Monday Open Thread
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43 comments:
Wow, it looks like the press is doing a full court 'press' to pump the faltering local RE market with as much talk as possible about 'lack of bubbles' and what not, trying to squeeze the last little drops of blood from the stone that is the spent psychology of the housing mania... Looks like the last holdout is the condo-conversion/developer tent-pole
First off there's the Rhodester, none to shy to launch in the fray to make the last stand. Here's her article on why anyone with the notion of looking to rent in our fair city is just plain F'd.
Why the big change?
Chalk it up to strong job growth that's attracting newcomers, condominium conversions taking apartments out of the rental pool faster than developers can build, and sky-high house prices that keep renters renting, said Mike Scott of the apartment-analysis firm Dupre+Scott.
Yep, strong job growth of course, the main tent-pole of the housing boom. Its a new gold rush, we're all rolling in money up here! Yep, apartment's are getting rare and astronomically expensive, Hell, you might as well just buy one of those overpriced condos downtown then, now you're really throwing your money away on rent. Yeah, I know, you want to raise a family and condos just don't seem right... no problem, We've got the PI working that front. Trying to change the psychology, with this article on downtown living.
Parents want more family-friendly downtown living
State statistics show that Seattle's urban core has grown much faster than the rest of the city and county since 2000, thanks to a boom in apartment and condo construction. But, while newer numbers for families with children are not available yet, those selling downtown condos say their customers tend to be young professionals and empty nesters, rather than families with kids.
Yep, build it an they will come of course... all those 'young professionals' and 'empty nesters'. A page torn right from the press/developer talking-points memo. All's one needs now is a few passing blurbs about granite countertops and exciting nightlife and this article could be totally written off...
Anyway, to summarize this article...
Note to City: build more ammenities downtown so the condo developers can keep humpin' the bubble,
thanks- P.I. RE section/Joe Condo developer
The lies we tell ourselves...
There's a unit in my building that is for sale -- a two bedroom condo priced at $450/square foot. The owner is almost upside down with irresponsible financing. In order to not bring a check to the closing, this seller needs to get top dollar. So the unit is listed at $50K higher than the last sale of a similarly sized unit in this building. And not surprisingly, this condo has now sat on the market for 54 days without a single offer.
What a potential buyer will not know, before making an offer and then later reading the resale certificate, is that part of the building is in a state of collapse due to water intrusion. Chances of a sale continuing to go through would be on par with winning the lottery.
So, a couple days ago the seller was lamenting the fact that her unit isn't selling, which she blames on the fact that the building lobby needs a second coat of paint. The lies we tell ourselves...
Leave it to the Aussie's to call a spade a spade...
Sydney's pay-later poor
The Mike Morgan piece that Synthetik posted in interesting, but not all that applicaple to the Puget Sound area yet. I get the impression that Mike's comments are largely based on what he's seeing in south Florida.
I continue to see homes sell for atrocious prices in Bellevue (where I live), and a friend just sold her condo in Seattle for a tidy sum.
The intentory may be rising in the Puget Sound, but sales haven't frozen up, and big price drops aren't occuring yet.
In the long run I think Mike Morgan's predictions will hold true. It's not as if Seattle can remain immune from national economic currents. Our financial system is national, and pain felt in other parts of the US will have repercussions here.
But not yet...
But not yet...
Yes, but when it does happen, it will be worse than what is CURRENTLY happening in Florida.
Remember, the faltering markets are being buoyed by a "healthy" economy. The longer the PNW holds out, the weaker economy it will fall into.
Sorry Grivetti, didn't see that you also caught the Elizabeth Rhodes article. Didn't mean to steal your thunder :)
No worries... an article worthy of multiple lambasts to say the least...
BTW, as for this quote...
Some close-in Seattle neighborhoods are much tighter, with vacancy rates in the 1 to 3 percent range. Popular Ballard's vacancy rate is less than 1 percent — basically a full house.
Yep! Its There's Nothing in Ballard!
Good lord Lizzie... I know after typing so many shill articles to pump up the RE advertising dollars it strains your carpal-tunnel to check out craigslist, but I'm guessing the Ballard-devoted won't have to pitch a tent at the locks if they know how to use a cellphone.
ELAINE: Yeah, well maybe there aren't any houses to rent there.
JERRY: In all of Tuscany? I wonder.
I would like to say something in defense of Mmme Rhodes. She is likely doing her job very well. Don't forget that the primary revenue vehicle for her paper revolves around real-estate sales. The objective is to create a real-estate section that potential buyers, sellers, and industry professionals WANT to read. A lot of talk of doom and gloom is certainly not going to sell more real-estate advertisements.
