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Friday, June 30, 2006

Big Boeing Bonus... Bubble Booster?

Given that the housing bubble is so closely tied to the economy, both on a national and a local scale, I feel compelled to mention the $346,500,000 stock infusion that will soon be distributed among 63,000 Puget Sound residents.

If Boeing's stock ends the day near Thursday's closing price of $83 a share, employees will receive Boeing shares worth about $5,500, and the regional economy stands to get an infusion from the bonuses.

The windfall, worth hundreds of millions of dollars, will go to an estimated 191,000 full-time, part-time, current and retired employees companywide — 63,000 people in the Puget Sound region — who have worked at Boeing during the past four years. Workers who have been with the company for just a portion of that time will get smaller, pro-rated stock bonuses.
Bret Bertolin, a senior economic forecaster for Washington state, said the bonuses will have more significance to the local economy than when Microsoft paid out its $3-per-share special dividend in November 2004.

The reason, he said, is that the vast majority of the dividend went to big shareholders like Bill Gates, Paul Allen and Steve Ballmer, rather than to rank-and-file workers. Gates gave his $3 billion windfall to his foundation, which spends its money around the world.

Even so, Bertolin doesn't expect the checks to lead to a big boon in state tax revenue. Even with the rosiest of estimates, he said, it could generate only $20 million of tax revenue, relatively small change for a state that expects to collect $28.9 billion in tax revenue in the current two-year budget cycle. Most of the windfall is expected to be spent in retail.

The bonus represents 6.8 percent of the $5.1 billion payroll for the aircraft-manufacturing industry in Washington state in 2005.
Just what we needed to stretch this party out for just a little bit longer.

(Luke Timmerman, Seattle Times, 06.30.2006)

South King County: Affordable Slum

There may still be one part of King County that has affordable housing, but apparently only to the detriment of pretty much every other quality of living measurement:

South King County residents have more problems with obesity, feel less safe from neighborhood crime, and are more likely not to have health insurance than those who live elsewhere in King County, according to a report issued today.

The Seattle Foundation's report, "A Healthy Community," says South King County lags some or all of the county on nine quality-of-life indicators, while scoring best in one area: affordable housing.
"We have been the poorest part of the county for years," said Duclos, chief executive officer for a nonprofit agency that provides temporary and permanent low-income housing.

Families with low incomes are drawn to South King County for affordable housing, said Kathryn Horsley, of Public Health – Seattle & King County.

"They may be able to afford to live there but they can't afford health insurance," Horsley said.
But the cost of housing in South King County has now increased to the point that some are moving to Pierce County, Duclos said. That means driving farther to jobs and spending more on gas.

What people need are better-paying jobs and help saving money, Duclos said.

"When you don't have money to spend, it's real hard to learn how to save," Duclos said.
Unless wages start to see some serious increases, if the cost of homes keeps going up for much longer, and rents really do increase the way that some people seem to want, it's only a matter of time before the Seattle area population stagnates and begins to shrink. I mean, if people can't afford to live, they'll leave, right? What other choice is there?

(Steve Maynard, Tacoma News Tribune, 06.27.2006)

Thursday, June 29, 2006

Condo Demand To "Outstrip Supply"

With the talk of all the new condos that are allegedly on their way to downtown, we've been wondering where all the demand will come from to fill them. Here are three possible answers:

Suddenly, a proliferation of new high-rise residential tower projects is on the books, in for permits, or under construction. In downtown Seattle, there are 13 projects already under construction, with another 49 proposed. If all of these projects proceed to construction, over 8,000 new residential units will be built by 2010 in the most rapid expansion of high-density development in the history of our city. It is anticipated that this number could easily grow to 10,000 new units as additional projects are queued up to meet continued demand.

The question that many are asking is: Will there be enough people moving into downtown to fill all of these towers? According to local economist Matthew Gardener, the market could readily absorb up to 2,500 new units per year. Based on a current assessment of when projects are slated for occupancy, the market will have difficulty providing this supply for the next couple of years because the typical high-rise tower takes three to four years to design and build.

Three significant trends will bring people to live in the urban center, and help maintain strong demand for downtown living:

1) Restrictive land-use rules

Land is scarce — what little land is left is comprised largely of farmland, wetlands or critical areas that need to be preserved. Growth management and jurisdictional planning restrictions on suburban development -- in combination with a push for sustainable and responsible growth — is forcing high-density development in the urban center of Puget Sound where mature infrastructure is already built. Because fewer units will be built in the suburbs, demand for in-city living will escalate.

2) Road rage

With gas about $3 a gallon and traffic getting more congested every day, many people are questioning a lifestyle that keeps them on the road for up to 12 hours a week. Free time is precious. The ability to live, work and play in an urban setting that allows a walking commute has a special appeal to many individuals contemplating a move back into the urban center.

3) Seeking new life-styles

Many people are tired of the frenetic pace of modern life and are seeking a new lifestyle that is less stressful. People are seeking calm from the storm; a place of refuge that is connected to something greater but that also affords privacy and security. Living in the city affords a more carefree, pedestrian lifestyle that is less complex and more enjoyable. Downsizing is not a fad, it is a major trend as people look to simplify their lives, and as boomers empty the nest. People are also buying second or third homes to live part-time in the city.
Maybe it's just me, but I don't see how forking over half a million or more for a tiny box of a home downtown is the gateway to a "lifestyle that is less stressful." The whole article is very pie-in-the-sky, so take from it what you will.

(Blaine Weber, Daily Journal of Commerce, 06.29.2006)

Wednesday, June 28, 2006

New Construction Costs In Seattle

In a recent post in his continuing series on whether or not Seattle is in a bubble, Gregory Wharton took a look at the actual cost of producing new houses. After doing a bit of math on construction costs, he made the following claim:

...the comparative value of new construction for the median Seattle home is $326,600 not including land.
That would actually be a pretty solid reason for housing prices to be as high as they are right now... if it were true. See, the thing is, I'm not convinced that it is true. Most of you probably read the news reports yesterday proudly proclaiming that sales of new homes nationwide were up in May. In those reports was an interesting tidbit of information about the price of these new homes:
The median price of a new home did drop to $235,000 in May...
So, nationwide the median new home is selling to the consumer for $235,000, but in Seattle the cost to the builder to construct the median home is $326,600? $235,000 is the actual median sales price across the entire US, and does include land. Making what I think is probably a low-ball assumption that only 15% of the cost of these homes comes from the land itself, and allowing for developer profit of just 5%, the construction cost estimate obtained by looking at the actual median sales price comes in at $188,000—over 42% lower than Mr. Wharton's estimate.

So here's my question: Are construction costs in Seattle really 70% higher than the nation as a whole (without figuring land into the equation), or are Mr. Wharton's numbers a bit... off?

(Gregory Wharton, Seattle Real Estate Professionals, 06.21.2006)
(Martin Crutsinger, Seattle P-I, 06.27.2006)

Update: Mr. Wharton posted the following response in the comments, and I feel it is only fair to add it to the main post:

As the original author of the linked article, A few things:

1) Of course the numbers I use are retail in the sense that they include both material and labor cost at market rates. Most homebuyers are not in a position to build for wholesale prices, which can be much lower, and must also pay site supervision costs as well. Even my architectural clients have to pay retail unless they themselves are builders (which some of them are). Some builders are able to consistently build at low prices (Quadrant is an excellent example: they build at the very low end of the market and get all their lumber dirt cheap because they are part of Weyerhauser). Many are not. In fact, most large builders with efficient cost structures won't build right in the city because the costs are too high and blow their financial pro formas apart.

