Seattle Bubble

Speaking of our local economy, one big question on my mind regarding the potential housing bubble is “how do wages stack up to the rapidly increasing housing costs?” Thanks to the US Census Bureau, I now have an answer, and it doesn’t look good for Seattle.

The census report outlined a Seattle-area economy that was out of step with the nation last year. Nationally, the poverty rate rose only slightly from 12.5 percent in 2003 to 12.7 percent in 2004, and real median household income was unchanged at $44,389.

In contrast, median income in King County dropped 3 percent to $55,114 in 2004 from $56,881 the previous year. And the percentage of county residents living in poverty jumped from 7.3 percent to 10.4 percent.

And yet home ownership continues to rise—how is that? Two words: creative financing. Which will inevitably lead to a different word for many people: bankruptcy. You can only tread water for so long.

(Paul Nyhan, Cecilia Kang, and Carol Smith, Seattle P-I, 08.31.2005)

The Puget Sound has built a reputation as a high-tech industry destination, with top tech companies such as Microsoft and Amazon.com calling the area home. Thanks in large part to companies like these; we have a healthy, growing economy. But as those who lived through Boeing layoffs in the 1970’s know well, nothing is permanent.

A new report says Seattle-area biotechnology companies could save up to $1.2 million in yearly operating costs — that is, if they move.

Places such as Vancouver, B.C.; Raleigh-Durham, N.C.; Sioux Falls, S.D.; and Denver have lower yearly biotechnology costs compared with the Seattle area, which ranked as the 18th most expensive in the country.

Interestingly, this both directly affects and is directly affected by the real estate market in our area. One reason many people like to give that the Puget Sound is somehow magically safe from price corrections is our growing economy. If Seattle becomes too expensive a place to do business, businesses could find it tempting pack up and move out. And that can’t be anything but bad for home values. Also, if our “growing economy” is helping real estate continue its crazy upward march, and expensive real estate means high rents for office space, doesn’t one of those have to give eventually?

Having high-tech depart our area is definitely not a situation I would like to see happen, since I happen to work in the industry. But if our state, counties, and cities continue down the path we’re on right now, I definitely see it as something that could happen.

(Brad Wong, Seattle P-I, 08.30.2005)

The King County Council held a town hall meeting in Bellevue last night to discuss the Eastside economy. One of the hot topics in the meeting was of course housing. For instance, it was suggested that restrictive land use regulations have a hand in the skyrocketing housing costs:

King County needs to consider loosening the urban-growth boundary and allowing more development on land that is close to freeways and other amenities, said Bob Wallace, CEO of Wallace Properties in Bellevue and a panel member. Operating in a free market is “going to be difficult if we have such a stranglehold on the land,” he said.

Also, as prices keep going up and up, some workers are feeling squeezed out.

If the Eastside wants its workers to also live in the area, it must provide cheaper housing and more entertainment for young people, Bellevue resident Martin Hickman said during the public-comment period.

Hickman, 21, said he and his friends think Bellevue is “a terrible place to live,” with few nightlife options and rents beyond their price range.

I don’t understand how the city is going to magically “provide cheaper housing.” I think the problem goes beyond the city level. But it’s definitely good to have public discussion on this important topic.

(Ashley Bach, Seattle Times, 08.30.2005)

You may recall a few weeks back when I highlighted a sad example of bubble mania here in Seattle. Thanks to locally-based MSN Money columnist Bill Fleckenstein, that little stunt is getting even more attention.

There was another sign of the times in “Bidders win unseen lands, discover they bought trouble,” a story in the Aug. 17 edition of my Seattle Times.
…
Joe Public is buying land sight-unseen without doing any due diligence. If that isn’t a top, I don’t know what one would look like.

I agree with you 100% Mr. Fleckenstein. I just don’t know how long the top will last.

(Bill Fleckenstein, MSN Money, 08.29.2005)

Here’s an amusing tongue-in-cheek tidbit for you from the Seattle P-I:

Contrary to popular opinion, housing is not expensive in the Northwest. As long as you’re astoundingly wealthy.

That about sums it up for me.

(Dan Richman, Bill Virgin, Seattle P-I, 08.29.2005)

The Olympian is reporting on both sides of the story with their latest report: Studies disagree on real estate’s future.

According to a study produced by National City Corp., a financial holding company based in Cleveland, Ohio, home prices in the Olympia market were overvalued by as much as 18 percent. But a separate study by The PMI Group Inc. of Walnut Creek, Calif., says the South Sound market is priced about right and faces little chance of a major correction in prices.

Sounds like a story we’ve heard before. One thing the Olympian doesn’t do though is tell us a little more about who is behind each of these studies. Who is National City Corp? According to their website, they are:

… one of the nation’s largest financial holding companies. … Its core businesses include commercial and retail banking, mortgage financing and servicing, consumer finance and asset management.

So, they’re in the mortgage business, but they also seem to have a balanced banking diet. Not the most impartial observer, but better than many. What about the mysterious PMI Group Inc.?

…headquartered in Walnut Creek, California, is an international provider of credit enhancement products and lender services that promote homeownership and facilitate mortgage transactions in the capital markets. … PMI is one of the largest private mortgage insurers in the United States…

Uh-huh. “Credit enhancement products.” I think I can guess where they’re coming from. More people buying homes they can’t afford = more people buying private mortgage insurance = more profit in their pockets. What a shock that their study is the one that showed the price as being “about right” and in little danger of “a major correction.”

(Rolf Boone, The Olympian, 08.28.2005)