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Wednesday, February 21, 2007

Seattle Running 6-12 Months Behind

A common belief (one that I've repeated a couple of times here) is that housing trends in the Northwest tend to lag California and the nation as a whole by six months to a year. Obviously we cannot know exactly what will happen here, but if we have generally followed California and the national averages in the past, then we can look to them to get a general idea of where our housing market is headed in the near future.

Let's take a look at some graphs to see if the theory holds any water. All of the following graphs are from the Case-Shiller Index, which tracks same-home sales in 20 markets across the country, including Seattle:

As we all no doubt already know, Seattle has experienced quite a climb in prices in the last few years. You can see in the graph that the gains really started to pick up steam around 2003-2004, but things seem to be leveling off presently.San Diego's rapid gains began in earnest 2002-2003, but they leveled off in 2005, and actually declined in 2006. Hmm, interesting.The composite graph appears to shoot up in 2003-2004, with a peak in early 2006, and declines since then. (Note that the composite graph tracks only 2000-present.)

Already you can probably see that on the way up, Seattle did in fact seem to lag the other two graphs. To help us visualize, I took the San Diego graph, and overlaid Seattle onto it, shifting Seattle one year back:
San Diego Home Price Index w/ Seattle Overlay
San Diego Home Price Index w/ Seattle Overlay
While they are of course not a perfect match, you can see that when Seattle is shifted back a year, both lines become suddenly steeper around the same point, and they both level off around the same point. This would seem to confirm the theory that Seattle's housing cycle has been lagging California (or San Diego at least) by approximately one year.

Here is the Composite-20 graph, with Seattle overlaid and shifted back by six months:
Composite-20 Home Price Index w/ Seattle Overlay
Composite-20 Home Price Index w/ Seattle Overlay
That looks like a pretty good match, too, with the two tracking very closely since midway through '03.

So what's the conclusion? During the recent unprecedented run-up in home prices, price growth in Seattle has lagged the nation as a whole by roughly six months, and San Diego by approximately a year. Both of these measures have shown real price declines in the past year, despite many positive factors (such as job growth, low unemployment, good interest rates, etc.).

Therefore, a reasonable person would conclude that there is a very real possibility that Seattle will also experience price declines in the coming year. On the flip side, a willfully igorant person would conclude that "Seattle is special" and we are totally shielded from experiencing similar price drops.

Declining prices are not by any means certain to happen, but ignoring the evidence that points to such a conclusion seems to me to be a pretty dumb move.

(S&P/Case-Shiller® Index, MacroMarkets, 01.2007)

65 comments:

matthew said...

Nice work Tim, that was a great post!

Lake Hills Renter said...

Got a typo in there, Tim -- "igoring" should be "ignoring" in the last paragraph.

The Tim said...

Whoops, thanks. That's what I get for adding a sentence after running it through the spell-check.

nitsuj said...

"a reasonable person"

sadly, it seems that not many of those exist anymore

Nolaguy said...

Good post, Tim.

One thing that I can't figure out is *WHY* Seattle is 6-12 months behind these markets.

It doesn't seem possible that that variables that caused this housing bubble existed exclusively in California before Seattle.

I firmly agree with your analysis, but I'm wondering what your thoughts are as to the cause of Seattle's delayed bubble indicators.

I have no idea.

Brian said...

One guess - high volume of relocating professionals, i.e. people who receive funding to move here from a company after being hired

Comrade Chairman Greenspan said...

"One thing that I can't figure out is *WHY* Seattle is 6-12 months behind these markets."

Equity refugees. AKA locusts, bullies, inflation early receivers, pigs at the front of the trough, etc etc.

formanoreasta said...

Very interesting analysis. Aligning (scaling) the plots to fit on the same price scale is misleading: the costs that home prices incur are exponential, because of compound interest. How do you reconcile that? You should have done a semi-log plot to compare I think.

Eleua said...

I'm with Comrade Chairman Greenspan on "why" we lag California.

It has been my theory for almost 20 years that Washington is nothing more than an echo bubble of California. Drive around Bainbridge Island and try to find someone that isn't from California (and selling real estate).

