Exciting Independence Weekend Contest!

Whoever guesses the closest lat-long coordinates to the location where the above picture was taken wins a Made in Washington gift bag with some MarketSpice tea, a Fran’s chocolate bar, some Cabernet chocolate cherries, Biringer’s lemon tea cookies, and an Almond Roca.

One entry per person, leave your guess in the comments along with a valid email address so I can contact you if you win. Contest closes at midnight Monday morning / Sunday night.

Have a great weekend everybody!

I won’t go into all the details of the announcement since you can find good coverage of the changes over at the P-I or Rain City Guide. Instead, I thought it would be interesting to see what the long-term financial picture might look like for someone who plans to take advantage of this program.

Let’s take a look at some hypothetical home borrowers who currently owe $400,000 in various mortgages with difficult terms or high rates, and whose home is presently worth $320,000. They jump on the new FHFA Home Affordable Refinance Program and refinance into a single 30-year fixed-rate loan at a 5.75% interest rate with a 125% loan-to-value ratio.

I hope that our hypothetical couple doesn’t want to move any time in the next 13 years, because under a relatively optimistic home value appreciation scenario that’s how long it will take before they will be able to sell without bringing money to the table:

Note that the home sale proceeds line assumes paying 6% of the sale price to real estate agents, as well as an additional 2% to account for excise taxes and other costs of selling. You can also download the spreadsheet I used to create these charts and tweak the values yourself.

With the home value appreciation tweaked to a slightly less rosy scenario, it takes 17 years before our couple can break even selling their house:

According to a 1993 study by the Census Bureau (pdf) only ~10% of home owners stayed in one house for over ten years. A 2001 study (pdf) by the NAR-funded Joint Center for Housing Studies put the median length of home ownership at 8.2 years. Refinancing one’s home into a 30-year loan for 125% of the house’s value will most likely lock the borrower into their present home for a period of time longer than 90% of people usually stay in their homes.

If the goal of this new 125% loan-to-value program is to financially imprison people in their current homes for a decade or more, then it looks like it could be a rousing success. However, I’m not sure how many currently struggling home borrowers would really consider that to be much of a “help.”

Note that the tiers are determined by sale volume. In other words, 1/3 of all sales fall into each tier. For more details on the tier methodologies, hit the full methodology pdf. Here are the current tier breakpoints:

• Low Tier: < $267,042
• Mid Tier: $267,042 – $392,156
• Hi Tier: > $392,156

First up is the straight graph of the index from January 2000 through April 2009.

All three tiers bumped up in April, just like last year. The low and high tiers both bumped up 0.28%, while the middle tier increased just 0.03% The low tier has rewound to March 2005, the middle and the high tiers to May 2005 (all the same as March’s data).

Here’s a chart of the year-over-year change in the index from January 2003 through April 2009.

The low tier actually saw a slight moderation in YOY declines in April, similar to the blip we saw in the high tier in February. Here’s where the tiers sit YOY as of April – Low: -18.4%, Med: -16.3%, Hi: -16.4%.

Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.

Whereas April 2008 resulted in a bit of a bump in the chart, April 2009 looks like more of a plateau.

(Home Price Indices, Standard & Poor’s, 06.30.2009)

Up 0.2% March to April.
Down 16.8% YOY.
Down 22.3% from the July 2007 peak

Last year prices rose 0.7% from March to April and year-over-year prices were down 4.9%.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Portland continued to turn in a slightly smaller YOY loss than Seattle. Meanwhile, down in SoCal, the losses continue to get smaller. If Seattle and Portland keep following the trend set by San Diego and Los Angeles, we will see the most extreme YOY drops next March.

Note: This graph is not intended to be predictive. It is for entertainment purposes only.

Here’s the graph of all twenty Case-Shiller-tracked cities:

In April, eight of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops than Seattle (the same number as the previous four months). Denver at -4.9%, Dallas at -5.0%, Boston at -7.7%, Charlotte at -10.0%, Cleveland at -10.5%, New York at -12.2%, Atlanta at -15.2%, and Portland at -16.0%. As usual, Phoenix had the largest year-over-year drop, with prices falling 35% in a single year.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

In the twenty months since the price peak in Seattle prices have declined 22.3%. April’s uptick brought us further from the trendlines of Phoenix and Tampa, and closer to San Francisco. April saw similar upticks in Seattle, Portland, San Francisco, DC, and Boston.

