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Tuesday, April 10, 2007

Bubble Link Roundup

There have been a lot of real estate articles in the local dead tree outlets the last few days. It's time for another link roundup before I get too far behind and forget to mention some of them.

First up, it's Mark Trahant of the P-I with yet another thoughtful, well-reasoned take on Seattle's housing market.

What if housing prices decline by 20 percent? That would solve Seattle's affordability problem, right? Most folks would say this is impossible. The data from last week show that house prices keep increasing no matter what. Our boom continues, just slower and steadier. But both our region and our country have boom and bust cycles as predictable as weather. It's as much of our history as innovation, military might or baseball. One minute we're panning gold, the next we're trying to recoup our investment in those nifty machines that pluck gold dust from stream beds.
...
Just think about what those higher credit standards will require: A significant down payment, good credit and, in Seattle, a high income.

More than likely, what it will really mean is that the supply of homes will grow — and prices, sooner or later, will fall.
On the opposite end of the spectrum, we have the Seattle Times encouraging first-time homebuyers to "learn the fine art of compromise."
Rolf Johnson and Kerrie Cooley had different jobs, different priorities and different resources, but on their brave hunt for a $250,000 home in the Seattle area they both learned it came down to what they were willing to give up.

Cooley let go of any notion of buying a house or living in downtown Seattle to find the modern, two-bedroom condo she wanted.

Johnson spent more than a year, bumped up his budget and moved farther from work to find the house, property and studio space he craved.

Compromise is definitely the name of the house-hunting game in the Seattle area, especially for first-time buyers who often can't come close to the $450,000 or so that it costs for a typical single-family house in Seattle and are looking more realistically at prices around $250,000.
Also worth noting is a pair of articles from the P-I and Times reporting on the recent blatherings of Senator Patty Murray. From the P-I:
The lack of affordable housing in Seattle and other places is a "silent epidemic," U.S. Sen. Patty Murray, D-Wash., told representatives of housing agencies, developers, labor and environmental groups Friday.

"We all need to work together, whatever hats we wear, to start to address this crisis," Murray, who chairs the Transportation and housing and urban development subcommittee of the Senate Appropriations Committee, said during a housing forum at Seattle's Opportunity Place.

Some at Friday's forum want more federal money, while others support incentives or requirements aimed at local developers. Cities and counties need to allow more homes through zoning, some said.
Here's what the Times had to say about it:
U.S. Sen. Patty Murray, D-Wash., who was visiting Seattle on Friday during a congressional recess, convened the roundtable with representatives of housing agencies, business, Sound Transit, the Puget Sound Educational Service District and social-service agencies to see what she can do at the federal level to help people with low and moderate incomes find affordable housing.
...
Adrienne Quinn, director of Seattle's Office of Housing, said a recent study by her office reveals that 51 percent of Seattle workers do not live in the city. Households earning between $60,000 and $100,000 a year are the least likely to live within the city limits, she said.

"People are able to buy someplace, but not in the city of Seattle," Quinn said.
As we all know, you're less of a person if you rent, so it makes sense that Ms. Murray et. al. would focus only on buying homes when stating that Seattle is in the midst of a "silent epidemic" when it comes to "affordable housing."

Lastly, here's the latest paid advertisement masquerading as an opinion piece from a "guest columnist." Steve Francks just so happens to be the CEO of the Washington Realtors. His editorial is quite transparently nothing more than the latest volley in the Washington Realtors' It's A Priority campaign.
Transportation experts are tearing their hair out trying to figure out how to fix Puget Sound gridlock. But if they really want to improve transportation, they should focus on housing.

There are just too many people trying to drive between home and their jobs each day. There isn't enough tax money in the world to pave our way out of this problem, especially with our population growing by a million each decade.

Instead of trying to deal with the symptoms, I suggest we address the cause: too few affordable home choices near where people work. That's something that we can fix — with a little help from the Legislature.

Home prices throughout our state continue to rise month after month. Wages, however, do not. The result is a huge gap between typical home prices and what typical families can afford. The Center for Real Estate Research at Washington State University, which tracks the gap with its "Housing Affordability Index," shows home affordability in Washington at a 15-year low. The gap is particularly wide for first-time home buyers, who, according to the index, could afford the local median-price standard only if they were living in Benton or Adams counties.

What's a middle-wage family to do? Hit the highway and drive to find an acceptable home you can afford. Between 2000 and 2005, 67,000 people moved from King County to Pierce County. Another 14,720 Pierce residents moved south to Thurston County during the same period.
If I can make some time in the next week or so, I'd like to write essentially a counter-point editorial of my own in response to Mr. Francks' drivel.