You can't be an equity locust unless you have equity. Once you build equity on your Brady-bunch Tri-level in Orange County, you can then sell and move to the PNW. As the market tops in California, there is still some time to sell and move, but as people become trapped, it is lights-out for the PNW.

Therefore you have a lag.

Equity locusts drive the lag.

Eleua said...

If my theory is true (and it is), it would follow that if we have a universal destruction of California equity, property in the PNW would crater.

It would only take about a 15% rollback in prices to wipe out just about all the equity in the Golden State. Between all the kinky loans, PMI, and HELOCs, it won't take much to make the seller leave the closing with empty pockets.

How do you support $700K homes on Bainbridge Island on $75K household incomes, if you have no equity? You don't.

Factor in that banks are on the verge of getting some old-time religion with regard to lending standards, and you have the recepie for an unqualified disaster.

A $700K house would require $140K in a down payment, provided the bank didn't make you put down greater than 20%. That still leaves $560K in debt, which would need at least a $150K household income to service. This is 2x the median household income on BI.

So, you need about 10X the normal savings of a well to do yuppie family and 2x the median income to buy the median 3 bedroom mildew infested fixer on Bainbridge.

It's do-able if you can transport $300K in equity, and get a kinky loan.

Good luck with that.

Brian said...

You forgot to mention that Bainbridge people think they live on the Nantucket or Long Island of Seattle. Yeah, I went there.

rubyfan said...

Don't get me wrong, I think there's a bubble and I suspect it's deflating now, but...

I'm not sure you can draw a lot of conclusions from overlaying those two graphs. Seattle may continue to go along it's merry way - there's no way to tell. However, what if you go back further in history to a couple of events which are similar to the current circumstances? I'm thinking the 81 deep recession and the early 90's.

There are some interesting tables which compare Oregon and CA at:
http://www.portlandrealestateblog.com/realestate/2007/02/california_v_or.html

Note that the markets were fairly decoupled during both events: CA barely noticed the 81 housing implosion in Oregon. It was really bad in Oregon due to the timber-dependent economy. However, the early 90's California housing depreciation was barely noticed in Oregon. There are comments there which theorize why. I suspect you'll find similar correlations between Seattle and California.

Eleua said...

OHHHHH, YESSSSSS!

The Martha's Vinyard of the Pacific...I've heard it all a 1000 times.

I love to pass around the little tidbit about median household income on Bainbridge - $71K on the Y2K census. Just asking the man on the street around here, you would think it is $300K.

I think there is a trainload of debt and HELOC money making BI appear to have the bling it does. Once the market goes "poof," it is going to be very humbling around here.

Eleua said...

During the last housing bust, the FED was able to cut interest rates enough to mask much of the correction that was underway. This time, that luxury does not exist.

This time, the tide will certainly go out and we will be able to tell who is swimming naked.

rubyfan said...

Ooops the url I posted got truncated, here's a tiny URL that points to the same page showing the comparison of CA and OR markets:
http://tinyurl.com/2yy5la

CRichard said...

Regarding the timing, it is interesting to note that CA's initial decline coincided with the last-ditch and most desperate part of loan-standard loosening phase last year.

Seattle will not have that luxury.

It should get interesting...

JP said...

Interesting comparison... Your overlay graph is misleading. You put the Seattle index max at 330 instead of 250. I'd suggest getting the Seattle index properly lined up on the Y axis to keep things in perspective.

The Tim said...

formanoreasta & JP,

I was not intending to mislead with the scale of the y-axis. It's just that the point I was making was not about the magnitude of change, but rather the direction of changes and the time the changes occurred. Leaving the Seattle line at its original scale allows for a better comparison of those factors.

dOn.. said...

I need help deciding on a Issaquah Highlands home. It is pre-selling for 650K for 2300 SFT DR Horton Home close to retail center and freeway park etc. We have to put up 10K earnest money to buy it now and wait till Nov to get possession. What do you think about a new home, in todays market in the issaquah highlands ?

Eleua said...

I know nothing about Issaquah Highlands.

Ask yourself why you are buying? What is the attraction to buying in this climate?

wreckingbull said...