Here’s the “rewind” chart. The horizontal range is selected to go back just far enough to find the last time that Seattle’s HPI was as low as it is now. This gives us a clean visual of just how far back prices have retreated in terms of months.

Seattle’s Case-Shiller value for April 2009 of 149.38 came in just above its May 2005 value of 148.97. Prices have now “rewound” a full four years (longer than this site has been in existence).

Finally, the following chart takes the post-bubble years of 2007, 2008, and 2009 and indexes each January’s Case-Shiller HPI to 100 so we can get a picture of how this year’s declines compare to last year:

We got the uptick we were expecting for April, but compared to last year’s bump, I’d have to call it somewhat… anemic. If price declines only manage to match last year, Seattle’s index will be just over 29% off peak by December. If we continue to turn in stronger price drops than 2008, we’ll be closer to 32% off peak by December.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 06.30.2009)

It doesn’t take much emotional pull to consider walking away when you see property being purchased across the street for $150,000+ less than what you may have purchased your place for in 2006 and it costing substantially less to cover the monthly payment at today’s market prices. This is more prevalent in newer developments and I would guess can make for interesting neighbor to neighbor discussions.

Well, I spent a little time on Redfin looking at some new construction homes for sale, and it didn’t take long for me to find some examples similar to Tim’s hypothetical scenario:

• Nov. ‘06 @ $395,808
• Feb. ‘07 @ $403,950
• May ‘07 @ $396,975

New units’ current asking price: $319,950 (~20% off)

• Jul. ‘06 @ $563,950
• Oct. ‘06 @ $564,950
• Apr. ‘07 @ $543,000

New units’ current asking price: $459,950 (~19% off)

In the first example above, if we (very generously) assume that the folks that bought in ‘06 and ‘07 had 20% down payments and got 30-year fixed-rate mortgages at the going rates at the time, their payments would presently be around $2,400. Today’s buyer with the same sized down payment would have a monthly payment around $1,700.

That’s a ~30% difference in payments. The ‘06-’07 buyers are spending $8,400 a year more for the same house as their neighbors. I imagine most people can think of lots of things they’d rather do with $8,400 a year than to continuously pay for a poor decision they made years ago.

There are tens of thousands of buyers around Seattle who bought at or near the peak with little to no money down. Many of them even got a mortgage that they can technically afford (got ramen?). At the time they bought, it made sense to them to squeeze their budget, because they bought into the notion that if they didn’t get something right away, they would be priced out forever.

Every month that these peak buyers spend in their peak-purchased house they’re basically “throwing away” hundreds (sometimes thousands) of dollars. Selling isn’t an option, because they owe so much more than the home would sell for. Walking away starts to make sense.

I’m not saying I necessarily recommend walking away as a course of action (or that I don’t), but I can absolutely understand the rationale, especially when you’re in a situation like the above examples, where people buying the exact same house today are paying thousands less per year.

This poll will be active and displayed on the sidebar through 07.04.2009.

Yet again, the sweet interactive data visualizations in today’s post come to you courtesy Tableau Software.

In the charts below I have taken the calculated value for SAAS and subtracted 2, in order to better visualize the difference between a buyer’s market and a seller’s market. Using this method, negative SAAS values indicate a seller’s market, while positive values indicate a buyer’s market.

Summary

King County’s overall SAAS dipped slightly in May, from April’s 2.9, but remained slightly in “buyer’s market” territory at 2.3.

Hit the jump for the rest of this month’s interactive charts and commentary.

Here’s a year-over-year comparison for each NWMLS neighborhood.

Year-Over-Year Comparison

Only eight of thirty neighborhoods were in “seller’s market” territory in May, none of which were located on the Eastside.

Regional History

Seasonally-adjusted active supply decreased in most neighborhoods from April to May, as one would expect due to the seasonal nature of the real estate market. Jovita / West Hill Auburn (100) and Des Moines / Redondo (120) were notable exceptions.

The three toughest markets for sellers were Vashon Island (800) at 5.2, Downtown Seattle condos (701) at 4.9, and Kirkland–Bridle Trails (560) and Mercer Island (510) tied at 4.1.

The three best markets for sellers as of last month were Central Seattle SW / Beacon Hill (385) at 1.4, Lake Forest Park / Kenmore (720) at 1.6, and Dash Point / Federal Way (110) at 1.7.

What started as a fun project turned into a nightmare for a builder in Kenmore.

Ken Youch, with Kenmar Construction, is happy to give tours of any one of the million dollar houses he has built in Kenmore.

