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Wednesday, August 09, 2006

Realtors & Government Team Up To Look Good

As effective as government is at addressing most issues, it only makes sense that once the real estate market finally starts to slow down, that's when they decide it's a good time to try to do something about unaffordable housing.

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)
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9 comments:

Anonymous said...

my solution for affordable housing is to wait until next year when the 2 trillion in ARM's begin readjusting.

Pennies on the dollar

Anonymous said...

How about a "Sit Back and Wait" campaign? No sense rushing into something one might be in for seven to thirty years.

And, ah, according to the Historical Census of Housing Tables the rate of homeownership in the State of Washington has DECREASED since 1960, reaching its ebb at 62.6% at the time of the 1990 census.

Aren't there first-time homebuying programs as a result of the 62.6% homeownership rate? What did the Washington State Speakers and Governors do over the past forty-five years, as home ownership percentages decreased?

I'd suggest a reduced tax penalty for people who transfer their retirement savings accounts toward downpayments for home purchase, but Washington doesn't have individual state income tax.

Or, hey, those who want some benefits of home ownership but who recognize they can't afford to outright buy could investigate co-housing.

Anonymous said...

This is a complete joke...

For starters the State Government knows where its bread is buttered, insane state and local revenue from skyrocketing property/sales tax, etcetera, huge surge in housing related jobs... why would any of these complicite institutions (Realtors and Lawmakers) have any insentive at ALL to make housing more affordable, they could care less!

Basically its this.. "Okay ladies and gentlemen, lets all agree there needs to be more affordable housing, agreed? okay, agreed... next order of business"

Not to get too political, but I find it annoying when the KVI crowd lament "The People's Republic of King County". Well folks, I'm here to tell you, it ain't no communist collective. This county's full of the most greedy, money loving, materialists liberal-in-name-only group of voters this side of Havana. I just dare some one to put an "affordable housing" propostion on the state/local ballot, mandating a certain amount of building permits be dedicated to the middle-low income crowd, and watch out!

"Will this make my home value go down? No way, no on that!... but that save the Gray Whale/bio-fuel initiative? Boy-howdee that looks like an eco-friendly law I can really get behind!!"

Hypocrits...

Anonymous said...

Think you pretty much nailed it there Tim.

As long as everyone was willing to kill themselves with crazy loans, it didn't matter HOW high prices went to these people.

Now that the boom's going bust, let's talk about affordable housing.

Or better yet, let's figure out ways to talk those reluctant last few buyers into a lifetime of debt at the market top.

Like that stupid "Expanding American Home -ownership Act of 2006" that was just passed by our brilliant Congress.

And you're right, Anon 4:12, the real solution for affordable housing is to just sit back and wait for this market to crash and burn.

A mega credit crunch with a return to 20% downpayment ought to make these houses cheaper than anyone can imagine.

Somebody told me that during the 30's, 50-60% downpayments were the norm.

Can you imagine how cheap houses would get?!

Fannie and Freddie and all the "expanding home ownership " tricks have been nothing but a windfall for banks, raking in massive interest payments for the past several decades.

Eleua said...

Anon 709,

If down payments ever came back to 20%, that would gut the entire market - top to bottom.

If down payments went to 30% or 50%...good night, Irene.

You are onto something. Think about it. The average amount a Babyboomer has saved (sans home equity)...

(are you ready for this?)

$17K.

(actually, I heard that on the radio, and did not read it in print. It was some dude pimping his book about retirements or something. I can't imagine that numer is too far off.)

To be kind, let's say my stat is off by a factor of 3, and the average Mouseketeer has $50K locked away in his bank account and 401(k). If he shoots his entire wad, and splurges on a home, he could buy something from the $100K to $250K range (assuming the 20%-50% down payment requirement).

He would have to liquidate the entire 401(k), and bet the entire farm on the increased value of the house, while also betting he will be able to cash-out to someone with MORE cash, while buying something very cheap - GOOD LUCK!

I happen to think the $17K stat is valid. I can't think of anyone, excepting someone with tons of real estate equity, that could put their hands on $20K, without calling relatives or engaging in some tricky financing.

If your average Disco-baller has $17K, how much does your standard GenX grommet-head have? You can bet it is just a sliver of what the aging hippie has.

So, who buys a house with 20% down after the real estate equity escalator collapses? Who has $100K to buy a $500K rat trap in Ballard? Who has $180K to buy a 3 bedroom, 1 acre, drafty farmhouse on Bainbridge?

Would the market, en masse, have $50K to float a median homeprice of $250? If you say yes, you should seriously consider detox.

Would the market have $30K to float $150K homes? Perhaps, but it would be a very soggy market.

I doubt most of my neighbors could put their hands on $30K, without tapping some form of debt. Some could, but most do it on debt or real estate equity.

Think about how cheap houses will be if the median household is out of cash.

Anonymous said...

