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Wednesday, July 26, 2006

"I've never seen a 'soft-landing' in 53 yrs"

From the Wall Street Journal:

“‘I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out,’ Countrywide CEO Angelo Mozilo said on a Tuesday conference call. ‘I have to prepare the company for the worst that can happen.’”
Of course, we all learned that Washington Mutual announced late last week that it sold it's entire government mortgage servicing business and a portion of conventional portfolio to Wells Fargo.

How else can you comment on that? Speaks for itself. We all can take MSM for what it is, but the proof-n-the-puddin' is not what is said (except for a transparent CEO at Countrywide), but rather watch what the CEO's and Corporations do!
Please read the rules before posting a comment.


matt said...

Microsft may be adding jobs, but those jobs may not be makin' hay...

Like the Mini-Microsft blogger says, he'd really like to see how those jobs break down... and if they aren't the creme-de-la-creme of the developer world, than who are these people? Dime-store journalism majors writing '10 ways to catch his attention' puff pieces on MSN?

Since M$ doesn't really invent anything new, how many people do they really need to add a few more whizbangs onto bloatware? ~3K new jobs to Seattle, well unless they're making 90K+ a year and don't mind a commune-style living arrangement, I'm sure they'll be more than enough to float the bubble for a few more years.

jcricket said...

Angelo's, as he said, preparing everyone for the worst. He's eyeing $500 million in cost cuts as a way to keep his profits high with fewer new mortgages, refinances, etc. So to justify those he has to show that he feels the market requires it. The WaMu job cuts and sell-off are part of the same thing.

No doubt about it, rising interest rates and rising prices have cut into mortgage and refinance activity. This means job losses in those areas are going to continue, especially considering how many new jobs were created in 2000-2005.

S-Crow better watch out for his business :-)

S Crow said...

yes, the job losses will be tough on a lot of people & quite educational for those who have been in the business a short 3 yrs or so and have run out of chips at the table.

Slightly OT...we've received at least 4 (that I'm aware of--wife may also have a couple she hasn't passed on to me)unsolicited resume's from people in the business (title, escrow, lending backrounds). We did make a hire on Tuesday, but it's a temporary position.

I thought we'd see a lot of hiring in escrow during this Spring and it just didn't pan out like in years past.

meshugy said...

In the Seattle area, Microsoft boosted its employee ranks by 3,938 -- a net addition reminiscent of the regional growth the company experienced at the height of the tech boom in the late 1990s.

A friend of mine high up at microsoft told me this months ago. I mentioned it here but was met with the usual disdain.

Still looks like the local economy is pretty solid for now...I can't see how housing will tank if there are so many jobs being added.

Boeing is also beating the pants of Airbus lately...

matt said...

I can't see how housing will tank if there are so many jobs being added.

Well Meshugy, I keep asking you this rhetorical question, but everytime I post it, you abondon the thread and move on to another post, and post the same thing again, but for all interested, I ask you this one question...

Why, when the Seattle-metro area saw a significant recession-induced job-loss circa 00'/01' did housing prices continue their meteoric rise, not skipping nary a beat?

If you keep saying strong economy=higher housing costs, does this theory not hold true during the post-tech-boom/post-911 recession. Why didn't housing prices dip/soften in the midst of all this? It wasn't just the tech'ers that went bust wholesale, air-travel withered post-911 and Boeing layed off 30K-40K workers... it was bad news and it took much much longer here to recover than it did the rest of the country

S Crow said...

Lot's of people are employed. Lot's of employed people are massively up to their eyes in debt/leverage.

The 100% zero down ARM and other ARM refinance products we close: it's not just for under 600 fico's and lesser wage earners. Here's a list of some of the employers of the clients we closed refinances and purchase deals with 100% ARM's and other products:

Boeing, BF Goodrich Aviation, Everett's Providence Medical Ctrs., Fluke, Zumiez, Amazon, Starbucks, Home Depot, Dunn Lumber, Oso Lumber, Zymogenetics, Fred Hutch. Cancer Research Center, and of course Microsoft. These are anchors of major employment.

I've had numerous cases where people had way better paying jobs than myself and yet their debt-to-income levels were atrocious.

It is absurd to believe that the mere fact of having a job at a Fortune 100 company will negate the probability of people changing spending behavior.

Housing is an enormous underpinning of our economy. There are already earnings reports just released to suggest that housing is slowing and it's impact very broad: Weyerhaueser, Big Box retailers, Black & Decker among others are reporting decreased sales/earnings for 2nd qtr. I can't recall where I read this but the 2nd or 3rd largest cement company in the US reported it's first decrease in three years-- a result of slowing building.

meshugy said...

