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Saturday, July 01, 2006

Signs Of What's To Come?

A number of readers pointed out these comments by Bainbridge Island portfolio manager and part-time prophet Carl Haefling (who I admit I've never heard of):
It takes time for the housing market to fully unravel, we are in the early stages of stage 1. Stage 1 is where the market begins to recognize that prices have reached levels that reduce affordability and thus the number of possible buyers. Sellers, who have been holding back selling for fear of not selling at the top, begin posting signs advertising their home, usually at prices that reflect the highest paid for a similar home, and suddenly the inventory of homes foresale explodes. This has already happened in many parts of the country. This stage may take one to three years to fully unfold.

Stage 2 is price cuts by those who are becoming convinced that the market has softened if they want to sell their home they better cut prices. Once those "reduced" signs start appearing, buyers start reducing offers, even on properties that have been already reduced. Prices will drop far lower then anyone thinks possible in stage 2.

Stage 3 is the exhaustive phase. Buyers are afraid to buy, investors have no liquidity, mortgage requirements demand a high down payment and supporting cash flow, and the press is filled with articles claiming real estate is a terrible investment. (which happens to be true in the previous 5 years).

There are serious other problems that will contribute to this cycle, including a decline in the buying power of the middle class, tilting demographics which will reduce the number of possible buyers beginning about 2010 for real estate and possible shifts in values of owning vs. renting.
(For Sale)x4While many parts of the country may be "in the early stages of stage 1," I don't think we'd doing ourselves any favors to try to claim we've reached that point yet in Seattle. The market is clearly not as hot as it was last year, and there are some definite slowing trends for those that choose to see them, but by and large the Seattle market is so far oblivious to what's going on everywhere else. When scenes like the one pictured above become commonplace, we'll know that we've finally reached "stage 1." As of right now, I had to bike three miles to a specific location to get a picture of a corner with six for sale signs.

How soon will we actually reach "stage 1"? Or will we even reach "stage 1" at all? It's anyone's guess. They always say that bubbles last longer than any rational person thinks they will, so who knows?

As a side note, one of Mr. Haefling's predictions brings up something I've been thinking about for a while:
And one of the unseen values will be the desire to downsize as the cost of insurance explodes, the cost to heat and air-condition accelerates, and the cost of maintenance become detriments to ownership.
When people start to downsize, what will they do with all the stuff they've collected to fill their McMansions? I've got this feeling that they won't readily part with their precious consumer goods. As such, I predict an uptick in the popularity of self-storage facilities. I've actually been mulling the thought of buying some stocks in Shurgard and Public Storage. What do you think?

(Carl Haefling, The Big Picture, 06.30.2006)

75 comments:

Anonymous said...

I love how the trail of signs leads to a "Dead End". Prophecy? =)

meshugy said...

I think we're going to need a significant amount of job loss and much higher interest rates before Seattle reaches "stage 1."

No one's predicting a big shock to our local economy....but interest rates are certainly going up. As long as the jobs stay, I think we'll have a leveling off of the market. We'll see a return to 3%-6% YOY appreciation (lately we've been seeing 10%-20%). This will probably start to happen in 2007, and really flatten by 2008.

Anonymous said...

We won't need job loss to put us in stage 1. It's already well on it's way and will be in full swing by this time next year. It will be caused bu "debt exhuastion". People can only get so tapped out and houses can become only so unaffordable. You don't need a precipitating pin to prick a bubble for it to end. They often just get exhausted.

The canary in the coal mine is the higher end market, ie, million dollar plus homes. That market is definitely sofening here in Seattle now. I've seen it and heard talk of it from various real estate agents. The rest of the market will follow. Just as it has surprised people how Seattle could hang on for so long and lag the rest of the hot markets it will surpise people how fast it will turn. In other hot markets it turned almost overnight.

I would suggest everyone mark's their calendar for July 4 2006. One year from now it will be clear to all that in retrospect THIS IS THE TOP for the Seattle market.

Anonymous said...

Many people are rightly concerned that the reseting ARMs will kill the market here and elsewhere. I agree with that - it only takes changes on the margin to swing a market, ie, even if only 20% of people are effected by ARMs that's enough.

But even if it weren't, interest rates are high and rising and that's going to effect everyone. Most homeowners carry some credit card debt. And most homeowners will be "taxed" by rising property taxes, higher heating/cooling costs and auto gas costs, higher insurance costs, etc. Homeowners without ARMs are not immune to the coming financial hardship. The only people who will fare well are those who have exercised some restraint by living within their means and saving. But even these people will feel some hardship imposed on them by the recklesness and greed of others and the ineptitude of the Fed.

Anonymous said...

If Boeing machinists really only make 12.75/hr, then it is true what Anon 2:22 says:

We do not need job loss to take the market down. And the suggestion in the previous post that 5K per person is going to somehow prop the bubble is preposterous.

Hello?!!??? 5 K does NOTHING for a 400K house. It CAN put a dent in credit card debt. That's about it.

Anonymous said...

I'm impressed by the trail of signs. I take it as a sign of things to come.

Just like every other bubble city, it starts with a trickle.

Anonymous said...

Just for giggles, I looked up Wild Glen (in Bothell) and a condo, just over 1000 sqft, is on the market for $240,000 - $50. It is ugly too.

Anonymous said...

