Vacation Link Roundup

Looks like I didn't miss too much Seattle housing news while I was gone. I'm looking forward to seeing the April numbers next week. Here's a summary of what I noticed while clearing my inbox:

• Seattle, Portland, and Dallas are the only cities of the 20 tracked by the Case-Shiller / S&P Index in which prices are still rising.
• Mr. Cohen discusses the latest Case-Shiller / S&P Index data in an article with more balance than usual. Don't worry though, it still includes the requisite quotes from realtors about "bidding wars" and "soaring prices."
• Foreclosures in the first quarter of 2007 in King County were up 37.6% from Q4 2006, and up 0.7% YOY.
• Ms. Rhodes does her part to pump up the local home salesmen's egos with another installment of add some rah-rah fluff to an AP article.
• Apparently there's a bit of a kerfuffle going on up in Snohomish County over the creeping spread of something that resembles the resulting offspring of an unholy union between condos and SFHs.

I'm also pleased to report that my nefarious scheme of going on vacation appears to have had the desired effect on the forums. Membership swelled by nearly 30%, and posting activity skyrocketed. Here are a few of the more popular and/or interesting threads:

• Boom on the eastside fueled by recent immigrants?
• What are the indicators signaling the end of the boom?
• To buy or not to buy????
• A Home prices versus inventory comparison

Therefore, I believe it is time to say goodbye to the open threads. For the foreseeable future, all user-driven discussion will take place on the forums. Thanks for your participation. I really enjoy reading what everyone comes up with.

On Vacation, Check the Forums!

Click here to go to the forums.

I'll be on vacation with little to no Internet access through the 28th, so I likely won't be making new posts during that time. This includes open thread posts.

I strongly encourage everyone to head over to the forums while I'm gone. It only takes a few seconds to create an account, and the discussion is 100% user-driven.

Here are a few forum tips:

• After logging in, you'll see an orange icon () next to any groups that have new posts since your last visit.
• To post a link, use the following format: [url=http://yourlinkhere.com/]Here is my link[/url].
• If you have problems, either PM Lake Hills Renter or Synthetik.
• You can also try emailing me, but there's no guarantee I'll be able to get back to you.

Next time I'll try to line up a series of guest posters when I head out.

In the mean time, click here to go to the forums.

Developers! Developers! Developers!

Reporter Aubrey Cohen and the Seattle PI are at it again, this time pimping new development in Columbia City.

A Seattle developer has proposed a mixed-use project in Columbia City aimed at providing homes typical workers can afford to buy, while another developer also has condo plans in the up-and-coming South Seattle neighborhood.

The 63-condo development, called Columbia City Place, would be built on a vacant former auto lot at 5201 Rainier Ave. S., and units would cost between $200,000 and $400,000 -- plus whatever inflation tacks on in the two years before the project is completed, said Scott Shapiro, managing director of Eagle Rock Ventures LLC.

Shapiro said he and partner Murray Kahn are keeping prices down by using more basic finishes and wood construction for the upper floors, rather than concrete and steel, by installing above-ground parking and by building in Columbia City, where land is cheaper.

"It's a huge risk because no one's done condos of this scale in Columbia City," Shapiro said. "I could be in the right place at the right time or I could be three years early."

Or maybe three years too late?

"We've already explored heading north," he said. "We can't go east and we can't go west. Continued development going down the Rainier Valley is going to be a foregone conclusion."

While other developers are thinking about building in the area, Shapiro's project is "pioneering," Gardner said. "I think he's on the leading edge, definitely."

More like bleeding edge!

Columbia City is "a little neighborhood with a soul," said Denny Onslow, Harbor's chief development officer.

Projects such as these would have been "unthinkable" a decade ago, said Darryl Smith, who bought his Columbia City home in 1994 and became a Windermere Real Estate agent there the following year.

Smith said the projects would create new housing opportunities for people who cannot afford a house or those who might want a smaller home within walking distance of shopping and services. He also praised Harbor officials for saying they want to work with community members on their project and respect Columbia City's character.

Does anyone else call BS on this? If you need to sell something, simply cite affordability or the environment (or both!) and it's in the bag! Evidently Columbia City is the new Ballard.

Check out some of the comments on PI's blog:

"Face Reality" said "What this really means is that land and housing in Ballard, Fremont, Cap Hill, etc has become so expensive that even most developers can't afford to build because housing there is now beyond the reach of even the most affluent. ...Say goodbye to affordable housing in Rainier, hello to gentrification. As has already occurred in the “real” Columbia City."

"heebie_jeebies" added "I don't know why we have to accept these monster townhouse cookie-cutter firetraps...I live on Capitol Hill and have NOTHING good to say about allowing development and density that is absolutely killing our neighborhoods."

"financeguru" chimed in with "Wont development increase the property values of people that currently own near the new condo development? YES! I currently own a condo at the edge of Downtown and First Hill…and yes there are many areas that have high levels of drug usage and other things. Im getting my MBA at SU and it would be nice to see some of these abandoned buildings in the Capital Hill area cleaned up…"

(Aubrey Cohen, Seattle PI, 04-20-2007)

WaMu Trying to Cope With Slowdown

Local mortgage giant Washington Mutual has been in the news quite a bit the last few days. On Tuesday, Seattle Times business reporter Amy Martinez made the (not-so-bold) prediction that WaMu won't escape subprime turmoil.

During the housing boom of the past several years, Washington Mutual was among the nation's top lenders in the high-risk sector of subprime mortgages.

Now subprime loans industrywide are failing at an alarming rate.

Although the Seattle-based thrift has cut back its subprime lending, it still has a lot of the loans on its books.

Exactly how vulnerable it remains will become clearer today when WaMu holds its annual shareholders meeting and releases first-quarter financial results.

