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Monday, January 25, 1982

01.25.2007 - Thursday Open Thread

This is your open thread for Thursday, January 25, 2007. Please post random links and off-topic discussions here.


T,V & Mr.B said...

From The San Diego Union Tribune today....Zoltan Pozsar, an economist for Moody's, noted that defaults are on the rise nationwide.

“Credit quality is deteriorating nationally,” Pozsar said. “In Southern California and the Central Valley, the erosions in credit quality are mainly today due to ARM (adjustable-rate mortgage) resets, where subprime borrowers have taken on mortgages and the teaser rates are expiring. They are starting to bite.

“Other regions are experiencing greater credit erosion as well, most notably the Midwest,” he continued. “The auto industry is in trouble. In the Northeast, where declines in home prices have been the most pronounced, buyers are seeing their equity erode, so they have an incentive to default.”

Most of the California loans that went into default last quarter were originated between January 2005 and February 2006, DataQuick reported. Karevoll said he believed declining home prices, not adjusting loans, were the prime cause of foreclosures. For some recent buyers, a softening in prices has resulted in less flexibility to either refinance their mortgages or to sell their homes quickly to satisfy lenders. Others may have reached beyond their means to achieve homeownership, analysts say.

Hmmmm. Doesn't look like the influx of Californians coming to the Pacific Northwest will have the money to just plop down cash moeny for a house up here anymore. It was the Realtors wet dream to have a Californian looking for a house up here. Agian, I say, those days are over.

christiangustafson said...

I keep telling my pals that I'll be able to buy a house in the city in a few years for less than $300K. They don't believe it. They also don't understand that we'll be living in a very different world by then. $300K may still be overpaying.

California will be unrecognizable. It will be like one gigantic 1975 New York City, bankrupt and unmanageable.

Eleua said...

California will be unrecognizable. It will be like one gigantic 1975 New York City, bankrupt and unmanageable.

So true...soooooo true!

I've said this a million times, but here it is again: you can't buy your "Bainbridge Dream Home" with all that free Monopoly Money (equity) when you are upside-down on your Orange County Brady-Bunch Tri-Level.

When anywhere from 30-50% of your buyers are X-Cal equity locusts (and that doesn't count the prior locusts that are upgrading from another place in the PNW), the market will have a major dislocation once the X-Cals dry up.

Eleua said...

WASHINGTON (AP) -- Sales of existing homes fell in December, closing out a year in which demand for homes slumped by the largest amount in 17 years.

This is the opening sentence from this morning's AP release on housing demand.

Hmmmmm, what happened to the housing market, and economy in general, 17 years ago?

I am comfortable saying that today's housing market is a real-world IQ test.

Complete the analogy:

Buying a home in Seattle today is to your financial health what ____________ is to your physical health.

a. copper bottom pan
b. gardening
c. a summer stroll
d. getting into a knife fight with half a dozen drugged-out psychotics loaded up with African Hemorrhagic Fever.

T,V & Mr.B said...

It looks like that "Once the X-Cals dry up" is happening as we speak. I think I mentioned this before, but when I was looking at a house in West Seattle, I mentioned that I moved back here from San Diego. The realtor lit up and said she loved Californians, cause they don't worry about the price. When I told her those days are over, she almost kicked me outta the house and got very defensive. "Hey, Don't kill the messenger." I told her as I was leaving.

T,V & Mr.B said...

Shug? I keep askign for yoru input, but haven't heard from ya.

matthew said...


where you been lately man?!

T,V & Mr.B said...

OH MY GOD! Will he never stop saying this? "It appears we have established a bottom," said David Lereah, chief economist for the NAR. "We are still vulnerable; we are not out of this yet."
"The best news was the fall in inventories," Lereah said.
I feel like I am hearing this from him as often as we heard from George Bush Sr. "read my lips.. No new taxes"

This guy is truly a borken record.

T,V & Mr.B said...
This comment has been removed by the author.
Eleua said...

where you been lately man?!

I've been working what's left of my a-- off. The gorillas that work TSA have dropped one too many of my laptops, so I don't take my computer on the road, unless I will be gone for a long time.

I think that '07 is the year that Lereah and the NAR get into the market for a clean pair of shorts. In fact, I am calling this summer, the "summer of the sellers' soiled shorts.'