2) Construction costs in major cities are very much higher than they are outside of cities. There are a variety of reasons for that, but it's been consistently true for a very long time. I'm not comparing Seattle real estate prices to construction costs in Duluth, Iowa, nor to the national averages. I'm comparing them to construction costs in Seattle, Washington.

3) Six years ago, it was still possible to build a mean-level single-family detached house for about $100 to $110 per sq. ft. in Seattle. Those days have long passed. Now, to get into that price range, you have to cut lots of corners. The Quadrant homes I mentioned above typically don't have a lot of what we might consider basic features: base trim, appliances, and a bunch of other stuff. To get that, you have to pay a premium upcharge (that's where a big part of their margin is, actually).

4) Quality is a big issue being ignored by many of your commenters. If you were to actually try and rebuild many of the 1920s bungalows so prevalent in Seattle to the same quality level of finish they currently have, your construction cost would be well over the $160/sf number I was talking about (actually, it would be north of $200/sf). I know this because I've had clients ask me to do just that and it's amazingly expensive.

4) I am aware that Seattle is usually about 1.4 times the national average for construction cost. That number has been going up...a the last two years. From what I'm seeing in cost estimates during the last 24 months, I think the multiplier is now more like 1.5 to 1.6.

5) Even if we assume I'm off by a bit per sq. ft., the argument still holds. At $145/sf (the 1.4 multiplier from national average, rounded down to the nearest $5 increment), the mean 1,720 sq. ft. home has a hard cost of about $250K, not including land or soft costs or anything else. Add 20% soft cost and you get $300K. Since land premiums are running very high as well (as noted in the chapter following the linked one) add a round $125K for land cost for a city lot (which is actually on the low side if you go and price these things out) and you are now right at the median home sale price for May 2006 of $427K.

For all these reasons and more, I stand by my analysis.

Tuesday, June 27, 2006

How To: Ditch The Buyer's Agent

I found this article about ditching the real estate agent to be unintentionally amusing.

Eric Boerner was shopping for a house in the Seattle area when he decided he couldn't stomach the idea of a real estate agent pocketing thousands of dollars in fees for work he'd rather do himself.

Did he really need someone to drive him around? And who could choose the best school for his 5-year- old daughter better than he?

So when Boerner checked out, a Seattle-based home-buying Web site, and saw a modern four-bedroom house in Lake Forest Park he liked, he took the plunge.

He hit the red "buy it" button, and made an offer.

Sight unseen.

"It seemed kind of surreal to throw a half-million dollars into a house, but I have a lot of trust in my own judgment," said Boerner, 39, who made the offer online from California as he and his family were preparing to relocate to Seattle last month.
So as their primary example of someone that has kicked the real estate agent habit, they chose an arrogant Californian, so flush with money that he's willing to throw it into a house he hasn't even seen, let alone had inspected? Wowzers.
"We represent a buyer or seller throughout the entire process. Redfin does not," said Bill Riss, chief executive of Coldwell Banker Bain. He said Redfin's model relies heavily on other full-service real estate agents, who often end up showing Redfin clients' properties.
Riss said full-service companies like Coldwell offer an edge, particularly in hot real estate markets like Seattle, where homes sell quickly, often with multiple offers.

"It's a choice of how you value your time over your money, and do you truly understand the entire real estate process?" he said. "The question is, are you trading off something?"
Boerner eventually lost the Lake Forest Park home when the seller backed out of the deal during escrow, leaving him and his wife, Lynn, scrambling. Instead, they found a four-bedroom house for $390,000 with a deck overlooking a wooded backyard in Mountlake Terrace. They toured that one before closing the deal through Redfin.
I love the "particularly in hot real estate markets like Seattle" bit. So basically what they're saying is that the popularity of the real estate agent has nowhere to go but down? Oh, and $390,000 in Mountlake Terrace? At a whopping 8% less than last month's King County median, now I know what the Seattle Times means when they called Mountlake Terrace the "sweet spot for affordability".

(Phuong Cat Le, Seattle P-I, 06.24.2006)

Downtown Condos For Everyone... Psych!

Seattle Times columnist Nicole Brodeur points out the downside to the city's apparent condo-rich future—the condos are pretty much only for the rich.

I like the idea of an army of spit-shine new residents invading downtown. It's fewer cars on the road, a nod to our healthy economy and hints at the world-class city we've always wanted to be.

But I don't see any place for the middle class. Any firefighter, teacher or store manager (we're what the city calls its "work force") will have to borrow a jacket to be seated.

One exception is the "green" Veer Lofts at South Lake Union, which start in the mid-$200,000s. With their laminate cabinets and concrete floors, the industrial-style lofts are considered "entry-level."

So of course it's like scaling a mountain to get one. Potential buyers must attend an informational overview, get pre-approval from a lender, fill out a lottery card and then cross their fingers.
...So while some 11,000 new downtown condos are in the works, a fraction of that will be apartments for the working class.

I guess that's what it means to be "world-class." Like New York and Chicago, Seattle is becoming a place of haves and have-nots, where the affluent enjoy the banquet of downtown life while we mortals can only window shop.
It seems like most of the large employers with lots of well-paying jobs aren't even located downtown anyway. Microsoft, Amazon, Boeing... Is there really enough demand in the downtown core for all these high-priced homes? I guess we'll see as these projects are built—or not built, as the case may be.

Update: Condo enthusiast Matt over at Urbnlivn shared his take on the matter yesterday.

(Nicole Brodeur, Seattle Times, 06.25.2006)

Thursday, June 22, 2006

The Tim Is On Non-Vacation

Speaking of going to California... that's just what I'm doing (you think I get up at 4:00 AM for fun?). I shan't return until Sunday night, so please feel free to use this post as an open discussion to discuss any stories I miss while I'm gone. If I somehow manage to find a usable computer with a descent internet connection I may try to make a post or two, but don't bet on it.

Try to be nice to each other while I'm gone. Seriously, there's no reason to be rude. There is such a thing as a friendly disagreement.

Wednesday, June 21, 2006

Yet Another Workplace Anecdote (YAWA?)

Another coworker of mine just put the family house up for sale. They are asking $490,000 for their 2,000 square foot home built in 1998 on 0.35 acres in rural eastern King County. They purchased in July of last year for $410,000. The previous owner bought from the builder for $240,000 in 1998, and sold 7 years later for a 71% profit. Dang.

They are selling because they are moving to northern California in late July because they both got "good jobs" there. Although the town they're moving to is relatively rural and a decent distance from San Francisco and Sacramento, I can still see why they would want to squeeze as much cash as possible out of the place.

May NWMLS stats show area 550 (which contains their house) as having a 23.7% increase in inventory and a 11.5% decrease in sales compared to last year, with the median price increasing by "just" 9.5% (compared to a 16.9% increase for King County as a whole). Here's a graph of the monthly year-on-year percent change in median price for area 550 for 2004-present:

NWMLS Area 550: Median Price Percent Change
Note the obvious downward trend of 2006's red line compared to 2004 and 2005 around the same time of year. Is it just me, or does their asking price of $490,000 (which calculates out to a markup of 19.5% over what they paid just 11 months ago) seem extremely... shall we say, ambitious? If I were a more prying person I would ask them whether that price was suggested to them by their real estate agent or if they came up with it on their own. If it was their agent, they should fire him. Either way, I will be quite shocked if they are able to sell without a considerable markdown, but I would also be surprised if they can't sell it for at least 5% more than what they paid. I'll go out on a limb and predict a selling price of $430,000. Of course how much they end up getting will depend largely upon whether they absolutely need to sell before they move.

