But is Washington Mutual really the predator? 

http://seattletimes.nwsource.com/html/businesstechnology/2010136506_wamu26.html

Why no mention of what culpability the son, who took the $500,000 in loan proceeds and didn’t make her payments for her, has in the loss of her home?  Without that initial refinance, none of the subsequent refi’s would have been even necessary.  He’s like the prodigal son — got his inheritance early.  The only thing is, the prodigal’s dad had lots of cattle left over and this poor woman is living in a little apartment now.

I spend part of the day yesterday at Real Estate Bar Camp, held at Seattle’s Lake Union Armory (very cool building which I’d never been in on the South Lake Union waterfront — Soon to be the new Museum of History and Industry). 

One of the sessions I sat in was hosted by Stan Humphries of Zillow – he presented on the data that is available on Zillow, and the ”State of Seattle’s real estate market” — at least as it can be evaluated from behind a computer screen.  Zillow has lots of data behind its site, most of it culled from County Assessor’s public records.  It allows a user — for FREE — to sort the data in a variety of ways — by area, and by a number of different criteria.   From the Zillow home page, click on the LOCAL INFO tab at the top.  

One of the criteria I hadn’t seen before is as shown below in this graph — the percentage of homes sold at a gross gain in sales price, compared with the prior sale.  The figure has been steadily dropping since early 2008, but still — 87% of homes that sold last month (or last quarter, I can’t quite tell) sold for more than their prior sale.  That doesn’t mean a profit was made — the homeowner may have remodeled or otherwise upgraded the home, and of course, there’s the costs to sell that are typically around 8% of gross sales price — but still I think it’s interesting.  Not EVERYONE is losing money…in fact, it appears in Seattle, that 86.4% of the sellers are still making some…

 
http://bit.ly/KVFd0

As predicted, inventory is SHRINKING!  Lots of sales and lots of pendings in this property category.    Supply in north Seattle is down to about four months, which most folks say is a “heathly balance.”   Caveat — the “Active” numbers may not include sites where the builder has one or two units out of four or six available.  But those sales of unlisted units won’t show up in my stats, which I pulled from our NWMLS database.

Has to make the construction lenders — Sterling Savings, Citybank, Evergreen Bank, and their ilk — very pleased. 

I think May and June closed sales will even higher, until inventory is totally gone.  And you know what happens when supply goes down and demand stays constant…

Heard a rumor today that Homestreet Bank, which I knew as Continental Savings back in the “old” days, was getting its cease and desist from the FDIC.  This would be a huge bummer, but I did predict it in my 2009 forecase, paragraph three:  here.

Homestreet has a terrific residential mortgage operation, one of the best and most productive in the region.  But somehow they got deep into contruction and other development lending, and now have an ugly balance sheet where their assets roughly equal their non-performing loans. 

Update:  Homestreet’s release on the issue, this afternoon (5/15): http://bit.ly/HjsuD 

5403 3rd NW Townhomes

• Prices have come down.  From peak pricing in mid-2007, there’s been a 15%+ drop in values.  For the normal developer, working off a 8-10% net margin, that makes current pricing a losing proposition at the values which they paid for the land.  This, and in many of the more marginal neighborhoods where there is a TON of product, the lenders are letting the builders short sale units, effectively subsidizing the buyers’ purchases at even lower prices;
• Financing is incredible.  Not only are market interest rates low, but nearly all of this inventory is under the $506,000 FHA loan limit, making these a 3.5% down payment purchase.  Since these are NOT condos, there is no premium on the pricing, and no presale requirement for a complex.  It’s just like buying a house.  And many lenders are helping out by throwing cash to the buyers for loan buydowns and closing costs.  Sterling (which holds the construction loan on the units above) is paying nearly $20,000 to give the buyers a permanent fixed rate of 3.875% — over a point below current market pricing;
• Supply is declining.  There have been nearly no new loan commitments made in the city for construction financing since early 2008.  Most of what is being built today are projects that had financing in place prior to that time.  Once these are built out, there will be almost nothing new brought to market until lenders start lending, AND townhome prices increase again to the point where the value of the developable land again exceeds the value of whatever’s on the property today – the little rental house, or run down duplex.  Could be years. 
• Prices have upticked in the past 60 days.  In one project, the pricing between the first sales in early February, and the last sales, in late April, were up nearly 4%.  I’m not predicting that will continue, but I think it shows that prices have at least stabilized. 

