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Wednesday, March 21, 2007

The Tim on AM 570 KVI 3:00 Today!

I just got off the phone with the producer of the Brian Suits show over at KVI (570AM). Brian will be discussing yesterday's P-I article, and thanks to a heads-up from Eleua, I'll be a guest for a part of the discussion. Tune in at 3:00. They have a web feed for those of you still at work.

Update: I was on the air for roughly the first five minutes of the program. The discussion was primarily driven by Brian's questions, so I wasn't able to work in as many points as I would have liked, and I certainly could have said "uh, um, er..." a bit less, but this site definitely got some decent free advertising.

Here's an mp3 of the portion of the program I was on for. (6:41, 4.6MB)

Only three callers were able to get in a word before the topic transitioned to something else. Here are a few highlights:

John in West Seattle:

I conduct six or seven real estate purchases a week and I see the problem with your guest, the facts of the Seattle market do not fit his theory. ... Real estate values are subjective, they're based upon what people want for their own reasons. There is no objective value that can be placed at any given location or time. ... Housing prices go up because that's what people are willing to pay. ... People are speculating when they buy real estate, they hope it will appreciate in value over the years, but in a strict sense of speculation, that would apply to investment properties.
He sounded fairly angry, and he also called the Global Insight study "hogwash." If I had been able to respond to "I conduct six or seven purchases per week" John (i.e., a real estate agent), I would have pointed out that he is correct, real estate values are subjective. However, home prices have very suddenly spiked up at a historically unprecedented pace in the last five (or so) years.

Has Seattle suddenly become far more subjectively desirable during that time? No. I have covered this nonsense argument in a number of posts, most notably A Question Of Affordability, last November.

Gary on a cell phone:
The "hogwash" comment is absolutely dead on. It's just a function of the market. People pay what they're willing to pay, and people sell what they can sell for. A couple factors that make our market higher than a lot of other areas are at least two things: One is a lack of transportation infrastructure, and the other thing is the Growth Management Act
The transportation argument would perhaps partly explain why Seattle proper is so expensive, but unfortunately for Gary's argument, pretty much the entirety of King, Pierce, and Snohomish counties have seen similar spikes in home prices over the last five years. As far as his Growth Management claim, I've covered that here and here.

Scott on a cell phone
I've been in the lending side for the last ten years. ... Seattle is over-inflated. If you talk to any banker, lending institution, they will tell you, their biggest worries are the big metropolitan areas: San Francisco, Seattle, Los Angeles... where you've had such growth in the appraised value. ... There are a lot of realtors out there who are over inflating the value of these homes. ... The bubble may not burst, but there will be a serious deflation in the next few years, and it's gonna be based on the fact that the lenders have had enough.
Scott's points were pretty much right on. He sounded like somebody that has a pretty good grasp of what's going on before our very eyes with the interplay between home prices and lending.

I have audio of the segments of the show with the callers. If you're interested in hearing it shoot me an email. Hopefully I'll have another chance in the future to get the word out.

15 comments:

EconE said...

dude...I'm bummed...couldn't get the online broadcast here in L.A.

I'm sure you rocked however.

props.

Chris said...

KVI is run by a bunch of tools. That guy just didn't seem to get the big picture. And his last comment to you was just stupid.

Kaleetan said...

I tuned in and listened to the broadcast. You sounded pretty good. I was hoping you would take on the PI and the Rhodester about how biased they are with what facts they present. I was also hoping you were gonna go into the "Seattle is special" and the "Priced out forever" themes...
Maybe next time. It sounds like you are now his 'go to economist' on housing.

BanteringBear said...

I listened in. Good job Tim. While you didn't have much time, I am glad you got to the main issue, the lack of affordability, and the fact that local wages do not support current prices.

Eleua said...

I was on hold when the top of the hour came. Here is what I was going to say:

Supply/demand - demand is not what people want. Demand is the amount of money they put behind that idea.

Enter mortgage finance...

When the last go-round in the speculative mania ended in '01, Greenspan pounded down rates so low that banks and lending institutions were choking on dollars. They dropped rates and still had money left over. So, they went out and raised the dead in order to give them loans for houses.

These idiots went out and bought houses (incresed demand).

Now, these idiots are defaulting, and we are going to have a banking crisis on our hands that will take national real estate, including Seattle, down to very humble levels.

A bank can write an ARM and book the fully amortized amount as revenue, even if they never see the money. Example:

J6P gets a 2/28 ARM from a large, local purveyor of kinky loans. The intro rate has J6P paying $500/mo, but his fully amortized payment would be $3000. Joe pays $500 and the bank claims $3000. Joe buys a plasma TV with the excess.

