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Thursday, October 26, 2006

Bubble-Proof Superstar Seattle

A commenter over at RCG pointed out this Business 2.0 article that labels Seattle as "bubble-proof."

About the last place a prospective homebuyer might want to peruse MLS listings these days is in one of the country's most expensive markets, like San Francisco, where the median cost of a single-family dwelling has jumped 37 percent since 2003. (It's now more than triple the national figure.)

A couple of leading economists, however, think buyers shouldn't be intimidated, even if prices in these markets go into a slump. San Francisco, New York, and a small handful of other big cities may suffer dramatic swings in a downturn, but their long-term trends "are so strongly upward that if you're willing to buy and hold, it's a good strategy," says Todd Sinai, an associate professor of real estate at the Wharton School and coauthor of a recently released study called "Superstar Cities."

The same logic, Sinai says, applies in other inflated markets like Boston, Los Angeles, and Seattle.
Given the admission that there may be "dramatic swings in a downturn" I guess I don't really understand the "bubble-proof" label. If they were making the usual claim, that the worst case scenario is for prices to level off for a few years, then it would make sense. It seems more like they're just pointing out the cities with the best long-term growth prospects, and I actually don't disagree with their assessment. Seattle is a desirable place, and will likely take a less severe beating as the housing bubble busts. However, that hardly makes us "bubble-proof."

Their reasons for including Seattle on this list are all the ones we've heard dozens of times before:
Seattle has a lot going for it physically, with its green landscape of towering trees laced with bays, inlets and rivers connected to Puget Sound.

But what makes the city effervesce is its status as the epicenter of the software industry, courtesy of Microsoft, and the birthplace of other marquee giants like Starbucks and Amazon.com. As these companies have grown, so has their demand for workers.

Other attractions include access to natural beauty, an active lifestyle and a lively pop music scene: Seattle is a home to numerous heavy metal and grunge bands. All this spurs demand for Seattle's tight housing supply.
Not to mention historically low interest rates and loose lending standards...

(Paul Kaihla, Business 2.0 Magazine, 10.25.2006)

24 comments:

Grivetti said...

San Francisco, New York, and a small handful of other big cities may suffer dramatic swings in a downturn, but their long-term trends "are so strongly upward that if you're willing to buy and hold, it's a good strategy,"

Well, I'm sure if I was herding sheep or tending the wheat fields of ancient Sumeria, the leather bag of gold I kept under my straw mattress would probably exhibit a long-term trend that moves "strongly upward", but regardless of the fact that gold has always been the fundemental currency of civilization, IT DOES NOT MAKE IT INPENETRABLE TO BUBBLE MARKETS!!!

Look at the early 80's, Gold over $800 an ounce? That wasn't a bubble market? Come on....

I'm starting to think the fundementals of economics and the Real Estate industrial complex are mutually exclusive.

Grivetti said...

OMG, what decade is this writer living in?

Seattle is a home to numerous heavy metal and grunge bands.

Duuude, Grunge is so dead... get with the program, somebody needs to send this joker a 'Death Cab for Cutie' or 'Modest Mouse' album for cryin' out loud...

Grivetti said...
This comment has been removed by a blog administrator.
redmondjp said...

OK, this proves it.

Seattle is special!!!!

Keep buying, people, no bubble here, market going up. . .

EconExchange said...

All these articals are just speaking out of their As*. You get totally different BS views anywhere you look. Why doesn't everyone just realise to one degree or another EVERYONE is going to be effected negativly one degree or another because this was caused by a CREDIT BUBBLE. Jobs and all mean nearly nothing because the local jobs ANYWHERE didn't support the prices. 59K median income supporting 400K+ median houses in seattle....please. According to BussinessWeek -- Boston, NY, San Fran & Los Angeles are 4 of the 10 cities "headed for trouble". Yet according to this guy they are 4 of the bubble proof cities. Besides has this writer even looked at the Boston Real Estate market currently? wow. Are writers satisfied being ignorant?

10 cities where housing prices will slump the most

Richard said...

epicenter of the software industry

Seattle?

I gotta wonder why we're a distant third behind Silicon Valley and Boston in the number of software startups, if we're the at the epicenter?

Matthew said...

I think econexchange brings up an extremely important point. Job growth or a "robust job market" is irrelevant if the median income does not support the median house price. So what if Seattle adds a bunch of 40,000 dollar a year jobs. People that make 40,000 a year or even 50 or 60k a year should not be buying 420,000 median houses. But yet they are, and how are they doing it? By crappy toxic loans, that will come back to haunt them.

flopfolder said...

Read my response to that article on RCG, what a crock!

Deejayoh said...

Business 2.0 is a rag. Do they even publish anymore or is it just on the web?

Joe Consumer said...

Oh please. These types of industry rags have no credibility. No reader is going to take the advice of Business 2.0 for his investment decisions.

Don't waste your breath on this crap. It just makes this blog look more like a freaking echo chamber.

Many of the posts are relevant and comments insightful, but to jump all over an article in a completely irrelevant publication is silly.

PugetHouse said...

Are writers satisfied with being ignorant?
Of course they are. That's what separates them from you. They're writing to get exposure, not to debate. A salesman's purpose is to separate money from fools willing to believe their fluff.

