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Monday, July 17, 2006

King County To Middle Class: Rent Or Leave

As I've said here before, I think renting right now is a no-brainer for people that don't already own a home. That being said, for those in the middle-income bracket like myself that do insist on stretching their finances to afford an overpriced home in King County, the options are fewer and fewer.

Throughout the county, buyers earning solidly middle-class wages have been increasingly unable to find what are traditionally thought of as middle-class houses because escalating prices mean the pool has been shrinking dramatically.

King County's median household income in 2003 was $57,857, which allowed buyers easy accessibility to 28 areas — seven within Seattle city limits — whose median home prices were $256,000 or less, a Seattle Times home-price analysis showed. Median means half are more; half are less.

Fast forward to last year: House prices shot up, but incomes barely rose, so median-income buyers found even fewer neighborhoods where they could afford the median-priced home — just nine in the county, including one in the city.
It's nice to actually see an article from Ms. Rhodes about the ever-increasing home prices that isn't completely laden with the gung-ho, "isn't this the greatest thing ever" kind of cheerleading. Although I still get the feeling that the given analysis is a bit on the rosy side. According to the Census figures released last August, King County's median household income was/is even lower than they claim, coming in at just $55,114 for 2004. Plus, since (as far as I'm aware) the 2004 "median household income" data is the most recent data available, Ms. Rhodes and Mr. Mayo based their "which areas are affordable" scenarios on home prices and wage information (estimations?) from last year.

Of course, it apparently isn't possible for Ms. Rhodes to have her hand in a real estate article without slipping in at least a little cheerleading...
"Superstar" Seattle market has grown faster than U.S. market for decades.

Of course, if moderate-income buyers instead choose a condominium or less-expensive house (often a fixer-upper), the possibilities are greater.

But for how long? King County's single-family-home prices shot up 19.7 percent in the first six months of this year, compared with the same period in 2005, according to The Times analysis. It's based on price per square foot, considered the truest measure of housing cost.

As the residential real-estate market cools in other parts of the nation, one question is why Seattle's market remains robust. Money magazine predicts homes in the Seattle-Bellevue-Everett area will appreciate 10.5 percent between this June and next. That's twice the rate predicted for the country overall.
"Twice the rate" kind of depends on whether you choose Money Magazine's May 1st prediction (1.9%) or their May 18th prediction (10.5%). (I'm shocked, shocked I tell you that Ms. Rhodes selected the May 18th prediction.) They never did explain the wild discrepancy. But I digress. Why does the Seattle market remain so "robust?" We've discussed this question before, but it's still a relevant one. I'm of the belief that we're simply a year or two behind the curve. As I have said (probably too many times), only time will tell.

(Elizabeth Rhodes & Justin Mayo, Seattle Times, 07.16.2006)
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26 comments:

matt said...

He defines superstar cities as people magnets because of their attractiveness and amenities.

This is an absolutely ridiculous comment. Hasn't Seattle always been an attractive city to live in? why now?

The state's Growth Management Act effectively limits supply by restricting where homes can be built.

This another decieving reason for price increase. Portland's even more restrictive, yet prices their are moderating. Limited land restricitions does not protect against a severe fall in home prices e.g. Tokyo for the past 16 years

Puget Sound's already strong economy is growing — a trend expected to continue at least through 2009 with the addition of 140,000 jobs

Whatever, from previous articles apperently this surge is do to home building/financing/etcetera... Boeing and Microsoft? Tim's already shot holes in these arguements. The 'boom' years are way behind those two companies and wasn't the tech-boom from '95-00' a more 'robust' economy? why weren't home prices shooting through the roof then?

Of course, since this is a Rhodes article it misses the whole topic of suicidal financing. The problem is is that people who SHOULD be priced out, aren't, because the lending industry is coming up with even more insane forms of financing, 5yr i/o 50yr fixed anyone? What happens when all the ARMS reset?

I remember watching a KING TV snippet, almost a PSA where the breifly talked about the wave of ARM resetting. You could almost see the anchors gritting their teeth, wanting to get through the segement as quick as possible.

As Tim also pointed out, we're about a year behind the curve. This type of 'Rhodes' article's been mimiced a gazillion times in the once hot markets that are now experiencing a severe cool-off.

meshugy said...

