Detached Rental Proposal Considered

The city of Seattle is considering a proposal that could ever so slightly ease the financial pain that come with soaring housing costs by allowing detached rental apartments in single-family-zoned neighborhoods:

...detached rental apartments and backyard cottages have long been outlawed in Seattle's traditional single-family neighborhoods. Some have worried they'll cause parking problems, erode neighbors' privacy and eat up back yards.

They're currently only allowed in areas with multifamily zoning, such as New Holly, but Mayor Greg Nickels is working on a proposal to allow them in all southeast Seattle neighborhoods. There, residents concerned about affordable housing have embraced the idea.

It's a scaled-back version of a plan that was nixed by the Mayor's Office.

Of course, as with any change, there are those who are opposed in a vehement, dramatic fashion:

Wallingford resident Greg Hill modeled what would happen if everyone on his street built a detached rental unit in his or her back yard. What was once a collective reservoir of green open space became a crowded row of tenementlike buildings.

"It just becomes a ghetto — there's no open space, there's no gardens," Hill said. "There won't be any tomato growing going on in the city if this passes."

That would be too bad. I like home-grown tomatoes. On the other hand, there is clearly some potential benefit here for first-time homeowners:

Tom Smith, 38, who works in business development for community radio station KEXP, said it was a "huge struggle" to find a house he could afford within the city limits.

He felt lucky to get a small, 1950s-era home near Columbia City. But it could prove to be an even better deal if the city allows him to convert the two-story garage, which he currently uses for storage, into an apartment.

"I would be psyched," he said. "It's really tough to get a house in Seattle as a first-time home buyer, and having a detached (rental) would make it a much easier proposition."

Would the change really have a noticeable effect one way or the other? It seems doubtful, but that certainly won't stop people from getting emotional and upset on both sides of the issue.

(Jennifer Langston, Seattle P-I, 11.21.2005)

State Revenue Continues To Bubble

Here's the latest installment of "Government Revenue Bubble," courtesy of the Tacoma News-Tribune:

Washington's hot economy, still surging with a mighty assist from construction and real estate sales, will boost state income by more than $300 million, forecasters said Thursday.

But in the same breath, economists warned of a slowdown, and Gov. Christine Gregoire and key legislators cautioned against a spending spree in the upcoming legislative session.

"There's a lot of risk out there," said state budget director Victor Moore.

It's a tempting target: The new revenue update, reflecting the fourth quarterly revenue surge in a row, brings the state's reserves to more than $1.4 billion, roughly 5 percent of the state budget.

Chief economist ChangMook Sohn's new analysis for the state Revenue Forecast Council presumes a cooling of the red-hot housing market and consumer spending, and projects continuing high oil prices.

The housing bubble hasn't popped yet, but a cool-down probably is imminent, Sohn said. National housing starts dropped 5.6 percentage points last month, he noted.

"There are many signs that housing is peaking," he said. "We have been expecting that for a long time."

In Washington, the real estate and construction sector are responsible for half of the new $304.9 million windfall announced by the council. The state will collect another $100 million just from the tax on real estate transactions.

We'll see if they can resist the urge to sink the money into recurring expenses. I have to say I'm quite surprised and somewhat suspicious that the Governor-for-now "cautioned against a spending spree." Usually there's nothing the government enjoys more than spending our money (on programs that are for our own good, of course).

(David Ammons, Tacoma News-Tribune, 11.18.2005)

Crystal Ball Predicts Seattle Slowdown

No, seriously. That's right, a "national housing expert" is predicting that Seattle will see a slowdown in the housing market in the next few years. He saw it on his crystal ball, it seems.

The housing market in the greater Seattle area "will be heading downward" in the next two years, a national housing expert told a gathering of real estate agents and home builders in Bellevue on Thursday.

But the prediction isn't as bad as it sounds.

If you disregard 2005 and 2004 when the greater Seattle housing market "went nuts," the home sales forecast for this area next year would be one of the best on record, said Stanley Doubinis, chief economic forecaster for Maryland-based Crystal Ball Economics Inc.

Maybe it's just me, but I have a hard time taking someone seriously when they have the words "Crystal Ball" on their business card.

The escalation of home prices in King County "might drop back to single-digit increases" next year, "but retrenchment (in prices) is not likely," said Doubinis.

How can we be in a position to "drop back to single-digit increases" and not be in a bubble?

Doubinis said he expects the Seattle-area housing market to fare better next year than housing markets in many other parts of the country because of the Puget Sound region's strong employment growth, which is increasing four times faster than the national rate.

J. Lennox Scott, chairman and CEO of Bellevue-based John L. Scott Real Estate, said Doubinis' forecast pretty much matches his company's expectations for the coming year.