This brings up an interesting question. My coworker told me that when they bought the house last year "we had no idea that we would both be moving to California in a year." If/when the market takes a tumble, what will people like my coworker do? Will they just not consider jobs outside their area? Will they somehow manage to sell at a loss and move anyway? Or will they attempt to rent out their house (probably also at a loss) while they wait out the market? Not everyone can just wait out the storm. Many people have compelling reasons that force them to sell their house. The argument that people just won't sell their homes if the market starts to dip, thus preventing the market from dipping further doesn't seem to hold water to me.

Northwest Realtor Talking Points

Here's a little sample of the kind of real estate booster piece that gets circulated among those "in the business," courtesy of NWREporter. (Emphasis theirs)

According to, the forecasts for housing price growth are calling for booming values in the state of Washington. For the June issue of MONEY Magazine, Fiserv Lending Solutions and Moody's provided forecasts for the coming 12 months for 380 metro areas – they predict that five of the top 10 fastest growers will be in Washington. ... Much of the appreciation in housing is attributed to above average job and population growth and limited supply of housing.

According to a survey of home buyers by, 70 percent of consumers say rising gas prices have become an important consideration when deciding where to live. Nearly half of all home buyers (48 percent) ranked rising gas prices as "very important." Consumer attitudes and opinions about commuting long distances to work have also shifted rather dramatically over the past year. More than 40 percent of home buyers now think a short commute to work is an important factor in choosing a new home.
One in four Americans born from 1946 to 1964 own more than one property, according to a survey of nearly 2,000 boomers done this spring by Harris Interactive for the National Association of REALTORS® and reported in USA Today. Boomers own 57 percent of vacation homes and 58 percent of rental properties, according to NAR. Beyond their primary residences, 13 percent of boomers own vacant land, 8 percent own a vacation or seasonal home and 2 percent own commercial real estate. Those surveyed reported that they aren't financially prepared for retirement, but real estate ownership is a key part of boomers' retirement plans.
I believe that in political circles items like this are known as "talking point memos." Real estate in Washington has nowhere to go but up! Prices will never fall in the city because people won't commute! "Boomers" will carry the market!

Yeah, you just keep right on telling yourself that.

(NWREporter, 06.2007)

Tuesday, June 20, 2006

State's Chief Economist Warns Of Slowdown

Despite the fact that wages have basically been stagnant while daily expenses such as gasoline have been, shall we say, upwardly mobile, the state continues to rake in record revenue.

Chang Mook Sohn, the state's chief economist, said today that his outlook for tax collections for the 2007-09 biennium shows ever increasing revenues that lawmakers use to pay for public schools, colleges, prison and most other state programs.

Despite $3-a-gallon gasoline, consumers are still on a spending spree, Sohn said. That translates into higher sales and real estate tax collections for the state.

However, people are spending more money than they're making, which Sohn finds worrisome because it can't continue indefinitely. Consumers appear to be cashing out some of the value of their homes to fuel their spending, he said.

"Clearly, the consumer is over-extended," Sohn said.
Yes, it is called a negative savings rate. Spending more than is earned is no big deal anymore. Hey, the government does it all the time, so why shouldn't consumers do it, too?

Of course, the fuel for the consumer spending spree (and by extension the state revenue boom) is likely to dry up soon. Surprisingly, Mr. Sohn is very frank about that distinct possibility .
State coffers will swell by more than $959 million over the next three years, erasing a projected state deficit that had worried the governor and legislators.

Still, even with that good news, revenue officials raised warning flags, predicting that a slowdown in the construction industry will drag down the state's economic expansion before long.
The state's sizzling construction and housing sector is ripe for a major correction and other factors could hammer the state and national economies in the next few years, said ChangMook Sohn, the state's chief economist.

Sohn said the state isn't expected to dip into a recession, but that signs of a slowdown are on the horizon.

"We can't assume that this hot economy can continue into the next biennium," he told the forecast council, a bipartisan panel of legislative and administration financial experts. "My worry is that even this number could be too optimistic."

His biggest concern is that the state's recent economic and revenue expansion has been heavily dependent on a single sector of the economy, the construction and housing industry.

That sector accounts for about 7 percent of the overall state jobs, but the construction and housing surge in recent years has accounted for 20 percent of the job growth, he said.

That's not sustainable and the number will surely drop back to more usual numbers, he said.
But don't worry, Boeing, Microsoft, Amazon, and Valve will surely pick up every last bit of slack.

(Joseph Turner, Tacoma News Tribune, 06.15.2006)
(David Ammons, Seattle P-I, 06.16.2006)

Monday, June 19, 2006

Seattle Soft Landing: Do The Math

A while back, a commenter made the following claim:

What history tells us will happen is that prices will level off, and appreciation rates will reflect your average inflation rates (on average) until wages catch up with home prices and the fundamentals start to match back up.
As most of you know, this scenario is commonly known as the "soft landing." Actually it's a slightly harsher version of the traditional soft landing, in which appreciation rates dip down to 5-6% as opposed to falling all the way down to the level of inflation (traditionally 2-3%). So if this version of the soft landing is true, just how long will it take for wages to "catch up with home prices"? For the answer, let's get our Excel on.

To begin, we need some good starting data. Let's assume for the sake of this argument that in the first quarter of the year 2000, homes were "affordable." The Washington Center for Real Estate Research (WCRER) "affordability index" for Q1 2000 was 96.6, so this is likely a fairly accurate assumption. So, let's take a look at the housing market vital statistics for the year 2000:
Q1 2000
Median Home: $245,000
Median Household Income: $54,590
Interest Rate: 8.21%
Affordability Index: 96.6
Tim's Affordability Index: 93.0
Since I don't know how WCRER calculates their affordability index, I created my own. The calculation I used is simply 30% of the median monthly income divided by the monthly payment on the house (assuming 20% down and a 30 year mortgage). So, what does the situation look like now? Here are the most recent numbers:
Q1 2006
Median Home: $399,500
Median Income: $60,700
Interest Rate: 6.15%
Affordability Index: 77.1
Tim's Affordability Index: 77.9
Ouch. Not so affordable anymore. Home prices have increased an average of 8.5% per year, while wages only increased an average of 1.8% per year! No big deal though, right? Prices will just "level off" and wages will catch up.

Let's make some (relatively optimistic) assumptions and see what the "wages will catch up" scenario would look like. Let's assume home prices "level off" to 2.5% annual increases. Furthermore let's assume that interest rates increase just 0.125 points each year until they top out at 8.00%. Lastly, let's assume that wages increase at 5% per year. Under that scenario, my affordability index reaches the 2000 level of 93.0 in the year 2021. That's fifteen years of stagnant home prices, under a relatively rosy set of numbers.

What if interest rates go up 0.25 points each year and top out at 10%? Look to afford a home in 2029. What if instead wages only increase at 4% per year? Homes become affordable again in 2031. What if I tweak the numbers ever so slightly and assume 3% home price gains, 4% annual wage increases, and a maximum interest rate of 9%? Don't expect to afford a home until 2053.

Keep in mind that these figures totally ignore the already high and still increasing expense of the 20% down payment. Inherent in the calculations is the optimistic assumption that people will somehow manage to come up with the money. In the first scenario I outlined, the affordable home in the year 2021 would cost $578,595, requiring a $115,719 down payment. The median household income would be $126,191.

