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Tuesday, April 11, 2006

Super Smart Seattle

So maybe Seattle isn't attracting CEOs and high-level professionals, but let not your heart be troubled. Seattle's skyrocketing house prices will be carried along by college graduates!

College graduates are flocking to America's big cities, chasing jobs and culture and driving up home prices.

Seattle, a new analysis shows, is on the top of the educated citizen heap, and last month passed $400,000 mark in median home prices, compared with a national average of $151,000.*

Though many of the largest cities have lost population in the past three decades, nearly all have added college graduates, an analysis by The Associated Press found.*
...
Seattle was the best-educated city in 2004 with just over half the adults having bachelor's degrees. Following closely were San Francisco; Raleigh, N.C.; Washington and Austin, Texas.
...
"The largest predictor of economic well-being in cities is the percent of college graduates," said Ned Hill, professor of economic development at Cleveland State University. To do well, he said, cities must be attractive to educated people.

*(The bold bit was not in the original AP article, and the italicized bit was left out of the P-I-contributed article.)
So according to Ned, Seattle is predicted to have the best economy in the nation. That's a great theory and all, but if it's true, I'm still wondering why wages have been going down in Seattle... Can anyone explain that to me? Anyone?

Seattle: Where college graduates come for lower wages and expensive housing!

(Stephen Ohlemacher, Associated Press via Seattle P-I, original , 04.10.2006)

32 comments:

seattlerenter3 said...

It's interesting that of the five cities with the highest number of college graduates given, 3 markets are considered expensive (Washington DC, San Francisco and Seattle) and two of the markets are much cheaper (Raleigh and Austin). It seems that the presence of college graduates en masse does not automatically equal high prices.

Also, what does it mean that Seattle is the only market where college graduates -- who are already graduating with debt loads that are higher than they've ever been -- are getting wages that are smaller than the previous year's wage? Is that really smart?

matt said...

"College graduates are flocking to America's big cities, chasing jobs and culture and driving up home prices."

Again, a mantra supported by faulty logic. Driving up home prices has very little to do with the amount of college graduates living in a particular locations. The city of Richland, WA has more Phd's per capita than most any other city in the country, yet I'm guessing home prices there are reasonable...

The 900 lb Gorilla, is of course, dirt-cheap money/dodgy loans which never ever gets a mention in these puff pieces, because that involves math, and who wants to trouble themselves with that.

Smart people live where standard of living tracks median income, in fact smart people are leaving San Francisco because its too expensive. Also crippling our service/blue-collar oppurtunites by making it impossible for those workers to live here is extremely unhealthy. Contrary to popular opinion, low-income worksrs contribute significantly to the economy's well being (Do you want to pay $7.95 for that Tall Latte?).

Cultural ammenities? Pray tell. Contrary to snobby/hipster opinion, if you're savvy, cultural 'ammenites' can be found most places. Seattle's a small town, but has good access to sports that I enjoy, sailing, scuba-diving, skiing, and backpacking, that's why I live hear. If I was a jazz-nut or an avid theater goer, I'd move to a place like NYC.

Grunge is dead people, move along.

Seattle my have a lot of smart people, but its running a deficit on common sense.

Eleua said...

Super smart?

X-Cal equity refugee buys a house for $600K, with $50K down, and a 4.75% 3/1. Taxes are $7.5/yr.

Monthly payment is:

P&I = $2873
Tax = $ 625
Ins = $ 100
management fee = $160

Grand total (prior to maintenance):
$3758/mo

Assuming they keep it rented 12/12 months for $1600/mo, they have a negative cash flow of $2160/mo + maintenance.

3 year lease = -$77,677

Interest rate adjusts to 7%:
now, and they get an extra $50/mo in rent, but taxes have jumped 10%/yr for the three years:

-$3109/mo or -$37,309/yr.

Property is losing value. Interest rates are at 9%, so they know their payment is going up (as is their potential buyer's payment), and house is now worth $300K.

2 years later they sell.

Tally the damage.

$50K down payment - gone
$78K neg cash flow - gone
$75K neg cash flow - gone
$30K maintenance - gone
$200K capital loss - gone
$21K RE fee - gone

$454K loss in 5 years, or $91K loss per year.

Trust me, this is a KIND estimate.