The 'boom' years are way behind those two companies and wasn't the tech-boom from '95-00' a more 'robust' economy? why weren't home prices shooting through the roof then?

If you look back at the records...there was huge appreciation in home prices during those years. Many people trace the current runup back to 97, some even think it started in the early 90s.

LEt's go back to 1995:

SEATTLE-AREA HOME SALES PICK UP

King County Median Price: $193,994

Inventory (King and Snohomish): 16,024 (was 23,00 in 1994)

Today:

King County Median Price: $387,500

Inventory (King and Snohomish): 11,587

Interesting that they had "creative" financing back 1995. I guess it's not that new after all:

Buyers, especially first-time buyers, were also attracted by lending rates in the 8 percent range and by favorable terms, including loans with zero and low down payments, he said.

matt said...

If you look back at the records...there was huge appreciation in home prices during those years. Many people trace the current runup back to 97, some even think it started in the early 90s.

Actually the sharpest appreciation has occured since 2001, virtually doubling in median price since then, something it never did in the same period back in the late nineties, but you're almost proving my point here, Meshugy...

What about the tech-bust of the 2000? What about the recession of 2001? If you recall, the Seattle area took longer to get back on its feet than did the rest of the country (adding jobs, unemployment, etcetera). Home prices didn't even skip a beat with a downturn in economy, why? because it was decoupled, Greenspan had a fire-sale on cheap cash that shifted the tech-bust into the real-estate boom. Investor mentality shifted.

So if a booming Seattle economy correlates with higher home prices, why didn't a recession Seattle economy correlate with a sharp dip in home pries?

S-crow said...

Meshugy-

You aren't suggesting that lending is the same with similar loan loan standards as back then are you?

True, ARM's were a product and other creative financing (whatever the heck that implies)programs were available--particularly those who were first time homebuyers, with good credit.

But, readers should not be confused. Financing standards were woefully different then vs. today. Take the advent of FICO scores being the benchmark for getting a loan, for example.

Today, our office closes deals with people just 12 mos. out of foreclosure!! Bankruptcy is no longer thought of as a hindrance in obtaining loans and people with 30-60-90 day lates means litle.

If bad credit, no problem, you'll just pay a higher interest rate. Never mind if you don't pay us in a few months, your house will be worth more and you'll sell or refinance again and again and again.

So I'd throw that suggestion a Lou Piniella tantrum.

The Tim said...

I miss Lou.

dash_point said...

"...increasingly unable to find what are traditionally thought of as middle-class houses"

Connect the dots, Ms. Rhodes; I know you can do it.

richard said...

Interesting that they had "creative" financing back 1995. I guess it's not that new after all

It's not that it didn't exist, it just wasn't as prevalent. You know this, you've just chosen to ignore it.

"zero down" hardly qualifies as "creative" financing in today's market when the median down payment among first time buyers is under 2%. 0-down with a 3/1 arm and a HELOC at 10% given to someone with a 580 FICO score doesn't even look that exotic anymore.

darth_s said...

Here is the latest article about the upcoming ARM adjustment from NY Times. Seattle is on the top 5 or 6 cities with number of risky loans. Their advice: “It is better to act now before a few million other interest-only mortgage holders dump their homes on the market.”

http://www.nytimes.com/2006/07/15/business/15money.html?pagewanted=2&ei=5090&en=983a0cca31da5495&ex=1310616000&partner=rssuserland&emc=rss

As usual, I expect to see some counter spin from master/chief Seattle housing cheerleader Mesh.

Nolaguy said...

Hasn't Seattle always been an attractive city to live in? why now?

Money Magazine just came out with their Top 100 "Best Places to Live".

Seattle did *not* make the list.

http://money.cnn.com/magazines/moneymag/bplive/2006/top100/index.html

A link to how Seattle compares to the Top 100 Best Places:

http://money.cnn.com/magazines/moneymag/bplive/2006/snapshots/PL5363000.html

Nolaguy said...

Sorry, 2nd link above is broken.

Here's the one that works:

http://money.cnn.com/magazines/moneymag/bplive/2006/snapshots/PL5363000.html

Peter Taylor said...

I saw that article on the weekend, both in the newspaper and on King 5 News. I found it very interesting that no one was willing to comment on what effect the lack of affordable housing would have on the Seattle area. That is, stuff like the effect of forcing people to drive further and further for affordable housing and what that will do to already clogged commuter arteries/smog/etc. etc.