Maybe I got the formula wrong. Or maybe the "soft landing" scenario is a steaming pile of... well, you know. Honestly I have no clue what's going to happen. Maybe it really will be 10-20 years before homes become affordable again. For your enjoyment, I have added these calculations to a new sheet in the big Seattle Bubble spreadsheet. Feel free to download it and play with the numbers yourself. If I'm way off base and making inappropriate assumptions or using stupid equations, please let me know.

(Home Prices & Affordability: WCRER)
(King County Incomes: King County Government)
(Interest Rates: Federal Reserve)

The Case For Condo Mania

In the interest of being even-handed, I present to you the case for downtown condo mania, courtesy of the Seattle Times.

The more housing we build downtown, the more desirable downtown becomes for all — residents, workers, visitors and tourists. Many people who live downtown invest in downtown. They donate their time and resources to social services and nonprofits, they care about their neighborhood and they shop and dine downtown.

Unlike other dense cities, Seattle is not a downtown comprised of real-estate investors. During its 1990s building boom, Vancouver, B.C., overbuilt housing, selling half of it to out-of-town investors who weren't interested in developing a community. In Seattle, the vast majority of the local demand for housing is being filled by people who choose to live here, thereby ensuring that our growth will be smart growth. And this benefits us all.
The new code will also help reverse a prolonged trend toward urban sprawl. In the past few decades, baby boomers have created urban sprawl by moving ever farther into the suburbs to raise families. That trend is reversing. As their children grow up and move out, many of these "empty nesters" are moving back to the cities and into the downtown neighborhoods to free themselves from traffic commutes, to be closer to urban cultural amenities and to shed some of the responsibility that comes with maintaining a house and a yard. In turn, more young families can now "recycle" these suburban homes rather than build new ones and extend suburban sprawl.

In my 29 years of downtown living, I've lived close to the Pike Place Market, Pioneer Square and Westlake Park — and not once have I regretted living in any of these wonderful downtown neighborhoods. Each has its own distinct flavor: Pike Place with its quiet evenings, Pioneer Square with its special historic buildings and scale, and Westlake with its shopping, its theaters and its people-filled streets.
Considering that Seattle is one of the most childless cities in the country, downtown condos should be a no-brainer, right? Obviously there are a lot of people like the author of this editorial that really do prefer the downtown condo lifestyle. However, like many of the commenters on my previous post on this topic, I'm wondering whether all of these grand plans for tall slender condo towers will actually materialize when (if?) the real estate slowdown finally becomes a reality in Seattle.

(William Justen, Seattle Times , 06.16.2006)

Saturday, June 17, 2006

Local Real Estate Blog Talks Bubble

Over at the P-I's Seattle Real Estate Professionals blog, Gregory Wharton (identified as an architect and developer) is in the middle of a very detailed series of posts tackling the subject of—you guessed it—a real estate bubble in Seattle.

In the next series of posts on the subject, I'll investigate Seattle housing prices and associated economic conditions. Some of the answers I'll discuss may surprise you, no matter which side you're on. It turns out that Seattle real estate prices are unsustainably high in many cases, maybe even ripe for a serious correction, but outside of the condo-flipper market there is no bubble...yet. The situation presents a very real problem for our city, and we need to start thinking about remedies.
He's about a third of the way through, and so far I'm relatively impressed with the balanced view he is presenting. It's certainly a lot better than the fingers-in-ears, "la la la, I can't hear you" approach we've seen on other local real estate blogs. I may not agree with all of the conclusions he comes to, but at least he is giving the subject a genuinely thoughtful analysis.

I'll probably post about this again as he gets further along in the series.

(Gregory Wharton, Seattle Real Estate Professionals, 06.12.2006)

Friday, June 16, 2006

Seattle 2010 = Vancouver, BC 2.0?

Apologies for the lack of posting yesterday. I spent all day at the Art Institute downtown with my wife, at her "portfolio day," which marks her completion of the "Residential Design" program. If you know someone that needs an interior designer for cheap (since she's just getting started) shoot me an email.

Moving on... If you've been with this blog for a while, you may recall way back in November when we compared Seattle to our neighbor to the north, Vancouver, BC. Specifically, we discussed condos, and the fact that many people feel that Seattle doesn't have enough of them. Well, several readers sent me a link to a new story on the topic: Booming Development set to change Seattle's look.

Despite soaring construction costs and land prices, the downtown Seattle residential pipeline is booming with new condominium projects. Forty-nine new buildings — 13 of which already are under construction — are planned to be completed by 2010.

And all those buildings mean room for thousands more residents, who will need places to get groceries and the other necessities of daily life, and perhaps send children to school.

To some, it's an expansion that's long past due.

Seattle is "playing catch-up" to growing cities such as Portland and Vancouver, B.C., said Dean Jones, president of Realogics, a real estate marketing company in Seattle.
Buildings like 1521 Second Avenue are luring people downtown. It's the baby boomer generation, mostly — once children move out, people need less space in which to live, said panelist Kate Joncas, president of the Downtown Seattle Association. Younger professionals make up many prospective downtown buyers as well.

Developers are targeting a range of incomes. New condos will cost from $300,000 to more than $2 million.

To meet demand, 10,000 new units are planned for 2010. But panelist Matthew Gardner, principal real estate analyst at Gardner Johnson in Seattle, said he expects 60 percent of that number to actually be built.

Construction costs have reached "astronomical figures," he said, limiting development. From April 2005 to April 2006, the cost of copper tubing increased 71 percent, Sheetrock 24 percent, plastics 20 percent and concrete 12 percent, he said.

Labor costs are on the rise, and urbanization in China and post-Katrina rebuilding are sucking up the supply of building materials.

Nevertheless, housing demand is strong in downtown Seattle. Emerging neighborhoods such as Belltown, Denny Triangle and the Market District are becoming popular for downtown's culture and proximity to businesses.
Alleged Seattle Skyline 2010
I guess I don't really have all that much to say about all this. Maybe Seattle really is "under-condo'ed." Maybe while the condo market in the rest of the country crashes, condos in Seattle will be boom, boom, boom. I mean, everyone I know wants nothing more than to spend between $300,000 and $2,000,000 for the privilege of owning 500 square feet in a fancy new high-rise downtown, separated from their neighbors by nothing more than a few layers of drywall and insulation. Isn't that the American Dream™?

(Nick Eaton, Seattle P-I, 06.14.2006)

Wednesday, June 14, 2006

Slowing Real Estate Slows State Economy

As predicted, the slowing real estate market is beginning to affect other aspects of the economy in our state.

The monthly jobs report from the state Employment Security Department often is full of seemingly contradictory data, but May's report was even murkier than usual.
Beneath the confusing headline numbers, there's considerable evidence for a simple conclusion: Washington's surging economy — fueled in large part by the feverish real-estate market — is simmering down.

The 2,100 payroll jobs added in May, for instance, were the fewest since September 2005, when jobs actually fell. April's job gain was revised downward, to 3,900 from 5,200.

Since January, the state has added fewer jobs each month than the month before. On a quarterly basis the same trend holds true: After adding 41,100 jobs in the fourth quarter of 2005 and 33,300 jobs in the first three months of this year, Washington has grown by just 6,000 jobs so far this quarter.
No matter how you slice the numbers, though, the state's economy appears to be growing more slowly. A big reason, economists suspect, is the cooling of the Northwest housing market.