“They’re absolutely beautiful homes that we built when the market was booming. This is my very first attempt at spec building,” he said.

It is also his last. Like many builders across the Puget Sound, Youch is losing a lot of money on these three sister homes. All were priced over one million dollars and now they’re going at about $500,000 lower.

The houses in question are 7320, 7328, and 7332 on NE 150th St in Kenmore, for which the builder is asking $674k, $679k, and $699k, respectively (as a side note, KIRO clearly has a different definition of “cheap” than I do). Cumulative days on market for each of the three properties is in excess of 440. He purchased the lots in April and July 2007 for $262,500, $265,175, and $267,200.

July 2007. If that rings a bell to anyone, it might be because it was the peak month for Seattle-area home prices. Granted, we only know that thanks to the benefit of hindsight, but even at the time the writing was on the wall for anyone paying attention.

Are we supposed to feel sorry for this builder for getting caught up in the mania and failing to do his research before jumping in head first to an expensive and risky venture like this? That seems to be the angle of this piece, but to be honest, I’m not feeling it.

At least he hasn’t gone into foreclosure yet, so he must have the financial strength to stand behind his risky move. Also, he doesn’t appear to be angling for a bailout, so while I question his business sense, I respect his apparent willingness to take responsibility for his decisions.

Reuters, June 22:

Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

SeattlePI.com, June 25:

Are new appraisal rules holding back the nation’s real estate markets?

Lawrence Yun, chief economist for the National Association of Realtors, sure seems to think so.
…
“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” Yun said. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

What do you suppose folks like Laurence Yun mean when they use the phrase “housing market recovery”? Given the types of things they are objecting to, I’m inclined to conclude that what they really mean by “housing market recovery” is a return to the days of double-digit appreciation, frenzied buyers engaging in bidding wars and waiving inspections, and flippers snatching up pre-sales to turn a huge profit once construction completes.

Newsflash folks: It ain’t gonna happen.

You can cry all you want about the new tighter standards that are slowly but surely coming online in lending, appraisals, and other aspects of the home-buying process that were allowed to get wildly out of control during the bubble, but even without these new standards, we’re not likely to see a return of a real estate bubble in our lifetimes.

Too many people have been burned—and continue to be burned—by the rampant dangerous excesses of the housing bubble for things to just ramp right back up into an out-of-control mania again after just a few years of contraction.

Tighter regulation is just one of the necessary consequences of the housing bubble. Real estate professionals need to spend less time complaining and more time finding ways for their businesses to thrive within the framework of a housing market in which people buy reasonable homes, for a reasonable amount of money, as a place to live not a super-leveraged jackpot mega-investment.

Tacoma News Tribune: Downtown condo sales at a crawl

How’s the market for condominiums in downtown Tacoma?

“What market?” says Judy Mayfield, head of sales for The Esplanade, the 162-unit project on the Foss Waterway, now nearing completion.

After two years of extolling the virtues of the nine-story luxury project, Mayfield and her staff have yet to close a deal on a single unit.

Translation: “We were really counting on suckering 162 flippers into buying luxury condos in Tacoma on the false hopes that they could sell them for a profit in the perma-hot housing market. Now that the market has cooled and everyone realizes that nobody wants to actually live in luxury condos in Tacoma, we’re screwed!”

Apparently they were even more screwed than we might have guessed. Here’s a story from yesterday’s Tacoma News Tribune: $80 million Esplanade project faces foreclosure

An $80 million Tacoma waterfront condominium project, caught in the financial whirlpools of the recession, faces foreclosure by late August unless the developer can find new sources of funding.

The Esplanade, a nine-story condominium on the west side of the near-downtown Thea Foss Waterway, has until Aug. 21 to escape from the imminent foreclosure, said sources close to the project who were not authorized to speak publicly.

Just 10 of the 162 housing units in the building at 1515 Dock St. have been sold, and none of the retail spaces on Dock Street or facing the waterfront walkway has been leased.

According to the Notice of Trustee sale filed with Pierce County (pdf), the developer (Thea Foss Holdings, LLC) has outstanding obligations of $48,532,793.62 on the project. If I’m reading the document correctly, it looks like their financing required them to pay in full on February 1st. Apparently they thought they would have sold enough units by then to cover their costs. Obviously after having sold just just six percent of the units in over two years, they came up a little bit short.

