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Tuesday, September 22, 1981

Friday Open Thread

This is your open thread for today. Please post random links and off-topic discussions here.


Peckhammer said...

Speed of Housing Downturn Surprises Homeowners

Today on Morning Edition:

The real estate market has made a surprisingly quick downturn in some parts of the country. The change in direction has left many homeowners holding property they can't sell at the price they would like, or need, to get.

Lynn Neary speaks with Ilyce Glink, who writes the nationally syndicated column "Real Estate Matters."

Notable quotes:

"The real estate market is not expected to improve any time soon."

If you bought in the last 2 to 5 years "you are at tremendous risk at actually losing money on your property"

"People, in order to keep up, have been getting bigger and bigger mortgages and then they started using exotic mortgages. Interest-only loans allow you to buy much more house for the money."

The interviewer asked Glink what people's options are. Glink responded, "You have a couple of choices, none of them good, all of them painful."

Glink suggested the following:

1.) drop your price and get out;
2.) refinance your mortgage and take one of those exotic loans to lower your payments and try to lower your paymnets enough to get through;
3.) rent your house and live somewhere cheaper; or
4.)Get a second or a third job so that you can make your payments.

Eleua said...

Glink's advice:

#1 - good advice
#2 - really bad advice
#3 - even worse
#4 - the soon-to-be reality for housing bulls.

Peckhammer said...

And, in an attempt to obfuscate what is really happening in the real estate market, the PI ran this puff piece entitled Classroom condos on Queen Anne get 'A' in city history:

It's the most phenomenal building I've ever been in," said Michele Del Castillo Ralls, reached Thursday while she was out shopping for furnishings. "I love my 14-foot ceilings, and the view is the best in Seattle."

She also praised the way the building mixed old details, including the stone lions in front, with the new finishes and amenities.

The building's Web site plays up the school theme, with "campus," "playground" and "enrollment" sections. It does not mention the "tuition," which ranges from a bit over $300,000 to more than $1 million.

The market is Hot Hot Hot!!!

synthetik said...

Sound familiar?

"The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings."

- former Federal Reserve Chairman Paul Volcker, September 1999

meshugy said...

Crackdown on Relisting Homes

Northwest MLS, a regional MLS in Washington state, on Sept. 1 issued a notice to members threatening "disciplinary proceedings against agents and brokers who improperly cancel and relist properties or input meaningless price changes. Canceling and relisting is only permitted when there has been a substantial change in the quality or condition of the property."

The notice advises that price changes should only be entered into the MLS "when there has been a material change in the price of the property. Otherwise, canceling and relisting and inputting changes are deceptive and misleading marketing ploys, designed only to gain undeserved market exposure at the expense of other properties."

Eleua said...


I love that quote. It was so true, and spoken by the last adult to head the FED.

Given that his successor substituted the housing sector, perhaps we can update the quote:

"The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the housing market, whose growth is dependent on about 10 markets, eight of which are in the initial stages of a serious decline."

angry crank,
economic gadfly,
bloviator extraordinaire, September 2006

StealthBucks said...

Here's some simple advice. Don't buy more home than you can afford. If you have, get out if you can, regroup and live a more balnced life. I don't think a temporary exotic loan will do much other than delay the inevitable. A second or third job may work if it is coupled with a cold hard evaluation of lifestyle. Many people do, indeed get ahead by working their way out of problems and focusing on income generation.

I do think an anaylsis of the psychology of home ownership would be fascinating. Why is is that people won't sell when impending financial ruin is near unless they change now? I love my home but would bail in a heart beat if we were horribly extended.

Are there really that many homeowners in Seattle this extended? Does anyone know of a neighbor hanging on for dear life? I don't see any at work, home, or otherwise...

Eleua said...

Are there really that many homeowners in Seattle this extended? Does anyone know of a neighbor hanging on for dear life? I don't see any at work, home, or otherwise...

Survivor bias.

People don't trumpet their stupidity, only their victories.

In the stock bubble, every Tom, Dick, and Harry was roaring about their stock gains, yet in the bust, I never heard anyone speak of how much they lost.

Even as it was starting, nobody was saying "This thing's going down, so I'm selling." What I was hearing was how everyone was going to "buy the dip" and get insanely rich.

We know how that worked out.

Lake Hills Renter said...

Does anyone know of a neighbor hanging on for dear life?

