Follow-Up: Anecdotal Evidence, Pt. 4

Data has been posted online regarding the condo that sold last month. It seems that they got just what they were asking, a cool three hundred thousand, which you will recall is $19,000 more than the unit next door sold for just two months earlier. Dang.

I'll keep my eyes open as new properties are put on the market in my neighborhood.

Housing Predicted To "Cool Off" In 2006

Housing in the Northwest has continued to experience a climb in prices this year as other parts of the nation have stalled, but some are starting to see some cracks in the foundation, and predict that next year the housing market will "cool, but not collapse."

Nationally and locally, the sizzling housing market has been one of the major props of the economic recovery. Homebuilding has turbocharged the Northwest construction industry: As of November, 19.5 percent of all new jobs created over the previous 12 months in Washington and Oregon were in construction, even though that sector accounts for just 6.2 percent of all jobs.

Housing activity has also aided the region's lumber industry and boosted retail and professional-service jobs (all those new homes have to be furnished and paid for, after all). Soaring values have allowed consumers to tap the equity in their homes to support their spending: Last year, funds from home equity hit $599.5 billion and accounted for nearly 7 percent of all disposable income, according to the Federal Reserve.

So what's in store for housing next year? Will growing pressure on consumers slow down appreciation? One economist actually admits this is likely:

But as mortgage rates creep higher and the Fed continues to tighten interest rates, nearly all observers expect the housing market to cool off next year. The big question is how fast it will do so.

"A year ago, I was saying 'No, we're not in a bubble — fundamentals are driving it,' " said William Conerly, a Portland-based economist. "Now, I think we are.

"So many people are buying houses for investment purposes, or they're buying a vacation house because their stocks haven't been doing very much and they see everyone else getting rich in real estate."

I think it will be interesting to see what happens. If you have any specific predictions for the Seattle area in 2006, feel free to share them here.

(Drew DeSilver, Seattle Times, 12.20.2005)

Puget Sound Economy Powered by "Magic"

Okay so that headline was a bit of hyperbole, but I'm allowed to have a little fun now and then. I just couldn't help it after reading about the "Horizons Economic Forecast breakfast" in Pierce County:

With two weeks remaining, 2005 looks to have been a year of healthy, strong and fruitful economic results. Next year looks good, but not quite as good.

Such was the message delivered Thursday at the Tacoma-Pierce County Chamber's 18th annual Horizons Economic Forecast breakfast.

The theme of the morning was magic, evidenced by a pair of strolling magicians as well as tricks – money and fire suddenly appearing – performed by master of ceremonies Joseph Beaulieu, senior vice president of Venture Bank.

What's the economic forecast? Why it's magic! More jobs, more money, happy times for everyone! Why? Because we say so, that's why. And that "bubble" thing? Don't worry your little head about that.

Lawrence Yun, managing director of quantitative research for the National Association of Realtors, said an increase in corporate profits in 2006 will mirror an increase in available jobs.
...
Yun lambasted reporters who have fostered an irrational fear of the "housing bubble," wherein high home prices are said to be likely to implode.

"Scary news sells papers," he said.

Yes, price growth is softening elsewhere, he said. But "in this region, prices are actually accelerating."

And in fact, he predicted, the number of new-home sales will mark the fifth consecutive year of record growth. Prices will reach another all-time high.

If a representative of the National Association of Realtors says it, it must be true. Okay, I've had my helping of sarcasm for the day now.

(C.R. Roberts, Tacoma News-Tribune, 12.16.2005)

Follow-Up: Anecdotal Evidence, Pt. 3

NO DICE

Here's another update on the properties I've been following in my neighborhood. The house I was watching never did sell, it would seem. After stagnating on the market for over three months and lowering the asking price by 8.5%, there still were no takers for the "cozy" house. I would guess that the owner was making an attempt to cash in on the real estate madness, and since they weren't able to get a ridiculous sum out of some sucker they decided to take their ball and go home, so to speak.

Furthermore, the neighboring condo that went up for sale (a few weeks after the first condo I was watching closed) has supposedly sold (according to the sign out front, and the fact that it's no longer on the MLS), but the information indicating how much it sold for hasn't been posted online yet. I'll update you when I find out.

