Seattle Bubble has moved! Redirecting...

You should be automatically redirected. If not, visit http://seattlebubble.com/blog/and update your bookmarks.

Off-topic comment? Interesting link?
Head over to the forums, or click here for open threads.

Friday, October 16, 1981

Monday Open Thread

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

95 comments:

synthetik said...

Great article yet again from Mish's Global Economic Trend Analysis.

Quoting his RE industry insider, Mike Morgan...

"Since my recent article in Barron's, I have received dozens of calls from builders, bankers, buyers and investment groups perched like vultures. Let me give you a sampling of a few calls."

Public Builder - Called me to find them bulk buyers with the ability to buy out all remaining units in developments they cannot sell. They are willing to sell at cost. I told them they were about 10% over the current distress market, and they didn’t even hesitate. They said, fine. Drop the price 10% and we’ll pay a 5% commission to you. Just help us get rid of this inventory.

Condo Developer - They have a 600 unit project that is 100% up for resale. This means no one is going to close when the building is completed in January. Every single buyer will walk from their 20% deposits. The developer will simply going to turn the keys over to the bank. And the bank will take a massive hit that will have the Feds on top of them in the blink of an eye.

Townhome Developer - Asked me to resell 132 units that they had sold a year ago for an average of $400,000 a unit. All of their buyers have notified them that they will not close. Unfortunately, even a year ago in the heated market these units were only worth about $250,000. Now, the units will not command more than $175,000 . . . if they’re lucky."


Yikes. I wonder if Lizzie Rhodes has factored in all that excess inventory that'll be lying around into her BOO!!, just in time for halloween, vacancy-rate scare article.

Grivetti said...

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

stephen said...

"Most people I have met, including myself, have done most of their home improvements in an attempt to increase the value of the home; prior to sale."

This is from a weekend post by Synthetik. I don't disagree in the least and I think he's absolutely right.

I would add though that it is a shame and indicative of what's wrong with the market. Your home is your home. Although it's value should be protected and in retirement downsizing or distress matters a great deal, one should seriously consider doing their upgrades and enjoy them not just wait for the months b4 the for sell sign.

Peckhammer said...

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...

Desert Transplant said...

I just saw an interesting listing on ZipRealty (MLS #26172860):

"Seller has all materials to finish up to combined frame. Has enough roofing to do 1/2 the roof. Exact sq ft not known at this time. Buyer to choose method of heat. 2 master bdrms, 1 with a fireplace. Seller has 1/2 the windows."

Sounds like just the thing to get into at the start of winter.

Another funny thing about ZipRealty are all the links for "Make an Offer": "Gee, honey, the market must really be hot, people are making offers over the Internet. We'd better hurry before we get priced out!"

Grivetti said...

Leave it to the Aussie's to call a spade a spade...

Sydney's pay-later poor

Mikhail said...

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...

Eleua said...

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.

Peter Taylor said...

You guys missed out on Elizabeth's Rhodes' hard-hitting piece on RISING RENTS from Saturday's Seattle Times.

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 Dupre1Scott.


I did a search for the "apartment-analysis firm "Dupre1Scott" but, not surprisingly, turned up very little about the firm. Interesting that the only description I could find ouf them was "Dupre1Scott Apartment Advisors, a Seattle real-estate research and consulting firm".

So, no-name RE research and consulting firm gets a front page story in Saturday paper screaming that rents are on the rise. Interesting.

synthetik said...

>one should seriously consider doing their upgrades and enjoy them not just wait

This is true but it usually doesn't happen that way. I spent $30K upgrading my first house (purchased for $69,900 in 1991) intending to live there for eternity. I had no idea just how good of a conspicuous consumer I was... paid house off in 5 years and then moved into the "queen anne" like area (Hyde Park in Tampa) I'd always dreamt of.

My new neighbors were racist, stuffy and nosier than the first. Once you get stuff you eventually realize it's just stuff. And you spend more time worrying about it when it breaks or gets stolen.
Doesn't mean I dont' want a nice house with a view again; just that it won't change things all that much.


>but not all that applicaple to the Puget Sound area yet

Well, this is the "off topic area". Mish provides more evidence of just how bad this equity bubble is going to be. We're going to feel similar pain here, so I do think it had some relevancy.

Plus, the local RE news is just the same old recycled fluff that Tim has already taken to task.

If you have a good idea for a post, e-mail me.

Peter Taylor said...

Sorry Grivetti, didn't see that you also caught the Elizabeth Rhodes article. Didn't mean to steal your thunder :)

synthetik said...

