10-15% Price Increases In Seattle "Modest"

Here's yet another story for you with the premise that Seattle is not in a bubble at all. This one comes courtesy of the Seattle P-I.

Home prices in some parts of the country might be primed for a decline, putting a drag on the nation's economy, but Seattle apparently could avoid the problem of a price bubble.
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But economists and real estate analysts who study the Seattle-area market believe it isn't part of that phenomenon.

Rather, they said, the Seattle area is seeing relatively modest home appreciation rates -- in the neighborhood of 10 to 15 percent per year. Those rates are a product of an inventory shortage coupled with demand, they said.

What kind of insane world is it when 10 to 15 percent per year is considered "modest"? Granted, they said "relatively," but to me just because 10 to 15 percent is less than the increases in Boston or Florida doesn't mean we're not in a bubble, just that we're in somewhat less of a bubble.

Douglas Pedersen, a Seattle economist, agreed that the area housing market is not seeing the extreme home appreciation rates of other cities. But affordability, he said, is an issue for some potential buyers in the region.

"We have high home prices relative to household incomes," he said.

Hmm, where have I heard that concern before? Oh yeah, here. And here.

(Seattle P-I, 09.30.2005)

Seattle Rakes In The Property Taxes

The Seattle P-I chimes in today with another story of the local housing bubble's windfall tax revenues for local governments. Specifically, this story is about the city of Seattle.

Everybody's talking about Seattle's red-hot housing market.

People who want to buy in, people who want to cash out and people who are getting rich off the magic carpet ride. Local and state political leaders are no different, eyeing the housing market with a combination of glee and caution.

Seattle will bring in about $15 million more than expected in real estate excise taxes this year.

That's one of the revenue streams that allowed Seattle Mayor Greg Nickels this week to propose expanding city services rather than add to cuts he's had to make during his tenure because of a sluggish economy. But Seattle's booming housing market is about to level off, according to top state and local economists.

Will they spend, or will they save the extra money? Considering who we're talking about (politicians) I wouldn't put my money on "save."

(Chris McGann, Seattle P-I, 09.28.2005)

Battle Over Growth in Sammamish

Today's Seattle Times has this story on the builders vs. city battle going on in Sammamish.

Since incorporating in 1999, [Sammamish] city officials have scrambled to stem the tide of new housing projects by passing growth moratoriums. The last one expired in August and was replaced by a new "growth metering" ordinance — the first of its kind in the state — that would allow 840 new housing units in the next two years, with larger developments phased in over time.

It's a sensible plan, I think, to try to maintain a steady pace of growth over the long term, rather than allowing a huge explosion in the short term. Of course the builders care about a huge explosion of profit in the here and now—before the bubble bursts.

The thirst to build in Sammamish has left a nagging question hanging over city officials: What is the scope of their power to plan for new development?
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Developers say Sammamish is unfairly shutting them out and argue that such restrictions lead to long-term repercussions. The growth-metering ordinance is based on a lottery system; developers have until Oct. 14 to submit applications to win a shot at the 420 lots available this year. At the end of October, the city will hold a drawing.

"Growth metering is irresponsibly anti-growth," said Tim Attebery, lobbyist for the Master Builders Association of King and Snohomish Counties, which filed the lawsuit. "You're artificially denying supply."

Then again, if you think about it that way, artificially keeping supply low only serves to push prices further up, which would extend the bubble. So basically it's a no-win either way.

(Sonia Krishnan, Seattle Times, 09.28.2005)

Prices "In Line With Long-Term Trends"

CNN/Money provides a short interview with a professor who claims that his study shows that home prices in many of America's cities, including Seattle, are perfectly in line with history.

Are home values in America's biggest cities out of whack with the rest of the country?

Chris Mayer, a finance and economics professor who heads the Milstein Center for Real Estate at Columbia University's business school, tackled that question by looking at price changes in 129 cities since 1940.

He spoke with MONEY's Cybele Weisser about his study, "Superstar Cities," which concludes that despite the recent boom, prices in most big U.S. cities have remained in line with long-term trends.
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To be a superstar city, you need two things: limited ability for new construction and big demand. Boston, L.A., New York, Seattle and San Francisco are all good examples.