I stated that Boeing Machinist workers make on Average 12.70 to start.

They get .50 cent pay raises every 6 months till they make the maximum pay-rate... which is arround about 27-28 bucks once they get to that level. Which is 6.5 years unless layoffs take effect then that can be greatly prolonged.

I term average Boeing Machinist making 12.70 to start is based on Most the Job Positions for Machinist are pay grade 4's.

Bulk of hiring is in job positions that are well below the maximum pay-grade.
EXAMPLES OF PAYGRADE 4 JOBS: Mechanics, Electical Installation, Sealers etc. people that perform most the duties in the production of the aircraft.

Boeing spins a different story in the eyes of the public. I believe they base there stories in the newspapers based on the medium pay level on not really on what the people trully make.
Lets say they take all the pay-levels then average it out on the pay grade 5 maxed out then spin the story to the general public that the average worker makes x amount of dollars.

1 Thru 10 paygrades where most are employeed in Grade 4 and below positions (which out of those many are still not at there max pay-rate.)
I think Boeing uses averages based on all the pay-grades and not on real facts on whose employeed in which and how many are placed in that job class.

It really benefits Boeing to skew the numbers to gain Public Support especially when they are at the bartering table coming Union Negotiations. I kind of laugh when the Television Crew goes out and finds some Union Member that looked like he ate halve a dozen to many Balony sandwhiches right before the interview.. It does make you wonder why would you want to pay some overweight slob any more?
Personally, I think the media is in Boeing Back Pocket.

Anonymous said...

I agree this is still very early in the ball game. Interest rates were more than 10% in the 1980s. Meanwhile, Washington's population is booming.

http://komotv.com/stories/44201.htm

But then, all of those people who moved here must be real estate agents or construction workers.

meshugy said...

Thanks for the link anon....

Washington's employment has been growing twice as fast as the national average and is proving to be a magnet for strong population growth, said Theresa Lowe, the state's chief population expert.

More jobs = more $ = higher housing prices

Anonymous said...

C'mon, Shug, just say it -- "It's different here", right?

Anonymous said...

Anon 4:18-

Thankyou for the explanations about Boeing salaries.

This is shocking.

Interesting that the above poster could read that and then post directly below it: more jobs = higher housing prices.

Somebody does not want to grapple with facts!

Anonymous said...

So what if the entry level machinists make only $12.75/hour? Should a 23, 25 year old be buying homes anyway? Besides, I don't think the software guys make that little.

Anonymous said...

More jobs = more $ = higher housing prices

Hey Meshugy, why don't you put down the banjo for a second and grab a science book and read up about the 'hysterisis affect'...

more jobs does not equal high housing prices. If you live in a city full of people making 4K/month and the median mortgage payment is 3.5K/month... guess what? nobody buys, houses sit longer on the market until they eventual come down to where people can afford them...


Housing isn't like stock, its an asset not an investment. If Google shoots to $400/share and nobody can afford it? T.S. for those on the outside, if housing shoots up to silly levels? guess what, people have to buy them and they'll come down in price...

Anonymous said...

More jobs = more $ = higher housing prices

Also another call on Bullsh*t on this one Meshugy. San Francisco and Boston are both suffering population loss, why? Because its too expensive to live there, people move away to where they can make a living comfortably, not where they have to suffer under the irrational delusion that somehow living in a 2 bedroom dingy crafstman in a rain-soaked region is better than living in Boise or Spokan, where they can buy a brand new 3000 sq. McMansion with a 3 car garage....

Business also knows this and they also will move where their workers will be able to afford the standard of living. E.G. Microsoft -> Quincy...

I don't you expect you to respond, you never do, especially in the face of facts, so why don't you print some MLS numbers under this post, make yourself happy...

Anonymous said...

Interesting headlines from Tucson, pulled from a 'Tucson' search on housingbubble.com... a good example showing the speed of decline of a bubble market, exemplified through headlines...

STAGE 1?

-Tucson housing prices surging 4/28/05
-Tucson home buyers priced out 5/15/05
-Rent or own? Answer's not obvious. 6/04/05
-Tucson area's sizzling housing market sets more records 6/23/05
-Tucson area prices viewed as appropriate 6/24/05
-It could be long wait for bubble to burst 7/02/05

...yes we've reached a new paradygm

STAGE 2?
-Southern Arizona raw land market hot, hot, hot 7/14/05
-Mexican construction could get boost in U.S. 7/16/05
-Tucson housing prices flatline 10/17/05
-Tucson-area home-price rise resumes 11/10/05
-Housing market shows further signs of cooling 11/16/05

...thank god we all weathered that 'soft landing', last chance for a Heloc!

STAGE 3?
-More housing markets called overvalued 12/10/05
-Home-sales pace has stabilized in Tucson, Arizona 04/13/06
-Speculators abandon Tucson's housing market 05/24/06
-Speculators say adiĆ³s to Tucson home market 05/30/06
-Foreclosures go up sharply in Tucson, Arizona 06/04/06
-Losing shirt in Tucson 07/01/06
Slower growth ahead for Tucson economy 06/08/06

.. its ugly folks.

Not that Tucson IS Seattle, but its an interesting example of how quick the RE market turns sour in the Bubbleverse

Anonymous said...

matt, people can always rent instead of buying homes.

Anonymous said...

