Seattle Times Pumps Interest Only Loans

From the Seattle Times over the weekend:

Almost every dollar Todd Asher earns is spoken for. He has one daughter in college, another in high school and a toddler in diapers.

"We made a decision to have my wife stay at home with our 18-month-old son, so we're living off my income, paying for tuition, diapers and everything else," said Asher, of Sammamish. "We're all about making money go as far as possible." Asher, 39, has found a way to save a little each month through an interest-only mortgage loan. He diligently puts the savings into his 401(k), an individual retirement account and mutual funds.

"My goal when we purchased our current home was to buy the most house for the least amount of money and then save, save, save," Asher said.

Does this logic sound a bit off to anyone? What happened to the idea of living below your means?

Some mortgage specialists and financial planners believe unconventional home loans could be good tools to help consumers put away money for their future — if they're disciplined enough to invest the mortgage savings.

If homebuyers invest the extra $160 to $200 they save each month on an interest-only mortgage, then it "absolutely makes sense," said Jeff Tisdale, a broker at Skye Mortgage in Bellevue.

Totally, Jeff.

But Paul Merriman, founder and president of Seattle-based Merriman Capital Management, said every dollar a young homeowner invests now from mortgage savings will make a surprising difference when he or she retires.

Consider this scenario: A 30-year-old homebuyer invests $200 a month in a Roth IRA for five years. With a 10 percent compound rate of return (based on the S&P 500), he will have $15,312 in five years. Then, because he faces a higher mortgage payment of principal and interest, he stops contributing to the IRA. Even if he adds nothing more to the investment, the money continues to multiply.

"They will have $267,185 at age 65 and they will be able to take tax-free distributions of $16,031 (6 percent) the first year," Merriman said. "If they continue to earn 10 percent while taking out 6 percent, they will take out over $500,000 and have $585,435 left at age 85."

Consider this scenario: Based on the last 35 years of inflation, $267,185 will only be approximately $53,034 in 2042 dollars, which probably won't even buy you a Hyundai (assuming there are any fossil fuels left in which to operate it)

I think it's also safe to consider that whatever McMansion they purchased will be worth much, much less than their purchase price in years to come. Money isn't free and without exception debt -always- must be repaid. How will this paycheck-to-paycheck family ever get out from under this house?

"Most people want everything now, and they come back every two years looking for more money," he said.

He also has families who "come back a little richer" each time with more money in the bank.

"I can't keep track of what people do once they walk out my door," Tisdale said. "I can tell you that the ones who are committed to investing their savings are rare."

The home ATM has all but dried up. The American public is now in their 19th consecutive month of negative savings. This family and many like it are are literally living on borrowed time. What's the point of an interest only loan when you can rent a suitable home, closer to work, for much less than "buying". Why put yourself under such pressure, especially when you aren't building any equity?

A house has become more of a consumer product than an investment, especially based on current false valuations and the way they are physically built today.

This family is only one job loss, sickness, or interest rate hike away from a CH13 bankruptcy. The American Dream is looking more and more like a nightmare. The suburbs with their large McMansions will be the slums of the future.

(Linda Thomas, Seattle Times, 12.16.2006)

Drinking the Kool-Aid

This is just too (unintentionally?) funny for me to pass up. On Tuesday, Ardell over at RCG made a post about the online alternatives to "full service" brokers that are available in increasing numbers to help people buy and sell houses. Here's the part that I got a good chuckle out of (emphasis hers, as usual):

Redfin, Zillow, Zip Realty, For Sale by Owner in the MLS companies, these all represent the newer “alternative” business models... Why should “Traditional Brokers” HELP the Alternative Business Models to succeed? Because WE NEED them, now more than ever, all of us. The consumer needs them. The industry needs them. We need a whole lot more flavors of Kool-Aid out there.

That's right, you read it straight from the agent's keyboard: traditional brokers, real estate websites, discount brokers, FSBO tools... they're all just different flavors of Kool-Aid! So drink up, consumers. Drink up!

In other RCG-related news, contributor Galen Ward has finally launched his fancy real estate search site ShackPrices.com. I have to admit, it's got a sharp interface on top of zippy functionality and lots of nice features. I could definitely see it becoming my favorite real estate search tool.