It is certainly true that "long term trends" have many big cities home prices increasing faster than in rural areas, but I find it to be a bit of a stretch that the increases of the last 3-5 years are "in line with long-term trends." Take a look again at the graph I presented in this post. If you draw a straight line from about 1975's data point to 1988, then another from 1990 to 2001, the slopes of those lines pretty well match up. But if you do the same thing from 1988 to 1990, and again from 2001 to 2004, you can see that those are drastically steeper slopes. 1988-1990's insane spike led to nearly flat prices for almost five years in Seattle. Why should we believe that the similar run-up in the past four years won't lead to the same thing, or an even more dramatic price correction?

(Cybele Weisser, CNN/Money, 09.23.2005)

Seattle Times Asks: Who Will Lead On Housing?

The Times today features a special report on housing, with a graphic that I found particularly pertinent.

In the past five years, real hourly wages have grown by only 2 percent while the median home price has increased by 52 percent. Though homeownership levels are currently high, a good portion is due to the use of highly leveraged mortgage products, a risky proposition in a rising interest-rate environment.

King County has experienced a comparable run-up in prices, and the Census Bureau's American Community Survey shows that county household income actually declined from 2003 to 2004.

The consequences of these market dynamics are dramatic. According to the nonprofit Center for Housing Policy, more than 14 million households in the country — one out of every eight, or 12.5 percent — now pay more than 50 percent of their income for rent or mortgage payments and/or live in physically dilapidated housing. In King County, it's higher — 14 percent.

Does anyone think that is a good sign? Bubble or not, housing is becoming more and more of a problem. Is it the federal government's fault, or is it on them to "fix it"? The article attempts to tackle these questions.

(Bruce Katz & Michael Stegman, Seattle Times, 09.22.2005)

Kitsap County Out-Increases King

While King County's 17 percent year-on-year price increase is impressive and baffling, even more so is Kitsap County's 23 percent year-on-year increase. What could possibly be driving prices in the rural east Puget Sound county? Definitely not wage increases.

August home prices were 23 percent higher than those in August 2004, topping three years' worth of near-steady increases.

Some fear that many would-be-homeowners will be priced out of the market.

"Wages are definitely not keeping up with increases in housing prices," said Mike Eliason, with the Kitsap County Association of Realtors.

Despite predictions of a national slowdown in the housing market, none appears to be in sight for the Puget Sound Region.

Inventory continues to drop, and prices continue to rise, and we all know it can't last forever. But just how long can it last? Will I still be asking this question a year, two years, five years from now? Doubtful, but it's certainly hard to see the big picture when you're sitting in the middle of this kind of madness, isn't it?

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Local Home Prices Still on the Rise

September 18, 2005

Kitsap home sales hit the quarter-million mark last month as prices continue to rise.

The median price of a home sold in August was $255,000, meaning that of 489 homes sold last month, 244 cost more than a quarter million, according to data from the Northwest Multiple Listing Service. NWMLS represents real estate brokers mostly in Western Washington.

August home prices were 23 percent higher than those in August 2004, topping three years' worth of near-steady increases.

Some fear that many would-be-homeowners will be priced out of the market.

"Wages are definitely not keeping up with increases in housing prices," said Mike Eliason, with the Kitsap County Association of Realtors.

Despite predictions of a national slowdown in the housing market, none appears to be in sight for the Puget Sound Region.

Last month, the number of homes sold in King, Pierce and Snohomish County increased over the number sold in August 2004 by 8.3 percent, 21.4 percent and 28.1 percent respectively.

The average time it takes to sell a home has declined.

In 2003, it took, on average, 74 days to sell a home, and last year it took 68.

So far this year, a house sells on an average in 59 days.

"What's driving it? Depending on who you speak with, even among different economists, you get different explanations," Eliason said.

"In general terms, just about any factor that affects prices in Kitsap County has been in play."

Low mortgage rates prompting people to buy, fewer people in more houses and most recently Hurricane Katrina are among the contributing factors.

One factor local home builders and real estate agents point to most frequently is a dwindling supply of houses on the market and lots on which to build new ones.

So far this year, 4.5 percent fewer Kitsap homes have had "For Sale" signs posted out front than there were by the end of August last year. Of 4,578 homes listed for sale, that's about 200 fewer homes.

The number of lots has decreased roughly 12,000 to 14,000 from the amount available a decade ago, said Art Castle with the Home Builders Association of Kitsap County.

"That means that for builders and people looking to buy a lot to put a home on, there isn't a lot to choose from," he said.

So the lot price increases, and roughly every extra dollar spent on a lot means another four dollars on the price of a house.

A decrease in the number of people living in each house has exacerbated the problem.