I didn't post the article because Tim already covered it two weeks ago.

It's "Dupre+Scott" or "Dupre & Scott", conveniently based here in Seattle.

http://www.dsaa.com/

Grivetti said...

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.

Mikhail said...

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.

synthetik said...

>So give Elizabeth a break. She is only delivering what she is paid to do.

Yes, I think it's obvious to everyone on this blog that she's doing her job...

Based on what you're saying, we should never question the media or a politician because they are "doing their job"?

I find it hellarious when you are reading a magazine or the paper and you suddenly find yourself in a "special advertisement section"

When in reality the entire media IS an advertisement.

Lake Hills Renter said...

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.

Mikhail said...

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?

Richard said...

Reading Lizzy Rhodes articles makes me ill.

The "just" of the article is clear, but the half truths and muddled out of context "facts" leave me needing a dramamine if I try and piece it together logically.

It's sad that the Times holds such a low standard. So much for Seattle being "most educated" if this is the kind of newspaper the populus chooses to read.

S Crow said...

Did anyone catch Bill Fleckensteins piece over at CNBC this morning? His writing style really cracks me up. LOL!

....."Bulls: The Dickens with Bleak House!

If one makes a list of the problems versus the potential good news, it doesn't seem to be an even trade. First, we must deal with all the debt created in the housing mania (as prices have stalled and are headed down), as well as near-record home inventories.

Of course, if you're what I call a dead fish, or cheerleader, why confront reality? Just do what one of them did last week: upgrade a couple of homebuilders -- D.R. Horton (DHI, news, msgs) and KB Home (KBH, news, msgs) -- on the back of poor results. In the case of KB Home, that included its acknowledgement of potential loan defaults due to an options-backdating problem, plus its inability to file financials."

----------

yep,when I saw JP Morgan upgrade Home Builder stocks last week, I said to myself, "gosh when the powerhouses on Wall Street try to bounce HB stocks, someone is in deep doo-doo."

Richard said...

Here's an interesting graph from the Dupre+Scott site.

% Increase vs Vacancy rate

Dupre Scott also publishes a SF + 2-19 unit property report but the scope of that study is much smaller - only around 3500 units are included, vs the 100K+ apartments in the 20+unit report.

MisterBubble said...

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.

Grivetti said...

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...

Richard said...

Wells Fargo is now offering a No Equity Line of Credit

Nolaguy said...

If we paid for it, I wonder if the Times or PI would run a full page add that was "anti real estate"?

EconExchange said...

"Wells Fargo is now offering a No Equity Line of Credit "

Wow is all I can say to that. No better way to get trapped in your house then that! lol.

Mikhail said...

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.

synthetik said...

Seattleric mentioned recently that blogs really have no impact.

Here's a snippet from HB that shows it just ain't so.

synthetik said...

>Seriously, if we really could pull something like that off

$17K is a lot of scratch. I think it might be possible if a website was created around this endeavor and then posted on all the national blogs (HB, HP, etc). Might be fun to try... If they wouldn't run the ad we could donate the funds to charity.

Would it be possible to get 1700 people nationwide to paypal $10 for a fun experiment?

msrelo said...

I've a $10 spot for this.

Nolaguy said...

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.

synthetik said...

Any idea of how it could be done without anyone crying foul play? Where would you store the loot?

plymster said...

$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. ;-)

msrelo said...

Maybe I do no have a full understanding of how the ad sales work but it seems like a single page insert is cost effective. You can choose the zip codes that get the insert and I believe that you can also choose the section of the paper. http://www.seattletimescompany.com/adrates/preprints/singleprint/zip.shtml

Wanderer said...

It will be interesting to see how that advertising dollars flow when the market starts to turn. I am sure the local REI is very organized, but at those ad rates it gets pretty expensive.
Alternative to the PI: I just called Seattle Weekly and got the following quotes:
1/2 page = $1471
1/4 page = $732
1/8 page = $389
Those rates are for a single week and there is ~10% drop for 4 weeks consecutive. I personally would put in $200 toward a 1/4 page add the first week to get some attention and then follow it up with a 1/2 page add the next. I am relatively new to the scene, but I would trust synthetic and Tim to put togther a well thought out and RATIONAL explanation of:
- real estate fundamentals
- where the current market stands relative to them
- current trends locally
- what the REI wants you to believe
Many, many, people will dismiss it as paranoid anyway, so it really needs to be conservative and not over the top. If we are lucky, it causes enough of a buzz that the PI has no choice to mention it. We could give the contact info for the PI so people can demand that Liz Rhodes covers the news or rebut our statistics. At the very least, I would bet the readership of this blog gets a 20% bump. I also sent an email to the Stranger and will find their rates too. Perhaps do it in both.?.
If this gets any traction here (ie. people say that they will pony up $$), I will set up a paypal account to get things going and deposit the first 200$. The obvious concern would be that I would run off with the money, but I would be happy to se up a meeting with The Tim so everyone can see I am legit. If someone more trustworthy than a Naval Academy and Michigan business school grad wants to step up, let's make this happen!!! All extra money would go to charity (probably not down and out REAs) and I would post the fund level every day until we are ready to move.