"We're also predicting a historically strong market next year" that will be only "slightly off the all-time best year (2005)" in terms of the number of homes sold, Scott said.

Sounds like someone who has something to sell, personally.

(Clayton Park, King County Journal, 11.18.2005)

State Excise Tax Change Proposed

Realtors are gearing up for a fight in Washington State over a proposed change to real estate excise tax law:

The Washington Association of Realtors has launched a $1 million advertising campaign to warn home sellers of a proposed tax increase on the proceeds from their home sales.

A buyer of a new home could find the purchase price increased "by an average of $9,000," according to the campaign, although the ads don't specify the size of the home in the example used.

The media campaign began Wednesday, funded in part by a $750,000 grant from the National Association of Realtors. It is designed to build public opposition to a proposed change in the real estate excise tax, or REET. With advertisements running on local television and radio stations and in area newspapers, the effort is targeting a bill introduced in the last session of the state Legislature by Rep. Judy Clibborn, D-Mercer Island.

That's amusing. If the real danger were to property buyers of having to pay more, why exactly would the realtors care? It seems more likely to me that they're concerned that the actual sale price of homes might fall, as buyers would be unwilling to pay thousands more. Lower sale price = lower commission = realtors spending a million dollars to fight this. Which is not to say I support the change, it's just an observation.

Currently, the state real estate excise tax, paid by the seller at closing, is 1.28 percent of the final price of a property of any type, with counties and cities liable for meeting the requirements of the state's Growth Management Act able to tack on an addition one-half of a percent. In King County, that means an effective tax rate of 1.78 percent on every property transaction.

Under Clibborn's bill, backed by home builders and the Association of Washington Business, school districts would be permitted to assess an additional quarter percent and cities four-tenths of a percent in lieu of the impact fees currently assessed against new residential construction. It would be up to each jurisdiction to decide whether to assess the excise tax or the impact fees.

Like I said, the cost is paid by the seller. It's not necessarily the case that the buyer will be willing to just front it. So anyway, how does all this translate into real dollars?

For instance, new single-family residential construction in the fast growing Kent School District, be it a small rambler or a faux chateau, currently comes with a $4,050 impact fee that is divided among the School District, local municipalities and other taxing districts.
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With the proposed increase in the REET, the builder would be off the hook for the up front impact fees. But every home seller, in the case of a $300,000 home, could wind up with a $7,290 tax bill.

I'm shedding a tear for the person selling a $300,000 home—worth just $225,000 two years ago—who has to pay an extra $3,240 in taxes.

(Morris Malakoff, King County Journal, 11.17.2005)

Gas Prices Linked To Housing Patterns?

Considering how much gasoline has surged in price in the last few years, it's no surprise that so many people are talking about it. But will rising gas costs really have an effect on where people choose to live? Are the outlying suburbs of the Seattle area—currently experiencing record growth—in for falling prices if the cost of gasoline continues to climb? A writer for the Seattle P-I ponders these and similar questions:

During the past year, the Consumer Price Index, the most popular measure of inflation, rose by 3.5 percent in the Puget Sound region, according to the Bureau of Labor Statistics. Gasoline and utility natural gas prices jumped 35.1 percent and 17.2 percent, catching area residents on the road and in their homes with higher prices.

That could have some interesting consequences for the region, from commuting patterns to the staffing of local businesses.
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As steady double-digit home price increases push home buyers farther from city centers in search of affordable housing, the ability of Seattle's middle- to low-income workers to get here, and get by, is being compromised.

The article focuses primarily on inflation, pointing out that prices in the Seattle area are growing slightly slower than the rest of the nation. However, gas prices accounted for an unusually large portion of the total figure for inflation. Surely if gasoline cost $10 per gallon a large number of people would rethink the hour-long commute to work. At what point will enough people change their patterns for it to be noticeable though?

(Kristen Millares Bolt, Seattle P-I, 11.17.2005)

Jobs Plentiful In Snohomish County

Though I don't agree with the argument that the Seattle area is special and immune to future housing pain, I'm not the type to ignore evidence that supports such claims. Case in point, Snohomish County's hot and growing job market:

Snohomish County is on fire - at least in terms of job growth.

The county produced 16,200 jobs between October 2004 and October this year, an annual growth rate of 7.4 percent - tops in the state, according to the state Employment Security Department.

Fueled by rehiring at the Boeing Co. and the insatiable demand for new homes, the county's growth rate was more than double the state average of 2.9 percent and more than five times the national average of 1.4 percent.

Of course, with some portion of those new jobs being a result of the crazy housing market, arguing that the job growth definitely means bubble immunity would seem to be at least a bit circular.

(Mike Benbow, Everett Herald, 11.16.2005)

Deals On Fixers Or At Auction?