Now if only there were some real estate out there worth searching for...

(Ardell DellaLoggia, Rain City Guide, 12.12.2006)

Housing Bubble Time Warp

Here are a few quotes from newspaper articles in October, November, and December about the housing market:

October
[A]: "I fully expect things to pick up the first part of the year." Although the pace of sales has slowed, there are no clear indications that overall prices are going to decline, real estate analysts say. Data released yesterday support their view.

November
[B]: ...industry analysts said [the] housing boom seems to be coming to a quiet end. The balloon isn't bursting, they said, but it's losing steam.

[C]: ...sales of existing homes and condominiums declined ... last month. Even with the decline in sales, the median price of an existing home sold last month rose [year-over-year].

December
[D]: sales ... declined in the month of November. ... The median price for a home sold last month was up from a year ago. ... "The current pace of home sales activity remains historically strong. ... I truly believe the housing market will continue to expand. But rather than the double-digit price appreciation we've seen, we might see that drop to a 5 or 6 percent appreciation sometime toward the end of next year."

Nothing new, right? It's pretty much more of the same—what we're used to reading whenever the local rags start talking about real estate in the greater Seattle area.

Only, there's a few details I didn't mention about the above quotes. They're from last year, they're not from the local rags, and they're not referring to Seattle.

On a suggestion from reader John Law the II, I went searching for news reports from a year ago about the nationwide housing market (quotes C & D), and for good measure I pulled a few quotes from San Diego as well (A & B). What I found bore an eerie similarity to the kinds of things we've seen printed in the local press regarding the Seattle market the past few months.

So, a year ago the "experts" were predicting continued (but slowing) appreciation, with no price declines. Let's see how well those predictions held up.

San Diego, October 2005: "Although the pace of sales has slowed, there are no clear indications that overall prices are going to decline, real estate analysts say. Data released yesterday support their view."

San Diego, December 2006: "San Diego County housing prices slipped 6.9 percent last month, the biggest year-over-year drop on record."

Nationwide, December 2005: "'I truly believe the housing market will continue to expand. But rather than the double-digit price appreciation we've seen, we might see that drop to a 5 or 6 percent appreciation sometime toward the end of next year.'"

Nationwide, November 2006: "...the median price for a home sold dropped to $221,000 in October, a decline of 3.5 percent from a year ago. That was the biggest year-over-year price decline on record."

Obviously this doesn't prove anything about what is going to happen here in Seattle in the coming year. However, given the theory that the housing market in the Northwest lags California (or the nation as a whole) by about a year, I think it's an interesting comparison.

At the very least it just goes to show you that the so-called "experts" either didn't know what they were talking about, or were intentionally misleading the press. So why should we believe what they're saying today regarding Seattle's market, when the numbers seem to be saying something else?

(Emmet Pierce/Roger M. Showley, San Diego Union-Tribune, 10.18.2005)
(Emmet Pierce/Roger M. Showley, San Diego Union-Tribune, 11.12.2005)
(Martin Crutsinger, Associated Press, 11.28.2005)
(Charlie Herman, ABC News, 12.29.2005)
(Roger M. Showley, San Diego Union-Tribune, 12.13.2006)
(Martin Crutsinger, Associated Press, 11.29.2006)

Pacific NW a "Rare Exception" (for now...)

I'm surprised that neither the Times nor the P-I chose to reprint this Associated Press article from yesterday: With few exceptions, Western real estate expected to stagnate. Why would they print an article with such a sullen headline? Because the Pacific Northwest is heralded as the "rare exception," of course.

Although few experts predict home values will fall dramatically in 2007, many economists say prices throughout the West - particularly California and the Southwest - won't improve for 12 to 18 months. The Pacific Northwest, where home prices are enjoying double-digit appreciation, is a rare exception.

Building booms in many markets over the past half-decade, combined with mortgage interest rates that have increased about 1 percent in the past year, have resulted in residential real estate stagnation in most markets.
...
One of the few exceptions to the nationwide slowdown is the Pacific Northwest.

In Washington, the number of houses sold in the third quarter of 2006 dropped 16 percent - but the median price surged nearly 12 percent from the same period last year, to $300,900, according to the Washington Center for Real Estate Research. In Seattle's King County, the median price surged 14 percent to $432,600.

