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Thursday, August 10, 2006

Two More July Anti-Bubble Reports

According to pretty much all the local news outlets, the story of the real estate market in July is basically "things are slowing, but." We've covered the major papers, but I wouldn't want to leave out the King County Journal or the Everett Herald, who both got a piece of the "keep the market afloat" pie. From the Journal:

Home sales activity in King County is slowing compared to last year's blistering pace. But don't bother waiting for prices to plunge, similar to what happened to tech stocks when the late '90s dot-com bubble burst.

While the number of homes and condos sold in King County last month is down 12 percent from a year ago, "that doesn't mean we're in a bust market by any stretch of the imagination," said Glenn Crellin, executive director of the Washington Center for Real Estate Research at Washington State University.

Crellin and other local housing market observers believe home prices in King County will keep climbing, albeit slower than the past couple of years.
Crellin said 2006 is shaping up to be another strong year for home sales in King County, even though it's off the record pace of 2005 and 2004, which may have created unrealistic expectations for some.
Despite concerns of housing bubbles in some parts of the country, including California, Arizona, Florida, Las Vegas and Washington, D.C., Crellin said King County will not likely see an overall reduction in home prices, although prices of some individual properties may fall.

The Puget Sound region differs from other parts of the country where there is greater cause for concern about housing bubbles because property sales to investors — which can boost prices beyond normal appreciation levels — has not been as great here, Crellin said.
Different, different, different... Seattle is different! Wait, what's the basis for the assertion that we haven't had many investors? Is there any reference to solid statistics to back up that claim? Let's see... no. I can only assume that we're basically taking Crellin's word on that one.

And if you think that anti-bubble chant was shrill, just wait until you feast your eyes on the gem from the Herald:
Home sales in Snohomish and Island counties dropped in July, while the number of homes on the market increased.

The law of supply and demand and even common sense would tell you that means the area's soaring home prices finally have started to fall.

But common sense is wrong.

Median home prices in Snohomish and Island counties rose 18 percent and 19.5 percent, respectively, during the past year. And they'll likely continue to go up for a while.

In addition, analysts said, there's little chance here of the sort of bursting housing bubble that has pushed down home values dramatically in other parts of the country.
[Windermere broker Vern] Holden said he expects homes to continue to appreciate in this area.

"I don't believe we'll see a bubble," he said. "We have a limited amount of product on limited land in a desirable area with a strong economy. We are a port community, we sit on a north-south corridor. We have manufacturing, we have technology and all sorts of amenities for people. We're lucky. We're doggone lucky."
Phew! Oh man, we are lucky. No other place in the entire country is desirable, has a strong economy, and amenities! Let's hear it for the super special Puget Sound and the death of common sense! Woo!

(Clayton Park, King County Journal, 08.08.2006)
(Mike Benbow, Everett Herald, 08.08.2006)
Please read the rules before posting a comment.


Anonymous said...

just kind of curious why you even live here if it is so much better and nicer somewhere else? no positive things to say.......EVER it seems like from you.....yes, there may be a slowdown coming, and many are in denial about it yes........but you are starting to sound quite ridiculous with those comments of sarcasm every single day in and day out about how we arent special and how other places have the good jobs, amenities and quality of life........maybe you should move if you think it is such a joke?

Anonymous said...

I absolutely agree that these pieces are absurd. Prices already have gone way down, on some homes, in the outlying areas in the sence they are coming on the market at more reasonable prices to start with. You know I get sick of hearing "If you don't like it leave" and could of course tell anon the same thing in reference to this site. The Seattle area is special, like any of dozens of other areas.

The Tim said...

anon @ 07:48 AM,

I happen to quite like Seattle. In fact I've said so directly numerous times. Here's a few quotes from previous posts of mine:

Also, I happen to quite like Seattle. This is not the "We Hate Seattle" blog. If you just want to complain about the town, you can start your own blog for that. Thanks.

Since I'm now running two blogs whose purposes are to highlight two big problems in Seattle, some may get the impression that I am not fond of this area. Nothing could be further from the truth. My purpose in running both Seattle Bubble and Seattle Traffic is to bring people together to work toward solutions to two of Seattle's biggest problems. I'm even already mulling the idea of making a Seattle blog trinity by adding a third blog dedicated to all the Awesome things about Seattle...

As far as the sarcasm goes, that's just my style. It's how I address things that I think are out of whack. If you don't like it, why are you reading this blog in the first place?

I focus on the insanity of housing prices in Seattle, and the ridiculousness of the media's cheerleading for said high prices. I've never said that Seattle isn't a desirable place with good jobs. I just think it's silly when news articles make it sound like Seattle is the only place in the entire freakin' country that has positive attributes like that.