I would not touch the Highlands with a 10 foot ARM. The problem up there is that there is too much planned inventory.

As much as I hate to admit it, dumps like Baby Blue's in Ballard are going to fare much better.

Nothing worse than your exact model down the street being slashed by 20% because DR Horton had to make its shareholders happy for the quarter.

I have seen quite a few rentals advertised in that area. Why not rent until fundamentals return?

DebtFree said...

You are sooooo misleading! Next you'll try and tell us that house prices don't always go up and that Seattle isn't different from the rest of the bubble bursting country!

Getting a little nervous Trolls?

Lake Hills Renter said...

WTF is "pre-selling"?

Eleua said...

About two years ago, I read about a place in Vegas (I think) where Pulte (I think) was building homes. People were really cashing in and the good times were rolling.

One day, Pulte woke up and cut the price of their existing homes by $100K, thus undercutting everyone who just bought.

How would you like to wake up one morning and realize that you lost $100K in the past 12 hours?

Yuck.

Eleua said...

Would qualifying for a subprime loan be considered "pre-defaulting?"

synthetik said...

Regarding the California to Seattle graphs that Tim posted, I think they're right on target.

Hate to beat a dead horse, but my theory about the 12-month lag to CA has always been that Seattle was hit hardest by the dot-com crash and 9-11 (massive boeing layoffs).

Just a shot in the dark but I'm assuming the economy here wasn't so hot during that time. One could reason that it took people a little while to get back on their conspicuous consumptionistic feet again.

About 12 months.

synthetik said...

As far as the QUAH highlands... Some friends of mine bought there in 2000 and we stayed with them at least 3 times between 00 and 03.

I'm no expert but the homes appear to be made with balsa wood and baling wire.

ab said...

Here is the scoop/stats on Issaquah Highlands

1) Amount of active inventory is trending downward.
2) Home sales in January were down.
3) There is currently 20+ months of inventory on the market
4) Median days on market have moved from averaging 40 in 2006 to 79 in January 2007.
5) Homes are currently selling for 99.74% of list price.
6) Median home sold price is 682,800 which has been trending upward.

myTypes said...

It's the Jobs, Hi Tim, Wannabe economist here, I have said for years for that housing markets are more dependant on jobs than on any thing else. Ofcourse, real estate market do have a national trend and Macro economic indicators do impact local Micro markets.

So the Net, Net in my opinion is, Seattle is a very unique place, due to it's high quality of life, it's education centers, and it's high impact leading Job growth. It's not behind by 6 months to CA, or a secondary economy like San Diego.

State of Washington had one of the top 5 Venture Capital investments of 50 states. Those dollars stimulate the economy in more ways than the normal eye can see. Recently a friend lost his job, and today he called me with offers from 2 companies. So the Seattle high-tech job market and thriving economy is what makes me excited. Ofcourse, we are in a hiring mode ourself, at XoomPad.com so all is well.

David said...

"have said for years for that housing markets are more dependant on jobs than on any thing else."

Under normal conditions I would agree with you, but the foundation of modern home ownership for most Americans, the mortgage, is completely f'ed up one wall and down the other. This is what drove prices so ridiculously high, and the ensuing bust will drive them right back down again.

Jobs are irrelevant in this case. Plenty of other disintegrating markets out there have rosy job numbers.

Grivetti said...

So the Net, Net in my opinion is, Seattle is a very unique place, due to it's high quality of life

This is a complete relative term. While its natural beauty is tops, things like apocalyptic rotten traffic, rainy weather, high-cost of living, etcetera, in some peoples opinions devalues the quality of life... additionally, why isn't San Diego unique? Beautiful beaches, low-key downtown, mild mediterranean climate, access to Temecula's wine country, etc...

it's education centers
UW, SPU and SU?

San Diego's home of UCSD and San Diego State, all competitive universities with a wide range of disciplines catering to California's West Coast industries.

and it's high impact leading Job growth

I belive Tim's already shown job growth/pay are on par with San Diego. San Diego has Qualcomm, Spawar/Naval-defense contractors, the military, tourism and burgeoning biotech... and to call Microsoft and Boeing 'leading the way' in job growth is antiquated. Boeing's ancient (and has cut back 18,000 jobs her in the Seattle-area since 2000) and Microsoft's now your typical Dow50 giant.