It's not as if the bubble bloggers are going to pick up the slack with full page ads sticking their thumbs at the real-estate industry, and encouraging to general public to stop buying.
Let's put it another way. If the real-estate editorial staff at major papers kept cranking out pessimistic verbiage about the markets, I would expect them to be fired shortly, unless their managers were completely incompetent.
So give Elizabeth a break. She is only delivering what she is paid to do.
I continue to see homes sell for atrocious prices in Bellevue
For the area of Bellevue I'm watching, I'm seeing very little sell. The same houses have been on the market for months, and a couple came down with no sale, some now going up for rent. There's been one or two sales, but they have been the exception. This is for the 164th Ave area in eastern Bellevue/Redmond.
Hey, the quickest way for the bubble bloggers (like us) to influence the editorial policy of our local papers is to start taking out negative advertisements about our housing markets.
As soon as anti-bubble content becomes the biggest financial contributor to the paper, we will see a complete about face in article bias.
Maybe Tim should start holding out a tin cup for donations to place anti-bubble ads in the Times?
I can't help but notice that most of those craigs-listings are for condo and "townhome" rentals, grivetti. Also, most of those are distinctly above-market rents, in my opnion. Probably anxious "investors" looking for rubes....
I rent in Ballard, and I don't think there's any doubt that the rental market here is tighter than it was three years ago. There are very few vacancies in my neighborhood, with most units rented within a few days of listing. Landlords are raising rents, and there are no incentives to speak of.
That said, I don't accept Lizzie's justification for the trend -- the tight market in Ballard probably has more to do with yuppie whim, than it does with job or economic fundamentals. In 2003, my neighbors were largely elderly, fixed-income or blue-collar workers. It was quiet, there was ample parking, and there were more abandoned metal shops than trendy restaurants.
Three years later, and all of these things have changed -- my neighbors are predominantly 20-30-something hipsters, it's getting impossible to find street parking, and they just converted one of the last abandoned buildings to some sort of obnoxious, overpriced scenester restaurant. Ballard is turning into Capitol Hill.
I think this change is entirely due to the housing bubble -- the yuppies stormed into one of the last affordable Seattle neighborhoods, and the local scene mutated to accomodate their vapid, SUV-strolling, $100-dinner, $2-cupcake tastes. Once there were "cute" shops and "trendy" restaurants, it was only a matter of time before the hipsters made a beeline for the local apartments.
Lizzie can bloviate all she wants about economic growth and hot job markets. My view from the ground is that rising demand in Ballard is just another sign of the housing bubble, as well as the fickle whims of yipster culture.
I can't help but notice that most of those craigs-listings are for condo and "townhome" rentals, grivetti. Also, most of those are distinctly above-market rents, in my opnion
Most agreed there misterbubble, but Ballard lacks significant apartment complexes in general. And if the DP stats are only gauging 20+ unit bldg's than I would agree. But there's quite a bit to rent if you're willing to rent the common home in the neighborhood, townhomes, SFH.
And this is the fundemental arguement of Lizzie's 'analysis', it captures a very small share of the rental demographic. I rent a duplex in Ballard, which would not show up in her statistics...
And as far as Ballard's annoying hipster incursion? I'm there with you, although I'd argue that Seattle itself is anything but hip these days (not to incur the wrath of the why-do-you-hate-Seattle nonesense).
Anyway...
If we paid for it, I wonder if the Times or PI would run a full page add that was "anti real estate"?
I don't see why the Times wouldn't carry an add advising people to steer away from the over-priced northwest real-estate, and advocate a buyer's strike. They have printed advocacy ads for all sorts of things before. If they turned down such an ad, that would be news in and of itself.
Here is some info on Times ad rates:
http://www.seattletimescompany.com/advertise/pdfs/2006/1105181_GenContractTable_v1.pdf
It's $484.40 per column-inch to place an ad in the Sunday Times. So, for a 6 inch by 6 inch ad we would need to raise $17,438.4. However, I think we would get a bit of a discount since the rate schedule mentions breaks for anything over $10,000.
Seriously, if we really could pull something like that off (i.e. getting enough people to donate to a Puget Sound housing boycott advertisement) that would likely generate a lot of publicity, beyond publishing the ad itself. And if the papers really were silly enough to decline the ad, we would have an early Christmas, and be able to take our story to the national media and get a LOT of coverage.
Maybe we could ask some of the other bubble blogs for help. Patrick.net or Ben's blog?
I'd put in money.