The dot-com bust of 2000 hammered the region, which shed a disproportionate number of manufacturing and technology jobs in the following half-decade. Homeowners there haven't enjoyed the same run-up as investors elsewhere, said Glenn Crellin, director of the WCRER at Washington State University.

"Our real estate market essentially came to the party a little late. As a result, we're going to be able to have a softer landing than many of the other communities nationwide," Crellin said.

Speaking of the WCRER, while their latest report (pdf) shows building permits down across much of the state, King County is the glaring exception, with the number of units that building permits have been issued for up sixty-two percent. What was that they said about building booms leading to stagnation? Hmm...

I just love how skyrocketing real estate prices are always described in such positive terms in the media. "Home prices are enjoying double-digit appreciation," and our market "came to the party a little late." It's always so fun when the price of goods increase faster than the consumers' ability to pay!

We may have come late to the "party," but apparently we're not going to learn any lessons from the markets that were first to the party, and first to experience the hangover.

I also loved this little gem in the article:

About 97,000 Californians moved to Washington in 2005, making it the fourth most popular destination for Californians after Texas, Arizona and Nevada. Oregon was fifth, with more than 83,000 ex-Californians, the department reported.

California's departing homeowners typically use their substantial equity to fund their next real estate investment. Although some Seattle and Portland residents grumble about "Californication," the trend has helped keep home prices there rising, said Brian Kreick, broker for Lynnwood, Wash.-based Kreick Realty Group.

"I have clients from southern California who can't believe what they can get up here for the money," Kreick said. "I showed one guy a house in Redmond that was $830,000 and still needed a new kitchen. He thought it was a great deal."

Oh yeah, that sounds like a great deal... What's that saying about a fool and his money?

(Rachel Konrad, Associated Press, 12.11.2006)
(WCRER, Housing Market Snapshot, 11.2006)

Seattle-Area Home Prices "Likely to Decline"

My jaw dropped in amazement when I read this headline in my inbox yesterday: House prices likely to decline. Granted, it was a Q & A column in the Everett Herald, not a headline news item in the Seattle Times (which would have probably made me faint), but still, it's nice to see an admission like that in any of the local rags.

Question: I have been seeing stories in the news about the housing bubble around the country, with some areas seeing a drop in prices now that the big boom is over. Do you think that will happen here in the Seattle area too?

D.K., Lynnwood

Answer: ...Last year at this time, I went out on a limb and said that I felt that the local housing market was peaking. I thought that home prices would max out during the spring home-buying season and then level off. Home prices actually continued to increase through late summer, but the housing market has definitely cooled off in the last three months, as I had expected.

This week, the Northwest Multiple Listing Service released home sale stats for November and you can see that a trend is emerging. There were 35 percent more homes for sale last month than there were in November 2005. At the same time, there were 11 percent fewer homes sold in November compared with November 2005.
...
So I suspect that next spring when most sellers put their homes on the market, we will see a big increase in the inventory of homes of sale. And unless there is a large pool of prospective buyers out there, we will probably see the home market swing toward a buyer's market where there are more homes for sale than buyers. That's good news for home buyers who have been frustrated by skyrocketing home prices over the past few years, but not such good news for homeowners who need to sell soon.

As I said above, prices will likely flatten out and possibly decline slightly, but traditionally we don't have the kind of home price "crash" that happens in boom-and-bust housing markets such as San Diego, Las Vegas and Phoenix.

Of course, we also traditionally don't have the kind of home price "spike" that we have had in the last three years, where the median home price shot up nearly 50%.

He goes on to explain the possibility that speculators fleeing the market will further drive prices down. Much to my amazement, rather than repeating the oft-heard (but never backed up) claim that the Seattle market doesn't have many investors, he admits that their potential affect on the Seattle market is largely unknown.

I don't recall seeing (and couldn't locate) an article published "last year at this time" where he claims to have predicted Seattle's housing market peak. If anyone knows where to find a link to that, please post it in the comments. [Update: Thanks to Megan the Librarian below for pointing out the November 2005 article Mr. Tytler references above.]

