Bubble Link Roundup
These don't necessarily have to do with the Seattle area specifically, they're just a collection of interesting housing-related links that I have come across in the last week or so and thought I would share.
- What Lemmings Believe (a comic panel)
- Housing Doom Blog Investigates Seattle's #'s
- "There hasn't been any slowdown at all" in Eastern Washington
- If construction costs are $300,000+, why are houses being appraised at such low values?
- Why Renting Really Is For Suckers
...followed up with... - When You Should Not Buy Real Estate
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25 comments:
I like these type of posts, particularly if the links are Northwest-specific. Ben's blog doesn't cover this region enough -- I can only care so much about Florida and Massachusettes. Plus, it gives me more to read on a slow work day like today.
That renting is for suckers link sure is a good laugh.
"Let's assume you're going to make a slightly below average for this area 5% per year in absolute terms - not inflation adjusted. Most of California has been averaging seven percent per year for the long term, over cycles and cycles of pricing."
Hey I'm always right, till I'm wrong.
Don't blogging and nuttiness go hand-in-hand? :)
The $25,000 dollar house in Bellevue article is a crack-up. I heard that on news radio as I was driving into work!
So you think there's something wrong with county appraisals? Doh!
The Oracle of Omaha, Warren Buffet , thought the same thing back in May 2005 when he sold his Laguna Beach home, with the following quote...
"I recently sold a house in Laguna for $3.5 million. It was on about 2,000 square feet of land, maybe a twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60 million an acre."
Wow! You think RE is a little bubbly? Yes, yes.... Sorry, not enough granite countertops in the world to build that kind of sweat equity in your SFH $h*tbox. It ain't the house its the land.
Should be a warning to anyone thinking a dot-condo is a wise investment....
I was shocked myself when I opened my mailbox a couple of weeks ago, finding the latest KC assessment, and learned that my house had been "devalued" by over $50K since last year (after several years of consistent but reasonable increases IMO). I checked with a couple of others in the neighborhood and the same thing happened to them. Of course, the increase in the land value more than made up for the decrease in the house. I live in Redmond just north of Macrohard.
Basically, it says that I am living in a tear-down.
Great news when one is spending late nights remodeling the kitchen/dining room . . . but keeping my lovely wife happy--priceless!
But a tear-down? Probably true when considering that the latest (new) house to sell just down the street went for $999,950--$100K OVER the initial asking price of $899,950 posted last fall when the house (foundation) was first on the market. This for a +/- 3500SF McMansion on a 7K sq. ft. lot with absolutely no view, 10 feet away from the neighbors, and totally unremarkable in appearance. Wow. But this house was on the market for 8-9 months before it sold, so it's hard for me to understand the over-listing sold price (did new owner consolidate some debt or do something else which got folded into the 'official' price?).
(Sighs) What to do, what to do . . . I do think that the county is dead wrong in devaluating the structures the way that they are now--they should at least remain at replacement cost and index with inflation. What if insurance companies start using these values as well? Then we're all screwed!
they should at least remain at replacement cost
I don't think houses are like Abercrombie jeans where the "lived in" version sells for more than a fresh pair of similar size and construction - usually.
Some house structures depreciate quite badly. Compare a late 1970's "Northwest Contemporary" style house with a 1920's Craftsman of similar size, etc.
The Northwest design is so out of style right now that even if it's in good shape it will sell for less than Craftsman fixer.
Ben's blog doesn't cover this region enough
Unfortunately Ben only posts articles that indicate a crashing market...it's almost impossible to find those for the NW, hence he ignores the region.
The NAR Leadership Summit (August 2006) was presented by David Lereah a few days back.
It's a very dismal look at the US Housing Market, full of graphs, etc.
Seattle is #5 for US cities with risky ARM loans.
Here's the order:
1.San Fransisco
2.San Diego
3.LA
4.Las Vegas
5.Seattle
6.Orlando
A month or so ago we saw Seattle in the top 6 for Neg Ams. Now we're #5 for ARM's.
Sorry I don't have the link for the NAR report, but you can probably google it at NAR, Leadership Summit. Or maybe it's already been covered and discussed on the blog here.
I find it fascinating that Seattle RE bulls choose to ignore these loan statistics that clearly show our area at the tippy top of the bad loan heap when they discuss the market here.
Any logical explanation for that?
I think the reason Ben's blog doesn't cover us so much is that other areas are ahead of us in the cycle. The MSM is starting to pick up on things at the national level though, this really is a national issue and not a local one. Once retailers crash this Christmas, consumer sentiment will be in the toilet.
Seattle Price Drop said: "Seattle RE bulls choose to ignore these loan statistics that clearly show our area at the tippy top of the bad loan heap when they discuss the market here."
Do you know where these statistics about exotic loans by region? I have only seen data showing the percentage of sub-prime loans that are of an exotic variety. I would love to see the stats showing what percentage of loans (in aggregate) in the Puget Sound area were of the exotic variety.
I know someone inevitably says it every day here but I will say it again: I get so tired reading Meshugy's posts - he is a real detriment to this board, and he attacks Ben's blog which is one of the best on the web. He needs to split.
No emcity, we can't. The reason that we can't is because he is ALLOWED to fester here. No one, (besides dukes, Matt or synthetik) takes him to task for his crap.
Notice Meshugy barely posts on Ben's blog, but he reads it. The reason he doesn't post there is because he gets battered when he spews his nonsense. I am sorry, there are nice people in Seattle, but sometimes TOO nice, he needs to be relegated to the trash heap in my opinion.