Most of my neighbors have been in their houses for years, so I imagine they are fine. There is one empty house for sale down the street that's been up for a rediculous price for several weeks now. A mutual neighbor apparently knows the realtor and there hasn't been a single nibble so far.

I do have one neighbor right next to me that bought early this year. Nice guy, but I have to wonder about his financial situation. I don't know what he paid, but the house was up for around $440k when it was listed, but it sat on the market for 6 months. He's only been in this country for 4 years, works at Microsoft as a developer in test, and is supporting a wife and small child on a single income, and paying for a new SUV. Unless he has lots of cash/assets or other source of income, I wouldn't be surprised if he's ARM'd himself and will be in trouble when it resets.

Anonymous said...

Look at this MLS#26157844 fron NW listing

I think some builder here is getting very nervous now. I can guarantee that this builder will make 0 money out of this home. The question is how much they will loose...

Eleua said...

re: MLS 26157844,

I always heard that builders were cutting corners, but I would like to think I would get more than a partially finished foundation for $500K.

HFS_in_VA said...

Stealthbucks, howdy from the east coast (from a disgruntled expat of the third coast).

If you are familiar with a neighborhood, and happen to know the history of a property, you can figure out who is an FB. Here is a building literally right next to my office. I can see it from my office window here:

The white building with the blue stripe on top is where I sit and type this.

I think I know exactly which condo in this building is up for sale. A friend of mine used to live in it until this past January, when she sold and moved to DC with her new husband. The current owner is an RE agent, who is trying hard to sell. The building itself is nice and well-maintained, but for the price the seller has a long way to go before it will be able to compete with freestanding SF houses in the immediate area. Unless the price drops by at least $50k, the condo won't sell and the realtor is hosed. But if it drops by $50k, the realtor loses money and is hosed anyway.

Financial trouble isn't easy to spot, since people don't talk about it, but if you see anything change, like the following:

*Selling the SUV to buy a 5-y-o honda civic
*Big changes in lifestyle habits--the people who had parties every other weekend haven't had one in months
*Lawn service terminated, owners mowing themselves
*Obvious moonlighting, i.e. leaving at 6am and not coming home until 10pm every night

You can bet that they are having trouble.

Anonymous said...

5 years ago when we got our first mortgage, I rememeber people telling us that if we paid an extra $100 bucks to the principle we could pay the house off in about 20 years.

Back in the old days

synthetik said...

Since I'm new in town, I've been trying to meet people like mad. Going to various social and business networking meetings, web "meetups" (no, not THAT kind of meetup.), ppl from my wife's work, and various ppl I've met in random places.

Since March of this year, I've only spoken to ONE other person who shared my belief and understanding of the current RE market; both national and local.

One... out of hundreds.

After MSM started getting their sh*t together around Aug 1, the majority of people are aware of a national situation.

Since Aug 1, I have yet to meet anyone who believes RE will go down in Seattle.

They all sing the same refrain... 'it's different here, there's no where else to build! we've got more job growth than anywhere! we've got MS, we've got Boeing! our tax laws are favorable! Californians are moving up here! We're the next Manhattan!"

Anonymous said...


Dont drink the water !

synthetik said...

Most, if not all of the people I have had an in depth conversation about RE are FB's. They've all purchased within the last 3 years - most just this last year.

One particular FB is going to be in serious trouble. He moved up here from N. CA in April of this year. He bought a 6 unit apartment on NW 85th St and closed on it about 2 months ago. He paid $835K, or 140K/door. After renovation, he is predicting to sell for $260K/door.

Built around 1980, the place is a serious dump. Needs a complete remodel.

From what I can see, he seriously underestimated his conversion costs as well as his timeline. He was 2 months overdue on the construction loan and he's still no where near finishing the first unit, putting him 3 months behind already.

Worse yet, there are still tenants that have leases who will not leave. I guess the $700 he offered was not enticing enough.

Why will he be a FB?

The project that was supposed to take 5 months will likely take 8-9 months. Since he started 2 months ago, that puts him at April-May of 2007.

In April of 2007, how many people are going to be interested in paying $280,000 to live in a 2/1 900sq foot condo conversion way up on NW 85th and 8th ave?

He'll be lucky to get $199K for them, no? After holding costs (loan is over 10%), and higher construction costs, I'm afraid he's headed for BK.

meshugy said...

