Poll: A Bubble In Seattle?

A reader suggested and created the following polls:

Do you think the greater Seattle area is in a bubble?

How will prices change in 2006 for the greater Seattle area?

I'd be interested to know what people are thinking.

Realtors See "Softer, But Still Bouyant" Market

How about one more take on those October figures? This time let's throw in a bit of anecdotal evidence from realtors while we're at it, courtesy of the Seattle Times.

Puget Sound-area home sales and prices remain strong, according to the latest statistics, but anecdotally, real-estate agents say the usual fall slowdown is well under way.

That may spell good news for buyers frazzled by the summer's superheated market.

"What we're seeing and feeling is that the market is still strong, but there's more balance than we've seen in prior months," said Chris Pauling, president of Prudential Northwest Realty Associates. "Buyers aren't selling their first-borns to get a house."

David Milot, co-owner of Re/Max Metro Realty, concurred. "The market is a little bit softer than it has been, but it's still buoyant," Milot said.

That's nice. "Softer." An excellent choice of words. It feels so... non-threatening. So perhaps there is a bit more weakening than the usual figures would show. However, could this just be a symptom of the usual fall slowdown? Only time will tell.

"We're also seeing more open houses and more price reductions," he said.

Besides the customary slowdown in advance of the holidays, two other factors may be affecting sales.

One is the uptick in mortgage rates. Last month the national average for a 30-year fixed-rate loan was 6.21 percent, according to HSH Associates, a mortgage-information provider. That's half a percentage point higher than the year's lowest rate, which was posted in February. That rate increase pushes a monthly house payment up $79 on a $250,000 mortgage. Seattle's current 30-year rate is 6.35 percent.

The other factor is the continuing high price of gas. Coupled with traffic congestion, it's causing buyers to think carefully about how far they're willing to drive. That keeps prices solid in close-in locations.

Trying to figure out just how much factors like these are affecting the market seems a bit like peering into a crystal ball, to me. Which is not to say that I don't expect reporters to do just that, however. I would still be reluctant myself to point to any of the evidence offered so far and say that we've hit the peak in Seattle and are finally starting on our way down.

(Elizabeth Rhodes, Seattle Times, 11.09.2005)

Another Take On October

It seems that the nature of October's numbers depends on who you ask. The Puget Sound Business Journal sees a slight weakening in the bubble's armor:

With the first three quarters of the year resulting in some of the hottest residential real estate trends ever, the housing market in Western Washington saw a slight shift toward buyers in October. But officials with the Northwest Multiple Listing Service said activity is still robust, prices are still increasing and sellers remain in control.

The number of houses on the market at the end of October was at its highest level all year, and the number of sales pending increased 6.85 percent, the first time the growth rate has fallen short of double digits in 2005.

Prices for closed sales in October still rose 20 percent or more in most of the listing service's coverage areas compared with a year ago, listing service officials said in a news release.

Brokers added 10,853 listings to inventory during October across Northwest's original 15-county market, compared to the year-ago total of 9,375 new listings. New listings in Okanogan and Whatcom counties, added to the listing service's territory in August, brought the 17-county figure up to 11,405, officials said.

The new listings meant buyers had a choice of 22,925 properties in 15 counties, about 3 percent less than a year ago. In the four-county Puget Sound region, inventory still lagged year-ago volumes in King County (down 16.3 percent) and Snohomish County (down 7.4 percent), while Pierce and Kitsap counties registered gains, according to the release.

So, more listings were added than a year ago, but total inventory was still down, and prices are still 20% higher than a year ago. Perhaps I'm missing something, but this doesn't quite smell like the slowdown I've been waiting for. Though the higher number of added listings is certainly a number to watch, I'm not predicting anything just yet.

(Puget Sound Business Journal, 11.07.2005)

Juggernaut Plows Onward In Thurston County

October sales data is in for Thurston County, and prices just continue to soar, posting a 34 percent year-on-year gain:

The October median price of just under $250,000 is the latest in a series of consecutive monthly record highs.