Construction Hiring Dips In WA In November

With unemployment holding steady last month at 5.6%, the Seattle Times brings us the details of the employment numbers' relation to housing:

For the past year, the construction industry has been the main driver of economic growth in the state, accounting for a whopping 19.4 percent of all new jobs. Not so in November.

In what may be a sign of an impending cooling in the state's red-hot housing market, construction firms hired 400 new workers last month compared with 2,400 during November 2004 and notably less than the average 1,075 monthly gains of the past year.

Although some anonymous commenters on this blog believe that the claims of construction accounting for ~20% of recent new jobs are "bogus," that doesn't change the reality that construction has been a major driving force in Washington's economic recovery. And as such, I find it interesting and possibly meaningful that November saw such a relatively small number of new construction hires. Does this mean Washington has finally seen the peak of its housing market?

"It's hard to tell what's going to happen," said Rick Kaglic, chief economist at the Employment Security Department. "We'll need a few more months of data to know if the long awaited slowdown is upon us."

Homebuilders assure it's not.

"If homebuilders have one complaint, it's the backlog of work they're facing, not a decline in demand," said Sam Anderson, executive officer of the Master Builders Association of King and Snohomish Counties.

I'm going to reserve judgment until I start seeing more signs than just one month of unusual numbers. If we start seeing numbers like this persist for 6 months then I'll start to believe that we're seeing a turn around. As I'm fond of saying, only time will tell.

(Josh Goodman, Seattle Times, 12.14.2005)

Sims: King County RE Tax Revenue Down

I was reading through a story about the King County Council's 9-0 (4 absent) vote to increase county spending by $3.8 million on "pet causes" when I stumbled upon an interesting line:

Sims, though, said real estate tax revenue is down.

Considering all the stories I've been posting about government revenue going through the roof thanks to the housing boom/bubble, I find that a bit hard to believe. Either King County's real estate tax revenues are declining while Washington State and nearly every local government within it is experiencing increasing revenue, or Ron Sims is just plain wrong. Also worth mentioning is a story I posted back in October which states in reference to King County: "Now, after several years of depressed revenues, sales-tax, property-tax and real-estate excise-tax payments are up." If someone knows where I can access county budget records to uncover the answer, I'd love to hear.

In non-bubble related news, I found the following bits about Sims' reaction to the spending amusing:

He said it erodes the "fiscal discipline" shown by the county in reducing its general fund by $137 million over the past five years to deal with revenue shortfalls.
...
"A veto is pretty dramatic."

"I'm not interested in having warfare with the council," he said. "At the same time, I am not interested in having to make serious cuts in the budget because of our appetite" for spending.

So, to sum up; Ron Sims is against excessive spending, and he might even do something to stop it. Maybe.

(Neil Modie, Seattle P-I, 12.14.2005)

Housing Moving Further Out Of Reach

Ooooh, I can see the future. In a story tomorrow that has a very familiar theme, the Seattle P-I takes a look at the affordability of housing (both buying and renting) for lower income families in Seattle.

Last year, the housing affordability gap — the difference between what lower income workers can pay for homes and what typical homes cost — got even wider, according to the report, "Communities Count: Social and Health Indicators Across King County."

The rising cost of housing in Seattle threatens to reshape the city proper, forcing poorer families to outlying towns and ultimately threatening Seattle's economic diversity and vitality, said Stephen Norman, executive director of the King County Housing Authority.

That sounds an awful lot like the point I was making back in August:

So what does this all mean? If housing prices, and especially rent, keep going up, people working low-wage jobs will be faced with two choices: become homeless or move to a cheaper city.

But wait, there's more... Continuing from tomorrow's P-I article:

In the 1990s, Seattle stood out as one of only five major cities among 23 in which the home ownership rate fell, in a study by the Washington, D.C.-based Brookings Institution. The national ownership rate rose to 66 percent.

Seattle's low rate could create problems around the city, because a home is the main tool that lower- and middle-income families use to accumulate wealth, said Nicolas Retsinas, head of Harvard University's Joint Center on Housing Studies. "If those opportunities don't exist in cities, that is more incentive for them to go farther and farther out."