The high-credit-risk market known as "subprime" represented 9 percent of WaMu's overall loan portfolio at the end of 2006. Analysts who follow the company predict first-quarter profit will suffer as a result.

Un-shockingly, she was proven absolutely correct later that day when WaMu's first quarter results were released:

Washington Mutual Inc. said Tuesday its first-quarter profits slid 20 percent amid a nationwide implosion of the subprime home loan market.
...
Kerry Killinger, Washington Mutual's chairman and chief executive, said the company's retail banking, card services and commercial groups fared well, while the home loan market - particularly the subprime segment for consumers with high-risk credit histories - remained a serious challenge.

Washington Mutual's home loans group posted a first-quarter loss of $113 million compared to a $52 million profit during the year-ago period. The company suffered a quarterly loss of $164 million on sales of subprime mortgages, alone.

To limit further damage as the housing slump continues, Washington Mutual said it had scaled back its subprime portfolio and had set aside more money to cover future loan losses: $234 million for the quarter compared to $82 million in first quarter 2006.

"Over the past 12 months, we have taken a number of prudent actions to reduce our exposure to the subprime mortgage industry," Killinger said in a statement. "These actions, along with a diversified business mix, limited our exposure to the mortgage market's downturn and position us well to expand and grow as market conditions improve."

Among those "prudent actions" is an open offer to refinance some of their riskiest loans into more traditional products at discounted rates:

Washington Mutual Inc. said Wednesday it will refinance up to $2 billion in subprime mortgages to help borrowers avoid default and foreclosure.

The program will allow subprime borrowers who remain current on their existing loans and are bracing for payment increases to apply for discounted fixed-rate loans or other refinancing options.

"Stepping up and helping our customers stay in their homes is in the best interest of our borrowers, our communities and WaMu," Kerry Killinger, chairman and chief executive of the Seattle-based savings and loan, said in a statement.

Will measures like these be enough to keep WaMu from experiencing serious financial pain as the consequences of yesterday's loose lending begin to pile up? Only time will tell, but at least WaMu has one important thing going for it: headquartered in the specialest place on earth!

(Amy Martinez, Seattle Times, 04.17.2007)
(Bill Virgin, Seattle P-I, 04.17.2007)
(Associated Press, KOMO TV, 04.17.2007)
(Associated Press, Seattle P-I, 04.18.2007)
(Bloomberg News, Seattle P-I, 04.18.2007)

World-class not "merely boasting how darn great we are."

If I were the egocentric type, I'd probably think that none other than the P-I's Bill Virgin is a Seattle Bubble reader. A mere five days after I dispelled the notion that Seattle is "world class," Bill delivers the exact same message to a broader audience in today's column: So what makes a world-class city?

Is Seattle a world-class city?
...
During the heady days of No. 1 livability rankings and magazine covers and pop-culture references in music, movies and TV shows, Seattle got to thinking of itself as not just world-class but world-centric.
...
So should anyone care about whether Seattle is world-class?

In fact, there is an aspect to world-class status that goes well beyond meaningless exercises in civic pride (or, some would argue, overly and unjustifiably inflated ego) that does matter, at least in the realm of business and economics.
...
Which brings us to the question of how Seattle stacks up as a world-class city in the business sense.

The answer: Maybe not as well as we used to believe.

Just about every discussion of the economic fortunes of this region focuses on two companies: Boeing and Microsoft — with considerable justification.
...
And after that, what other sectors are there of which we can boast world-class status? Natural resource businesses like timber and fishing no longer figure prominently in the regional economy, much less nationally. Seattle never did emerge as a biotech center the way boosters hoped.

Interestingly, one sector in which Seattle has emerged as a leader is one in which it had not traditionally been a significant player — retailing. Such is Starbucks' status that it has influenced the direction of another giant, McDonald's, while Costco on a national level has forced none other than Wal-Mart to react to it.

Still, the portfolio is a little thin in terms of making Seattle a world-class business center. That's probably just fine with a lot of people. But if Seattle does aspire to world-class status as an economic development strategy, it's got some work to do, beyond merely boasting how darn great we are.

If you have to tell everyone you're world-class, maybe you really aren't.

Ding ding ding! We have a winner. Bill "gets it." Seattle is a nice city, but any way you look at things, it falls short of the "world class" title.

(Bill Virgin, Seattle P-I, 04.16.2007)

Drive By Commenting

Comments like this one crack me up:

I am not sure what I have stumbled in on. This is the first time I've seen this blog. It seems as though this site is a place where people are trying to convince themselves that the Seattle real estate market is going to fail and that it will be a glorious day of vindication for some (most of the contributors) and crow eating (the rest of society).

There are very few examples in the recent past of real estate being a bad investment over the long haul. It can be risky to buy if you know you need to sell in a couple of years. But if it is a place to live and you are planning to be there awhile it is probably the smartest investment you'll make.

Wait, are we talking about the "recent past" or are we talking about "the long haul"? Also, Seattle Home Owner, could you please explain to me exactly how one can cash in on "the smartest investment you'll make"?

A house is a place to live, period. A home is not a winning financial investment, except during times of irrational exuberance such as the period we are now leaving behind us.

Misdirection Master Strikes Again

In what is becoming a bit of a regular occurrence, Seattle's #1 real estate cheerleader yet again wields her powers of misdirection in response to a probing reader question.

Q: There is an entire group of people today who've never gone through a major recession. How will home prices be affected if we do have a recession like the pullback of 1974?

A: The recession of 1974, caused by high inflation and an oil crisis, took the wind out of the housing market. Homebuilding dropped 33 percent, according to Time magazine's Dec. 9, 1974 cover story. The Federal Reserve clamped down on the money supply. Mortgages became harder to afford.

But if we were to have a repeat of 1974, much more would happen because recessions cause widespread economic damage.
...
Exactly what that meant for house prices is hard to know because data from that decade is sketchy.