Now, multiply this times 6 houses...

True situation. No kidding.

PepeDaniels said...

There are plenty of college grads slinging lattes for substandard incomes. I work with a lot of young, recent college grads. Frequently, more and more young people are complaining about the poor wages, overpriced rental prices and impossible real estate prices. A lot people are saying they're sick of it and are considering moving. I was recently looking for 1 bedroom apt. I looked in the Georgetown area. To be generous about it, Georgetown is a bombed out looking post factory setting....prices are outrageous and not all that much better in Columbia City, Beacon HIll etc....
Frankly, the rain and chilly social quality aren't all that great.

Anonymous said...

Tell me about it, pepedaniels....

I'm one of the vaunted, overly-educated twenty-somethings who lives in Seattle. I moved here for my PhD, but I'm moving away when I'm done. There are jobs in my field here, but none pay enough to justify the increased cost of living.

I have never even considered owning a home here, so the speculative housing market doesn't affect me directly. That said, I've found myself burnt on several different occasions by amateur-hour property "investors" who are increasingly freaked when they realize that they can't rent their piece-of-shit properties for enough to cover the mortgage.

I think that's the silent tragedy of the bubble...real, sane, hardworking people are being hurt by the rampant speculation, even if they can't afford a home. It really bugs me.

SeattleMoose said...

I just got transferred from Texas to Seattle back in September. What a long dreary winter. Yes, the scenery is nice but the house prices here are outrageous and the traffic...what a mess.

I am an older professional and have a low 6 figure income and there is no way I am gonna take my hard-earned equity from selling my 5-acre 2000Ft2 house in Texas for some sh*tbox up here.

You don't buy at the top and quite frankly, I think I am going to rent, save my money, and retire back in the Texas Hill Country.

Seattle is highly overrated!!!

Anonymous said...

Seattle IS difficult because of low wage/high property values.

Although I liked my life there, I eventually left because over the years, as the housing situation worsened, all of my friends left Seattle , one after another.

The trend was just too much and showed no signs of improving. I can't stand the transient quality of Seattle life that's been brought on by high real estate.

As another poster pointed out, it's not like the folks there are the friendliest in the world. When you finally get to make a friend, you want them to STAY! But high housing/low wages- or even trouble finding work at all!- kept everyone moving on through. Blech.

Anonymous said...

At what point do Seattleites decide they can take no more rides on roads that rattle your car so loudly you can't even have a conversation. When does the ROR--Resurface Our Roads campaign begin?

It's unbelievable how lousy the roads are and how noisy they are. They make the road noise unbearable for the drivers and all the homeowners with 500 yards of any of the highways. I've never been in a city with such lousy roads.

The Tim said...

anon@7:38,

I'm not sure what your comment has to do with the topic at hand, but I agree, roads are a big issue in Seattle as well. In fact, just this weekend I started an entirely separate blog to discuss exactly that. Check out Seattle Traffic.

meshugy said...

Everyone keeps labeling Washington a low wage state. Can anyone cite some reliable sources concerning wages in Seattle/Washington state? I've been under the impression that wages were exceptionally high here. Seattle has 4 times the national average for job growth. Much of that growth is from high paying tech jobs.

This study from the AP put Washington in the top 15 highest wage states:

http://tinyurl.com/jhwl3

So were is all this negative economic data that people are citing coming from? I'd like to know....

Anonymous said...

meshugy...

Did you bother to read the article linked in this post? This one?

Incidentally, you'll note that the article you linked places Washington state at about 11% above the national median wage. Aside from the fact that this is not "exceptionally high" (you'll note that Minnesota is higher), right now, our median housing prices are somewhere around 150-175% above the national median price, depending on the source.

So...a) there is no wage growth (that's true nationwide, too), and b) our housing market price increases have outstripped the wage difference by an order of magnitude.

Anonymous said...

oops...

that last post should read that Seattle median housing prices are 150-175% of the national median.

sorry.

meshugy said...

It's also interesting that Washington was rated only slighty lower the Calif. for median income.

Median Income

California: $48,440

Washington: $48,185

Median Housing Prices

California: $535,470

Washington: $275,700

Wow...your average Californian makes only $255 a year more then a Washingtonian yet has to pay $259,770 more for housing!