Why, when the Seattle-metro area saw a significant recession-induced job-loss circa 00'/01' did housing prices continue their meteoric rise, not skipping nary a beat?

The main reason is that interest rates were low....I think everyone agrees on that.

Also, there was some local economic pain. But I still don't think it was enough to send real estate into a tail spin. The big #s in appreciation didn't really start till then we were in a recovery.

matt said...

Thanks S-crow...

Quantity of job growth does not translate to higher home costs. People can say that there's a supply/demand dynamic at work but it fails when you artificially cut-off demand due to over-inflated home values and surpass people's ability to pay.

Like I said, unless everyobdy chooses to live a 'commune lifestyle' and pool incomes and pack in roomates, this arguement does not work to explain strong economy = 16% appreciation, it just doesn't. Its all base around what people can swing in the short term with regard to monthly mortgage payments.

matt said...

The main reason is that interest rates were low....I think everyone agrees on that.

Actually the prime rate didn't hit its nadir until '03/'04 which is when you saw a proliferation of the sub-prime mortgage market (i.e. io ARMS, neg-ams)... So what correlates more strongly to what?

Back in '99 anyone with a pulse could get a tech job, job growth was mushroom, remember etcetera? but were home prices appreciation the same as tehy were in '04?

You can't have your cake and eat it to here. You can't say its job growth when the appreciation spikes but say it was interest rates when appreciation slows, you just can't.

Anonymous said...

The real key is that while job growth is still decent, salaries just haven't kept pace with real estate at all. Not even close. If everyone was gaining 6-7% per year in raises, maybe you could argue that 12-15% real estate gains were justified, at least over the short term. But most people I know get a 3% raise if they get anything at all. Yes, there is job growth adding net income to the region, but not anywhere close to the overall increase in property values.

Anonymous said...

I would like to call BS on this article. I looked up the government data and it says that in the last 40 years or so the house prices in the Seattle-Bellevue area never went down YOY. So, you never saw a soft landing? I have seen multiple “examples” of real estate horrors in the Seattle area on this blog. But the historical home price numbers just do not support these “examples.”

matt said...

I have seen multiple “examples” of real estate horrors in the Seattle area on this blog. But the historical home price numbers just do not support these “examples.”

You've also never seen a housing/credit bubble of this magnitude and proportion either... The last time the U.S. savings rate was this low (or non-existent) was 1929, not a cozy warm-fuzzy statistic.

Coincidentally 1929 was also the year where interest-only loans reached their zenith.

Anonymous said...


Did you just say we face Great Depression Part II? No more no less?

matt said...

Did you just say we face Great Depression Part II?

Nope, no downturn is exactly the same and we'll probably never see a G.Depression scenario play out, but recessions are recessions, some of them have teeth, some don't. But when our country starts mimic'ing the financial eras of the late 20's, its not good, not good at all.

The Wall Street Journal at this to say about the eerie comparison between then and now ...

"Interest-only mortgages were the standard mortgage in the 1920s, but they disappeared during the Great Depression, and for good reason ... the drop in real-estate values during the Depression pushed a large proportion of interest-only loans into foreclosure. Lenders switched entirely to fully amortizing loans, and that has been the standard mortgage loan since"

Anonymous said...

If I listened to the press about 4 years ago when they cried “real estate bubble” and did not buy a house, I would not be sitting on $250K equity today. They are some great financial advisors! If want to go broke, please do listen to their opinions, but the numbers do not lie.

By the way, any rent vs ownership calculator will tell you that it is much much cheaper to own than rent over your life time. But of course, you need to have income to own.

SourMash said...

I would not be sitting on $250K equity today.

So you sold and are now sitting on cash?

If you didn't, you have no way to determine value.

The market value of an asset is determined by what a willing buyer will pay for it. With real estate, you don't know what that is until you sell.

You can make an educated guess at so-called "equity", but until you sell, it's just a guess.

Anonymous said...

Anon 12:05...

I've been running rent vs. own calculators with realistic expenses since the early 90's, and I have never seen your "life-time" claim pan out. I always end up with a bigger pile of money renting.

meshugy said...

You can make an educated guess at so-called "equity", but until you sell, it's just a guess.

Seattle Median 2002: $287,500
Seattle Median 2006: $415,000

$127,500 median increase.....sounds like it was a good move to buy 4 years ago.

Anonymous said...