wreckingbull said...

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!

synthetik said...

> will set up a paypal account to get things going and deposit the first 200$

If you were firmly plugged into the matrix like most people, wouldn't you simply dismiss the ad? Wouldn't people wonder what we all had to gain?

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 just have WAY too much free time on my hands - what's your excuse?

Personally, I like the handing out gum idea. It shouldn't be sugarless though - otherwise, that would leave a nasty aftertaste, much like the one they'll feel when they have to short sell.

Nolaguy said...

Good idea, Wanderer. I'd trust The Tim, too.

synthetik said...

We could drop 100,000 leaflets during a Mariners game.

Or we could send Eleua out into the field naked with the words "Seattle" (left cheek) and "Bubble.com" (right cheek)

Dustin said...

> 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?

Wanderer said...

Too much time on my hands? Perhaps... just don't tell my boss. It would be hard to convey motives in a 1/2 page article, so it probably isn't worth trying anyway. Anyone that is going to ask, "What do you have to gain from this?" probably can't answer the same question about the writers of the RE section.
For me, there is value in just putting out good information where very little currently exists. Part of it is bacause I don't like lying down just because a group like the REI has more power. Would I sleep better? Well, I sleep pretty well already. Chalk it up to hubris I guess. Do I have a financial interest? Sure. If my/our theory is correct that RE prices are propped up artificially by a number of factors including disinformation and irrational expectations about real estate, things could change if you add a little information to the mix. Though I don't think the market is going to go down 70%, I do think we are at a ctitical juncture. The quicker the word gets out, the quicker I can find a better use for my potential 20-30% down currently sitting in cds. "All real estate is local" as they say, so you only have to change the behavior of a few people to make a difference. This site was probably the biggest single factor in teaching me to resist the temptation to buy right now. In the end, I would find pleasure in doing something that would help others while also hastening the time when it makes sense to buy a place.

synthetik said...

it doesn't matter what anyone does at this point... it's tanking either way.

there are still a lot of misinformed people that are continuing to be misled.

Eleua said...

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.

Eleua said...

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.

SeattleMoose said...

"So give Elizabeth a break. She is only delivering what she is paid to do."

And THAT is precisely the root of the problem. People will do and say anthing to keep the money coming no matter what the long term impact of their "unbiased advice" is on the economic lives of millions of Americans.

Honetly I don't know how a RE agent can sleep at night after hanging some toxic loan on some poor fool just so they can "make the deal".

This bubble has uncovered the ugly truth about much of the RE industry.

There is no justification for the wholesale dishonesty and outright scamming that has been rampant during the "bubble".

Any "apologist" for such bad behaviour is part of the problem, not the solution.

Eleua said...

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.

Eleua said...

BTW, anyone interested in the above article it is here.

synthetik said...

> it was fair for the same people to turn the table and ask about your motivations and qualifications?

*sigh*

You guys do and say whatever you want over there and attempt to appear impartial. Fair isn't even part of the equation.

I realize the purpose of your blog is to sell real estate and continue to perpetuate the fallacy of a home boom/soft landing... unfortunately some people might not notice that they've decended into a lions den.

Caveat Emptor and we should just leave you alone -- just like Lizzie Rhodes, huh?

synthetik said...

my qualifications:

-never had a RE license
-didn't finish college
-filed CH13 Biz BK in 2001
-read 4-5 hrs day econ/finance
-bought first home @ 21
-paid it off in 5 years
-owned/remodeled 4 homes 91-03'
-self employed 88-01 and 03-06
-failed many times in business
-100% self made and self destructed
-25 years tech exp + 19 years in sales
-made lots of stupid mistakes

btw, paying off my house in 5 years was one of the worst financial mistakes I've made. My depression era grandfather beat "pay off the house!" into me since about age 10.

