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Tuesday, July 04, 2006

Washington Population Up 120,000

Considering that today is a big holiday and all, hopefully most of my readers are out doing fun things with family and friends, not glued to a computer monitor like... um... I am right now. There are a lot of good stories to talk about, but due to the holiday I'm going to restrict myself to just one post today, about a story that came out over the weekend.

Yes, I've seen that Mr. Wharton has posted the grand culmination of his "there is no bubble" analysis. Given the depth and care of his analysis, it deserves more than a "summarize the linked article" type of post. I'm working on a mildly in-depth response, but it's not ready yet, and I'm taking today off because it's a holiday, dang it. I have also seen the story in the Olympian about young couples sacrificing themselves and their finances to the god of the mortgage. I'll probably have a post dedicated to that one tomorrow. If those of you who are reading today could hold off your discussion on those topics until later this week, that'd be great.

So here's the article I am going to post today. As many of you probably saw over the weekend, Washington's population has grown by about 120,000 people in the last year.

Booming King County cities have contributed to Washington's population surge in the past year. The state population has increased by 120,000, pushing the total to nearly 6.4 million, and more in-migration is expected as the state economy continues to pump out new jobs.

While Snoqualmie was far and away the fastest-growing city in the state the past six years — with a 379 percent population jump — Issaquah (74.5 percent) and Maple Valley (34.7) ranked second and third among King County cities. Nearly a third of Issaquah's growth was driven by annexations, while Snoqualmie's population skyrocketed with construction of thousands of homes in the massive Snoqualmie Ridge urban village project.

"It will slow down in the next three or four years," said Anthony Hemstad, Maple Valley's city manager. "We are rapidly using up our buildable land. In future years, more of the growth will be retail and commercial rather than residential."
...
Washington's employment has been growing twice as fast as the national average and is proving to be a magnet for strong population growth, said Theresa Lowe, the state's chief population expert.

If the trend continues, Washington will grow to 6.8 million people by 2010 — an increase of 1 million over the course of this decade.

"As always, continued growth depends on how Washington's employment opportunities stack up against what other states have to offer," Lowe said in a report released by the governor's budget office.

Washington added 77,000 jobs last year and is on track to produce another 95,000 this year, the Office of Financial Management said.
When this article was pointed out in the comments over the weekend, one commenter suggested that "More jobs = more $ = higher housing prices." I actually agree with that basic formula. Here's the thing, though. The state as a whole gained 120,000 people. Obviously some of those were from births. According to the article, "in-migration accounted for 81,000 of the new 120,000 Washington residents," and obviously even some of those who migrated here were children, so let's actually assume that the number of employable adults that moved to Washington is roughly equal to the 77,000 new jobs that were added in the last year. Okay, good.

So really if you're going to take something economy-related away from this article about Washington's population, it's the 77,000 new jobs. I could repeat myself, but it gets tiring after a while, so I'm just going to point out that I've already posted my thesis on the job situation. Nearly 30% of those 77,000 new jobs were in construction and real estate. So when housing starts to significantly slow, a huge chunk of the job growth is going to vanish. When the job growth slows, in-migration will slow. When in-migration slows, the flow of jobs is down to a trickle, and housing is ridiculously expensive, where will that leave us?

(Jamie Swift, King County Journal, 07.01.2006)

35 comments:

Lake Hills Renter said...

Interesting that the population increases are in the outlying towns instead of the Eastside suburbs or Seattle proper. I presume the jobs themselves aren't in Snoqualmie or Maple Valley. That leads me to believe it's because of housing prices.

Eleua said...

Last summer, I interviewed with a few of the regional homebuilders. Given that I was just getting a feel for the job environment, I really didn't care if I got the job or not.

During the "Do you have any questions for us?" part of the interview, I asked about the sustainability of their growth projections, and how the company is positioned in the event their buyers get cold feet.

Mostly, I was greeted with constipated, "gee, how can you be so stupid?" looks, but one builder was quite frank with me.

He stated that they know they are on a cyclical building boom, and that it will end in a very grotesque fashion. They just didn't know where they were on the cycle.

