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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)

40 comments:

meshugy said...

Hard to say if this is the beginning of the end or not. Might just be a gradual cooling of the economy and housing which have been overheated for a while.

At least construction jobs are be replaced by real jobs in the aerospace, tech, etc...

Anonymous said...

...ignoring meshugisms....

Something I've been wondering about lately: if things come to the worst, and the housing bubble implosion leads to a real downturn in the economy, where does a reasonable investor put his money?

I know that a lot of people think that precious metals are the answer, but I'm wary of that approach. What do the rest of you think?

Anonymous said...

I hope you're wrong too. I think the signals are really mixed (e.g. tech jobs up in Seattle, but overall unemployment up too), and that really worries me (and my 401k, and my bank account).

I certainly didn't enjoy the effects of the last downturn, although I weathered them ok thank to having a lot of savings. I'd rather not find myself or 10s of thousands of others in a position again where people are out of work and dropping out of their chosen fields.

While I certainly don't expect the economy to always be good (that's why I have savings, and try to live below my means) if it's chronically wavering between recession and recovery, most people will get hosed. Even if you have savings, you can't keep dipping into them and saving for retirement and your kid's education. If the downturns occur every 3-4 years (with all those transaction costs, even if you don't own a house) simply because the jobs move how are people going to keep up? Are we really expecting the vast majority of people to completly retrain and start-over once/decade? How will that work?

Christina said...

if things come to the worst, and the housing bubble implosion leads to a real downturn in the economy, where does a reasonable investor put his money?

A reasonable investor allocates her money broadly across several sectors. A cunning investor would be shorting home building companies, Fannie Mae, Freddie Mac, money centers, and consumer finance companies.

Some people have suggested TIPS, I-Bonds, Euros, emerging markets, Brazil-Russia-India-China, in addition to precious metals. Some tech companies with research stations in China are beaten up and may be good values. Read widely enough and you'll see opposing arguments for everything. If there weren't opposing arguments, that would lead me to assume the money's already been made in that market.

If you're a pissed off investor, you might get cagey and invest locally in your community. Buy some foreclosed properties.

Christina said...

Even if you have savings, you can't keep dipping into them and saving for retirement and your kid's education. If the downturns occur every 3-4 years (with all those transaction costs, even if you don't own a house) simply because the jobs move how are people going to keep up? Are we really expecting the vast majority of people to completely retrain and start over once/decade? How will that work?

Exactly my predicament. I've decided to retrain in my spare time in an occupation that my community will find useful, and that is immune to globalization trends, because I like it here, I like my house, and I want to keep affording payments until my mortgage balance is zero, in which case I'll move someplace with lower university tuition and lower cost of living.

biliruben said...

...if things come to the worst, and the housing bubble implosion leads to a real downturn in the economy, where does a reasonable investor put his money?

I think we are reaching a point in global economics where the plethora of financial products, the ability to monetize everything, even the tasty jam between my toes, and the various national governments all tinkering on the margins with no good idea what they are doing following rules from bygone eras means that there is no genuinely safe place to put your money.

So few (none?) people understand the extremely complex interactions we have been created while tearing down the barriers between national economies, that the few people that do have even a moderate understanding of how things work are at a terrible advantage.

We should fear these people for two reasons:
1) They are benign, but think they understand what's going on but really don't.
2) They are not benign.

On a personal level, this means I can't think of any place that has guaranteed wealth preservation. Don't give me any mularkey about those fancy notes that give you 1% above "inflation". The feds define inflation any way they please. If you think we have been in a period of low inflation the last decade, you haven't been paying attention.

Also don't talk to me about gold. I think the poeple who are buying gold may have an inkling that there is no safe place for money, and they erroneously convinced themselves that gold is the exception. They are wrong.

I think we are entering a time where money is like your brain: Use It or Lose It.

The world economy has become a vastly more sophisticated environment over the last few decades, and it will continue to become more and more difficult to even have a basic understanding of cause and effect while tinkering with markets.