Statewide, the housing market in the first quarter was "basically flat" compared with the same period in 2005, said Glenn Crellin, director of Washington State University's Center for Real Estate Research.
The state's construction sector, which had added a revised 300 jobs in April and 8,500 jobs since the beginning of the year, lost 500 jobs last month — the first construction-jobs losses in a year. Real estate and rental leasing, however, gained 100 jobs in May, on top of the 200 gained in April.

Aerospace continued strong, adding 400 jobs last month and 6,600 over the past 12 months.
Professional, scientific and technical services — a hodgepodge category that includes lawyers, accountants, architects and computer-systems administrators — added 1,400 jobs in May and 6,100 over the past 12 months.

Growth in that category, [Evelina] Tainer [the Employment Security Department's chief economist] said, generally reflects the overall health of the state's economy.
I'll agree that overall the state economy is still in good health. But I can't help but think that this is just the beginning of a downward trend that will grow much larger than the optimists think. I really hope I'm wrong.

(Drew DeSilver, Seattle Times, 06.14.2006)

Tuesday, June 13, 2006

Pierce Property Tax Valuations Up 22%

Proving that it is indeed possible to write a story about home price increases without resorting to overly enthusiastic quotes real estate cheerleaders and/or government beneficiaries, the Tacoma News Tribune reports on the 22% increased property tax valuations being mailed out to Pierce County residents this week:

This week, the Pierce County Assessor-Treasurer's Office will mail the annual "Value Change Notice" postcards to owners of 246,754 residential properties.

The 22.2 percent increase in average house values is based on data from 2005, when the real estate market was rolling like a freight train. This year, the housing market is cooling off, partly because of a slight increase in interest rates, experts say.
The county's biggest cities, including Tacoma, Lakewood and Puyallup, all saw increases in average house values of up to 22 percent. In Tacoma, for example, home values jumped from $188,293 in 2005 to $228,652 in 2006 – a 21.4 percent increase.

But smaller cities saw bigger increases.
Zenker described those smaller cities as "sleeper towns" where "people just want to be there." Pacific, for example, has offered affordable housing for people who commute north for jobs in Seattle and elsewhere in King County, Zenker said. But the big jump in values in Pacific (35.3%) indicate its role as an island of affordability is "pretty much done."
It will be interesting to see if the property tax valuations actually decrease if/when the bubble busts and the price of real estate in the area goes down. If anything is "sticky on the way down," I'll bet it's property tax valuations.

(Aaron Corvin, Tacoma News Tribune, 06.11.2006)

Monday, June 12, 2006

McMansions Cramp Kirkland's Style

Sorry I'm a bit behind. I've had a busy weekend. This story was posted last Thursday, and while it might not directly relate to bubble issues, it's still interesting to consider. Summary: McMansions in Kirkland may be getting out of hand .

As Kirkland becomes a destination for new luxury homes — many taking maximum advantage of the lot space — residents worry that the new houses are changing the feel of their communities.

The concerns have led the city to take a hard look at the rules for determining how large homes can get. Proposed changes will be presented at a public hearing tonight.

The issue is not unique to Kirkland. Across Puget Sound, communities are seeing small homes on modest lots being replaced by much bigger homes that often seem out of scale and overwhelming to neighbors.
To [Loren] Spurgeon, [chair of the city's Market Neighborhood Association,] more out-of-scale homes mean fewer people can afford to live in Kirkland, making the city less diverse.

"It's improving the value of the homes, but the blowback from it is that retired folks are unable to continue to live here," Spurgeon said.

Others have mixed feelings. Russel Smith has lived in his home on Seventh Avenue West since 1967 and, while he's not happy that his taxes have increased, he said the new homes improve Kirkland's appeal.

"It is changing the quality of life," he said. "I've lived here since 1967, and back then it was a town of little bungalows that were thrown up quickly for the ship workers. I didn't think it looked too nice."
Hmm. I think he's got a point. Here's my plan: Every home within a 5 mile radius of each of King County's downtown centers should be no less than a $350,000 condo or a $700,000 McMansion. All apartment complexes should be converted, and all small old houses should be torn down and replaced with more "appealing" homes of no less than 3,000 square feet. Also, no home (condo or house) is allowed to be without granite countertops. If we implement my plan, King County will have the most appealing cities on the planet! It's foolproof!

(Lisa Chiu, Seattle Times , 06.08.2006)

Friday, June 09, 2006

Most Ridiculous Item Of The Week

Let's have a little fun on a Friday. How about a thread dedicated to sharing the most ridiculous real estate related item you've seen this week. An anonymous commenter yesterday made a good contribution with MLS# 26089900 which urges the potential victim buyer to "Take advantage of the Ballard Craze now," by putting in "lots of work" and "sweat equity."

This might or might not be incredibly ridiculous, but I looked up the info on a house that I pass by sometimes on my way home from work. Asking price: $1,625,000. Most recently sold in: October 2004 (as an empty lot). Most recently sold for: $350,000. Days on the market: 23. I don't know how much it costs to build a 5,000 sqft home and do all that fancy landscaping, but my gut check tells me that this asking price is a tad on the greedy side. I mean, just a few years ago I remember walking through nearby neighborhoods with comparable homes listed in the $600k-$800k range.

So what's your "most ridiculous item of the week"?

Thursday, June 08, 2006

3 Years, 50% Appreciation

Here's another story pointed out by a reader. If only I had millions to sink into an apartment complex three years ago, I could have $6 million more now!

What difference can three years make in terms of rising real estate values?

In the case of Country Glen Apartments in Kent, which recently changed owners for the second time in three years: about $5.8 million.
Jim Claeys, a commercial real estate broker with CB Richard Ellis in Seattle, issued a press release Monday announcing the property sale, but did not name the buyer or sellers.

Claeys, who represented both parties in the transaction, described the buyer and sellers as private investors from California.
So here's the interesting question. Why is the California buyer willing to pay $5.8 million more for the apartment complex than it sold for 3 years ago (a 50% increase)?
  1. They expect to jack up rents by 50%.
  2. They expect the real estate to appreciate by 50%.
Choose one.

(Clayton Park, King County Journal, 06.06.2006)

Wednesday, June 07, 2006

Seattle "Buffered From Cooling Trends"

A number of readers pointed out USA Today's "Close to home" profile of the Seattle residential real estate market. There's not a lot of substance to it, and this quote is almost the entire text:

Seattle's strict growth- management policies and an economic rebound are buffering the region's real estate market from cooling trends. The number of new jobs has outpaced building permits for single-family homes and condos by 30% the past 15 months. Though single-family home sales fell about 7% in April, compared with April 2005, there's only a three-month supply of homes in the Seattle market — half the national average. That's largely why prices rose nearly 18% that month, according to the latest data available.
There's something really fishy about those numbers... Take a look at the graphic on the right. It shows the median home price in Seattle at $275,700, while all of Washington State is $320,000... huh? Not only is that backward (I'm certain that Seattle has a higher median than the state as a whole), but even if you simply reverse them, the $320,000 number doesn't match up with any numbers I have available. They're talking about April, so take a look at the April MLS numbers. King County median home price: $377,000. Seattle median home price: $410,000.

They highlight some 950 sqft. house with a price tag of $279,000 as the "median-price home." Not only is a home that cheap nearly impossible to find in Seattle, but good luck finding such a house at that price pretty much anywhere in King County. I have to wonder... what were they smoking?