All the builders used the same 120K/yr growth model as justification for their market position, and most thought this was now part of the landscape - just as much as the rain and mildew.

Centex interviewed me about building in the Livermore Valley (just SE of Oakland), and said they can't build fast enough. People are moving there from other parts of California. One year later, their sales have definitely softened, and their projections have been defenestrated.

Because this is Seattle, it could never happen here - because THIS IS SEATTLE!

We are the Evel Knevel of metro areas. Men want to be us. Women want to have our children. We are immune.

The Tim makes a good point about many of the jobs are in the REIC. I would also add that when California seriously inverts, and equity is no longer transportable, I would imagine that 120K figure to slow to a trickle - if even that.

Except Ballard.

Lake Hills Renter said...

God help me, I'm starting to wonder if Meshugy's soft landing predictions don't have some truth to them. I didn't realize this many new jobs were being created here. I am also seeing low inventory from my own observations on the Eastside and outlying I-90 areas (the areas I'm interested in buying). I still think the ARMs reseting are going to force a lot of people to sell in the next few years, but I'm seriously beginning to wonder if we're going to see anything like the impending crash the rest of the country is bound to see. As long as the lenders keep providing suicide loans, the public keeps eating them up, and we keep getting new jobs and new people, my layman eyes don't see how things are going to change from how they are right now.

I'm really starting to lose my faith here.

Eleua said...

As long as companies come out with strong earnings, or high growth potential...

As long as people divert all thier available funds to buy stocks...

As long as stocks show they are the best investment...

As long as people quit their jobs to become day traders...

As long as the Boomer generation pumps up their 401(k) plans...

...stocks will always remain in a bull market.

(1999 paradigm)

Housing and stocks are both economic/market phenomena. Market/economic phenomena are based upon mass human psychology.

The human condition has not changed any more over the past 7 years, then it has since recorded history.

This will end in tears. People will be ruined, and feel it privately. They will state publicly that they saw it coming and were able to get out in time.

Same story. Same ending.

The only thing the 120K/yr represents is California equity locusts getting out while they can.

The Tim said...

For the record, people moving here from California accounted for roughly half of the total in-migration, and 32% of the total growth:

In-migration accounted for 81,000 of the new 120,000 Washington residents, with California accounting for nearly half of the newcomers. An estimated 38,000 Californians moved here and got driver's licenses.

Eleua said...

The Tim,
That sounds about right. According to my BI RE sources, out-of-state buyers on BI account for 60% of the sales, with 2/3 - 3/4 of that being X-Cal.

Picture what would happen if you lost the REIC jobs, and the HELOC-retail jobs, and X-Cal equity money dried up.

While I doubt we would get "out migration," we would see in-migration plumb much lower depths than anyone is now anticipating.

Anonymous said...

S Crow made a great post on the Housing Bubble Blog yesterday about how intense things are getting at his office with people being unable to keep up with mortgage payments and frantic for money to pay bills.

Eleua said...

I'm starting to wonder if Meshugy's soft landing predictions don't have some truth to them.

Bear capitualtion happens at the top of bull markets. Only the truly insane still believe the market will turn at the top.

lake hills renter said...

No capitulating for this bear just yet, but I'm starting to fear that reality won't bear out my bearishness, if that makes any sense. I think the saving grace (for us bears anyway) is the coming ARM resets. I'm starting to think of it as the Great Equalizer.

I see a lot of Texans in the Seattle area as well as Californians, and not just recently. Since I moved here in 2000 I see Texas license plates and TAMU emblems all over the place. Maybe I just notice them more because I moved from there as well? Have any Texas stats comparable to the California one?

Eleua said...

If S Crow is correct (and you would have to be a true believer to think otherwise), this housing market will likely suffer a double implosion.

RE at the top suffers from affordability issues, while RE at the bottom suffers from creditworthiness issues. If the middle class gets squeezed by ARMS, you could have the entire pyramid becoming unstable at once.

A triple implosion is beyond my darkest projections.

