Excise Tax Battle Heats Up

The battle over proposed changes in the real estate excise tax is heating up, and depending on which side you listen to, the change would either drive prices up, or drive prices down.

The Washington Association of Realtors has launched a $1 million campaign aimed at squashing a proposed tax increase on real-estate sales.

"We are committed to doing whatever it takes to prevent any increase," said Steve Francks, the association's executive vice president. "I've never seen our members this mobilized."

The group has started running TV, radio and newspaper ads warning that the tax increase would cost homeowners thousands of dollars in "hard-earned equity" when they go to sell.

But in their fight, the Realtors face an unlikely foe: the typically anti-tax Building Industry Association of Washington (BIAW).

The homebuilders group, which — like the Realtors association — wields a lot of clout in Olympia, supports the increase because it would be used to replace so-called "impact fees" that local governments assess on new construction.
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Homebuilders have long viewed impact fees as onerous and unfair.

Tom McCabe, the BIAW's executive vice president, said impact fees require new homeowners to pay for roads, parks and schools that everyone uses.

It makes more sense, he said, to spread that burden more widely by taxing all real-estate sales.

The trouble with listening to either of these groups is that while they are masquerading as "consumer interest" groups, they both clearly have only their own interests in mind. The realtors claim that replacing impact fees with excise taxes would drive up house prices, but if this were true, wouldn't that be good for them, since they would make higher commissions? On the radio yesterday I heard a BIAW spokesman claiming that the change would cause house prices to decrease, since expensive impact fees on new construction would go away. But if the builders aren't going to pocket at least some of that difference, why would they care?

Realtors want to "protect" sellers, builders want to "protect" buyers—they both claim to be interested in protecting people, but (pardon my cynicism) what they're really interested in is protecting themselves.

(Ralph Thomas, Seattle Times, 11.28.2005)

Seattle #10 Best Apartment Investment

Seattle is a good place to put your money if you want to invest in apartments, or at least so says the Center for Real Estate Studies:

The Seattle area has been ranked No. 10 on a list of the nation's top markets for apartment investing.

The Center for Real Estate Studies bases its ranking on forecasts for growth in rental rates and median sales prices.

In Seattle, rents are expected to increase 2.1 percent over the two-year period ending Sept. 30, 2007, according to the study. The median sales price per unit in the Seattle area during that period will be $88,500, the center said in a news release.

Increasing rents would mean lower supply and/or more demand. More demand seems plausible, if recent local population growth trends continue, but supply seems to be skyrocketing just as fast. Of course, 2.1 percent over a two-year time span is actually less than the average rate of inflation. Perhaps that was factored into the study, but it doesn't indicate it this article.

(Puget Sound Business Journal, 11.28.2005)

Number Of Realtors Surges

While the median price of Seattle-area homes has skyrocketed and the number of active listings on the market has decreased, the number of realtors out there trying to sell them has surged in recent years:

The nation's sizzling housing market has attracted droves of home buyers, but it has also drawn many who are looking to get a piece of the action in another way -- by joining the growing ranks of real estate agents.

Consider this: as of Nov. 18, Washington state had a total of 40,680 licensed real estate agents and brokers, including 17,185 in King County.

That's a real estate agent or broker for every 105 King County residents -- counting both adults and kids.

Nationally, one in every 266 adults are real estate agents, the National Association of Realtors reports. The Chicago-based organization says it has more than 1.2 million members.

Okay, that's comparing apples to oranges, which is rather annoying, but still you can get the picture that Washington has way more real estate agents per capita than the rest of the country.

In Washington state, the total number of licensed real estate agents and brokers has increased by 7,839 so far this year, through the first three weeks of November -- an average net gain of more than 712 new agents a month, said Chris Anthony, a spokeswoman for the state Department of Licensing.

In 2004, the number of licensed real estate agents and brokers in Washington state grew by 8,438 -- an average increase of 703 a month.

In 2003, the number of licensed real estate agents and brokers in this state rose by 1,533 -- an average increase of only 128 a month.

8,000 new real estate agents per year. Does Washington State's housing market justify that?

(Clayton Park, King County Journal, 11.27.2005)

First-Time Buyers Come Up Short In Seattle

Thanks again to a faithful reader for pointing out an article that slipped under my radar during the holiday. The Seattle Times reports on the growing costs of housing in the Seattle area, and how many people are being priced out of the market:

Despite earning wages higher than the national average, Seattle-area buyers increasingly are being priced out of the single-family home market — one of the most expensive in the nation, according to just-released sales statistics.