So what other recent local real estate articles have I missed?

(Mark Trahant, Seattle P-I, 04.06.2007)
(Heather Rae Darval, Seattle Times, 04.07.2007)
(Aubrey Cohen, Seattle P-I, 04.06.2007)
(Stuart Eskenazi, Seattle Times, 04.07.2007)
(Steve Francks, Seattle Times, 04.10.2007)

41 comments:

Grivetti said...

Patty Murry's a dimwit, always has been but luckily the GOP candidates running against her have been bigger dimwits and she still gets re-elected... Yeah, well we all know you're pond-scum proliterate if you rent, but besides legislating give-aways to developers so than can cram more townhome-ghettos into smaller and smaller plots... the easiest way to create affordable housing is to do what NY did (for better or worse)... rent control!

Yep, rent control! Most people in NYC never owned their apartments (which means the NYC is full of low-class ner-de-wells) and affordability is a rental issue, ergo rent control...

Living in Seattle is not a problem, its not that expensive, here. San Fran, height of the tech-boom was difficult to afford because rents were high due to the tech-economy (high paying jobs, etc...)

Anyway, apparently I'm sick with the epidemic of affordability, although it doesn't much feel like it... maybe I'm just a carrier.

EconE said...

I'm thankful that the bulls are still blowing their horn...especially being that my Dad just put his house on the market yesterday.

Alan said...

Rent control will make the problem worse by lowering effective supply. Rentals without rent control become more expensive. New people to the area have a higher equilibrium price for purchasing a home versus renting. If you want to see real estate prices continue to climb like NYC and SF has done then you should be a proponent of rent control. If you want to see prices come back down then you should leave the market alone and be patient.

Alan said...

If rent control does happen, then I am going to do two things.

1) I am going to immediately buy a non-rent controlled rental.


2) I am going to buy someone out of their lease on their rent controlled apartment.

MisterBubble said...

I still contend that the only legitimate, helpful government interference in this mess would be to legislate a hard upper limit on the percentage of home value that can be financed.

The problem here is straightforward -- the people who are willing to mortgage their future are crowding out the people who are sensible with money. A mandatory down-payment law is nothing more than consumer protection for the stupid....

Rez said...

"The problem here is straightforward -- the people who are willing to mortgage their future are crowding out the people who are sensible with money. A mandatory down-payment law is nothing more than consumer protection for the stupid...."

Any attempt by government to protect people from themselves will backfire. Adults should be allowed to make any deal they want with other adults. if you feel differently then please restrict yourself and leave everybody else alone.

BTW - I mortgaged my future with an ARM --absolutely cranked up to my eyeballs. I bought some property and built a large house. Sold my old house no problem and everything worked out great. The thought that some prick like you would put up another road block -- I live in California and believe me there are enough problems to contend with -- really pisses me off.

audit trail said...

MB, I agree with Rez. The last thing we need is more legislation for stupid crap like that. We live in a free-market economy and, as such, businesses should be allowed to decide how they want to loan out their funds (within legal and ethical limits). Unfortunately one of the few problems with free-markets is that there will be inefficienceis and bubbles from time to time. This is one of those times. By choosing to rent, you are taking advantage of this inefficiency until a better opportunity arrises. That's exactly how Buffett invests and I think he's done OK.

Don't you think we have enough of a bloated beauocracy?

Pegasus said...

Patty Murray was voted a few years ago by her contemporary Senators as the most likely person to be "No Rocket Scientist". I see she continues to hold the title.

She faces a re-election soon and we will be hearing lots of things that make no sense yet appeal to the masses. Kinda like "Free Beer Tomorrow" statements to win votes.

Try writing Patty Murray about something you care about. See if she will ever even acknowledge your request. Talk about a useless Senator.

Erik said...

So, if I understand Mr. Francks:

(A) Homes are not currently affordable.

(B) If we just let developers more homes close in, they can build them at affordable prices.

How can these new homes be sold at affordable prices without adversely impacting values of the existing homes? Have the Realtors been lying to me me they tell me that home prices can only go up?

Or is there a magical market dichotomy that will allow me to buy a new home at a low, low price and then sell it for hundreds of thousands more once it has been "broken in". That must be it. That's how the first-time buyers will make it back into the market.

MisterBubble said...

"businesses should be allowed to decide how they want to loan out their funds (within legal and ethical limits)."

So, let me see if I understand your logic: we should not enact any new laws to regulate lending, because businesses should be free to lend money under whatever terms they choose...within the limits of the law?