As far as those 120K/yr people go...how many are taking on risky loans to buy homes? Will they panic to preserve their "hard earned" equity?

How smart will they feel when they transport $200K of equity to a PNW home, just to watch it vanish?

This is something that has not happened in generations, so I doubt there is a reliable roadmap to use for charting the future.

Greed and fear move markets. The deeper the greed or fear, the more violent the move.

Eleua said...

Lake Hills,

I don't have any Texas stats, as Texans are not a heavy player in my market (at least they don't seem to be).

We moved back from Texas (North Dallas), and we would certainly notice TAMU stickers.

My guess is that Texans don't have RE equity, and are not big players, like the Californians and New Yorkers. Also, the Bainbridge zeitgeist is a wee-bit too far left for your average TAMU grad. As for me, I enjoy living behind enemy lines...

I don't meet many x-Tex.

I do know many Texans that will laugh themselves silly when the bi-coastal bubble bursts. There is a limit to how much gloating you can endure from all your West Coast family and friends.

lake hills renter said...

Strange, I see Texans all the time. Just saw a Texas plate going to grab some lunch in fact. I think the RE equity thing may be correct, since most of the Texas plates I've seen have been in apartment complexes and such. Maybe they moved up here for the jobs? That's what I did, just before the tech bubble pop. Dallas jobs were already sinking, and Seattle lasted another year, at least for my situation.

It's odd that I was pretty lefty in Texas -- and was thus an anomaly since I didn't live in Austin -- and became a libertarian after moving to the Seattle area. Grew up, I guess. ;)

Anyway, back on topic, I am still bearish and logic seems to dictate that prices will come down. About the only place someone in my position -- single income, good salary, debt free, refuses suicide loans -- can afford to buy is in places farther east like Preston, Fall City, etc. Nothing else is affordable on a 30 year fixed. Fortunately for me, that's where I want to look anyway. I'm glad I haven't saved my 20% yet though, because I might be tempted to buy now because of what seems to be a market defying logic IMO. The sliver of doubt is there, I just need to quash it. Patience, I keep telling myself...

Eleua said...

LH,
IMHO, you are doing the correct thing. Debt free is a wonderful way to go through life.

Suicide loans are a product of greed and fear. People think there is a goldrush in RE (greed), and fear they will miss out and be priced out forever.

That will turn to fear they have made a mistake by being too greedy. It happens in every investment sphere - no exceptions.

X-Cal equity, and 25 years of shrinking interest rates have made people think there is no downside. Another investment maxim is: the crowd is always wrong at inflection points - ALWAYS.

In every aspect of housing pricing, the market is priced for perfection. Therefore, the path of least resistance is down. That would be down on every factor (affordability, interest rates, stocks, savings, debt, trade, bullishness, demographics, etc.)

When that many factors point south in a short period of time, the panic will bloom like Bluebonnets in mid-April.

Anonymous said...

Lake Hills Renter-

To renew your faith, go back to todays Housing Bubble blog. There's a post there , a quote from the mortgage brokers meeting about Bellevue and how the market's going downhill there. Flopped flippers, homes not moving, etc.

I think it's in the bits and buckets. (July 4). Pretty interesting.

Honestly, it's time for people to realize that the media around here is full of liars.

Ernst Stavro Bloviator said...

I do believe the local media are full of liars and pimps.

When the nasdaq cratered, the financial press, CNBC included, all called the bottom every 500 points right down to the actual bottom (800+/-). There was no consensus that a bear market was on, and further damage was in the future.

If the financial press lied all the way down, why won't the real estate industry do the same?

lake hills renter said...

I don't think the media are liars, just ignorant. They seem to do what most of the population does -- treat realtors as the experts. It's the realtors that are the liars. The media is just gullable. IMO.

PepeDaniels said...

Florida is booming with jobs and the
bubble's breaking there! The jobs, however, are all too often inadequate to meet the costs of living there RE wise.

While the wages in the South are traditionally lower than the North other costs are pretty high here (food & services for example) so I don't think more jobs only means less bubble at all. The jobs have to pay for housing and in any case, if people take out ridiculous loans per their income it can still be the same carnival game as anywhere else that's imploding.