I am guessing this sort of environment will breed a few very, very big winners who get very lucky or actually do understand what's going on, and planet full of losers. If that happens, the world will become a much more violent place.

Capitalism blows.

----

As far as investment advice - I don't have any.

I can tell you where my money is:

My house, some broad indexes, some high flying small caps, health care and drug stocks, and shorting the crap out of builders and lenders.

Anonymous said...

stay the hell away from emerging markets. they have been hammered over the past few weeks and more is likely in store.

regarding shorting home builder stocks, the real money on that front has already been made, with most builders down 25% to 40% from the start of the year. if you want to bet on a further short then you might as well short whole indices because if they go further down it is going to take a lot more with it.

commodities like metals were hugely overbought. gold has dropped 20% in the past three weeks.

cash is king right now.

Anonymous said...

Well, what do you expect after 3 years where the dollar volume of home equity withdrawls was greater than GDP growth?

matt said...

" Hard to say if this is the beginning of the end or not."

.... whatever Meshuga, hard to say? really? I got one for ya'

"Hard to say if Meshuga's going to submarine on his over-leveraged mortgage or not, he might be lucky and get out of Ballard before the real-estate driven economy implodes or he might not, and then he'll have to foreclose and file Chapter7, who knows?"

Passive agressive enough for you meshuga?

meshugy said...

I've invested a lot of my $ in vintage guitars. Everyone I've bought has appreciated over 100% in less then five years. If you know what you're doing, vintage instruments can be a great investment. And the best part is that you can play them!

See: Are There Guitars in Your 401K?

Anonymous said...

I've invested a lot of my $ in vintage guitars. Everyone I've bought has appreciated over 100% in less then five years.

Ah, baby boomer trinkets. These along with Harley Davidsons and 1960's Chevys.

Interesting that the collectibles that have shot up in value the most are the ones coveted by the cash-out heloc crowd.

meshugy said...

Interesting that the collectibles that have shot up in value the most are the ones coveted by the cash-out heloc crowd.

I don't buy that sort of crap...I buy rare instruments, mostly built in Europe. They're mostly coveted by super-rich collectors. Especially in Japan...

Anonymous said...

"Brazil-Russia-India-China"

Those countrys gains were found in the last few years...that ride is over -- Since May 10th Russia is down 29%, India down 28.1%, Brazil down 21.3% and China down 10.8%. Is now a good entry point? one could make a case, maybe, but I won't be making a case for them....to much money chasing too few opportunities in those places.

Anonymous said...

Even David Lereah of the NAR is now saying the housing market topped out in August 2005.

See article at "thehousingbubbleblog". tuesday, June 14.

He predicts 10-15% price decline for South FLA.

Anybody who has been following this man's speeches for the past year knows just how ominous this turn is for him.

If DL is saying housing has topped, you'd better believe it's at LEAST as bad as he says, and probably MUCH worse.

meshugy said...

Even David Lereah of the NAR is now saying the housing market topped out in August 2005.

Yeah, he's been saying that for a while. Although he seems to be using stronger words now (i.e. he ditched the "soft landing" bit). However, he's only talking about Florida. He's still pretty rosy about most other markets. But that's his job, right?

Anonymous said...

He predicts 10-15% price decline for South FLA.

Anybody who has been following this man's speeches for the past year knows just how ominous this turn is for him.


I hate to extrapolate short term trends, but if we did in this case, going from "historcal average appreciation" to 10-15% decline, by next year he'll be down to 20-30% decline - and still call it a "soft landing".

Anonymous said...

Meshuga, are you somekind of weird NAR salient advertiser or something? or just so smug you like to read your own typing?

Anonymous said...

>vintage instruments

how are you at skin flute?

jj said...

By Fall, he'll extrapolate out to the whole US. He only HAS to say FLA. right now because if he did not, it would expose him as the supreme idiot that he is.

This week FLA, next week FLA, AZ, CA, NV the week after that the whole East coast, by the end of July the whole west coast, by Aug. all points in between.

His 10-20% is going to turn into 30% d*mn quick.

