Is Seattle Attracting Good Jobs?

Some of the recent discussions in the comments have centered on job growth in Seattle. In a comment on the most recent post, T.S. made the following claim:

The job situation is misleading. While there may be low unemployment, which is good, the newly created jobs are simply not high-paying enough to support the current housing market. Unless all the jobs being created are executive positions, that is, which I don't think is the case.

This comment reminded me of an article that was still in my inbox and hadn't been posted yet. The headline is When it comes to attracting CEOs, Seattle's not as pretty as she used to be.

At a recent meeting attended by local investors, a principal with a Seattle-based venture capital firm described the challenge he faces convincing top CEO types to move to Seattle to lead his ventures. His primary competition seems to be Silicon Valley, where a robust venture market chases the same business leaders.

Ask a typical Seattleite, though, and he'd be surprised the contest is even close. Seattle or Silicon Valley? He'll tell you that the Silicon Valley is all about expensive homes, snarled freeways and an embarrassingly low espresso-stand-per-capita ratio. Bad schools, smog and crime, too. Offered a choice, any CEO-for-hire would accept the invitation to Seattle without a thought, right?

It turns out not to be so anymore. According to our local venture firm principal, traffic is becoming a major Achilles' heel for our region — to the point where it spooks some CEO targets away before they get to the interview. After all, CEOs measure the same things anyone would: affordability of housing, lifestyle, quality of schools for their kids, commute distance to work, etc. Apparently, our traffic is nastier now. In the beauty contest to attract CEOs, it looks like Miss Silicon Valley is leading.
...
Perhaps we can concede the traffic mess to Miss Silicon Valley. But we must have the other parts of the contest won, right? How about affordable housing? Surely we have expensive California beat on that one.

Well, not so much anymore. Our rising housing prices have now put Seattle neck and neck with our competitor to the south. Call this part of the contest a draw.

How about schools? We all know about the crowded and underfunded California public schools.

Guess again. Seattle's schools just aren't what they used to be, apparently.

Let's also not forget the power of our delightful estate tax to drive away business leaders. Remember, the hard facts show that wages in our area are either growing very slowly, or actually decreasing. Where are the hard numbers that demonstrate Seattle's supposedly booming economy? Sheer numbers of new jobs are nice and all, but if they all pay less than the median there's no way that new jobs are going to sustain the housing growth we've seen.

Sure, we all love Seattle, but what does Seattle have to attract strong businesses and keep them here? Does Mr. Hoban's point extend beyond just CEOs to good, smart people in general, and even whole businesses? I think it does.

(Tom Hoban, Snohomish County Business Journal, 04.2006)

Bankrate.com: Seattle Immune To Bubble

Eileen Tefft over at Rain City Real Estate Guide pointed out that Bankrate.com has ranked Seattle (together with Portland) as one of the top ten "bubble blowers" — places that they say "appreciation should continue to grow."

The overall news out of the Pacific Northwest isn't great. The area lost jobs in the tech bust and is still recouping. But in terms of housing price appreciation, the thing these cities have going for them is a restriction in supply. Tight controls on development have prevented the normal progress of builders going farther out from the city core to find cheap land in the suburbs. Hence, demand stays high for available units. (Forbes Magazine lists Seattle as the most overpriced place to live in the country; Portland was third on the list.)

"Portland and Seattle have really benefited from California's growth," says Richard Gollis, principal of San Francisco-based real estate consultants The Concord Group. "Portland is starting to see the next generation of housing product, which is large-scale, high-density projects in downtown. The same thing is happening in Seattle. People who moved there 20 years ago for the tech market are older now and have a different lifestyle."

Granted that's only a two-paragraph explanation, but I find myself unconvinced... I see plenty of new construction around here. I'd be surprised if people are moving here faster than new houses/apartments are being built. Furthermore, the claim that Seattle has "really benefited from California's growth" is certainly true, but what happens when that growth dries up? Even on Bankrate.com's own list, Los Angeles and Sacramento are in the top ten "bubble busters" where "values [can be] expected to decline" and not a single California city made the "bubble blowers" list.