Everything's relative. Seattle has always been 'desireable'...

Eleua said...

mytypes,

Nice plug. Total BS.

Many believe that the job market supports the housing market. Total BS.

The truth is the housing market is the job market. Take away all the construction, RE agents, mortgage brokers, etc. and you have very little to show for the local economy.

Housing is the economy.

Richard said...

As to the possibility that a crash in California will echo in the PNW, one big factor is that the folks moving with lots of equity are not the same people who bought houses in the last few years with kinky loans. The incoming equity are folks who have been in the market for 10 years or more, and the "crash" means they are coming in with $600K instead of $750K .

T,V & Mr.B said...

that's so cute Mytype. Read some of Tims posts regarding jobs etc.... This is obviously your first time here, so take some time to read over on the right of the blog. If you are an inspiring Economist, you need some book learning about what propagates increases in housing prices.

T,V & Mr.B said...

Richard. You are just a bit off on your numbers. As one of those who had his So. Cal house for 10 years, I know what equity I brought and what equity those are bringing now if they are lucky enough to sell down there. It WAS about 580,000 before taxes and is now about 350,000 before taxes. But what's a couple of hundred thousand in this market right?

The Tim said...

RE: California equity - The numbers you both are quoting of course assumes that the California ex-patriots in question resisted the urge to "cash in" on that equity during the run-up.

RE: MyTypes' first time here - not quite. He popped in once back in December to make the same point about jobs and to plug his blog.

Grivetti said...

I checked out mytypes shill-blog...

What I find interesting is he's a proponet of the gang-busters high-tech economy here in Seattle, then he's touting company's like zillow.com and XoomPad, all REIC enablers!

Hahaha! This just goes to prove Eleau's point. Real Estate IS solely responsible for propping up the local Seattle economy, pull the rug out from under it and it all falls down.

Richard said...

I am an equity locust planning a move to the PNW, and I was using rough numbers from my own (admittedly lucky) situation.

I bought in 1993 in the SF bay area for $360k with 20% down. I sold in 2006 for $890K. So I got $530k of appreciation, plus my original $72K down, or about $600k in equity.

If I had sold at the peak in 2005, I could have gotten maybe $1.1 mil, that was the realtor's first listing price before we admitted the market was in serious decline. So I lost $200k of paper profits by waiting until 2006 to sell.

My point was, though, that whether the equity locusts are coming with $600k or $800k, that effect is still present and still significant on the PNW market. The "crash" in California trims the equity for sure, but it wont trim the number of locusts that much because the people who bought long ago are not having their equity pile wiped out like recent purchasers on bad loans.

T,V & Mr.B said...

"resisted the urge to "cash in" on that equity during the run-up. "

Yeah, that was gross. and pre tax, which a nice chunk coming out with the over 500K profits. I for one, did use my house as an ATM as mentioned before and I know many others in So Cal who did as well.

Being in the hospitality industry, I just got off the phone with someone from the the Real Estate industry regarding a meeting. real nice guy and we spoke a bit about the future of housing. basically I got the impression that he didn't feel that this market could sustain itself with the income ratio, and fears that it will drive off quality employees for those hiring. While he was keeping his fingers crossed that things wouldn't collapse, he wasn't optomistic either. An actual broker that was realistic...Go Figure.

T,V & Mr.B said...
This comment has been removed by the author.
witzend said...

mtypes,

Maybe you should have said "my job is more dependent on real estate than anything else"?

If you are an aspiring economist, or "arm-chair" (hobby) economist, then at least abide by common sense: You have to "take yourself out of the equation" first.

I guess you're oblivious to this idea, given the links you provide in your post.

Is it just me, or has real estate turned into Amway?

Eleua said...

Would anyone like to take a guess at what sector is responsible for 43% of the private-sector job growth from 11/01 to 4/05?

Anyone?

Anyone at all...

That does not include gov't jobs from increased property tax revenue, or retail jobs from HELOC extractions.

Oops. I think I gave away the answer.

witzend said...