We can say, however, what the local fallout was from two milder, more recent recessions: 1990-91 and 2001-2003. The rate of appreciation fell, but house prices in general didn't. Here are the numbers:

After rising 28.9 percent in 1990, King County single-family home prices basically flat-lined for the next three years, rising just 1.2 percent in 1991, 0.1 percent in 1992 and 1.7 percent in 1993. Then they began rebounding, culminating with 10.1 percent appreciation in 1999.

It would appear that whenever the answer to a question is a bit too difficult for Ms. Rhodes to swallow, she decides to answer a completely different question that wasn't even asked. In this case, the question she appeared to be answering was actually "what is a recession, and how would Seattle be affected in a very mild one?"

Of course, the answer to that question is reassuring and ultimately useless.

(Elizabeth Rhodes, Seattle Times, 04.14.2007)

Vulcan Ridiculous @ 2200

Ah, the joys condodebtorship.

When Jerry O'Leary, 54 and retired, put down over $100,000 dollars toward a new million-dollar condominium in February 2005, he thought he was buying his way into an innovative downtown lifestyle proposed by Vulcan Inc. Vulcan Real Estate's $200 million 2200 project on two and a half acres at Westlake Avenue...

However, on March 26, 2007 O'Leary filed suit...after a series of delays and construction disputes left him with a condo that...was "substantially [different] from the scope, nature, and extent of the project as it was described"...O'Leary recounts, "The quality, as promised, sounded great." Instead, he describes the building to The Stranger as "basically a Motel 6."

Oh, snap!

...some of the problems include irreparably damaged door and window frames; a poured concrete deck that sloped toward his apartment, causing leaks in the unit below; mounting construction delays; and unmet expectations. ...O'Leary is not the only person to encounter problems with 2200.

...tenants have dealt with minor annoyances such as low water pressure and leaky shower doors and pipes, as well as major design flaws like incorrectly positioned halogen lights that threatened to ignite kitchen cabinets. The problems were compounded, they say, by promises of room service from in-house restaurant Marazul, a rooftop "garden"—which according to a third resident is nothing more than "a big cement area with a couple of trees stuck in it,"

As of press time, several real-estate websites list 38 condos being resold in the building, and Craigslist reveals at least a dozen units available for rent or sale. ... according to John L. Scott Real Estate agent Ben Kakimoto, the number of units being flipped by investors "seem[s] like a lot" when compared to other condo projects of similar scope. Some of these units have sat unsold for months, with several of the pricier units remaining on the market even after $100,000-plus price reductions.

While Vulcan would not release information on its vacancy rate, anecdotal evidence hints that 2200 currently isn't the bustling urban utopia it was supposed to be. Resident Chris Tanaka notes that he "never see[s] that many people" in the buildings, and Dierst remarks that "the building is not full."

Matt Goyer, the operator of Seattle condo blog Urbnlivn and a program manager at real-estate website Redfin...believes the problem is oversaturation. "It feels like they're overbuilding in the higher-end market.... Goyer faults vacancies at 2200 to "people trying to make a fast buck. A lot of [these] people [have] unreasonable expectations."

Huh? What's so unrealistic about purchasing overpriced downtown condos during the peak of the greatest real estate asset bubble in history and expecting to flip them for an easy buck?

...units [at 2200] for sale have seen price reductions ranging from $1,000 to $175,000. And one seller is even throwing in a 42-inch flat-screen TV to sweeten the deal.

Is that 1080i or 1080p?

Addressing the O'Leary lawsuit, Jeffries states, "I don't know why Mr. O'Leary feels like that's something he needed to go to the media about." She would not respond to anonymous complaints about the development (nor did she return several calls after a few residents put their names by the complaints). "We're doing everything we can to take care of our homeowners. The vast majority of people at 2200 are really happy," she originally told us. We asked Vulcan to put us in touch with some of those tenants, they did not respond to the request.

On a recent Saturday night, as 2200's three concrete and glass towers loomed in the night—the downtown skyline to the southwest...many of the windows were dark, save for the glow of several flat-screen TVs large enough to be viewed from the street.

During 2005 in downtown San Diego, I noticed much the same. At the time I just assumed that everyone was simply still working at 10pm each night, desperately trying to make their $4500 mortgage payments.

When I am ready to purchase my next house after the crash, it certainly won't be a condo. I probably won't buy anything made after 2000 as they've likely been built of balsa wood and bailing wire.

While it's difficult to tell if Seattle will be hurt as badly as other bubbly areas such as San Diego (and this is only the beginning), it certainly won't be pretty. Be patient - a sixteen year speculative bull market in housing doesn't land quickly - and certainly not "softly".

As they like to say on HB, "got popcorn?"

(Jonah Spangethal-Lee,The Stranger, 04.12.2007)

On Luxury Cars and World Class Cities

My car is so great. It has a built-in CD player, a driver's seat with four independent adjustments, a tasteful spoiler, a spacious trunk, climate control, a powered sunroof, and gets over 30 miles to the gallon. It's comfortable, good-looking, and fun to drive. My car is comparable to a BMW or a Lexus, and is a great fit for me. Did I mention how much I like it? I mean, BMW or Lexus are a good fit for some people, but they don't really fit my style. You know though, it really is surprising how cheap it was for me to buy, considering how much other luxury cars go for these days...

So why am I rambling on about my car? What could this possibly have to do with home prices in Seattle?

Every once in a while someone tries to make the case that high home prices in Seattle are justified (or even that prices are too low) on account of what a swell city this is. Their argument goes something like this:

Seattle is so awesome! In fact, Seattle is so swell that it is completely reasonable to compare home prices here to cities such as New York and San Francisco, where homes are much more expensive! Seattle is after all a hip, up-and-coming world class city, probably even the hippest, most up-and-coming world class city around. So you see, it totally makes sense for home prices to shoot through the roof around here. We're just catching up to other comparable cities.