Look at this MLS#26157844 fron NW listing

This is going on all over the place...all the new construction is going up for sale, whether it's done or not. I'd guess that between 30-50% of the new inventory is a result of this. Could be that builders are panicking..but I also think they tend to do this every year at this time. This is the last big selling month before the winter lull.

Wanderer said...

As a point of interest (maybe) on conversions...
My sister has been in a huge (by any standard) rent controlled loft just a few blocks away form Wall Street in Manhattan for 12 years. The building was bought ~6 months ago and all of the tenants got $$$ in their eyes for the impending buyout. Of course the first 6 months have been taken up the new landlord trying to find legal loopholes to kick all of the rent controlled tenants out. She just got an offer for $50k to leave and turned it down outright. With the possible/probable bubble in NY, one can't be too comfortable with 50K to put in a small condo when the price could go down $100K in a year. Her rent has been $2500 for the 3 bedroom place, which sounds terrible but they could rent it for 4,000 to a new tenant easy.
It is an interesting show down... the landlord is losing ~48K per month due to rent control on the 32 units and can't get everyone to move out for 50K. The renters can't get anywhere near as good of a rate somewhere else and 50K is no incentive to go buy a place. I am sure the landlord paid a high price for the building that forecasted condos within 3 years. If my sister is any sign, she thinks it will take 100-150K to get her to move out. Unless she takes that and pays cash for a place in Iowa, you still can't feel really good about putting that right into a place in Manhattan for the next few years. I am telling her to enjoy the rent stabilization and continue to rent out the spare bedroom for the foreseeable future. Oh, and to get ready for the landlord to completely stop doing maintenance on the place (if not purposely sabotage it).

Anonymous said...

I think the construction jobs will start showing big cuts in the next 6 months. Developers have been building out like crazy this summer to finish all the projects they had on the books. But they've all stopped buying and are backing away from their options. So 2007 + 2008 are going to just be in the toilet for contractors and subcontractors.

Anonymous said...

Oh, and to get ready for the landlord to completely stop doing maintenance on the place (if not purposely sabotage it).

Another reason why rent control sucks. No incentive for upkeep or additional investment. SF has something like 1 out of 4 residents of rent controlled apartments with residents of 100K/year in income. Not the intended consequence...

meshugy said...

Like Seattle, San Diego is expereicning plummting vacany rates and rent increases:

Rents rise in sluggish home-buying market

A 3.81 percent increase in the past year to an average rent of $1,241 is the biggest gain in rental rates since September 2002, when average rents increased by 5.68 percent, according to a recent survey by MarketPointe Realty Advisors.

In contrast, the average monthly rental rate has risen $30 in the last six months. The countywide apartment vacancy rate dropped to 1.84 percent from 3 percent six months ago, MarketPointe reported.

“The current rental rate average is 2.47 percent higher than it was as of our March 2006 survey and has increased 3.81 percent in the last 12 months.” Valone said in his report.

In coming months, the year-over-year rental rate increase may exceed 4 percent, he added.

Peter Taylor said...

Like Seattle, San Diego is expereicning plummting vacany rates and rent increases:

Boy, that's going to be bad news for renters and owners alike when the Fed has to hike interest rates to curb inflation. If I were a homeowner, I'd be very, very worried about the fact that rents are increasing.

sarah said...

"If you bought in the last 2-5 years , you are at sustantial risk of losing money". (Morning Edition)

There's that "Five year" rollback message again.

See how it keeps going back farther in time?

StealthBucks said...

I do believe that Seattle Real Estate will head down, I just don't think that it will affect as many people as some of the people on this site appear to suggest. I also totally agree that it's easier to talk about your winners (stocks, ex girlfriends, whatever) than your losers. I guess your failure to manage the home shuts people down even more

I wouldn't be buying local property on high leverage. It's a great time to just live below your means and see what shakes out.

Anonymous said...

"Does anyone know an over-extended homeowner in Seattle?"

I know one couple who is seriously heading toward foreclosure. They tried to refinance into a fixed loan early last spring but "couldn't"- presumably for financial reasons, none of them good. They live in Phinney Ridge in a home they bought 2 years ago for @450K.

Another, whose home is in Greenwood and was purchased 4 or 5 years ago so has a bit more leeway, has moved out of the home and rents it out because they cannot really afford the payments.