As far as RE advice, the last person I'd ask is a Realtor.

PepeDaniels said...

My favorite line from Apartment hunt will be tougher for renters article.

"Renters need to understand they've saved thousands and thousands on their rent in the past couple of years because the economic environment caused us to drop rents," said Shawn Hoban, president of Coast Real Estate Services, which manages 6,000 apartment units in the Puget Sound region. "It's fair for landlords to increase rents when the economic forces allow them to do that."

Gosh, I'm glad they explained that to me, I thought I was saving more money because I was I chose housing options that I could afford. It was awefully nice of those landlords to help me out without even mentioning it! Wow, I guess I should be happy to pay more now!!!

Aside from the obvious lack of objectivity of the source it's utter nonsense.

Co-workers of mine are losing their apt. to condo-building disease in Ballard. They seem quite happy to relocate to another part of the country that is far more affordable and actually has sun outside of August. I know it's just anecdotal, but I'm one of three people in my department who are leaving due to costs vs. quality issues. I really think they're forgetting that people don't have to play the game if they're willing to simply opt out of the game on some level.

I suspect that the more real estate your holding the more "special" Seattle is. It's funny, one guy who owns some apartment buildings was telling me one day that landlords will be able to charge more here because it is, afterall, "just like SanFransisco".........

Sure it is.

just_checking said...

Here is a link
to the email titled
"october market update"
i received from a realtor today.

Hosted here (it is a jpg) -
http://img2.freeimagehosting.net/image.php?2aca8bb1cb.jpg

1) Not sure what his average price means. sold or asking
2) Also not sure why the average price quoted is for july when the update talks about september ;)

just_checking said...

One thing i do want to mention is
that, I am not 100% convinced that the
RE market is going to crash & burn.

But i expect a honest and fair appraisal of the current market
conditions from a RE agent ? Isn't
that why they get paid the big money ??

I am curious to know if there is a
single "buyers agent" in seattle
area who is telling their clients
to watch and wait. Anyone come across one yet ?

Crashcadia said...

Thanks Richard for the link

"Wells Fargo is now offering a No Equity Line of Credit"

Wow!
Talk about passing out the free cool aid.

This tells me they have hit the bottom and they can’t find anyone with equity to take their loans.

This is all going to end so very badly.

Darren Meade said...

Hello Everyone:

First let me compliment the moderator of this forum. Yesterday I discovered this forum when one of my articles was openly ridiculed.

However, at least my response was not deleted as it was on housing doom.

That being said, I'd like to share some added comments. Before doing so, I'd like to comment on Stephens post. About the emotions he feels people have for their homes.

I'd agree fully. In fact, I posed a question to Robert Shiller one of the more infamous 'bubblers'. In which I asked him if he currently owns any homes. He said he had two. 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.

I'd advise everyone to study the National Real Estate Market from 1963-end of 2005.

The average yield was 6.65%

From 1982-2002 we had 21 years of only average or mostly below average growth.

Now, we've had 3 above average years which the media refers to as a bubble.

In the late 70's - early 80's values continued to rise despite mortgage rates as high as 18.63%

Mid 90's-2005

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.

Do you think you might like to buy a home at a 1980's prics or would you have been scared off?

We've heard of the housing bubble as this very website is dedicated to such. The only reason I am on this site is that my son was on the internet and read a series of derogatory comments posted about myself over my published article.

I also received emails to my business making reference to my family and other derogatory comments. My hope was to try and enter into a discussion of substance. I'd ask that you read my article in it's entirety to understand whom the article addresses. It is for people whom have held their homes over the past 4-5 years and have a large amount of equity.

Therefore let me use an analogy outside of Real Estate and Financial markets.

Let's compare another media myth, being pinched at the pump. If the average person drives 12,000 miles per year and the average car gets 20 miles per gallon, that would be
600 gallon of gas per year per person.

If your paying $1 more per gallong for gas your cost increased by $600 per year or $1.64 per day.

For most people, this is not going to break the bank and most importantly, it hardly justifies the hype that surrounds it.

The reality is that oil prices had fluctuated between $18 and $30 per barrel for the last 25 years with no progressive increase.

So all that's really happening is that oil prices have suddenly caught up to the inflationary and speculative increase common to many other commodities and even this is prevailing due to inherent "risk premium" commensurate with terrorism and the Middle East.

Has anyone though about what the cost per gallon is of bottled water or your daily coffee?