All anyone wants to hear these days is how much their house is worth on paper.

Anonymous said...

The Top 100 this time is for small towns, not large cities: http://money.cnn.com/magazines/moneymag/bplive/2006/faq/index.html#howpicked

Screen out cities of more than 300,000 people...

matt said...

All anyone wants to hear these days is how much their house is worth on paper.

That's exactly it. Its wrapped in psychology, just like the tech-boom years. There were so many paper-millionaires running around Seattle, heading start-ups with absolutely no buisness plans to speak of, but all the news could talk about was the 'gold-rush' euphoria of the 'new economy', here in Seattle.

The only problem was that no one had taken a look at the P/E ratios, or profits, why? because there weren't any.

Same psychology, different 'boom'.

darth_s said...

Also, I don't see that Seattle is in the list of the 25 most educated cities. I remember seeing a few articles mentioned by the bulls that Seatte is supposed to be the "smartest/most educated" city!???

Anonymous said...

Most educated was an AP study: http://seattlepi.nwsource.com/opinion/266741_degreed.html

meshugy said...

Screen out cities of more than 300,000 people...

They obviosuly have a pretty weird criteria....

The top ten:

Ft Collins,
CO

Naperville, IL

Sugar Land,TX

Columbia/Ellicott City, MD

Cary, NC

Scottsdale, AZ

Boise, ID

Fairfield, CT

Eden Prairie, MN

I've been to most of those place....sorry, Seattle is a way better place to live.

Lake Hills Renter said...

Jesus, I'm already getting tired of seeing "Superstar" in every article...

uptown said...

The tech bust did have an effect - in that Seattle area builders slowed their building. So the oversupply of condos will hit us next year and really ding the market.

Remember that all those people who are moving from their single family homes to the new downtown, have to sell their old home at some point.

Nolaguy said...

You're right, they screened out large cities.

They did do a Top 10 for Large Cities:

Rank, city and population:

1 Colorado Springs, CO 369,800
2 Austin, TX 690,300
3 Mesa, AZ 442,800
4 Raleigh, NC 341,500
5 San Diego, CA 1,255,500
6 Virginia Beach, VA 438,400
7 Omaha, NE 414,500
8 Columbus, OH 730,700
9 Wichita, KS 354,900
10 New York, NY 8,143,200

http://money.cnn.com/magazines/moneymag/bplive/2006/top100/bigcities.html

meshugy said...

They did do a Top 10 for Large Cities:

We got beat by Omaha and Wichita??!!....again, they obviously have a very strange criteria

richard said...

San Diego looks great! Unemployment is at 3.7%, even lower than Seattle!!!

Looking at the last 5 years of data, SD's unemployment has been consistently 3,2,and 1 point lower than Seattle.

I know a few people that bailed to SD from Seattle during the darkness of 02-04.

Interesting that with such a strong job market, prices there have been cooling for more than a year.

biliruben said...

We got beat by Omaha and Wichita??!!....again, they obviously have a very strange criteria
Shug-meister-meister-Shugy

If you mean by strange, affordable housing, short commute times and weather, then yeah, they're very strange.

Of course I must be strange as well, as I would consider all those integral to my quality of life when comparing cities.

jcricket said...

Of course I must be strange as well, as I would consider all those integral to my quality of life when comparing cities.

I think there's a political aspect that's not often considered in these "best places to live" articles. Depending on your political background, a midwest or coastal city can seem awesome or terrible. Depending on your religion (or lack thereof) entire parts of the country would basically leave you feeling "by yourself".

Even things like "density" can seem like a plus or minus, depending on how much of an extrovert you are.

I certainly agree that weather & commute factor into my quality of life. But lots of the "best places to live" have what I would consider to be crappy weather, and only have affordable housing and short commutes because there's no one around and nothing to do (that I would want to do).

I say this as a member of the landed aristocracy, of course ;-)

Anonymous said...

"King County to Middle Class: Rent or Leave"

Tim that is one great tiltle that sums it all up.

Bumper stickers anyone?

SourMash said...

they obviously have a very strange criteria

Their criteria is not all that mysterious. They actually spelled it out in their FAQ.

But I wouldn't adopt similar criteria. Putting Bellevue at #21 says a lot.

biliruben said...

Screen out cities of more than 300,000 people...

Well, there you go.