Kudos to Mr. Tytler for pointing out the obvious trend and its likely result.

(Steve Tytler, Everett Herald, 12.10.2006)

Wet November Weather FTW!

Now that November's numbers are out, let's see what the local dead tree press has to say about it.

First up, Ms. Rhodes at the Times delivers just what we've come to expect; a small dose of reality topped with a heaping helping of positive spin, lame excuses, and bubble denial:

More Western Washington homes were for sale last month, but fewer buyers signed deals, according to the Northwest Multiple Listing Service's November report, released Thursday.
...
Wet weather and attention given to the midterm election and the holidays may have affected sales, the MLS said.
...
Greg Hoff, owner and broker of Windermere's Edmond's office, said sales declines should be taken in context. A year ago, sales were at record highs, Hoff said, so last month's falloff is a return to normal — not the bottom falling out of the market.

"The question I get is, 'Where's the bubble?' " he said. "They think it's bursting because it's not going up the way it used to."

A true bubble burst would occur if prices fell, Hoff said. That's happening in some Sun Belt states, but not here.

Of course, the Times wasn't the only paper to mention the weather. Despite the complete lack of any evidence that even one potential home buyer was influenced by the weather, all five local newspapers attempted to relate the weather to the November home sales statistics.

At least Ms. Rhodes was the only one to blindly parrot the NWMLS press release. Other reporters, such as Aubrey Cohen at the P-I, were somewhat more skeptical. Of course she still made sure to end on a positive note:

November's total listings showed a typical seasonal decline from October, which was the only month in the past two years with more homes on the market than November. The year-to-year number of listings has increased in every month since April, while the number of closed sales has been down in every month since June.

In a news release Thursday, Northwest MLS director Dick Beeson said floods, snow and ice contributed to November's sales slowdown.

But wet weather only can soak up so much blame. It did not, for instance, seem to dampen the market in January 2006, whose 11.65 inches of precipitation was not far off the January record of 12.92 inches (set in 1953). That, of course, was in the midst of a frenzy of frequent bidding wars and rapidly rising prices.
...
Real estate agents have said for months that the market is back to normal from its recent frenzy, allowing buyers to take their time. They say buyers are taking even more time because of the changing market and news of a national slowdown.

"I still have a lot of people looking but not as many people making the move, pulling the trigger," said Susan Robinet, an associate with Windermere Real Estate. "I just think it's the uncertainty the national news has created."
...
Jean and David Sauvion, who recently moved to Seattle from London, offered a reminder that everything is relative when it comes to home prices.

"It's a lot better than in London from a buyer's point of view," Jean said after looking at a Greenwood home Sunday.

"We can actually afford houses here."

John Gillie at the Tacoma News Tribune makes only a dismissive passing mention of the weather.

Torrential rains, early season snowfalls and holiday distractions made only a small dent in the pace of Pierce County home sales last month.
...
The continuing price increases were good for home sellers, said Tacoma Realtor Dick Beeson, but an increasing supply is making sales a bit more difficult for sellers whose homes are overpriced.

The inventory of unsold homes in the 19 Washington counties covered by the Northwest MLS rose more than 35 percent from November of 2005, the report said.

That inventory increase, which could foreshadow price softening, was particularly dramatic in Pierce County, where the number of homes on the market in November grew from 4,124 last year to 6,012 in November this year – up 45.78 percent.

One reporter downright rejected the notion that the weather had any affect on the market. Mike Benbow at the Everett Herald seems to think that resistance to bad weather shows just how strong our housing market really is.

With torrential rains, serious floods and an early snowstorm that left thousands of Snohomish County residents without power, you'd think most people would have been too busy last month to think about much else.

But the disastrous weather in November didn't stop people from buying homes. And it didn't keep prices from continuing their climb, according to data released Thursday by the Northwest Multiple Listing Service.

County home sales last month followed the trend that began early this year: The number of homes on the market have increased significantly, sales that were pending or closed dropped significantly and prices rose in double digits in comparison to November 2005 sales.

Coming full circle, Clayton Park at the King County Journal claims that the rain did slow sales, and quotes some random Realtor to back up the assertion.