The median price of a single-family home in the combined Seattle-Bellevue-Tacoma area was $325,000 in the third quarter, according to the National Association of Realtors. That's 50 percent higher than the national average.
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In fact, the NAR's numbers reveal that Seattle-Bellevue-Tacoma combined is the most expensive metro area north of San Francisco and west of Washington, D.C.

Now that's a rather amusing way to draw the border. When you think about it though, what major cities really exist outside the area they just defined? Chicago is pretty much it. Of course that doesn't change the fact that it's still really flipping expensive to try to buy a house around here.

King County buyers earning the median wage now have just 85 percent of the income needed to buy the median priced house, Crellin said.

And because home prices are rising faster than wages, first-time King County buyers now have just 47 percent of the income to buy a starter house. Crellin defines that as a single-family home priced 15 percent under the median, or around $276,000.

This sounds pretty much like what I've been saying, actually.

(Elizabeth Rhodes, Seattle Times, 11.26.2005)

Land Sale Provides Seattle Times' Only Profit

It seems that if not for the real estate bubble, the Seattle Times would have continued their recent in-the-red streak:

The Seattle Times Co. has posted a $24 million one-time gain on its books from the June 2004 sale of 6 acres of South Lake Union real estate.
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In January, Times Co. officials said their Seattle paper had lost $12 million in 2004. They cited that loss, and growing losses over the four previous years, for eliminating about 100 jobs, raising the single-copy price to 50 cents from 25 cents and cutting back distribution to outlying areas of the state.

For The Times Co., the one-time gain means its flagship paper, The Seattle Times, will show a profit in 2005.

"Technically, it will cause us to show a gain for 2005," company spokeswoman Jill Mackie said, "but that is the result of a one-time transaction and does not speak to the profitability of our operation." Mackie said that without the land sale, The Times would have posted a loss for the year.

Maybe they should get out of the newspaper business and form an REIT. Heh.

(Bill Richards, Seattle Times, 11.22.2005)

Detached Rental Proposal Considered

The city of Seattle is considering a proposal that could ever so slightly ease the financial pain that come with soaring housing costs by allowing detached rental apartments in single-family-zoned neighborhoods:

...detached rental apartments and backyard cottages have long been outlawed in Seattle's traditional single-family neighborhoods. Some have worried they'll cause parking problems, erode neighbors' privacy and eat up back yards.

They're currently only allowed in areas with multifamily zoning, such as New Holly, but Mayor Greg Nickels is working on a proposal to allow them in all southeast Seattle neighborhoods. There, residents concerned about affordable housing have embraced the idea.

It's a scaled-back version of a plan that was nixed by the Mayor's Office.

Of course, as with any change, there are those who are opposed in a vehement, dramatic fashion:

Wallingford resident Greg Hill modeled what would happen if everyone on his street built a detached rental unit in his or her back yard. What was once a collective reservoir of green open space became a crowded row of tenementlike buildings.

"It just becomes a ghetto — there's no open space, there's no gardens," Hill said. "There won't be any tomato growing going on in the city if this passes."

That would be too bad. I like home-grown tomatoes. On the other hand, there is clearly some potential benefit here for first-time homeowners:

Tom Smith, 38, who works in business development for community radio station KEXP, said it was a "huge struggle" to find a house he could afford within the city limits.

He felt lucky to get a small, 1950s-era home near Columbia City. But it could prove to be an even better deal if the city allows him to convert the two-story garage, which he currently uses for storage, into an apartment.

"I would be psyched," he said. "It's really tough to get a house in Seattle as a first-time home buyer, and having a detached (rental) would make it a much easier proposition."

Would the change really have a noticeable effect one way or the other? It seems doubtful, but that certainly won't stop people from getting emotional and upset on both sides of the issue.

(Jennifer Langston, Seattle P-I, 11.21.2005)

State Revenue Continues To Bubble

Here's the latest installment of "Government Revenue Bubble," courtesy of the Tacoma News-Tribune:

Washington's hot economy, still surging with a mighty assist from construction and real estate sales, will boost state income by more than $300 million, forecasters said Thursday.

But in the same breath, economists warned of a slowdown, and Gov. Christine Gregoire and key legislators cautioned against a spending spree in the upcoming legislative session.

"There's a lot of risk out there," said state budget director Victor Moore.

It's a tempting target: The new revenue update, reflecting the fourth quarterly revenue surge in a row, brings the state's reserves to more than $1.4 billion, roughly 5 percent of the state budget.

Chief economist ChangMook Sohn's new analysis for the state Revenue Forecast Council presumes a cooling of the red-hot housing market and consumer spending, and projects continuing high oil prices.

The housing bubble hasn't popped yet, but a cool-down probably is imminent, Sohn said. National housing starts dropped 5.6 percentage points last month, he noted.