Of course, since Rain City Real Estate Guide is by realtors, for realtors, Ms. Tefft agrees wholeheartedly with Bankrate.com's analysis:

Interestingly, sales are down, but so is inventory. In March 2004, there were 7,156 homes for sale countywide. March 2005's inventory was 5,244 homes. This March recorded a further drop, to 5,100. This is the pinch that causing the rise in prices.

At the same time, the local economy is growing and employers are adding jobs, bringing more potential buyers to the area. So the competition for available homes is strong and prices are reacting accordingly.

We agents have been experiencing this hot market all spring as we did through most of last year, possibly feeling the market fluctuations first. We're out there in it, pricing homes to reflect the low inventory and coaching buyers for the best positioning in a multiple offer situation. I just watched the price of an Eastside condo jump $20,000 in a two week period!

Rah, rah, rah... gooooo home prices! But seriously, even as the local economy continues to grow, unless wages start to make significant gains, there will come a point where home sales will falter because people just won't be able to afford them. Personally, I think we are very close to that point. One way or another, 2006 is going to be an interesting year.

(Pat Curry, Bankrate.com, 03.01.2006)
(Eileen Tefft, Rain City Real Estate Guide, 04.07.2006)

March Sales Figures Roundup

Okay let's try to group the rest of the March articles into one post. The Seattle P-I assures us that everything is perfectly normal.

Pending home sales in Seattle and King County fell again in March, while home prices continued to climb. Real estate experts said the declining sales shouldn't be cause for concern and likely reflect a "normalizing" of the market after many years of strong sales.
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More significant, some say, is the reduction in home listings, a reflection of the housing shortage that is also helping drive up prices.

Cute. "Normalizing." Well at least they didn't say that there's a buyer frenzy. And I love how a 3-5% reduction in listings is "more significant" than a 8-10% decrease in pending sales. Yeah, I'm buying it... wait, no—I'm not.

The King County Journal takes it a step further and leads the cheer for the supposedly still-booming market:

Median home sales prices jumped more than $20,000 in one month's time in southeast King County and almost $12,000 on the Eastside, shattering housing market records.

In southeast King County, the median price for closed sales of homes and condos in March rose to $314,975, up from $294,000 in February and the previous record high of $309,000 set in January.

On the Eastside, the median price of single-family homes and condominiums whose sales closed in March rose to $476,475, smashing the "old" record median price of $464,500 set just the month before.

Northwest Multiple Listing Service officials, who released the March report Thursday, and local real estate agents attribute the surge in home sales activity this past month to the growing economy, relatively low interest rates, "attractive financing" options, and an increase in available properties to choose from.

"Attractive" if you don't care about prudent investing for the future, I suppose. And what's with the phrase "surge in home sales activity"? Again, pending residential home sales in King County were down 10.6% from March '05. I guess since it's a smaller negative number than February (-14.56%), that constitutes a "surge." Weee!

Bucking the trend, the Tacoma News Tribune actually dares to report signs of the slowdown:

Homes are coming onto the market and basically sitting there in many parts of Pierce and King counties, according to a new report released Thursday.

But being on the market longer doesn't mean the homes are any cheaper.

That's a refreshing bit of relatively balanced reporting on this month's numbers. Of course, the slowing signs are a bit harder to ignore in Pierce County, with a 27% increase in listings and a 10% decrease in pending sales.

	Listings			Pending Sales			Closed Sales			Sale Price
	'06	'05	% chg	'06	'05	% chg	'06	'05	% chg	'06	'05	% chg
Comb:	4,412	3,483	26.67%	1,731	1,924	-10.03%	1,541	1,527	0.92%	$259,970	$220,000	18.09%
Res:	4,037	3,147	28.28%	1,601	1,795	-10.81%	1,448	1,411	2.62%	$260,300	$224,950	15.71%
Condo:	375	336	11.61%	130	129	0.78%	93	116	-19.83%	$205,700	$166,000	23.92%

You can run, but you can't hide, Seattle. The real estate slowdown is at your doorstep and you can only deny it entrance for so long.

(Kathy Mulady, Seattle P-I, 04.07.2006)
(Clayton Park, King County Journal, 04.07.2006)
(Barbara Clements, Tacoma News Tribune, 04.07.2006)

Perplexing March Reporting

Let's take a look at our friend Elizabeth Rhodes' more lengthy article in today's Seattle Times, where she paints a picture of a Seattle area real estate market that is still super-hot and doesn't know the meaning of slowdown. I usually try to limit article quotes to just a few paragraphs but this one has so many gems I'm going to have to break my usual rules.