Bank claims to have the $2500, and so does BestBuy. BestBuy is correct.

J6P defaults. Local bank now has to deal with the loss of capital, interruption of cash flow, the entire foreclosure/REO process, and has to restate earnings.

Cash reserves vaporize, expenses skyrocket, and revenues plummet.

Bank calls the FED and asks for a bailout. FED agrees. Bank learns nothing. Lather, rinse, repeat...

The only reason Seattle is late to the party is the amount of X-Cals moving up here with equity from the bubble. Google "Map of Misery" and take a good, hard look at all the kinky loans and ARMs in California.

ARMs is where the problem is. Even PRIME ARMs are tipping over. Yes, non-prime is worse, but A+ is also hitting recession level defaults.

People have mistaken a credit bubble with genuine demand.

EconE said...

Eleua...

I'm pretty sure that the so cal equity locusts have already flown the coop. Most others are debt slaves.

for an excellent example of what I think you may see in Seattle could be shown by looking at what is happening here in L.A.

www.1100wilshire.com

and the funny thing is that people somehow think that L.A. is special also...you know...The Entertainment Biz...all the millionaires etc.

LOL

EconE said...

Just listened to the MP3 Tim...thanks for posting it. I also read the comments made by the callers. I think that the guy gets the picture although obviously he is going to present his show as any radio talk show would and not like an serious financial interview. So I wouldn't lean as hard on the guy as Chris.

The reason that I think that he realizes this is the fact that of the three callers that he "had time" for...look who's comment he ended it with. A lender who is sick of making the funny money loans that allowed people to put themselves into the position that they are in.

I think that the last comment will probably be the one that the listeners remember the most.

I would have bagged on Greenspan and the loose lending standards that he encouraged...but that might have been over the DJ's head.

meshugy said...

The "hogwash" comment is absolutely dead on. It's just a function of the market. People pay what they're willing to pay, and people sell what they can sell for. A couple factors that make our market higher than a lot of other areas are at least two things: One is a lack of transportation infrastructure, and the other thing is the Growth Management Act

Gary rules! Telln' it like it is...

0x029A said...

KVI ... ah ah ah!
On the bright side, it can only get better from there.

Alan said...

I'm surprise no one mention global warming. With the rising CO2 levels, Seattle is poised to become the next SoCal. Prices are up because of wealthy individuals buying property north of their current locations.

Or maybe I've gone off the deep end.

refractedthought said...

You did alright, Tim, but you might want to have some practiced remarks ready for next time. Truly knowledgeable people often have problems when microphones are in front of their faces, because they don't spend much time on their PR skills. But practice makes perfect, just like with anything.

Jillayne said...

Hi Tim,

Email me next time you're going to be on so I can call in!!! I think I blew the sound card on my laptop so I can't hear the mp3. Note to self: Must borrow 10 year old's laptop to listen to Tim's interview.

I sent a long email to Elizabeth Rhodes at the Times after last weekend's article. To her credit, she did send me a long reply with some more stats.

I think you guys should try to get on KIRO; send their producers an email.

Jazen said...

Right on Tim!
You have them on the ropes, it's just back-peddling now. All hopes and dreams, you notice that a shread of reality came from the lender, why? Because he/she/they don't want to be the one who gets a@@***ed when the foreclosures begin.

FinanceGuru said...

I usually listen to Brian Suits on my daily commute home and is a good guy, yet can be kinda quirky at times. Tim Im glad you got on KVI, knowing his style, you should be able to get back on if you continually email him every week or two to give an update.

Overall the weakness in the subprime market will flow through the entire market as credit standards are tightened. When I worked at WAMU last year they started tightening standards marginally in the summer. The good news about the Seattle market is that since it was so late to the game the actual percentage gains to the extremely hot markets are smaller, so any negative impact will be less dramatic. My prediction is that the FED will start lowering interest rates this summer since the spring selling season will be weaker than normal in Seattle (with low single digit gains). This will help those that are refinancing to a moderate degree.

As everyone knows prices tend to be sticky in real estate, any decline in prices would likely play out over a few years and be moderate (probably 5-15%) at worst.

Eleua said...

FG,

Well, I guess you are entitled to your opinion.

You might want to read this article, and this one to brush up on a little reality.

I was discussing this very topic with a friend and we came to the conclusion that even if Seattle is special, the meltdown in the rest of the nation will suck us into the vortex.