Are We Facing A Housing Shortage?

In looking at the latest Northwest MLS statistics for King County, it would be tempting to say that our housing market is recovering.  But it is an odd mix of data.  Single family home sales volumes are up (even better than last year), inventory is down sharply from last year, prices seem to be starting to rise again, and average days-on-market is dropping.  That all sounds pretty good.  (larger residential stats charts)

Residential stats 750

(Note that the Northwest Multiple Listing Service neither prepares nor is responsible for these charts – the interpretation is my own.) 

But condominium sales are still slow (though rising some), inventory is staying high, and median prices are not rising.  That doesn’t sound quite as good.  (larger condo stats chart)

Condominium stats 750

What are we to make of this seemingly conflicting data?

 What it looks like to me is that we are in the early stages of a housing shortage.  While Seattle and the west side have been built out for decades, Bellevue and the east side communities have been absorbing most of the region’s growth for the past 50 years or so.  But we passed the Growth Management Act in 1990, and then we added the Critical Areas Ordinances.  As a result, it has become harder and harder to get permits for housing developments of any significant size.  In fact it appears that over the last 10 years or so it has become far easier to get a permit for a 100-unit condominium high-rise than for a 100-home residential development.  The rate of application for new building permits “fell off a cliff

The Buyers are out, and trying to buy, but…

Buyers are out, and trying to buy, but they don’t seem to be quite as successful as some of the more breathless news reports would lead you to believe.  I have always liked the Pending Sales statistics from NWMLS because they represent the most recent monthly snapshot of new contracts on listed properties – i.e. a Buyer and a Seller have made a deal.  But recently a lot of those ‘deals’ have not closed, the Seller has not gotten his or her money, and the Buyer has not gotten possession of the property. It appears that a lot of these current transactions, which are indicating a high level of Buyer’s intent to purchase, are falling out or being delayed for long periods.

Here is a chart built from NWMLS published statistics of Pending vs Sold data – the chart is built by taking a two-month moving average of Pending (previous month) vs Sold (current month) data. Note that this post expands on an earlier post by Ardell in her Sunday Night Stats.

Let’s call this chart the Fall-Out Ratio – we may want to keep an eye on it.

(Required disclaimer: Statistics not compiled or published by the Northwest Multiple Listing Service)reilingteamcom-fall-out-ratio-0906

Historically the fall-out rate has been well under 10%, but then in early 2008 the fall-out rate started climbing like a rocket. Recall that we had the mortgage market meltdown in late 2007, and lenders started dramatically tightening their lending practices. Then we had the larger financial and business crash in late 2008, and more people started losing their jobs – and the other 90% got nervous. It was also in late 2008 that we started seeing a lot more short sales in our Seattle/Bellevue area. Recall that in a short sale, the insolvent seller is trying to avoid foreclosure by selling the property and getting the lender to accept less than is owed on it. That lender approval process is often slow and uncertain, and it certainly is contributing to this rise in the Fall-Out Ratio. Short sales may be 20% or more of our current sales activity, and those delays may also be a major contributor to why the average Days-on-Market measure isn’t dropping in concert with Months Supply. Other contributors to the fall-out rate would include failure to reach agreement on inspection, and failure of financing. I’m sure we’ll get a lot more insight on causes from the comments by our great RCG contributors.

The “White Trim Syndrome”all over Rain City- There’s a whole lot more to designing homes

Mercer Island and a lot of other nice places are being overrun by “Spec Builders” madly producing these oversize boxes with their wide white trim. Other tell-tale touches of their indifferent computer-driven drafting (don’t call it “design”) are the tapered posts with pasted on faux river rock.

While fronts are abundantly and ineptly adorned, both sides and the back are usually left plain- except for perhaps some lumber yard non-wood wide white trim. Here are some examples:
white trim



While waiting for the birds to sing

[Editor’s note: I am more than pleased to introduce, in fact I’m quite excited to introduce and welcome, Jerry Gropp, Residential AIA to the Rain City Guide family of writers. Jerry specializes in MCM, Mid Century Modern design, and has a passion for seeing these homes updated.  Jerry is a native of Seattle.  His own current home on Mercer Island which he updated, is an excellent example of how his talents mixed with his passion for what he does, meld into the best of what the Pacific Northwest has to offer in home style.  Jerry is a graduate of the University of Washington’s School of Architecture.  His talent combined with his passion, have quickly made me a huge fan of his, and I’m sure you will be a fan of his writings in short order.  Welcome Jerry!  I SO look forward to some passionate discussions with you about MCM vs….just about everything else the area has to offer.]

While waiting for the birds to sing, my wife Patty and I decided to take a break in Puebla, Mexico– one of the old/new “Colonial Cities” that we hadn’t visited.
puebla patiojpg

In all the years I’ve practiced custom residential architecure I’ve seen the same thing- nothing happening homewise until somewhat sunnier weather happens.