His book about the red hot RE market came out last year, at the top.

Anonymous said...

Accdg. to the benengebreth housing tracker, both the 50 and 75 percentile median prices are down in Seattle, as of june 14.

meshugy said...

The Housing Tracker also shows inventory down this week...that jives with the lower #s I've seen on the MLS the past week.

Anonymous said...

Ben Engebreth's Tracker actually shows increases across all fronts with the exception of a $6000 decline in the 75th percentile for the period 5/28 to 6/14 and lateral movement in the 50th percentile over the same period. The prior time period for the 75th percentile was an increase of $25k.

Anonymous said...

The Housing Tracker also shows inventory down this week...that jives with the lower #s I've seen on the MLS the past week.

Ziprealty's numbers for homes within the Seattle city limits are up this week. 2170 homes. 3 weeks ago we were at 1900.

Anonymous said...

Check again, Anon 5:57, both 50th and 75th are down.

Anonymous said...

Engebreth's stats:

06/14/2006
4,187
25 - $334,500
50 - $439,500
75 - $619,000

05/14/2006
3,779
25 - $325,000
50 - $434,910
75 - $599,995

04/14/2006
3,348
25 - $318,990
50 - $424,950
75 - $599,000

am i missing something here? if you are citing weekly stats, the 75th percentile dropped $950 in the past week and $6k in the past three. BUT, that number is still up $20k in the past month.

Jackson Wallace said...

Emerging markets - yeah thats a good one. If you got in three years ago and
got out before May 11. Emerging markets are down 12-20% in the last MONTH. Most enlightened economists are calling an end to the 'easy liquidity' that marked an economy based on value speculation in real estate. Look at the ratio of slaraies to RE prices, look at the amount of debt, look at the competition from overseas markets, and you'll quickly see we arent in a happy time. Without going into tedious detail that I cant reiterate,
we're gonna have a recession, the only question is how bad. People that think CA and NY and FL and MASS and AZ and NV can go through a recession and we wont feel it are on crack. people think we wont feel a DOW continunig its decline below 10000 are on CRACK. Of course, that hasnt happened yet, so we'll see.

Anonymous said...

There will be some interesting plays later in the year in the housing dependent industries. I also suspect retailers will suffer this holiday season.

Mikhail said...

What about all those Microsoft jobs? I thought that Microsoft was one of the prime drivers of employment in the Puget Sound, and that they have ambitious hiring plans which will further increase the job base?

Anonymous said...

So what economists did you study in high school that told you what goes up goes down and stays down never to go up again?

I can see you looking over Warren Buffett's shoulder as he's eyeing some financials of a low P/E company. "Dude! Nobody's investing in that! It's gone down in price! You have to buy high, when everyone else is buying!"

seattle long term buyer said...

I'm not an economist and very poor at interpreting numbers...

now which category did the ameriquest and WAMU layoffs fall into? Oops I glossed over the 21000 jobs that were lost...

this article is very confusing... it probably counts people twice... once when they lose their jobs, and the second when they transfer and get hired...

So in effect (I'm probably wrong, but this is my understanding) there are actually more jobs lost than gained...

I wonder how soon before they run out of cash and put the House up for sale or foreclose...

I'm also wondering where the 6000 microsoft jobs fall into the category... it's been in the news for a long time, you'd think they'd have filled the quota by now (sarcasm)

I don't want people to lose their jobs... I just want housing to be affordable.

Anonymous said...

Not sure if folks remember the article about the high-priced houses (>$1 Mil) selling like gangbusters? Times or PI, I forget...

Well the 1.2 million estate just up the hill from me, in Meshugy's beloved and inpenetrably resilient Ballard market, has been on the market for 2-3 months now, sign's starting to get mildewy... it ain't goin' nowhere...

Anonymous said...

I'm also wondering where the 6000 microsoft jobs fall into the category... it's been in the news for a long time, you'd think they'd have filled the quota by now

The cat's out of the bag - Microsoft has lost its footing in the software and internet technology industry. While they have considerable cash reserves to hire with, they aren't producing any breakthrough products or technologies that will to long term growth.