Of course, I'm sure the Minnesotans make us look pretty stupid...

Anonymous said...

Leaving aside the fact that Washington doesn't have two of the largest cities in the world (LA and SF), I don't think it's necessarily a winning argument that our housing prices aren't quite as bubblicious as those of California, and therefore, not also bubbly.

I mean, really...California has sunlight. After six years in Seattle, I'd pay good money for that.

The Tim said...

To be honest meshugy, I don't think there's much use in comparing whole states to one another like that. There's just too much disparity between even Seattle and Spokane (let alone Seattle and Tonasket) for that to be of any real use.

That's why this blog is called "Seattle Bubble" and not "Washington State Bubble"

biliruben said...

Man, Tim. I'm not sure what has attracted them, but you should rename your site "Seattle Bubble - Refuge of the Whiney Cranks."

It is possible to objectively examine Seattle's housing market without all the bitching and moaning.

As of the last census, Seattle-Tacoma- Bremerton CMSA ranked 5th in per-capita income, btw.

biliruben said...

Though Eleua at least has a sense of humor!

meshugy said...

I agree that comparing entire states is not the most telling analysis. But neither is comparing Seattle's housing market to national housing statistics. If Seattle housing is 150% more then the national average and, as many of the people on this list, you don't like Seattle because you think it's too rainy, uncultured, unfriendly, etc...then why don't you just leave?

For many people, Seattle affords a unique combination of culture, natural beauty, mild climate that can't be found anywhere else. I'm from the NE, and would never move back.

The point is, you can't quantify the "desirability" of a location. And despite the fact that some people don't like Seattle, there are lots of folks who think it's a much better place to live then most of the rest of the country. And for that reason, housing is, and most likely will be for a long time, in high demand here.

The Tim said...

meshugy,

I apologize if I somehow gave the impression that I don't like Seattle. That is certainly not the case. Indeed, for many of the reasons you mention, I love Seattle—and I've lived most of my life in western Washington.

I'm not sure what point you're trying to make regarding comparing Seattle to national housing stats, as that's something I rarely do on here. I think my main point is that the cost of housing has seriously exceeded what is remotely affordable to someone making moderately decent wages (median to 150% of median) and being responsible with their money. Regardless of the statistics in the rest of the country, or how desirable Seattle is, I think that's a problem, and I think it's likely to correct itself in the not-too-distant future.

meshugy said...

Hi Tim...I wasn't really talking about you. Just some of the other readers. Thanks for running this blog...it's a great resource for Seattle housing!

I also think housing is too expensive...but I'm not totally convinced it's going to change. I feel the market forces will continue to keep prices high.

People have been saying there was a bubble way back in 2002. It's funny to read old articles were they say housing prices will drop in 2003 (and they don't) and then they say it will happened in 2004 (nada) and so on and so on. I know people who listened to that advice back in 2002 and are kicking themselves for not buying back then.

'm

biliruben said...

meshugy - true enough. But just because it didn't happen doesn't mean it won't happen.

I'm on record predicting at least a 10% fall, and perhaps as much as 30%, in median housing prices is Seattle, with certain classes, condos (particularly new) and high end homes taking the biggest bath.

It takes a long time for this sort of thing to play out. Unlike the stock market there several stages you need to go through before you can see home prices declining. First you need to see in increase in inventory (in Seattle, late summer, early fall is my guess), then you see a leveling of prices, then you see the investors putting their properties on the market, then finally, after much reluctance, you see regular joes and jolines finally realizing that they aren't going to get the price that Tim and Tina did a year ago, and they sell for less, and finally you see broad declines.

I bought 2 years ago, thinking we were close to the top, and fully realizing that I could lose my full 20% down. I was okay with that. I could probably sell right now for 30% more than I paid, but my house is my home, and I was conservative when I bought, so I'm willing to take the loss.

In fact I dream of the a 30% decline. 50%? Even better!

It will be healthy for Seattle in the long run, and because I bought a modest cottage which continues to allow me to save, it will also allow me buy a nicer house down the line, assuming relatively even price declines.

Anonymous said...

Rising asset prices (including housing) and falling wages are perfectly compatible. It's called trickle-down economics, or the Republican Revolution, or neoliberalism, or financialization, or upper class rule. Take your pick -- they're all accurate enough.

correction oh yeah said...

