The times they are a’changing

An article in the Seattle Times highlights the efforts by British Columbia to throw a little water on the raging fire that is their housing market.  The 15% tax on purchases by non-Canadian homebuyers has led a large number of cash-rich buyers to turn their eyes south of the border.

Seattle already has an impressive Pacific Rim population, so coupled with the tech employment buffet served out on both sides of Lake Washington, it was a natural landing point for many of the displaced buyers.

Seattle’s real estate had already experienced cash investors for several years, but it appears we are once again poised for an uptick in foreign investment.

This is good news for sellers who bought years ago on the rock solid belief their purchase would fund their retirement.  Their patience was rewarded.

It is absolutely horrible news, as it was in Vancouver, for the middle class buyer or more specifically the young millenial with no existing real estate to parlay into something nicer.  As the inventory continues to sludge into record lows, home ownership becomes an elusive mist for some.

But we are making America great again.  Like him or hate him, the President is plowing forward on his campaign promises, so what does it mean for the housing market?

[takes out her crystal ball] I imagine that at some point, the immigration policies will either

  1. Preclude more tech imports, as the attempt to put Americans first gets pushed
  2. Provide homes where existing tech workers who may not yet be naturalized may sell
  3. Persuade large scale foreign investment to follow Hollywood to New Zealand.

All of these possibilities would move the needle closer to mid-point on the buyer/seller market scale.

To offset this potential efflux of foreign money and keep the market on the seller’s side, reinvestment by native born and naturalized citizens becomes more likely.

If Boeing Everett and Renton tool up for jobs currently off shored, Microsoft continues its Surface related massive resurgence and Amazon climbs even higher in its quest for global domination (wait, I think I have something in my shopping cart right now, which I need to buy immediately), I see little changing in supply and demand.  The only relief would be the cash customer aspect of the bidding wars, which honestly for buyers, will be a huge relief.

So should you sell or buy?  That’s the $740,000 question.  If you need to sell, it is still a great time, and will probably continue that way for at least a year, although perhaps not as agressively as the last 2.

If you need to buy?  You’re still fighting which will be a shortage for some time to come.  If you have to buy, you can do so, but hunker in for a fight.  Perhaps pack some power bars for extra protein.


The silly season

Purple crocuses with closed bloomAh Spring, when a young man’s thoughts turn to love. Actually that was last year when the thoughts poked out like brilliant crocus blooms, the baby was born in January and now you’re looking for a house for the growing family. Who wants to trek out in winter’s cold, but it’s different when the temperatures warm ever so slightly.  The same insane desire to run out and pull weeds in the garden (I know, what sort of madness is that?) means even the most recalcitrant begin peeking at BlueGill (hat tip to Kris Berg) on their phone during lunch. Continue reading “The silly season”

Yes, you should care about Bitcoin, and here’s why

I wonder how large currency transactions would be handled under Bitcoin? Do you ever foresee mortgages being handled through this type of currency? Can you loan money already? Is anyone familiar enough with Bitcoin to chime in?


Everybody’s talking about Bitcoin these days, which is quite remarkable given the highly technical nature of the crypto-currency. So why is it such a big deal?

To explain why, I’m going to start with the implications of Bitcoin, then get into the technical nitty-gritty. Why that way round? Because there’s more to Bitcoin than the technical wow-factor, or indeed the crazy speculation that’s going on now. Even if Bitcoin itself fails, it’s a sign of things to come.

All about decentralization

Bitcoin is to state-issued currencies – often referred to as fiat money – as P2P file-sharing is to traditional broadcast media. There is no centralized source for it that can be controlled or moderated or regulated. It is difficult if not impossible to track from the outside. It is more complex to use than its better-known counterpart, but there are at least theoretical advantages to doing so.


In the…

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Web statistics

Three statisticians go hunting. When they see a rabbit, the first one shoots, missing it on the left.
The second one shoots and misses it on the right.
The third one shouts: “We’ve hit it!”