...this was caused by a CREDIT BUBBLE
I agree that expanded credit is probably the major driver in the price run-up. The question is whether the new credit models will explode under the test of time. We may be looking at a permanent paradigm shift, depressing as that is. The essential problem, I believe, is that real wages are backsliding (fact), deepening the class rift in myriad ways. The declining median prosperity makes cheap money essential to continue extracting money from the American masses, who have a negative savings rate.

synthetik said...

>We may be looking at a permanent paradigm shift

What do you mean exactly? I'm hoping you don't mean the fallacy that this is a NEW form of credit bubble that won't burst?

Or the paradigm of "we can buy all the sh*t we want with no consequence"?

Nothing has changed, nothing is new. We continue to repeat the past.

The majority of Americans will wake up one day and they won't be able to borrow (no assets to borrow against) and they won't be able to buy (spent/lost all their money)... and that will leave our economy where?

The next bubble will be -very- far away into the future in my estimation.

Wealth=Gone

Russell said...

>We may be looking at a permanent paradigm shift


In my opinion the only thing that can keep prices up, over the long haul, is if people have decided to spend a higher proportion of their incomes on housing. If they haven't prices will regress to the mean, but if people are willing to spend more than they used to, for whatever reason, that would be a paradigm shift. Sure, HELOC buyers of watercraft, suv's and other bling will get burned, but prices could stay up.

I for one think they won't stay at these income/price levels, but I'll admit it is remotely possible.

WatchingFromTokyo said...

>We may be looking at a permanent paradigm shift

"Paradigm shifts" are usually followed by: Brother, can you paradigm?

synthetik said...

>In my opinion the only thing that can keep prices up, over the long haul, is if people have decided to spend a higher proportion of their incomes on housing.

Sorry, that makes absolutely no sense at all. Many are already spending a -much- higher proportion of their income on housing (50-70%? vs 20-30%?). That doesn't even factor into the equation. Home prices are up -simply- due to mass-mysterial from over liquidity.

There is nothing that will "keep prices up" at the present moment. Sure, in 2020 you should expect to pay more for your home than you would today (assuming we haven't gone back to a more simpler way of life...)

>I'll admit it is remotely possible.

Elvis may still be alive as well... it is remotely possible.

synthetik said...

>"Paradigm shifts" are usually followed by: Brother, can you paradigm?

ROFL!!!!

ahahhahaha. Sorry, I amuse easily.

Eleua said...

"Alan Greenspan managed to make folks' lives ultimately even worse, in attempting to bail out his equity bubble with a real-estate bubble. Let's never forget who the un-indicted architect of this mess was: Alan Greenspan and the other merry pranksters at the Fed. Of course, those folks who didn't learn anything from the equity mania, and who will turn out to have gotten themselves trapped in the housing mania, really have only themselves to blame. As I have been warning for at least a couple of years now, all of this was going to be wonderful until it wasn't. That moment in time is upon us."

-Bill Fleckenstein, August 2006


I will pile-on with the indictment of those that have had, not only the luxury of the past equity bubble to draw from, but the impending implosion from the other bubbly metro areas of the country. If you live in Seattle, and can't see this bubble for what it is, you deserve everything the looming bust will deliver.

WatchingFromTokyo said...

>>"Paradigm shifts" are usually followed by: Brother, can you paradigm?

>ROFL!!!!

ahahhahaha. Sorry, I amuse easily.
---

Thanks, S. Your David Brent avatar gives me a larf every time I see it (and your posts ain't chopped liver, either).

- Mark-in-Tokyo
- Remembers the days of "Would the last person leaving Seattle please turn out the lights?"

Russell said...

synthetik,

Some of those people (the 50% to 70%) are exactly the ones driving this bubble.

Imagine this, everyone in metronaturalia earns 50,000. If no one is willing to spend more than 30% of their income on housing, prices will fluctuate with interest rates, but only rise as incomes grow. That's more or less what we've seen in the past. It is Robert Schiller's view (he wrote Irrational Exuberence) that there is essentially NO growth trend in real prices over the long haul. If we all decided to spend 50% of our income in metronaturalia on housing, we would bid up the prices of housing, but no one would be better off.

As to the percentage of income spent on housing not "even factoring into the equation", I don't know how you seriously assert that. We can speculate (heh) endlessly on WHY people are doing it, but they are clearly doing it. If lenders were restricting people to the old 20% down and 30 fixed formula, we wouldn't be in this mess because all the Trump wanna be's would be selling beanie babies to each other, as they'd be unable to buy the houses they buying today.

The Tim said...

David Brent avatar...

*shock!*

And here I thought that was a real picture of you, Chad! I feel so shocked and betrayed.

</sarcasm>

redmondjp said...

And here I thought that was a real picture of you, Chad!

Well Chad, you had me fooled too! I mean, The Tim uses a real picture (although IMO he looks like some guy lurking around a playground in that picture). Joe Consumer--well, I'm worried about him--those beady eyes creep me out . . .

I had no idea that there was a British version of The Office. Geez, with that and Ugly Betty (another imported comedy), it doesn't speak very well for the creativity of our country. 300 million people here in the U.S. and we have to get our comedy sitcoms from other countries?

synthetik said...

The UK version is so much better than ours. Carell (sp) just can't replicate what Gervais has done.

Granted, it's still funny - it just doesn't translate well.

Lake Hills Renter said...

My avatar photo isn't really me either. =)

Eleua said...

Mine is.