This year will be no different- pent-up demand combined with stimulus measures will probably get things going again- with this difference– no longer will just any old indifferently-designed “Craftsman” or “Bellevue Chateau”  be snapped-up.  Jumbo “ARM”s will not be available- all to the long-term health of the industry.

President Obama’s Foreclosure Rescue Plan: Loan Modification Analysis

Underwater homeowners looking for a bailout from President Obama’s Foreclosure Rescue speech might be wise to think very carefully about all the possible consequences of grabbing the new loan modification offer. The White House press release on the full plan is located here. President Obama’s plan offers homeowners in trouble a helping hand, at the expense of all the other taxpayers who didn’t speculate, but let’s put aside our outrage for now. Instead, let’s look at whether or not the loan modification program is a good decision.

Clearly everyone is in a unique situation but there are some commonalities within the group we’ll call People Seeking Loan Modifications. I am openly stereotyping for the purpose of making this blog article general instead of case study specific. People Seeking Loan Modifications (PSLM) are typically folks who had a certain level of income when they purchased the home, and today that income has been dramatically reduced. Some may be facing a rate increase or a payment recast if negative amortization has pushed the principal balance to, say 115% or 125% LTV. Most purchased at 100% LTV, some decided on interest only loans, or interest only for a set period of time, in order to achieve a lower payment, speculating that future appreciation would bail them out at the next refi. They have two big problems: Negative equity AND an unaffordable payment.  PSLM typically have other consumer debt as well as mortgage debt. When income drops off a cliff, PSLM use credit cards to pay for routine expenses. By only offering a modest rate reduction, I predict that the re-default rate on these new loan modifications will be easily over 50% and I’m being optimistic. A rate reduction only solves half the problem. Their monthly housing expense has been reduced but their other expenses have not gone away. (If When the banks are nationalized it will be a lot easier to offer rate reductions on credit cards and perhaps that will be in the next bailout proposal.) There IS a solution for the typical loan mod seeking homeowner; President Obama wants principal balance cram downs in bankruptcy. Now the homeowner has to make a sacrifice: Trash my credit record for 10 years with a BK in exchange for getting a financial matrix reboot.

The key to whether or not a loan modification under the new program will work rests with the homeowner: What is the homeowner’s income today v. when he/she obtained the mortgage loan? Many of these folks have been laid off, some were living on extended overtime as a regular part of their monthly income, others were commissioned salesmen with flatline commissions during 2008, some had to take mandatory salary reductions, and still others have had NO disruptions in income but were qualified at the teaser rate of an Option ARM. What if the homeowner has no job at all? Does the homeowner get a zero percent interest rate loan? I’m thinking no, so how do we underwrite this loan and make a determination if this loan mod will fail? PSLM are high risk borrowers and re-defaults will likely occur. But the theory goes that if we can slow the foreclosures to the pace of a river instead of a flood, then doing so *might* help stabilize neighborhood home values and prevent even more foreclosures.

The Tim at SB reminds us to consider that when speculation occurs, foreclosures are a natural part of the solution and may not always be a negative, especially when a homeowner is far better off renting a similar home for far less than the (even modified!) mortgage payment. Home values fall and people who can afford to purchase do so. This begs the question: Do modified mortgage payments really help homeowners? The answer is, it depends on the homeowner.

In order to project future performance, it is important to visit past efforts in helping homeowners face foreclosure.  Past performance: FHA Secure: Projected to help 80,000 Actually helped 266. Hope for Homeowners: Projected to help 400,000 actually helped 312. Projections for President Obama’s loan modification program are that it may help 3 to 4 million homeowners. I project it will help far less. Perhaps we’ll break a thousand this time. This new plan appears to be a bailout for the banks, disguised as a bailout for homeowners. Same siren as FHA secure and H4H, she’s just wearing a different dress.

Will this piece of the Foreclosure Rescue package from the President help stabilize falling values? No. Instead, it will just flatten out the cliff diving and extend the pain that much longer.  From CR:

“For homeowners there are two key paragraphs: first the lender is responsible for bringing the mortgage payment (sounds like P&I) down to 38% of the borrowers monthly gross income. Then the lender and the government will share the burden of bringing the payment down to 31% of the monthly income. Also the homeowner will receive a $1,000 principal reduction each year for five years if they make their payments on time. This is not so good. The Obama administration doesn’t understand that there were two types of speculators during the housing bubble: flippers (they are excluded), and buyers who used excessive leverage hoping for further price appreciation. Back in April 2005 I wrote: “Housing: Speculation is the Key [S]omething akin to speculation is more widespread – homeowners using substantial leverage with escalating financing such as ARMs or interest only loans.” This plan rewards those homebuyers who speculated with excessive leverage. I think this is a mistake.