$17,000 for a 6x6 inch add? Man, they really are making a lot of money on advertising.
And to think, the REI has PAGES of adds. Crazy.
$17K? You guys are saving waaaayyyy too much money renting.
I disagree with handing $17K to one of the key creators of the bubble. Why not just hand WaMu a giant novelty check for $1 trillion dollars to cover next year's ARM resets?
If you really want to raise awareness, build up a fund that donates money to debt education, and then send a press release to the appropriate news rags. Then you'd be doing some good and not contributing to the problem.
Or you could buy me a ladder so I can get off my high horse. ;-)
Sometimes I feel like setting up a card table on the sidewalk, in front of these condo sales offices. I would hand out free packs of Bubblicious Cherry Burst, wrapped neatly in Robert J. Shiller's home-price index graph.
This was especially the case when the guy at "Hjarta" warned me that I better buy now, since they will raise the price/unit by $5000 for every two that go into contract.
Them's fightin' words!
Good idea, Wanderer. I'd trust The Tim, too.
> When I posted over at the RCG, I got "you must be bitter!!", "how do you stand to gain?" and "what are your qualifications??"
I agree it was wrong to question your qualifications and motivations instead of focusing on the merits of the ideas being discussed.
However, in rereading your initial comment, I noticed that it ends with:
"What purpose does your blog serve at this point? How many newbie home buyers will you lure to purchase properties on the way down?"
"Btw, seattleeric... unload your properties before it’s too late!"
Question: After answering your question, do you think that it was fair for the same people to turn the table and ask about your motivations and qualifications?
Or we could send Eleua out into the field naked with the words "Seattle" (left cheek) and "Bubble.com" (right cheek)
OK, but who will pay for all the beer?
I'll need an iron mask and a red leather straight jacket.
If all of you are serious about this...
It would probably be best to collect all the turbo-Bull quotes from late '05 early '06, and string them all together. Show just what REIC shills all these bulls have been.
Then you ask if you would spend $500K on the wisdom of those Carnacks. If not, why not?
Perhaps you can also include quotes from all the Wall Streeters back in the late 90s. Let the inquisitive reader draw his own conclusions.
The housing slowdown has turned some parts of the Phoenix and Las Vegas metropolitan areas into "ghost towns," where many unsold homes stand empty, Janet Yellen, president of the San Francisco Federal Reserve Bank, said Monday.
Yellen said that she heard the ominous description from a "major home builder," who told her that the share of unsold homes in some subdivisions around the two Southwestern cities has topped 80%.
Does anyone, ANYONE, remember when Phoenix and Vegas were the toast of the town, when it came to real estate?
80% vacancy rate? That's going to leave a mark. My guess is that if you can find out which builder this is, you can make some dough in some Jan-08 out-of-the-money PUTS. I doubt their business has only gone bad in these two places. I hear the same things from Florida.
Any Vegas or Phoenix bloggers out there want to do some sleuthing?
So, who are the big builders out here? What are their new subdivisions like?
A year from now, we shall see just how special Seattle is.
BTW, anyone interested in the above article it is here.
Darren, you've listed a number of Arguments for why there is no housing bubble. This is my effort to refute them:
If you sell a stock you do not have to buy another.
If you sell a house, you do not have to buy another. You can rent; you can buy a smaller house; you can buy in a cheaper location. This is a net exit of money from real estate and has the same basic effect as spending your stock money on another market (bonds, commodities, etc.). However, you can realistically only own so many houses (since they cost in upkeep, taxes, etc.).
The facts reveal that median values have simply caught up to the 42 year trend line.
Not to argue "the facts", but some would quibble with your data.
In the 80's, rapid appreciation & record high rates were followed not by a drop in prices, but by a slower rate of growth.
In the 80's over half of all recent loans were not Option ARMS, IO loans, and "No Equity" loans that the public did not understand. There was also a stigma around taking out a 2nd mortgage (now known as the more friendly "HELOC"). You are comparing apples to oranges here.
Same cylical nature found in all economics. That is why trend lines and analysis will dictate the market outcomes.
The last time high risk, "exotic" loans were broadly used was prior to the Great Depression. That's the cycle people are worried about.
The media will hype anything that seems like a good story. Especially if it applies to a broad audience.
...Headlines are about hype because they grab attention and sell advertising.
I agree. Let's look at some recent headlines (when national prices are clearly dropping):
- Calgary housing market booming
- Real estate: Home, sweet investment
- The sky isn't falling
- High-rise boom coming to Seattle?