Truly, you have a dizzying intellect.

FB said...


The problem here is straightforward -- the people who are willing to mortgage their future are crowding out the people who are sensible with money. A mandatory down-payment law is nothing more than consumer protection for the stupid....,


You really hit this on the head. Those of us that live within our means, max out our 401Ks and save for the down times get punished in a market like this.

The real shame is that a bailout for these idiots is coming. Listen to Clinton, Dodd, et. all go on about how these poor dumbasses were forced to buy more home than they could. It is really quite disgusting.

Now we have Sharpton and Jackson jumping on the wagon too. It is going to be a real circus as we get closer to 2008.

wtf said...

A bailout would be real sad to see. Those with financial sense get screwed on both ends of the deal.

Zintradi said...

I think I'll move to Tuscon.
But then I need to sell my house in Parkland <:-0

Ouch! said...

These sharky lawyers are circling to attack "predatory lenders." Wonder if they'll find any victims here in pink ponyville?

http://tinyurl.com/2slrbr

"If you, a family member or friend are in fear of losing your home or have already lost your home as a result of the loan or refinance you purchased, there is a chance you may have been a victim of predatory home mortgage lending practices. Don’t hesitate. Fill out our survey now. You may qualify for monetary compensation."

Steve said...

The problem with a mandatory downpayment law is that it presumes the only improper lending practices were 100% (80/20) loans. Interest-only/option ARMs and their various combinations also contributed to the so-called credit bubble. These vehicles all can serve a legitimate purpose, in my opinion. Basically what would be needed would be government mandated underwriting standards, or in other words a government mortgage industry. Neither this nor a set % downpayment requirement are effective solutions.

meshugy said...

Ballard and N.Seattle are red hot right now. Really doesn't seem any different then 2005 or 2006. Homes are flying off the market in 1 week tops. Within a few blocks of my house 6 houses sold in a week!

The house right behind me just sold: 7311 18TH AVE NW 98117. Only two bedrooms, 1120 sq.ft. It was actually flipped...bought last June for $340...sold for $445 9 months later for nearly 100K more!

I was walking by this cool farmhouse today: 6312 30th Ave NW

The owner was standing outside....she was really nice. She told me they had just put it up for sale and already had loads of people calling...many offering to pay for the whole thing in cash! It's really nuts....there's still incredible demand for good houses.

I also notice today that zillow revised the value for my house...it shot up another 16K in just one month! Now stands at $549,788. That's $167,359 more then when we bought it this month in 2005.

Synpathetic...remember you bet me my zillow value would tank???? Nice prediction.... Laughing Laughing Laughing Laughing Laughing

Lionel said...

Why bother buying?

http://seattle.craigslist.org/see/apa/308355925.html

http://seattle.craigslist.org/see/apa/308152534.html

http://seattle.craigslist.org/see/apa/307703206.html

MisterBubble said...

"Interest-only/option ARMs and their various combinations also contributed to the so-called credit bubble."

In the vast majority of cases, these are both tools for 100% financing of home purchases. A mandatory down-payment law would still drastically reduce the market for these types of loans.

I suppose that someone could make a mandated minimum down-payment, and then take out an option-ARM, but I doubt it would happen very often. Certainly, requiring a 20% down payment would still limit the ability of most buyers to overextend, simply because the size of the mandatory down-payment would grow with the cost of the purchase!

Lake Hills Renter said...

Why not post the exact same thing in every thread, Meshugy? Rolleyes Rolleyes Rolleyes Rolleyes

Puget Sounder said...

Shug,

That house (6312 NE 30th)is priced at $230 per square foot. A really good deal. By those standards, your house would be priced well under what you paid for it. It would be pretty easy to flip that place for $330/square foot -- hence the interest. I'd consider it if I wasn't worried about depreciation and the income of myself and my SO was 1.5x what it is currently.

The cash buyer is probably a flipper with a couple successes under his/her belt.

MisterBubble said...

I'm seeing a lot of Ballard homes for sale on Zillow, priced under Zestimate, with list times of over 30 days.

Hot is the new cold, I guess....

meshugy said...

That house (6312 NE 30th)is priced at $230 per square foot. A really good deal.

Yeah...it will go for way more then 575K! They priced it very low....

cosmos said...

A bailout would be real sad to see. Those with financial sense get screwed on both ends of the deal.