I definitely agree that Seattle is a great place to live. Much like my car, Seattle has many attributes that I really like: low pollution, beautiful scenery, proximity to nature, and a decent job market, to name a few. That being said, comparing Seattle to New York or San Francisco is just as ridiculous as comparing my Saturn SL2 to a BMW or Lexus. They're just not in the same league.

Although I already knew this was the case, since I don't travel much (never been to New York, Boston, San Diego, and have only visited San Francisco once), it didn't really personally hit home with me until my recent business trip to Chicago. Even though I only spent one afternoon cavorting about and seeing the sights, I was immediately struck with the impression of "this is what a real world class city looks like."

These are a few of the things I noticed (and later researched) about Chicago.

Chicago

• Density: 12,604 people per square mile (source)
• Extensive Rail system, with 8 different lines running through the heart of downtown (source)
• Over 2,100 acres of waterfront parks bordering the downtown core (Lincoln Park, Millennium Park, Grant Park, Burnham Park), over 2,800 acres of waterfront parks total
• 16 major sports teams, with 28 total championship wins (source)
• Strong blues, soul, jazz, and gospel music scene. Birthplace of House music. (source)
• World famous government center (Richard J. Daley Center), world famous skyscraper (Sears Tower)

Now here's how Seattle compares in those same categories.

Seattle

• Density: 6,901 people per square mile (source)
• Patchwork rail system, with an independent monorail, various street cars, disconnected, infrequent north-south routes, and various in-progress light rail lines. (source)
• 18.1 acres of waterfront parks bordering the downtown core (Waterfront, Myrtle Edwards, Olympic Sculpture), over 600 acres of waterfront parks total
• 6 major sports teams, with 4 total championship wins (source)
• Alternative music scene. Birthplace of grunge. (source)
• World famous landmark (Space Needle), well-known market (Pike Place Market)

If I had thought of it, I would have asked some Chicago natives whether they think Seattle is an "up-and-coming world class city." I bet they would have laughed at me.

While I was researching this post, I came across the Wikipedia page on world class cities (or "global cities" as they are referred to on Wikipedia). It cites an "inventory of world cities" compiled by a university group in England. In their list, cities can have up to 12 points, with 10-12 point cities being considered "alpha world cities," and so on down the list. Here is the summary of the US Cities categorized on their list:

Alpha world cities (full service world cities)

• New York (12 points)
• Chicago (10 points)
• Los Angeles (10 points)

Beta world cities (major world cities)

• San Francisco (9 points)

Gamma world cities (minor world cities)

• Boston (6 points)
• Dallas (6 points)
• Houston (6 points)
• Washington, D.C. (6 points)
• Atlanta (4 points)
• Miami (4 points)
• Minneapolis (4 points)

Seattle shows up way down the list with 2 points, having "some evidence of world city formation." Another categorization is quoted that lists "well rounded global cities" (such as New York, San Francisco, and Chicago) and "worldwide leading cities" (including Miami, Atlanta, and Denver), but Seattle is nowhere to be found on their list.

I mention these lists only to demonstrate that when I say "Seattle is not comparable to San Francisco or New York," it's not because I have some grudge against the city that I call home. I am not alone in my assessment of Seattle as a small city. It's not my biased opinion, it's a fact.

Again, I want to reiterate that I like it here. Seattle is great, and I am happy to call it home. But let's be honest, it is disingenuous to compare Seattle to New York or San Francisco. Let's enjoy Seattle for what it is instead of pretending it is something that it's not.

Much in the same way that I would not pay $40,000 for a Saturn sedan, I am simply not willing to shell out $450,000 for an average house in Seattle.

Update: It seems I've got an ally in Seattle P-I columnist Bill Virgin.

King County Foreclosures Up 27% YOY

Couched in the mind-numbing bubbly language of a press release from Default Research comes this tidbit of information:

"Foreclosures increased by 27 percent in the Seattle area. That is an increase from this time last year," said Serdar Bankaci, president/CEO of Default Research Inc.

Cue the "but we're coming off of historic lows!" nonsense in 3... 2... 1...

P.S. (Does anyone know where to find historic foreclosure / default data for King County? I've had no luck locating a source for such data beyond the occasional press release like this one.)

(Default Research, PRNewswire, 04.11.2007)

Bubble Link Roundup

There have been a lot of real estate articles in the local dead tree outlets the last few days. It's time for another link roundup before I get too far behind and forget to mention some of them.

First up, it's Mark Trahant of the P-I with yet another thoughtful, well-reasoned take on Seattle's housing market.

What if housing prices decline by 20 percent? That would solve Seattle's affordability problem, right? Most folks would say this is impossible. The data from last week show that house prices keep increasing no matter what. Our boom continues, just slower and steadier. But both our region and our country have boom and bust cycles as predictable as weather. It's as much of our history as innovation, military might or baseball. One minute we're panning gold, the next we're trying to recoup our investment in those nifty machines that pluck gold dust from stream beds.
...
Just think about what those higher credit standards will require: A significant down payment, good credit and, in Seattle, a high income.

More than likely, what it will really mean is that the supply of homes will grow — and prices, sooner or later, will fall.

On the opposite end of the spectrum, we have the Seattle Times encouraging first-time homebuyers to "learn the fine art of compromise."

Rolf Johnson and Kerrie Cooley had different jobs, different priorities and different resources, but on their brave hunt for a $250,000 home in the Seattle area they both learned it came down to what they were willing to give up.

Cooley let go of any notion of buying a house or living in downtown Seattle to find the modern, two-bedroom condo she wanted.

Johnson spent more than a year, bumped up his budget and moved farther from work to find the house, property and studio space he craved.