The $249,900 figure was 34 percent higher than last year's $186,000, and was almost $14,000 more than the median sales figure reported in September.

In September 2005, the median sales price for a home in Thurston County was $236,290.

"We are still seeing a strong market," Wilkins said.

Strong, yes. Sustainable? I would be inclined to think not.

(Rolf Boone, The Olympian, 11.08.2005)

Forbes: Seattle 8th Richest City

A reader sent in this link to a Forbes story about the "Richest" cities in the US. In Forbes' list of the 10 "richest" Seattle comes in at #8. However, I'm a bit suspicious of their methods though, since they list the Median Income of Seattle as $46,650, when the latest figures I've seen for King County list the median income at $55,000. Additionally, #2 on their list is Anchorage, Alaska, so I'm taking this one with a big grain of salt. Of course, don't forget that even if you take the "8th richest" to be true, the same magazine rates Seattle as the most over priced city in the country in spite of our "richness."

(Forbes, 10.27.2005)

Cashing Out On The Bubble

If you own property right now that you bought before the latest surge in prices, is now the time to cash out? That's the question that this article tackles, starting with an example of a local couple who did just that.

For Joan and Mike Whitney of Snohomish, Wash., outside Seattle, moving wasn't in the cards until about a year ago, when talk of a housing bubble in the area began to make Mike nervous. "A bubble seems obvious when you read that speculators are buying one in four properties, and people are paying off their credit-card debt with home-equity loans," he says.

Well, those are signs of people doing stupid things with their money, anyway. If there is a critical mass of those people then that's when I think we'll see a bubble bursting.

Despite the talk of a bubble bursting, it's more likely that home prices will continue to head up, but at a slower pace. Economic fundamentals -- strong demand and a tight supply of housing -- continue to push prices higher. In fact, some areas that have experienced relatively slow appreciation, such as Kansas and Utah, are beginning to pick up steam, says Patrick Lawler, chief economist for the Office of Federal Housing Enterprise Oversight. Mortgage interest rates, which are still close to their 40-year lows, are contributing to the momentum.

That said, it could still be a good time to ponder a move, especially if you live in the Northeast, upper Midwest or along the West Coast -- the areas most vulnerable to a pop, or at least a fizzle. On average, home values appreciated nearly 15% nationwide from July 2004 to July 2005, and that can't last forever. Neither can the annual gains of up to 30% in some of the more torrid coastal markets, says Tom Kunz, president and chief executive officer of Century 21. Kunz believes gains of 5% to 8% a year are more realistic. David Lereah, chief economist for the National Association of Realtors, expects price increases for 2005 to average 11% for existing homes and 4% for new ones.

But remember, Seattle is special, so there's no need to worry your little head. Forget selling. There's never been a better time to buy!

(Pat Mertz Esswein & Dave Lindorff , Kiplinger's Personal Finance, 10.2005)

Apartment Complex Sale Prices Soaring

As has been pointed out on this blog in the past, it isn't just the personal residential real estate market that's in bubble territory in Seattle. Huge corporations have been buying and selling entire apartment complexes at record rates, resulting in (of course) dramatically increasing prices:

For anybody who's lost a bidding war for a house in Seattle, here's a small consolation: Some of the biggest real-estate magnates in the world are enduring the same experience as they try to buy into the region's hot housing market.

In what brokers are calling "a perfect storm" of economic circumstances, investors from Australia to Bellevue are pouring money into Seattle-area apartment complexes, breaking sales records and driving up prices because they see rents about to take off.

Some $2.1 billion worth of apartments have changed hands in the Seattle metro area this year, triple the level of two years ago, and the traditional year-end flurry of sales hasn't even happened.

Considering that rents have been increasing at a much slower pace than real estate prices, I just don't see where the return would be.

(Tom Boyer, Seattle Times, 11.03.2005)

2,000 Acre "Mini-Cities" Debated In Snohomish

Snohomish County is considering a proposal to allow supposedly "self-contained" communities. The Everett Herald reports on a public hearing last night:

The mini-cities - built as large housing and commercial developments - are called fully contained communities, and continue to suffer criticism for not being fully contained.