- City Hall cultivates downtown housing boom
- Home prices fall in some U.S. cities, but not here
- U.S. home prices continue to climb, federal agency says
Clearly there's been some hyping going on. Of course, the media has more to gain (advertising revenue) than just a good story.
Some economist argue that the steady growth in wages has not kept pace with housing costs. What they fail to account for is multiple income households, low unemployment, low interest rates and affordable financing programs (that benefit those who understand them).
This is several arguments, so let me deflate them in turn.
* 2-income households are now the norm, but since most affordability articles (like this one) refer to "household incomes", not wages, when discussing affordability, your argument holds no water.
* low unemployment - See my rebuttal in three more arguments
* low interest rates and affordable financing programs are what have given us high levels of speculation and defaults. And let's face it, most people (I would guess 99%, though such numbers won't exist until after the crash) don't understand these bizarre and risky forms of financing.
If the land mass stays the same but the number of people increases steadily, won't land values continue to rise?
Ah, the old "they're not making any more land" argument. Since the first time man added a second story to a building, he began making more land (at least for living purposes). The only way this really makes a difference is how much farmland it takes to sustain those people, and since we're still paying farmers not to grow food, I'm guessing this isn't an issue yet.
The National Association of Home Builders reports in the last 20 years, the average size of a home in the U.S. has gone from 1905 to 2349 square feet.
But how big is the lot size? How many stories (essentially the same footprint) are these homes? You frequently see one old home lot split into two or more new townhomes, each with a larger floorplan than the original house due to the magic of "building up".
Each recession we've had is preceded by rising unemployment. Low unemployment, as we have now, has not historically lead to either recession or a softer real estate market.
Unemployment is low in California (4.9%), Georgia(4.6%), Florida(3.3%), but not so good in Washington(5.2%). All of those markets but Washington have been hit with YOY declines in median home prices, rising inventories, and declining sales. Obviously, low unemployment IS leading to a soft real estate market.
The housing market has even continued to do well in some recessions through lower interest rates as the Fed attempts to invigorate the economy.
The Fed just played that card and dropped interest rates by 5.5%. The lowest they can drop rates now is 5.25%. It seems like another central bank tried that somewhere else.
Hopefully this explains why so many of us don't buy your arguments. I don't mean to disparage you, or malign your intent. I think you genuinely are not worried about the coming price drop. However, there are some of us who have delved into this subject more than by simply extrapolating Robert Schiller's marital/homeownership habits to the general population.
I, for one, find your arguments weak and easily dismissed (though there are so many that it takes a while to dredge up the data to refute them all).
Darren,
I asked if he planned to sell them since he believes the 'bubble is popping'. He said No. When asked 'why' he said because his wife would kill him if he sold their house.
That in essence is why I do not believe a crash will take place. It is not stocks. If you sell a stock you do not have to buy another.
Lordy... If you believe that I got some swampland in Florida I need to sell you. It looks like your sense of history is all wax, no wick. It doesn't take a rocket scientist to look at the fundementals of past housing crashes and realize that we are in the midst of a teetering market hellbent for the crash.
If you doubt this, just google the the following...
-Florida Real Estate Crash & The Great Depression
-Tokyo Real Estate Bubble
Interest only loans, dubious unsecured corporate financing, all the indicators are there my friend and asking Robert Shiller whether or not he's selling his home is a silly reason to dispel the notion of macro-economic fundementals.
If you needed anymore professional opinions, check out what 'The Oracle of Omaha' himself thought of the RE boom in Laguna O.C.
Legendary investor Warren Buffett sold a Laguna Beach home, then cited the sale as an example of the nation's overheated real-estate markets.
So, Darren, Robert Shiller Phd. and Warren Buffet CEO of Berkshire Hathaway both think RE is a rotten investment at the moment, why should we be listening to you again?
The facts reveal that median values have simply caught up to the 42 year trend line.
In the 80's, rapid appreciation & record high rates were followed not by a drop in prices, but by a slower rate of growth.
Same cylical nature found in all economics. That is why trend lines and analysis will dictate the market outcomes.
Looking at this chart, I don't see that todays prices have "caught up to the 42 year trend line".
http://tinyurl.com/e4so5
Do you have a chart or data to support your trend line claim?
If the land mass stays the same but the number of people increases steadily, won't land values continue to rise? Unless your home is mobile, the value of your home will rise right along with the land value.
You're joking, right Darren? Are you actually saying we're going to run out of buildable land someday? Maybe you haven't driven through the great state of Wyoming or North Dakota... hell, Eastern Colorado, Northern New Hampshire for that matter, but for land values to rise based on limited availability?...