Last month's record rainfall and snowy weather conditions contributed to a decline in the number of homes sold on the Eastside and in south King County. The weather, though, didn't put a damper on prices, which continued to be significantly higher than a year ago.
...
Sam Pace, a Realtor with Executive Real Estate who specializes in helping clients buy and sell homes in south King County, said the heavy rains and snowstorms last month resulted in a noticeable drop off in business for him.

"We didn't do much in the rain," Pace said.

But Pace, who also serves as the south King County housing specialist for the Seattle-King County Association of Realtors, said year-over-year prices for homes and condos are continuing to rise, despite the slowdown in sales activity, because demand for homes continues to outpace supply in this area.

Pace attributed the heavy demand for homes to the region's robust economy, which has been bolstered by continued hiring locally at both Microsoft and Boeing, two of the area's largest employers.

Never mind the fact that the slowdown in sales is consistent with a trend that's been going on for over three years. It was the rain and snow. That's it. Also, if we keep repeating the "Microsoft and Boeing will save us" argument enough times, maybe that will make it true!

Clearly it's too much to ask that a local reporter actually do some serious investigative work into the true health of our housing market. It's far easier to repeat real estate press releases, quote local Realtors, and interview random home buyers.

(Press Release, NWMLS, 12.08.2006)
(Elizabeth Rhodes, Seattle Times, 12.08.2006)
(Aubrey Cohen, Seattle P-I, 12.08.2006)
(John Gillie, Tacoma News Tribune, 12.08.2006)
(Mike Benbow, Everett Herald, 12.08.2006)
(Clayton Park, King County Journal, 12.08.2006)

November: Inventory & Sales Trends Continue

The November NWMLS statistics have been published, and overall they came in pretty close to what I predicted a week ago. Here are the vital statistics for King County, along with my predictions:

[Statistic: Predicted, Actual]
Med. Closed Price (Res): $435,000, $435,000
Med. Closed Price (Condo): $260,000, $272,950
Active Listings (Res): 7,250, 7,040
Pending Sales (Res): 2,000, 1,985

As I expected, last month's bizarre price spike was erased, as the median closed residential price returned to the level set in June. Active listings and pending sales showed little sign of slowing their respective trends of double-digit YOY percentage change, with listings up 27.7% and sales down 14.2% from November 2005. As usual, the Seattle Bubble Spreadsheet has been updated with these latest numbers.

Here is the YOY % change graph for active listings and pending sales:

Click to enlarge

The Active Listings curve is becoming just a tad less steep, but interestingly, the downward slope of (averaged) pending sales has been virtually a straight line since late 2003. If either of these trends continue—even at a reduced rate—into next year, we could see a true buyer's market (6+ MOS) in King County by next November. I'm not necessarily predicting that, but it's definitely the direction the numbers are headed. Could some unknown influence cause a sudden change in the buying and selling trends? Absolutely. As of right now though, it would seem that economic and psychological pressures will continue to push things in the same direction that you see in the chart above.

Prepare for positive spin and finger-pointing at the weather from our friends in the local media in three, two, one...

(NWMLS, King County Statistical Report, 11.2006)

Update: I'm on a roll with accurate predictions:

Pending sales – transactions signed but uncompleted – were down 11 percent compared with a year earlier.
...
Wet weather and attention given to the mid-term election and the holidays may have affected sales, the MLS said.
...
"We have a little bit of a pause today," said Chris Pauling, president of Prudential Northwest Realty. But "Jobs and the strong economy are going to keep prices from falling," he said.

Positive spin? Check. Finger-pointing at the weather? Check. I'm 2 for 2!

Update 2: Here's the first paragraph of the November numbers article in the Puget Sound Business Journal:

Prices for homes in Western Washington continued to rise, but the number of pending home sales slid, partly because of weather woes.

Boom—2 out of 2 again, right out of the bag! It's almost too easy!

Programming Notes

This is just a short note to point out a few things that you may not be aware of regarding Seattle Bubble.

First off, although I haven't mentioned it explicitly before, Seattle Bubble is available in an RSS feed. If you use a service such as Bloglines or Google Reader, you can subscribe to either the RSS feed or the Atom feed to get your daily Seattle Bubble fix. For your convenience, I have added these links as well as a few subscription buttons for specific online readers to the bottom of the sidebar on the right. If there are additional services you think I should add buttons for, let me know.