Meshugy you're making the assumption that the future will look like the present. The sun will come up tomorrow, but...

What if AQ brings down civilian airliners with SAM's? You don't think that would crush the airline industry, ala 2001, and lead to layoffs at Boeing, Alaska/Horizon, etc.?

Anon-Pierce

Anonymous said...

matt, people can always rent instead of buying homes.

This ignores supply and demand. People at times HAVE TO SELL, divoce/death/job-move, and when it comes on the market people have to be able to BUY, which forces prices downward. At some point, houses achieve their actually value.

Anonymous said...

Matt-

What does Microsoft > Quincy mean?

Did Microsoft bail for/from Quincy, MA?

Anonymous said...

http://www.komotv.com/microsoft/story.asp?ID=43700

Anonymous said...

re. buying stock in Shurgard and storage places.

Don't think so. Yard sales are going to be the name of the game.

Anonymous said...

Even Seattle REinvestor now thinks the market's going down. Check out his new posts.

That means you Meshugy.

Anonymous said...

The Microsoft data center in Quincy is there for location alright. A location near (1) cheap, abundant hydropower from the Columbia River and (2) fiber optic backbone connections. It's a Google-compete thing and has nothing to do with downsizing costs.

NY Times article

Eleua said...

anon 4:18,

You post like you actually know what you are talking about.

You nailed it. This is EXACTLY how the airline execs spin pilot salaries. Whenever it is contract time, suddenly the pilots are grossly overpaid. They will have their local print journalist run an above-the-fold article on how a pilot at XYZ airline makes $210K, and works 9 days a month.

Joe Six Pack reads the article and gets all green with envy. He thinks that he works the standard 21 days, and gets paid $40K. Never mind that if J6P screws up, he only loses a few bucks for his company, and after an "aw shucks" nobody really cares. Nobody gets killed and your company is not the lead story on every news outlet.

What the airline fails to tell you is that particular pilot makes $180K, and if he works a bunch of overtime, he might, get up to $210K, after you factor in bennies.

Now, that's a lot of money. No tears from me on this one. However, the pilot would make $180K if the airline were staffed properly. That pilot has also been at that particular airline for 35 years, and will retire next year. That pilot represents 3% of the workforce. Those 9 days are 18 hour ball-breakers to the Orient, and that pilot has raised a family that he rarely sees.

In reality, the run-of-the-mill pilot makes $75K-$140K, flying MD-80s full of toothless morons up and down the East Coast all day long. He works 16 days a month-12 hours a day, gets about 5 night of sleep per week, and never sees his family. First Officers start out at $30K, which is about $50K less than they made when they were military instructor pilots. Almost every pilot has a college degree, and 75% were military pilots, that bring 10-12 years of experience to their first day on the job at the airline. That's more than a doctor brings to his first surgery.

The military washout rate is between 75-90% (aptitude and medical), to say nothing about the hazardous working conditions. If a pilot gets diabetes, any cardio problems, cancer, or just about any injury, his career is either stalled (no pay) or over. Not so, with J6P.

That average pilot puts up with being screened and strip-searched by Al-Queida sleeper cells as he reports for work, having to take paycuts so management can buy another yacht, and having every decision he makes second guessed by a phalanx of lawyers, civil servants, and empty-headded suits that couldn't manage a Taco Time, much less a global airline.

Now, the point is not about pilot pay and working conditions, just that corporations usually find the most egregious example of how generous their pay scales are, and project it onto the entire work force. It would be a cold day in Hell (or an intelligent day at XYZ Airline Global Headquarters) before they ever have their media mouthpieces actually run what the average employee has to put up with, and how they are compensated.

J6P is the common denominator that everyone trys to appeal to. I have no problem with an employee making a great living by turing out a great product/effort for his employer. I also have no problem with rewarding execs that have the leadership skills to actually run a company, in the black, without asking the employees to subsidise his incompetance.

Everytime I read the newspaper, I learned what my life was like. Funny thing was that I could not see any examples of that in my reality. Just about every time the national media runs a story on Naval Aviation and the airlines, they could not be more incorrect if that was their stated goal. I can only project that their general malfeasance extends to other topics as well.

Eleua said...

More jobs = more $ = higher housing prices

I'm so sick of this argument.

The argument should go like this:

More creative loans = more morons with money = more morons overpaying for houses.

This swerves right into one of my pet theories of life: the best way to make a moron unstable is to inject him with money.

It's kind of like a really big, heavy metal atom, and you inject it with a bunch of neutrons...

Texas was one of the few states that had severe restrictions on refi and helocs. Guess what? Not as much moron-money out there.

I've had this comparison over and over, but it bears repeating.

Highland Village, Texas is a 'burb just to the north of Dallas, and it has an median household income in excess of $100K. It would be the wealthiest city (excepting Medina) in Washington, even without corrrecting for local salaries. That's 50% higher than Bainbridge Isl. HV has a higher education attainment, better schools, lower crime, and shorter commute than BI.

Median home price in HV: $210K
Median home price in BI: $600K

HV is all built-out (you have to tear-down to build). Not so with BI.

Higher salaries do not require higher home prices. While it is generally true in a given region that the more expensive homes are owned by people with higher salaries, it is not an absolute. Home prices can significantly drop, even as jobs increase.