Parts two and three of King 5's housing report focus on creative ways of making your money stretch that don't include option-ARMs or other "creative" financing options. However, the reports aren't directed at people buying a house to live in, but rather they're written as how-to guides for real estate investing.

If you're handy with tools and don't mind working hard in your spare time, you might consider investing in a "fixer-upper" and making a little extra cash in a booming local housing market.

In part two of our "Red Hot Real Estate" series, we’re looking at the opportunities, challenges and pitfalls of this type of real estate investing.

There is certainly an opportunity to make money this way, especially when property values go up as we've seen them go up in the last year, 20 percent and more in some areas of western Washington.

But be careful. The experts say it may be a harder, riskier, more complicated business than you think.

I'd just like to say... wait for it... wait for it... Duh. Okay, moving on.

It's a sidewalk property auction featuring trustee sales of foreclosed real estate and it happens every Friday morning.

And at the end of the day, the highest bidder owns the home... as is.

The crowd at the auction is a mix of real estate regulars, like Dean Street, and newcomers, like Carl Thompson and Dante Hill, drawn by a hot market and the possibility of sweet deals.

"This is the American dream, to come down here and strike it rich," said Thompson.

Harlan Moore, of Key Foreclosures, agrees.

"It's the stock market," he said, "just like the 90's, everybody wants in. Property is the new Yahoo stock."

What an amusing comparison for someone happily investing in real estate to make. Yahoo stock price (adjusted) in February 1999: $38/share. December 1999: $108/share. Today: ~$38/share. Now that sounds like a piece of action I want in on.

In other news, King 5 News really needs to find a better copy editor. The original articles are littered with grammatical errors, typos, and missing words. They forgot to capitalize Washington, for goodness' sake.

(Allen Schauffler, King 5 News (part 3), 11.15.2005)

What Your Money Buys Around Here

I suppose a more accurate title would have been "What The Bank's Money Loaned To You At An Adjustable Rate Buys Around Here." That would have been a bit unwieldy though. So just how much can the overextended family buy in Seattle's bubble-rific market? That's the question King 5 News takes on in part one of a three-part real-estate series:

If you've tried to buy or sell a house in Western Washington in the last year you know that the real estate market has been crazy, superheated, with prices going up every month.

But what do you get for your money?

We took a look at what was listed one day recently in three Western Washington counties to see what was available in the half-million dollar range, at the median price for that county and the low end of the scale.

We started with an area that has some of the most expensive residential real estate in the country.

Hang on to your wallet, on Mercer Island, we found a smallish four bedroom, two-bath, 50-year-old home listing for $519,000.

It was the cheapest house for sale on the island [and it] needed some work.
...
That same half a million would buy you an 18-acre piece of the Cascade foothills far from the bright lights, in Carnation.

Or in the city, a 100-year-old South Seattle home with two bedrooms, and two baths and a lot about a 50th the size of that Carnation property.

Or you can buy into the upper end of a booming urban condo market.

In much of Snohomish County, your home-buying dollar will go much farther, where you can find something pretty nice for $500,000.

Because most people have $100,000 laying around for a down payment, and $2,400 a month to spend on a mortgage. Right.

The median

You'll have to be flexible even in the quarter million range. We found a cute, older home in Auburn for example, priced at $249,000, but it's just half a block from a busy, commercial street.

Another option: $240,000 buys a two-story, three-bedroom townhome in Bellevue. And you're bumping into small lots and very small homes in Seattle or more space, more choices, in the southern suburbs.

Outside the big cities, median price options look remarkably similar across three counties and three prices, $381,000 in King, $270,000 in Snohomish and $267,000 in Pierce County.

In Federal Way, the median home price will get you a backyard pool and three bedrooms just down the street from a saltwater view.

In Lakewood in Pierce County, the median buys three bedrooms, two baths and a home in need of a little updating. But its a tidy, 20-year-old home for a couple or small family.

The same description fits a solid home in Everett, or one we found between Mill Creek and Snohomish.

Yeah, those sound like pretty median houses. Which would be great if the median family making the median wage could actually afford it. Or if the median family worked out in the sticks in Federal Way or Snohomish. But this isn't the Seattle Traffic blog, so I'll keep further comments on that to myself.

(Allen Schauffler, King 5 News, 11.14.2005)

Seattle "Under-Condo'ed" - Not For Long

Clearly if you are able to read a local paper, you are aware of Seattle's amazing immunity to real estate woes past, present, and future. Logically then, Seattle would be a great place to build more condos, which historically are the most in danger of losing value in a falling market. Lucky for us, more condos is exactly what's in store:

"Seattle is a somewhat under-condo'ed city, I think. As a growing city, I think it's an indicator of maturity in an urban city like Seattle that we're now capable of supporting a number of condominium developments. And I think when you compare us to a lot of the other major cities around the country, we have a lot of room to grow in this area," says David Thyer, president, R.C. Hedreen Co.