Regarding the write-up portion, I don't really have anything to add over what we just discussed last month. There is however an active discussion on the topic going on over at Sound Politics, where contributor Matt Rosenberg seems to think that the primary reason that Seattle home prices have gone so high is growth management.
The "no affordable housing" plaint also betrays an ignorance of the effect - especially pronounced in other Seattle communities - of the basic laws of supply and demand under the heavy hand of regional growth management regulations.
I would buy that argument if Seattle was alone in its wild appreciation, but the housing bubble is not a localized phenomenon.

(Noelle Knox, USA Today, 06.05.2006)

May Reporting Roundup

Let's take a look at today's reporting on the May NWMLS numbers. First up: Home prices keep climbing by Mike Benbow of the Everett Herald:

Home prices soared again in May, but that didn't stop significant numbers of buyers.

Sales last month did drop by 1 percent in comparison with May 2005, but they still continued at the high level Snohomish County has seen for several years, according to statistics released Tuesday by the Northwest Multiple Listing Service.
In addition to higher prices, Snohomish County saw an increase in the number of homes available for sale in May. After seeing inventory shrink during the past year or so, buyers actually saw a nearly 13 percent increase in the number of homes on the market in May. A year ago, there were 3,200 homes in the county to choose from. Last month, that number rose to 3,606.
Not much to say about this one, it's pretty pedestrian stuff. Mike didn't even try to take some kind of "angle" or present the numbers in a confusing way. Actually it's a pleasantly even-handed report on the May numbers.

Next let's check out the scene in Tacoma with Barbara Clements' article, More homes, bigger prices:
The number of houses for sale in the county, which had a median home price of $262,950 last month, jumped by 37.6 percent in May when compared with the same month last year, according to statistics released Tuesday by the Northwest Multiple Listing Service.

Brokers confirmed the trend.

"We have about 25 homes in our inventory right now," said Katina Toscas-Atz, a broker with Keller Williams Realty in Lakewood. "Last year at this time, we have five."
"I think as long as the seller doesn't try to wrest every dollar out of the home, it's still a fast-paced market," [Dick Beeson, Windermere broker] said.

Lennox Scott, CEO of John L. Scott Real Estate, said there seem to be two markets in the region now.

Homes near cities seem to still be selling at a fast clip. Markets farther away from the economic centers are selling more slowly.
Another fairly balanced report, highlighting the signs that things are finally slowing down a bit, but pointing out that the market is still relatively hot compared to most years. This is turning out to be a refreshing month of even-handed reporting.

Moving on to Seattle, the P-I tackles the story with a tag-team report titled Prices high but homes still hot property by Cecelia Goodnow & Kathy Mulady:
First-time home buyers Carrie and Tim Matthews really did their homework. They took a home-buying course, got advice from friends and co-workers, lined up financing and viewed about 60 houses for sale in the Seattle area.

But in one respect they were naive. They had the quaint idea that they'd find a great house up for grabs, rush to make the first offer and win the prize.

Not in today's heated market, where hungry buyers circle the most popular neighborhoods like sharks in search of lunch.

"We wanted to live in Ballard, and that's a real popular area right now," said Tim, 35, a marketing director. "So if you're looking in a popular area you have to be prepared for multiple offers and be patient, because you're probably going to lose a few."
The inventory of houses and condos for sale would seem to favor buyers like these. The listing service report showed an increase — 4.7 percent — from the same month a year ago. But even if the pace of sales has slackened a bit, "There is still a strong demand for the better-priced properties," said Dick Beeson, director of the service.
Now, as Tim and Carrie Matthews nervously count down to their closing date, all they have to worry about are the typical stresses of home ownership, including mortgage payments of between $2,000 and $3,000 a month — more than double their current rent. Not that they're complaining.

"As long as you're patient and you end up with something you want," Tim said, "it's all worth it."
Whoa, it looks like I spoke too soon. So much for refreshing even-handedness. "Heated market," "hungry buyers," "strong demand," and "all worth it." Let's party like it's 2005, because apparently it still is!

Also, is the P-I getting story cues from commenters on this blog (re: Ballard)? Draw your own conclusion on that one.

And who could forget our favorite real estate reporter—back from vacation—Elizabeth Rhodes, who writes More for-sale signs, but prices still hot:
Homebuyers throughout most of Western Washington caught a bit of a break last month, but it wasn't in their wallets.

The number of single-family homes and condominiums for sale grew 18 percent in the 17-county area served by the Northwest Multiple Listing Service, its May sales report released Tuesday said.

Even King County, hard hit this spring by a shortage of for-sale properties, posted an 8.4 percent gain compared with May 2005.

Still, price appreciation hit double digits throughout the region — a sure sign that demand outstripped supply.
"In all honesty, I think we're seeing a little bit of a slowing down," said Rick Oxford, broker in the North Seattle office of Keller Williams Realty.

That was seconded by Phyllis Danforth, owner of Coldwell Banker Danforth Associates in Federal Way.

"Comparing all our data from a year ago, we're down a little bit," Danforth said. "There are some concerns about the interest rates going up. But it still seems to be a very good market."
Okay, I was with her at the beginning there, cheering on massive appreciation and nodding my head about demand that "outstripped supply." But what's that part at the end? Could it be... is it really... acknowledgement of the real estate market slowdown? I guess the vacation must have softened Ms. Rhodes. I have to say, I'm quite surprised. I guess you can only ignore it for so long.

To sum up: Is the market as hot as last year? Not hardly. Is it headed off a cliff? Also negative. It still seems quite strange to me though that prices continue to climb while supply increases and demand decreases. I don't see how those three trends can continue indefinitely. But I'm no economist.

(Mike Benbow, Everett Herald, 06.07.2006 )
(Barbara Clements, Tacoma News Tribune, 06.07.2006)
(Cecelia Goodnow & Kathy Mulady, Seattle P-I, 06.07.2006)
(Elizabeth Rhodes, Seattle Times, 06.07.2006)

Tuesday, June 06, 2006

Inventory Up, Sales Down (Still)

Yes, the May MLS numbers are out. Here are direct links to the full NWMLS stats and the King County "breakouts" (PDFs). So far I've seen just one news report on the numbers, a blurb in the Puget Sound Business Journal:

Buyers looking for homes near the job centers of Seattle and Bellevue won't find as many houses for sale compared with the outlying areas, according to the latest report from the Northwest Multiple Listing Service (NWMLS).

And the prices paid for homes in King County continue to rise, the report says.

The median price paid for a single-family home (not including condominiums) in King County last month was $427,950, up from $370,500 a year ago.
"We continue to see a lack of viable inventory in those areas close to the job centers in Bellevue and Seattle, while the outlining areas have leveled out and now have more than enough supply for the demand," said Lennox Scott, chairman and CEO of John L. Scott Real Estate, in a statement.
...and I continue to not buy that as an explanation for the decrease in sales. Just like last month, inventory is creeping up (KC homes +10% compared to May '05) while sales creep down (KC homes -6% compared to May '05). You do the math.

(Puget Sound Business Journal, 06.06.2006)

"Inventory is having an impact on prices"

It looks like the "spring selling season" didn't pull Olympia out of its slump:

This year's larger inventory of South Sound homes for sale might be keeping homes on the market longer and slowing prices down.

For the past four months, it has taken longer for homes to sell compared with last year. And for the first time in May, the gains in year-to-year median sales prices took a noticeable drop, according to Olympic Multiple Listing Service data.

Regardless, the number of Thurston County homes sold in May was 15 percent higher than last year, leaving the number of homes sold up 9 percent from January through May this year.