Compromise is definitely the name of the house-hunting game in the Seattle area, especially for first-time buyers who often can't come close to the $450,000 or so that it costs for a typical single-family house in Seattle and are looking more realistically at prices around $250,000.

Also worth noting is a pair of articles from the P-I and Times reporting on the recent blatherings of Senator Patty Murray. From the P-I:

The lack of affordable housing in Seattle and other places is a "silent epidemic," U.S. Sen. Patty Murray, D-Wash., told representatives of housing agencies, developers, labor and environmental groups Friday.

"We all need to work together, whatever hats we wear, to start to address this crisis," Murray, who chairs the Transportation and housing and urban development subcommittee of the Senate Appropriations Committee, said during a housing forum at Seattle's Opportunity Place.

Some at Friday's forum want more federal money, while others support incentives or requirements aimed at local developers. Cities and counties need to allow more homes through zoning, some said.

Here's what the Times had to say about it:

U.S. Sen. Patty Murray, D-Wash., who was visiting Seattle on Friday during a congressional recess, convened the roundtable with representatives of housing agencies, business, Sound Transit, the Puget Sound Educational Service District and social-service agencies to see what she can do at the federal level to help people with low and moderate incomes find affordable housing.
...
Adrienne Quinn, director of Seattle's Office of Housing, said a recent study by her office reveals that 51 percent of Seattle workers do not live in the city. Households earning between $60,000 and $100,000 a year are the least likely to live within the city limits, she said.

"People are able to buy someplace, but not in the city of Seattle," Quinn said.

As we all know, you're less of a person if you rent, so it makes sense that Ms. Murray et. al. would focus only on buying homes when stating that Seattle is in the midst of a "silent epidemic" when it comes to "affordable housing."

Lastly, here's the latest paid advertisement masquerading as an opinion piece from a "guest columnist." Steve Francks just so happens to be the CEO of the Washington Realtors. His editorial is quite transparently nothing more than the latest volley in the Washington Realtors' It's A Priority campaign.

Transportation experts are tearing their hair out trying to figure out how to fix Puget Sound gridlock. But if they really want to improve transportation, they should focus on housing.

There are just too many people trying to drive between home and their jobs each day. There isn't enough tax money in the world to pave our way out of this problem, especially with our population growing by a million each decade.

Instead of trying to deal with the symptoms, I suggest we address the cause: too few affordable home choices near where people work. That's something that we can fix — with a little help from the Legislature.

Home prices throughout our state continue to rise month after month. Wages, however, do not. The result is a huge gap between typical home prices and what typical families can afford. The Center for Real Estate Research at Washington State University, which tracks the gap with its "Housing Affordability Index," shows home affordability in Washington at a 15-year low. The gap is particularly wide for first-time home buyers, who, according to the index, could afford the local median-price standard only if they were living in Benton or Adams counties.

What's a middle-wage family to do? Hit the highway and drive to find an acceptable home you can afford. Between 2000 and 2005, 67,000 people moved from King County to Pierce County. Another 14,720 Pierce residents moved south to Thurston County during the same period.

If I can make some time in the next week or so, I'd like to write essentially a counter-point editorial of my own in response to Mr. Francks' drivel.

So what other recent local real estate articles have I missed?

(Mark Trahant, Seattle P-I, 04.06.2007)
(Heather Rae Darval, Seattle Times, 04.07.2007)
(Aubrey Cohen, Seattle P-I, 04.06.2007)
(Stuart Eskenazi, Seattle Times, 04.07.2007)
(Steve Francks, Seattle Times, 04.10.2007)

March Reporting Roundup

Back from my busy week of travel and recharged over the Easter weekend, it's time to post the March roundup.

As usual, let's kick things off with Seattle's #1 real estate cheerleader, Ms. Rhodes, with her fawning article about all about how great and wonderful it is that median prices increased last month.

After stalling for two months, home prices in King and Snohomish counties perked up last month, disappointing potential buyers who thought slowing price appreciation had presented an opportunity.

Brian and Jennifer Rutherford are experiencing King County's strengthening real-estate market firsthand as they shop for a Bellevue home in the $500,000 range.
...
"We were just hoping things would cool off. It might have cooled off from its highest point, but not too far," he said. "Now we're making more of an effort to step up our looking."
...
Thursday's news that Microsoft is leasing 1.3 million square feet of Bellevue office space, enough to house 4,000 employees, is a near guarantee that Brian Rutherford is correct about home-buying prospects.
...
Lennox Scott, chairman of John L. Scott Real Estate, said a shortage of affordably priced homes will keep the local market strong.

Wait, what? Am I the only one that sounds like utter nonsense to? Less affordable = strong market? Hmm.

Surprisingly, Mr. Cohen of the P-I chose to focus primarily on Seattle proper, where the picture is somewhat more grim.

There are more homes on the market in Seattle these days -- and their prices slowly are creeping up.

The number of homes increased by nearly half in March from March 2006, according to data the Northwest Multiple Listing Service released Thursday. The median home price was $418,000 — up 2.7 percent from a year earlier and 3.2 percent from February 2007.

The median price for a Seattle single-family house went up 4.5 percent from a year earlier, to $460,000, while the median condo price was up 5.8 percent, to $316,950.

Of course, a Cohen article wouldn't be complete if it didn't end on an upbeat with the same-old "strong market" arguments repeated yet again:

In a statement accompanying the Northwest MLS numbers, Mike Skahen, owner of Lake & Co. Real Estate, called the market for close-in Seattle neighborhoods "hotter right now than it was at this time last year," with homes in virtually every price range attracting multiple offers.

Dick Beeson, owner of Windermere Real Estate/Commencement Associates in Tacoma, said, "It just feels like a normal market with well-priced homes seeing offers in 30 days or less and sellers of overpriced properties having a gut check and a motivation check to see if they really are serious about selling."

