Seattle Bubble

Here’s yet another story for you with the premise that Seattle is not in a bubble at all. This one comes courtesy of the Seattle P-I.

Home prices in some parts of the country might be primed for a decline, putting a drag on the nation’s economy, but Seattle apparently could avoid the problem of a price bubble.
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But economists and real estate analysts who study the Seattle-area market believe it isn’t part of that phenomenon.

Rather, they said, the Seattle area is seeing relatively modest home appreciation rates — in the neighborhood of 10 to 15 percent per year. Those rates are a product of an inventory shortage coupled with demand, they said.

What kind of insane world is it when 10 to 15 percent per year is considered “modest”? Granted, they said “relatively,” but to me just because 10 to 15 percent is less than the increases in Boston or Florida doesn’t mean we’re not in a bubble, just that we’re in somewhat less of a bubble.

Douglas Pedersen, a Seattle economist, agreed that the area housing market is not seeing the extreme home appreciation rates of other cities. But affordability, he said, is an issue for some potential buyers in the region.

“We have high home prices relative to household incomes,” he said.

Hmm, where have I heard that concern before? Oh yeah, here. And here.

(Seattle P-I, 09.30.2005)

The Seattle P-I chimes in today with another story of the local housing bubble’s windfall tax revenues for local governments. Specifically, this story is about the city of Seattle.

Everybody’s talking about Seattle’s red-hot housing market.

People who want to buy in, people who want to cash out and people who are getting rich off the magic carpet ride. Local and state political leaders are no different, eyeing the housing market with a combination of glee and caution.

Seattle will bring in about $15 million more than expected in real estate excise taxes this year.

That’s one of the revenue streams that allowed Seattle Mayor Greg Nickels this week to propose expanding city services rather than add to cuts he’s had to make during his tenure because of a sluggish economy. But Seattle’s booming housing market is about to level off, according to top state and local economists.

Will they spend, or will they save the extra money? Considering who we’re talking about (politicians) I wouldn’t put my money on “save.”

(Chris McGann, Seattle P-I, 09.28.2005)

Today’s Seattle Times has this story on the builders vs. city battle going on in Sammamish.

Since incorporating in 1999, [Sammamish] city officials have scrambled to stem the tide of new housing projects by passing growth moratoriums. The last one expired in August and was replaced by a new “growth metering” ordinance — the first of its kind in the state — that would allow 840 new housing units in the next two years, with larger developments phased in over time.

It’s a sensible plan, I think, to try to maintain a steady pace of growth over the long term, rather than allowing a huge explosion in the short term. Of course the builders care about a huge explosion of profit in the here and now—before the bubble bursts.

The thirst to build in Sammamish has left a nagging question hanging over city officials: What is the scope of their power to plan for new development?
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Developers say Sammamish is unfairly shutting them out and argue that such restrictions lead to long-term repercussions. The growth-metering ordinance is based on a lottery system; developers have until Oct. 14 to submit applications to win a shot at the 420 lots available this year. At the end of October, the city will hold a drawing.

“Growth metering is irresponsibly anti-growth,” said Tim Attebery, lobbyist for the Master Builders Association of King and Snohomish Counties, which filed the lawsuit. “You’re artificially denying supply.”

Then again, if you think about it that way, artificially keeping supply low only serves to push prices further up, which would extend the bubble. So basically it’s a no-win either way.

(Sonia Krishnan, Seattle Times, 09.28.2005)

CNN/Money provides a short interview with a professor who claims that his study shows that home prices in many of America’s cities, including Seattle, are perfectly in line with history.

Are home values in America’s biggest cities out of whack with the rest of the country?

Chris Mayer, a finance and economics professor who heads the Milstein Center for Real Estate at Columbia University’s business school, tackled that question by looking at price changes in 129 cities since 1940.

He spoke with MONEY’s Cybele Weisser about his study, “Superstar Cities,” which concludes that despite the recent boom, prices in most big U.S. cities have remained in line with long-term trends.
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To be a superstar city, you need two things: limited ability for new construction and big demand. Boston, L.A., New York, Seattle and San Francisco are all good examples.

It is certainly true that “long term trends” have many big cities home prices increasing faster than in rural areas, but I find it to be a bit of a stretch that the increases of the last 3-5 years are “in line with long-term trends.” Take a look again at the graph I presented in this post. If you draw a straight line from about 1975’s data point to 1988, then another from 1990 to 2001, the slopes of those lines pretty well match up. But if you do the same thing from 1988 to 1990, and again from 2001 to 2004, you can see that those are drastically steeper slopes. 1988-1990’s insane spike led to nearly flat prices for almost five years in Seattle. Why should we believe that the similar run-up in the past four years won’t lead to the same thing, or an even more dramatic price correction?