Every now and then, I receive an email from someone who is wondering why I stopped making posts (even though I haven't stopped at all). Usually this is a problem with the user's internet browser, and can be solved by clearing the cache. If you don't know how to clear the cache on your browser, here is a good page that explains the process for most browsers. Another way to avoid this problem is to subscribe to the Seattle Bubble feed as described above.

Also, don't forget to set your bookmarks to SeattleBubble.com. I hope to find a dedicated server for Seattle Bubble sometime early next year, and once I do, SeattleBubble.blogspot.com will cease to be this blog's primary address.

Lastly, I'd like to take another moment to point out the tip jar. If you find that Seattle Bubble has been an interesting and useful service to you, consider dropping me a few bucks. I'm proud to keep Seattle Bubble advertising-free, and your donations help me resist the temptation of advertising dollars. Thanks to all of you that have already donated.

What Is "It's a Priority"?

I heard an interesting ad on the radio yesterday. It started off with a generic John and Jane Q. Public talking about how bad traffic is, and how terrible it is that they have to live so far from work, etc... Then Mr. Announcer Guy came on and blabbed something about quality of life, the Washington Realtors® (WR), and It's a Priority (dot com). Here's the introduction to their website (emphasis theirs):

Welcome to the online headquarters of It's a Priority!

There's a housing crisis in Washington State.

The Washington REALTORS® are working to improve our quality of life and ensure there are a variety of home choices available for all Washington residents. That's why quality of life issues like economic vitality, transportation, good schools, growth management planning and home affordability must be top priorities with Washington's state and local lawmakers.

Lawmakers must address this crisis and work for solutions. It's time we make this issue a priority!

Let me stop there for a moment before the rhetoric gets too thick. So, on the surface, this campaign appears to be some kind of good will initiative by the WR, who are gravely concerned about a declining quality of life in our state. I find that I agree with the assertion that the local economy, transportation, and housing affordability are important issues that people should be talking about, but I'm not so sure that running to Daddy Lawmaker is the right solution. Furthermore, I can't help but wonder whether the WR might just have some kind of ulterior motive here.

Moving on...

Our population is growing but the supply of homes isn't keeping up.

Whoops! Only three paragraphs in, and they've already started with the false assertions. As I pointed out here in October, population growth and shrinking household size was outpacing homebuilding, but since 2000, the pressure has eased considerably. I studied King County specifically, but one would assume that the situation would only be better in most other parts of the state.

Homebuyers have to drive too far to find an affordable home. That's caused long commutes, traffic jams and sprawl.

Actually, no one is being forced to do anything. Homebuyers drive "too far" because that's where they find homes that are big enough for their tastes that they can afford. Plus, nobody says you "have to" buy a home in the first place. If you want to trade off a short commute and affordable rent for crawling through traffic from your McMansion with a maxed-out mortgage, that's your choice.

And home prices have increased by 160 percent in some parts of Washington.

And all the while Realtors® and their ilk were giddily cheering the "vibrant" housing market and the "strong price gains."

Home ownership is the American Dream. Having a choice of quality, affordable homes is a big part of that Dream, but the ability to choose is slipping away.

You know we've got a problem when even middle-income citizens, the backbone of our communities — the firefighters, teachers, police officers and nurses — can't afford to live in the communities they serve. You shouldn't have to be rich to buy a home.

Unfortunately, poor government planning has limited the supply of homes near where people work. Too many people are frustrated by the lack of home choices, sky-rocketing home costs, and traffic tie-ups.

So suddenly now the WR are concerned that home prices have gone up too much—that middle-income families can't afford to buy a home? Forgive my cynicism, but I'm having a hard time buying the "we're so altruistic" story. So what's really going on here? What is the true motivation for a commercial group whose #1 priority is to sell houses to undertake this public campaign?