Are the people out there that are literally banking on continuing double-digit appreciation even stopping to consider what would have to happen for 15-20% gains to continue much longer? I believe that economic reality will eventually set in here in Seattle. Either housing costs will come back down out of orbit, or we'll lose our low-income workforce.

(Paul Nyhan, Seattle P-I, 12.10.2005)

Some Economist: Housing Driving NW Economy

Here's a report on the opinion of yet another "senior economist," this one from California.

Keitaro Matsuda, senior economist for Union Bank of California, issued his December 2005 Economic Update for the Pacific Northwest on Wednesday.
...
• While the largest number of new jobs has come from the trade and transportation sector, construction was the fastest-growing industry, up 8.1 percent in the state over the past year.

• Washington has been ranked ninth among the 50 states in terms of home-price appreciation in the third quarter, up 15.6 percent. Last year, Washington placed 21st.

"There is no doubt that the Pacific Northwest economy will maintain considerable momentum in 2006," Matsuda wrote. "How the region will ultimately fare next year is likely to depend, to a large extent, on the strength of its housing market."

Mr. Matsuda seems quite optimistic about the economic forecast of the Pacific Northwest, although even he admits that recent improvements are largely being driven by the housing market. If the housing market turns, there goes our "spectacular" job growth.

(C.R. Roberts, Tacoma News-Tribune, 12.08.2005)

Pierce, Thurston Target New Construction

Here's a pair of stories about local governments' plan to up fees and permit costs for new construction. In Thurston County it's "lot approval" while in Pierce County it's "traffic fees." Any way you cut it, it's more taxes. Says the Olympian about Thurston County:

And with $1.8 million in services the county can't afford to pay for in 2006, they’re eager to free up the $700,000 to spend on something else.

So, in spite of the fact that tax assessments are rising, and county revenue is bubbling over, they're still coming up $1.8 million short? Hmm. And in Tacoma:

The legislation, requested by the County Council and proposed by County Executive John Ladenburg, aims to reduce traffic congestion at key roads and intersections.

It would charge as much as $3,300 per new house – depending on the location – and raise about $189 million over 20 years to help widen roads and install traffic signals, among other improvements.

Because more people moving in apparently doesn't equal more people paying existing taxes that support roads and traffic improvements. We need more money for that.

(Jennifer Latson, The Olympian, 12.07.2005)
(Aaron Corvin, Tacoma News-Tribune, 12.07.2005)

South Sound Inventory Up, Prices Down

KOMO News and The Olympian must not have gotten November's numbers last night like everyone else. Well, they've got them in hand now, so here for your reading pleasure (or frustration) are a couple more takes on November's numbers, including a specific look at the South Sound, where prices were particularly stagnant:

The holiday season, colder weather and rising interest rates combined to cool South Sound's hot real estate market slightly in November, Realtors said.

Sales for the month were down 4 percent compared with last year and, for the second time this year, the median monthly sales price dropped from the month before.
...
As demand dropped with the temperatures, a positive result for potential buyers was the year's largest inventory of homes for sale last month. The inventory was 1,095 homes, up from 827 the same time last year.

People (realtors anyway) always say "they're not making any more land." Apparently in the South Sound, they are. I jest, but hey, if the realtors can oversimplify things, so can I.

(KOMO News, 12.06.2005)
(Jim Szymanski, The Olympian, 12.06.2005)

November: Home Prices Keep Rising — Sortof

November numbers were released today by the Northwest Multiple Listing Service. You can check out the raw numbers here in PDF format, or you've got your pick of four local papers and their commentary on what the numbers "mean":

Much like the movie "Groundhog Day," the latest news on local home sales may sound like a rerun of the previous months — no slowdown in the market despite fierce competition, rising prices and higher interest rates.

But the number of properties that buyers can choose from is down substantially from last year. These are not the conditions that foretell the bursting of a real-estate bubble.

Executive summary: Prices still 15% higher than a year ago, but stagnating since about August of this year, with combined sales of $349,950 in August, and $350,000 in November. I probably have just as much qualification to offer analysis of these numbers as any of the newspaper reporters writing these articles, which is to say "none at all." I guess we'll just see what happens.