Rent vs own calculators are very helpful if you put in realistic information. If you believe that in your specific situation you make more money renting, more power to you. There is one more thing to consider… most of the rentals are worse housing than what you can buy with decent income. For example, when I lived in apartments/duplexes, I could always hear my neighbors thru the walls, that irritated the heck out of me. Moreover, when I was buying a house, I was trying to stay away from rental neighborhoods or any area that was at risk of becoming rental for obvious reasons. When I started making enough money to be able rent a house, I could buy a better house for little more money. Any rent vs own calculator shows huge advantages of ownership when I put in long term historical numbers (over 40 years). If your numbers are different, then you must have a very different financial situation. By the way, I did consider 12% stock market gain for other investments, and still, renting is worse than owning.

Yes, I am sitting on $250K of equity and I will be sitting on it until retirement, this may be transferred to another house if I move. I do not want to cash in in the next 25-30 years. By retirement the equity will probably triple (is renting still cheaper you say?). I do not want to sell, if I do, then what? …live in a cheap house close to some ghetto? No, thank you.

SourMash said...

$127,500 median increase.....sounds like it was a good move to buy 4 years ago.

No, that tells me that *if* you could have purchased an asset that was pegged to the median house price in Seattle during that time, it would have been a good investment. It says nothing about the value of one property.

While there are futures markets for home prices now, there weren't then, and Seattle isn't among those you can buy even now.

I agree that looking at market trends establishes parameters for the educated guess one makes when preparing to sell.

But until you sell, there is no gain.

SourMash said...

Yes, I am sitting on $250K of equity

I repeat: until you sell, there is no gain.

What does the the rent vs. own calculator show if you put a negative number in for the home value appreciation rate?

Time will tell.

Anonymous said...

Have you every seen negative appreciation of real estate in a life time of a homeowner? Say 25-30 years… longer for most people. This is how long I will own houses and live in them. The fact is that you can’t afford not to own for a long time. I’d say rent vs own calculators must consider equity gain, and base the rate of equity gain on historical data. Equity gain is a fact, not opinion.

Celis said...

Looks like anon is trying to convince the bears that housing is a good long term investment. Funny thing: a lot of us bears would probably agree. But is it a good investment now?

As for the long term 25-30 years horizon? They've been waiting now in Japan 16 years to bottom out. Who knows, maybe they will wait another 16 to come back to the previous peaks and break even.

seattle price drop said...

re low interest rates being the cause for the bubble:

The main cause of the bubble is not low interest rates, it is the complete abandonment of lending standards combined with a mania psychology that housing is a good "investment" and hence a rush to get in.

A previous poster supplied us with a graph that showed WA as being at the very top of the list in risky loans. The only reason we are up there is because housing here is in an unaffordable bubble.

If credit/money tightens housing will go down and it will not matter how low interest rates go, smart people will not want to buy into a falling asset. They'll wait to see how low it'll go. A reverse mania if you will.

Plenty of people bought at high rates in the 80's because the value was there. As RE becomes more inflated, it is harder to see the value, no matter how low rates are. It becomes even harder to see the value once that value starts decreasing.

Thanks for the national post Tim.

It's interesting to see the national media finally coming out with all the bad news, about a year late.

The news was out there, just not as in-your-face as it is now.

Just in the past week, I'm meeting more and more people who are "afraid" of the housing market.

When I ask them why they think it's going down, the answer is always the same: Risky loans leading to foreclosures leading to decreased property values.

People are becoming aware that the run up in prices is sitting on a house of cards called risky loans and not on a population of well-paid fiscally prudent buyers.

And S Crow is right, a lot of those people who COULD have bought an expensive house and been fine are NOT because they are in as much debt as anyone else.

That is what this housing market is built on. Not very healthy.

seattle price drop said...

Celis- Yep, housing can be a fantastic investment and bring tons of peace of mind.

Now? I wouldn't touch it ith a ten foot poled.

To everything, there is a season.

This is the season to not buy a house.

ProudPropertyOwner said...

Re Mini-MS, unfortunately, that blog has becoming the unofficial-official bitching ground for work gripes. MS isn't perfect by any means , but trust me, the slice of the work force is not indicative of the overall workforce.

Re MS hiring. Let's not kid ourselves… Technical college grad/entry-level hires are making a lot of money. Starting salaries are easily in the mid 70s with experience people pulling 90s and higher. Also, MS (with google, boeing, etc) are going to have to deal with the cost of housing when determining the compensation package. It you want to attract the above average talent, you have to be able to offer them a comparable quality of life. If MS can’t hire anyone because their salaries offers are too low, they will have to raise.