The Take Action page encourages readers to contact their friends, legislators, and local newspapers and demand that everyone "make our quality of life a priority." How delightfully ambiguous! Of course, the real meat is buried in a bunch of boring "policy brief" pdfs that most people are unlikely to ever bother downloading. Well, I read through a few of the policy briefs to try to get a better idea of what the WR are after. Most of the documents are padded with a lot of the same fluff talk about "quality of life" and so forth, but there are some bits that appear to get to the heart of the matter. Here's a telling quote from the Local Actions pdf:

The idea of performance zoning is to anticipate the actual outcomes of a project instead of just measuring units or lot sizes. For example, a parcel that is zoned for four single family homes, but is in an area that attracts single professionals, could be developed as a cluster of ten cottages. The impact of the cottage residents – primarily singles and couples – will be no more than the impact of the larger homes, which would likely have children.

If builders are given tools to propose uses of property that differ from current zoning, they can maximize the value of land and provide more choices in the marketplace. Performance measures that can be employed to evaluate a proposed alternative use include floor-area-ratios, target markets or trip generation.

So at least one of their goals appears to be a loosening of zoning standards, to allow greater density of smaller (i.e., "more affordable") housing units. I can see why the Realtors® would want that, because they are rapidly running out of suckers eager to buy overpriced McMansions and thirty-plus year-old flipped suburban ramblers.

The overarching theme of the policy briefs seems to be "we need more cheap housing, closer to city centers." While I agree with that general sentiment, I don't believe that the root cause of housing unaffordability is "not enough supply," and I definitely don't think that the solution is "build a bunch of tiny cheap houses all crammed together." The whole effort comes across to me as a desperate attempt to keep a steady flow of suckers, er I mean, "buyers" jumping into the overpriced housing market.

But maybe that's just me.

(Washington Realtors®, It's A Priority, 2006)
(Washington Realtors®, Quality of Life Research Briefs, 03.2006)

A Lack of Merit

I've previously mentioned the demise of mortgage company Merit Financial, but as a number of you pointed out in the comments, this weekend Ms. Rhodes wrote a lengthy piece detailing all the saucy details of Merit's rise and fall that's definitely worth mentioning.

Former Washington Huskies football player Scott Greenlaw led the mortgage company he founded to dizzying heights — 400 employees, a sprawling new headquarters and kegs of beer at staff meetings. Now he's selling his house to avoid bankruptcy as creditors line up with lawsuits.
...
It seems a quick turn of events for a former college football star who'd cobbled together $225,000 to start a company in 2001 that grew to more than 400 employees. Merit claimed to write more than $2 billion in loans and Greenlaw basked in its glow as it made him a millionaire publicity magnet.

Now all of that is gone. However, pointed questions about his lack of leadership and poor judgment, including his buying kegs of beer for business meetings, remain.

Some wonder if the company's demise hinged on its practice of hiring jocks and stunning but inexperienced young loan officers and managing them loosely. Still others questioned whether Greenlaw's litigious and financially draining divorce and his romance with another woman distracted him.
...
By early 2004, Merit was such a powerhouse that Greenlaw spent $13.5 million to buy a headquarters, complete with a gym and a waterfall, in a Kirkland office park. In the lobby, a photo mural captured the company's spirit. On one side, under the caption "That was then," was a dowdy couple in a stiff dance embrace. On the other, under the words "This is Merit," were a scantily clad dancer and her partner bending in a sensual tango move.
...
When interest rates rose and the lucrative refinance business slowed significantly, Greenlaw gambled that he could increase revenue by adding loan officers who could complete more complex loans. That didn't work, and the overhead sank him, he said.

Was it really that simple? Pressed, Greenlaw admitted it wasn't.

"Buybacks were high," Greenlaw said, without giving details.

In other words, Merit's loan officers executed mortgages that were so flawed that the investors who bought the loans from Merit forced them to buy them back.

A longtime broker not affiliated with Merit said such buybacks are "extremely rare."

I tend to agree with those commenters yesterday that pointed out the eerie similarity between this story and tales of the dot-com era of the late '90s. Lavish spending, inexperienced employees, super-laid-back environment... Sounds like a recipe for success to me!

After reading about how fast and loose these guys ran their business, I think what is surprising and newsworthy is not so much that Merit Financial went out of business, but that they were able to keep up the charade for as long as they did. If the housing market and mortgage industry were healthy and sane, how could a shady business with this high a profile have gone on for so long?

(Elizabeth Rhodes, Seattle Times, 12.03.2006)