As an erstwhile blogger, one of the things important to do is to verify what, if any, pieces of information are being looked at.  At WordPress, I know how many people view the site each day and which postings are viewed.  I also have a record of what gets searched for, landing the searcher on my blog.

For the past 3 weeks, “Goldman Sachs 20%” has been top of the search list. Casey Kasem would have an anticlimactic show, having to announce, “Topping the charts again this week, ….”

Why so much interest in Goldman Sachs?  What relevance their prognostication? Continue reading “Web statistics”

Homes for rent

My son is currently working for a place which looks like the BuyMore from the TV series Chuck.  No, he’s not at Best Buy, but your mental image is definitely in the right direction.  My son, who in homage to the great James Delingpole, I will now call Boy, has a degree in Audio Engineering.  Yes, you are correct, he is a geek.  He even has a geeky girlfriend who takes him to Sakura-kan.  I’m sure I spelled that wrong. 

Boy, as previously stated, works at Geek Central.  He deals with technical issues of products which customers have previously purchased.  He is good at what he does.  He is also frustrated because he does not want to spend his life telling people that despite their protestations the camera was never used and defective when purchased, the frosting from the birthday cake UNDER the lens is pretty much a dead giveaway.  Continue reading “Homes for rent”

Goldman: Seattle Home Prices to Fall 22% More by 2012

By The Tim on June 8, 2010 | Reposted with permission.

I came across an interesting home price forecast for the next two years from Goldman Sachs (via Zero Hedge):

Following their earlier collapse, house prices appear caught in a cross current. On the one hand, there are indications that prices may have bottomed. While alternative house price indices differ in details, they generally show that house prices have stabilized since early 2009 (Exhibit 1). Second, measures of valuation appear to be back in “normal” territory (Exhibit 2). The Case-Shiller price/rent ratio—which stood nearly 25% above its long-run value in early 2006—is now broadly in line with its historical average. Housing affordability—measured as the percent of income spent on mortgage principal and interest—has also improved noticeably during this period.

Continue reading “Goldman: Seattle Home Prices to Fall 22% More by 2012”

Echo Boomers

Echo boomers, the 75 million American born between 1979 and 1995, are a “powerful, powerful underpinning of future demand” for housing, according to Harvard University’s Joint Center for Housing Studies. Echo boomers are expected to help keep demand strong for the next 10 years and beyond, bolstering the markets for rentals and starter homes.

Eric Belsky, executive director of the Joint Center, expects the number of echo boomers aged 25-44 will eclipse the number of baby boomers when they were those same ages by more than 5.9 million. “These impending population shifts have important implications for housing demand over the next decade,” wrote the authors of “The State of the Nation’s Housing 2009.”

As members of the echo-boom generation enter the prime household formation and home buying ages, they will reverse declines in the 25-44 age group created by the much smaller baby-bust generation. The number of households in this age group is projected to increase by between 2.0 million and 3.4 million, resulting in a surge in demand for rentals and starter homes. Meanwhile, baby boomers will add dramatically to the number of households over age 65, in part due to longer life spans and sheer numbers relative to the preceding generation. This is expected to lift demand for retirement and assisted living communities as well as services and home improvements that help seniors age in place. “How this demand is expressed will depend importantly on how much, and how quickly, these households can rebuild their recently decimated wealth,” according to the Joint Center’s report.

Household growth among Hispanics and Asians is also expected to accelerate as the more diverse echo-boom generation reaches adulthood and as immigration continues. In fact, minorities are expected to fuel 73 percent of household growth in 2010-20, with Hispanics leading the way at 36 percent. Noting this group’s lower average incomes and wealth, the authors caution the increase in minority households could add significantly to the nation’s already widespread housing affordability challenges.

Despite the demographic changes, the echo-boom generation now reaching adulthood will start off on a lower trajectory than the baby-bust generation due to the scarcity of entry-level jobs they face. “In addition, with the tight grip on credit, even sharply lower home prices may not be enough to help the echo boomers match the headship and homeownership rates of their predecessors by the time they reach their 30s and 40s” the report’s authors noted. “The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery,” Belsky said. “For now, markets remain under considerable stress.” Nevertheless, the authors added, “Once new home sales rebound and the economy begins to pick up, the aging of the echo boomers should reinvigorate the housing market,” according to the researchers.