Anonymous said...

go to any city and you will find their media for the most part talking about and talking up their own area...that is nothing new or unusual....why would they not? what do they have to gain by it?

betamax said...

Fill in the blanks:

Our town of __________ has high growth prospects. It is said that residential real estate in __________ will be in high demand for years to come due to the rapid influx of new high-paying jobs. What’s more, a lot of monied baby boomers are expected to be drawn to __________ as they begin retiring in two years. The strong industry and opportunities in tourism, health care, infrastructure, liesure activities, as well as a talented and diverse workforce will continue to make __________ a desirable destination for both companies and families alike for years to come. The city managers and industry leaders have even unveiled a plan to make __________ the next Silicon Valley, revolutionizing the way technology is developed and marketed to the world.

Unlike other cities in the US, __________ maintains a healthy real estate market with a world-class nation-leading real estate workforce ready to work for you whether you decide to buy or sell your home. Even the real estate investor in __________ has a lot to be excited about. Home prices in __________ are expected to moderate to a plateau and then increase substantially for the next 10 years or more. When you get right down to it, no other town has as much to offer as __________ for professionals in real estate or any other industry.

Anonymous said...

I think Tim, like many people (who are not right wing Republicans), would like the media to just "do their job better" - and that means less corporate cheerleading and more honest reporting.

Less "he said, she said" faux objectivity and more, "he said, she said, but she isn't supported by the facts" actual objectivity.

(the right wing republicans who complain about the media actually want the media to do more cheerleading for).

Unfortunately, with media consolidation, and the for-profit nature of the ownership of radio, TV and news, I don't expect this to change anytime soon. That's what blogs are for :-)

Oh, and on-topic of media honesty, here's a builder (Toll Brothers) saying there's a huge "new house" glut at least on a national level - as a reason to explain their declining earnings growth.

Anonymous said...

Argh. Even in that article about the Toll Brothers is a "not in Seattle" comment!

Chen still expects the housing market to have a soft landing, instead of a crash, pointing out that some regions, such as the Pacific Northwest, aren’t seeing the same steep declines.

I suppose factually, that's true. As meshugy points out, we haven't seen the declines that other "hot" areas have. That could mean we won't, or it could mean we will, or it could mean we will get hurt worst (the higher you go, the farther to fall) I wish they would at least add that caveat rather than blithely saying "aren't seeing it now". Maybe just "haven't seen it yet"?

Anonymous said...

I hope someone can help answer my (very sincere and not sarcastic and very ignorant) question.

How *are* we different than the rest of the country? What makes us unique from..let's say Boston or San Diego which are also port towns and can't really build out either, and have a lot of amenities and a decent economy?

I feel like I'm missing something because I don't really see the differences, but I'll readily admit that I may be looking over something obvious.

Anonymous said...

common sense is wrong

Go tell that on the mountain (or Warren Buffet). Well, if skies the limit and we're in a magical "bubble" of our own, why isn't the smart money chancing down "investment" oppurtunity up here in the land of milk and honey?

Oh, I know why, because the local shills are full of used-car sales mantra, and a sinking (nation-wide) tide, sinks all boats...

We are different and we are special but something tells me its in that "short-bus" kinda way unfortunately...

Anonymous said...

How *are* we different than the rest of the country? What makes us unique from..let's say Boston or San Diego

For starters, Boston and San Diego were touted as the next big thing with regard to the post tech-boom/bust years. A lot investment was stoked into these areas by venture capitalist chasing down the bio-tech sector. They saw a relatively high influx of 'new economy' highly paid workers and this in turn stoked the local Real Estate market when interest rates spiraled into the ground.

As Shiller says, its mostly psychology from that point out, home buying frenzies stoked by easy credit and a demographic change. The only problem is that bio-tech didn't turn out to be the 'new economy' like everyone thought it would but provided the catalyst at which to stoke those local fires. San Diego also has the real estate 'talking point' that its a sun-belt destination and a beautiful warm place to live/retire. Well, San Diego's ALWAYS been that and its no different now than its always been.

Seattle's economy was in the toilet after the 2001 recession, no promise of a 'new economy' here, just faint rumor of Paul Allen's biotech sector along South Lake Union, which is an embryonic economy at best, so the Real Estate sell delayed the 'boom' here until psychology and easy credit took over and the frenzy was in full swing.

In physics terms, Seattle just had a higher 'specific heat' than those other cities, its been taking longer to heat-up, but it too will overheat given enough time. We're on the proverbial delay switch, that's all that's different. That and were an equity safe-house from the other bubbles, but once those start to faulter (like they're doing), watch out below

Anonymous said...

“How *are* we different than the rest of the country?”