Mikhail
the percentage of ARM's for Seattle in the NAR data was 40%.
I don't remember for the Neg Am's.
I think the NAR presentation can be accessed through the Marin Bubble Blog.
I'm pretty sure Marinite has a link to the PDF file that you can download and view at leisure.
Ben's blog doesn't cover this region enough
Compared to overwhelming bubble examples in other regions, Puget Sound is (as of yet) tame by comparison - so don't be surprised by the relative lack of coverage.
The biggest bubble around here is in Bellingham. The entire population of Whatcom county is only 185K and few people outside of this area have even heard of it.
Furthermore, the situation in Whatcom county has been driven by Canadian investment - unlike the rest of the US - so it's hard to say how closely it relates to the US housing bubble.
By the time Seattle registers on Ben's Blog, the US "bubble" will be old news.
As in other cities, the bubble only exists after prices begin to fall. Realistically, we have at least another 6-12 months before large areas of Western Washington reach this stage.
San Diego's market hit the point we are at almost 2 years ago and it took until this summer for the correction to be accepted as real.
Once it hits here bigtime, it will be accepted much more quickly than it was in San Diego/FLA, etc. because now everyone's been hearing about it for months in the news.
BTW, Ben does report on WA. He needs more people to send posts in to him. That's how he gets many of his stories and we in WA just aren't forwarding news.
With WA being so high on the trash loans list, it's not like there's nothing to talk about.
HOUSING BUBBLE STORIES - FREE
These rah-rah real estate articles always boil down to the concept that prices keep going up because prices keep going up because prices keep going up. No connection is ever made to the concept of balance. That many wealthy people will stop buying real estate in a stagnant market. That a stagnant market could last for many years. That a cashier at KMart in Austin is making more money than an attorney in LA when the market stalls, let alone drops. That 35% of Californians make their living by real estate increasing. Or that immigrants will flock to the US only provided the real estate market keeps rising.
When the market stalls for as short a time as 18 months, billions in wealth will disappear. Last years plasma Immigration slows. Building stops. Home Depot turns to a ghost town. TV is next year's old news. Renters won't pay high rent in San Diego because they will be living in Austin. Or until a Whopper costs $25.
The same factor that drove the market up will drive it down...greed.
When the market stalls for as short a time as 18 months, billions in wealth will disappear.
Wealth will dispappear because equity withdrawls will slow.
Even if nobody gets forclosed on (yeah right) the homeowners facing higher payments from ARM adjustments and re-fi's into fixed rate loans will suck even more money out of consumer spending.
The X factor in all of this is that there is still ALOT of equity to be spent. The average homeowner has over 50% equity. Whether they will be willing to tap into that equity enough to support consumer spending is debatable.
If something somes along that convinces people to keep draining equity from their homes the correction will be put off until they're drained to zero.
Can baby boomers time their deaths to the exact moment that their equity is completely depleted? Maybe.
The MSM is bipolar in Spokane about the RE Market. 2 weeks ago it was rah-rah about the condition of Spokane's market and yesterday they run articles regarding sellers turning to buying St Joseph's statues in desperation to sell homes. Trust me--I am a buyer sitting on the sidelines with cash to buy a home......the market in Spokane id dead! I have seen many BOM homes that don't appraise and I have seen buyers backing out just prior to closing... Nice houses on the South Hill(desirable part of Spokane) on the market over a year. Ha Ha realtors and sellers. Just lower your "Wishing price".
I enjoy reading meshguy's posts. i like seeing a contradictory opinion rather than just the echo chamber. he doesn't flame anybody or use objectionable language. why are some of the people on here so thin-skinned that they can't bear to see a different point of view?
Just checked out the construction one again. I actually read it in June. Really not sure what to think, I realize folks need to make money but it seems such a stretch that building cost are truly so much more than other metro's. I have family in Texas that just completed a 3500 sq ft (plus 3 car garage & outdoor kitchen) on an acre of land about 40 minutes outside of Austin or San Antonio for $109 (minus land) a foot, with upgraded everything. A very upscale house that would sell for 3x here and by coincidence 3x to build.
What's really happening is just that in Texas new construction is capping the re-sell market and here the re-sell market is capping the builders. Builders (and lot owners :) are selling at what the market will bear.
There's nothing wrong with that but it's annoying to hear BS explanations.
Stephen
Patrick0.blogspot.com - FREE DAILY BUBBLE LINKS
Personally, I don't mind a different point of view as long as that point of view is backed up by facts and analysis. Meshugy has a tendency to post old information (like his posts on Thornberg and Schiller, and extrapolate trends based on single datapoints (see his post on 8/18 @ 9:55).
Of course, this is standard fare in the sort of misinformation campaigns that have been dominating public discourse for years if not decades. Only debunkers like s-crow, matt, synthetik, and dukes keep these pages honest.
The renting for suckers article essentially says rents go up with inflation, whereas property appreciates while mortgage payments stay constant and evantually vanish.
The problem with the argument is that it completely ignores the effects of rising property tax valuations due to appreciation. If appreciation is higher than inflation, the appreciation of property taxes beats out the inflation of rent over the long term. If appreciation is lower than inflation, then you're better off investing elsewhere.
Buying only makes sense if you plan to sell and downgrade at some point in the future, or leverage the property to finance a different investment, since the rising property taxes can only make sense if the property actually realizes some of its increasing value.
The PatrickO site is a good one. Thanks.
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