It really has to do with the funding/mortgages. As these moronic loans dry up, expect home prices to drop sharply.

Eleua said...

It really has to do with the funding/mortgages. As these moronic loans dry up, expect home prices to drop sharply.

Except Ballard. Sorry about that.

Anonymous said...

Highland Village is more like an exception. High salary usually goes with high home price. Silicon Valley, Connecticut, NYC to name a few places.

And since the home price in Highland Village is so low, shouldn't everyone who can't afford a home in the big cities move there? $200k house with 5 bedrooms. Go already.

meshugy said...

I didn't realize how high interest rates have gone up! They're going up at an alarming rate....

Survey: 30-year mortgage rate nears 7 percent

Money costs a lot more today than it did just three months ago. The average rate on a 30-year, fixed-rate mortgage is flirting with 7 percent and is almost half of a percentage point higher than it was at the end of March.


Home prices still rise, too
With slower sales, rising inventory and higher interest rates, you might expect prices to stabilize or even to fall. But that hasn't happened. Nationwide, half of the homes sold in May cost more than $230,000, according to the Realtors. That's 6 percent more than the median price of $217,000 in May 2005. Home prices aren't rising as fast as they once were, but they're still outpacing the overall inflation rate in much of the country. The Midwest is an exception; according to the Realtors, the median home in that region gained only 1.2 percent in value on one year.



So rising interest rates AND rising house prices are really squeezing buyers. But the prices are still going up, so it's now much more expensive to buy the same house today as it was a year ago. On your average median price house in Seattle, you're paying $550 more per month more then if you had bought last year! And it's only getting worse...

Ultimately, getting a low interest rate is much smarter then getting a low price on a house. Unfortunately, we'll probably never again see the rock bottom rates we've seen over the last few years.

Anonymous said...

Rock bottom prices? High price better than high interest rate?

That's a riot. I've tried to give you the benefit of the dowbt, Shug. But you've just proven yourself either an RE shill or eternal bull. Or both.

Anonymous said...

I just had a person about 1 month ago that came up from California to rent a room. What he didnt tell me is that he had put in an offer on a Condo in Bellevue..

Within 2 weeks after arriving.. approximatly about 2.5 weeks after placing in the offer he was accepted for purchase of 380,000. Condo with nothing Down.. Variable rate rider.

He has contract position at Microsoft which is Guaranteed for 6-12 months.. SCARRRRY..

Im not sure what contract workers at Microsoft make, this guy was in his mid 20s... with only limited amount of experience.

Anonymous said...

What REALLY surprises me is that it only took just over 2 weeks to get Qualified for the loan. Nothing Down.. I remember the time it took 1-2 months to get qualified before you got your magic keys & hardly think someone could bring just a few thousand dollars to the table..

Personal Opinion Microsoft's biggest asset is there massize cash, there Business seems to slowly be loosing market share. I wonder if somewhere down the road Microsoft will have to consolidate and become smaller and more nible to get back to being the ship that can change directions quicker. Google looks like major threat...

I Just went out with a mortgage broker that was just laid-off.. she just about 1 month before loosing her job purchased a 300,00. dollar condo. What was really sad is given all the good times in her industry had 0000000000 savings and massive dept and expensive lifestyle. Took her out for dinner and she wasnt at all impressed with the 35.00 dollar dinner..OUCH.. her thoughts were Money is intended to be spent and having a good time was first and forth-most...NOT MY THOUGHTS.. Savings and investments are first everything else comes in second.

QUESTION: My take is most people are mostly interested in what you make NOT" What you save... mostly people are interested in disposable income.. What you going to be able to spend every month. Savings turns most poeple off.

Anonymous said...

Contractors at Microsoft aren't guaranteed anything. They can be let go at any time. At most they can work for 12 months before being forced to take 3 months off, then trying again for another contract position. Of course you can apply for full time positions at any time. From my experience, most contractors make around 40k, usually with no benefits.

Buying a condo based on a contract position at Microsoft is insane. I spent a year as a contractor after getting laid off from another company. During that time I did nothing but stockpile cash, just in case. It was just too insecure of a position to consider taking on debt. Only after going full time did I even consider anything like even a new car.

Anonymous said...

Savings and investments are first everything else comes in second.

I hear you. I have a pretty inexpensive lifestyle. I went through my yuppie phase during the tech boom, with the BMW and expensive townhome-style apartment. I've completely changed my mindset now. I still like BMWs, they are great cars, but I don't need one. I'd rather put the money away for retirement and/or a down payment on a house of my own, once prices come down of course. I'd much rather have financial security (or as much as I can get anyway) rather than things. I guess it helps that I don't realy care what other people think, so the show cars and show house are the opposite of what I want. I look at McMansions and just laugh. I can't believe people want to live in those.

Anonymous said...

Anyone got the link to Reinvestor mentioned above? Thanks

Anonymous said...

'Shugy, you amaze me.
How could anyone with half a brain think it's bullish that rising home prices and rising interest rates making houses insanely unaffordable could possibly bode well for the housing market going forwards?

In bubbles, as you get close to the "blow off" phase, just at the time when rational people should be getting more and more terrified of the insanity of the situation and the risks that lie ahead, the masses get the most bullish and excited. Happens every time. I think that it just turns out the majority of people are wired that way.