Ann Dickhoff's house purchase typifies a milestone in more ways than one.

Like many other parents of adult children, Dickhoff was afraid her son would be priced out of homeownership in his hometown.

So last month she helped him buy a North Seattle rambler, gulping as she paid $409,000 — or $89,000 more than she shelled out a year earlier for a nicer house half a block away.

In doing so, Dickhoff helped fuel the buyer frenzy that's pushed the median cost of King County single-family homes past $400,000 for the first time.

Still, median prices in some neighborhoods are much higher than that, seriously undercutting affordability and turning the hunt for a moderately priced home into blood sport.

Where to start? First off, for her "typical" example, she's choosing someone who has no problem plunking down for a $400,000+ house that's not even for them, but for their kid? Maybe I'm just really out of touch with King County, but that doesn't seem at all typical to me. Secondly, is there really still a "buyer frenzy" in King County? Again I direct you to the NWMLS March data. Here are the pertinent figures for March in King County:

	Listings			Pending Sales			Closed Sales			Sale Price
	'06	'05	% chg	'06	'05	% chg	'06	'05	% chg	'06	'05	% chg
Comb:	6,359	6,731	-5.53%	4,106	4,469	-8.12%	3,219	3,791	-15.09%	$365,000	$324,950	12.32%
Res:	5,100	5,244	-2.75%	3,044	3,405	-10.60%	2,386	2,858	-16.52%	$405,000	$362,000	11.88%
Condo:	1,259	1,487	-15.33%	1,062	1,064	-.19%	833	933	-10.72%	$249,950	$205,990	21.34%

Ms. Rhodes seems to be talking only about the "Res." figures in her article, so look at those figures in particular. Specifically, check out the double-digit negative numbers in the "Pending Sales" and "Closed Sales" "% change" columns. Despite the fact that the number of listings was down just 2.75%, the number of sales decreased by at least four times that amount. That sure doesn't look like a "buyer frenzy" to me. Moving on.

Dickhoff and her husband, Walton, an administrator for the National Oceanic and Atmospheric Administration, had to pay $320,000 last year to snag a small Greenwood-area bungalow for her mother. "That was our wake-up call," she said, to climbing prices and the possibility that homeownership for her kids was in jeopardy.

Indeed that's a serious possibility for many residents, according to Washington State University's Center for Real Estate Research. Average-wage workers, in particular, are susceptible to the double whammy of rising house prices and rising interest rates.

In the past year, the average interest rate on a 30-year, fixed-rate loan has climbed half a percentage point to 6.5 percent.

The WSU center's latest affordability index reveals that King County buyers earning median wages have just 80 percent of the income needed to afford a median-priced house. First-time buyers have 45 percent.

In January, Ann Dickhoff, a nurse at Swedish Medical Center, began hunting for a house to buy for son Paul, 21, a cheese maker at Pike Place Market, to live in with roommates. A real-estate agent warned her the first one she bid on would sell for more than its $400,000 list price.

So the Dickhoffs bid $416,000 — and added a $30,000 escalator clause in case a bidding war broke out.

It did, and they lost that house to a $450,000 all-cash offer.

That made clear to her that "the market was taking off, and if we were ever going to buy something for the kids to live in, we'd better make a move."

They quickly did, landing for $409,000 a newly refurbished 1950s three-bedroom with a spacious new garage.

Still, if the market weren't so hot, "we wouldn't even have looked at it," Dickhoff confided. The house is on busy Greenwood Avenue North, and the street noise is significant. Plus a newer townhouse development has consumed its entire backyard.

Did you notice in there how she barely made a passing mention to the fact that first-time buyers making median wages have just 45% of the income necessary to afford a home? Do reporters like Ms. Rhodes not see that as a huge problem? Granted my perspective may be a bit skewed being a potential first-time buyer and all, but doesn't that deserve more than a half-sentence mention in an article like this? Furthermore, did this example family, the Dickhoff's, do any serious research into the current market before jumping in with both feet to buy their kid a house? Seriously, "the market was taking off"?!? Sweetheart, the market took off two years ago, and it's been riding the appreciation wave since, but sooner or later (probably sooner) it is going to land. Maybe it will be a soft landing, but if people like the Dickhoff's truly "typify" the King County home buyer, I'm afraid it'll be rough indeed.

