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Monday, January 16, 2006

Economy-watcher: "Yes and No" Seattle Bubble

Here's yet another blue-sky prediction for 2006 that takes the "our prices haven't risen as fast/much as other areas, so therefore we're not in a bubble" angle:

Economy-watcher Michael Parks suggests that people worried about a housing bubble in the Puget Sound region get a little perspective.

Sure, house prices have climbed a healthy 14.5 percent over the past year in Seattle, Bellevue and Everett.

They've risen 108.1 percent over the past 10 years, the editor and publisher of Marple's Pacific Northwest Letter told business executives attending a U.S. Bank-sponsored breakfast Thursday.

But compare those figures with the much greater 18.8 percent one-year jump in Los Angeles and Long Beach (181.4 percent over a decade) and the 18.4 percent increase in San Jose (185 percent over a decade), and our area's growth seems reasonable.
So despite the fact that the housing market has been making unsustainable gains unmatched by any before in history, it's no big deal because hey, it's not as dangerous as LA. Sweet.

(Melissa Allison, Seattle Times, 01.13.2006)


Dustin said...


You've stated many times that you're not sure if there is a bubble or not, and that you're using this blog to explore this issue. This leads to an obvious question I've wanted to ask you for a while...

What would it take for you to change your mind and decide that there is no bubble in Seattle's housing market?

Anonymous said...

Or conversely, what would it take to make you decide there definitely IS a bubble in Seattle- no ifs ands or buts?

The Tim said...

The answer to both those questions is "time." The only way I will really know for sure that there is a bubble is if we start to see price corrections. The only way I will know for sure that there isn't a bubble is if the upward march of prices continues uninterrupted.

It may become clear one way or the other this year, or it may be another five years.

As I have said, the only thing I know for certain "is that the recent trend of rapidly increasing property values (double-digit increases year-on-year) cannot possibly continue indefinitely."

Dustin said...

Really Tim, that's it?

I would have expected more than a simple answer of "time".

When I read your blog (as well as the other bubble blogs), the posts seem so predictable and seem to follow one of three themes:
1) Newspaper article: "Housing Prices Rise" --- Bubble blogger response: "See, we're in a bubble"
2) Newspaper article: "Housing Prices Level-Out" --- Bubble blogger response: "See, we're at the top of the bubble"
3) Newspaper article: "Housing Prices Fall" --- Bubble blogger response: "See, the bubble is bursting"

You're an engineer like me, and so you should know that it is especially easy to prove your hypothesis if you never define it! In other words, I could see writing a similar blog (and a boring one to read) that "proved" that there was no bubble based on the same set of articles... It might go something like this:

1) Newspaper article: "Housing Prices Rise" --- Anti-Bubble blogger response: "See, there's still more room for growth in the housing market"
2) Newspaper article: "Housing Prices Level-Out" --- Anti-Bubble blogger response: "See, there's no big drop"
3) Newspaper article: "Housing Prices Fall" --- Bubble blogger response: "See, the market correction is mild... no correction here"

The problem is, I think it would be a lame blog and I sure wouldn't want to read it because there is no meat in the analysis.

In other words, no one is arguing that double digit growth is not sustainable... that's boring and you know it which is why you didn't call the blog "". About the only way that I think a bubble blog would be interesting is if the person actually went out to "prove" a bubble existing and then reported their analysis. Otherwise, you're just writing articles that are "proving" a moving target.

To answer Anonymous' question, I don't really care if there's a bubble or not, and I'm definitely not out to "prove" it. There are so many interesting changes going on in the real estate market and I'm very interested in following those developments. Bubble or no bubble, I'm building Rain City Guide up to be a valuable resource for home buyers, home sellers, investors, real estate agents, and even "bubble" people (because someday you're probably going to want to buy real estate as well!)


The Tim said... is especially easy to prove your hypothesis if you never define it!


You seem to misunderstand the purpose of this blog. I'm not here trying to "prove" anything. In my own words:

This blog was created to post news stories and generate discussion...

...the main reason I'm starting this blog is to collect information for my own interest, and I just figured that if I'm this interested in the subject, maybe some other people in the area are too. I hope you find this to be a useful resource.

I have laid out all my cards, telling it straight that I think there is a bubble (which is obvious even from the name of the blog, as you point out), but also making clear that I'm not out to prove it one way or the other, just to serve as a central location for news and discussion about the topic for our area.

About the only way that I think a bubble blog would be interesting is if the person actually went out to "prove" a bubble existing and then reported their analysis. Otherwise, you're just writing articles that are "proving" a moving target.

Since I've never claimed to be out to prove anything one way or the other, I guess this isn't the blog for you. My comments on each article are just that, my comments. They're not a thesis or even analysis, nor have I ever claimed them to be.