Another problem with Part 2 is that this lowers the interest rate for borrowers far underwater, but other than the $1,000 per year principal reduction and normal amortization, there is no reduction in the principal. This probably leaves the homeowner far underwater (owing more than their home is worth). When these homeowners eventually try to sell, they will probably still face foreclosure – prolonging the housing slump. These are really not homeowners, they are debtowners / renters.

Fannie Mae Increases the Allowance for Financed Properties Owned

It is really challenging to keep up with our constant changing guidelines.   Just this morning I was commenting over at the Seattle PI Real Estate Blog about the conventional guidelines permitting only four financed properties at a time for a borrower (more than four financed properties–no conventional mortgage for you!).    Moments ago, I received this updating Fannie’s guidelines (Announcement 09-02):

Multiple Mortgages to the Same Borrower
To support prudent lending for housing investment, Fannie Mae is changing our current limit of four financed properties per borrower. We will allow five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70-75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.

Just a reminder that any mortgage guidelines that you find on the internet may no longer apply!

I better hop on over to the PI and correct my comment from this morning.  🙂

2009 $8,000 "1st time" buyer credit

IMPORTANT UPDATE!  Bill signed on 2/17/2009.

Original post below:

Back in October, I wrote this post about the repayment feature of the 2008 $7,500 1st time buyer “credit”, including this link to more information as to who qualifies, and the terms of the “credit”.

Yesterday on Twitter I noticed Ryan Hukill’s post referencing Kenneth Harney’s article suggesting that:

“… Congress might be on the verge of transforming it into a true tax credit — one that never has to be paid back…” for purchases made on or after 1/1/2009.

I personally don’t see how changing the repayment terms for people who bought houses last year can be part of a “stimulus” package.   Posting this so that people who are eligible for the credit are aware that there may be a change in the repayment feature. (update: Apparently Obama agreed with me, as there does not appear to be a change in the repayment feature for homes bought from 4/9/08 through 12/31/08 and the 2008 $7,500 Loan/Credit.)

2009 is the Brightest Year

Last night was “Chinese New Year” and unlike 2008, which was “a blind” year, 2009 is “a bright year”.  Now before you get all excited about this Year of the Ox, let me explain what “bright” means.

Remember the movie “Wait Until Dark”? The fear and damage caused to the blind woman, when simply being touched with a scarf, by her “torturer” in her darkness?  It wasn’t WHAT he was doing…it was that she couldn’t see it coming…couldn’t see who and what it was.  That was 2008.

In the ancient culture  of Chinese New Year, the  “eyes” of the year are on February 4th. The dates that encompass each year are determined by the cycles of the moon. Some years, like 2008 have NO February 4th, and so are blind years.  Others have only foresight, with February 4th in the beginning, but not at  the end.  Some years have only hindsight, with February 4th at the end of the year, but not at the beginning.

2009, which started last night at the first new moon of 2009, has two February 4ths, giving us “the brightest” of years, with both foresight AND hindsight.   The year begins on 1/26 and ends on 2/13 this year, so 2/4 comes around twice. Bright doesn’t mean GOOD, it means if you don’t see it coming…and if you look back at the end of the year and “wish you had” done things differently…then you were choosing to bury your head in the sand, and you refused to see the handwriting on the wall.

  1. Thinking about flipping a house?  Think again.
  2. Thinking low priced home sales all around you, are not going to affect your property’s value? Think again.
  3. Think the real estate market is going to come back to the point where all people with a real estate license can make a decent living?  Think again.
  4. Think Obama is going to turn this market around by the 2nd Quarter? Think again.
  5. Think throwing good money after bad is going to save the economy? Think again.

If you bought a property in July of 2007…bite the bullet – or stay in it.  Wishing the market is going to get back there soon, is not going to make it happen.

In a “bright” year, you know what to expect and you base your actions accordingly.

  1. Try to get a loan mod, ONLY if you can afford the resultant new payments.
  2. If you see no hope of your income getting back up to anywhere near where it was when you bought the house; let it go to foreclosure, wave goodbye, and reduce your expenses.
  3. If you are a move up buyer, understand the house you buy is also down in price, and reduce the sale price on the one you are selling accordingly.
  4. If you are afraid of losing your job, stop buying toys you don’t need to have, and put 3-6 months of expenses in the bank, just in case.
  5. Recognize that Obama as President means we have the Leadership to help us do what WE need to do…not an Il Salvatore with a magic wand.

It’s a bright year…use it wisely.

Sunday Night Stats – Best and Worst

First, it’s been pretty obvious in the last 3 to 4 days that people are reacting to the interest rates being at 4.75% to 4.875% recently.  I can honestly say agents are not instigating this momentum, as all of the calls I have received have been directly from buyers that I’ve never spoken with before.  In fact I have had more calls to see property from buyers than I have had showings from agents.  It’s like a large part of the agent marketlace is MIA.  I’m hearing similar stories of “agents retreating” from Vancouver.  A sign that first quarter 2009 is clearly going to be on the upswing.  But let’s look at some more of the here and now tonight.