(Cybele Weisser, CNN/Money, 09.23.2005)

The Times today features a special report on housing, with a graphic that I found particularly pertinent.

In the past five years, real hourly wages have grown by only 2 percent while the median home price has increased by 52 percent. Though homeownership levels are currently high, a good portion is due to the use of highly leveraged mortgage products, a risky proposition in a rising interest-rate environment.

King County has experienced a comparable run-up in prices, and the Census Bureau’s American Community Survey shows that county household income actually declined from 2003 to 2004.

The consequences of these market dynamics are dramatic. According to the nonprofit Center for Housing Policy, more than 14 million households in the country — one out of every eight, or 12.5 percent — now pay more than 50 percent of their income for rent or mortgage payments and/or live in physically dilapidated housing. In King County, it’s higher — 14 percent.

Does anyone think that is a good sign? Bubble or not, housing is becoming more and more of a problem. Is it the federal government’s fault, or is it on them to “fix it”? The article attempts to tackle these questions.

(Bruce Katz & Michael Stegman, Seattle Times, 09.22.2005)

While King County’s 17 percent year-on-year price increase is impressive and baffling, even more so is Kitsap County’s 23 percent year-on-year increase. What could possibly be driving prices in the rural east Puget Sound county? Definitely not wage increases.

August home prices were 23 percent higher than those in August 2004, topping three years’ worth of near-steady increases.

Some fear that many would-be-homeowners will be priced out of the market.

“Wages are definitely not keeping up with increases in housing prices,” said Mike Eliason, with the Kitsap County Association of Realtors.

Despite predictions of a national slowdown in the housing market, none appears to be in sight for the Puget Sound Region.

Inventory continues to drop, and prices continue to rise, and we all know it can’t last forever. But just how long can it last? Will I still be asking this question a year, two years, five years from now? Doubtful, but it’s certainly hard to see the big picture when you’re sitting in the middle of this kind of madness, isn’t it?

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Local Home Prices Still on the Rise

September 18, 2005

Kitsap home sales hit the quarter-million mark last month as prices continue to rise.

The median price of a home sold in August was $255,000, meaning that of 489 homes sold last month, 244 cost more than a quarter million, according to data from the Northwest Multiple Listing Service. NWMLS represents real estate brokers mostly in Western Washington.

August home prices were 23 percent higher than those in August 2004, topping three years’ worth of near-steady increases.

Some fear that many would-be-homeowners will be priced out of the market.

“Wages are definitely not keeping up with increases in housing prices,” said Mike Eliason, with the Kitsap County Association of Realtors.

Despite predictions of a national slowdown in the housing market, none appears to be in sight for the Puget Sound Region.

Last month, the number of homes sold in King, Pierce and Snohomish County increased over the number sold in August 2004 by 8.3 percent, 21.4 percent and 28.1 percent respectively.

The average time it takes to sell a home has declined.

In 2003, it took, on average, 74 days to sell a home, and last year it took 68.

So far this year, a house sells on an average in 59 days.

“What’s driving it? Depending on who you speak with, even among different economists, you get different explanations,” Eliason said.

“In general terms, just about any factor that affects prices in Kitsap County has been in play.”

Low mortgage rates prompting people to buy, fewer people in more houses and most recently Hurricane Katrina are among the contributing factors.

One factor local home builders and real estate agents point to most frequently is a dwindling supply of houses on the market and lots on which to build new ones.

So far this year, 4.5 percent fewer Kitsap homes have had “For Sale” signs posted out front than there were by the end of August last year. Of 4,578 homes listed for sale, that’s about 200 fewer homes.

The number of lots has decreased roughly 12,000 to 14,000 from the amount available a decade ago, said Art Castle with the Home Builders Association of Kitsap County.

“That means that for builders and people looking to buy a lot to put a home on, there isn’t a lot to choose from,” he said.

So the lot price increases, and roughly every extra dollar spent on a lot means another four dollars on the price of a house.

A decrease in the number of people living in each house has exacerbated the problem.

The average number of people per household dropped from 2.8 in 1990 to 2.5 in 2000, according to the U.S. Census.

“The marketplace had to build 12 percent more (homes) just to house the existing population,” Castle said.

A seasonal slowdown is expected in October — people buy fewer homes during fall and winter months — but it is yet unclear if sales will ramp up again next spring and drive prices again to double-digit increases.

The median house price in Kitsap County last month was $255,000.

By Angela Smith-Dice

asmith@kitsapsun.com
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(Angela Smith-Dice, Kitsap Sun (free sign-up req.), 09.18.2005)