Should anyone care, I am still holding to my "20 cents on the dollar by 2010" prediction.

T,V & Mr.B said...

I'm with ya. And anybody who thinks Seattle is immune when the WHOLE f'n world is starting a housing decline has been smoking some of that Oregon pot.

matthew said...

I just went onto Yahoo! finance and these are the headlines:

Existing Home Sales Plummet in 2006

Oil Prices Hover Above $55 a Barrel

Ford Posts Its Worst Loss in History

Hmmm.. oil is up 3 bucks a barrel this week, the auto manufacturing industry is in a shambles and home sales appear to be far from reaching the bottom....

Grivetti said...

Shug? I keep askign for yoru input, but haven't heard from ya.

My impression's that the 'Shug's zillow utopia hasn't been fairing as well as fundementals should be indicating... ergo his lack of 'enthusiasm'. He should email the Rhodester, go have coffee, take solace in catchphrases like 'empty nester' or 'robust job growth', etcetera...

... ah, the zillow pillow of the 'soft landing', I'm sure it'll skyrocket from here on out.

Grivetti said...


Somebody on the 'sound off' board at the PI, mentioned the 'most printed' articles of the day...

This one is completely delicious...

Most Printed

What's number one???? You guessed it!

City's home prices to keep soaring

Get your Volvos started Windermere,J.L.Scott, etctera! Time to flyer the neighborhoods, stack 'em up in open houses!

Yep, the local media and the RE industry have nothing to do with eachother... I'm sure of it.

T,V & Mr.B said...

Grivetti, regarding the most printed article,

Ms. Cohen insists that she does not perpetuate the RE marketing and that she has no self interest. She said she doesn't even own a home. through a series of e-mails I had with her, she said that she quotes all sorts of sources and "experts" stating both sides. I explained to her that her headlines are in fact advertising for the RE industry. this was a while ago and yet she still insists on coming up with bogus headlines like that, even though graphs, info in the article all point a different direction. did she mention that asking price and selling price were a 95K difference? nope.

Richard said...

T,V & Mr.B

Last I heard was Mesh had taken up with a band of Gypsies. I know some here saw this coming.

Eleua said...

OK, if everyone promises not to hold it against me, I have watched about 15 minutes of CNBC over the past 6 months. It just happens to be the last 15 minutes.

Apparently, the market pooped all over itself over the (and I quote) "the sharpest decline in home sales in over a quarter of a century."

Now, why I don't watch CNBC...

Realtors (their word) have definitely called the bottom, but admit that affordability remains at historic lows.

Yes, you read that right.

How do you get a bottom when affordability is at historic lows, along with interest rates?

They continued by saying that inventory is "staggering" in "key metro areas" (Miami, Vegas, NOVA, and DC), with a record amount of construction still in the pipeline.

Again, how do you call this a bottom?

There are only two explanations:

1. Realtors are certified idiots.
2. Realtors are stocking up on Depends.

I'm past the point of compassion for those buying homes in this market. In fact, I say to everyone, "buy!!!!" Buy now, so there are more weak hands and distressed owners in the next few years. That will translate to much lower prices, and even more distressed sellers, and lower prices, and more distressed sellers...

My guess is most people that are flipping/buying in this market are regular watchers of CNBC.

Grivetti said...

Ms. Cohen insists that she does not perpetuate the RE marketing and that she has no self interest.

Yeah, well, then it begs the question, why is it the MOST printed story of the day?

I'm sure there's nothing like a stack of printed news articles from the PI and S.Times sitting on the open-house counter-tops and Realtors desks, touting the "Buy now, or get priced out FOREVER!!" hard sell...

If she's claiming objectivity, why is it that her articles are getting used for flyer RE advertising? self interest...

Mmmh, yeah. Lets see, if RE advertisers threaten to pull their money out of the fat Sunday PI RE section once the steady bubble-booster articles dry-up. Me's thinks Ms. Cohens editors would have something to say about it.

greenthum said...


Don't want to let another day go by without telling you how much I enjoy your comments here at Seattle Bubble.

I've been an interested bystander for the past year and have only recently started to contribute. You have a sharp mind and a gift for expressing yourself. Thanks for your wit and wisdom. It is much appreciated.

matthew said...

Yes, I always like reading Eleua's comments. It makes me smile almost as much as hearing about how the FED is not going to cut rates!

