03.10.2007 - Weekend Open Thread
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25 comments:
Would be interested in anyones opinion regarding a loss of 10-15 % of the buyers will have on the market. That figure being the approximate figure for the buyers using subprime loans over the last few years. Will certainly impact sales and hence prices.........
the "trigger"....
which, among other "subsequent" factors will result in a sharp down-turn in the popularity of real estate as an investment, and will result in at least a 10-15%(of peak valuations) drop in home values in the more desireable/close-in areas of greater seattle, and likely 20-25% decrease in values of homes in less desireable and further out areas.
My guess, is that this process will take about 2 to 3 years to run it's course.
This may actually be more of a best-case scenario since there is also the resulting future forclosures increase to take into consideration.
It's also likely that in addition to this % decrease in home values, the market will remain relatively flat for 5-10 years.
Well, that's my official guess, as good as most peoples, I suppose.
Don Greenup said: "Would be interested in anyones opinion regarding a loss of 10-15 % of the buyers will have on the market."
Unfortunately, the percentage of subprime mortgages in Washington is lower than the national average, and considerably lower in the Puget Sound (according to a report I had seen posted a while back), so we might not see the fall-out quite as quickly in the Seattle area.
What I find very interesting is the tightening of lending criteria for all loans. I wonder how much the recent Countrywide decision to stop 100% financing will impact the Puget Sound? Does anyone know what percentage of loans in our area are of a 100% finance type?
"Unfortunately, the percentage of subprime mortgages in Washington is lower than the national average, and considerably lower in the Puget Sound (according to a report I had seen posted a while back)"
As I pointed out to you yesterday, Washington has a much higher percentage of risky (though not sub-prime) loans than most places in the nation. Our problem isn't sub-prime credit, so much as the over-extension of people with otherwise decent finances.
The feds are now issuing guidance against ARMs and 100% financing -- these are the "products" that will kill Seattle's market dead when they disappear.
I've heard that proposition 13 was one of the things that kept prices up in CA. It creates a huge disincentive to sell and in effect reduces supply. When supply shrinks with respect to demand then prices rise.
How will the tightening of the lending market affect supply and demand here? Demand will be lowered since there will be fewer qualified buyers. That will drop prices. But if prices drop too much then a lot of people will go under water and become financially trapped in their house. Fewer possible sellers reduces supply and provides an upward price pressure. I do not know how those two dynamics will balance out.
"Would be interested in anyones opinion regarding a loss of 10-15 % of the buyers will have on the market."
In short, much less of an impact on sales than the likely 40-50% of buyers the market just lost with the new lending standards. With the death of the starter market, so go the move up markets. A requirement of as little as 5% down means 15-20k minimum. Most first timers can't even come up with half that. Burn baby, burn.
Good NY Times article. Pop.
alan:
You're assuming that those underwater home owners will still have jobs and will be able to continue making monthly payments.
If Seattle Bubble contributers are right and the housing market crashes in this area, the job market is going to take a hit as well. Trapped home owners, out of work, won't have the luxury of waiting the market out. They will have to sell or be forced into foreclosure driving prices and demand even lower.
Hot tube? Is that like YouTube?
ron - Did you get a date from mortgage broker? You should get a date, and then report back some more "inside info"... if you know what I mean ;) ;) ;)
why is it I get an image of Borat in the hot tub at 24 hour fitness club saying "You like?" when I read Ron's post? :)
I agree with the statement above... even a chink in the armor will break the shield...
the new guidelines that are ACTUALLY being enforced vs suggestions ignored makes this a whole different market... what countrywide is doing, everyone will follow...
The next step is appraisals not meeting expectations... this will kill the seller rebates that are providing 105% financing...
and prime and subprime are all the same...
even perfect score folks got 100% loans because they could...
this run up in the market also pushed a lot of prime borrowers with 6 figure incomes to mortgage themselves to the hilt...
Depending on your industry, when housing slows down, business suffer... retail sales are down, remodels are down, car sales go down, boat sales go down, trips become less extravagant, etc...
Hang on everybody the rollercoaster is about to crest the first peak...
The Economist has an interesting article on lending, including data on the proportion of subprime loans. They say last year 20% loans were subprime, and another 13% Alt-A (a.k.a. liar loans). That would make it a third of the market... Interesting, indeed.
I feel it should e pointed out that on February 27, 2007, over on the RCG blog, Eleua eloquently stated in comment #7 "I too have a feeling in my bones. I smell a banking crisis. Do you have any friends in the industry, and what are they telling you?"
What was Ardell's response?
Well, sh couldn't give an "RA" (er, rats arse) about Banks and Real Estate.
I wonder if she sees things differently now, or is she still lost in her p-funkadelic psychotrophic mixture of REIC cool-aid?
Is anyone else enjoying this?
What an intellectual that Ardell. Banking-n-stuff? what's that got to do with anything?
What is discouraging about our line of work is seeing clearly financially distressed people who are refinancing to basically prolong or delay problems. It truly sucks, but there is nothing you can do or say professionally.
Just learned of a 100% borrower who just put their house on the market. They closed their purchase about a year ago through our office and refinanced again a few weeks ago.
House went on the market in an area that took several months for earlier comps to sell in this price range, much of which sold for less than what they just listed for.
Not a good thing and I can't help but think about the socio-economic impact this stuff creates: financial problems leading to break-ups and family issues. I've got kids, so it's tough to not look through those lenses.
They'll go bankrupt and eventually get on with thier lives - no harm done.
Maybe they'll have one less hummer or one less trip to Paris next summer, but they'll be OK.
We need this "reboot" in our economy and they'll be some dead bodies along the way. That's our system; and that's what happens when Greenspan and the Fed conspire to grease the wheels of cheap money.
People need to learn how to get by with less - and they will.