Definitely encouraging to the beleaguered builder in this town. 

We have borrowed a lot of money from Sterling Savings Bank over the past five years on our construction projects.  Yet despite our perfect record of repayment, somehow they’re still having troubles.  Go figure!

Well — I think the worst is behind them, and I think many of the well managed small construction lenders in our area, in Seattle, have gotten their arms around their loan losses.  I’m not saying some of these banks aren’t going down — some are.  I would bet against Homestreet, Seattle Savings Bank, and Horizon Bank, for example. 

But Sterling, (STSA), trading at 2.60 today, could double with a positive earnings announcement — and I think they’ve been doing a lot to move their builder product, including ours, off their books.  They have been offering up to $20,000 in buyer credit, and interest rates fixed at 3 7/8%, which has moved over 70 units in Seattle this month.  Sterling is here to stay.  At least my kids should be hoping so, because I’ve got their educational IRA’s invested in the stock. 

Another regional bank is Banner Bank, in Woodinville (BANR).  Traded down below $2, now it’s at $2.37.  I just like them, and they seem to be considering new loans, including an apartment project for us.  Considering new loans is a good sign.

Citybank, in Lynnwood (City with a “y”– CTBK), went the deepest into land in Snohomish County and has been hammered.  But trading near a dollar, and now at $3.76, they’ve come back a bit. 

None of this should be considered investment advice, but these three banks, at least in my conversations with their people, seem to be doing what it takes to get their ships righted.  Time will tell.

One thing that I don’t hear often in the argument of “rent v. own” is the fact that at some point, if you stick it out and pay long enough, as a homeowner you eventually get to be payment free. 

In fact 82% of those aged 62+ are homeowners — not renters; 74% of those owners are free and clear of any mortgage debt (data from the National Council on Aging).  One-half of those ages 55 to 64 who own homes also have no mortgage debt.  Sure, there are still maintenance, utility, taxes and insurance costs — and a tenant still has maintenance and utilities.  But you have an asset of some value, and no payment, and no landlord to be subject to.  I think that’s the green pasture, the gold at the end of the rainbow that many call the “American Dream.” 

I don’t know of many of my peers, nearly all bred in middle-class environments, whose parents in the 65-80 age group, don’t A) Own their homes and B) Own them without any mortgage debt.  Not a bad goal to work towards…even if it takes 30 years to get there.

Interesting snippet – not statistically relevant of course. 

While doing an estate CMA for a little house out near Bitter Lake, in North Seattle, I found two comparable homes which had each traded several times over the prior 15 years.  Really shows the sort of relatively modest ramp (relative to the high flying markets) in value, follwed by a small drop in the most recent sale.  Granted — these are year old sales.  I’m sure the number today is 3-5% lower, at least that’s what the more recent comps are telling me. 

Here’s the stats for these two:

It was crazy, back then in the go-go mid-aughts.  In 2005, you saw a house online, you left work, you drove by it (or just looked at it in a fuzzy Google Earth picture, orthaganal view only), and your agent had you sign a purchase and sale agreement that was emailed over and faxed back in a matter of minutes.  No financing contingency, no inspection period, and only if you were lucky, did you get the property after bidding up against a dozen competitors, escalating over their offers and submitting your bid with an 8 X 10″ glossy promising the seller you’d love the home as much as they did.   Total time from first glance, true love, to consummation?  20 days, max.   You didn’t even have Zillow to help you with a valuation until a year later.