I concur. Unfortunately, there are more low-lifes clamoring for their share of the pie than there are resonable responsible people. The price is that the responsible are getting the shaft from this inflationary, bail-out everyone in need, enrich the survivors of the 911 event for no rational reason at all, dump money into select corporations,tax-tax-tax GOVERNMENT manipulated ECONOMY...it's all just taxpayer money, who gives a rip? So much for the free-trade economy...anyone who thinks that's what we have is smokin' crack.

As far as I can tell, Ron Paul is the only wise member of Congress when it comes to the economy.

meshugy said...

Hot is the new cold, I guess....

Did you see the March MLS report? Ballard (area 705) has 17% YOY appreciation...that the second highest in all of Seattle! Prices shot from 425K to 499K in one year!! This area is just cooking right now....

Lionel said...

From WSJ: "New money going into mutual funds that own real estate has plunged to just $2 million a week, on average, from nearly $400 million a week as recently as mid-February, according to AMG Data Services. Investors in droves are also selling off their shares in real-estate investment trusts, the publicly traded stocks of companies that own everything from apartment buildings to medical centers and …”

That's a, uh, pretty big drop. But don't worry, investors still have confidence in Seattle real estate.

E-sidedave said...

A mandatory down-payment law is about as stupid as outlawing sales of junk food because some people have no control and make bad choices. Everything will work out in the end as long as gov't doesn't get involved--unhealthy people will die young and irresponsible buyers will provide great deals for the fiscally responsible.

Steve said...

misterbubble, you are correct. All I'm saying is that overextension is definied as the amount financed being excessive relative to ability to repay. Setting a required LTV requirement still requires both an accurate appraisal (which would also need regulation) and the loan being repayable (which would require government underwriting standards). I think 100% LTV loans have a useful life beyond the housing bubble and should not be regulated away. This is similar to the way that 10 years ago few would have bought a car without a downpayment, whereas now this is the commonplace.

Justin said...

grivetti,

Rent control is a poor solution to the problem. Its main advantage is that it can be implemented locally, while better solutions would require changes to federal law.

A better solution to rental pricing is for the federal government to rescind its subsidies for home ownership: get rid of the mortgage deduction, dump the federal mortgage agencies, and kill federal funding for suburban freeway projects.

The federal government's heavy meddling in real estate has been a driving force behind the creation is suburban sprawl, in addition to distorting the rental market. Rent control is a way of distorting the rental market back towards a norm, but it just ends up creating a mess of a different kind.

Shawn said...

When I hear appreciation is up x% am I to ignore the fraud in appraisals? Has Tim factored in that fraud? What I find most interesting is the psycology of the masses acceptance of bubbles. That is what interests me right now.

MisterBubble said...

"Did you see the March MLS report?"

Sure did, infohammer. I'm also looking at Zillow, seeing lots and lots of listings that have shot up over 30, 40 and even 50 days! Many are priced under their Zestimate!

If this area is cooking, the heat is coming from flippers being burned!!

MisterBubble said...

"A mandatory down-payment law is about as stupid as outlawing sales of junk food because some people have no control and make bad choices."

When my neighbor eats too many potato chips, he inflates his waistline. When he takes out a suicide mortgage to pay for a home he can't afford, he inflates my cost of living. When he goes bankrupt, he costs me money.

There's a public interest in ensuring that stupid people don't overextend themselves. It isn't a victimless crime.

MisterBubble said...

Steve,

"Setting a required LTV requirement still requires both an accurate appraisal (which would also need regulation) and the loan being repayable (which would require government underwriting standards)."

I don't see the argument for either of these things. If there's a law requiring a mandatory down-payment on a mortgage (e.g. 20% of appraised value), there would be no more incentive for an appraiser to overestimate the value of a home than there is right now. In fact, there would probably be less pressure for corrupt appraisals, because the buyer would have an incentive to reduce the appraised value of the home (this is the "normal" check on appriasals in a balanced market).

Similarly, loan "repayability" is a red herring -- requiring buyers to put down 20% would probably only serve to enhance the quality of the buyers. We're in a mess right now because banks were too lenient, not because they were putting up barriers to finance.

"I think 100% LTV loans have a useful life beyond the housing bubble and should not be regulated away. This is similar to the way that 10 years ago few would have bought a car without a downpayment, whereas now this is the commonplace."

Eh? Why is this a good thing? Does my neighbor really deserve a new Escalade on a Kia budget?

100% loans (and other "exotic" mortgages) were traditionally a specialized finance tool of the rich; I don't see why they're an inalienable right of the middle-class 'merican consumer.

biliruben said...

...get rid of the mortgage deduction, dump the federal mortgage agencies, and kill federal funding for suburban freeway projects.

Damn straight, Justin.

