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Monday, November 09, 1981

Thursday Open Thread

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

29 comments:

synthetik said...

Pacific NW getting more exposure on Ben's Blog.

The comments are priceless!

Comment by Betamax
2006-11-08 13:47:42
“Prospective homebuyers who’ve been frustrated by too much competition for too few homes, your time is now.” (Ms. Shilly Rhodes)

Here’s the email address of the ‘business reporter” who penned this crap. Feel free to make your disdain known, I already have.

erhodes@seattletimes.com


These are people who "get it" because they've lived or are living in bubble areas.

It's easy to spot once you've lived in a bubble area and watched the process (i.e., San Diego 2003-2006). You can MOM and YOY yourself into oblivion, but that won't change the fact that Seattle will experience the same fate as CA, FL, MA, AZ, DC, NH....etc

synthetik said...

Not only do we have a nasty residential real estate bubble, but evidently a growing commercial bubble as well.

But you already knew that...

"Seattle area considered tops for owning office property" (Seattle Times)

Joe Consumer said...

Synthetik -

Regarding commercial, I wouldn't characterize it as a bubble; however, even given the strong economy in the area to support today's market rents, any further climbs in rents will drive tenants to look elsewhere (i.e. not downtown).

It's less of a bubble - compared to the Japanese commercial buying spree of the 80s - because there is a cash on cash return, whereas the japanese were often buying into negative cash flow properties. I don't think that's the case here.

That said, these downtown commercial properties aren't the best investments. There are lots of other markets where there is much more upside (though less cash flow) in appreciation.

Since commercial value is based almost primarily on income, and since there aren't the old tech bubble companies feeding their operating expenses directly from the asset side of the balance sheet, there's not the same risk seen with residential.

Grivetti said...

As per trackbike's comment

Can you smell the panic among the bubbleheads? They predicted a year ago that the market here would be in shambles by now...

Can you name one of these bubbleheads? Even if we do have a few "financial survivalists" amongst us, 'panic' is symptom of the overleveraged, panic is when the Nasdaq nosedives into oblivion, panic is when you're underwater on an ARM with no means of selling, panic is when all your eggs are in one handbasket and everything's going to 'hell in a handbasket', panic is when you've put all your financial risk into a small >1000 sq.ft. condo overlooking a drugdeal in Belltown and property values are stagnating...

To the bubblesitter, its a waiting game. Housing is a commodity, people have bought and sold houses since civilization arose form the wheat fields of ancient Sumeria, and you know what? Housing will always be bought and sold by the average man, because it HAS TO! If prices are too high and affordability is in the toilet, it must come down to meet what the average person can afford...

This isn't a one way ticket off and exploding planet here, there is no 'priced out forever'

Grivetti said...

As per trackbike's comment

Can you smell the panic among the bubbleheads? They predicted a year ago that the market here would be in shambles by now...

Can you name one of these bubbleheads? Even if we do have a few "financial survivalists" amongst us, 'panic' is symptom of the overleveraged, panic is when the Nasdaq nosedives into oblivion, panic is when you're underwater on an ARM with no means of selling, panic is when all your eggs are in one handbasket and everything's going to 'hell in a handbasket', panic is when you've put all your financial risk into a small >1000 sq.ft. condo overlooking a drugdeal in Belltown and property values are stagnating...

To the bubblesitter, its a waiting game. Housing is a commodity, people have bought and sold houses since civilization arose form the wheat fields of ancient Sumeria, and you know what? Housing will always be bought and sold by the average man, because it HAS TO! If prices are too high and affordability is in the toilet, it must come down to meet what the average person can afford...

This isn't a one way ticket off and exploding planet here, there is no 'priced out forever'

Grivetti said...

BTW, as a bubblesitter... my only prediction is this...

Recession Q2 2007

rentalbliss said...

IMO the way this is and will play out will no longer be considered "local" this bubble is a national trend with loose lending and low interest rates. The lending will be tightened and eventually they will have to raise interest rates or tank the $. If and when we go into recession because the rest of the countrys housing market has tanked where does that leave us?

Every community will be effected by this as less people will qualify for such high risk loans, defaults and foreclosures will be the new reality. Never underestimate the power of psychology in the masses, as soon as more and more bubble horor stories come out as they are, more people in all communities will act accordingly ie fear based.

Their is absolutely no reason why Seattle or other special cities will or should be shielded from this. The faster people realize what is going to happen the betterr we all will be.

octopuswithafez said...

Well, seeing the higher-end houses staying on the market longer (>$750K) including some new construction, I am thinking that the high-end rollers are sitting out till spring. Competition is still fierce though for the "moderate" houses which is brining in the "don't want to be priced out" buyers.

Honestly, this market is still going to up , albeit more slowly, and then pick up again with the Fed starting to lower rates in the spring as the 2007 recession begins to manifest.

Eleua said...

I don't know of anyone that, with any seriousness, predicted we would be in shambles at this point in time.