I do appreciate your comments and input as someone from "the other side of the fence," and you're right, I will some day be interested in buying real estate, I've just been priced out right now. I assume that Rain City Guide will be around much longer than Seattle Bubble because eventually time will tell if we're in a bubble or not, but people will still be buying real estate throughout it all.

S Crow said...

Dustin -

Here's some evidence.

1) affordability is at a alltime low,(with low interest rates...certainly this is concerning, no?) locally and nationally. The only way for many to get in the game is Stated income loans (liar loans),100% nothing down ARM products, etc..

2) Inventory is rising and moreso nationally.

3) many people are heavily in debt.

4) 71% of ALL our purchase transactions we closed in 2005 were 100% financed. Nothing down. No skin in the game. Most were heavily in debt. That means 71/100 people could very well be in trouble financially with even a small price adjustment down. Isn't this slightly concerning? It is to me.

5) Seattle, Eastside and other mico-markets experienced significant PRICE DROPS after the run up in '89. It affected in particular, builders, who slashed prices. A few real estate firms were forced to close or merge. Local Banks were stressed.

Side note: many existing realtors and loan officers have only been in business within the last few years. A lot have been in business less than 3. They don't know any other market other than gravy at 5.5% rates.

6) Over the last several weeks there have been a consistent and steady flow of "listed" price reductions in single-family homes listed in the NWMLS. As late as this past Summer, there were barely any reductions in prices.

7) National problems with MBS's (Mortgage Backed Securities)are only beginning. It will be ugly.

8) Lenders and Title companies have begun to lay off staff, locally and nationally -- some very quietly.

9) Rates stay low - we just prolong the problem. Rates go up and inventory rises, you have price pressure down. And with all those folks with ARM's (w/prepayment penalties) and 100% deals, they going to feel financially pinched.

10) What to do if prices drop, rates rise?

Refinance ?(nope, can't work in that environment)

Sell? (many will take this path, further pressuring prices down)

Default? (again, many will take this path)

11) I hope all the above is wrong. It would be great for our business if the market held strong forever. My gut tells me otherwise.

Off to drop of kids to school and get to work!

Live under your means.

Legacy Escrow Service, Inc.
Everett, Wa.

biliruben said...

TKane -

Do you have region and/or price-specific historical median price numbers?

I would love to see where prices held-up the best and worst, and what type of housing took it on the chin and what rode it out okay.

I've heard anectdotally that condos and high-end homes took a bath in the last downturn in '89-90. I've also heard that single-family modest homes with short commutes to downtown did fine. But anectdotes don't cut it for me, and I'd love to see some numbers.

The Tim said...


This isn't exactly the hard numbers you're looking for, but it's slightly better than anecdotes. It's an article from the Seattle Times in 1991. Another reader emailed it to me, and I'll probably give it its own post in a few days. Consider this a sneak preview :^)

Falling Home Prices Hit Eastside Hardest

You'll need to either register on the Seattle Times page or use this trick to read the article.

By the way, Tim, if you're reading this, I tried to email you back, but it bounced with this message:

PERM_FAILURE: SMTP Error (state 9): 554 The IP Address of the sender ( was found in a DNS blacklist database and was therefore refused.

biliruben said...

Thanks, Tim.

Interesting article. I wouldn't be surprised to see that trend repeated on the Sammamish Plateau and areas like Maple Valley and Carnation.

I'm more interested in areas a little closer in, however. ;)

Shoreline, LFP in particular.

I'm not sure what the scoop is with that email. I don't use it much, but I haven't been having any problems with it, other than a boatload of spam. Try cam (at) if you want to email me in the future.

biliruben said...

Oh, you know what it is? Our blog was probably getting a spam from someone using your same service, and we blocked it. Our IT guy is a bit over-agressive.

Dukes said...

The poster 'dustin' exemplifies the irrational brainiacs that inhabit Seattle.

They "think" they are extremely intelligent, too intelligent by far to ever misunderstand human nature and bubble psychology for sure.

I am sorry to say 'dustin' being an engineer gives you exactly ZERO insight into human nature and I would argue it actually leaves you at at a disadvantage in that you will have your nose in your econometric models trying to figure out what common sense and the actions of others are telling you right before your eyes.

Go ahead, dig up some evidence to the contrary dustin, we will see who proves to be correct.

Anonymous said...

Right on Duke!

Eric said...

Although Seattle's prices haven't rised as much as California's isn't it true that Washington and California's Real Estate Fates are inexplicably linked? How many people do you know who came here from California? I've only lived here a few months (I'm from the Midwest where prices are sane!) and I can think of quite a few I met personally. Can anyone argue that if prices crash in California, they won't crash here? Real Estate doesn't move, but people do. I'm sure a lot of these price jumps has been the result of California transplants and retirees cashing out down there and coming up here!