The U.S. population would have to increase into the billions and billions. I don't know about you, but I think we'd probably watch the sun explode together by the time we collected on that investment.
synthetik,
I'm surprised that you got so defensive. I never did ask you about your credentials (although others on RCG did) because I don't really care. What I care about is that someone can make a coherent argument, and in the week or so that you've been on my radar, I'm seeing a lot of anger towards real estate agents, but no real coherent arguments.
It seems that Tim has been clear that the purpose of this blog as a way to explore if there is a real estate bubble. Has that changed? If not, wouldn't it be helpful to have a dialog with people who disagreed with you? It the purpose of the blog has changed from being to one that explores a bubble into one that brings bubble advocates together (which is a fine use of a blog, btw), isn't that an act akin to mutual masturbation?
If you expect to have a dialog with people, it seems you would be try to answer questions and not just go into bashing people with no provocations.
No one asked you to stay away from "the lion's den", although we have asked you to back up your assertions from time to time (to no avail).
So, with the hope of starting an polite and coherent dialog, I'll repeat my question:
After answering your question on RCG, do you think that it was fair for the same people to turn the table and ask about your motivations and qualifications?
After answering your question on RCG, do you think that it was fair for the same people to turn the table and ask about your motivations and qualifications?
Alright Dustin,
Well, as a poster on this blog and a 'bubble believer', I'll tell you my motivation, and like many people here, my motivation is to buy a home in which I choose to live, close to where I work, and live in it for an extended period of time...
That being said, as a refugee from the current market (I was actively looking earlier this year), and experiencing the industry first hand, I fel like I was being played.
The mortgage banker they put me in contact with overqualified me and was selling me hard on dodgey mortgage products, the realtor took the pre-qual from said mortgage banker and ran with it, showing me homes I knew I would never be able to afford with standard products and when I dismissed these listings, her enthusiasm for finding me a place diminished... basically I felt like I was getting taken for a ride.
I felt like I was getting sold a used car with oil leaks, I felt like everyone involved in helping me find a house could really give a rip about me or my situation, they just wanted the cash, selling the risk upstream.
"Hurry up, its a busy day, if it ain't you I got a line of less educated suckers waiting out the door to get in on a 500K condo with neg-am/no-docs"
So, I find it amazing, that as an individual involved in the local RE industry, you are blind to the plight of the consumer.
What this blog does is give the consumer a voice, the consumer the local real estate community has manipulated and scared into forking over silly cash to you and your collegues.
Our motivations should be obvious.
Despite your ability to completely avoid a real dialog, I'll try my best to start one.
>Posting "There is no bubble" articles that future FB's will read is provocation enough.
I thought you and Galen came to the understanding that the post was making fun of a local realtor for her comical article and that no one would take Galen at his word based on the title??? Have you ever read the article? Here is the most telling phrase in the first paragraph: "But in one crazy statement, she swung for the fences..." I guess I shouldn't be surprised that you are still swinging for the fences by repeating your tired line, but it is pretty clear that you are striking out with the line of attack...
>Don't you have real estate to sell? You spent all day Sunday trying to negate facts ppl posted about your bloated article.
No. I'm not a real estate agent and I never have been. Like you, I've never had a real estate license (the only license I have is to practice traffic engineering). Does that make me a better source of information? Worse? I imagine it really doesn't matter to you just as your qualifications really don't matter to me. I'm interested in ideas, not qualifications.
In terms of the comments that were made this weekend, I actually found it to be a very rational discussion and I learned a lot. The first thing I learned was that no one was able to present any hard evidence (yet!) of a local meltdown and that the strongest argument for a future local meltdown is related to a national credit bubble since the local economy seems pretty healthy. Despite my best efforts, I was not able to discover this meltdown in the foreclosure rates, since even in San Diego County (one of the places commonly cited as "bursting") the foreclosure rate are still only 63% of the 14-year average.
I've never once said that there is no bubble, or that the bubble is not bursting, but rather, I think we had an interesting conversation because a group of people tried their best to lead me to the data that would indicate a bubble is bursting. For the reasons I've articulated on the blog post, I'm not yet convinced that the bubble is bursting, but I haven't given up on the RCG community to convince me otherwise!
>I stopped posting because you were deleting my comments. Those comments did not contain any personal attacks or profanity. So why bother?
I let you go on a completely off-topic ramble for many, many comments before I started deleting your comments for trying to submit and resubmit a lie that was only meant to insult a RCG contributor. If once, just once, you answered my question, did you say "I wouldn’t be here if lies weren’t being uttered" in response to an Ardell comment? I think we could make some progress.