It is crazy, right here in the late-aughts.  You see the house online, after it’s been beamed to your iphone within minutes of its activation by your five listing feed services and your agent.  You review it from every angle possible, right down to the Street View on Google.  You look at 50 comparable properties, online, and another 50 in person.  A month goes by.  The house is still there, online, price reduced.  You have your agent take you through.  It’s really really nice.  You remember when your co-worker bought nearly the same house for the same price, four years ago, a block away, in a frenzied bidding war and a deal process that caused him to lose the REST of his hair.  He’s seemed pretty happy there.  Can afford the mortgage he originated at 6.5%, fixed.  Your rate will be 5.25%.  Maybe lower — the seller’s throwing in points.  So you take another walk through.  You bring your mom.  Your brother-in-law.  Your contractor buddy.  Looks pretty good.  Still looks good after the leaves fall.  Looks good in snow.  Looks good in the filtered sunshine of February.  You’re thinking this rental house you’re living in is sure cheap, and it’s probably been a good investment not buying these past four years, but darn it, you want to OWN.  You want to be mortgage free in 30 years, in your own home, like grandma and grandpa, like mom and dad.  So you make an offer.  It’s low, but it’s a starting point.  You get a counteroffer.  You think about it, you crunch the numbers.  After three rounds of this, you agree on terms with the seller.  Then a 10 day inspection — don’t forget to test that popcorn ceiling!   It may be asbestos!  (Of course it is, says your agent, but you want to be sure)  You send a camera down the sewer line.   You interview the neighbors.  You waive your inspection contingency…no big problems there.  You get four good faith estimates for a loan…finally choosing the best deal you’re offered.  45 days later, you close.  Four months after first view.  Two months after first serious consideration.  Whew. 

Somewhere ‘twixt is the right amount of drama, consideration, reflection, and due diligence.  At the end of the day, DECIDE!

I scored “okay” for 2008’s list — not bad, considering that in retrospect, the depth and breadth of all that happened was totally unpredictable. 

So without ado, my 2009 outlook:

1.  SEATTLE REAL ESTATE:  Sales volume will be up substantially in the first quarter (Q1 2009 vs. Q1 2008), and for the year.  I’m going to guess 15%.  For reference, 2008’s closed units were 60,233 in the entire NWMLS area (MLS sales only; doesn’t include foreclosures or FSBO’s  – stats pulled from NWMLS).  26520 agents at year’s end = 2.271 sales/agent.  I’m guessing there will be 22,000 agents at the end of 2009 (as they roll over their two year renewal requirement, they’ll simply not bother), and units at a 15% increase will = just under 70,000.

2.  SEATTLE REAL ESTATE PART II:Prices.  I’m always asked this.  “How is real estate?”  Asked with the same emotion as when your kid is really sick, and they ask “How IS he doing?”  I really don’t know.  I am telling our investors and buyers not to count on any appreciation — which is the same message I’ve always given, btw.  For investors, it’s wise to assume ongoing income/expenses at flat levels.  For buyers, find what you want and buy it.  It’s a really good time to sell your slightly depressed starter house and buy up to the “permanent home” which is surely depressed even more in real dollar terms.  And like the investment property, if you are comfortable making the payment, which won’t change, and you love the house…the value going up or down is suddenly far less relevant. 

3.  Banks:  We have a lot of community banks that went long into bad land deals in Snohomish and Pierce Counties.  Citybank, Frontier, Renton First Federal, and of course, Sterling Savings (which is more regional) have all reported huge loan loss provisions (when a loan starts to get bad, or goes into default, the FDIC requires the bank reports the potential loss even before the asset is taken back and resold).  What will be an interesting play is working with these banks with their REO property (REO is real estate owned…what a property becomes after the bank forecloses on it at the trustees sale).  A bank that loaned $500k on a new construction house has probably already booked the loan to $350,000 by the time it becomes REO.  If they sell it for $350,000, they replenish their capital, and have no further loss.  If they sell it for $250,000, they have only another $100,000 loss, and they get that precious capital back.  There’s great opportunity there for that new buyer.  The banks in Seattle that focused on Seattle will fare far better — Evergreen Bank, for example.  I don’t think any of these banks are “not” going to make it…except maybe Homestreet, in Bellevue. 