Rising asset prices and falling wages has also been described- and I think accurately by some- as "Darwinism".

By the looks of things, it is not only average joes who have stretched to get into this HOT!!! real estate market. But also people who, by normal measures, would have seemed "wealthy" just a few years back.

When RE prices fall, those who were COUNTING on abnormal price appreciation just to keep themselves afloat, whether "rich" or poor, all will be Darwinized.

The only ones who'll be safe are those who trully bought within their means and can comfortably afford their mortgage in a correcting market.

And those who either cashed out of RE last year or saved humungous downpayments to put down after the market corrects.

And this one's got a LONG way to go before it's corrected.

Nick said...

"I think my main point is that the cost of housing has seriously exceeded what is remotely affordable to someone making moderately decent wages (median to 150% of median) and being responsible with their money."

Tim, then why can't people just rent? Renting is NOT unaffordable.

The Tim said...

Nick,

You're right, in this kind of market the best choice is clear: rent. And that's exactly what I'm doing, and so are many others. However, that doesn't really change the fact that housing has become seriously overpriced and is likely due for a correction. Renting means I'm getting a better deal, but what about all those people buying "investment properties" or getting in over their head because they buy the realtors' calls of "buy now or be priced out forever!"?

Anonymous said...

Don’t listen to all the naysayers trying to keep people away. Seattle really is all Nirvana and wood nymphs.
Cobain really faked his suicide to get Courtney Love to leave him alone and he was get tired of performing for a national audience, he now plays in local Seattle bars and you can often find his performances televised on the local public TV. And the wood nymphs - you don’t know about nymphs?

Nick said...

"However, that doesn't really change the fact that housing has become seriously overpriced and is likely due for a correction."

I 100% agree. I bought my first house in Jan 2005. I tell my wife once a week to expect to "lose money" on this deal. Having said that, I just don't think it pays to never list the reasonable counter-arguments to our positions.

I can tell from your sites that you are serious-minded and circumspect about this debate. But a lot of the commenters on here seem to have decided their position in advance, and then will pick and choose "facts" to fit that worldview.

biliruben said...

Stop being a Nymph-Pimp. Those lascivious vixons are mine.

Anonymous said...

Anybody's who's been to a rainy bbq on July 4 in Seattle knows this place has some limitations in the area of weather. However, our climate does seem to have warmed some, but it still wont compare to CA, but then who wants to deal with the amount of gangbangers and other psychos in that overrun state? Not to mention the insane premium on life there. Things are unravelling quickly in FL, CA and DC, and as they do, some of that investment money will flee here with a quickness, and many local amateurs will get burned.

Anonymous said...

Anon 2:01-

Highly doubtful that folks from FLA, DC and CA will be fleeing to Seattle as their bubbles burst.

They might as well stay home and pick up cheap properties in their own neighborhoods.

And FLA, even at the height of it's bubble, was/is way cheaper than Seattle.

CA is unravelling pretty quickley so those out of state buyers should be drying up fast.

Eleua said...

How true. Once X-Cal equity refugees get trapped in their Brady Bunch tri-level, it is GOODNIGHT for the PNW RE market.

Picture Wiley E Coyote realizing that gravity is about to make his aquaintance.

An informal poll of a handful of Bainbridge Isl. RE agents tells me that just under 3/5 of the BI market is out of state buyers - the bulk of that from California and Colorado.

Ask yourself if 41% of the market can continue to absorb the void, in both price and volume, of the X-Cal refugees.

Ask yourself if that 41% can absorb all the new construction in condos, and specs.

Ask yourself what part of the remaining 41% is in the business of selling RE, building homes, or financing homes.

Ask yourelf what part of the remainder is in the business of selling to people with HELOC money.

Yes, the tiny fraction of Bainbridge (and any other Seattle 'burb) homeowners can continue to float the market. Why? We are SOOOOOOOO special. Just ask anyone that owns a house.

20 cents on the dollar by 2010. You heard it here first.

Anonymous said...

college degrees are great but that does someone with an art, sociology, poli sci, or communications degree make TONS of money out of school? No, they are probably slinging lattes, working retail, or working as a teller in a bank.

How do I know, because I'm a recent college grad who is in this situation and has friends in this situation.