>Fair? There is no fair. I would expect to be challenged, I just think it's ridiculous for someone who is in debt up to his eyeballs and about to go BK to ask "what are your credentials???"
Once again, you've managed to make no sense to anyone but the voices in your head. I really don't know who you are talking about here... Are you saying that I'm up to my eyeballs in debt? Are you saying that I asked you about your credentials? Both of these are fundamentally false assertions, so I'm not sure how they are relevant other than to make your entire comment that much less compelling.
Please, please submit some facts that suggest the housing bubble is bursting in Seattle. And if you can't do that (because it is not yet bursting in Seattle), then tell me what early indicator facts I should be looking at! I love facts. I eat up facts for breakfast... What I don't like are faith-based answers. I also eat those up for breakfast! :)
Grivetti,
I'm with you that it sucks to get screwed by an agent. Ardell makes a pretty good case that a majority of the agents out there are not properly representing their clients and I'm inclined to agree with her.
If you're not comfortable with the market, I recommend waiting until the stars feel like they are better aligned. On my recent move to L.A., I decided to rent for the first year because (1) the LA market seems much weaker than the Seattle market so I'm not convinced that a personal home is the best place to invest my money (i.e. I have better investment opportunities), and (2) I didn't quickly key-into any of the neighborhoods around my employer.
Since signing the one-year lease, I've found a few neighborhoods that I like that are relatively close to my work. In about 6 months, I'll almost definitely re-evaluate my options!
Because the lenders on a refinance will put that appraisal through an internal review.
Therefore, foreclosures I believe will continue to rise. Disgruntled home owners will bemoan the market is horrible.
Even with that, I do not believe there's a bubble.
It seems we're caught up in semantics, nobody really calls "The Great Depression" a bursting of the stock market 'bubble' along with all the interest only home loans written in the 20's that added to the misery, but that's exactly what it turned out to be.
The resetting of the ARMs is something that will trigger the whole economy to go into a recession, in my opinion. At which point we might all be cutting off our nose to spite our face here, because with a crappy economy and no jobs, prices on homes could plummet and we still wouldn't be able to afford one.
The tech-bubble burst was softened by the fleeing of the speculator to Real Estate. We still haven't paid the price for the last recession, we merely put it off. Unfortunately the flippers and speculators that pumped up the Real Estate market in the past few years might've pooped in the proverbial punch-bowl, ruining the market for everyone...
This may not be a 'bursting of the housing bubble' but it could very well be a 'bursting of the U.S. economic bubble'.
And as for all the immigrants moving into town? Sure, they need places to lived, but immigrants have always needed places to live ever since America was founded. Somehow we've found room and prices, up until the past decade or so, have appreciated slightly ahead, ever so slightly with inflation.
Like I posted before, you might very well have to pile in a few more billion people to see a lack of buildable land in the U.S., and what's buildable? Anything apparently, just look at Pheonix
Darren,
Unfortunately, I think the coming housing downturn is going to be quite significant. My primary reason is this: almost all the people getting exotic mortgages can't afford them (otherwise there is little reason to get them), and the vast majority of these folks will be forced to leave their properties to the bank if house prices even stagnate for a year or two. The really scare point here is that these exotic mortgage holders have become such a HUGE portion of the market: 15% of all 2005 Puget Sound mortgages were of this dodgy variety.
The end game is simple to extrapolate. As more and more of the exotic mortgage holders lose their homes, lenders will tighten credit standards, which will cause a dampener on demand (i.e. fewer people will be able to get financing). It's important to remember that it doesn't take huge changes in the supply/demand equation to have big impacts in the over-all market. Markets are made at the margins.
If we see just 5% of prospective buyers vanish (due to higher credit standards) and 5% more supply due to distressed home-owners (with exotic mortgages), we can see pretty big price changes.
>Just a guess... you are one of those people that waits until everyone else has tried something before you try it.
I'm going to assume it is directed at me (although there is a slight chance it is directed at Darren), in which case it is worthy of a response.
Your ability to assume things has gotten the better of you once again. For me to tell you that I'm not behind the curve would be too self-serving, so I'll let a co-worker describe me:
"Dustin has high energy and deep passion for innovation. Can't say it any simpler. His gears are always turning and he's always thinking about 'what's next' in the industry. For any organization that wants creative web applications for existing assets, Dustin is instant innovation and will create a culture of change."
While you may think I'm someone who is behind the curve ("you are one of those people that waits until everyone else has tried something before you try it") I feel confident that you would be in a minority on that one.
Guess again!