"There are many signs that housing is peaking," he said. "We have been expecting that for a long time."

In Washington, the real estate and construction sector are responsible for half of the new $304.9 million windfall announced by the council. The state will collect another $100 million just from the tax on real estate transactions.

We'll see if they can resist the urge to sink the money into recurring expenses. I have to say I'm quite surprised and somewhat suspicious that the Governor-for-now "cautioned against a spending spree." Usually there's nothing the government enjoys more than spending our money (on programs that are for our own good, of course).

(David Ammons, Tacoma News-Tribune, 11.18.2005)

Crystal Ball Predicts Seattle Slowdown

No, seriously. That's right, a "national housing expert" is predicting that Seattle will see a slowdown in the housing market in the next few years. He saw it on his crystal ball, it seems.

The housing market in the greater Seattle area "will be heading downward" in the next two years, a national housing expert told a gathering of real estate agents and home builders in Bellevue on Thursday.

But the prediction isn't as bad as it sounds.

If you disregard 2005 and 2004 when the greater Seattle housing market "went nuts," the home sales forecast for this area next year would be one of the best on record, said Stanley Doubinis, chief economic forecaster for Maryland-based Crystal Ball Economics Inc.

Maybe it's just me, but I have a hard time taking someone seriously when they have the words "Crystal Ball" on their business card.

The escalation of home prices in King County "might drop back to single-digit increases" next year, "but retrenchment (in prices) is not likely," said Doubinis.

How can we be in a position to "drop back to single-digit increases" and not be in a bubble?

Doubinis said he expects the Seattle-area housing market to fare better next year than housing markets in many other parts of the country because of the Puget Sound region's strong employment growth, which is increasing four times faster than the national rate.

J. Lennox Scott, chairman and CEO of Bellevue-based John L. Scott Real Estate, said Doubinis' forecast pretty much matches his company's expectations for the coming year.

"We're also predicting a historically strong market next year" that will be only "slightly off the all-time best year (2005)" in terms of the number of homes sold, Scott said.

Sounds like someone who has something to sell, personally.

(Clayton Park, King County Journal, 11.18.2005)

State Excise Tax Change Proposed

Realtors are gearing up for a fight in Washington State over a proposed change to real estate excise tax law:

The Washington Association of Realtors has launched a $1 million advertising campaign to warn home sellers of a proposed tax increase on the proceeds from their home sales.

A buyer of a new home could find the purchase price increased "by an average of $9,000," according to the campaign, although the ads don't specify the size of the home in the example used.

The media campaign began Wednesday, funded in part by a $750,000 grant from the National Association of Realtors. It is designed to build public opposition to a proposed change in the real estate excise tax, or REET. With advertisements running on local television and radio stations and in area newspapers, the effort is targeting a bill introduced in the last session of the state Legislature by Rep. Judy Clibborn, D-Mercer Island.

That's amusing. If the real danger were to property buyers of having to pay more, why exactly would the realtors care? It seems more likely to me that they're concerned that the actual sale price of homes might fall, as buyers would be unwilling to pay thousands more. Lower sale price = lower commission = realtors spending a million dollars to fight this. Which is not to say I support the change, it's just an observation.

Currently, the state real estate excise tax, paid by the seller at closing, is 1.28 percent of the final price of a property of any type, with counties and cities liable for meeting the requirements of the state's Growth Management Act able to tack on an addition one-half of a percent. In King County, that means an effective tax rate of 1.78 percent on every property transaction.

Under Clibborn's bill, backed by home builders and the Association of Washington Business, school districts would be permitted to assess an additional quarter percent and cities four-tenths of a percent in lieu of the impact fees currently assessed against new residential construction. It would be up to each jurisdiction to decide whether to assess the excise tax or the impact fees.

Like I said, the cost is paid by the seller. It's not necessarily the case that the buyer will be willing to just front it. So anyway, how does all this translate into real dollars?

For instance, new single-family residential construction in the fast growing Kent School District, be it a small rambler or a faux chateau, currently comes with a $4,050 impact fee that is divided among the School District, local municipalities and other taxing districts.
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With the proposed increase in the REET, the builder would be off the hook for the up front impact fees. But every home seller, in the case of a $300,000 home, could wind up with a $7,290 tax bill.

I'm shedding a tear for the person selling a $300,000 home—worth just $225,000 two years ago—who has to pay an extra $3,240 in taxes.

(Morris Malakoff, King County Journal, 11.17.2005)

Gas Prices Linked To Housing Patterns?