I guess I shouldn't really be surprised, though. Bubbles wouldn't happen if most people didn't act in fairly predicatble ways. Face it, 'Shugy, you're just one of the ignorant emotional crowd. Tell me, how is it to live your life without independent thought? Kind of reminds me of the Matrix - I shouldn't blame you for not knowing what's going on, you're just not capable of "waking up"...

I take that back - the difference between this bubble and the Matrix is that everyone in this Matrix bubble will be waking up in the next couple of years, they'll just WISH THEY DIDN'T.

'Shugy, enjoy the Matrix while it lasts!

Anonymous said...

Folks, please show some mercy for Mesh. I repeated this again! His lizard brain is too small to process macro data. He can only see a few blocks from his house and read a few numbers from the MPLS. That’s it!

Eleua said...

anon 0356,

And since the home price in Highland Village is so low, shouldn't everyone who can't afford a home in the big cities move there? $200k house with 5 bedrooms. Go already.

My point is not that everyone should move to Highland Village, but that home prices in bubbly areas certainly have a long and deep descent prior to catching a bid. If the median family in Highland Village, Texas has an extra $40K/yr of disposable income than the family in Bainbridge Isl., Washington, and the "fundamentals" of their home prices are actually better than BI's, what keeps BI homes so expensive in comparison?

It's a bubble. Bubbles break. It's what they do.

There is no law that says that a higher income means a higher home price. If the market equilibrium sets at $600K, then it will be there until forces move it lower. You can see by my example, that PNW prices can fall quite a bit and seem perfectly normal for quite a large segment of the population.

If the median Bainbridge home sold for $180K, that would be unthinkable for the locals, yet that would be in line with the price/income ratio that exists in most of the non-bubble parts of the nation.

Texas had over 1 million people lose their homes in the 80s. That kind of sticks with you. When it happens here, I expect to see the same pricing phenomenon as I saw in North Texas.

Except Ballard...

Anonymous said...

Sounds like you had a bad date with the mortgage broker. hahaha. The contract worker probably thinks he can sell the condo after a year for profit and/or he already has a full time job lined up immediately after the contract ends.

I am a saver personally. But I understand why others want to indulge. After all, you never know when you are going to drop dead. If your love is eating good food and drinking good wine or driving fast cars or living in a dream house with subzero fridge, there is no sense to completely turn off those desires.

Eleua said...

Part of the problem with living in the bubble areas of the nation, is that it tends to give you a rather jaundiced view of the rest of the country (Fly-Over Country).

For the Coastal Born people (and I'm one of them), you tend to see the coastal areas as the place where the educated, and trend-setters live. People in FOC are toothless morons (see above rant on airline public relations), uneducated, backwards, and second-best. If they had it going on, they would be getting it on in some blue state.

When you hear that one of the most educated and wealthiest places in the country is Shawnee Mission, Kansas, and not Ballard, or Mercer Isl., it does not compute. When Sugarland, Texas households make twice that of Coronado, California households, there is a cognitive disconnect for the average blue state resident.

When my sis-in-law visited us in North Texas, and she drove through our town on the way from the airport, she asked, "What does everyone do here? Work at the airport?" She was amazed that Highland Village looked like Alamo, California. After all, if they are so smart, why don't they live in a gang-infested, multi-ethnic, congested, smoggy wonderland - like San Jose, California?

As if 3 million people exist to make sure Californians have a place to change airplanes on their way to NYC and Europe...

Just because someone talks slow, does not mean he is stupid. Perhaps he just does not want to repeat himself.

The price imbalance that presently exists between the coasts and flyover country will be reconciled.

Proverbs 16:18 comes to mind.

Anonymous said...

ok...I am just chatting here ...

so..I am looking for a very nice place **to rent** in Seattle and I go to a condominium in my neighborhood advertised at $2,500/mo.

Aside from being kind of over the top with the appliances and fixtures (fancy glass bowl sinks blah blah blah) I really liked it--a good solid large space (no outdoor area however).

But guess what? It was only for rent while the owners try to sell it. It has been for sale for some time apparantly with no offers whatsoever.

So they were expecting someone to rent it with the understanding they would have to move out at any time if someone bought it---and also to put up with people coming through to look at it!

Once I understood this I got out of there a.s.a.p.

Anonymous said...

Anon above-

There's going to be a lot of these foolish rental situations in the coming months.

Renters need to beware of:

Whether the place is a flip or investment. the place could be up for sale and/or priced too high because an FB "needs" to cover his outrageous mortgage payment.

In other words, it's time for renters to start investigating their lanlords before they sign on the dotted line.

Somebody here has the info on investigating loans taken out on homes.

If they'd post that, it's a good resource if a renter needs to see the possibilities of their landlord being an FB.

Do not rent from an FB.

The Seattle RE investor link is on the front page - "Tales of an RE investor" I think it's called.

Eleua said...

Forgive my ignorance...

If you lease a house, you are entitled to live there for the balance of the lease. This would be regardless of the ownership.

Unless the terms of the lease specified that you must leave the house in the event of an ownership change, you should be able to stay, and the new owners assume the terms of the lease.

Foreclosure, I believe, requires the tenant to be evicted when the property sells at foreclosure.

Renting from an FB only runs the risk of foreclosure. If he sells the property, he also sells the balance of the lease.

Anyone have any legal expertise in these matters?