The mild recession that hit the country in 2001-2002 lasted a lot longer here. The economy did not really start picking up until late 2004, so Seattle was relatively late in getting its monster housing appreciation (although appreciation still continued through the slow-down when normally it would have stalled thanks to easy credit, etc). Consequently, very low affordability, which seems to have naturally dragged down sales activity in other hot markets, did not hit Seattle until recently (or maybe it has not even hit yet at all thanks to the persisting easy financing). Seattle also had a lot of momentum/psychology going for it (probably accentuated by very low inventory at the start of the year), which basically inoculated the market from housing trends elsewhere in the country.

As Tim alluded to in the main post, speculator are another, although unknown, factor. Speculation was definitely rampant in some bubble markets, such as AZ, NV, FL, & CA. While it is not hard to find obvious flips in the Seattle market, it is unclear to what extent inventory will be grossly jacked up by speculators fleeing the market as is happening in Phoenix, for example.

To recap, I think we are primarily different because were behind the curve, and we don’t have confirmation of as many speculators in the market. The first factor just means that it will take a little longer to slow down here, and the second suggests that a “better-worst-case” scenario exists, in which rising inventory will not be grossly compounded by speculators reducing demand and increasing supply.

Bottom line, we are not really different in the factors that matter most for keeping appreciation going forever.

Anonymous said...

Speculators in Seattle area??

Are there speculators in the Seattle area?? How about the small town of Port Orchard?? I am in the process of dumping 12 homes onto the market of Port Orchard, WA this year. My Realtor owns another 11 houses, my mortgage broker owns 9 as well. That's 32 single family homes owned by 3 people that I'm aware of. 2 of my homes are being bought by an "investor" right now, now way in hell that they will be cash flowing, I'm not and they're paying 25k more than I paid last year.

I came late to the real estate party, but by buying bulk 10 homes last year, I'll make enough on the resales this year to buy a house for cash this year.

I'm not being greedy, I had planned this due to my pending unemployment situation starting Oct 1, 06. This money is what I'll be living on for the next few years as I go to school to get a marketable job skill.


* Yes Virginia, there are speculators in Seattle.

Anonymous said...

“How *are* we different than the rest of the country?”

I also forgot that another difference is that Seattle’s apparent slow down is out of phase with the normal annual market cycle. Most of the rest of the country didn’t noticeably slow down until the “silent spring” as Robert Cote coined it. The sales/price peak in those cities was in the fall like it is in most years. In contrast, Seattle had a phenomenal spring selling season, but has slowed dramatically Year-Over-Year since then. Our peak may have been in the late spring or early summer instead of the normal fall peak (although the jury is still out on this matter).

It will be interesting to see if being out-of-phase has any impact on the impending slow down. If I had to guess, I would say that it could speed up the impending market deterioration as the bearish psychology feeds off of the normal seasonal slow-down conditions we should see in the next few months.

Anonymous said...

I certainly don’t deny that there are speculators in Seattle, as indicated in my earlier post. My point is that the level of speculation has not yet been quantified and will have a yet-unknown impact on the impending slow down. Also, anecdotally I haven’t heard as many stories that the area has been over-run with speculators in the same way that places such as Phoenix and Naples, FL, etc. have. Although I certainly admit that that could just mean that it hasn’t been reported the same way.

Anonymous said...

Seattle has been on investors radar screens for large multi-unit properties.

SPRING/SUMMER 2006 Apartment sales report

Nearly 26,000 units sold last year compared to almost 15,000 in 2004. The 2001 to 2003 period averaged under 1,000 units. 1998 was the previous high in number of units sold at 18,600.

Yup - 44% more sales than the previous peak in 1998. That year vacancy rates in Seattle were hovering below 3% at times.

Shadowed said...

The house next to where I live was flipped last year. I don't know for how much profit he made, but it was bought, remodelled, rented, then resold within a year. It's now owned by live-in owners who bought it as a home for themselves.

Shadowed said...

I also think the first poster has confused Tim's snarkiness at the Seattle housing market with snarkiness for Seattle itself. And I just love "like it or leave" arguments.

Anonymous said...

Thank you! I think I get it!

Anonymous said...

I think Tim, like many people... would like the media to just "do their job better" - and that means less corporate cheerleading and more honest reporting.

Less "he said, she said" faux objectivity and more, "he said, she said, but she isn't supported by the facts" actual objectivity.

OK. Fair enough, but then you go on to say

...I wish they would at least add that caveat rather than blithely saying "aren't seeing it now". Maybe just "haven't seen it yet"?

How is "haven't seen it yet" any less faux objectivism than what MSM has been reporting??

You may come up with all the numbers in the world to support the out of whack fundamentals, but you don't know for certain that Seattle will meet the same fate.

Anonymous said...

How is "haven't seen it yet" any less faux objectivism than what MSM has been reporting??

I was thinking the same thing when I read the word "yet".