Considering how much gasoline has surged in price in the last few years, it's no surprise that so many people are talking about it. But will rising gas costs really have an effect on where people choose to live? Are the outlying suburbs of the Seattle area—currently experiencing record growth—in for falling prices if the cost of gasoline continues to climb? A writer for the Seattle P-I ponders these and similar questions:

During the past year, the Consumer Price Index, the most popular measure of inflation, rose by 3.5 percent in the Puget Sound region, according to the Bureau of Labor Statistics. Gasoline and utility natural gas prices jumped 35.1 percent and 17.2 percent, catching area residents on the road and in their homes with higher prices.

That could have some interesting consequences for the region, from commuting patterns to the staffing of local businesses.
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As steady double-digit home price increases push home buyers farther from city centers in search of affordable housing, the ability of Seattle's middle- to low-income workers to get here, and get by, is being compromised.

The article focuses primarily on inflation, pointing out that prices in the Seattle area are growing slightly slower than the rest of the nation. However, gas prices accounted for an unusually large portion of the total figure for inflation. Surely if gasoline cost $10 per gallon a large number of people would rethink the hour-long commute to work. At what point will enough people change their patterns for it to be noticeable though?

(Kristen Millares Bolt, Seattle P-I, 11.17.2005)

Jobs Plentiful In Snohomish County

Though I don't agree with the argument that the Seattle area is special and immune to future housing pain, I'm not the type to ignore evidence that supports such claims. Case in point, Snohomish County's hot and growing job market:

Snohomish County is on fire - at least in terms of job growth.

The county produced 16,200 jobs between October 2004 and October this year, an annual growth rate of 7.4 percent - tops in the state, according to the state Employment Security Department.

Fueled by rehiring at the Boeing Co. and the insatiable demand for new homes, the county's growth rate was more than double the state average of 2.9 percent and more than five times the national average of 1.4 percent.

Of course, with some portion of those new jobs being a result of the crazy housing market, arguing that the job growth definitely means bubble immunity would seem to be at least a bit circular.

(Mike Benbow, Everett Herald, 11.16.2005)

Deals On Fixers Or At Auction?

Parts two and three of King 5's housing report focus on creative ways of making your money stretch that don't include option-ARMs or other "creative" financing options. However, the reports aren't directed at people buying a house to live in, but rather they're written as how-to guides for real estate investing.

If you're handy with tools and don't mind working hard in your spare time, you might consider investing in a "fixer-upper" and making a little extra cash in a booming local housing market.

In part two of our "Red Hot Real Estate" series, we’re looking at the opportunities, challenges and pitfalls of this type of real estate investing.

There is certainly an opportunity to make money this way, especially when property values go up as we've seen them go up in the last year, 20 percent and more in some areas of western Washington.

But be careful. The experts say it may be a harder, riskier, more complicated business than you think.

I'd just like to say... wait for it... wait for it... Duh. Okay, moving on.

It's a sidewalk property auction featuring trustee sales of foreclosed real estate and it happens every Friday morning.

And at the end of the day, the highest bidder owns the home... as is.

The crowd at the auction is a mix of real estate regulars, like Dean Street, and newcomers, like Carl Thompson and Dante Hill, drawn by a hot market and the possibility of sweet deals.

"This is the American dream, to come down here and strike it rich," said Thompson.

Harlan Moore, of Key Foreclosures, agrees.

"It's the stock market," he said, "just like the 90's, everybody wants in. Property is the new Yahoo stock."

What an amusing comparison for someone happily investing in real estate to make. Yahoo stock price (adjusted) in February 1999: $38/share. December 1999: $108/share. Today: ~$38/share. Now that sounds like a piece of action I want in on.

In other news, King 5 News really needs to find a better copy editor. The original articles are littered with grammatical errors, typos, and missing words. They forgot to capitalize Washington, for goodness' sake.

(Allen Schauffler, King 5 News (part 3), 11.15.2005)

What Your Money Buys Around Here

I suppose a more accurate title would have been "What The Bank's Money Loaned To You At An Adjustable Rate Buys Around Here." That would have been a bit unwieldy though. So just how much can the overextended family buy in Seattle's bubble-rific market? That's the question King 5 News takes on in part one of a three-part real-estate series:

If you've tried to buy or sell a house in Western Washington in the last year you know that the real estate market has been crazy, superheated, with prices going up every month.

But what do you get for your money?

We took a look at what was listed one day recently in three Western Washington counties to see what was available in the half-million dollar range, at the median price for that county and the low end of the scale.

We started with an area that has some of the most expensive residential real estate in the country.

Hang on to your wallet, on Mercer Island, we found a smallish four bedroom, two-bath, 50-year-old home listing for $519,000.

It was the cheapest house for sale on the island [and it] needed some work.
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That same half a million would buy you an 18-acre piece of the Cascade foothills far from the bright lights, in Carnation.