Ballard might have different rules.

Eleua said...

I just toured an open house in Downtown Poulsbo. It was "reduced" to $450K. It is a 2 bedroom, with a M-I-L studio, on a .25 acre lot.

That's almost 14X median income, for what I would consider a "very median" house.

It's not even within sight of Ballard.

Anonymous said...

Forgive my ignorance...

If you lease a house, you are entitled to live there for the balance of the lease. This would be regardless of the ownership.


Hi Eleua--I really enjoy reading your comments.

The owners didn't make clear their plan in the ad, so I just passively assumed in going to look at this place that a one year lease would be offered!

As soon as they explained their modus operandi I couldn't get out of there fast enough!

Anonymous said...

In other words, it's time for renters to start investigating their lanlords before they sign on the dotted line.

You said it!
One thing I am doing now before going to look at a place is checking when it was last sold on zillow as a starting point in assessing what is going on.

Eleua said...

Anon 5:52,

The situation you describe is unconscionable. If the owners have such a low opinion of renters, that they think we are just a bunch of nomads, that go from oasis to oasis, and move at the behest of the plantation owners, you need to stay far away from them.

In the Dallas area, it is easier to sell surfboards than houses. In order to get homes to sell quicker, there is a service called 'Mansion Minders.' This service places temporary renters in a house that is for sale, and does so at a deep discount.

The owner knows that his house will look 'lived in,' and will have high-end furnishings and a very neat family. MM screens tenants for furnishings and living habits.

The tenants know they are living in a house on the cheap, and have to move when it sells. They have to be very cooperative with showings.

It's a win-win, and the service is quite successful.

You can rent a nice, 5000sf house on a 1/2 acre, gated-lake front community in the neighborhood of $800-$1k/mo.

If you are the tenant, the hope is to get an overpriced house in the upper bracket, thus extending your cheap stay even longer.

I'm pretty sure that if you sign a lease for 2 years, and the owner wants to sell 3 months into it, he has to buy you out, or transfer the lease to the new owner.

That makes him a double-FB.

E

Anonymous said...

Renting from an FB carries another vey important risk besides foreclosure:

They frequently want too much rent per month because they are having trouble with carrying costs.

One could even say, don't rent from a recent buyer, FB or not.

Eleua said...

I guess if you rent from an FB, and you have a lease, he can't raise the rent until the lease expires or becomes amendable.

Yes, it's true that he might want too much going into the lease. If that were the case, you would simply bypass him on price issues, and his house sits vacant as the gray, rainy, mildew season sets in 10/1-4/30.

Anonymous said...

I am just beginning to realize that the housing bubble is really just a function of a larger problem - a credit bubble. Can someone drop some knowledge on me about what an economy looks like as a credit cycle turns the other way (i.e. borrowers back to having to prove stable employment, low debt ratio, etc. etc. etc.) Obviously this will shrink the number of buyers, but all these folks are already in their houses with Greenspawned 3% loans so I don't see why they will ever want to leave. And don't give me that old ARM song and dance . . . I think that's just hopeful thinking. But the BIG PICTURE is where things are interesting. What will the entire economy look like when banks stop loaning each other money?

Anonymous said...

I just had some relatives move into the area. They will be renting until prices correct.

I ran the loans on the house that they will be renting, just to make sure it would not get flipped out from under them. The owner had armed up but I think it was an investment play. Stupid people.

If you are interested in finding out how to run the numbers then

#1 Use Zillow.com to get the parcel number.

#2 Use the parcel number at one of the Parcel viewing website, such as:

http://www5.metrokc.gov/parcelviewer/Viewer/KingCounty/Viewer.asp?App=Parcels&SearchFor=Pstart

or

http://www5.metrokc.gov/reports/property_report.asp

You will be able to find the owner of the property from the parcel search.

#3 Enter the property owners name into the recorders office website, such as

http://146.129.54.93:8193/localization/menu.asp?

You will then be presented with the loan history. These are in PDF format. You will need to get familiar with the paper work. Take some time to read a number of these over. If the loan is a fixed rate loan, you will not be presented with the terms. If however it is an ARM, then the terms will be listed.

You may wish to run your own loans in order to better understand the paperwork.

If you take some time to look at a number of random loans, you will see many ARMS, I/O and HELOCs.

How will this all end......
Foreclosure.

Eleua said...

Can someone drop some knowledge on me about what an economy looks like as a credit cycle turns the other way (i.e. borrowers back to having to prove stable employment, low debt ratio, etc. etc. etc.)

While I can't give you an exact prediction; I can give you an idea of what we have in store.

In a nutshell...exactly the opposite of what you now have.

Rather than having most of the new jobs being in the finance/real estate sector, with newly minted yuppie scum hustling garbage loans to FBs, you would have these people in the unemployment lines.

Malls close. Banks fold. Homes get reposessed. Cars get reposessed. Credit cards get denied. Crime goes up. Lots of racial tension. Interest rates go through the roof. Divorce. People eat at home, rather than restaurants.

A bunch of Arabs get killed.

Anonymous said...

Anon 11:42, please excuse my ignorance, but where is the parcel number on zillow?

Anonymous said...

eleua: the world is ending.

Anonymous said...

Anon 11:42, please excuse my ignorance, but where is the parcel number on zillow?