Current active listings in Thurston County are about 1,277 homes, up from 879 the same time last year, the listing service reported Monday. New homes that have come onto the market are responsible for much of the increase in listings.

"Inventory is having an impact on prices," said Jerry Wilkins, manager of the listing service.
I love how they give the sales figure in percentage and the inventory as an absolute number. It makes them much harder to compare that way. FYI, the figures provided translate to a 45 percent increase in inventory. Directly comparing the 45 percent inventory increase to the 15 percent sales increase makes it a little harder to be stubbornly optimistic.

I also love how these real estate enthusiast types can admit that things are slowing down, but still phrase it in an extremely positive way:
Future monthly median increases might not top 20 percent, Wilkins said.

(Jim Szymanski, The Olympian, 06.06.2006)

Monday, June 05, 2006

For Lack Of More Exciting News

On the one hand, I do tire sometimes of Elizabeth Rhodes' constant real estate cheerleading. On the other hand, at least it gives us something new to talk about every Saturday, right? Without Ms. Rhodes, all we get are bland neighborhood profiles like this one about the "legacy of Mountlake Terrace."

The legacy of Mountlake Terrace and growing families goes back more than a half-century. Relentlessly optimistic and energetic, World War II veterans returned home, eager to build new lives and new families. They needed someplace cheap to do it.

Enterprising developers bought up land in The Terrace and plopped down cinder-block houses as fast as the concrete would cure. The vets paid $4,995 for two-bedroom, 640-square-foot homes.

"And for an extra $10 a month, the developers would throw in all the appliances," said Stan Krahn.

Things have changed. One of those houses, albeit with an extra bedroom tacked on, was on the market last year for $210,000.

Still, Mountlake Terrace, population 20,390, according to 2004 city figures, is attractive for new families.
Sure, it's crazy to think that people are paying $210,000 for tiny cinder-block houses, but what's new, right? Actually the amusing thing is that one of the friends I referred to earlier bought a cinder-block house... in Mountlake Terrace... for ~$230,000. Let's see, that's about 6.6% appreciation, every single year, for 60 years. It's magic!

(Don McManman, Seattle Times, 06.03.2006)

Sunday, June 04, 2006

Dead Tree Press For Seattle Bubble

I know you all totally keep on top of all the popular Canadian magazines, so this is probably totally old news to you,* but Seattle Bubble got its first mention in a mainstream dead-tree publication last week, in an article in Maclean's titled Bubble, bubble, toil and trouble.

As with politics, the real-estate blogosphere is a place for people who feel deceived by the "mainstream media." "I got tired of the grinning chimps on local media boasting about million-dollar condos," says Alan Ashton, a 40-year-old single parent who regularly visits his local "bubble blog," the Vancouver Housing Market Blog ( Ashton, who rents, recalls sharing his views once on a pro-investment real-estate website. "I got positively roasted by bullish real-estate types. Any suggestion I made that affordability was becoming a problem was met with outright hostility."

"There's a fair amount of emotion when you're talking to people who would like to buy a home but aren't willing to commit financial suicide to do it," says Timothy Ellis, author of the blog Seattle Bubble ( "And that emotion was a large factor in creating the bubble itself."
Mr. Chong wins points for not taking me completely out of context (as I've more or less come to expect from the "mainstream media"). Here's my full quote:
There's definitely a fair amount of emotion in the air when you're talking to people who would like to buy a home but aren't willing to commit financial suicide to do it. And I think that emotion was definitely a large factor in creating the bubble itself. People bought into the argument of "get in now or be priced out forever!" Or they saw people selling their houses for tons of money and got in so they could get some of that action. Most financial bubbles have emotion as one of the major underlying causes.
For those that are interested, in the extended post below is the full text of my email interview with Kevin Chong, the author of the article.

View/Hide Full Interview

1. How did you come to have such knowledge of interest rates, housing starts, etc? (It's all Greek to me, as a writer.) What you do for work? Have you had many media requests already?

Anything that I know about interest rates and general housing numbers I have only learned from watching the market for about the past year and a half. I do have a fairly strong background in mathematics, as I am an Electrical Engineer for a living (designing circuit boards for control systems), but aside from that I really don't know anything that anyone else couldn't figure out if they spent the same time I have on the subject.

As far as media requests, yours is actually the first. The media in Seattle only seems interested in getting their real estate quotes from people in the business of selling real estate. Go figure.

2. I know so many people who have stories where they could have bought a place five years ago that has tripled in value. Do you have one of those?

Five years ago I was still in college, accumulating a fairly sizeable amount of debt in the form of student loans, so I wasn't in the position to buy a house, overpriced or not. I got married a few months out of college, and my wife and I decided that it would be in our best interests to pay off all our debt before incurring any more in the form of a house. We have been successful in paying off about $40,000 in debt since late 2002, and that's something I'm quite proud of. We don't owe any money to anyone.

However, hindsight is of course 20/20, and had we known that real estate would skyrocket the way it has, we probably would have kept our debt payment at a minimum and bought something, even if only to sell it a few years later and walk away with $100,000 or more. I don't regret our decision, but the way real estate has gone in the meantime is certainly discouraging. Although, we're currently living with 100% free rent, so I really don't have much to complain about at all.

3. Has there been any recent developments that have been encouraging or discouraging to you and your belief in the bubble?

Looking at the monthly MLS numbers for the Seattle area (King County), there's been a definite trend toward sanity in the market. You don't see it reflected in the median price yet, but the "hot hot hot!!!" market of 2005 is definitely gone. Although it is currently quite subtle, the trends of declining sales (year on year) and increasing inventory are a signal of hope to me that Seattle is finally cooling off.

4. What, in your opinion, is the most commonly held argument for people who see the a continuing spike in the market, and why is it incorrect?

"Supply and demand" is probably the one I hear the most. They cite the growing economy in our area, and the growth management restrictions, and claim that there just aren't enough houses to go around. The main thing I disagree with in that argument is the demand side. As I said, sales have been decreasing (sales in April 2006 were down 10% from April 2005), and despite the "robust economy" our area supposedly has, wages in King County have actually decreased in the past few years. So where on earth is all this money coming from to continue to drive prices through the roof? A recent article in our largest local daily newspaper had one sentence in it that was quite telling. It said that people making the median wage in King County have only 45% of the necessary income to afford a home. Demand cannot continue to grow when no one can afford the price of homes in our area. It's as simple as that.

5. Why do you think bubble blogs are so enormously popular? Whom do you think is your typical reader? Do you think Internet-savvy people (i.e. those who are aware of the tech bubble of a few years back) are more pre-disposed to see a bubble? Do you think the bubble has anything to do with emotion?

I think many people are turning to blogs for news for a couple of reasons. First, they are tired of the same old predictable stories from conventional news outlets. Take a look at this post ( to see what I mean when I say predictable. Secondly, blogs are able to offer a much more focused view on a subject. Newspapers try to cover the whole range of news topics and cram it all into a daily package. Blogs can focus on a very specific topic (such as a housing bubble in the Seattle area), are not limited by space, plus they have the full resources of the whole Internet right at hand.

I think the typical readers of Seattle Bubble probably don't own homes, but wish that they could, and are frustrated by the complete insanity that housing has taken in the past few years. They are definitely tech-savvy, and I would venture to guess that many of them followed the tech boom and bust quite closely too. Your question about emotion is fairly vague. There's definitely a fair amount of emotion in the air when you're talking to people who would like to buy a home but aren't willing to commit financial suicide to do it. And I think that emotion was definitely a large factor in creating the bubble itself. People bought into the argument of "get in now or be priced out forever!" Or they saw people selling their houses for tons of money and got in so they could get some of that action. Most financial bubbles have emotion as one of the major underlying causes.