Dudeman said...

Anyone spot this? Rents, which should rise to equalize with falling home prices, are dropping in some parts of the country as sellers who can't sell are deciding to rent.

The few speculative buyers who are left out there, beware!

biliruben said...

Countrywide tumbles 4% on a slightly revised estimate of Q4 earnings.

Eleua said...

Rents, which should rise to equalize with falling home prices, are dropping in some parts of the country as sellers who can't sell are deciding to rent.

Yes, rents should go down as owners look to stem the losses by renting out their dream home. I predict that a true renter's market is in its infancy.

Keep in mind that as rents fall, the INVESTMENT VALUE of the property (not speculative value) will fall along with it - thus tightening the noose around the homeowner's neck.

For the past few years, homes have been valued on their speculative value (bigger moron theory). The proper way to value a piece of INVESTMENT property is by the income it produces - duh! Therefore, as rents tank, and speculative premium vanishes, or converts into panic discount, the value of many homes will just crater.

Picture what will happen if there is a universal destruction of equity, along with a hightened sense of risk management by mortgage lending institutions.

My guess is that it will only take about a 15% nationwide "correction" to wipeout all of the funny-money that people think they have made in their homes. Add 7% in RE fees, plus moving expenses, and you have no money to transport to the next closing.


Given that Amurhikunz don't save dinky-doo, and the stock market is even more precariously balanced than the housing market, it doesn't take much for a nuclear winter in housing to take place.

If someone doesn't have any equity to transport (they short-sold their last home), and their nest egg has been wiped out by Mr. Market, and they only can scrape up $30K for a down payment (hitting up Mom and Dad for cash), how does the median family that makes $71K/yr buy a median home that costs $700K?

I'm thinking that my $30K was generous, but even so, that only gets them into a $150K house, at best. That's if they have great credit, a steady job, and no other debt.

Really, how do you sell $700K homes (need $140K for DP and about $250K in annual income) in this environment?

You sell them for $.20 to $.30 on the dollar.

I'm going to lose 20#, laughing my ass off when this finally comes full-circle.

ps. It's nice to be back for a few days. Many of you are too kind. This will be a year to remember for many on this forum.

matthew said...

Agreed, 2007 is a banner year. We will finally have our "I TOLD YOU SOs" to the non-believers!

Mikhail said...

Hmmm... I am not so sure that rents are going to plumet all that fast in a declining housing market. Eventually, I think that Eulea will be proven correct, and that rents will drop substantially. However, as the housing bust begins to play out I think we might see some bizarre counter-currents.

For example, in the initial phases of a housing downturn, more people might decide to rent rather than buy. This will increase demand for rentals. On top of this increased demand, there may be a smaller supply of rental properties since so many appartments, and properties, have been taken off the rental market in hopes of flipping with condo-conversions, etc.

Eventually, all these newly converted condos will come back into the rental market, but it may take some time (and foreclosures). I've heard of many novice real-estate moguls who are desparately trying to rent their failed flips for ridiculous prices in a futile attempt to save the bleeding. Unfortunately, many of these housing investors are so under water that they don't see the point in selling, or renting, for market rates since they will go bankrupt anyway at those prices.

In short, I believe that much of the excess housing inventory won't work it's way back into the system at true market rates until the current owners have lost the properties in foreclosures. This whole process might take a while to finish.

Eleua said...


I agree that counter currents may exist at any time, and I agree that the long term market will be very bearish for both rents and housing prices.

While this is purely anecdotal, take Poulsbo and Bainbridge Isl. for example.

The market is currently appreciating at rates that are nearing zero. As a renter in those markets, I can tell you that rents are sagging (especially if you are not an obvious meth-head/welfare case). I've been renting for some time now, and I see more "FOR RENT" signs now than at anytime I can remember. Keep in mind this is the depths of winter, and not the summer season, where rentals are aggressively advertised.

Also, Bainbridge has an absolute freight train load of condos coming on line. Poulsbo has two more major developments in town, a city-sized development just east of town, and an enormous development tract at the intersection of SR-3/305. Keep in mind that Poulsbo is a town of 8000, and is a minimum of an hour to the urban core of Seattle (if you jump on the ferry as it is pulling out, and work at the Seattle Ferry Terminal.) In reality, it is a 90 minute commute - each way - on good days. SR-305 is a mess during commute times. It can take longer to get from SR-3 to the Agate Pass Bridge than the ferry crossing time.