Instead, they're playing catch up to Google.

Eric D. said...

Microsoft has a lot of cash and a lot of fat. If Vista flops, (ala Windows ME) and profits suffer you can bet some layoffs will be in the works. That will send this area's economy and real estae reeling...

Anonymous said...

Its amazing a company that hasn't come up with one original idea its entire existence hasn't spiraled earlier...

Nick said...

"A cunning investor would be shorting home building companies"

Nope. The homebuilders trade very oddly as a group, sometimes the exact opposite of how you would expect. And, contrary to other real estate cycles, the large public homebuilders have MUCH less inventory on their hands. Not to mention that many of them are hard to borrow, thus making the barriers to entry in this trade that much higher.

seattle long term buyer said...

anon:

"I'm also wondering where the 6000 microsoft jobs fall into the category... it's been in the news for a long time, you'd think they'd have filled the quota by now

The cat's out of the bag - Microsoft has lost its footing in the software and internet technology industry. While they have considerable cash reserves to hire with, they aren't producing any breakthrough products or technologies that will to long term growth.
"

That remark was meant to be sarcasm to pre-empt any "microsoft will save us" cheerleaders

Not to go off topic, but I have no reason to buy Vista... XP works fine for me...

ask yourself, other than buying a new PC what would Vista do for you? Make your old PC run slower? But then again, just coz I'm not buying doesn't mean nobody will... same as real estate....

Jackson Wallace said...

For whats supposed to be a cutting-edge tech company, MSFT doesnt have a lot of creativity. They profitted from Bill's brains and youth and Lakeside's predatory business attitude and luck that he was able to ream IBM and Apple so well at the same time. Well, I think everyone knows now who the real innovator is, and he lives in Silicon Valley. MSFT is a frickin joke, really, and there are plenty on Wall St who've called it as much. Vista is apparently a lame ripoff of OSX, the Mac is going to take market share from Windoze by running it on its computers until major remaining PC software names migrate over onto OSX/Intel. MSFT has the XBOX and Expedia and lots of cash. So what. They've also got that gorilla Balmer and his aggressive posturing.
They're losing web innovators to Google right and left. Who wants to work at MSFT? People would, if they let them do what they want and paid em right.
That company has to open its mind to innovation and neuter the
white-collar suburban robot managers in the way, and the suburban jackoff boomers with bad attitudes, and get some
young blood or they are toast. A total circle-jerk over there, a bunch of managers who crack the
stupidest jokes I've ever heard and dont shut up.
MSFT's stock has been stuck under $30 since 2002?
HAHAHAHAHA. F*** MSFT. Of course, there are a lot of profitable other companies on the Eastside, so maybe it doesnt matter.

Anonymous said...

MSFT's stock actually hasn't broken $31 since 2000, pre-split.

JacksonWallace makes a point that I have been thinking on a lot lately. I have concluded that MSFT's days are numbered unless they do an abrupt about-face and see the forest for the trees. Unfortunately, much of what JW says is true from people that I have talked to.

Regarding their products, I recently installed their MSN Suite for my DSL connection. What a cumbersome piece of crap software. 55MB of memory space in use when it is running. That's obscene. Their hotmail page takes forever to load sometimes and sometimes only half-loads. How is it that Google has a web-based drag and drop customizable homepage but MSFT can't even make a pre-installed piece of software perform as elegantly? I can't wait for the web-based spreadsheets and word processors. Hopefully Google Office will be fully integratable with existing formats. I am tired of MSFT's "merely adequate" approach to computing. It's time for a changing of the guard.

Anonymous said...

actually i should have said $26/share in 2000. i sold at $72 in early 2000 and it dropped with the tech contraction and never came back.

Anonymous said...

I actually think that it is Boeing rather than microsoft that is partially responsible for the crazy RE prices here.

2001-2003 - Boeing was hurting and RE was normal/slow
2004 - 2006 - Boeing takes off and RE
follows