6. If the bubble does burst, where would you see your blog going from there? Would change its name to the Seattle "I Told You So" Housing blog? Or would you quit blogging? Or start blogging about your home renovations?

If the bottom does fall out of the market, there will definitely be a lot of interesting stories to write on my blog all the way down to the bottom. It's called the "Seattle Bubble" blog, but I think a better title may be the "Seattle Real Estate Price Trends" blog. That's not as catchy, though. When it comes down to it, I'll probably keep up the blog as long as there's a decent amount of interest. I've been seeing 500-600 visitors per day the past few weeks and it seems to grow by 25-50 daily visitors each week. If the market tanked, and my readership tanked with it, down to maybe 50 or fewer readers per day, I might consider hanging it up. Maybe.

7. Do you think the mainstream press coverage about real estate has been fair and unbiased, or do you think there is a bubble-building slant to their coverage?

In Seattle specifically, there's definitely a slant toward poo-poo'ing any talk of a real estate bubble. They constantly quote realtors and other people who profit from increasing home prices, or they highlight people who have recently bought houses, but rarely do they talk to people that are sitting the market out because it's just too crazy. Not never, but rarely.

In the national (USA) and international media I've been noticing more and more articles pointing out the seriousness of the situation and the real danger that is posed by such ridiculously high prices. I think it's probably easier for big news outlets and magazines to be more even-handed, since they don't have a huge number of local realtors and mortgage brokers filling up their advertising budgets.

8. Are there any favourite posts I should read that will sum up your arguments?

I pretty much summed up where I stand in my "About the Blogger" post, here: The one major point I would add to that is that some people say it's stupid not to get in now, because interest rates are on their way up. But a lot of very smart people think that housing is likely to drop in price, possibly by as much as 35-50%. If I buy a house in five years for 50-65% of its current cost but at a higher interest rate, my payments may be the same as they would be now, but 10 years later when interest rates drop I can refinance. You can't refinance away the mistake of overpaying 35-50%.

9. Do you have any favourite bubble blogs? What do you think about Zillow? Any other real estate sites on the internet that you like?

The Bubble Meter blog ( based near Washington, DC, is one of the most entertaining and informative bubble blogs. I really liked the "There is no housing bubble!" blog, which was extremely satirical and quite amusing. Unfortunately the author decided to take it offline. If you would like to see what he did write, you can check out my archive here: (it would make the most sense to start at the bottom and work your way up). I try to keep on top of all of the blogs that I link to on my sidebar, though. It's not as daunting as it sounds, thanks to Bloglines, which puts them all in one place for me to read.

There aren't really (non-bubble) real estate sites that I especially "like." The local real estate blog Rain City Real Estate Guide ( is interesting once in a while, although I'm not particularly fond of the attitude of one or two of their contributors. Zillow is certainly interesting and fun to play with, but I have a hard time taking it seriously at all as a real tool that would be helpful in doing any actual sales research.

10. One more question... do you think there are many real-estate voyeurs on the internet. Has it become a pastime for many people?

Definitely the readers on my blog that comment regularly make heavy use of the various "voyeuristic" tools out there. Many of us are constantly looking up how much certain houses sold for, what they're asking now, etc. Since it's all public domain information, I wouldn't really call it voyeuristic in the truest sense of the word, but it's definitely a hobby that's growing as we (I think) finally reach the top of this real estate madness.

Hide Full Interview

*I love the fine art of sarcasm.

(Kevin Chong, Maclean's, 05.29.2006)

Saturday, June 03, 2006

Ask The So-Called Expert

Spotted this one over at Ben Jones' wonderful Housing Bubble Blog:

Question: I'm remodeling a rental home that I plan to sell, but I'm worried that the housing market might go bust before I finish the renovations. Someone suggested I put it on the market before it's finished, but I'm not sure this is a good idea. What do you think?

- Arlene Sund, Seattle, Washington

Answer: I don't think there's any doubt that housing prices have begun to cool down after their torrid run of the past five years. Recent stats from the National Association of Realtors show that the median price for a single-family home in the U.S. fell about 3 percent between the end of last year and the first quarter of this year.

That doesn't mean prices have fallen everywhere. Indeed, they're still rising in many parts of the country, even if not quite as robustly as they were before.

And what really matters is what's going on in your area. So you'll not only want to check out price trends in your city, which you can do by clicking here, but your neighborhood as well, in which case talking to local realtors is probably your best bet.

Aside from getting info about whether selling prices have been trending up or down, you'll want to ask local agents whether the inventory of unsold homes increasing, the number of weeks listings spend on the market before selling is on the rise and whether sellers are having to make price cuts and other concessions to sell.
So, according to this "expert," the best possible resource out there to gauge the direction of your local market is the National Association of Realtors? I find that advice to be questionable at best. I think Arlene would get a much more complete picture if she were to consult... oh, I don't know... maybe this blog? Sure, I'm biased, but I post on all the local market news, I don't just cherry-pick data that supports my bottom line (maybe because I don't have one).

(Walter Updegrave,, 06.02.2006)

Friday, June 02, 2006

Spokane Increases Line County Pockets

Proud homeowners over in Spokane have been gleefully enjoying price increases similar to those in Seattle the last few years, and now the local government is gleefully cashing in.

The Spokane County assessor's office mailed notices this week to the owners of 176,000 parcels that the worth of their property has changed, mostly upward. Values increased an average of 16.2 percent across the county.

The increase followed last year's surge of 15.1 percent in property taxes.

"We've had a very, very vibrant real estate market," said Spokane County Assessor Ralph Baker. "This year, I think, will go down as an extraordinary year."

The local numbers are comparable to price increases throughout the Northwest.
So let's see if I can make a list of all the people that think it's just extraordinary when housing prices soar (even while wages are flat). County & city government officials, homeowners, real estate agents, mortgage brokers, and Elizabeth Rhodes. Did I miss anyone?

(Associated Press, Seattle P-I, 06.02.2006)

Thursday, June 01, 2006

Government Hinders Affordable Housing

For all the grandstanding that Seattle's city government loves to do about "affordable housing," you would think that they would want to make it as easy as possible for builders to actually build housing. Of course, if you think that, you're quite wrong.

"We must dramatically increase access to decent, affordable housing," said Mayor Greg Nickels in his State of the City speech March 6. "Most of it will be produced, not by government but by the market through private investment."

The mayor is correct. Most lower-cost housing is old private housing. The best way to open up old private housing is to build new private housing. The city should encourage that — but the people who create new private housing do not believe this city does. They say Seattle is unfriendly. If you want a place that welcomes builders, go to Spokane. Go to Tacoma. Go to Renton.
In each of these stories, money matters, but in each of them time matters more. It's harder to put a number on it, but it's real. The builders are the supply side of the economic equation. The denser the regulatory air, the slower they work and the fewer units that get built. Over time, that affects the supply of housing and its price city people have to pay to move to Seattle.
I can think of more than a few city government habits that aren't very friendly, toward businesses, tourists, drivers, homeowners... pretty much everyone. It's almost as if Seattle's government would be happier if everyone just left Seattle and never came back. So hey, at least they're putting a crimp on both the supply and the demand side of the equation—that way it all balances out.

I love Seattle, but when I think of the government around here I have to hold back the bile.

(Bruce Ramsey, Seattle Times, 05.31.2006)