These housing developments are in work (actually the Noll Rd. development is still at the hearing stage). If there isn't any massive influx of jobs here, almost all of those homes will have to be filled with people that currently don't live here, and don't have a reason to live here.

The BI-SEA ferry can only hold so many people. The Navy facilities can only employ so many people (given that we are not involved in a naval conflict).

The surplus of new homes will have to go somewhere. You will have to fill them for what you can get, and as housing is fairly inelastic, the price should drop in dramatic fashion (rent and sales price).

I can understand if this was Aspen, or Panama City, but this is the woods in the redneck part of Western Washington.

The old business model of "just build it, they will buy it" is broken. How the builders/investors will get out from under these homes in a community where household incomes are $35K-$75K is going to be a modern financial miracle.

I can only assume that the Eastside is all this, but bigger and pricier.

Eleua said...

BTW, I love what Beazer Homes said last night:

"At this point, we have yet to see any meaningful evidence of a sustainable recovery in the housing market," said Ian McCarthy, Beazer's president and chief executive.

FinanceGuru said...

The avg Seattle Rent from 2Q05 to 2Q06 went up 9.3% to $905 per month along with a 96.7 Occupancy rate (or only 3.3% of unfilled appts). Seattle currently the 20th most expensive rental market in the nation.

Mikhail is correct in that rental rates are increasing. This is due to the larger amounts of people moving to the Seattle Region (~60,000 last year). Also downtown Seattle and Bellevue have been building a significant number of office buildings (at ~ 8% to 9% when the historical avg is between 12% to 15%, can you say tight commerical RE market), which will increase the number of workers in these downtown regions. The more people that work in the downtowns the more they will want to live near work. This correlation is more statistically significant for RENTing (dirty 4 letter word) scenarios compared to OWNing a house or condo in the city.

Grivetti said...

Also downtown Seattle and Bellevue have been building a significant number of office buildings ... which will increase the number of workers in these downtown regions.

I could build a thousand birdhouses and stick them all in my yard, doesn't mean I'm going to be staring at thousands of gold-finch's the next morning when I get out of bed.

meshugy said...

Hi Griv,

My impression's that the 'Shug's zillow utopia hasn't been fairing as well as fundamentals should be indicating...

Sorry for my lack of business is expanding very rapidly right now. I spent the last few weeks setting up a new music commerce site which has taken all my time. Also, the new baby really doesn't leave me much time.

Anyway, I just checked the zillow link you posted and it shows my house at $501K which is an all time high. Not too much to worry about....that's $124K appreciation less then two years.

Vickie said...

and they say Seattle hasn't seen rapid growth. Looks like Shug proves it has. What is it that they keep saying? Since Seattle hasn't see rapid growth like the other cities, it is immune to any bubble. Shug has gotten more growth in his home than I did on mine in the prime neighborhood in San Diego in far less time. Looks like a rapid rise in value to me. Good job Shug. I suggest you sell now.

FinanceGuru said...

501K - 124K = 377K
124K/377K = 32.9% in two years
32.9%/2 = 16.45% per year.

16.45% is quite consistant throughout the Seattle region over the past few years. San Diego appreciated significantly quicker than this in 2004 & 2005.

T,V & Mr.B said...

Finance. No it didn't. That is an absolute false statment. Period. I lived there, I know what my house was worth, and the neighborhood homes I lived in were worth. I knwo what they were selling for and I know what they were appraised at. Median may have gone up according to the numbers, but that is mainly due to WHERE most of the selling took place, in the higher valued areas as opposed to a lack of seeling in the lower valued areas.

BTW, the Vickie post was accidentaly posted via my wifes account, so that was me that said that.

matt said...

"32.9%/2 = 16.45% per year."

Financeguru, that's not how percentages work.

A 32.9% increase in 2 years is not the same thing as 16.45% per year.


A house is worth $100.
First year it's worth $116.45
Second year it's worth $135.61

So a 16.45% annual increase actually results in a 35.6% increase over the two year period. That's pretty significantly different to the 32.9%, so I'm not being pedantic.

The correct annual result is actually much closer to 15%.

PS I wouldn't have called you out on this if it weren't for your nickname. :)