"My point was, though, that whether the equity locusts are coming with $600k or $800k, that effect is still present and still significant on the PNW market".

For every "locust" that is relocating to the PNW, there is a locust that is simply investing in PNW real estate.

And,for every locust with good timing there is a locust with bad timing.

Even if people have equity, they'll still have to deal with the same reality.

Eleua said...

I'm not against any particular locust, but I don't like the locust phenomenon.

I wonder how the locust trend will go when they start to lose all those delicious paper profits when they sell, only to lose the rest when they plunk down $500K for a PNW "dream home?"

Watching your dream home evaporate 75% of what you "built" in California will really put the kabosh on X-Cals moving here. They will likely just keep their home in California.

T,V & Mr.B said...

Well, I am for one, a returning locust, and I am not buying right now. I know a few other locust who are not buying right now either. And you would be suprised to see how many locust came up here for a year and hated it and went back. After THIS winter, I had to talk like a dutch uncle to my wife telling her that this one was unusally brutal for Seattle standards. I caught her looking at those damn cheap condos for sale in Florida right now. Not over my dead body. I will keep y'all updated on my marriage.

Eleua said...

Back in the '80s era, there were a number of locusts that came up to Bainbridge Island, clearcut about 3 acres, built a Roman Villa, and then went around the bend during a rainy winter.

They tried to sell their red tile roof and stucco house and move back to California.

Final score: 3 clearcut acres, one very out of place monstrosity of a house, a truck-load of Prozac consumed, another RE agent/contractor created, and another local that was temporarily priced out of his market.

All this was because some idiot wrote an above-the-fold article in the SJ Mercury News about how you can really buy shangri-la up here in the PNW. It is really fatiguing to hear so many people fall in love with a July afternoon ferry ride and fail to extrapolate on what that 705am ferry ride is like in January. (Cold, dark, crowded, wet, with people flopped out all over the seats trying to catch up on their sleep, and a bunch of others all fighting for mirror space in the bathrooms)

I happen to like our winters. Yes, you read that correctly.

What you find is that people tend to like what is familiar to them. Many Easterners really think the summers on the West Coast suck. Why? They don't like the fact it cools off 30-40 degrees as the sun goes down. Freezing your buns off at a baseball game is completely foreign to them. Many Southerners think 7 hours and 52 minutes of daylight in the winter is really poopy. Southwesterners think 230 days of rain sucks big time.

Many like it, but many are not prepared for what is unfamiliar to them. Earthquakes? An East Coaster is terrified of them, but is perfectly content with a hurricane.

Dr Housing Bubble said...

Don’t feel too bad Seattle, you’ll soon catch up to San Diego and other Southern California counties that are suddenly stalling out. Doesn’t help when the subprime market implosion is occurring with Novastar and NEW going down in flames. In addition, Seattle had a lot of money funneling up North from California Equity Giants either relocating or buying 2nd homes.

The market will show who has been swimming naked by Q4 of 2007.


Dr. Housing Bubble

Matt said...

I'd MUCH rather live in Lake Stevens or Renton than Palmdale or Fontana. Here is the bottom line, the houses that were selling in San Bernadino County and the Apple/Antelope Valley for 100k-250k that began selling into the 4-5-600's, are taking a dump. Many of those people made equity, pulled it out, reinvested, and are now stuck. But if I was stuck, would I rather be stuck near a bunch of trees and lakes and clean air, or smog, 100 degree whether for 6 months, desert, etc...

Up here the further out you are from the city, it just takes you longer to get to work, but life is still livable. In So. Cal., it is SO much more unbearable to live if you don't have a household close to 6 figures, or even well over 6 figures.

Richard said...

"Watching your dream home evaporate 75% of what you "built" in California will really put the kabosh on X-Cals moving here. They will likely just keep their home in California."

I am making this very decision right now. From my point of view, the question is whether there is really greater risk of the Seattle market falling farther than the California market. Its not like staying put in California means no risk of market declines.

Even if you have a lot of equity, prices and land are so expensive in the SF Bay Area that what you can afford is decidedly not a dream home. I think the Californios will continue to be inspired by the beauty and cosmopolitan nature of the Seattle metro area, and the possibility of more house for the money. I bet that most locust types are not looking at it in investment terms, but in dream house terms.