Recent revelations about failing loans in the subprime market, which serves those with poorer credit, have caused trepidation about the national housing market.

But the Puget Sound region is fairly well protected from this because of its healthy economy, continued home price appreciation and fewer subprime loans compared with other parts of the country, said Erik Hand, president of John L. Scott Real Estate subsidiary Response Mortgage Service, in the MLS statement.

Ahh, that's better.

Down in Tacoma, it's getting harder to ignore the picture that the numbers are painting:

The median price was $274,950, up 5.8 percent over the same month a year ago, though down from February, according to figures released today by the Northwest Multiple Listing Service.

Sales, however, continued to fall as the number of listings skyrocketed to 6,554 – up 48.6 percent from March 2006.
...
Bob Niehl, an agent for Crescent Realty, said Thursday that it’s not uncommon for the kind of house that once would draw multiple offers to sit for more than 100 days.

The Everett Herald appears to be doing somewhat of a victory dance, proudly proclaiming Snohomish County as immune to supply and demand.

Prices for homes and condominiums in Snohomish County continue to soar, even as sales of both in March continued to be down compared with a year ago.

The median price for single-family homes hit $382,550 countywide last month, according to the Northwest Multiple Listing Service report issued Thursday. That's nearly 16 percent higher than the median of $330,000 in March 2006.

Prices rose despite a 44 percent increase in the number of homes listed for sale from year to year and a nearly 18 percent drop in pending sales.

Finally, down in Olympia, slowing sales are all too obvious.

Thurston County single- family home and condominium sales dropped 7.5 percent in March, though last month’s results were softened by a surge in the condo market, the Northwest Multiple Listing Service reported Thursday.
...
Other year-to-year March home sales data for Thurston County:

• Total active listings for single-family homes increased 38 percent to 1,802, up from 1,303.
• The median price of a single-family home rose 4 percent to $254,950, up from $244,900.
• Total active listings for condos increased 133 percent to 49 units, up from 21.
• The median price of a condo dropped nearly 6 percent to $171,203, down from $182,000.

Sounds like a stellar spring bounce all around the Sound, wouldn't you say?

(Elizabeth Rhodes, Seattle Times, 04.06.2007)
(Aubrey Cohen, Seattle P-I, 04.06.2007)
(Devona Wells, Tacoma News Tribune, 04.05.2007)
(Eric Fetters, Everett Herald, 04.06.2007)
(Rolf Boone, The Olympian, 04.05.2007)

Aubrey Cohen: Real Estate Cheerleader, Renter

I'll be posting the March reporting roundup either later today or tomorrow, but I caught this story in my inbox and I couldn't resist mentioning it. Although the subject is "Journalists gamble on job security at the P-I," the article contains some interesting information about one of our favorite local real estate reporters... (emphasis mine)

When Aubrey Cohen received an offer to become the real estate reporter for the Seattle Post-Intelligencer last August, he jumped at the chance. He'd already covered urban growth in Bellingham, didn't want to leave Western Washington, and was willing to gamble that the P-I would survive its current legal battle.

"I decided that at the very worst, I'd have a job for a year, and it was a good job," Cohen said.

Despite the P-I's uncertain future, Cohen is among several reporters who joined the daily in the last year because they believe the career benefits outweigh the risks.
...
Eventually, though, he couldn't pass up the opportunity to advance his career while remaining in the Northwest. Cohen and his wife sold their home in Bellingham and now rent in Seattle while they wait for the JOA ruling. If the P-I goes under and he can't find a job right away, Cohen reasons, the family can live off the money they made selling their Bellingham home.

Now why would Mr. Cohen be renting? For someone whose reporting seems to indicate a strong belief in continued double-digit appreciation for Seattle, the choice to rent seems... odd.

I mean come on man, you're missing out on our area's "extremely strong market fundamentals." Don't you know that "quite frankly, it's time to buy"?

(Heidi Dietrich, Puget Sound Business Journal, 04.06.2007)

Sound Familiar? Sales Down, Listings Up.

March numbers from the NWMLS are available, and I managed to get a bit of a break before I head back from Chicago, so here comes the data.

March King County SFH summary:

March 2007
Active Listings: up 33% YOY
Pending Sales: down 11% YOY
Median Closed Price: $454,950, up 12% YOY

After an unusual YOY increase in February, sales resumed their previous course of down, down, down. This was the second year in a row that March sales were down 11% YOY.

If anyone tries to claim that this year is shaping up "just like any other year," or that the sales data points any less toward a softening than it has in recent months, they are either in denial or mentally handicapped. Month-to-month inventory jumped 10.42% from February to March, a larger spike between those months than any other year since 2000 (pre-2000 data is not available). February to March sales were up just 14.11%, making this the smallest increase between those months than any year since 2000.

While months of supply is still relatively low, it has increased 49% since March last year, and days on market has increased 33%. Still-increasing median prices are pretty much the only thing that housing bulls have to be happy about.

As is the custom, I have uploaded an updated copy of the Seattle Bubble Spreadsheet that contains the relevant data. The recap NWMLS pdfs are not available yet, but here is the detailed King County data.

Here's the supply/demand YOY graph:

Click to enlarge

Here's the chart of supply and demand raw numbers:

Click to enlarge

Here's the graph of YOY percent change in the median sale prices of single-family homes in King County since 1994:

Click to enlarge

You've got a little bit of a recovery last month, with "appreciation" increasing 3 points to 12%. We'll see what happens the rest of the spring.

"Re-Sales Galore" in Local Condo Projects

Local condo enthusiast Matt made an interesting observation in a post on Urbnlivn Tuesday. Apparently in many of the recently-opened Seattle condo projects there are, in Matt's words, "re-sales galore." 33 units at 2200, 19 at Cosmo, and 5 (of 48) at Meritage. Plus, anyone who bothers to spend a little time searching on Craigslist can see quite a few more units in these projects up for rent.