Or in the city, a 100-year-old South Seattle home with two bedrooms, and two baths and a lot about a 50th the size of that Carnation property.

Or you can buy into the upper end of a booming urban condo market.

In much of Snohomish County, your home-buying dollar will go much farther, where you can find something pretty nice for $500,000.

Because most people have $100,000 laying around for a down payment, and $2,400 a month to spend on a mortgage. Right.

The median

You'll have to be flexible even in the quarter million range. We found a cute, older home in Auburn for example, priced at $249,000, but it's just half a block from a busy, commercial street.

Another option: $240,000 buys a two-story, three-bedroom townhome in Bellevue. And you're bumping into small lots and very small homes in Seattle or more space, more choices, in the southern suburbs.

Outside the big cities, median price options look remarkably similar across three counties and three prices, $381,000 in King, $270,000 in Snohomish and $267,000 in Pierce County.

In Federal Way, the median home price will get you a backyard pool and three bedrooms just down the street from a saltwater view.

In Lakewood in Pierce County, the median buys three bedrooms, two baths and a home in need of a little updating. But its a tidy, 20-year-old home for a couple or small family.

The same description fits a solid home in Everett, or one we found between Mill Creek and Snohomish.

Yeah, those sound like pretty median houses. Which would be great if the median family making the median wage could actually afford it. Or if the median family worked out in the sticks in Federal Way or Snohomish. But this isn't the Seattle Traffic blog, so I'll keep further comments on that to myself.

(Allen Schauffler, King 5 News, 11.14.2005)

Seattle "Under-Condo'ed" - Not For Long

Clearly if you are able to read a local paper, you are aware of Seattle's amazing immunity to real estate woes past, present, and future. Logically then, Seattle would be a great place to build more condos, which historically are the most in danger of losing value in a falling market. Lucky for us, more condos is exactly what's in store:

"Seattle is a somewhat under-condo'ed city, I think. As a growing city, I think it's an indicator of maturity in an urban city like Seattle that we're now capable of supporting a number of condominium developments. And I think when you compare us to a lot of the other major cities around the country, we have a lot of room to grow in this area," says David Thyer, president, R.C. Hedreen Co.

Take a look at a city like Vancouver, B.C.

It’s very similar to Seattle in many ways, except downtown domiciles.

About 22,000 people live in downtown Seattle. In Vancouver, it's about 73,000.

If you want to talk Vancouver, B.C. comparisons, I think it's only fair to consider the thoughts of someone actually from Vancouver:

Downtown Vancouver appears to prosper, but in the complex world of city building, appearances can be deceiving. I am not for a moment questioning the prospering part — the whole world is scrambling to live and play on our downtown peninsula, with its paradisiacal combination of mountain and ocean vistas, parks and urbanity.

[Vancouver director of central area planning Larry] Beasley and his senior staff recently confirmed to me that in the nearly five years of the new century, development applications have been made for only 700,000 square feet of new office towers in downtown Vancouver.

In this same period since Jan. 1, 2001, they have approved 7 million square feet of new condos. Many of us wonder if a 10-to-1 ratio in favor of condos is in our city's best long-term interest. While all three of our municipal political parties are maintained by donations from downtown condo developers, even our politicians are getting worried about this extreme skew.
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The office-development market in downtown Vancouver — for all intents and purposes — is dead, even while it is reviving strongly in Toronto, Calgary, Ottawa and, yes, Seattle. Your city has hung on to a large number of its banks and corporate head offices, while Vancouver never had them in the first place, or they have headed to the suburbs and Alberta in the face of a severe and mounting anti-business ethos from our governing, extreme-left "Coalition of Progressive Electors" municipal party.

Downtown Vancouver faces the dismal prospect of fewer and fewer sites having the proper size and location for office towers. This will fix our destiny as a shortsighted residential resort, not the diverse and lively mixture of living and work that is a real downtown.

Let's hear it for condos!

(Tim Robinson, King 5, 11.14.2005)
(Trevor Boddy, Seattle Times, 10.23.2005)

Bubble Collapse Imminent: Seattle Still Immune

National economists are waking up to the reality of a housing bubble, stating in a report that a downturn in the housing market could mean a million lost jobs. But what about here in Seattle? The Seattle P-I adds their own reporting to the AP report:

Much of the nation has had a lovely real estate boom for the past five years, but the house party is almost over, and the cleanup won't be pretty.

That's the word from economists and investors who have watched housing prices march ever higher.

"The collapse of the housing bubble will throw the economy into a recession, and quite likely a severe recession," warned a July report by the Center for Economic and Policy Research.

Oh yes, it's been so lovely, hasn't it? Just so rosy and wonderful. Unless you're a first-time homebuyer trying to get into the market. Then it pretty much sucks. Too bad for you.