(John Gillie, Tacoma News Tribune, 06.24.2009)

After about 5:00 today, data will be updated in the old charts in Excel 2007 and Excel 2003 format. To get specific info about a certain point on any graph in the post below, float your mouse pointer over the data.

Before we get to the cool stuff, here’s the usual table of YOY stats for each of our seven covered counties as of May 2009.

(Note: The “Sales” data below represents pending sales, not closed sales. Keep in mind that certain NWMLS definitions were modified beginning July 2008 that affect the reported number of active listings and pending sales (and therefore the “months of supply”). The net result of this change is that active listings post 07/08 will appear lower, pending sales higher, and months of supply lower than prior to 07/08. See this post for more details.)

King - Price: -14.8% | Listings: -20.0% | Sales: +27.2% | MOS: 4.4
Snohomish - Price: -11.4% | Listings: -24.8% | Sales: +39.5% | MOS: 4.8
Pierce - Price: -13.5% | Listings: -28.5% | Sales: +28.8% | MOS: 4.9
Kitsap - Price: -9.6% | Listings: -29.7% | Sales: +38.3% | MOS: 5.3
Thurston - Price: -5.8% | Listings: -23.9% | Sales: +17.6% | MOS: 4.1
Island - Price: -14.1% | Listings: -9.1% | Sales: +17.2% | MOS: 10.4
Skagit - Price: -25.3% | Listings: -2.5% | Sales: +1.5% | MOS: 9.0
Whatcom - Price: -1.1% | Listings: -14.5% | Sales: +29.9% | MOS: 5.4

Hit the jump for the interactive charts.

Summary

The visualization below is comparable to our usual chart of closed sales in each county in May 2008 and May 2009:

Closed Sales

Closed sales in Island were actually up over 2008, while Kitsap and Snohomish were only down by a small amount. Everywhere else saw declines in excess of 10%, despite the still-surging pending sales.

Here’s our comparison of median prices in each county at their respective peaks and in May 2009:

Change from Peak

Skagit County surged into the lead in May with the median there off nearly a third from the peak. Most other counties came in around 20% off, with Thurston still showing the most strength at less than 10% off.

Months of Supply

Again, this chart has been rendered mostly meaningless with the change in “pending” definition by the NWMLS. I am working on integrating the SAAS measure into these charts for future updates for a better picture of actual market activity.

Nothing much changed from what we’ve seen earlier this spring. The market is gaining a little bit of strength, but nothing more than the seasonal uptick we would expect to see any given spring.

Below you will find the map that I have started. If you’d like to contribute some stalled residential construction sites (SFH or condo) in your area, just sign into your Google account then head to this link, click “Edit” on the left side of the page, and begin adding your markers.

At present, the map is open for anyone with a Google account to edit freely. I only ask that you not modify existing points added by others and that you follow roughly the same format that I have used on the starting points, which includes location, size (# of units), builder, status, and if possible, a picture.

If we all work together, I think we can create something that will be pretty interesting.

View Stalled/Slow Seattle Construction in a larger map

Here’s the resulting piece: It’s a Tenants Market for Downtown Seattle Office Space

There may be signs of recovery in the region’s housing market, but not so for the region’s office market. A recent survey from Price Waterhouse Coopers says commercial property values in Seattle are expected to decline up to 15 percent this year, that’s more than the national average. The survey predicts the market will remain in recession for two more years.
…
[Large downtown Seattle landlord UNICO's Chief Financial Officer John] Lamb says it’s going to be a while before the market begins to stabilize. He says vacancy rates will continue to rise, and don’t be surprised if some commercial office buildings in Seattle end up facing foreclosure.

Also, last Friday’s “weekday” discussed the residential market, with : Short Sales, Foreclosures and First Time Home Buyers

Friday’s program had the same guests that were on the program in early May that we mentioned here: real estate agent / appraiser Richard Hagar, Urban League housing director Linda Taylor, as well as new guest certified financial counselor Andrea Misiano.

They discuss foreclosure / refinancing rescue scams, including some good advice for first-time buyers—take the emotion out of the home-buying process. I haven’t been able to listen to the entire program, but apparently there was also some questionable advice mixed in this time, including the claim that (according to a Seattle Bubble reader) “it’s better to get the low interest rate than the “one-time” lower house price.” In any case it’s overall worth a listen when you can make the time.

Kudos to KUOW for continuing to give the local real estate market some decent, thoughtful coverage that goes beyond the usual “ra-ra” pro-industry pieces that have been all-too-common in most news sources.