Anonymous said...

But the 475-square-foot condo, priced in the low $200s, will be tough financially. The mortgage is $700 more per month than the one-bedroom apartment she's currently renting until her condo is finished this fall.
...
"It's going to be a challenge," Wiggin acknowledged. "I'll be paying a lot more, but it'll be fine. It'll be a great investment."


I'm missing the "investment" part of her thinking. How much does she think her $230k condo will appreciate? It will have to go above $270k for her to make any money on it, and at that rate there's a lot more condos to look at, especially ones larger than 475 sq ft.

And at $700 more than her apartment (which is probably a lot larger) does she think she can rent it out to cover those costs?

The problem with buying a condo anywhere is that unless it is in an exclusive location the next one that goes up is more desirable. Is 24th and Market that exclusive?

Eleua said...

"It's going to be a challenge," Wiggin acknowledged. "I'll be paying a lot more, but it'll be fine. It'll be a great investment."

OK, perhaps it's me, but...

Just how much will this "investment" be worth once you wring out the speculative premium, reset the interest rates to 8.5%, and flush the bottom quartile out of the market due to creditworthiness issues?

I'm curious...If you went to Pioneer Square, rolled a bum off his cardboard, hosed him off with salt water, brushed his teeth, and sent him to Countrywide, with a purchase contract for a $300K condo, would he get the 100% financing? He could say he makes $10K/mo as an "freelance urban fundraiser/low-tariff aqua vitae critic" (pan handler/bum/wino), with 25 years of experience.

Does anyone actually think the current lending standards can approximate any semblance of sustainable fiscal sanity?

Eleua said...

Just to show what life was like in the last bubble, I saved one of the greatest flame posts I have ever read.

I submit this for your enjoyment and historical perspective.

Retard:
You don't think we were in a boom?

21 year olds running fortune 1000 firms from their dorm rooms
25 year olds retiring
VC's funding "Recipie of the day" websites with $20 mil
Studio apartments renting for $3000/mo.
Coffee latte's selling for $6
Depression, and other "yuppie" diseases and their (coincidentally) expensive cures

Do you think the past few years were typical of an economic cycle?

Stocks of fake companies trading for BILLIONS in marketcap?
DOTCOM BUST, tons of stocks getting delisted after trading for $300 a share
People quitting jobs to trade stocks
CEO's getting paid BILLLIONS indirectly from insane paper wealth of stocks
Firms recording pension surplusses as income
Companies reporting FAKE $#%#% EARNINGS
Bankrupcies of MAJOR companies
MASSIVE insider trading
Wall St. IPO allocation fraud
Securities analysts being exposed as conflicted interest paid-shills
50000 Buy ratings, 1 sell rating
Record number of mutual funds,
Record percentage of households invested in stocks
You can't possibly be serious, idiot. This was a once in a lifetime financial
scam of historic proportions. You are just too self-centered to see it. Go get your MBA
so you can get your $125k job that your brother-in-law (barely) has. Stupid idiot,
these firms won't even EXIST by the time you get your joke of a degree, let alone have
a vacancy waiting for you. Enjoy your student loans and burger-flipping job,
sucker-chump-latecomer-carperbagger lemming

PS:

Fret for your figure and
Fret for your latte and
Fret for your lawsuit and
Fret for your hairpiece and
Fret for your prozac and
Fret for your pilot and
Fret for your contract and
Fret for your car. - It's a

Bull shit three ring cir cus side show of...


Freaks!


I wish that was my own. I get tears just reading it.

Eleua said...
This comment has been removed by a blog administrator.
Anonymous said...

I just don't think the bubble in Seattle is severe. My coworker bought a home earlier this year for $470,000 in a new community near Renton. I saw it the other day and it looks fantastic. 4 bedrooms, 3 baths, 3000 sqft, nice materials inside. Is it that overpriced and if so, by how much?

Eleua said...

$470,000 in a new community near Renton...Is it that overpriced and if so, by how much?

What percent of her neighbors are FBs that took on toxic, teaser loans?