Erik said...

Don't get too used to the fresh air! It's smoggier now than when I was a child and as the population continues to grow and the highways stay clogged, it isn't going to be getting better very soon.

On the other hand, I personally don't view SD as a desirable place to live, either. I don't mean anything personal by that, just chalk that up to growing up here. I find anything over 80F pretty unpleasant. It's just what I'm used to. If the invetiable housing market correction doesn't get itself into gear in the reasonably near future I'm going to have a heck of a time finding a new place to live. It seems like just about every other place in the States gets uncomfortably hot for at least 3-4 months in the summer.

Eleua said...

As I used to say when I was in the Navy...

"Yeah, but it rains all the time and the women are ugly."

FinanceGuru said...

Eleua - Im not sure why you keep stressing the point about ugly women in the Seattle area...maybe its just where you hang out, lol.

On the Eastside, where I hang out most of the time, I see very attractive women everywhere around town...or maybe its just me. Just go to Bellevue Square or any of the Starbucks on the Eastside. I do admit Capital Hill and some parts of Seattle are a world of its own (the women arn't just ugly, they are scary, but they dont count).

Eleua said...

Perhaps the only part of the Eastside I see is the urban core. Also, growing up in the Bremerton area might have jaded my opinion.

I've lived in California, Texas, Florida, Hawaii, New England (same as PNW), the Caribbean, Central America, Scandinavia, and the Mediterranean. I've taken a pretty broad (no pun intended) sample.

Mostly the women digs are just tongue in cheek. If you are in an environment where you are surrounded by young men that are ODing on testosterone, and you don't want them to move to the PNW, you will say the women are beasts.

My point was a continuation of trying to steer the locusts to Arid-zona, Nevada, Oregon, Montana, Utah, etc.

California was Heaven on Earth until everyone started moving there in the 70s.

Erik said...

Well said, Eleua!

Eleua said...

If you want an emotional tug at what a loss California experienced when it was "discovered," play the Eagles song "The Last Resort." I believe it is the last song on the album "Hotel California."

I'm doing this from memory, so bear with me. I have not heard this song in a few years.

some rich man came and raped the land,
nobody caught him.
put up a bunch of ugly boxes,
and, Jesus!, people bought them...

so if you call some place paradise,
kiss it goodbye...

Erik said...

That's depressing. But depressing sometimes feels like the normal state of affairs when I think about the region.

Ah, well. Grumpy guys like me probably take it a bit too far. Five years from now Seattle will probably still be better than a swift kick in the junk.

Eleua said...

Keep in mind that Eagles song was written in the early 70s. Imagine how much California has deteriorated in the past 30 years.

Imagine what it will be like when many of them (plus NYers) move here.

Bill Gates has been a curse.

Erik said...

Eleua - I hope you don't mind me asking, but are you planning on staying long, adopting a wait-and-see approach, or developing an escape plan?

I'm a little bit confused about my own plans. I was born in Seattle and almost all of my friends and family are here, but I don't like some of the trends that I see developing around here. Some folks (not just REIC and MS people) seem thrilled at the prospect of Seattle becoming NYC2. I don't know whether that's realistic, but I do know that I don't like it a bit.

Part of my issue is with affordability. I'm 30 and have a reasonable salary (for the Evil Public Sector) but am not wealthy by any means. I am not interested in kinky mortgages and don't see a reasonable opportunity to settle down in Seattle at this point. Throw the traffic and the intangible factors (i.e., anger) associated with living in a town where everything old is torn down for new granite and cardboard condos, and I am sometimes tempted to abandon the comforts that I know for some new territory. But where?

Erik said...

PS - I realize that I've drifted a bit off topic here. While livability and affordability are valid topics in this forum I don't mean to hijack every thread to catalog my personal anxieties. Sorry about that.

Eleua said...