The media will hype anything that seems like a good story. Especially if it applies to a broad audience.

I remember falling victim to this before Y2K. I took out cash from the bank in case all the computers crashed. I use to listen to the
Art Bell radio program and bought Y2K items. Guess what, it was all hype!

If you average gas price increases from 1963 to today, it works out to 6.24% per year. And since 1976 it's only 4.74% As you can see not too sensational.

Headlines are about hype because they grab attention and sell advertising.

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).

The size of the continental United States today is no different than when the Pilgrims arrived (of course it wasn't yet the United States).

However, there are now about 300 million people calling our country home. Most of these people live in houses.

Supply and Demand fuels the market.

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.

The U.S. Census estimates that by the year 2040, there will be nearly 400 million people residing in the U.S.

That's an increase of about 2.7 million people per year (one every 11 seconds).

Where are they going to live? Do you think we have that many vacant homes?

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.

That's an increase of about 23% and also contributes to the general increase in the home prices. Add granite counter tops, whirl pools, saunas, wine cellars, 3 car garages, home theaters, etc., and you begin to see where we're headed.

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.

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 BOTTOM LINE.
A 20% down payment has been rewarded with an average of a 28.42% rate of return . After factoring for tax benefits, the average is much higher.

Most states average these numbers. The only real exceptions are New Mexico and the District of Columbia.

That is why you want to calculate your expectations for appreciation, alternate rent, rate, etc. This varies with each person.

plymster said...

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).

PeakOil said...

Darren,

Wow, you have maintained quite the svelt figure for all that cool aid you've been drinking.

Why it still makes sense to Buy vs. Rent is a BRILLIANT article.

I also loved your BIO:

"I grew up in Northern California where at age 15 I ended up homeless, and not by choice. My most prized possession at that age was a can opener. By God’s Divine Grace, I met the owner of a gym and group of bodybuilders who took a special interest in me"

Grivetti said...

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?

Nolaguy said...

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?

Grivetti said...

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 said...

He just came here to spam the blog - you can't argue successfully against obvious hard data.

Dustin said...

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?

synthetik said...

>into bashing people with no provocations.

Posting "There is no bubble" articles that future FB's will read is provocation enough.

>So, with the hope of starting an polite and coherent dialog

Don't you have real estate to sell? You spent all day Sunday trying to negate facts ppl posted about your bloated article.

>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?

I stopped posting because you were deleting my comments. Those comments did not contain any personal attacks or profanity. So why bother?

Fair? There is no fair. I would expect to be challenged, I just think it's rediculous for someone who is in debt up to his eyeballs and about to go BK to ask "what are your credentials???"

Ludicrous speed!

Grivetti said...

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.

synthetik said...

side note:

Sure, I'd like housing prices to come down so I can become a homeowner again. Who wouldn't? (that be successfully argued)

The point is, no matter what anyone does or says -- RCG, bubble blogs, Susan Rhodes, the FED... nobody has any control over this credit bubble and its eventual outcome.

What we can do is potentially save a few people from being led to slaughter by RE agents, banks and mortgage brokers.

Dustin said...

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! :)

Dustin said...

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!

Darren Meade said...

Hello -

To begin with, I do appreciate the open exchange on this forum.

May I ask if the comments and editorial should be contained to Washington?

Each local market would greatly change any comments I'd make. Please also note, that a persons overall financial plan.

Is it possible to upload an audio file to this site? Would others be interested in what Robert Shiller commented six months ago about why he would NOT sell his homes?

My biggest concern about the market currently pertains to the $2 Trillion Dollars that will reset in the next 24 months on ARMS. Many of my first time clients did not even know that was the type of loan they had. Further the steep prepayment penalties (depending on your state) make it financially impossible for people to afford to change programs.

The other major issue I see will be people unable to refinance after they purchased a home. In this industry, appraisal companies often say "willing buyer...willing seller" and they will allow an inflated home sale price.

Then when this new home owners decide to tap into their equity for home repairs...or a life emergency emerges, they discover they cannot get a loan...why?

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. What I believe is there's Realtor's and LO's whom have not explained how the system works. Perhaps they are new to the business, or perhaps greed and the fast dollar have taken the lead in their lives.

Then again, perhaps to much Kool-Aid.

May I ask then where do you believe the new arrivals in the U.S. 2.7 million each year will live?

Regards,
D

SDtoSEA said...

Well, most of the new 2.7 million will live with their parents (since their newborns). The rest, immigrants, will move in with other immigrants because they won't be buying homes on minimum wage.