We don't know what's coming, but what disappoints me about the "seattle is different" argument is that it is completely unsupported.

They list a bunch of characteristics that make seattle NOT different, then claim it is different.

Seems a bit dishonest.

I don't claim to know where the market is heading, but we seem to have an awful lot more in common with the "costal phenomenon" vs the midwest.

Anonymous said...

Seattle and the NW are great places to live, but that doesn't change anything.

I know where the market is going - down. Been there...done that (CA, IL). Just start checking the edges of the market and you will see it's already happening.

Remember, to make money you have to buy low and sell high; a rule speculators always forget in the end.

Anonymous said...

Perhaps yet was the wrong caveat to add. My only point is that in context of the article I think it would be more objective if more than one source were quoted. When only one source is quoted, I think presenting their argument without some kind of follow-on analysis. You know, having the reporter do some work rather than just relying on the sources (who are all presenting their side of things) for all the conclusions.

You may come up with all the numbers in the world to support the out of whack fundamentals, but you don't know for certain that Seattle will meet the same fate.

BTW - I agree. I'm not convinced every city will suffer identical fates at the end of this real-estate runup. I'm not saying Seattle's uniquely different - more that every city is different, and the markets interact in complicated ways with local and national economic factors.

The Dave said...

As tony1790 said above there are plenty of speculators in Seattle, or at least in the outliying areas. Port Orchard is an interesting example in that it is pretty affordable and up until last year you could still buy house where rent covers costs. Also alot of people have bought retierement homes on or near the water and are renting them out until they retire. This is mostly Seattle money or people commuting to Seattle.

I have several properties there as long term rentals, but with an eye that they were going up quickly. My goal was to get in before rentable houses were too high for it to make sense. However, my investments were speculative in the short term. I don't plan to dump them anytime soon, but I also know of people who own a dozen or so houses that they bought a few years ago for around $150 which are now worth around $250. I am sure that as they see the top of the market they will be cashing out a few of them.

On the other hand I have always been able to rent a house within a week and have been able to find pretty good tenants. I wish I had been able to get the cash together to buy more and a few years earlier.

I don't expect a big crash or to lose money as houses are still relatively cheap by puget sound standards. (hope I don't sound like meshugy). However I would not buy today. Things have gone up too fast too quickly.

Makes me feel like the peak before the end of the tech bubble. It was fun to get the +30% annual returns, but you knew it could not last forever....

The Dave said...


Just as a point of reference, if you did not have to sell for other reasons, would you hold or sell on P.O.?

I am holding everything in P.O., even if I end up moving full time back to Seattle proper, but I do not have a reason to do otherwise.

Anonymous said...


I was really just giving you a bad time about the "yet." I enjoy your posts and find you to be one of the move level-headed commenters here. ;-)

Anonymous said...

>Oh, and on-topic of media honesty, here's a builder (Toll Brothers) saying there's a huge "new house" glut at least on a national level - as a reason to explain their declining earnings growth.

Jcricket, um, yeah, I posted that Robert Toll link yesterday. Nice.

Anonymous said...


thanks for your post. we are really in the dark as to how many "investors" there are in this area.

Eleua said...

Remember, to make money you have to buy low and sell high; a rule speculators always forget in the end.

Yup. Speculators always buy high and hope to sell higher.

Buying low is extremely hard. You have to tell yourself that everyone else is wrong, but you have it all figured out. It's harder than it seems.

The only thing harder is selling when it is high. You always think you can hang on for that last 10%, and it usually costs you everything.

Buying high is easy, as there is enormous pressure to get in on the action. After all, everyone else has done it, so WTF is wrong with you?

Selling low is also easy (although painful). You finally convince yourself you are an idiot, and you decide to cut your losses.

The stock mania of the late '90s was just a series of people buying high and selling higher.

This housing bubble is no different.

Anonymous said...

the dave:

In response to your question, I think I'd like to hold onto the house's in Port Orchard, the Narrows bridge is due for completion next year which should be an uptick in prices here. I've never had a problem finding renters, I don't advertise, just put up a for rent sign and viola, it's rented.

I'm getting good rents too, $1300 to $1500 per month for 1100 to 1400 sqft ramblers.

I have a couple of ready rentals if you want one. Most of my home sales have been to other investors, so there are plenty of people who like this town. Prices are the lowest in the county here, and it's not a bad town.

Good luck to you with your homes, I'm looking for work right now and that's the main reason I'm selling my properties, other than my nervousness about the whole "pending economic crash" thing :-)


p.s. I know of 2 other investors, one are a couple that own hundreds of homes and the 2nd is a fellow that's made millions in the Port Orchard area and yes I wish I'd had started a few years earlier, I'd be able to keep these homes vice sell them.