The average number of people per household dropped from 2.8 in 1990 to 2.5 in 2000, according to the U.S. Census.

"The marketplace had to build 12 percent more (homes) just to house the existing population," Castle said.

A seasonal slowdown is expected in October — people buy fewer homes during fall and winter months — but it is yet unclear if sales will ramp up again next spring and drive prices again to double-digit increases.

The median house price in Kitsap County last month was $255,000.

By Angela Smith-Dice

asmith@kitsapsun.com
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(Angela Smith-Dice, Kitsap Sun (free sign-up req.), 09.18.2005)

Can't Build Fast Enough In Olympia

Yet another story about some of the downsides of the extreme seller's market we've had here lately:

Achieving the dream of home ownership has become hard-earned for some buyers in South Sound and in some of the nation's hotter real estate markets.

That's because builders are struggling to keep up with demand for new homes. On occasion, they can't meet their construction closing dates and require buyers to find shelter in motels, apartments or with friends until the homes are finished.

Not only is it difficult to finish homes on schedule, but the mad rush of building going on brings questions of quality to mind, as well.

"Finding quality vendors (subcontractors) is tough in this market because they're all so busy," McGowan said. "In this sellers' market, there are more buyers than we have homes to build. So, there is a backlog."

Twenty, thirty, fifty years from now and beyond we're going to be stuck with the thrown-together, crammed-in housing that is being built as fast as possible today. Lucky us.

(Jim Szymanski & Rolf Boone, The Olympian, 09.18.2005)

Seattle Cheaper Than Most Other Tech Cities

According to a report by an organization called the Silicon Valley Leadership Group, Seattle's housing is among the more affordable of the eight "technology regions" they surveyed.

For those in Seattle who complain about housing costs, traffic delays, taxes or other issues, the report provides a little bit of comfort.

At least you don't live in Silicon Valley, where the median home price is $723,914, motorists spend an average of 72 hours a year in traffic delays and the state income tax is among the highest in the nation.

Okay, I'll give them that. California is about the last place on Earth I would want to live. No offense to my brother or my wife's familiy (who live there now). Of course I believe that salaries are a bit higher there, though not necessarily high enough to cancel out the ridiculous cost of housing. What really cracked me up though was this statement:

[Seattle] also performed well in terms of housing, with half of the available homes affordable for those who make the median income. That compares with just 20 percent in Silicon Valley and 30 percent in Boston.

I'm curious to know exactly how they define "affordable." The median income in Seattle comes in at around $55,000. The median house costs $385,000, meaning that half the houses cost less than that. Doing some rough calculations, mortgage payments on a $350,000 home with 20% down and 6% interest rate would be roughly $1,675 a month. Don't forget property taxes, which would come in at roughly $480 a month, for a total of $2,155, or 47% of the median income's pre-tax monthly earnings (that's not even considering insurance or maintenance costs). Plus, who has $70,000 laying around for a down payment? "Affordable" indeed.

(John Cook, Seattle P-I, 09.16.2005)

Real Estate Boom Beefs Up State Income

The real estate blitz is having a noticeable effect on state revenue:

Washington state's surging economy, driven by a continuing construction boom and red-hot real estate market, will pump an additional $493 million into state coffers, forecasters said today.

The good news - the third quarterly revenue surge in a row - brings the state's reserves to over $1.1 billion.

Will the state be as blithe with the money as some local governments have been? Hopefully not, but what politician can resist spending money?

[Washington State Chief Economist ChangMook] Sohn said the sizzling housing market is responsible for nearly half of the latest windfall. But he cautioned that the pace will soon start slowing to a more normal rate.

It will be interesting to see if his advice is heeded.

(David Ammons, AP (Seattle Times), 09.15.2005)

How Long Can Huge Price Gains Continue?

To me it's not a question of whether or not the ridiculous price gains of recent years will continue, but rather how long will they continue? Though other parts of the country have shown some signs of slowing, in the Seattle area the answer is apparently "a little longer."

King County's home price increase means the median home cost $385,000 in August -- $56,000 more than the median home cost in August 2004, according to figures released on Monday by the Northwest Multiple Listing Service.

That's a 17 percent year on year increase.

In Snohomish County, the median price of homes soared 23 percent to $296,725, while the figure for single-family houses soared 24 percent to $311,525, the first time it has climbed above $300,000.

Yowza. Considering that even by semi-rational financial standards, my wife and I shouldn't spend much more than $240,000 for a home, it looks like we'll be continuing to rent for a while.