Most baby boomers approaching retirement don't have squat. If they have a home, all they have is the equity assuming that they haven't used it as an atm and blown their wad. Most have very little savings and huge credit card debts. I work for the Feds and a lot of the workers were using their Thrift Savings Plan (TSP) as an atm withdrawing $$ as soon as they paid off their previous loan. I found out that most plan to take their TSP out in cash withdrawals when they retire instead of taking an annuity. They will have very little. I live in SW Washington and it isn't a whole lot better here. I hope that things explode down here also. It would cost me double in monthly mortgage payments what I now pay in rent. Let there be a melt down!

Anonymous said...

They tried to tackle this affordable housing issue down in San Diego by requiring develpers to include a few inexpensive units in their projects. The way the math worked was that they just made up the difference by increasing the price of the other units.

Anonymous said...

Have some observations to share based on driving all over Seattle, Kirkland, Redmond, Bellevue, Burien, Des Moines, Renton and Kent looking for a house to rent.

1) more and more houses coming onto rental market. Every one that has an "overpriced" monthly rent has been bought in last 3 years. Whereas you could "shoot for the moon" with house prices, rentals that are overpriced just tend to sit. The pain associated with "negative cash flow" is just starting for many who are determined to hold onto the house they overpaid for and expect someone else to pay for their mistake....good luck. Whereas houses whose rent is priced right stop reappearing.

2) It is amazing to be driving thru a Kent neighborhood (looking like "the hood") and see a brand new California-style "palace" (complete with stucco siding and red tile roof) squeezed in between two typical 50 year old decaying ramblers........WHAT WERE THESE PEOPLE THINKING? KENT?!!!

3) There are a lot of rentals of new subdivision homes in the Kent/Renton area that were just built in the last 2 or 3 years. These homes are typically quite large and very pricey. It appears that builders have purposely built large homes (McMansions) with hefty price tags. So this bubble is a combination of low interest rates, suicide loans, speculation, CA Equity locusts, loose lending standards, and builders building the biggest houses they can where clearly more modest homes would be more prudent.

4) But strangely enough, when I drove thru the neighborhoods mentioned in 3) there were mostly minorities (kids and mothers mostly). In fact all the for sale signs pictured a chinese real estate agent. How can these folks (most likely immigrants) afford these McMansions? I guess the RE agent, the builder, the bank, the appraiser, Home Depot, and the tax collector don't really care as long as SOMEBODY allows the party to continue. I would love to talk to some of these new home owners and find out how much they make and what type of financing they were talked into. I fear that the most vulnerable are gonna be the biggest losers. I make twice the average salary of the typical King Co resident and could come up with 20% down on a 700K home. But I still could not AFFORD the home. The monthly payments (30 year fixed) would make me "house poor".

5) The amount of new construction (houses, condos, high rises) is staggering. Assuming that this is the story all over the country (and even the world), high home costs become a self-fulfilling prophey as builders use the maximum amount of materials which drive up material costs which drive up home prices which cause more building which...ad nauseum.

6) Neighborhoods like Denny Blaine, Leschi, and Madison Park have had the biggest price jumps as this (along with Kirkland/Bellevue) is where the cash rich CA equity locusts have chowed down. Problem is that there are a lot of older "dumpy" homes whose values have ridden the coat-tails of the "high end" homes. But the CA equity locusts are very selective. A lot of the "dumpy" homes in these areas are gonna fall from 40% to 60% because they were never that "desirable" except to flippers who hoped that somehow nobody would be able to tell the difference between a mansion and a dump as long as the zip code was "correct".

I had stated a few months ago that I thought Seattle RE would fall anywhere by 20% to 40% with an average about 33%. After what I have seen after a month of intensive house hunting has made me adjust my numbers. I now predict that Seattle RE will fall from 30% in the less bubbly areas to as much as 60% in the REALLY bubbly areas.

This time truly "is different" in that it is a "perfect storm" in so many ways that I am scared for this country.

Eleua said...

I took my sons into town for a bike ride/jog, and had to find a place to park the van. There was a young '30 something' chick painting a house that was advertised "For Rent." I chatted her up and asked what the rent was. She didn't know, even though she was the owner. All she knew was that "rents are going up."

I asked how she knew about this, and she said she heard it on the news. OK, fine. Here I am being told about how 'rents are going up,' yet she doesn't even know how much she is going to rent it. One would think that if someone sank $50K + a $400K note, they would have some idea of WTF they would need to make their investment payout.

Observation 2: There is a wild jump in inventory between last summer/fall and now. From my experience in North Texas, when people fail to sell, and the house is vacant, they will attempt to rent it or gut the price.

Price gutting won't happen until next year, so my guess is there is about to be a renters' bonanza starting about mid-September. I think it will be a total rout in rent rates.

While I may be wrong, my guess is all the quacking about higher rents is exactly that. The MSM and REIC are trying to talk people up.

Having an otherwise nice house sit vacant through a long, dark, wet winter is going to be a money loser like you cannot believe. Nothing gets an owner POed like having to pay a power bill for a house they don't use.

If a house rents for $1600/mo, and the FLL wants to hike it $250, but the house goes vacant in September, it will only take 2 months before they were better off keeping the rate at its present level.

America is about to get a very powerful math lesson.

Life is a story problem.