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 truth will eventually come out: the economy is weak, wages are stagnant, and RE isn’t realistically priced. The realtor hype about the economy driving RE prices is sounding more bogus each passing day. Those who patiently waited (and saved their money) will be rewarded.
I can’t help thinking that there is something else going on here. It can’t be just over extending, and hope. Perhaps it has something to do with wealth transfer and/or the baby boom putting more money out there–money which must be spent. What thoughts?
can’t help thinking that there is something else going on here. It can’t be just over extending, and hope.
There is, and it all started with Greenspan injecting very cheap money into the system, to buoy the economy after the tech boom. This excited the herd of investers leaving the wreckage of the tech bust to invest in real estate. Investors started the trend, homebuyers fueled it further thinking, “buy before it’s too late”, more investors saw this “growth” as a good thing, and the leapfrogging continued to the current scenario (at least in CA). I’m sure it holds true for Seattle too.
I think people are now catching on to what’s happening. Unfortunately, it’s too late for many overleveraged homebuyers.