Maybe the bubble non-believers are right, and prices will never drop. Maybe we missed the time to "buy now before it's too late" and we've been priced out forever. I rather doubt it though.

(Kristen Millares Bolt, Seattle P-I, 09.13.2005)
(Bill Kossen, Seattle Times, 09.13.2005)

Snohomish County Budget Balanced on Home Sales

Are local governments setting themselves up for budget troubles if/when housing takes a downturn? That is to say, are they taking increased revenues from the high volume and high price of home sales and using them for regular operating expenses, rather than treating it as a surplus?

More tax money is forecast to flow into Snohomish County coffers in 2006, but the county appears to be in a tight budget year anyway.
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The county is riding a wave of higher-than-expected tax revenue collections, chiefly real estate excise taxes from high home sales prices and the number of homes sold. Those taxes are forecast to be $19.7 million by year's end, up $5.6 million.

For Snohomish County it would appear that the answer is "yes."

(Jeff Switzer, Everett Herald, 09.12.2005)

What's Special About Seattle?

One of the arguments that is frequently heard from people who don't think there is a real estate bubble in Seattle is that the Seattle area is somehow special, and has unique characteristics that will protect it against real estate price corrections. Although I agree that Seattle is a wonderful place to live (why else would I be here?), I also recognize that every place has a list of unique characteristics.

However, I am still an open-minded kind of person, and I know full well that there are lots of people around that look at other markets in the country and see a bubble, but think that Seattle is either not in a bubble or has special protection against a bubble bursting (i.e. - price decreases). So, I would like to hear from you. What is it about Seattle that makes it special and immune to a price correction in real estate?

Please keep your comments on the subject of why Seattle is special/unique, as opposed to arguing why it is not. Next Friday I'll post the opposite question.

Early Slowdown Signs in Olympia

Following up on the Olympia market is today's story in The Olympian: Home sales surge in August

He noted that there were 1,038 homes listed for sale last month, a 9 percent increase from 955 listings a year ago. Also, he said, homes that sold last month were listed an average of 45 days, 8 days longer than in July.

"That's due to a lot of new construction and reflects new developments available in the marketplace," [Jerry] Wilkins [manager of the Olympia MLS] said.

While these are both sure signs of a slowdown, that didn't stop prices from continuing to make record gains.

The region's $237,900 median sales price in August set a record that was 26 percent higher than the $189,500 median price of a year ago.

However, if the increasing inventory is a trend that continues, prices will eventually slow down with it. How long will that take and will it really happen? Who knows.

(Jim Szymanski, The Olympian, 09.07.2005)

Anecdotal Evidence

I don't know if actual inventory is going up in the greater Seattle area, but I do know that I have noticed more "for sale" signs cropping up in my neighborhood lately. Just for kicks, I decided to take two of the recent listings and keep an eye on them. For variety, I have selected a single family house and a condo, roughly a block away from each other. Here is the basic information on each of them:

Kenmore House

MLS#: 25111059
Parcel #: 0114100633
Address: 7015 NE 181st St, 98028
SqFt (house): 1,400
SqFt (land): 13,167 (0.3 acres)
Last Sold: pre 1991
Listed: ~3 weeks ago
Tax Assessed Value: $209,000
Asking Price: $350,000

Kenmore Condo

MLS#: 25126417
Parcel #: 8035550050
Address: 7218 NE 182nd St, 98028
SqFt (house): 1,473
SqFt (land): N/A
Last Sold: 08.11.2004
Listed: ~1 week ago
Tax Assessed Value: $207,000
Asking Price: $274,950

What I'll do is keep my eye on these two properties to see if they sell, how much they sell for, and how long they take to sell. I'll keep you updated in the coming weeks.

Would You Pay $200k for 500ft²?

Although this isn't a news item so much as it is a blatant advertisement (a.k.a. "press release"), I still found it to be another interesting sign of the times.

Called Mosler Lofts, the 12-story condominium project is located near downtown restaurants, shopping and attractions, and Seattle Center. The lofts will range in price from the mid $200,000s to $1+ million.
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The condominiums will range in size from approximately 500 SF to 2,000 SF.

$200,000 for 500ft²... what a steal! But hey, you can't put a price on envy, right?

"This new development is truly an enviable location -- where New York meets Seattle."

Mosler Lofts, where Seattle wages pay New York prices!

