Let’s Talk About Seattle Real Estate

The Case-Shiller numbers came out today, for two months ago, March; they always lag. They are subject to extremes of subjective interpretation. However, they are in fact mostly down, although not as much as in the last few months. Los Angeles and Las Vegas are actually less down this month than last month! But, there is no national trend evident yet.

This New York Times article has as good a treatment as any of the illusive significance of the C-S report. By comparison, here is a PDF link to graphs with helpful statistics about the huge dimensions of the loan problems that are burdening our broken financial system. Caveat: The package was assembled by brokers selling investment alternatives to real estate, but their statistics are drawn from legitimate sources; I do not endorse or recommend the advertisements at the end of the presentation.

Here are all the Case-Shiller statistics, nicely presented in Excel; click on “March 2009.

Credit-card users are the latest group of borrowers to come to the attention of congress, resulting in legislation that is supposed to make it easier for people to repay these loans. Longer waiting periods before penalties for late payments kick-in. Big deal, right? If the economy functioned, people would be able to pay their credit-card bills, exorbitant fees and all, the card-issuers would make grand-theft profits, and everybody would be happy. Know anybody wo has a HELOC (home-equity line-of-credit)? Or an unsecured commercial line-of-credit, used to run their business? Then you know that banks are cutting back or even eliminating them for many of their borrowers.

Bad news and not fun if it happens to you, but I think there is a bright side to this. The banks want to loan the money. They just want it repaid. So, they are not going to reduce their loan amounts and refuse to deal with people and companies they consider too risky (which, by the way, is me and you). This is GOOD! The more the banks behave this way, the more misery will be inflicted on all our lives. But the quicker the economic decline will bottom out. And the banks will be there immediately, willing to lend, pleading for you to borrow.

Here’s a recent paper on the housing crisis and the related Wall Street Journal article. A few figures from the paper are interesting. They show the movement of home prices by low, middle, and high tiers. The ones for Seattle and Portland are below, look at the paper for the rest.

Read the long paper for a complete understanding of these graphs, but in a nutshell: the greatest flow of money was to the lower-value tier of Seattle area housing, so the greatest appreciation took place there. When no more sub-prime buyers were available to bid house prices up, prices then dropped the most in the lower tier. Therefore, that is currently where all the “deals” are to be had, a fact recognized by the federal government’s $8000 first-time home-buyer credit: real value is to be found, for the moment, at the cheaper end of the market.

For the last 25 years until 2008, we have enjoyed a national and individual prosperity that was financed.  We borrowed massively in order to buy what we wanted, instead of buying only what we had the cash to afford.

I know what changes my wife and I are putting into place in order to spend not more than we earn, and I see my friends and colleagues also cutting back, refinancing and doing without.

Empty-nesters that we are, we’re still aware of the challenges our children are experiencing now in order to build careers, while at the same time they look to the future and the needs of their own growing families.

The option for them to finance their future spending, the way our generation did, does not exist for them. And it will no longer be allowed us, either.

Let us make our plans accordingly, and for the long term. The old system no longer works, and we will be the ones, through dramatic changes in our individual behavior, to put the workable new system in place. How we spend borrowed money is the problem that has to be dicussed and resolved.