I'm not leaving unless I'm wearing a toe tag. My family goes back on the Kitsap/Olympic peninsulas and Yakima prior to statehood, so this is my home. I like it here. I like the weather, and I like the pre-Californication culture that existed here. I'm not much of a fan of the major metro counties (King/Pierce), so if Mt. Tahoma buried them under 300 feet of steaming mud, I would be really hacked off that I would have to drive to Portland or Vancouver to take advantage of big city amenities like children's hospital, or specialty woodworking stores. I already have to go to BC to see an NHL game.

I'm waiting out the bubblonians and the REIC. Time is on my side. Soon, the money will be. My guess is a bitter river of tears is in their near future, and they will be puking their blue-state, wine/cheese, uber-hipster image onto the market with their overpriced homes. I don't think that Microsoft is a permanent fixture in our area, and all the software that gets pounded out in the region can easily be displaced elsewhere.

Yes, it is sad that many are trying to turn this into some version of NYC. They will fail. You can only pay so much tax before things come back to bite you in the posterior. NYC was the economic foundation of the country. It is old money. It is where things have been getting done for almost three centuries. More people lived in NYC back when T Roos was governor than now. I don't know what that has to do with anything, but it's a cool stat.

For this place to be NYC-2, they will need to extend I-90 to Bainbridge and out to Port Angeles. We need about a dozen floating bridges across the Sound.

Ain't going to happen.

Seattle is just a cute city that thinks it is more important than it is. We were an outfitter for the Klondike, an airplane fab, host to a World's Fair, and now the home of a manufacturer of a very frustrating OS. This too will pass. We have been a boom-bust town for our entire history. Nothing has changed that.

People are not buying and selling houses as much as they are trading egos. That is one reason there is so much emotion at places like RCG and the rest of the REIC. If you challenge the viability of housing, you are saying that their decision to be part of this community isn't necessarily going to be ratified by skyrocketing prices. After all, losers live in Dallas, Cleveland, and Milwaukee, and their home prices reflect that. Winners live in Seattle, NYC, Boston, and California (coastal metro areas only).

If you want to know why I am so passionate about the bubble, look at the tremendous egos involved. Every time I read an article on how the new "creative class" is going to displace all of the rest of the unsophisticated dolts, it makes me want to puke. The pride that surrounds housing is truly epic. Having those egos crushed will probably bring a greater sense of community than we now have.

Ask yourself, how many times have you been involved in random conversation and someone starts blathering on about how much their home has appreciated and how they are going to make a killing in RE? You know, because you are choking back the urge to show that they are buying into a dangerous bubble. During the summer of '05, I couldn't take the BI/SEA ferry without sitting next to some party that was practically screaming about how smart they were because their home is going up in value. Finally, I had to sit outside to get away from all the bragging/self-congratulating.

When I lived in suburban Dallas, nobody ever talked about real estate unless they were trying to sell and move out of the area. Those communities are far wealthier than any comparable area in the PNW. It is amazing what you can learn about you neighbors when you don't have to wade through all the boilerplate on how much their home is worth. Real estate was just not a topic of conversation. The same will happen here - again. I think this is a California phenomenon. When I lived in California, all everybody ever did was talk about real estate. Even as a kid, I was aware of that. Since we have had such an infestation of X-Cals, it stands to reason that this climate prevails here.

That is why I think a rollback is going to be so destructive. You will have the economic factors pushing prices down, but the psychology will also play a big part. There are a lot of very large, and very fragile egos riding on this.

I understand and am quite comfortable with the knowledge that I'm not going to get everything I want. I am also comfortable knowing that the new turbo-chic image of Seattle will face a major challenge, and the ruination of many fortunes occurs when the housing market runs out of steam. It's going to be a major hurdle for the trendy liberals when the Duwamish tribe builds a mega-casino right in the Queen Anne/Belltown area, at the same time those homes go into disrepair because the owners don't want to drop another dime on a losing investment.

The only reason I would leave the PNW is if the nation as a whole became like East Germany or a secular-progressive version of Saudi Arabia. I'd take the family on a 45' sailboat and hit the S.Pacific to start a new life.

Eleua said...

I live just West of Seattle and I work in NYC. For anyone to think that Seattle has ANY chance of becoming anything like NYC, you have to be seriously deluded.

I'm talking about the "what color is the sky in your world?" kind of delusion...