Most see the slow grind downward until a panic event sets in. Just about every bear is looking at the ARM resets as the starting point for most of the impending fun.

The only people that think this is bad are the bulls. Just ask anyone in the REIC what they think, and they will tell you that "the worst is behind us" and "strong appreciation should arrive in the spring."

No, we have a few quarters to go, but this is FAR from the bottom.

flopfolder said...

I fully expect an increase in the affordability index to more sustainable levels. Whether this happens through outright price declines or wage inflation is anyone's guess.

I think a bunch of the data out there points to future price declines, but that is just my opinion. I certainly do not expect a stock market like free-fall. Real Estate is much too illiquid for something like that to happen.

This giant debt bubble will unwind at some point. It is already hissing in CA, FL, MA, etc. Seattle has slowed and we will see where is goes from here. I seriously doubt much will change over the winter. Next spring and summer will be interesting to observe and while I have opinions as to what will occur, I can not see the future and am open to being wrong.

meshugy said...

Seattle area considered tops for owning office property

For the first time, real-estate professionals nationwide have named the Seattle metro area as the most desirable place to buy and own office property, a distinction likely to mean more buildings selling for top dollar in the coming year.

The report puts Seattle in the top five overall for commercial development and investment prospects, signaling interest in the area's retail outlets, hotels, warehouses, apartments and condominiums in addition to offices.

The report, done annually by PricewaterhouseCoopers and the Urban Land Institute, a nonprofit group in Washington, D.C., is widely regarded as an indicator of where individual real-estate markets are headed.


Investors see robust returns in the area's declining office-vacancy rates and rising rents.

There may be five to 20 qualified bids on any good property," Fuhr said.

meshugy said...

Seattle named a top 'global gateway' city

The U.S. cities that will perform the best next year will be coastal metropolises with easy access to the rest of the globe, according to the report co-compiled by PricewaterhouseCoopers and released locally today. Seattle's office market leapt over New York and San Francisco into the No. 1 spot with more real estate experts rating it as a "buy" than any other city.

The report calls cities such as Seattle "expensive and elitist," meaning that "people pay a premium to live in them." But companies pay handsomely for brainpower, so employees can afford to live in these places. In turn, an affluent population supports the art community, which drives tourism, it said.

Seattle made it into the top five regions nationally for the first time in the 28-year history of the report, said Kelly Mann, executive director of the institute's Seattle District Council. "Specifically with respect to office -- Seattle is on everybody's shopping list," she said.

"We believe Seattle has all the basic fundamentals of good real estate," said Rios, whose company typically throws money at developers in Manhattan and Los Angeles.

meshugy said...

Downtown Condo Experts Optimistic about Local Housing Market Trends

Local real estate experts say that Seattle remains a bargain by comparison to other major metropolitan cities, and they predict that sales momentum will increase significantly in the first quarter of 2007.

“The greater Seattle area is significantly outpacing national averages for job and income growth as well as housing appreciation,” says Dean Jones, president and CEO of Realogics, a Seattle-based real estate consultancy firm. “From a national vantage point, we have the most enviable major metropolitan market in the country. 2007 is lining up to be another banner year for Seattle.”

Seattle is the second most “bubble proof” marketplace in the country, reports MSN.com and Business 2.0 Magazine, citing strong job, income growth and constraints on supply and regional economic expansion.

The Seattle housing cycle is still playing catch up to millennium boomtowns such as San Francisco, Los Angeles and San Diego. Until very recently, Seattle hasn’t experienced consecutive years of double digit appreciation. While it’s true that a much-needed correction is occurring in many of these markets – experts remain bullish on Seattle and feel buyers are making smart decisions.

“The Seattle market has some built-in assurances that only the best projects with the most capable developers receive funding from what appears to be a dwindling number of construction lenders willing to lend to large condo projects,” Jones said.

ther market experts agree that the fundamentals in Seattle have been and continue to be very strong:

-- The Brookings Institute recorded downtown Seattle as having the second fastest growth rate for residential population in the nation – up 67 percent from 1990 to 2000.

-- According to Conway Pedersen Economics - over 66,000 jobs have been added this year on top of 50,000 new jobs last year. This trend is expected to continue through at least 2009 with the addition of another 140,000 jobs to the Puget Sound Region.

-- Money Magazine says, “As forecasts for housing price growth have cooled for most of the country, they are calling for booming values in the state of Washington.”

-- Forbes.com stated Seattle is anticipated to experience one of the highest rates of appreciation over the next decade, estimated at 59.2 percent by 2016.

-- Emerging Trends in Real Estate 2007 released by Urban Land Institute (ULI) says, “Seattle, along with New York, Washington, Los Angeles and San Francisco, were cited as the top major U.S. markets for real estate investment in all categories led by housing.”

Kaleetan said...

As i was watching the exciting election results I began to see a correlation between housing prices and how blue(liberal)the area is. What are the most liberal places in America?

San Fran, Seattle, Boston, NY , LA ...

Grivetti said...