The dire warnings aren't region-specific — beyond hitting most places where home values have appreciated most. But many experts on the Seattle-area economy have suggested that the elements of a classic bubble — one in which prices could be expected to suddenly reverse directions — aren't apparent here.

Not that a sudden drag in the national economy wouldn't be felt here, perhaps at least flattening the 10 to 15 percent gains housing prices have shown annually in recent years.

Ah yes, it's my favorite news-reporting tactic: Referring to unnamed "experts" in order to back up the picture you're trying to paint. Don't worry, the worst that will happen is for prices to "flatten." The sky is definitely not and will definitely not be falling.

Others point to simple supply and demand. Bubbles have their own psychology — a neighbor tells you at a party that her house has tripled in value, and you feel like an idiot for renting — but supply and demand operates on logic, which has to kick in at some point.

Such factors could affect the Seattle market, though the region's heavily tech-influenced economy has continued to attract young, well-educated people to the region — keeping market pressure on the limited number of homes available.

And what about that loss of a million jobs? Will none of those be in Seattle? Of course not, the influx of young well-educated people is sure to continue forever! There's never been a better time to buy!

Another indicator of a bubble — unsold homes sitting on the market — also points down nationally. The ratio of inventories to sales has been rising rapidly in recent months and now stands at its highest level since 1996, according to Wachovia Corp.

That's another area where Seattle projects a different picture than the national numbers.

The supply of houses on the market in King and Snohomish counties in October declined by 10.7 percent and 2.7 percent, respectively, compared with October 2004. That drove the median price paid for a house up by 20 percent in the two counties, to $390,000 in King, and to $258,600 in Snohomish.

Maybe I'm just naïve, but isn't that how Boston or New York looked a year ago? Wouldn't that just mean that Seattle is lagging behind the bubble dynamics of the rest of the country, as opposed to not being in a bubble at all?

(Seattle P-I Staff and News Services, Seattle P-I, 11.12.2005)

Poll: A Bubble In Seattle?

A reader suggested and created the following polls:

Do you think the greater Seattle area is in a bubble?

How will prices change in 2006 for the greater Seattle area?

I'd be interested to know what people are thinking.

Realtors See "Softer, But Still Bouyant" Market

How about one more take on those October figures? This time let's throw in a bit of anecdotal evidence from realtors while we're at it, courtesy of the Seattle Times.

Puget Sound-area home sales and prices remain strong, according to the latest statistics, but anecdotally, real-estate agents say the usual fall slowdown is well under way.

That may spell good news for buyers frazzled by the summer's superheated market.

"What we're seeing and feeling is that the market is still strong, but there's more balance than we've seen in prior months," said Chris Pauling, president of Prudential Northwest Realty Associates. "Buyers aren't selling their first-borns to get a house."

David Milot, co-owner of Re/Max Metro Realty, concurred. "The market is a little bit softer than it has been, but it's still buoyant," Milot said.

That's nice. "Softer." An excellent choice of words. It feels so... non-threatening. So perhaps there is a bit more weakening than the usual figures would show. However, could this just be a symptom of the usual fall slowdown? Only time will tell.

"We're also seeing more open houses and more price reductions," he said.

Besides the customary slowdown in advance of the holidays, two other factors may be affecting sales.

One is the uptick in mortgage rates. Last month the national average for a 30-year fixed-rate loan was 6.21 percent, according to HSH Associates, a mortgage-information provider. That's half a percentage point higher than the year's lowest rate, which was posted in February. That rate increase pushes a monthly house payment up $79 on a $250,000 mortgage. Seattle's current 30-year rate is 6.35 percent.

The other factor is the continuing high price of gas. Coupled with traffic congestion, it's causing buyers to think carefully about how far they're willing to drive. That keeps prices solid in close-in locations.

Trying to figure out just how much factors like these are affecting the market seems a bit like peering into a crystal ball, to me. Which is not to say that I don't expect reporters to do just that, however. I would still be reluctant myself to point to any of the evidence offered so far and say that we've hit the peak in Seattle and are finally starting on our way down.

(Elizabeth Rhodes, Seattle Times, 11.09.2005)

Another Take On October

It seems that the nature of October's numbers depends on who you ask. The Puget Sound Business Journal sees a slight weakening in the bubble's armor:

With the first three quarters of the year resulting in some of the hottest residential real estate trends ever, the housing market in Western Washington saw a slight shift toward buyers in October. But officials with the Northwest Multiple Listing Service said activity is still robust, prices are still increasing and sellers remain in control.

The number of houses on the market at the end of October was at its highest level all year, and the number of sales pending increased 6.85 percent, the first time the growth rate has fallen short of double digits in 2005.