T,V & Mr.B said...

Eleua,
What a beautiful rant. Love it. As I used to sit on that same ferry, I would hear the same things. I actually would have my head-phones in with no music on so that 1. nobody would talk to me, and 2. people spoke more openly when they didn't think you could hear them.
The ego-rants they would puke were unbeleivable, as they sipped their wine and slapped each other on the back. I would hear how they are jacking up the price and holding to it, because some sucker was gonna take them up on it. Even a couple of Microsoft commuters would come home for a couple of days after they spent the week in their shared apartment on the east side.

the So. Cals think that their 3 hour round trip commute isn't as bad as sitting in a car for the first year they live there and then they eventually get sick of the cattle call getting on and off the ferry has become. Live on the side you work people.

Erik said...

Eleua -

Wow. That's inspirational stuff. It makes me want to hold on out of spite if nothing else. And I suppose having virtually all of my friends and family here is a lot more than nothing.

How's the market mentality looking out Bremerton way? From your comments about the ferry, I'm guessing that the shipyard isn't enough "grit" to keep the New Economites' get-rich-quick excesses in check. I hope that Bremerton doesn't feel like a big yuppie playground now. I'm pretty confident that it won't if a collapsing RE bubble brings their egos down along with prices.

I'm just really hoping this process starts moving in earnest soon. Here's to a sane and reasonably humble Washington.

Eleua said...

The Seattle Ferry Terminal (Pier 52) goes to both California's 59th County (Bainbridge Island), and Bummertown (where I was born).

Bainbridge is pretty nice and very yuppie. Nuff said.

Bremerton is trying to market itself as an alternate to Bainbridge. They have some overeager mayor that is trying to clean up the area by the shipyard. There are a bunch of $500K+ condos being built on the water. The problem is they are literally across the street from one of the worst neighborhoods in the entire PNW. We are talking crack/meth central. My aunt was murdered there back in '88.

There is absolutely nothing redeeming whatsoever about that neighborhood. Yes, a really cool fountain is right there at the waterfront, and there are some Generica stores and a Hampton Inn.

At the end of the day, Bremerton is still one-in-the-same as the shipyard. Yard workers, squids, taverns, Bremalos, pawn shops, and your basic urban blight still prevail. Why some dumb yuppie would want to spend a half-million (or more) to live there is beyond me. If you live right there in downtown, and work at the Federal Building in Seattle, your commute is a minimum of 75 minutes, and that's cutting it close. Federal workers don't buy $500K condos.

Honestly, the ferry ride is 55 minutes, and is the best in the system, but it is still a 55 minute ferry ride with many people that would normally be riding around on a Greyhound bus - and have not slept for 4 days.

I don't like Bremerton, as it is really a festering sore of a city set against the most beautiful backdrop in the entire region. Most navy towns are real nasty places. Charleston, Bremerton, Norfolk, Bayonne, Alameda (defunct), etc. Even Pearl City in Hawaii sucks.

Bremerton will still be the pimple on the ass of Washington until the Navy pulls out. Once that happens, it will be a ghost town for at least two generations.

That being said, the bubble-heads (not submariners, but housing idiots) still think they can make a killing on Bremerton RE. Every mid-grade Petty Officer now owns a house. People are bidding up houses that would make a Ballard crap-box look like the Taj Mahal to 10-15x median income. It makes no sense.

My cousin is one of them. She and her hubby are school teachers and are trying to cobble together around a $500K house. He is really junior in a district that is closing schools, and she subs part time.

This is what pisses me off. The REIC/MSM are selling dreams that are beyond the reach of most, and those people are practically commiting financial suicide by believing the lies. A basic human need has been bid out of reach of most. Imagine what would happen if we all speculated in wheat, dairy, and vegetables to the point where you needed to be in the top 10% of income earners just to put a decent meal on the table. We would call it a crisis and be really down on those that are distorting the market.

Not so with housing.

So to answer your question...yes Bremerton is trying to market itself as an up-and-coming luxury bedroom community of Seattle. It is truly laughable. At least Bainbridge Island's arrogance is partly justified.

Erik said...

The folly is maddening, isn't it?