I thought that all these projects had "strict limits" requiring that units be owner-occupied, which would supposedly eliminate flipping. It would appear that these rules are being disregarded.

So much for all the alleged protections against speculation in the local condo market...

(Matt Goyer, Urbnlivn, 04.03.2007)

"That's it, I decided. That market's hosed."

I would like to highlight a post from over on the forum that I think should be read by more people. It was written by my friend Catherine (a.k.a. "Dove"), and posted to the thread How did you first learn of the National Housing Bubble? (Although it really speaks well to the Seattle market specifically.)

It was a long awakening, for me. I put "2004" in the poll, but depending on how you call it, it could've been a year earlier or later.

The first sign of trouble came when we'd been married a couple years, living as poor grad students in an apartment, and I started dreaming about getting a house. Nothing fancy, really - like maybe one of those cute little cottages with a tiny yard that Need Lots Of Love. Surely an itsy bitsy house couldn't be that much, right? Cue realtor.com telling me what a funny little girl I was. That sent my spidey sense tingling a bit - if tiny crappy houses are that much, who the heck can afford a house to raise a family in? Strike 1. That was 2003 or 2004 I think.

Strike 2 came when I first got a job as an engineer - and a good one - and my husband and I started making plans about where to live. My family had recently moved, and now both our families were in the midwest. We wanted to live close, so we eyeballed houses in Denver, just for planning purposes. And promptly realized that they were extremely affordable. That tiny crappy fix-er-up I'd wanted? Less than my annual salary. Big New House For Big Family? We could totally swing it. Heck, save aggressively for a couple years and we could almost buy it outright.

I quickly flipped the page back to Seattle to see if the same was true here, but no dice. Apparently a mansion in Denver is worth about the same as a mud hut in Seattle. We still couldn't afford *anything*. We promptly resolved to rent, save aggressively for a couple years, and then move to Denver, which is where we'd rather live anyway. This was 2005.

I'd heard that big cities were supposed to be expensive, but this was rediculous. I mean, it's not like Denver is that much different from Seattle in terms of size and opportunities. Saving and moving seemed obvious. In fact, why wasn't everyone doing that? I suspected again that something was wrong. Strike 2.

Throughout that year I began actually watching the housing market - planning to buy in the eventual future, I figured I should get a better feel for how it worked. And as I thought about things, I began to put a lot of stuff together very quickly. (1) We can afford a pretty nice apartment, with tons of money to spare. Seems like we ought to be able to afford a crappy house. But we can't. That seems . . . odd. There ought to be some sort of in between transitional product, right? They should be pretty comparable, right? (2) Actually, come to think of it, we're pretty well off - I make more than a lot of friends and neighbors and relatives all of whom are homeowners, and I can't afford a house. What gives? (2) And actually, come to think of it, who the heck is buying all of the houses? Where do all the normal people live???

More complaints confirm it isn't me. My brother in law has trouble with his house and then more trouble with his house and then a little more trouble. My co-worker is crying about how she can't afford the low-end condos. My *boss* is considering buying a townhome full of 70's shag. And she's not your run-of-the-mill manager, either--she's gotta make twice what I do.

As soon as I saw a suggestion somewhere that there was a housing bubble, it all clicked. The market that had smelled so funny for years now made sense. That was maybe a year ago. If not immediately convinced, I definitely acknowledged that it was a strong possibility. Any desire I had to buy a house evaporated overnight.

The final straw actually came recently when someone on that blog pointed out that rent prices were out of whack with housing prices. For some reason, I'd never thought to check that - I'd just always assumed those markets would pace each other. A quick run by Craigslist confirmed it.

That cute little crappy house I'd wanted? Rents for about the same as my apartment. Perhaps a bit more, $200 or $300 more. Psshaw. Shopping around a bit more, I saw nice houses go by at decent rents. And it suddenly dawned on me that if I wanted to, I could live anywhere in Seattle. Fancy condos downtown? Check. I could make rent. 5 bedroom houses? No sweat. Fancy Vacation Homes On The Water With Stunning Views? Ahhh... I might not want to pay for it, but the mechanics says I could afford to live there full time. (Not that I'm going to - still sticking to plan A, but still . . .)

Quick check on the real estate market and . . . yup, I still can't afford the mud huts.

That's it, I decided. That market's hosed.

I think Catherine hits the nail on the head. If the Bull Cadre gets their wish and home prices in Seattle continue to defy all logic and reason... at least I'll already have some local friends when I move to Denver.

Bubble Link Roundup

Here are a few short quotes from some recent interesting articles (followed by some pithy one-liners) that I haven't had the time to dedicate entire posts to:

Slumping sales of lots could presage fewer new houses for region

A key future indicator of the housing market is down sharply, but that could be a good thing, local real estate executives are saying.

Puget Sound area home builders have been buying substantially fewer finished lots from residential developers as the builders try to gauge the demand for their new homes in the months ahead.

Builders buying fewer lots today could mean fewer new homes tomorrow.

"Finished lots are hanging around longer than they have in quite some time," said consultant Matt Gardner, a principal at Gardner Johnson LLC in Seattle.

But, I thought the Seattle market was still hot, hot, hot!

Generous pay isn't enough to keep some on the road

The number of commuters in South Sound continues to grow, but some people are bucking the trend.

They've quit.

Melinda Spencer of Olympia took the step a few years ago. Spencer used to commute from Olympia to her job as a technical writer at Redmond-based Microsoft, where she earned about $73,000 a year.