And don't worry, once all those newborns grow up, there will be more than enough homes available from downsizing and dieing babyboomers.

synthetik said...

Dustin,

First of all, I apologize for thinking you were a Realtor. You are a "realtor tech", so you're still financially tied to your ideas - as is everyone else on RCG. Nothing wrong with that, you have to make a buck. The problem is that you've created a squaking box for Ardell and other realtors who want to continue perpetual the falsehood that RE is currently a good investment (as are toxic loans, according to her)

>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...

I'm talking about seattleric, who made the "what are your creditials" comment (I think). I'd link to your blog but I'd rather not have more people experience being censored by having their comments deleted.

>Please, please submit some facts that suggest the housing bubble is bursting in Seattle.

The issue I have with you pill swallowing matrix folk is that you refuse to look at any other data other than REGIONAL. If lumber is getting hammered across the nation and you are about to buy a local sawmill, wouldn't it be prudent to consider the entire market?

The fact is that we are in a nationwide bubble and seattle IS a bubble market - but was LATE to the game. (I have posted about this as well as stats many times, look it up)

Inventory is up, Sales are way down - even the median price dipped slightly -- the trend is down.

Prices have skyrocketed in this region since 1997. We are in the top 5 for toxic loans in PNW.

The evidence is all around you - unfortunately your paycheck depends on a positive outcome scenario.

That just isn't going to happen.

>then tell me what early indicator facts I should be looking at!

The bubble has already burst - you just can't see it. You're too busy feasting on your med. rare filet mignon steak.

How about an actual negative media piece in the local PI who has, up until recently, only been posting fluffy, sometimes scary, fabricated shill pieces (See Lizzie Rhodes and Susan Ryan). Another local (tacoma) piece Sellers offer more incentives - 10-01-2006

Puff Puff

Fizz Fizz

Oh what a bunch of BS it is...

The market has tipped, popped, exploded, etc... you aren't going to see it because seeing it and understanding it interferes with your present and future ability to earn an income.

"It is difficult to get a man to understand something when his livelihood depends on him not understanding it." Upton Sinclair

Grivetti said...

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

synthetik said...

Just a guess... you are one of those people that waits until everyone else has tried something before you try it.

Is it the right move? I'm not sure, let perform analysis paralysis so I can make up my mind!

The fun thing about this bubble is that it's so much easier to see and preduct than in the final weeks leading up to April 2000. You could feel it... you knew it was coming... but you had no hard evidence to prove it... anyone that waited to see "facts" got hammered.

What facts do you want? How much inventory is enough? How much of a drop in sales? How much will housing starts / permits have to go down? How much negative media attention can you stand?

Why go down with the ship?

Mikhail said...

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.

Dustin said...

>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.

synthetik said...

Dustin,

So I took the time to present some facts about the market to you and you completely ignored them?

>Dustin is instant innovation and will create a culture of change.

Your posts are based on keeping the culture of RE the way it is - up! up! up! My point was that if you are constantly looking for facts in an irrational market, you're going to miss the inflection point.

> think it is telling that your best argument is that I accept the bubble on faith because you can "feel" it.

Read my comment again... I was referring to the tech bubble in 2000, not the current market.

synthetik said...

I wonder if the current RE shills (RCG, Susan Ryan, Rhodes, David Lereah, Darren) will be as successful in reclaiming their reputation as Mad Money's Cramer has been...

Check out his article, just 37 days before 6 Trillion dollars vanished from the equity markets.

OK. Here goes. Write them down -- no handouts here!: 724 Solutions (SVNX:Nasdaq - news), Ariba (ARBA:Nasdaq - news), Digital Island (ISLD:Nasdaq - news), Exodus (EXDS:Nasdaq - news), InfoSpace.com (INSP:Nasdaq - news), Inktomi (INKT:Nasdaq - news), Mercury Interactive (MERQ:Nasdaq - news), Sonera (SNRA:Nasdaq - news), VeriSign (VRSN:Nasdaq - news) and Veritas Software (VRTS:Nasdaq - news).

We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over -- and it is very far from ending.

Dustin said...

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! :)

synthetik said...

Dustin,

Here is what your profile says:

"Director of Consumer Innovations at Move, the company behind many of the most popular real estate websites in the country including REALTOR.com. He is currently working to build mapping and social networking tools that better enable real estate professionals to market themselves over the internet. Prior to joining Move, he founded a Seattle-based real estate blog, RainCityGuide, where he earned a national reputation for understanding how real estate professionals can use tools like blogging and wikis to become an online resource within their communities."