The Best:  Townhomes – the under $500,000 variety – net even a Buyer’s Market really – not a Seller’s market either.  A balanced market in Townhomes in Redmond where almost ALL townhomes sell for under $500,000 and North of Downtown in Seattle.  Location issues are more of a concern in Seattle than Redmond, as most townhomes in Redmond are built in larger, well located communites.  In Seattle they are often smack on a main arterial.  So be discriminating as to location and lifestyle and not just space issues.

Only a 5.7 month supply of townhomes in Redmond 98052 – not even a buyer’s market

Hard to believe with all the gloomy news, I know, but yes there is a market segment that is still performing well.  That will clearly improve in 2009 if rates stay this low, so we could even see a Seller’s Market come back in Redmond Townhomes in the not too distant future.  Still, I’ve seen prices taking a beating in the last 60-90 days.  Let’s see if lower rates and low supply pulls that back to stable.  I think that will happen for Townhomes in Redmond.

Now for the Opposite Extreme – The Dark Side – The Scariest Stat of all Sundays

Over FOUR YEARS of Inventory!  Where you ask?

Kirkland 98033 in the $1.2M plus market.  115 for sale and only 7 closed in the last 90 days.  See detail.

Compare Single Family Homes – Kirkland 98033 above to Redmond SFH 98052 below:

They look like Chirstmas Balls 🙂  The more red you see, the less green and blue, the weaker the housing market.  Redmond is doing pretty good until you get over $750,000.

Two story townhomes under $500,000 are definitely the IT segment both in Seattle and the Eastside.  Kirkland just doesn’t have enough of them like Redmond does.  Not sure what happens when you get out to Cougar Mountain and other not “close-in” newer townhomes.  I don’t get out that way very often, and last I looked there was a reason why I don’t go out there very often.  Every time it snows, I get calls from people who want to sell them and move closer to work.

Well, that’s your Sunday Night Stat “Christmas Balls” edition.  Hope you’re enjoying your “White Christmas”.


Sunday Night Stats – Seattle Real Estate

Median price per square foot for condos sold is starting to fall below 4th quarter of 2006 numbers, and is down 11.8% from peak pricing. 

King County Condos

2004 – 1Q – 1,694 – $188, 2Q 2,636 – $199, 3Q 2,540 – $196, 4Q 2,176 – $195

2005 – 1Q – 2,066 – $198, 2Q 2,925 – $209, 3Q 2,769 – $226, 4Q 2,266 – $224

2006 – 1Q – 1,956 – $242, 2Q 2.748 – $252, 3Q 2,737 – $269, 4Q 2,217 – $278

2007 – 1Q – 2,042 – $295, 2Q 2,862 – $302, 3Q 2,676 – $311, 4Q 1,618 – $294

2008 – 1Q – 1,258 – $299, 2Q 1,535 – $287, 3Q to date 895 – *$274


Active Listings: 3,983 – DOWN 47 – median price $319,950 – MPPSF  asking $307 (Down $3) – DOM 67 (up 2)

In Escrow:  804 –  UP 10- median asking price $289,700  – MPPSF asking $291  – DOM – 53 (up 3)

Sold YTD :  3,710- UP 650 – median list price $289,000 – median sold price  $282,450 – MPPSF – $287 (down $2) DOM 49  

Residential King county

2004 – 1Q 5,650 – $152, 2Q 9,237 – $160, 3Q 8.737 – $163, 4Q 7,467 – $165

2005 – 1Q 6,402 – $173, 2Q 9,093 – $185, 3Q 9,131 – $192, 4Q 7,301 – $195

2006 – 1Q 5,596 – $201, 2Q 8,248 – $214, 3Q 7,771 – $216, 4Q 6,204 – $217

2007 – 1Q 5,304 – $222, 2Q 7,393 – $230, 3Q 7,944 – $229, 4Q 4,301 – $221

2008 – 1Q 3,640 – $219, 2Q 4,676 – $220, 3Q to date 3,106 – *$215

*Residential median price per square foot is down another $2 per square foot since I ran the numbers two weeks ago.  That brings prices back very close to where they were in the 2nd Quarter of 2006.

Some sigificant changes for property in escrow.

In Escrow: 2,429 – DOWN 139- median asking price $409,950 (down $10,000) – DOM 51 (up 3) – MPPSF $197 (down $7)

SOLD YTD: 11.451 –  Actively for sale 12,027 – DOWN 280

Sold Year to Date and currently for sale are getting very close.


Stats not compiled or published by NWMLS. (Required disclosure)