In terms of my desire for facts and evidence, you're right for once! I loath to accept anything on faith. (I don't even have faith in faith! LOL!) I think it is telling that your best argument is that I accept the bubble on faith because you can "feel" it.
I started to comment on your numbers in my response, but the fact that your link was broken put a damper on being able to follow your logic.
However, in taking some more time to decipher the point you were trying to make, I'll assume you were talking about the article that Tim wrote called Let's Talk Inventory.
This is a wonderfully researched article by Tim and definitely points out that we're near the record high in terms of inventory. This is hard data to research, so I'm impressed to see that Tim went back and found the inventory data pre-2000, which seems to indicate that we may, or may not be near the all-time high.
From what I read, Tim finds that we're approaching about 19.1K listings, which is down from the recent record of 20.8K in 2003.
This is certainly well-researched information, but I can't say that being at 91.8% of the peak is evidence that the bubble has burst. What is the typical variation from the peak? Did Tim's analysis consider the 1000's of new condos that have come on the market in the past few years?
The chart he posted on another blog post showing active listings in Seattle is clearly more alarming than the numbers he presented in the first post, but charts can be like that. By using the percent change from last month, as oppose to raw numbers, a sharp increase of 20% looks striking but doesn't make clear that the much longer and slower decrease in listings since Nov. 2003 (where the chart appears to hit zero), had a much larger impact on the total inventory of listings than the recent spike. Again, I don't look at any of the inventory data and see a bubble that is bursting.
You mention that "sales are way down". This may be true, but I'm having a hard time finding that information in the links you provided... This chart seems to indicate that pending are pretty flat, but not "way down".
You also mention that the "median priced dipped slightly". Now you're starting to talk like the real estate professionals who claim that we will see a slight decrease in home prices.
I've been pondering a way to see the effect of the "toxic mortgages". I'd expect that if these mortgages were so bad (i.e. toxic), we would be seeing record foreclosures somewhere in the Washington area. My earlier hypothesis was that even if the foreclosures weren't systemic (i.e. across all income brackets), they would at least be hitting the poor communities at this point. A look at San Diego data showed that this is not happening yet. Maybe these mortgages are so poisonous and sneaky that they haven't yet had an effect... But I'd think we'd see evidence of that on the most vulnerable people.
Unless you can point out the data I'm missing, I'm not seeing inventory, sales, sale price, or toxic mortgages indicate that the sky is falling and that the national credit bubble is blowing out the Seattle market.
Again, it may in the future, but it clearly is not happening yet.
Finally please don't assume that my paycheck requires a market to go up up up... Every assertion you've made about me so far has been false. Maybe if I keep holding your feet to the fire, you'll learn to do some research before making assumptions about me! :)
>I'd say your paycheck is firmly tied up in the continued success of the real estate industry.
Your ability to make wrong assumptions shows through once more... My current paycheck is tied up to there being a real estate industry (renters, new homes, existing homes, movers, etc.), but not necessarily the success of that industry as I think you define it. In other words, even in a down market, people will still be searching to buy and rent homes (yes, rentals are a large portion of our business), and even if all we did was home sales, agents will feel even more pressure to advertise their listings on the web in a down market.
>Your archives will be quite fun to read in a year or so.
I gave you an honest and analytical critique and the best you can do is to throw another faith based argument back at me??? Please, synthetik, you can do better than that!
Bleh. Is this Dustin/Synthetik vendetta necessary? This stopped being about the Seattle housing market aout 10 insults ago and is all rather childish.
>While I may have wanted to, I never used profanity on your blog, however "Joe" does, which, if you read his posts, sounds suspiciously like YOU arguing with Eleua...
Wow! You really are paranoid... I've never met Joe, but I do remember the days when he used to keep up his Floating Eyeball blog (he's since started over and deleted all his old posts) and have interesting conversations about the Seattle bubble with me and Tom Dozier. (Tom was the original Seattle Bubble Blogger and he did a wonderful job making a convincing case that the Seattle market was in trouble, but that was probably before you were paying attention to the issue!)
Nope, there is no need for me to make Joe up. He's a bubble believer who comes out of the woodwork for an occasional bubble conversation on RCG. Because he's not one to take things on faith, I'm pretty sure he would dodge this blog like the plague.
Talk about childish!
"He started it!"
You made the unprovoked comment about RCG:
>When I posted over at the RCG, I got "you must be bitter!!", "how do you stand to gain?" and "what are your qualifications??"
and I defended the authors on my blog. As long as you feel free to swipe at me and/or the people at RCG, I'll feel compelled to defend myself!
Beautiful!