I'd say your paycheck is firmly tied up in the continued success of the real estate industry.

Your blog is, quite frankly, an abomination. Your archives will be quite fun to read in a year or so.

synthetik said...

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...

"My question is about how all the gloom and doom bubble bursting analysis squares with my hometown real estate market. Everything I’ve seen is about Vegas, AZ, Fla and highly speculative markets (lots of flipping) that don’t “feel like” seattle. That’s why I crave data, proof, evidence…something for my rational side.

Now, I (and I may be alone on this, I certainly have been before on RCG) could give a fuck about your “general take” on the Seattle market. I want your evidence."


who else would even attempt to argue your rediculous points so vehemently. who else craves "facts" so much?

As for us blogger supposed love of mutual masturbation, take a gander at the comments on Ardell's blog. While she unsuccessfully attempts to defend toxic loans.

It almost appears if though she is talking to herself she posts so much! And you do the same.

The reason? You don't have enough people that will back you up. Hence the creation of a "Joe".

Dustin said...

>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!

Lake Hills Renter said...

Bleh. Is this Dustin/Synthetik vendetta necessary? This stopped being about the Seattle housing market aout 10 insults ago and is all rather childish.

Dustin said...

>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.

synthetik said...

I agree, this is totally pedantic and childish!

HE STARTED IT!!!!!!!!!

Tim, why don't you just turn comments off for this post, just like Rain City Guide did

Dustin said...

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!

synthetik said...

I was making a joke, Einstein.

It didn't take long to find proof of your financial ties (other than the obvious).

From Biznik "member profile" page on May 10, 2006.

If you search for “seattle real estate” on Google, among the top 10 results will be almost certainly be Rain City Guide, a blog started just over a year ago by Dustin Luther to help promote his wife Anna’s real estate business. In that time, the blog has grown to include a dozen frequent contributors, and is a great example of how blogging can help promote a business in a dramatic way.

Ah, Love...

Dustin said...

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!

Mikhail said...

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.

SDtoSEA said...

You also have to give people time to struggle making new higher payments. Just because a loan resets, doesn't mean you'll see immediate foreclosures. Most people will do everything possible to hang onto a house, use up all savings, max out credit cards, etc. And even then, the foreclosure process is months long. All of this will take time.

synthetik said...

>all of this will take time

Mikhail is entirely correct.

Seattle is a least a year behind San Diego in this cycle. I can't remember where I posted it, but the numbers show equity still stagnating here in Seattle in 2002-2003 while it was jumping by leaps and bounds in San Diego (Canary City).

So toxic loans were taken out there much sooner (2002-2004) and San Diego is feeling that effect now. Seattle was a year or so behind the dramatic gains and increased speculation -- increasing the number of toxic loans here.

This is just one factor in this credit bubble - when you look at the entire housing market as well as the credit bubble on a macro level worldwide, the problem is much, much worse.

Dustin said...

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.

Darren Meade said...

Dustin -

I'm hopeful your research and post might prevent anyone else from selling their homes in belief of a 'Bubble'.

In regards to my previous post about Mr.Shiller, I was trying to raise a point which seemed to miss many people.

Mr. Shiller is often used by those whom believe we are in the midst of a 'Bubble'.

Those whom believe in the 'Bubble' essentially believe grave financial doom lurks nearby.

That being said, why has Mr. Shiller not sold his own homes? Afterall is doomsday is coming, shouldn't he have been one of the first people to exit the market?

Instead he gave an honest answer. One in which shows the emotional side of home ownership.

Synthetik - I am not a Realtor nor do I own or have any financial gain from any such company.

My consulting firm actually had two large mortgage clients. Once I saw how the industry was conducting business, I believed I could help many more people by entering the financial arena.

The reason being that people were not being shown how to construct a true financial plan and utilize the debt of a mortgage correctly.

This is something many of the Baby-Boomers are now discovering. They have money trapped in 401(k) and IRA's that if they access, they get hit with high fees. In the same, they as your grandfather incorrectlt told you, paid off their houses thereby losing many of the tax write-offs.

Synthetik - Did you sell your home in 2003?

If so, I understand your frustration and anger. You sold right before one of the best 36 months recorded on home appreciation.

In order for this large 'Bubble' to burst we would need massive nationwide unemployment.

- There were 6.9 million Americans unemployed as of 9/30/06 or 4.6% of our nation’s workforce. Two months after the 9/11/01 attacks on our country, there were 8.0 million Americans unemployed or 5.6% of our workforce (source: Department of Labor).