(Business Wire, 09.06.2005)

How Will Katrina Affect Housing Markets?

The New York Times today has an article that asks whether the effects of the hurricane will shorten or extend the housing boom (bubble):

Hurricane Katrina destroyed hundreds of thousands of homes, threw at least a million people out of work, disrupted supply lines for businesses and brought misery to untold numbers. Will it also put an end to the housing boom?

There are good reasons to think so: the storm has led to rising oil prices and shortages of building materials, and is likely to shake consumer confidence. But most experts think the housing market's five-year run still has a way to go before it peters out.

In a weird twist of fate, the storm could even extend the housing boom, which in recent weeks had seemed to be running out of steam.

I think this is a valid question. You can't just wipe an entire city off the face of the nation without some sort of residual effects. But how will this effect the Seattle area, or will it at all? The Seattle Times reports that thousands of displaced people will be making the Seattle area their temporary home.

Washington state is expected to start welcoming at least 2,000 evacuees from the hurricane-devastated Gulf within three days, likely placing them at military facilities or other temporary housing.
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The evacuees, many of whom may be sent to King, Snohomish and Pierce counties, could stay six to nine months, according to officials.

The arrival and temporary stay of a few thousand people whose homes have been destroyed is unlikely to have any noticeable affect on our local housing market, but there are other national factors mentioned in the NYT article that could well cause some ripple effects up here:

• skyrocketing oil prices
• shortage of building materials
• shaken consumer confidence
• dancing mortgage rates (heading down immediately following the storm)

How will these affect us? I certainly don't know, but I'm interested in hearing discussion about it all. What do you think?

(Motoko Rich, New York Times, 09.05.2005)
(Lisa Chiu, Seattle Times, 09.05.2005)

Seattle Civil Defense Manual - 1951

Okay, this isn't related to real estate or housing bubbles, but it is related to the Seattle area, and I thought it was interesting enough to make a quick post about it here. I've just uploaded a pamphlet / magazine from 1951 called the Seattle Civil Defense Manual to my personal site.

It's a 25 page booklet that instructs local residents on how to be prepared for an atomic attack. Of particular interest are pages 10 and 11, which contain pictures of Seattle and other Puget Sound points of interest as they existed 54 years ago. Also amusing is the list of hundreds of "Subversive Organizations in the U.S." on pages 22 and 23. Actually the whole thing is somewhat amusing in a twisted sort of way.

Check it out.

Talking About Me Behind My Back

It seems that my blog interests at least a few people other than myself. Thanks to the wonders of StatCounter, I have unearthed the blog posts of some other interested locals. These fine individuals are none other than:

• Jim Miller, who says that my focus is "narrow, but tremendously important, especially in this area."
• Timothy Goddard, who contends that "Housing bubbles (as opposed to real estate bubbles) don't really happen — everyone wants to own a home, so demand never goes down." (A claim with which I would beg to differ.)
• Dustin at Rain City Real Estate Guide somehow got the idea that I have "posted some interesting observations."
• Tom of Seattle Property News who posits that there may be "a regional bubble in online real estate sites."

Do you have any thoughts on the points made by some of these other local blogs about Seattle's bubble(s) or lack thereof? Be sure to read the comments on those posts, as I posted my own thoughts on a few of them.

P.S. (Timothy Goddard's blog seems to be experiencing difficulty at the moment. Be sure to check it out in a few days.)

Thoughts On Posting

I'd like to take a few moments to share about the posting frequency here. Due to the very specific nature of the topic that I have chosen to dedicate this blog to, there is actually a rather limited supply of new information available at any given time that is worthy of posting. There are plenty of news stories every day about the housing bubble in general, and they are nearly all magnificently covered at The Housing Bubble 2 and other similar "bubble blogs" (linked on the right). Repeating and re-hashing topics that have been covered elsewhere is not something that I am interested in doing. In fact, before I started this blog I actually performed some internet searches to make sure that a similar blog did not already exist.

Rather than adding yet another voice to the discussion on the more general topics, as I have stated before, I intend to keep this blog's focus centered on the specific topic of "news and discussion about the real estate / housing bubble, specifically as it pertains to the Seattle area." As such, if there is no news about Seattle area real estate or housing on a given day, there probably won't be any posts (unless I think of a good discussion topic). Other days, there might be five or six posts. There will be busy surges and boring lulls. I expect it to be quite random, and I just wanted to make sure that anyone reading this doesn't come on a five-post day and expect it to be like that every day.