Making that kind of money, Spencer's husband, Keith, could complete his degree at The Evergreen State College, and they could invest in property. In 1997, the couple paid $110,000 for their Olympia home.
...
Yet after three years of driving to Redmond, spending three hours in her car each day, something had to change. "It was awful," she said about her commute. "I felt like I showered (in the morning), ate (at night), and turned around and did it all over again. It was time to end this lifestyle."

She ended it by starting her own home-based technical communications business. Another reason to stay home was the birth of her first son, she said. Today, her husband works as a high school teacher in Rochester, while Spencer works at home and raises their two children. The money is tighter. Spencer estimates their combined income at just more than $2,000 a month after taxes and health insurance are deducted.

But in the 10 years they've owned a home, it has tripled in value to $300,000; they would be unable to afford it today, Spencer said.

"We would be looking at one of those old dogs that has been foreclosed on," she said.

Isn't appreciation wonderful?

Home bailout scams on rise

As interest rates rise, many people with adjustable-rate mortgages find their payments too high to manage. That has paved the way for con artists offering relief.

WASHINGTON – As home foreclosures increase across the country, scam artists promise struggling homeowners a quick bailout, but they end up stripping the properties of their value or owning the homes outright.
...
State officials urge cash-strapped property owners – particularly the elderly, immigrants, minorities and low-income – to be wary of mailings, phone calls and visitors offering to help "save your home" and "avoid foreclosure."

The Washington State Attorney General's Office recently settled a suit against three businesses that claimed to save the homes of people who were facing foreclosure for unpaid property taxes. The companies – Fiscal Dynamics Inc. and Cumulative LLC, of Tacoma, and Northwest Assets of Seattle – allegedly broke promises to pay the back taxes and instead tried to sell the houses at auction and keep the owners' rightful proceeds, according to the complaint.

Now wait just a minute. How can people possibly be facing foreclosure in the fantasy rainbow-land of forever double-digit appreciation? Hmm...

Last and most certainly least: Average Seattle worker can't afford to live here

Last year, the typical single person in Seattle earned enough to buy a home for just under $200,000 while the typical family of four had enough to pay just over $280,000, according to the U.S. Department of Housing and Urban Development. The median prices were about $450,000 for a house and $290,000 for a condo.

Typical families can afford apartments, but the rent for the average one-bedroom apartment in King County rose 8.5 percent in the past year as vacancies fell 17 percent — down to 3.9 percent, according to Dupre + Scott Apartment Advisors. Hal Ferris, a partner in developer Lorig Associates, said increasing construction prices mean living in a new development will cost more than what HUD assumes typical families can pay.

And many median-income workers choose to buy and commute rather than rent.

"They can buy somewhere, but that somewhere isn't in the city of Seattle," said Adrienne Quinn, director of the Seattle Office of Housing.

First off, I'd take that data from Dupre + Scott with a giant frikkin' grain of salt. Secondly, government solutions like the ones discussed in this article are like putting a band-aid on a tumor. They completely ignore the root cause of the problem, and don't even effectively address the symptoms.

(Jeanne Lang Jones, Puget Sound Business Journal, 03.26.2007)
( Rolf Boone, The Olympian, 04.01.2007)
(Tony Pugh, Tacoma News Tribune, 04.02.2007)
(Aubrey Cohen, Seattle P-I, 04.02.2007)

Seattle Bubble Concedes Defeat

Well everyone, it's been a fun couple of years, but the time has finally come for Seattle Bubble to throw in the towel.

Paul Campbell, Some rights reserved.

We've analyzed the local market from every conceivable direction, explained all the logical reasons why today's Seattle home prices are not sustainable, watched the national housing market turn from boom to bust, but still the home price increases in Seattle carry on. At this point, there is only one logical explanation why home prices in Seattle have not fallen: Seattle truly is incredibly special.

Of course, I don't just mean "special" as in "isn't it nice to live in a place with such delightful weather, exciting sports teams, and enlightened liberal politics that have solved all of our social problems." Sure, those things are great, but lots of cities can make the same claims (San Francisco, New York, etc.). No, in order to truly understand why real estate prices in Seattle will never go down, one must consider so much more.

Indisputable facts that make Seattle the most specialest place on the planet:

• Every single house sold has stunning views of Mount Rainer, The Olympics, Puget Sound, and at least three lakes.
• The Microsoft money factory in Redmond runs non-stop, printing millions of hundred-dollar bills every hour, which are loaded into Boeing planes and dropped from the sky daily, scattering the free money to all homeowners.
• Every homeowner is issued a brand new pretty pink pony at closing. (Thanks, Chris)
• 
  The waters of all the rivers and lakes contain healing powers that extend life indefinitely, thus allowing homeowners to take on increasingly longer-term loans. This will inevitably lead to the "forever loan," in which principal is never paid down, only interest paid, while the homeowner merely kicks back and enjoys the unending benefits of double-digit appreciation.
• Ballard.
• Thanks to Growth Management, not only is it true that "they're not making any more land," but in Seattle, the available land is actually shrinking daily! By 2050, the only buildable land will be within a five-block radius of the Space Needle. 2,000-story ultra-luxury condos will be erected, which will range in cost from $500 trillion dollars for a 50 square foot "sleep pod" to $42 septillion for the 500 square foot "presidential suite."
• Stunning rainbows fill the sky every afternoon (see above).

Yes, Seattle is truly one in a million. One in a billion. One in a googolplex. With inventory at near-record lows and pending sales increasing over thirty-four percent from January to February, it's plain to see that there's no stopping Seattle's equity spaceship. Of course, all you really need look at is how much prices have appreciated in just the last year (11%, thank you very much) to realize just how special Seattle is.

It is time for this blogger to face the facts: Seattle home ownership is the path to indescribable happiness and untold riches. That's why I'm closing this blog, quitting my job, becoming a full-time Seattle-area home buyer, and recommending that all my readers do the same.