Re Rent vs Buy calculations. There are times when it works both ways depending on the inputs. However, as I've said before, there is in incalculable value to owning property. Call it the warm-fuzzies, call it BS, call it psychological. But there is sense of pride when I landscape my backyard or remodel the bathroom. There is zero incentive to do those kinds of projects when you rent.

seattle price drop said...

Proud property owner-

When did you buy your house? What year?

If you bought before '03, that's one thing.

For somebody buying now, all the joys of ownership can be quickly overshadowed by going into debt on a depreciating asset.

There are plenty of people buying in Seattle right now who simply cannot afford it long haul. They'll be "trapped" in their houses/condos.

Witness the article a few weeks back about young 20-somethings paying twice the mortgage as they did in rent on a place half the size of their rental in their rush to get into the market.

Do you think they'll be waxing nostalgic over their purchase in a couple years?

Nobody is saying it's not great to own.

The question is, literally and figuratively, the price you are paying to do so.

seattle price drop said...

Also, it's easy to find places to rent where the landlord happily lets you lanscape/garden/paint the walls, etc.

This is a really weak reason to buy into a market if you think it's falling and your payments are up to double a rental.

biliruben said...

There is zero incentive to do those kinds of projects when you rent.

Chalk up one for renting. ;)

My back has never been the same since I bought, and my weekends are actually my houses'.

Long bike rides, hikes and skiing weekends are much fewer and farther between.

Anonymous said...

I think that the rentals aren't as nice as homes you own only goes so far at least in Seattle. Since most Seattle neighborhoods are rental neighborhoods, you can only improve things so much by owning. Most of the homes that I look at are essentially rentals as far as I see it. Why not just rent a rental?

ProudPropertyOwner said...

Yes, I bought a few years back and it was the best thing I ever did. However, hindsight is always 20/20. In no way shape or form am I suggestion everyone needs to do whatever possible to own a home. You need to be fiscally responsible and doing zero down I/O loans is not the way to buy a home.

There is a difference between painting walls, planting a garden compared to complete landscaping or bathroom remodel. I'm sure most landlords will let you do all of them, but why would you improve someone else's asset at your expense? I'm also not saying that being able to do landscaping is the single reason to own property. In fact, as biliruben said, some people regardless of their situation would rather do anything but back-breaking work. I’m in the middle, I’m not the guy who bought a tear down and am bringing it back to life one paycheck at a time although I wish I had the skill to take on a turn of the century remodel.

As for the anon @ 6:42, when you say Seattle I'm guessing you mean Seattle city proper. On the east side, there are most definitely communities where there almost no renters and everyone takes pride in their home. I'm not saying it is the Truman Show (although if you've been to the Issaquah Highlands it will feels that way), but there are neighborhoods that have a very different feel than ones with a large percentage of renters. They are more family oriented, less nameless neighbors, more stability as your kids grow up with the same kids down the block. I'm sure I'll get ridiculed as all those being worthless benefits, but I'm a big believer that there are benefits to home ownership in addition to the financial ones.

In no way am I saying that these reasons are worth buying an overpriced home that you can’t afford to begin with…

ProudPropertyOwner said...

I just re-read my comment and realize it might sound like I was trying to say biliruben was a lazy person who wasn’t capable of real work. Sorry, that’s not how I meant it. I was trying to say that there are people who like "Move-In Ready" and spend their weekends doing something fun. And there are people who see opportunity for some sweat equity and don't mind the work.

SourMash said...

I’d say rent vs own calculators must consider equity gain, and base the rate of equity gain on historical data. Equity gain is a fact, not opinion.

I have no idea what "equity gain" means.

But I know that price appreciation for housing historically is just about in line with inflation, plus about .5 to 1%. Is that the "gain" you're after?

If you know that's the long term trend, and you see that price appreciation has been at 15+% for a 3-4 years, where do you figure that puts things for the next 20?

Plug 0% into that calculator for 20 years and see where the comparison lands.

(I say all this as a current property owner with his eyes wide open.)

Anonymous said...
According to this site Sea-Bell. metro area real estate enjoyed 6-7% annual appreciation in the last 40 years or so. I do not think your “inflation plus about .5 to 1%” is accurate. Not a single negative year.

SourMash said...
According to this site Sea-Bell. metro area real estate enjoyed 6-7% annual appreciation in the last 40 years or so.

Sounds interesting. I'd be interested in a direct link, or some kind of pointer to that historical data. The MSA data I see there is much more recent.

(Of course, the inflation rate was higher than 6-7% during much of that time, so on its face your statement doesn't disprove what I said.)

Anonymous said...

I found this inflation data, hopefully it is a good source