Prices for closed sales in October still rose 20 percent or more in most of the listing service's coverage areas compared with a year ago, listing service officials said in a news release.

Brokers added 10,853 listings to inventory during October across Northwest's original 15-county market, compared to the year-ago total of 9,375 new listings. New listings in Okanogan and Whatcom counties, added to the listing service's territory in August, brought the 17-county figure up to 11,405, officials said.

The new listings meant buyers had a choice of 22,925 properties in 15 counties, about 3 percent less than a year ago. In the four-county Puget Sound region, inventory still lagged year-ago volumes in King County (down 16.3 percent) and Snohomish County (down 7.4 percent), while Pierce and Kitsap counties registered gains, according to the release.

So, more listings were added than a year ago, but total inventory was still down, and prices are still 20% higher than a year ago. Perhaps I'm missing something, but this doesn't quite smell like the slowdown I've been waiting for. Though the higher number of added listings is certainly a number to watch, I'm not predicting anything just yet.

(Puget Sound Business Journal, 11.07.2005)

Juggernaut Plows Onward In Thurston County

October sales data is in for Thurston County, and prices just continue to soar, posting a 34 percent year-on-year gain:

The October median price of just under $250,000 is the latest in a series of consecutive monthly record highs.

The $249,900 figure was 34 percent higher than last year's $186,000, and was almost $14,000 more than the median sales figure reported in September.

In September 2005, the median sales price for a home in Thurston County was $236,290.

"We are still seeing a strong market," Wilkins said.

Strong, yes. Sustainable? I would be inclined to think not.

(Rolf Boone, The Olympian, 11.08.2005)

Forbes: Seattle 8th Richest City

A reader sent in this link to a Forbes story about the "Richest" cities in the US. In Forbes' list of the 10 "richest" Seattle comes in at #8. However, I'm a bit suspicious of their methods though, since they list the Median Income of Seattle as $46,650, when the latest figures I've seen for King County list the median income at $55,000. Additionally, #2 on their list is Anchorage, Alaska, so I'm taking this one with a big grain of salt. Of course, don't forget that even if you take the "8th richest" to be true, the same magazine rates Seattle as the most over priced city in the country in spite of our "richness."

(Forbes, 10.27.2005)

Cashing Out On The Bubble

If you own property right now that you bought before the latest surge in prices, is now the time to cash out? That's the question that this article tackles, starting with an example of a local couple who did just that.

For Joan and Mike Whitney of Snohomish, Wash., outside Seattle, moving wasn't in the cards until about a year ago, when talk of a housing bubble in the area began to make Mike nervous. "A bubble seems obvious when you read that speculators are buying one in four properties, and people are paying off their credit-card debt with home-equity loans," he says.

Well, those are signs of people doing stupid things with their money, anyway. If there is a critical mass of those people then that's when I think we'll see a bubble bursting.

Despite the talk of a bubble bursting, it's more likely that home prices will continue to head up, but at a slower pace. Economic fundamentals -- strong demand and a tight supply of housing -- continue to push prices higher. In fact, some areas that have experienced relatively slow appreciation, such as Kansas and Utah, are beginning to pick up steam, says Patrick Lawler, chief economist for the Office of Federal Housing Enterprise Oversight. Mortgage interest rates, which are still close to their 40-year lows, are contributing to the momentum.

That said, it could still be a good time to ponder a move, especially if you live in the Northeast, upper Midwest or along the West Coast -- the areas most vulnerable to a pop, or at least a fizzle. On average, home values appreciated nearly 15% nationwide from July 2004 to July 2005, and that can't last forever. Neither can the annual gains of up to 30% in some of the more torrid coastal markets, says Tom Kunz, president and chief executive officer of Century 21. Kunz believes gains of 5% to 8% a year are more realistic. David Lereah, chief economist for the National Association of Realtors, expects price increases for 2005 to average 11% for existing homes and 4% for new ones.

But remember, Seattle is special, so there's no need to worry your little head. Forget selling. There's never been a better time to buy!

(Pat Mertz Esswein & Dave Lindorff , Kiplinger's Personal Finance, 10.2005)

Apartment Complex Sale Prices Soaring

As has been pointed out on this blog in the past, it isn't just the personal residential real estate market that's in bubble territory in Seattle. Huge corporations have been buying and selling entire apartment complexes at record rates, resulting in (of course) dramatically increasing prices:

For anybody who's lost a bidding war for a house in Seattle, here's a small consolation: Some of the biggest real-estate magnates in the world are enduring the same experience as they try to buy into the region's hot housing market.