They are going to nix the AMT anyway, and this would go a long way towards balancing out those lost tax revenues.

The Federal mortgage deduction may help us little people a little, but it helps those with mongo houses much, much more. It's a huge subsidy for the well-off, and encourages second homes and McMansions, in order to make the mostest.

Slash it, or at the very least make it a credit and shrink it down so that it actually does help people afford their first house.

E-sidedave said...

When my neighbor eats too many potato chips, he inflates his waistline.

You could say the same thing for your unhealthy neighbor...his choices are raising your insurance costs and other medical costs. Your taxes will be raised to pay for his medical care and the welfare his wife and children will collect when he dies young without life insurance...yadda, yadda, yadda...it is the same thing. You can't legislate stupidity.

Steve said...

misterbubble, the real problem with 100% LTV loans is not the % of loan to value but rather whether a person can afford that loan. Banks could still be too lenient as to who they lend the 80% to and people who "shouldn't" be buying a house could still contribute to a pricing bubble. I'm not saying the 100% should be an unalienable right. But then again I don't see why it would be an unalienable right to buy a house for someone who has saved 20%. I would argue that there are people other than the superwealthy (the traditional user) for whom 100% is an appropriate loan. In hindsight it is or will be clear that some people who got 100% loans should not have gotten them. This overextension of credit is a cyclical byproduct of a free market. Overextension of credit and housing bubbles has still occurred even before, and likely will after, widespread use of 100% LTV loans.

MisterBubble said...

"You could say the same thing for your unhealthy neighbor...his choices are raising your insurance costs and other medical costs."

It isn't nearly as direct. My neighbor eats potato chips, gets fat, and dies of a coronoary after thirty years. He takes out a suicide loan and drives up comps by $50,000 in one week.

"You can't legislate stupidity."

A straw man argument if there ever was one. Requiring a down-payment isn't "legislating stupidity" more than any other law.

And before you try, I should warn you: if you try to drag this debate into the Internet Libertarian Ideological Rathole (i.e. all laws are oppressive), I will mock you heartily, then ignore you completely. So don't.

Comrade Chairman Greenspan said...

"When my neighbor eats too many potato chips, he inflates his waistline. When he takes out a suicide mortgage to pay for a home he can't afford, he inflates my cost of living. When he goes bankrupt, he costs me money.

There's a public interest in ensuring that stupid people don't overextend themselves. It isn't a victimless crime."

Those are called negative externalities, and the government is already interfering in the market - by supporting them. It starts with granting banks the privilege of lending out money they don't have, which illegally makes depositors into involuntary lenders. Originally, people who deposited funds at irresponsible banks were forced to bear the inevitable costs. Today, the government socializes the costs onto the rest of society via taxpayer bailouts and inflation. And what about the mortgage interest deduction? You think tax cuts are great? Good, I agree with you. Now cut my income and capital gains taxes. What's good for the goose...

Of course, no one cries about all this government inteference when it benefits them.

MisterBubble said...

"misterbubble, the real problem with 100% LTV loans is not the % of loan to value but rather whether a person can afford that loan. Banks could still be too lenient"

I agree with you, Steve, but I think we're addressing two different points. I don't think the value of a mandatory down-payment is in its ability to select for credit-worthy buyers -- I think it's a good idea because it would better tie the market to fundamentals.

Once upon a time, buyers had to obtain private mortgage insurance whenever they couldn't make a 20% down payment. This acted as a price control, as it made homes more expensive for people who were stretching beyond their means.

The PMI laws still exist, but they've been weakened by decades of legal meddling and easy credit. I really don't see why it's controversial to suggest that these types of finance limits should be strengthened.

Steve said...

misterbubble, the mandatory down-payment is an underwriting standard in addition to credit-rating. As I'm sure you know, a main purpose of a downpayment is to help guarantee that there is sufficient equity in the event of default. 100% LTV loans, typically an 80% first mortgage with a 20% second mortgage still account for that risk of default in their rates but merely require an equity short fall to be paid later. Not everyone, even those who have 20% to put down, or 10% or 5% should be required to put it down if they would rather do something else with their money than park it in their house. Let banks decide who should and who should not be worthy of that risk.

E-sidedave said...

I will mock you heartily, then ignore you completely. So don't.

First they ignore you.
Then they laugh at you.
Then they fight you.
Then you win.
--Mohandas Gandhi

I'll save you the time.

Comrade Chairman Greenspan said...

"Let banks decide who should and who should not be worthy of that risk."

I wholeheartedly agree.

And when the reckless ones crater, let someone else pay for it.