Seattle Bubble

Ooooh, I can see the future. In a story tomorrow that has a very familiar theme, the Seattle P-I takes a look at the affordability of housing (both buying and renting) for lower income families in Seattle.

Last year, the housing affordability gap — the difference between what lower income workers can pay for homes and what typical homes cost — got even wider, according to the report, “Communities Count: Social and Health Indicators Across King County.”

The rising cost of housing in Seattle threatens to reshape the city proper, forcing poorer families to outlying towns and ultimately threatening Seattle’s economic diversity and vitality, said Stephen Norman, executive director of the King County Housing Authority.

That sounds an awful lot like the point I was making back in August:

So what does this all mean? If housing prices, and especially rent, keep going up, people working low-wage jobs will be faced with two choices: become homeless or move to a cheaper city.

But wait, there’s more… Continuing from tomorrow’s P-I article:

In the 1990s, Seattle stood out as one of only five major cities among 23 in which the home ownership rate fell, in a study by the Washington, D.C.-based Brookings Institution. The national ownership rate rose to 66 percent.

Seattle’s low rate could create problems around the city, because a home is the main tool that lower- and middle-income families use to accumulate wealth, said Nicolas Retsinas, head of Harvard University’s Joint Center on Housing Studies. “If those opportunities don’t exist in cities, that is more incentive for them to go farther and farther out.”

Are the people out there that are literally banking on continuing double-digit appreciation even stopping to consider what would have to happen for 15-20% gains to continue much longer? I believe that economic reality will eventually set in here in Seattle. Either housing costs will come back down out of orbit, or we’ll lose our low-income workforce.

(Paul Nyhan, Seattle P-I, 12.10.2005)

Here’s a report on the opinion of yet another “senior economist,” this one from California.

Keitaro Matsuda, senior economist for Union Bank of California, issued his December 2005 Economic Update for the Pacific Northwest on Wednesday.
…
• While the largest number of new jobs has come from the trade and transportation sector, construction was the fastest-growing industry, up 8.1 percent in the state over the past year.

• Washington has been ranked ninth among the 50 states in terms of home-price appreciation in the third quarter, up 15.6 percent. Last year, Washington placed 21st.

“There is no doubt that the Pacific Northwest economy will maintain considerable momentum in 2006,” Matsuda wrote. “How the region will ultimately fare next year is likely to depend, to a large extent, on the strength of its housing market.”

Mr. Matsuda seems quite optimistic about the economic forecast of the Pacific Northwest, although even he admits that recent improvements are largely being driven by the housing market. If the housing market turns, there goes our “spectacular” job growth.

(C.R. Roberts, Tacoma News-Tribune, 12.08.2005)

Here’s a pair of stories about local governments’ plan to up fees and permit costs for new construction. In Thurston County it’s “lot approval” while in Pierce County it’s “traffic fees.” Any way you cut it, it’s more taxes. Says the Olympian about Thurston County:

And with $1.8 million in services the county can’t afford to pay for in 2006, they’re eager to free up the $700,000 to spend on something else.

So, in spite of the fact that tax assessments are rising, and county revenue is bubbling over, they’re still coming up $1.8 million short? Hmm. And in Tacoma:

The legislation, requested by the County Council and proposed by County Executive John Ladenburg, aims to reduce traffic congestion at key roads and intersections.

It would charge as much as $3,300 per new house – depending on the location – and raise about $189 million over 20 years to help widen roads and install traffic signals, among other improvements.

Because more people moving in apparently doesn’t equal more people paying existing taxes that support roads and traffic improvements. We need more money for that.

(Jennifer Latson, The Olympian, 12.07.2005)
(Aaron Corvin, Tacoma News-Tribune, 12.07.2005)

KOMO News and The Olympian must not have gotten November’s numbers last night like everyone else. Well, they’ve got them in hand now, so here for your reading pleasure (or frustration) are a couple more takes on November’s numbers, including a specific look at the South Sound, where prices were particularly stagnant:

The holiday season, colder weather and rising interest rates combined to cool South Sound’s hot real estate market slightly in November, Realtors said.

Sales for the month were down 4 percent compared with last year and, for the second time this year, the median monthly sales price dropped from the month before.
…
As demand dropped with the temperatures, a positive result for potential buyers was the year’s largest inventory of homes for sale last month. The inventory was 1,095 homes, up from 827 the same time last year.

People (realtors anyway) always say “they’re not making any more land.” Apparently in the South Sound, they are. I jest, but hey, if the realtors can oversimplify things, so can I.

(KOMO News, 12.06.2005)
(Jim Szymanski, The Olympian, 12.06.2005)

November numbers were released today by the Northwest Multiple Listing Service. You can check out the raw numbers here in PDF format, or you’ve got your pick of four local papers and their commentary on what the numbers “mean”:

Much like the movie “Groundhog Day,” the latest news on local home sales may sound like a rerun of the previous months — no slowdown in the market despite fierce competition, rising prices and higher interest rates.

But the number of properties that buyers can choose from is down substantially from last year. These are not the conditions that foretell the bursting of a real-estate bubble.

Executive summary: Prices still 15% higher than a year ago, but stagnating since about August of this year, with combined sales of $349,950 in August, and $350,000 in November. I probably have just as much qualification to offer analysis of these numbers as any of the newspaper reporters writing these articles, which is to say “none at all.” I guess we’ll just see what happens.

(Elizabeth Rhodes, Seattle Times, 12.06.2005)
(Kristen Millares Bolt, Seattle P-I, 12.06.2005)
(Clayton Park, King County Journal, 12.06.2005)
(Barbara Clements, Tacoma News-Tribune, 12.05.2005)

Business leaders seem optimistic about business growth prospects in the Puget Sound area, and as a result expect to see a “soft landing” in housing:

A national economist predicted Thursday that job growth in King County will continue to outpace the nation as a whole next year.

The forecast by Alison Lynn Reaser, chief economist for Bank of America’s Investment Strategies Group, underscores the findings of a new survey of business executives from throughout the county who expressed optimism about the local economy in 2006.
…
Reaser said she expects a “soft landing” for the U.S. housing market in 2006 in the form of a slowdown in rising home prices from the breakneck pace of “double-digit” growth seen throughout the country, including the Puget Sound region, this year.

Certainly if the jobs keep coming, the worst case scenario for housing is likely a gradual slow-down to more sane levels of appreciation. Realistically though, who can say with any certainty what the job market will look like a year from now?

(Clayton Park, King County Journal, 12.02.2005)