(Elizabeth Rhodes, Seattle Times, 04.07.2006)

Times' Report Not Consistent With Figures

I could be missing something here, but yesterday's blurb in the Seattle Times about the March sales figures seems to me to be blatantly misrepresenting the facts.

Western Washington home prices continued to climb last month as 17 of 20 counties reported price increases of 20 percent or more compared with a year earlier. That's according to the Northwest Multiple Listing Service, which released March sales numbers today.

I honestly have no idea what sales numbers Ms. Rhodes is looking at, because as you can see for yourself (pdf), the NWMLS figures track 17 specific counties (and apparently 3 more classified under "others"), of which only 10 "reported price increases of 20 percent or more compared with a year earlier," 5 (and "others") reported price increases ranging from 2.90% to 18.09%, and 2 have not been tracked individually for an entire year. Furthermore, as I said yesterday, on the whole listings are up, and "pending sales" are down. Of the 17 counties that are individually tracked, only King, Lewis, Cowlitz, and Kittitas saw reduced inventory.

Something's fishy about Ms. Rhodes' blurb.

(Elizabeth Rhodes, Seattle Times, 04.06.2006)

Pierce Also Feeling Slowdown

Moving a little further north, it appears that Pierce county is noticing the slowdown as well, though not to quite the same degree as Thurston.

More homes are hitting the market and staying there, as housing prices continue to climb, according to new numbers released today by the Northwest Multiple Listing Service.
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The biggest change was in the number of homes on the market. While inventory shrunk 5 percent in King County, the total number of homes in Pierce County increased by 23 percent when compared with the same number in March of 2005.

The inventory in Thurston County jumped by 77 percent, according to the report.

"People are taking a bit longer to decide, and even with the increase in inventory, there hasn't been a reduction on selling prices," said NWMLS director Dick Beeson, broker at Windermere Real Estate/Paragon in Tacoma. Beeson called the traffic at local houses "pretty decent."

Looking at the NWMLS numbers (pdf), what I find interesting is that the total number of listings is up 6.79%, while pending sales are down 8.94%. I'm no economist, but I would think that type of situation would put downward pressure on prices. 2006 should indeed be an interesting year.

(Barbara Clements, Tacoma News-Tribune, 04.06.2006)

Slowdown Marches Northward Through Olympia

As I've been following the other bubble blogs over the past year or so, it has seemed like the housing slowdown is slowly moving from the south to north and east to west, with our state being at the trailing end of market realities. In the recent months, I've seen articles first about slowing in San Diego, then LA, then Sacramento, then Portland/Vancouver, and now... Olympia.

The South Sound real estate market is beginning to evolve from a seller's market to more of a buyer's market as inventory levels rise and home prices decline, according to Olympic Multiple Listing Service data released Wednesday.

Active home listings in March stood at 1,047, well above the 568 active listings for last March, the data showed.

As a result, the median price of a home dropped slightly from $248,475 in January to $244,575 in March.

"We are seeing some stabilization in pricing based on the inventory in the marketplace," said Olympic MLS Manager Jerry Wilkins.

Still, the March median price of $244,575 was up 22 percent over the same period last year, according to the data.

Of course, "was up 22 percent over the same period last year" sounds a lot better than "is stalled at the same level it was five months ago in October." It will be interesting to see how they spin it if this keeps up for another half a year and the "same period last year" was the same or higher.

(Rolf Boone, The Olympian, 04.06.2006)

Homebuyers Need More Power

A friend forwarded me this link that he received in an email from his credit union. Can't afford a home? Fear not, BECU can wave their magic wand and increase your buying power!

Is Your Dream House Just Beyond Your Price Range?
posted Apr 04, 2006

Home prices have increased tremendously over the past several years. Whether you're looking for your first home or would like to buy a nicer home, it seems that no matter what your price range is, the house you really want always costs a bit more. Well, there is some good news.

BECU offers several home loan programs that are designed to increase your 'buying power' by either allowing you to qualify for a larger loan amount or reducing your monthly payments. You can save thousands on closing costs too! BECU's home loan closing costs are consistently lower than other lenders.