The Job Growth Rate for the state of Washington is estimated to be 3.1% for 2006. This equates to a strong rating nationwide.

Then I'd like to state that the 'exotic' mortgages or as some call 'toxic' mortgages came into vogue as people's net worth increased and need better financial vehicles.

To substantiate this claim:

- 1 out of every 51 individual income tax returns shows adjusted gross income of at least $200,000. Twenty years ago (1986), the ratio was 1 out of every 275 returns (source: IRS).

I'd earlier provided some detailed data in regards to trend lines and historical appreciation nationwide in Real Estate.

I'm going to pull for your review the data which shows home real estate values increase in direct correaltion to population growth.

Kindest Regards,
Darren Meade

Darren Meade said...

Synthetik -

I believe you feel that San Diego is the indicator for Seattle?

Just one year behind.

Dustin provide for you the data to show that San Diego is actaully below average this year on foreclosures.

May I share some other data for San Diego:

Donald Trump's luxury condo/hotel is to be built in Baja Calif.
south of Tijuana. The Trump Ocean Resort Baja Mexico, also owned by Irongate Development, will have a pool-house bar and café,
an upscale restaurant, a spa, tennis courts, a fitness center and trails.

The San Diego/Baja region is still a TV-manufacturing center,
even with the traditional CRT technology on the wane. In December, Kojima America Corp. will locate a plasma-TV-screen plant in San Diego.

It seems Donald Trump and his advisors find San Diego a good investment.

California also ranks #18 nationally for low unemployment. No Bubble when people are working.

Regards,
Darren Meade

redmondjp said...

It seems Donald Trump and his advisors find San Diego a good investment.

Darren, you must be hitting the Jonestown Soda pretty hard . . .

Using The Donald as a model of a successful investor is laughable, as has been discussed in detail on many discussion boards. He's lost countless millions of dollars in Atlantic City and the bleeding continues to this day. Many 'serious' developers (the ones who are wayyyyy too busy doing their jobs successfully to do other stuff, like being the star of a TV show, and don't want their face on TV anyways), think that The Donald is a joke.

It is plain ridiculous to say that a potential homeowner should emulate the actions of somebody like Donald Trump, or Oprah, or Bill Gates. If I did just a few of the things that any one of these people do, I'd be broke in a week!

I do appreciate you presenting data which supports your assertions and continuing to have a reasoned discussion. But when you start saying things like: "Well Joe Bloe is doing this, so he must think it's the right thing to do . . . " --gotta call BS on that.

Dustin said...

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!

Lake Hills Renter said...

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.

SDtoSEA said...

Wow.

I'm completely blown away by Dustin and Darren.

Here's a little insight into San Diego. The economy here is healthy and become extremely diversified over the last 10-15 yrs. During the last housing downturn, SD was hit hard with defense/military cuts and closures. Now, SD has brought in significant amounts of both high tech and bio related jobs. We have yet to see any reductions in any area of our economy. It continues to grow. Many companies are having a hard time finding qualified employees.

Yet, while all of this is going on, the median home price is down 5% and come November it will be down double digits year-over-year.

How could this be happening? Plenty of jobs, strong economy, everyone wants to live here right? Why in the world would home prices be falling? and so fast?

Last year, San Diego county lost population for the first time in years. More people left the area than came here. Housing had become too expensive. We have an all time high inventory of homes. So, we have plenty of jobs and plenty of houses but where are the workers and buyers.

So, I need either Dustin or Darren to explain how a place with such a good, strong economy would have falling home prices. What's the reason?

Maybe you can't answer that, so I'll take a stab.

Everyone is priced out of this market. Anyone that wanted to buy has already bought and they did so by whatever means they could, including exotic loans. Now people are beginning to realize that the sky's not the limit and that their house won't increase forever.

The foreclosures are coming don't worry. The majority won't even reset until 2007. The fact that the median will be down double digits before we even get to 2007 should be absolutely frightening to everyone (including Seattle). What will happen once we have 500+ foreclosures a month?

What's going to keep prices from falling further? We already have the jobs and strong economy.

What will keep Seattle from experiencing the same fate?

Dustin?

Darren?

Anyone?

PeakOil said...

>Everyone is priced out of this market. Anyone that wanted to buy has already bought

Greater Fool theory which is happening here in Seattle as I type this.

No more greater fools, no more loans, no more market. Buh-bye!