Another couple almost signed on to a loan that would have been 50% of their monthly income. That's just the mortgage payment, no taxes, insurance or upkeep incuded in that number. This happened within the last month.

They're not total idiots so I'm assuming that if they almost did something that foolish then there are probably others who are doing that. That house was in NE Seattle, around 90th and 17th Ave.

So Stealthbucks, in answer to your question, yes, there are over-extended homeowners in Seattle.

And these are just the one's I know of personally.

Of the 6 people involved, 3 are in tech, one is an engineer and one's in health care, one not employed right now.

Greed is Bad said...

Many homeowners haven't yet figured out that:

1) If they get squeezed by adjusting rates it's not so easy to refi because 1) they'll pay more for a fixed rate loan and they probably bought the max house they could qualify for and therefore can only "afford" the payments on the teaser rate, 2) they'll discover a pre-payment penalty on their adjustable loan which they won't be able to afford, and 3) as appraisers become more realistic due to changing market conditions and lending standards tighten they'll find a) their homes no longer appraise at what they previously did so they'd have to come up with the difference in cash to refi to a SMALLER fixed rate loan, and b)they won't have a 20% down payment and will not even qualify even for a SMALLER loan based on the tighter lending standards.

Furthermore, if they "hold on" somehow, they're losing money every month even if prices remain flat for a period since with a low down or no down payment loan they're paying 5-6.x% interest for a non-appreciating asset (not to mention property taxes and maintenance fees) instead of earning 5% on their money - that's a 10% spread!

Sounds like a lose-lose with no way out other to lower the price and sell for a loss... rinse... repeat...

seattle price drop said...

"Sounds like a lose-lose with no way out other than to sell at a loss"....

And the problem these people are facing (the ones who should be selling now, even if it means taking a small hit), is that , unfortunately, the local media is working against them when it continues to periodically interject articles about how we're different here.

All those articles do is feed the irrational hopes and dreams of FB's who think the situation will improve.

And they'll wind up taking an even bigger loss 6 months from now.

It's really a shame. If the media can't tell the truth ,they should just stay out of it and say nothing at all.

Perhaps then people could possibly make a more rational decision regarding their finances.

seattle price drop said...

The "Golly Gee , we're shocked!!!! the economy's slowing so quickly!!!" reports have finally begun on CNBC.

Considering they're ususally about 6 months behind schedule, expect the worst in the coming weeks.

Anonymous said...

"Does anyone know an over-extended homeowner in Seattle?"

I have a neighbor that has refinanced a few times over the last few years. He went from 180 fixed to 220K and now has 285K on an 8% ARM that resets next summer and they also have a HELOC for 40K.

And get this...they have financed 3 new cars. Now they are trying to sell one that was too expensive, but I dont think they can sell it for what they owe.THey are upside down on all the loans.

SDtoSEA said...

Like Seattle, San Diego is expereicning plummting vacany rates and rent increases.

San Diego lost a good chunk of it's rentals to condo conversions in the last few years. As a lot of those conversions come back on the rental market (cause nobody in their right mind is buying one right now), things will settle down.

sarah said...

Here's the latest scam to watch out for as housing cools and loansters need to drum up more business:

Calls to people whose homes are already paid off, suggesting they take out an equity loan on their house.

To me, this is one of the saddest. Somebody who WAS free and clear then got sucked in at the eleventh hour.

Anonymous said...

"All the new construction is going up for sale, whether it's done or not".

My favorite was those townhomes in Ballard that showed up on the MLS a few months back.

They were presented at upwards of 500-600K if I remember correctly, just shells of 2x4's, the particle board wasn't even on yet, construction materials and debris and a HONEY BUCKET in the foreground of the pix!

They're probably still on the list.

Anonymous said...

"Honey Bucket" that's the most disgusting name they could have used. It conjures up images of sticky, sweet, yellow, sickness. Yuck!

Lake Hills Renter said...

It's a great time to just live below your means and see what shakes out.

Excellent advice. That's exactly what I've been doing for over a year now.

Lake Hills Renter said...

I was struck once again today by the number of houses for sale in the boonies. Why on earth would there be a huge number of houses for sale in places like Enumclaw, Buckley and Eatonville? Is it possible even the housing prices there went up and they're trying to cash out?

Anonymous said...

Lake Hills-

Prices in every nook and cranny of the nation have bubbled the past few years.

that's why they're all coming down, everywhere.