Downtown Condo Experts Optimistic about Local Housing Market Trends

Yeah... this is what I call a 'no brainer'... e.g. "Cheney optimistic about Iraq"

Grivetti said...

The Seattle housing cycle is still playing catch up to millennium boomtowns such as San Francisco, Los Angeles and San Diego

Right... well, hopefully with Global Warming we'll play 'catch-up' with all the Palm Trees and all the sun ala a 'Mediterranean Climate'...

People who compare Seattle to California have the same kind of groupthing that's probably employed GW started using Saddam and Osama interchangeably....

Apples (Seattle, naturally) - Oranges (Cali, naturally)

Slinky said...

Eleua, you commented that "the only people who think this is bad are the bulls." I would argue that most of us on this board that what is coming is not just bad but REALLY bad, but also absolutely necessary.

Flopfolder, based on the Texas experience that various folk including myself have discussed, I think the correction is much, much more likely to take place in the form of outright price declines rather than wage inflation. If the economic base is not there to support higher house prices, it isn't there to support higher wages.

CRichard said...

Here’s one of Seattle’s big problems:

Current affordability based on traditional measures (e.g., 30 yr fixed rates) is 40% lower than the long term average (2006Q2=70 vs 111 for 1995-2003), based on WCRER data.

However, as Pugethouse’s RE research data shows (from the previous post), effective affordability (which takes into account reduced lending costs-e.g., neg am, interest only etc.) is largely unchanged at 22.9% in 2006Q1 vs 20.3% historical average.

Thus, Seattleites are able to keep buying because they can still “afford” their monthly borrowing costs.

Unfortunately for Seattle, the new State lending guidance that will apply to the primary purveyors of toxic loan products are finally due out November 14th. If these are anything more than just CYA, the Seattle buyer pool is going to look a lot thinner come spring.

Eleua said...

Slinky,

No argument from me on how a recession is neccessary for a healthy economy.

flopfolder said...

slinky,

Personally, I don't disagree, as noted in the original post. I just mentioned wage inflation as a formal possibility for the restoration of affordability.

Either way a lot of people are going to be screwed. My personal feeling is that massive wage inflation would be worse for the economy in the long-term than an unwinding of residential real estate prices.

Even if home prices decline by something like 30%, everyone that bought more than 3ish years ago will be ok. Even those that bought recently will be ok, if they are solvent enough to carry their debt load for an extended period of time.

ARM resets, etc will destroy those living on the edge. The defaults and foreclosures that result from the fall-out will have a significant impact on lending standards and the credit crunch should be enough to force prices down over time. I can't see the national housing scene hitting a bottom for at least 1.5-2 years.

There will be some markets that fair better than others. Perhaps Seattle will be one. I have no clue. I doubt it, but who knows. I will just horde cash, be patient, observe, try to keep my job through it all and buy a place when affordability makes sense

flopfolder said...

Ding, ding! crichard that is the crux of the problem for Seattle and the ENTIRE nation. Once credit dries up, nobody will be able to afford homes at these prices. Buyers will dry up and prices will be forced down by motivated sellers. Economics 101.

The oft-cited counter-argument to this rational is that "All real estate is local." Guess what, all politics is supposed to be local as well. Hmm, elections earlier this weak seemed to show differently.

In both cases, national AND local issues mattered. It is difficult to tease out exactly how much influence each exerted, but clearly both were in play. Anyone that tells you that national issues like cheap money, low interest rates and a crazy credit bubble didn't play into home appreciation is drinking the Kool-Aid. They will also matter on the way down....

octopuswithafez said...

Unfortunately for Seattle, the new State lending guidance that will apply to the primary purveyors of toxic loan products are finally due out November 14th. If these are anything more than just CYA, the Seattle buyer pool is going to look a lot thinner come spring.

Is there a link or website that covers that? That's something that seems to be under the radar for most consumers...

CRichard said...

Calculated Risk's blog has been following this most closely. It also has good information on the earlier OCC guidance for federally regulated lenders in addition to the new IRS income verification procedure that makes all this possible.

Terry said...

How's this for extreme off-topic..... Ed Bradley just passed away. I liked his style.

Matthew said...

Kaleetan,

Most urban areas tend to be more liberal than conservative. They also tend to be more densely populated, and therefore more expensive.

Richard said...

Looks like Ziprealty is getting hit by the slump

Richard said...

but evidently a growing commercial bubble as well

Anyone else remember the early 90's when all those shiny new skyscrapers built during the last boom were largely vacant?

Todd said...

Kaleetan said...
As i was watching the exciting election results I began to see a correlation between housing prices and how blue(liberal)the area is.


Matthew said...
Kaleetan,
Most urban areas tend to be more liberal than conservative. They also tend to be more densely populated, and therefore more expensive.


exactly... see the Urban Archipelago theory:
http://www.urbanarchipelago.com/

also - i'm officially addicted to this blog now ;)

Grivetti said...

Domino theory....

It creeps north

time to man the Ballard phalynx!!!