Seattle Bubble

The Washington Center for Real Estate Research at Washington State University recently released a study on housing affordability across our State, and the results were decidedly unsurprising. The Tacoma News-Tribune reports on the study in the classic “good news / bad news” style:

Pierce County scored 104 on WSU’s Housing Affordability Index, where 100 is the break-even point and higher scores mean buyers have more than enough income to buy a home. A score of 104 means a typical family has 104 percent of the income needed to buy an average home – 4 percent more than required.

In contrast, King County’s affordability score is 80.1, meaning the typical family there earns only about 80 percent of the income needed to own an average home. King County’s median home price – the midpoint of all sales – is $390,000.

Bear in mind, that’s the good news—that the “typical” family in King County has 80 percent of the required income to buy a home. Then we get to the bad news:

“More troublesome is the inability to find affordable starter homes,” said Glenn Crellin, the research center’s director.

For the entire state, the first-time buyer affordability index for the fourth quarter stood at 55.8 percent, meaning those buyers on average have about half the needed income to buy a lower-priced home. The typical first-time buyer could afford the typical starter home in only three counties, all in Eastern Washington.

So basically, if you have a home already, you can sell it and cash in on its outrageous “value,” therefore making another similarly inflated house “affordable.” But if you’re like me, and you don’t have an overpriced asset lying around to help you out, you’re pretty much out of luck. Like I said, what a decidedly unsurprising finding.

(Jack Keith, Tacoma News-Tribune, 02.16.2006)

Update: There’s another slightly more in depth story over at the Seattle P-I.

Despite rising prices, higher mortgage rates, declining affordability and fears that a “housing bubble” may be about to burst, the number of homes sold in Washington continued to rise in the final quarter of last year, the Washington Center for Real Estate Research at Washington State University reported Wednesday.

But cold weather and high energy costs slowed the rate of growth to 2.9 percent in the final quarter, compared to the final quarter of 2004, the center said.

(Nicholas K. Geranios, Seattle P-I, 02.15.2006)

Although cooling in the housing market may not have reached Seattle just yet, some of its effects are being felt here:

Responding to the cooling housing market, Washington Mutual Inc., the largest U.S. savings and loan, said on Wednesday that it was laying off 2,500 support employees in its mortgage unit.

The Seattle, Washington-based company said it was also reducing the number of mortgage processing offices to 16 from 26 and sending some of the work to “lower cost domestic and offshore locations.”

I don’t think this would be a good time to be in the mortgage or realty business, as far as job security is concerned.

(Wire Service, Reuters, 02.15.2006)
(Associated Press, via Forbes, 02.15.2006)

A few weeks ago, you may recall, a bill was being proposed in the state legislator to spend away much of the state revenue gained thanks to the real estate boom. Yesterday that bill passed the House.

OLYMPIA — The House approved a $100 million expansion of the state’s housing program Saturday.

The proposal would pump $25 million into the Housing Trust Fund from the state treasury each year for the next four years.

The money would go for rental vouchers for low-income people, services to the homeless, housing for victims of domestic violence, weatherization projects, farmworker housing and development of affordable housing.

“The increasing gap between incomes and housing prices has led to a major housing crisis in our state,” said Rep. Larry Springer, D-Kirkland, the prime sponsor.

“Much of the additional state revenue we have seen this past year is directly linked to the real-estate boom. It only makes sense that we reinvest this money to offset the high price of housing.”

Actually, it only makes sense to me to save the money for the proverbial rainy day, when the bubble finally bursts. But hey, that’s only one of many reasons I’m not a politician.

(David Ammons, Seattle Times, 02.12.2006)

More downtown condo drama rises to the headlines… in Olympia. It’s pretty much the usual debate… cities want more condos, builders want lower fees, cities want more condos and more fees.

OLYMPIA — A developer planning to build 100 condominiums downtown says city, school and development fees are too high and could kill the project.

Jim Potter of Seattle said he faces fees that could top out at $7,000 per condo unit, or $700,000 for the five-story project, envisioned for a parking lot on Columbia Street between Fourth and Fifth avenues.

City officials have made new downtown housing a top priority, and Potter’s condo project is considered critical to boosting downtown’s vitality.

“The big issue remaining is we have these impact fees,” Potter said. “We can’t make the project work at $7,000 a unit.”
…
Some cities, such as Renton, offer the option of waiving impact fees as an incentive to attract housing developments to targeted downtown areas.

“We knew attracting condos to downtown could be a tough sell without some sort of (financial) incentive,” said Alex Pietsch, Renton city administrator. The incentive has lured two condo projects, totalling [sic] about 87 units, he said.

Of course the builder is motivated by higher profits, not some altruistic desire to keep the cost of housing lower. Perhaps they’re thinking ahead, knowing that while $7,000 extra tacked onto the price might not be enough to scare off buyers right now, it may well be by the time the project is finished.

(Jim Szymanski, Katherine Tam, & Rolf Boone, The Olympian, 02.10.2006)

Two local architects take a look at ways to reduce the costs of new home development, and suggest a number of interesting methods.

[Columnist Larry] Cheek takes the $380,000 median-price figure for a house in King County, which includes new and existing stock, and wants that to be a model for all new single-family construction in Seattle. In order to even begin to approach that price goal for a new house, some strategies have to be used to bring costs down.

One method is to look for the ways to obtain land more cheaply, including building in less popular (”up and coming”) neighborhoods, looking at riskier sites (with steep slopes) and buying smaller than standard, but still buildable lots.

Another is to find ways to build more cheaply, including reducing the square footage, minimizing (or eliminating) the garage, building more than one house on a lot, eliminating underused rooms, designing an efficient plan, etc.

Gotta love the euphemism “up and coming” for “just plain dumpy.” If those are the only options, I think I’ll just continue to rent, thank you.

(Jim Burton & Tim Rhodes, Seattle P-I, 02.08.2006)

Here’s an article that goes into some detail on the subject of how much faster than wages housing prices have been rising, specifically in Snohomish County.

The rapid rate of increase the last two years has raised eyebrows in the industry, Hokanson said. “Any time we get into double digits, we’re a little bit concerned.”

The housing price increases have started to outpace the earning power of Snohomish County residents. The average Snohomish County household’s income, according to federal statistics, grew by only 1.8 percent in 2004, the most recent year for which figures were available.

Between 2000 and 2004, average household income grew by 11.7 percent, to about $39,200 from $35,100. But over the same period, median housing prices jumped 28.3 percent, meaning the average family lost ground.

Nothing really new in there that I haven’t been saying already, but since it’s on-topic, it’s always worth mentioning.

(Bryan Corliss, Everett Herald, 02.05.2006)