Source – NWREporter

FDIC gearing up for bank closures

Washington Business Journal

Contributing Writer – Janet Leiser

The Federal Deposit Insurance Corp. is gearing up to handle a large number of bank failures expected as a result of bad mortgages, both in residential and commercial real estate, an economist said Tuesday.

“They know they’re going to take down a large number of banks and they can’t do it until they’re staffed up,” said Mark Dotzour, chief economist and director of research for the Real Estate Center at Texas A&M University.

 Dotzour expects federal regulators to establish an agency, similar to the Resolution Trust Corp. that disposed of assets belonging to insolvent S&Ls in the late 1980s and early 1990s.

 “Once they start to sell [foreclosed real estate], we’ll find out what the market really is,” Dotzour told attendees at an economic summit hosted by a handful of real estate groups in Tampa, Fla.

Dotzour blamed federal intervention for the lack of commercial real estate investment activity in recent months, as well as the failure of businesses to make major decisions.

 “Nobody knows what to do so they’re doing nothing,” Dotzour said at the luncheon meeting at the Intercontinental Tampa.

 Government, in its quest to help the economy, is causing harm by propping up failing companies and regularly changing rules, he said.

 “No one can predict what the government will do,” Dotzour said.

 “People are frozen. It’s not that they don’t want to invest in the future, the rules are unclear,” he said.

 He jokingly called the Federal Reserve “inksters” for routinely printing money to bail out big business, including banks that are still not making many loans.

 The government’s role in a capitalistic society, he said, “is to make the rules and get off the dance floor.”

 Businesses and individuals that can’t pay their bills should resolve their problems in bankruptcy court, not with money from the government, he said. It’s a process that has worked for decades, for generations.

 “Everyone has a lesson to learn here, including you and me,” he said. “We have to live within our means.”

 Dotzour expects foreclosure rates to continue to climb, real estate prices to fall more and cap rates to rise to at least 9 percent before leveling off.

 In 2010 and 2011, interest rates will begin to rise, as will inflation. Once investors realize the market is at bottom, deals will begin to flow again, he said.

In the meantime, he compared the bad loans that remain on banks’ books to a smelly cat litter box and the feds keep throwing more litter on top to mask the smell. But they’ll eventually have to remove the organic material to fix the problem.

Original story

Mortgage Delinquencies Hit Record High

Mortgage Delinquencies Hit Record High

Posted using ShareThis

The next wave of foreclosures is coming as the prime mortgages with laid off mortgagees begins to hit.

Most analyists agree that the only way to halt the tsunami all over again is for the banks to release the REO’s they are sitting on, let the housing market take the hit and then adjust itself again.  Yes, it will be painful, but dragging out the process does nothing than forestall the inevitable and make it hurt worse in the long run. 

Think bandage.  When you take it off slowly it hurts longer than if you just rip it quickly.  Let’s get this thing over with!

Good News: Option ARM Resets Delayed

The bad news: Low home prices and high unemployment could still punish borrowers when the reset happens sometime next year

Finally, there might be some good news for struggling homeowners. Thousands of mortgage loans that were supposed to reset at a higher rate this spring won’t be changing, putting off the grim threat of foreclosure or bankruptcy for many Americans by as much as a year. Unfortunately, the reprieve will only be a temporary one.

<span style="font-size: smallA year ago, real estate forecasters were warning that spring 2009 would be the start of a whole new wave of foreclosures. Across the country option adjustable-rate mortgages (ARMs), an especially scary loan type often compared to a ticking time bomb, were set to detonate at an accelerating pace.


<span style="font-size: smallBut something happened that few could have predicted. Interest rates dropped to historically low levels and the wave of resets could now be delayed until well into 2010. As a result, many borrowers—who have the option of making payments so low that they don't even cover the interest, which is then added to the original loan balance—now have some breathing room.