Mon Jul 03, 12:17:34 AM PDT


You will need to look under the
"Show all home facts" section.
The Parcel number is near the bottom of this section.

Anonymous said...

For excellent macroeconomic analysis on the effect of a credit bubble read www.prudentbear.com

Anonymous said...

Is it just me or have other's noted that the links on the side of the main page are no longer visible? Tim - any problems with the site?

Eleua said...

No, the world isn't ending. It's just about to become very uncomfortable.

The Tim said...

Is it just me or have other's noted that the links on the side of the main page are no longer visible? Tim - any problems with the site?

Everything looks okay to me... Blogger does occasionally have a hiccup. I'd try refreshing in 5 minutes.

Anonymous said...

Blogger has a problem sometimes with the right-hand column dropping to the bottom of the page.

Anonymous said...

Anon 11:42-

Thanks for taking the time to explain how to research types of loans on a given property.

Anonymous said...

>I am looking for a very nice place **to rent** in Seattle and I go to a condominium in my neighborhood advertised at $2,500/mo.


Be VERY, VERY careful here.

I would NEVER rent from an individual person, every again.

We had TWO situations recently in San Diego that ended poorly because the owners had over extended themselves; thinking foolishly that the market would keep going UP UP UP.

The first was a couple who had done a rehab and were able to purchase a 2nd home with the equity they built up from 2003-2004.

Both had crappy $50K jobs working as retail managers.

We rented the place for $1650 and they took $3200 as a deposit.

We stayed exactly a year, and gave them 45 days notice of our intent to move out. They were extremely unnhappy and decided that being a landlord was not for them, so they put the house on the market. It did not sell, and worse yet, they didn't return our deposit.

We had to sue them to get our money back. We prevailed, but they are paying me $300 a month and are always late on their payments. I have to call and threaten to put a lein on their income property (the are evidently renting it out again).

Second story is about a 23 year old who purchased a downtown SD condo in 2004 with Daddy's money (2004 is like 2005 here in Seattle, meaning a lot of people still thought RE was a good value in 2004 in SD).

He rented it to us for $1800. He wanted to "hold" our deposit check vs. banking it and he didn't think we needed a lease.

He's also a real estate agent for coldwell banker. Nice.

He rented the place to us, knowing he's taking a $1500/month bath each month ($1800rent income -$3300mort pmt); ultimately thinking the place would go up in value enough to cover the difference.

Sure enough, he tried raising our rent to $2,000 after 10 months (60 days notice) thinking we'd move out.

He was right, but we were already planning on moving anyway.

Well, he had the condo on the market for many months at $579,000, while other, identical condos in the same complex on a higher floors were $100-150K cheaper and still not selling. duh!

Now he's renting again, probably still thinking that the value will go up enough to cover his horrific losses.

Essentially, when you are renting, be VERY careful in this market. There is a good chance you won't get your deposit back, among other inconveniences.

Go with an apartment complex, one that actually does it on a larger scale, vs. first time greedy-landlord syndrome types.

Anonymous said...

one more note, the guy was such a newbie that I told him to use the deposit I'd given him as the last months' payment.

Ballard is such a dump. I guess when Ballard homes lose 40% of their value I might buy one or two of them and rent them out to former Ballard home owners... I'm sure they'd want to stay in the same school district after all.

Eleua said...

synthetik,

If your LL kept your deposit, and it was not for damages or cleaning, isn't that covered under fraud and larceny? I would think that it is a felony to withhold money in this manner.

My LL keeps my deposit in a bank account, and has given me a written statement stating such. If they could not justify keeping it for damages/cleaning, and they just spent the money, that is fraud and theft of over $1000.

Perhaps a little legal pressure from the criminal side would bring fuzzy obligations into focus.

I know when I purchased something on the internet, and it was misrepresented, the dude didn't want to refund my money. Once I forwarded him the text of the US Mail/Wire Fraud statutes, he had my money back on my PayPal within 12 hours.

Anonymous said...

the LL feigned damages and cleaning, even had a whole treasure trove of bogus pics he took while remodeling and tried to say we left the place that way... LOL.

Unfortunately the first judge believed him, but we won on the appeal.

Anonymous said...

Just because someone talks slow, does not mean he is stupid. Perhaps he just does not want to repeat himself.


Why don't you join them good Texans, sailor?

Anonymous said...

Syntetic...
We rented the place for $1650 and they took $3200 as a deposit.


Why did you have to put down $3,200, synto? There's something amiss in your story, gangster.

Anonymous said...

Malls close. Banks fold. Homes get reposessed. Cars get reposessed.
elua
Credit cards get denied. Crime goes up. Lots of racial tension. Interest rates go through the roof. Divorce. People eat at home, rather than restaurants.

A bunch of Arabs get killed.

Mon Jul 03, 12:04:01 AM PDT


Boy, sailor, you're really on a roll.

Ever consider a chance the planet won't go up in flames?

Anonymous said...

Ever consider a chance the planet won't go up in flames?

I'm with you there. Even though I'm bearish on RE (or at least neutral, thinking it's a bad investment but perhaps not as disastrously so as others), I don't think we're all headed for mass catastrophe. The economy is oddly robust and there are more factors that affect the economy than those used in the simplistic "equations" used as proof here.