Take a look at a city like Vancouver, B.C.

It’s very similar to Seattle in many ways, except downtown domiciles.

About 22,000 people live in downtown Seattle. In Vancouver, it's about 73,000.

If you want to talk Vancouver, B.C. comparisons, I think it's only fair to consider the thoughts of someone actually from Vancouver:

Downtown Vancouver appears to prosper, but in the complex world of city building, appearances can be deceiving. I am not for a moment questioning the prospering part — the whole world is scrambling to live and play on our downtown peninsula, with its paradisiacal combination of mountain and ocean vistas, parks and urbanity.

[Vancouver director of central area planning Larry] Beasley and his senior staff recently confirmed to me that in the nearly five years of the new century, development applications have been made for only 700,000 square feet of new office towers in downtown Vancouver.

In this same period since Jan. 1, 2001, they have approved 7 million square feet of new condos. Many of us wonder if a 10-to-1 ratio in favor of condos is in our city's best long-term interest. While all three of our municipal political parties are maintained by donations from downtown condo developers, even our politicians are getting worried about this extreme skew.
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The office-development market in downtown Vancouver — for all intents and purposes — is dead, even while it is reviving strongly in Toronto, Calgary, Ottawa and, yes, Seattle. Your city has hung on to a large number of its banks and corporate head offices, while Vancouver never had them in the first place, or they have headed to the suburbs and Alberta in the face of a severe and mounting anti-business ethos from our governing, extreme-left "Coalition of Progressive Electors" municipal party.

Downtown Vancouver faces the dismal prospect of fewer and fewer sites having the proper size and location for office towers. This will fix our destiny as a shortsighted residential resort, not the diverse and lively mixture of living and work that is a real downtown.

Let's hear it for condos!

(Tim Robinson, King 5, 11.14.2005)
(Trevor Boddy, Seattle Times, 10.23.2005)

Bubble Collapse Imminent: Seattle Still Immune

National economists are waking up to the reality of a housing bubble, stating in a report that a downturn in the housing market could mean a million lost jobs. But what about here in Seattle? The Seattle P-I adds their own reporting to the AP report:

Much of the nation has had a lovely real estate boom for the past five years, but the house party is almost over, and the cleanup won't be pretty.

That's the word from economists and investors who have watched housing prices march ever higher.

"The collapse of the housing bubble will throw the economy into a recession, and quite likely a severe recession," warned a July report by the Center for Economic and Policy Research.

Oh yes, it's been so lovely, hasn't it? Just so rosy and wonderful. Unless you're a first-time homebuyer trying to get into the market. Then it pretty much sucks. Too bad for you.

The dire warnings aren't region-specific — beyond hitting most places where home values have appreciated most. But many experts on the Seattle-area economy have suggested that the elements of a classic bubble — one in which prices could be expected to suddenly reverse directions — aren't apparent here.

Not that a sudden drag in the national economy wouldn't be felt here, perhaps at least flattening the 10 to 15 percent gains housing prices have shown annually in recent years.

Ah yes, it's my favorite news-reporting tactic: Referring to unnamed "experts" in order to back up the picture you're trying to paint. Don't worry, the worst that will happen is for prices to "flatten." The sky is definitely not and will definitely not be falling.

Others point to simple supply and demand. Bubbles have their own psychology — a neighbor tells you at a party that her house has tripled in value, and you feel like an idiot for renting — but supply and demand operates on logic, which has to kick in at some point.

Such factors could affect the Seattle market, though the region's heavily tech-influenced economy has continued to attract young, well-educated people to the region — keeping market pressure on the limited number of homes available.

And what about that loss of a million jobs? Will none of those be in Seattle? Of course not, the influx of young well-educated people is sure to continue forever! There's never been a better time to buy!

Another indicator of a bubble — unsold homes sitting on the market — also points down nationally. The ratio of inventories to sales has been rising rapidly in recent months and now stands at its highest level since 1996, according to Wachovia Corp.

That's another area where Seattle projects a different picture than the national numbers.

The supply of houses on the market in King and Snohomish counties in October declined by 10.7 percent and 2.7 percent, respectively, compared with October 2004. That drove the median price paid for a house up by 20 percent in the two counties, to $390,000 in King, and to $258,600 in Snohomish.

Maybe I'm just naïve, but isn't that how Boston or New York looked a year ago? Wouldn't that just mean that Seattle is lagging behind the bubble dynamics of the rest of the country, as opposed to not being in a bubble at all?

(Seattle P-I Staff and News Services, Seattle P-I, 11.12.2005)