Such developments would require at least 2,000 acres of rural land in an area at least a mile from other urban areas under proposed county rules.

Half the land must be protected as a natural buffer, and one job must be provided for each house, condo or apartment.

"The biggest problem they always have is employment," said Grady Helseth, a developer from Snohomish.

Without jobs that pay enough to cover their mortgages, thousands of residents would be forced to commute to job centers in established cities.

And thousands of non-residents will commute to the "contained community" from cheaper neighborhoods to work the low-wage jobs. This is beginning to sound pretty much the same as a normal (uncontained?) community.

"There is no need for a new city in the rural area," said Kristin Kelly, spokeswoman for the anti-sprawl group Futurewise and the Pilchuck Audubon Society.

Kelly said officials are dreaming if they think people will live and work only within the development's confines.

I would have to agree. Also, what is to stop "investors" from purchasing homes in these fantasy communities and further driving the prices up above what the pre-planned jobs can support?

(Jeff Switzer, Everett Herald, 11.03.2005)

Bigger = Better?

When it comes to houses, it seems most people have the American sentiment of "bigger = better = I want" ingrained into their subconscious. The Seattle P-I takes a look at how this mentality is shaping the Seattle residential landscape:

During the past 10 years, about 2,400 single-family homes have been razed to make way for apartments, condos and larger homes. With strong demand for in-city housing and few vacant lots, older homes are now disappearing three times faster than they did a decade ago -- with 368 demolished last year.

Some neighborhood activists -- who support increasing density and building affordable housing in urban villages -- see little public benefit in replacing modest homes with expensive single-family behemoths.
...
Builders say the trend is fueled by simple economics and a healthy demand for larger homes inside Seattle. As traffic gets worse, some people want to return to the city, but not to a two-bedroom bungalow with tiny closets and bad wiring.

"If there wasn't a market for these houses, nobody would be building them," said Greg McGar, a contractor who paid $492,000 for a Ballard home last year, according to property records. He knocked it down and is building two four-bedroom homes on the oversized lot.

Of course there's a market right now, but will there be in 5 years? How likely are these homes to retain their value when a leveling off in real estate comes? I've always thought that one of the sacrifices of living in or near a big city was having a smaller home. I guess some people have enough money to have it both ways though. Either that or they have a "great" zero-down interest-only loan so they can "afford" it. I'd be curious to see if this trend continues when today's easier-than-breathing financing dries up.

Some neighbors are happy to see eyesores torn down and replaced with nicer homes that boost property values, said Jim Morse, a contractor who recently tore down a small rental on 28th Avenue Northwest and is building a three-story home there.

Others hate change, he said.

"You can give people hundred-dollar bills all day long, and some people aren't going to like it," he said.

"In reality, we're improving the neighborhood by getting rid of old, dilapidated housing."

Congratulations Jim Morse, you win the prize for stupidest analogy of the week!

(Jennifer Langston, Seattle P-I, 10.24.2005)

Don't Wait To Buy?

Writer Tom Kelly offers an opinion piece in the Everett Herald in which he takes a very matter-of-fact tone. To hear him tell it, there's no question, prices will not decrease in the Puget Sound:

Is there significant merit in waiting for the local housing market to cool before jumping in to buy a home? While that question may be on the minds of many consumers, the reality of a significant drop in home prices and a rise in inventory is rather remote.
...
The idea of "saving my money until home prices come down" has probably become a contradiction in terms - at least for the foreseeable future. Yes, housing is cyclical but it usually does not go backward for very long, if at all. The additional money you save now probably will not offset the appreciation (albeit slower than today's torrid pace) you would have accrued had you found a way to purchase a local home sooner rather than later.

If it were as certain as Mr. Kelly makes it sound, why would I even have created this blog? Either I'm a total idiot, or Mr. Kelly is making things sound a bit more definite than they are. Perhaps he's a realtor. *wink*

(Tom Kelly, Everett Herald, 10.23.2005)