(Elizabeth Rhodes, Seattle Times, 12.06.2005)
(Kristen Millares Bolt, Seattle P-I, 12.06.2005)
(Clayton Park, King County Journal, 12.06.2005)
(Barbara Clements, Tacoma News-Tribune, 12.05.2005)

King County Job Growth To Outpace Nation?

Business leaders seem optimistic about business growth prospects in the Puget Sound area, and as a result expect to see a "soft landing" in housing:

A national economist predicted Thursday that job growth in King County will continue to outpace the nation as a whole next year.

The forecast by Alison Lynn Reaser, chief economist for Bank of America's Investment Strategies Group, underscores the findings of a new survey of business executives from throughout the county who expressed optimism about the local economy in 2006.
...
Reaser said she expects a "soft landing" for the U.S. housing market in 2006 in the form of a slowdown in rising home prices from the breakneck pace of "double-digit" growth seen throughout the country, including the Puget Sound region, this year.

Certainly if the jobs keep coming, the worst case scenario for housing is likely a gradual slow-down to more sane levels of appreciation. Realistically though, who can say with any certainty what the job market will look like a year from now?

(Clayton Park, King County Journal, 12.02.2005)

"Bubble? The only answer right now is no."

At an "economic symposium" Wednesday, Washington's Employment Security Department chief economist Rick Kaglic explained his belief that the state economy is cruising along just dandily:

The local and national housing boom as well as The Boeing Co.'s recovery have finally kicked Washington's economy into high gear, according to the chief economist for the state's Employment Security Department.

Rick Kaglic told those gathered for an economic symposium Wednesday in Olympia that the state's economy "has been clicking on all cylinders" since last year.

I wonder what kind of cylinders "click." Maybe its a veiled reference to something not being quite right. Or maybe he's just mixing metaphors. Anyway, point taken—the state economy is doing well.

Although government and transportation hiring have done their part in the state's recovery, Kaglic named the construction trade and the housing boom as the real heroes in Washington's recovery.

While construction jobs represent a relatively modest 6 percent of all state jobs, they accounted for 20 percent of the payroll growth during the last year, he said.

"And the impact of the construction industry doesn't end with building homes," he said.

The booming housing market reverberates through the retail, insurance and – of course – real estate sectors as well.

"If you buy a home, you typically want to fill it with stuff," Kaglic said of the retail impact.

Kaglic linked the last four years of economic expansion to the refinancing of homes that pumped some $600 billion of equity into the national economy last year and the fact that "the retailers simply won't let us stop" spending.

So, Washington State's economy is in good shape, but a large portion of its improvement in the last few years has been a direct result of the real estate boom. 20% of new jobs directly attributable to housing, and who knows how many others due to increased retail sales thanks to the "housing ATM."

Kaglic and other housing experts at the symposium didn't think the Seattle-Tacoma area was experiencing a housing bubble that would pop any time soon.

In fact, Sam Anderson, executive officer of the Master Builders Association of King and Snohomish Counties, was blunt about the bubble.

"Are we in a housing bubble?" he asked. "The only answer right now is no."

Median housing prices – meaning half of all prices are higher, half lower – have climbed to the mid- and upper $300,000s in King and Snohomish counties and just under $250,000 in Pierce County. But Anderson didn't think the market would collapse.

So, if I'm understanding the logic here correctly, the state economy has housing (and low interest rates) to thank for a large part of its recovery, but we're not in a bubble, because state economists and homebuilders don't think we are. Mmm-kay.

(Barbara Clements, Tacoma News-Tribune, 12.01.2005)

Snohomish County Pre-Spends Expected Revenue Gains

Here's another update for you on local municipalities spending the increased tax revenues from the real estate boom. This time Snohomish County reports in, with a stellar plan to pre-spend expected revenue gains from real estate excise taxes:

Snohomish County will begin identifying renovation projects at the Evergreen State Fairgrounds thanks to an expected increase in real-estate excise taxes collected from home sales.

The County Council unanimously has approved about $400,000 in the 2006 budget to begin improvements at the Monroe-area fairgrounds, which initially were constructed in the mid-1940s.

If you don't see anything wrong with this plan, then I would surmise that you might be a politician.

(Christopher Schwarzen, Seattle Times, 11.30.2005)