning a twenty-five to thirty-five thousand dollar payday is in the beleaguered Ms. Reed’s near future. When the transaction shows up in the public records, I’ll post the last update on this house.

The post If the MLS is an advertisement… appeared first on Seattle Bubble.

Gov. Chris Gregoire and top legislative leaders on Tuesday authorized a study of ways to promote affordable housing in Washington.

The governor, House Speaker Frank Chopp, D-Seattle, and Senate Majority Leader Lisa Brown, D-Spokane, asked the state Affordable Housing Advisory Board to convene a bipartisan group to recommend legislation for the 2007 session.

"In some communities, even middle-income working families are finding it difficult to find affordable homes," the leaders said in a joint letter to the Washington Realtors, which requested the task force.

"A balanced approach is necessary to develop an effective response to this growing social and economic problem."

The Realtors said recently that housing affordability has fallen to the lowest point in 12 years*, with median home prices in some Puget Sound communities topping $500,000. Statewide, home prices increased 19 percent in the past year, the group said.

So let me see if I have the Realtor logic/strategy straight… 20% year on year gains are a good great thing as long as the population continues to willingly jump into the market feet first. 6% x (expensive houses) x (loads of buyers) = Gold Rush. If inventory begins to build and sales slow, first try to deny it, explain it away, and keep everyone convinced that everything is golden with slogans like "Home Prices Never Go Down!©" and "Get On The Equity Ladder!©" However, eventually when your tactics start to fail and the sales slowdown becomes undeniable, you realize that 6% x (extremely expensive houses) x (very few buyers) = Trade In The BMW For A Saturn. So, now it’s time to run to the government, claiming that you care deeply about how unaffordable housing has become, when really you desperately hope that prices stay high and the trickle of buyers turns back into a raging river.

That might be a bit abstract, but I think it’s a fairly accurate portrayal. What do you think? The whole thing seems like an exercise in futility to me though, because it’s not as if the government can somehow force housing to become more affordable—and even if they could, I highly doubt that they would since it would mean a dramatic reduction in the "value" of homes that people suicide-financed their way into in the last few years.

Basically what you have here is the Realtors trying to look good by appearing to care about "affordable housing" (when really all they want is more buyers), and the government trying to look good by appearing to "do something" (when they are really unable to and wouldn’t even if they could).

*Fun fact: Housing in Seattle was not less affordable 12 years ago than it is today. Rather, the WCRER’s data on affordability only goes back 12 years. A more accurate statement would have been "…housing affordability has fallen to the lowest point in the 12 year span that such data has been collected."

(Associated Press, Seattle P-I , 08.08.2006)

The post Realtors & Government Team Up To Look Good appeared first on Seattle Bubble.