What is the median home price compared to the median income?

How many speculators are in the area?

How much of the neighborhood is dependant on x-Cal equity money?

How much debt do her neighbors have to service every month?

How many of her neighbors are employed in the Real Estate Industrial Complex?

How many neighbors are only in their homes, until they can afford something they really want (Mercer Isl., Bellevue, Ballard)?

How interest rate sensitive are her neighbors?

How easy is it for the local gangs to tag her neighborhood?

Is her neighborhood traditionally a professional/semi-professional neighborhood, or a bunch of young, first time, relatively unskilled laborers?

How many renters are in the neighborhood?

What is the crime rate compared to similar and better neighborhoods?

Is it just like every other school district in the known universe, in the fact that it is "top tier?"

Anonymous said...

Take it easy, eleua. 10 of the 23 comments are made by you. I can't imagine you having too many friends with your curmudgeon way. If you use this much energy learning how to invest or working a second job, you'd be so rich there is no need to fret about a bubble. This also applies to many around these spots waxing poetic day in and day out about not being able to put 20% down.

Anonymous said...

Anon 2:12 said:

"This also applies to many around these spots waxing poetic day in and day out about not being able to put 20% down."

OK, dammit Anon 2:12. Put your f*in money where your mouth is. Because I'm just bitter about not getting my act together sooner, and because I'm just incapable of saving amidst this materialistic lifestyle I have succumbed to, just how exactly did YOU put 20% down on your box, huh? I'm talking about all 25-35's that have recently purchased (within last 0-4 years), exactly HOW did you put 20% down on a $450,000 sh*tbox in Renton, or wherever your hole resides? I want to know, because I'm just completely incapable of fathoming how you have $90,000 in cold cash to plop down for one of these things. Are you a software engineer making $150,000/year or a real-estate agent in the $1,000,000 gold medal club? If you're the engineer, for what company? How much experience do you have? Are you a manager or a coding peon? Are you guys hiring??? Seriously, how did YOU did it??? Did the family clan pool together, or where you just a meticulous saver all through out your college years, eating nothing but Hot Pockets and drinking Gatorade, culminating in an amassed fortune of $90,000 fresh out of college? How did you do it? (I'm a frustrated first-time buyer by the way, asking other first-time buyers out there...)

Anonymous said...

-where
+were

Anonymous said...

-did
+do

among others probably (should've previewed!)...

meshugy said...

Middle-income neighborhoods decline in metro areas

If you read the whole report, Seattle shows up a few times as one of the cities with a high amount of middle income housing. That was back in 2000...I wonder were we are now? My guess is that there's still a fair amount of middle income housing that needs to go before we have unaffordability like cities in CA and the North East.

meshugy said...

In fact, Seattle-Bellevue-Everett was rated as having the 4th most middle income residents out of 100 American cities.

Here's the top 20 highest middle income areas in the US.

1 Minneapolis-St. Paul, MN-WI
2 Grand Rapids-Muskegon-Holland, MI
3 Salt Lake City-Ogden, UT
4 Seattle-Bellevue-Everett, WA
5 Omaha, NE-IA
6 Wichita, KS
7 Harrisburg-Lebanon-Carlisle, PA
8 Nassau-Suffolk, NY
9 Wilmington-Newark, DE-MD
10 Ann Arbor, MI
11 Middlesex-Somerset-Hunterdon, NJ
12 Kansas City, MO-KS
13 Denver, CO
14 Greensboro—Winston-Salem—High Point, NC
15 Sarasota-Bradenton, FL
16 Nashville, TN
17 Hartford, CT
18 Milwaukee-Waukesha, WI
19 Portland-Vancouver, OR-WA
20 Allentown-Bethlehem-Easton, PA

marin_explorer said...

"Because this is Seattle, it could never happen here"

When did Seattle ever become a bust-proof economy? Back when I did live near Seattle (70s-80s), there was nowhere near the crazy optimism I'm hearing now. Perhaps it's just all those realtors (or Californians?) congratulating themselves?

synthetik said...