Third of Loans Deeply Delinquent

Credit Suisse (CS) estimates (click here<span style="font-size: smallto see the chart) that the resets will begin to accelerate next spring, rising from about $4 billion resetting in March 2010 to a peak of $14 billion in September 2011. The current level is about $1 billion. About $500 billion of option ARM loans are outstanding, according to the bank. "Things have gotten pushed out," says Chandrajit Bhattacharya, director in U.S. Mortgage Strategy for Credit Suisse.

<span style="font-size: small

<span style="font-size: small"Right now it looks like the big increase is probably going to be somewhere toward the middle of next year."

<span style="font-size: small

Option ARMs typically reset after five years, at which point the monthly bill increases 65% or more. About 37.5% of option ARMs originated in 2005 are still outstanding, 63% of the 2006 vintage are outstanding, and 82% of the 2007 loans remain, according to Barclays Capital (BCS. And about a third of the outstanding loans in these years are deeply delinquent.


In a given month, between 4% and 5% of borrowers who are current on their option ARMs taken out in 2006 and 2007 default in the following month, says Sandeep Bordia, Barclays’ head of residential credit strategy, who also expects resets to be delayed until next year.


“These things have been performing horrendously,” Bordia said. “I don’t know how much of it will last into the recast.”

Moving Out of Option ARMs

But real estate analysts were predicting that many option ARMs would reset sooner as loan balances hit specified principal caps, typically 110% to 125% of the original principal.


The decline in interest rates means that it would take much longer to hit the principal cap and many borrowers will instead face a reset only at the five-year mark.


The Mortgage Bankers Assn. is also estimating that the lower interest rates will delay the resets. But the group also expects that lenders will help borrowers move out of the option ARM products before they reset. Many of the investors who can’t easily qualify for modifications and the borrowers beyond help have already lost their homes, says Michael Fratantoni, vice-president of single family research and policy development for the Mortgage Bankers Assn.


And the homeowners who are holding option ARMs when the wave of resets hits won’t face as big a shock because interest rates have fallen, adds Fratantoni. “Interest rates have come down to the point where the resets that are going to occur are going to be a bit of a non-event,” he says. “Very few borrowers will experience the recast.” But Nicholas Chavarela, managing attorney for Orange (Calif.)-based America’s Law Group, which represents borrowers negotiating modifications, says banks remain reluctant to reduce principal for underwater borrowers.

Cutting Debt-to-Income Ratios

The Obama Administration’s loan modification plan, which only applies to owner-occupied homes, is a step in the right direction, Chavarela said. But lenders won’t do what’s needed unless they’re forced to, he said.


Under the plan, taxpayers and participating lenders would share the cost of cutting borrowers’ debt-to-income ratio to 31%. Loans terms could be extended to 40 years and interest rates dropped to as low as 2%. But option ARM borrowers would likely have to pay more each month, even with a modification, because they’d suddenly be required to pay both interest and principal. “The Obama plan needs to be built upon,” Chavarela said.


But even if they can refinance many borrowers can’t afford the higher payments. Philip Tirone, president of the Mortgage Equity Group in Los Angeles, said he reached out to borrowers with option ARMs, offering to help them refinance into a fixed-rate mortgage with a low interest rate. “For them, it’s all about the payments,” Tirone said.

Time to Work with Lenders

Keith Gumbinger, vice-president of, a publisher of loan information in Pompton Plains, N.J., said the lower interest rates have helped to diminish the option ARM problem.


But it remains unclear how many option ARMs are left to reset and how many borrowers will be able to get out of the loans before it’s too late. Moreover, by the time they do reset it is unclear whether the economy will be better off. If home values and unemployment continue to weaken, it will become even harder to refinance. But the delay in resets gives some motivated borrowers time to work with lenders and negotiate a solution.


“I don’t think this is going to be the tsunami that was forecasted a few years ago,” Gumbinger said. “But it’s probably bigger than a ripple in a pond.”