I'd say we're going to see some percentage of people go bankrupt/get foreclosed. Probably the people who were in danger of that before buying a house. The economy will go into a recession, like the dot-com bust, only more diffuse. People won't be over-extending themselves (as much) as they have the past 5 years because credit won't be as easy to get. This means many companies will see their profits shrink/disappear - leading to job losses.

There will still be plenty of people willing to over-extend themselves, however, just like there were in the 90s, when credit wasn't cheap. I myself partook in the occasional "0% interest" promotions to buy big TVs when I shouldn't have. Lucky for me I had increased income potential and eventually wised up. Yes, those people are not smart, but the higher cost of credit will not extinguish people's inability to make smart financial decisions. This will help buffer profits in a lot of companies that depend on consumer spending.

The press will then over-sells the bust, like they oversold the boom, because "trend" stories sell. We'll read lots of anecdotes and there will be blogs devoted to chronicling the downfall of all the RE "boom" companies (fuckedrealestatebizness.com or whatever).

Most people (80%) will go on with their lives, a little bit wiser, a little bit poorer, but largely unaffected.

For a recent example, I certainly was hurt by the dot-com bust (as were many of my friends). I was out of work for a while, but lived on savings. However, when I actually reflect, 6 years later, I realize just many people I know outside of Seattle and Silicon Valley that saw nothing other than their 401ks damaged. I sometimes forget that not everyone is employed in technology, and that not everyone lost their jobs (unemployment never went above 7% or so nationally).

I suspect the "Great Real Estate Bust of 2007" (or 08, or 09) will look much the same when we look back in 2012.

I'm not underplaying the damage it will do to lots of individuals. But anything short of another Great Depression (even then only 25% of people were unemployed) won't have the world-ending shocks people here seem gleefully awaiting. And if we have another "Great Depression" everyone here gloating about their genius in investments will be broke and out of work, just like the people who over-extended to buy over-priced real estate.

Eleua said...

Why don't you join them good Texans, sailor?

Perhaps I don't understand your motivation.
------------------------------
The world won't end. I never said it would. Americans get pretty belligerant when they start losing money. History shows that to be the case.

When economic trends stray from historical norms, they tend to correct back to those norms. In order for that to happen, it would necessitate that we enter a recession that would be on-par with the 81-82 recession, and then some. Will we all be eating rats and burning dog crap for heating fuel? I doubt it. Will we see a complete restructuring of the debt/consumerism economy? Most likely.

If you make your living from the fruits of excessive debt, speculation, and wanton consumerism, you will likely have some very rough times in your future.

We went through the largest financial bubble in world history just a few years ago. Easy Al (Sir Prints-a-lot), bailed out that bubble with an even bigger real estate bubble. Leverage in the RE bubble is enormous, and the collateral on the margin is very shoddy. This can only end in tears. Those tears will extend beyond those that engaged in the reckless activity.

In order for us to have just another fart of a recession (like 2001-2), we would need another, even bigger, bubble. Even with that, we would only be delaying judgment day.

To say that this bubble does not matter, is to say "it's different this time."

Many ride Meshugy's ass for insisting that Ballard is so different, that it won't feel the bubble breaking. I would extend that chiding to anyone that thinks this housing bubble will end with a mild jolt, and then business as usual.

It's not the Apocalypse. It's just going to be a very ugly, and painful adjustment back to some form of economic sanity.

Unless it really is different THIS time...

Eleua said...

Perhaps we are immune to economic forces. After all, we are Amurihkunz.

Reality is for saps.

Eleua said...

(unemployment never went above 7% or so nationally).

If you believe government data.

Anonymous said...

Bible believing Christian friends think it IS the Apocolypse and that that is the reason Bush was elected prez- to hasten it on.

I was amazed how much we agreed on every point- they from a religious point of view and I from an econmic point of view.

The agreement between all of us, was that the social/economic ill part of the problem stemmed from a gigantic credit bubble.

Whereas I thought problems were coming and could have been averted had we made different decisions in the past, they believe it is all pre-ordained by the Bible and that we basically elected (Bush, Cheney etc.) or got stuck with (Greenspan, Rumsfeld, etc.) the people who would carry things to their proper conclusion.

They're scared but believe that their belief in Jesus will protect them.

Fascinating conversation.

Anonymous said...

in san diego, its typical to pay one months rent as deposit.

The two guys that rented us their place were very picky...they interviewed us at our current apt and and were very careful to make us feel like we were guests in their house.

I got a bad vibe but my wife wanted it badly...

I can upload a scan of my rental agreement if you like.

Eleua said...

As bad as Bush/Clinton/Bush and Greenspan have been, I doubt they figure into the Apocalypse any more than Hadrian, Nero, Constantine, George III, Lincoln, Ozzy Osborne, or Jim Henson.

Christians that spend a lot of energy speculating on the Apocalypse, are wasting their time.

Every generation thinks they are experiencing something new and exciting; while history shows that each generation largely tells the same, sad story. We just have cooler ways of telling the same story.

Economic realignment is often painful, and ugly. Ultimately, it is good for the society.

Recessions are to the health of the economy what natural fires are to the forest. They are essential, and without them, the economy/forest achieve a health imbalance.

A bunch of dumb Americans getting deluded into a mass hysteria and believing they can become rich by living in a wooden box is not the stuff of the Apocalypse.