Here at Redfin, we don’t have much patience with bubble bloggers. We do not have a fixed position that all markets are over-inflated all the time. For example: since last year, we have stated repeatedly that foreclosures are likely to peak this summer, a position now corroborated by statistical data and our own experience: in Southern California, our agents and our customers have complained that screaming deals on distressed properties have been scarce since the spring.
But on Tuesday we published our monthly newsletter, arguing that the problem in the current market is weak demand. Then yesterday, we published a contrary point of view from DeeJayOh of Seattle Bubble, arguing that limited inventory was the reason there was limited demand: there has been very little good stuff to buy. And now last night I got another response to the newsletter, from a Seattle real estate agent at John L. Scott, who has lots of experience working with builders on huge new developments.
He argues that a huge wave of foreclosures is coming to the Seattle market, and that local banks — we blotted out their names — will be forced to cough up the foreclosures when they are taken over by the government. He also thinks that the drop in prices has so far been driven by fear and greed rather than distressed properties per se. It’s an opinionated piece, loaded with inside baseball and on-the-ground facts. I don’t agree with all of it — the failure of a local bank won’t cause foreclosures when really it is foreclosures from 2008 and 2009 that are now causing that bank to fail — and I think that fear-driven pricing is more prevalent in the exurbs where the writer lives.
But for all that, it’s a really good read. The writer agreed to have his email published, but never answered the question about attribution. Guest poster, if you want attribution, please step forward!
Rates need to bump up a to create a fear of loss in the market place. The focus will then shift from home prices to interest rates.
Fear and Greed Drive Down Prices
Every buyer seems to view each and every listing as distressed, when nationwide about 30% of homes are distressed. And foreclosures are crippling middle-income home-buyers that have had their equity removed. This was in part due to the economy although from 2005 to 2008 there were also some risk takers in the $400K -$600K price-range. But the point is these home owners now are tight. Others like me, I’m upside down and we put $250,000 down in 2004.
I still made great money last year and can weather the storm. I love our neighborhood and won’t move. But we have had three homes listed and sold in the last six months that sold for $125K under market value.
The first seller spoke to the original listing agent of the subdivision; that agent told him he needed to price his home to sell at $409,950 if he wanted to sell in this market. There was a two-month-old sale 125 feet away that had just closed 60 days before for $539,000. The seller went ahead anyway, and got 5 offers in less than a week. This was not a distressed sale. The listing agent just had a dismal view on the market or needed a quick buck.
That low sales price forced the hand of a second seller in our adjoining neighborhood, who felt his value was closer to $499,950. He was being relocated, and he used the relocation agent recommended by his company. He listed the house for $425,000 and was pending in two weeks. Obviously a quick sale and under market value.
Our neighbor lost his job and had a friend who did short sales. The neighbor made a plea to the bank, and his friend bought the house somewhere in the $280,000 range. He put $10,000 into it and then listed and sold the home for $389,950. His house is identical to the other homes listed; it is 400 sq ft smaller than ours which we paid $520K for 5 years ago with $250k down.
The point being within a 7 to 9 month period and only until the last sale I mentioned, none were distressed homes. We had comps at over $500,000. But agents who were more focused on getting a rapid sale to stay afloat did a disservice to their clients and the entire neighborhood. We now have 3 sales in 6 months the highest being $415,000, $409,000, and $389,000 or less. From an appraisal standpoint everyone in both of the two subdivisions is completely screwed.
Two were move-down buyers and both sales had multiple offers and went pending in a week.
The other issue and maybe you have mentioned it previously, is that the local banks are completely and utterly screwed up. They don’t have asset managers, they have out-of-work loan officers trying to be asset managers. These guys can’t balance their own check books, let alone assess market value, or figure out how to position property.
The scary thing for Seattle is that [Bank A], a $3-billion bank, had $900 million in defaulted new construction loans. Excuse me? When the heck did that balance sheet ever make sense? [Bank B, which has been taken over by the FDIC] was as bad. [Bank C] and [Bank D] are going down in six months or less; they’re well over [Bank A's] load of non-performing new-construction loans. That doesn’t even include [Bank E], [Bank F], and the list of 20 others on the FDIC watch list.
To put it bluntly, there is not a shadow inventory of undisclosed real estate held by the banks and the FDIC, there is a frickin AVALANCHE. [Big Bank A] and [Big Bank B] have not settled with the FDIC. The amount of debt, distressed loans, and non-performing properties are enough to flood the market and crash Seattle. You would see bank-owned properties topping 50% of all product on the market in our area if they brought them on.
For as many tech-savvy, business-savvy people who are in this state, as a whole we still react like we think we are some unique part of the world. Read “Seattle magazine” March 2008. YIKES.