>a blog started just over a year ago by Dustin Luther to help promote his wife Anna’s real estate business
I started RCG over a year and a half ago to promote my wife's real estate business in Seattle. Since then, we've moved to S. Cal where she no longer buys or sells real estate, but rather spends her days as a wonderful mother.
Try again!
Dustin said, "I've been pondering a way to see the effect of the "toxic mortgages". I'd expect that if these mortgages were so bad (i.e. toxic), we would be seeing record foreclosures somewhere in the Washington area."
I think it is premature to see signficant numbers of foreclosures on homeowners with "toxic" loans. Most of these mortgages are fairly new, and the rates haven't reset yet. Moreover, these people with exotic loans generally run into trouble when housing appreciation moves below 5% a yearn (i.e. because appreciation doesn't bail out people in trouble). Just wait for about 1 year after Puget Sound area real-estate appreciation falls flat (appreciation rates are going down every month), and I'll wager there will be a massive rise in foreclosures.
Is San Diego the model of an area where the sky is falling on foreclosures?
I decided to investigate this using some basic math. After a bunch of searching, I stumbled upon the motherload of foreclosure stats in San Diego County. It is from an investor's website and the completeness of the data leads me to believe it is pretty darn comprehensive.
Here is what I did... I took September foreclosure data for each year going back to 1991. I stuck with only September data because it seemed like the best way to include 2006 data where we are seeing a recent spike.
Here is what I found. Foreclosures in Sept 2006 are at 197 which is a whopping 294% increase over Sept 2005. I'm pretty sure that the concept behind that percent is what you are using to justify your logic that conditions in San Diego are experiencing a bubble.
My take (and considering The Tim must have studied a lot of derivatives like myself in Engineering school) is that relying on a change in the rate of change (i.e. the acceleration of something) is not necessarily indicative of the actually rate of change (velocity). An example is in order... to say that your speed is increasing at 5 mph per minute (acceleration) doesn't really tell you anything about the underlying speed (velocity) that you are traveling.
So, instead of focusing on the change in the rate, I decided to look at the underlying rate. Here are the number of foreclosures in San Diego County om the month of September by year:
2006: 197/month
2005: 67
2004: 42
2003: 60
2002: 44
2001: 75
2000: 83
1999: 125
1998: 236
1997: 373
1996: 476
1995: 438
1994: 460
1993: 421
1992: 414
1991: 189
Interestingly, the average number of foreclosures in September over the past 15 years is 231/month, which means that we're currently at 81% of the average!
Over those 15-years, the percent of foreclosures to deeds was 1.9%, while San Diego is currently at only 1.5%.
Not only that, but if we look at the peak of 476/month in 1996, we're only at 41% right now!!!
Clearly, if you are predicting that one day foreclosure rates in Seattle will be as bad as San Diego (i.e. we will reach 81% of a 15-year average), then it will be a soft-landing indeed!
I'm sorry if some analysis of the foreclosure situation ruins your reason-to-be, but clearly foreclosures in San Diego County have a ways to go before they indicate that the "nationwide credit bubble" has even begun to effect the area.
redmondjp,
I'm with you that I didn't get a lot out of Darren Meade's examples other than we should take it on faith that there is no bubble.
Individual examples, whether it be one developer building something or a sawmill going out of business don't really tell me much. It reminds me of trying to figure out the size of a honeycomb by walking around a nearby garden counting bees.
There is just so much activity that counting the details becomes pointless and we need to have a larger view of things if we are to understand a "national credit bubble".
If, however, the bubble believers would concede that the national credit bubble has not reared its ugly head yet (even in stagnant markets like San Diego), then we could begin to understand that San Diego's problems are related to local conditions, not national ones. This would lead to the obvious conclusion that we should look to local Seattle conditions to understand the health of our local market.
At this point, details become more important, but not San Diego details, Seattle details!
I agree that local details are more important than national details or those from other locales, but I wouldn't write them off completely. The two external factors that come to mind are mass psychology about the health of the housing market, which is certainly affected by all the press about stalled or turning markets nationally these days, and the well of California money running dry, since it has had a large effect on the local market from what I've read/heard. And there's also the bellweather effect, since Seattle has historically mirrored but lagged behind places like San Diego (historical trends don't necessarily predict future occurrences, of course).
But those aside, I am indeed more interested in local data, particularly on the micro scale. The downtown Seattle neighborhoods are of less interest to me because I don't want to live there. I watch them because of their effect on the places I do want to live, but that's it. I really couldn't care less how much 400 sq ft condos in Belltown are going for otherwise.
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