4.  Sports:It’s going to be a long rebuild for the Montlake Dawks.  Stanford will beat them again this year!  yeah!  And they’ll improve, like the real estate market, but only slightly.  Four wins?  As for basketball, look for Seattle University to rekindle their former glory at their soon-to-be-new home in the Key.

5.  Microsoft, Starbucks, Amazon, Boeing:I have close friends who work at all these companies…so I read and hear a lot about these businesses.  I like what MSFT and SBUX have done with the hard cost cutting  — just like Zillow made some smart cuts earlier this year that won’t in any way affect their long term ability to perform.  I think these public companies’ stocks will be up by year’s end.  I’ll throw some numbers at this, as of today’s close and 12/31/09:  MSFT (18 >> 24); SBUX (9.65 >> 15); AMZN (50 >> 80); BA (43 >> 60).   I’m bullish, but things have been pounded down so far and each of thse guys has a bit of a corner on their markets.

6.  Oil: I like $2.00 gas as much as the next guy (I have a friend who paid $133 in ID a few weeks ago!).   But there has to be some reversion to the mean on this.  Gas will be closer to $3.00 than $2.00 by year’s end.  It’s kind of interesting that the memory of $4.00 gas earlier this year has caused Americans to continue to drive a bit less — first decline in miles driven EVER. 

7.  Barack:  After his coronation earlier this month, and with all of the expectations, I’m hopeful he’ll deliver.  I was on the fence a bit before voting for him, and I have my reservations, of course — any free marketeer would, I think – but I like his decisiveness so far and he seems to be earnestly working for some practical solutions to this economic mess.  I think his public opinion ratings will continue to be high through 2009 as he does his thing.  Maybe the honeymoon even lasts for a few years. 

8.  Seattle P.I.:  I’ve always like the PI, although I’m a Times subscriber (since they moved to the AM) b/c they had the best sports photographer in the world, my friend Rod Mar.  But they’re going out of business.  Look for a local hero, a white knight, and an activist to join together and keep the Globe spinning.   (Rich and Nick, get to it!  And hire Rod.)

9.  Unemployment:For the glass half full crowd, even 7% unemployment means 93% of those who want to work, are working.  Job losses will increase, is the general consensus.  I’d bet that’s right.  But ours is also an incredibly nimble, dynamic, and powerful economy.  I wouldn’t be any more surprised to see us back in the saddle, with employment still in single digits, by year’s end.  To be sure, this “recession” is a generation shaping event.  In a way, my generation (at 43 this month, I’m on the ridge between Boomer and Echo) has a sense of what this is about.  Our grandparents told us about the Depression, and our parents might have reinforced some of that frugality (I know both generations in my family did, on both sides of our family).  But for the rest of us — that is, anyone under 35 or 40 — life without the cell phone/plasma/pc/newer car/high speed access/Diner’s club car — it’s almost unimaginable.  To save more, to work harder, to spend less — these are all good things.  If we get through this with some of those ethics instilled or re-instilled, that will be a bright silver lining.  And I can’t help but think back nine years, when all was “LOST!” in the dot-com bust…and how quickly we managed to reassemble the pieces. 

10.  The Viaduct:  Seattle’s “tunnel” project, the solution to the decrepit viaduct, will get greenlighted.  Work won’t begin until 2011, but we’ll have a solution funded, and in place.  After so much talk about all the different options, we’ll beat the “inevitable” 7.7 quake to tearing down what’s there.

Note I’m just a real estate broker, and I don’t have any special expertise in any of these non-real estate areas.  This is not a recommendation to buy or sell any particular stock.   Just for fun, people!