In what brokers are calling "a perfect storm" of economic circumstances, investors from Australia to Bellevue are pouring money into Seattle-area apartment complexes, breaking sales records and driving up prices because they see rents about to take off.

Some $2.1 billion worth of apartments have changed hands in the Seattle metro area this year, triple the level of two years ago, and the traditional year-end flurry of sales hasn't even happened.

Considering that rents have been increasing at a much slower pace than real estate prices, I just don't see where the return would be.

(Tom Boyer, Seattle Times, 11.03.2005)

2,000 Acre "Mini-Cities" Debated In Snohomish

Snohomish County is considering a proposal to allow supposedly "self-contained" communities. The Everett Herald reports on a public hearing last night:

The mini-cities - built as large housing and commercial developments - are called fully contained communities, and continue to suffer criticism for not being fully contained.

Such developments would require at least 2,000 acres of rural land in an area at least a mile from other urban areas under proposed county rules.

Half the land must be protected as a natural buffer, and one job must be provided for each house, condo or apartment.

"The biggest problem they always have is employment," said Grady Helseth, a developer from Snohomish.

Without jobs that pay enough to cover their mortgages, thousands of residents would be forced to commute to job centers in established cities.

And thousands of non-residents will commute to the "contained community" from cheaper neighborhoods to work the low-wage jobs. This is beginning to sound pretty much the same as a normal (uncontained?) community.

"There is no need for a new city in the rural area," said Kristin Kelly, spokeswoman for the anti-sprawl group Futurewise and the Pilchuck Audubon Society.

Kelly said officials are dreaming if they think people will live and work only within the development's confines.

I would have to agree. Also, what is to stop "investors" from purchasing homes in these fantasy communities and further driving the prices up above what the pre-planned jobs can support?

(Jeff Switzer, Everett Herald, 11.03.2005)

Bigger = Better?

When it comes to houses, it seems most people have the American sentiment of "bigger = better = I want" ingrained into their subconscious. The Seattle P-I takes a look at how this mentality is shaping the Seattle residential landscape:

During the past 10 years, about 2,400 single-family homes have been razed to make way for apartments, condos and larger homes. With strong demand for in-city housing and few vacant lots, older homes are now disappearing three times faster than they did a decade ago -- with 368 demolished last year.

Some neighborhood activists -- who support increasing density and building affordable housing in urban villages -- see little public benefit in replacing modest homes with expensive single-family behemoths.
...
Builders say the trend is fueled by simple economics and a healthy demand for larger homes inside Seattle. As traffic gets worse, some people want to return to the city, but not to a two-bedroom bungalow with tiny closets and bad wiring.

"If there wasn't a market for these houses, nobody would be building them," said Greg McGar, a contractor who paid $492,000 for a Ballard home last year, according to property records. He knocked it down and is building two four-bedroom homes on the oversized lot.

Of course there's a market right now, but will there be in 5 years? How likely are these homes to retain their value when a leveling off in real estate comes? I've always thought that one of the sacrifices of living in or near a big city was having a smaller home. I guess some people have enough money to have it both ways though. Either that or they have a "great" zero-down interest-only loan so they can "afford" it. I'd be curious to see if this trend continues when today's easier-than-breathing financing dries up.

Some neighbors are happy to see eyesores torn down and replaced with nicer homes that boost property values, said Jim Morse, a contractor who recently tore down a small rental on 28th Avenue Northwest and is building a three-story home there.

Others hate change, he said.

"You can give people hundred-dollar bills all day long, and some people aren't going to like it," he said.

"In reality, we're improving the neighborhood by getting rid of old, dilapidated housing."

Congratulations Jim Morse, you win the prize for stupidest analogy of the week!

(Jennifer Langston, Seattle P-I, 10.24.2005)

Don't Wait To Buy?

Writer Tom Kelly offers an opinion piece in the Everett Herald in which he takes a very matter-of-fact tone. To hear him tell it, there's no question, prices will not decrease in the Puget Sound:

Is there significant merit in waiting for the local housing market to cool before jumping in to buy a home? While that question may be on the minds of many consumers, the reality of a significant drop in home prices and a rise in inventory is rather remote.
...
The idea of "saving my money until home prices come down" has probably become a contradiction in terms - at least for the foreseeable future. Yes, housing is cyclical but it usually does not go backward for very long, if at all. The additional money you save now probably will not offset the appreciation (albeit slower than today's torrid pace) you would have accrued had you found a way to purchase a local home sooner rather than later.

If it were as certain as Mr. Kelly makes it sound, why would I even have created this blog? Either I'm a total idiot, or Mr. Kelly is making things sound a bit more definite than they are. Perhaps he's a realtor. *wink*

(Tom Kelly, Everett Herald, 10.23.2005)