>where did the middle class go?

In 2003 when I moved to San Diego I owned a B2C business and met several hundred homeowners in that County. Coming from Florida where home prices were more in line with fundamentals, I wondered what types of jobs these people had that allowed them to afford such –kerCHUNK, cookie cutter $1M McMansions.

Most of the homes these peopled owned were worth between $400K-$4M, averaging about $600K, yet their total household income was almost NEVER more than $100K. In fact, it was usually around $50-60K.

How they afforded such luxury, I wondered.

Just about each homeowner had the same story. They purchased their home at least 5-10 years ago, some where homeowners 30+ years or more. In each case, they had continued to move up to a larger house as their equity increased.

Many had purchased homes within the past 10 years, after the last horrific down cycle (losses of 30-40% in San Diego County) for $150-250K and had been enjoying fantastic appreciation since then.

I think quite the same has happened in this market, where if you have been riding the equity train for awhile, it's not that difficult to upgrade and affordability does not even come into question.

I think given our current societal pressures of conspicuous consumption and home ownership that it's natural that one should feel left out; and a typical knee-jerk reaction would be to attempt to purchase a home at all cost.

I think it's pretty obvious that happened here in 2004 and 2005.

If you are not a homeowner at this point, by choice or due to lack of a down payment, take solace in the fact that home prices will come back down.

RE cycles just like anything else, and we are currently beginning a down cycle. You might have to wait 2-3 years, but it will be well worth it.

Be patient, grasshopper.

synthetik said...

oops, except in Ballard. The high demand for kitch-mantle fodder toys at the Archie McPhee store will always keep demand high in that market.

Anonymous said...

anon 8:38, here are my secrets. I don't have a 6 figure job. I have a second job that nets me an extra 10 grand a year. I don't have any children. I am a Costco member. I don't eat out often. I don't buy things very often. I don't have cable tv. If I can do it, so can anyone. Save, invest, be resourceful, make sacrifice.

synthetik said...

It's an older book, but I think everyone should read "The Millionaire Next Door".

The title put me off reading it until recently, much like Dale Carnegie's "How to Win Friends and Influence People" -- NOT a book you want your friends to see you reading.

Once you open it up and begin reading, you realize that other than the Bible, its probably the single best human relations work ever produced.

Anonymous said...

Seriously, how did YOU did it???

Persistence, luck and willingness to take risks. Anyone who tells you it's 100% skill/talent that got them to where they are is lying.

Specifically, I worked at a dot-com from 96-2001, made some money (not millions) from selling stock. Had more than enough for a down payment, some home improvements, a working car, and a nest egg. I still am not planning on retiring before normal age, so I didn't get that lucky.

You gotta take risks, and they won't always work out. I took a huge risk taking a dot-com job (with a 25% pay cut) in 1996 and moving from my stable software job in a lower-cost city. I worked 16 hour days for almost 4 years (gaining 25 lbs of fat in the process) before getting laid off. But, I came out ahead monetarily. I could have just as easily chosen a startup that went nowhere. Or never sold any stock options. I still didn't sell when I should have to make the most out of my options.

After all that, I still don't earn $150k on my own, but combined with my wife I earn more than $150k. We both went to college, she has an advance degree, and we've been working in our respective fields for more than 12 years (since college). There's persistence there. I decided a nice salary was important to me, and work hard to stay ahead in my field. I manage my career somewhat actively (doesn't mean I job hop). I work hard and get great reviews at my job, and that leads to raises (not always every year).

I feel your pain about being bitter given the current environment. Who knows, I might end up laid off next year and my entire industry outsourced to India. Perhaps I'll be screwed. Can't stay up nights worrying about it. Doesn't help.

When I left college the economy for my field sucked (compared to how it was for people who left college when I entered). I thought I had made a stupid decision. 2 years later, things changed. And here I am.

Your situation will change too, if you're "open" to the risks you may have to take and persistent enough to persevere through the down-times.

Oh, one more funny story. I know a guy who was a veteran of 12 (count 'em) failed startups. His 13th made him a billionaire. Persistence helps too.