Let's just hope the Gov't doesn't try and bail out all the FB's. Why should we pay for their mistakes? No one was holding a gun to their heads, forcing them to overstate their income. I have no remorse for them at all.
I Just finished a 5 Year stint with a subprime Broker. I've been
preaching to my friends for the last two years that what is currently happening in the subprime
sector was going to happen. I'm not
a fortune teller, its just common sense. When a lender allows a borrower to use 55% of Gross income
on housing, it doesn't take a rocket scientist to figure out that when the unexpected happens to a borrower The lenders loans are going south. When the only requirement for a buyer is the mirror check (Are they breathing) and a job. I was a processor so I
was in a position to be more objective. Two years ago I was processing loans Through MILA for
borrowers with a 560 Credit Score.
You really have to work hard at not paying your bills to get that
low of a credit Score. The loan closed and my bet is that they are
one of the many subprime borrowers that are on the countys list of pending foreclosures. The experts are saying this problem is contained, However the next "E" ticket ride for the borrowers is going to be the "option arms" that are scheduled to reset and they will have a big suprise when they find out that they owe considerably
more than what they initally borrowerd. This is the time to position yourself by saving money
for the right home that will one of
many that will come on the market at fire sale prices.
Longbeach was doing 100% stated loans down to 580, now they won't even do 100% loans.
It shouldn't be a huge surprise that there are so many option arm, when Seattle has the 15th highest market price.
By the way, if you list your house on the market, most lenders won't allow you to do cashout refinance. Lose-Lose situation for those in trouble.
RCG...what a hoot.
not worth my time to post there...but it's good for a laugh.
Yeah...I know...there have been lots of laughs lately.
My favorite was Adriana...who first asks "when would be the best time to buy a house"...
then....after a quick perusing of SeattleBubble...somehow finds her way all the way back to posts from April 2006? That would take a whole lot of reading.
and then...goes on to discredit BH's asking..."what if we're wrong"
and then...probably within hours of her first post announces that her house just went into escrow and uses all the key realtor lingo as of late such as "being in it for the long haul"
Do I believe that this is actually a real person?
NO
If this is a real person all I would have to say is...
Enjoy!!! HA!
oh..jeeeze...the conversation is ongoing while I type...looks like Adrianna is one of ARDELLS clients.
things that make you go HMMMMMMMMM.
As I drove around this weekend, I noticed a few more for sale signs than usual. Is it just my imagination?
Wonder what the situation will be once spring is well under way?
In the summer of 05 I began noticing that those free real estate magazines had gotten rediculously thin - like a dozen pages or so.
Was it because everyone was holding on to their home/investment given the rate of appreciation?
I Look forward to counting RE signs and magazine pages this spring/summer!
When (and if) for sale signs start blooming along with the flowers, it will be too late for many.
Ladies and gentlemen, the ReMax balloon has burst, has burst.... (announcers voice breaks, due to a surge of emotion).... into flames.... oh, my God!!, Oh no !! oh , oh the humanity!!!!
I've been cogitating over this whole RE finance implosion for some time now. Obviously, there are two sides to this argument, and each side has varying degrees of how bad/good it will be.
The bulls seem to have a "what, me worry?" attitude. It is almost as if they lack any mid-level cognitive abilities whatsoever. It seems that they believe they can party-on like there are no consequences, ignore all the warnings, and press the "I believe" button when they get confused.
I guess they believe the powers-that-be (FED, gov't, banks) will never allow this bubble to pop.
I honestly don't see how this pig keeps climbing in this environment. Without the RE finance implosion, sales fell off the cliff, and in almost every market, prices have declined or are at-best stagnant. Now, 1/3+ of yesterday's market is SOL. Factor in that many more subprime and ARM casualties are on-deck, and the builders are cranking out homes as fast as they can, I just don't see how things work out for them.
I can't get there from here. Somebody please present the bull case to me.
As for the bears, their premise is this entire market is just an enormous substitution bailout for the tech bubble. They believe that national capital has been horribly misallocated for 9 years. Given that the banking industry is married to the housing bubble, the entire economy could come to a crashing halt.
Now, we have the FEDs (not the FEDeral Reserve) smacking down kinky loans and subprime lending. The remaining loan institutions have found time in between massive document shredding to issue decrees that they are now out of the teaser loan/subprime biz.
Bears believe this entire thing is just one big house of cards, and and it will only continue to work if everything is priced for perfection and the economy delivers that perfection.
As the housing market deterioriates, the collateral at-the-margin will fail miserably. This will extend the damage already evident in subprime (
and we are just at the tip of the subprime damage). As more levels of finance implode, they drag in the next level.
Lather, rinse, repeat...
Honestly, where is the hole in the bear argument?
My guess is the RE agents are just all hopped up on denial and hoping that nothing bad happens.
Honestly, where is the hole in the bear argument?
I've been contemplating the possibilities here to. That is, trying to look at both sides of the issue, and the various factors/possibilities.
As far as the areas of the country most effected, or most indicative of a bubble:
If this doesn't get much worse and result in a crash of historic proportions, then we truly live in a bizarre age.
My greatest fear though is that the government will step in to bail out the victims at the cost of the innocent. After all this (RE, other investment vehicles, banking, financial services) is what our economy is mostly about these days.
As far as Seattle, I've wondered to what extent the "we're special" argument holds. I think might be a slight mitigating factor - that will lessen the damage somewhat, but that this area will still be hit pretty hard. I also don't necessarily think that Seattle will continue to grow at the rate it has over the last 20 or so years - I especially don't think that Seattle will continue to provide mass amounts of high paying jobs. That factor will likely shrink, and I think it has already begun with outsourcing/restructuring at Boeing, MS, etc.
Fine with me, I'd just as soon see a decrease in population here.
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