Super, so if I can't afford a house, we can just play with "the numbers" until I can! That's definitely a recipe for success... Clearly I'm old fashioned, because I just don't see the underlying wisdom behind intentionally biting off more house than you can chew. Surely prudent saving and spending within a realistic budget is better in the long term, right?

Less (monthly payment) is More (house). Greed is Good. Debt is Wealth.

(BECU, 04.04.2006)

Vashon Island's Affordability Future

A group of developers and community leaders got together last week in Vashon Island to peer into their crystal balls and predict that area's future...

Developer and Vashon Island Chamber of Commerce president Tom Bangasser said at last week's Vashon Maury Island Community Council meeting, "People who buy property (on Vashon) to develop it because they can are going to drive the population."

He was speaking about his interest in analyzing the population capacity of the current Vashon zoning plan.

The comment came in the context of a presentation Bangasser made to VMICC about 45 benchmarks created by King County to trace progress in meeting desired outcomes for the county of the Growth Management Act (GMA) of 1990.
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Realtor Emma Amiad, asked to speak about benchmark #21, "Supply and demand for affordable housing," said, listing eight quick points:

• Supply and demand for affordable housing: lots of demand, no supply.
• Homelessness: persisting.
• Apartment vacancy rate: virtually zero.
• Affordability gap: huge.
• Home ownership rate: + -80 percent.
• Trends of costs: up.
• Public dollars spent: almost none other than Vashon Household.
• Rental housing units affordable to low income: almost none.

Then, in a satirical turn, she moved from that relatively bleak vision as she told a short fable about Vashon in 2016, in which Dockton became a condo paradise because Vashon town's growth was limited by the lack of water availability.

Also in the fable was a tour, "McMansion Tour," also called "Starter Castle Showdown," conducted by the Chamber to contribute to its income stream, and open only to houses of 10,000 square feet in space.

She also envisioned Burton and Vashon becoming upscale meccas for regional shoppers and tourists, and she included a new bus service to bring the Island's work force into town from Tacoma and Southworth.

By contrast, Amiad offered a second fable, one in which small family businesses thrived and affordable cottage home developments as well as accessory dwelling units were in evidence.

And part of the vision was that all the structures were built "green" and capped at 5,000 square feet for a new or remodeled house.

And finally, power would be generated by wind, solar and wave action with Vashon's power system a model for other Washington rural towns.

I guess I'm just ignorant, because I don't really see how "green" building and wind power are going to keep housing costs under control. Sure, they're both noble goals that are great to strive for, but what do they have to do with the price of homes? The only connections I can imagine would seem to put upward pressure on home prices. But hey, whatever floats your boat, Vashonites.

(Vashon-Maury Island Beachcomber, 03.29.2006)

1315 1st Ave Defies Seattle's Bubble

Here's an... interesting story about the "tacky little building at 1315 First Ave."

In the high-stakes game of downtown real estate, the tacky little building at 1315 First Ave. was surely doomed. A group of heavyweight developers, including a billionaire, a wealthy venture capitalist, and a former Seattle mayor, aimed their wrecking ball at Peaches, Kitten, Trixie, and the rest of the struggling dancers at the Lusty Lady theater. They and their nudie house were about to become the next victims of the condofornication of Seattle. Then the inconceivable happened: In a city where rapacious new development effortlessly bulldozes fading history, someone said no to money. Christto Tolias and his family, longtime owners of the century-old, mostly vacant structure housing Peaches and other strippers at the popular peep-show theater, refused to sell the property to ex-Mayor Paul Schell and his fellow hotel/condo developers.

An attorney with knowledge of the deal says the rejected offer was "several" millions of dollars. Stunning as that seems, Tolias made money anyway. Schell and partners in the new 21-story, $120 million Four Seasons hotel and condo tower at First Avenue and Union Street had to regroup, then make Tolias another offer—for air rights above the Lusty building. In the end, the big developers not only didn't get their prized property, they paid the defiant Tolias $850,000 for thin air.

So what would motivate a downtown land owner to hold on to their property rather than sacrifice it to the relentless drumbeat of progress and piles of free bubble money? Why, nekkid girls, of course. So now we know.

(Rick Anderson, Seattle Weekly, 03.23.2006)