Our local real estate blog Rain City Real Estate Guide — by realtors, for realtors (my subtitle, not theirs) tackled the topic of a Seattle bubble today. “Eastside Specialist” Chuck Reiling places himself firmly in the “Microsoft will protect us” camp with his post:
The second kind of bubble, let’s call it Type II, seems to occur when there is a limited supply of homes relative to demand, and people start bidding up the prices, i.e. being willing to pay more, in order to get the home they want in the place they want. Jobs and commute times and schools seem to be the big drivers in this. These forces are at work in San Francisco and Los Angeles and San Diego, and they are at work here. In our greater Seattle and east side area, we are blessed with a very strong economy, and continue to enjoy relatively low mortgage interest rates. But we have very restrictive state and local growth management laws and land use ordinances, and building is not keeping up with demand.
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So what should we expect now? First, prices will probably go quite a bit higher. The competition for good houses is intense, and the good economy is feeding good incomes – people are willing to stretch to get the home they want. Second, this ‘bubble’ will probably not burst. Type I speculative bubbles do seem to burst, and they make great news stories. Type II demand-driven bubbles don’t seem to burst, they just seem to pause while the world catches up. Ours doesn’t seem ready to pause yet.
There’s really nothing new there that we haven’t gone over again and again, but it still amazes me that some people really truly believe that Seattle’s current prices are actually justified and sustainable in the long term. The claim that “prices will probably go quite a bit higher” was especially flabbergasting to me. Even with the suicidal financing options out there right now, people are still stretching themselves to the max to afford current prices. What could possibly drive them “quite a bit higher”?
I encourage you to share your thoughts with Chuck in the comments section on his post—just try to be nice, okay?
In other news, I have archived the delightfully witty blog There is no housing bubble!, since the original site vanished from the Internet without explanation a few weeks ago. I miss it already.
Update: RCG contributor Galen Ward chimes in with a post outlining his opinion on the bubble:
I think both sides are taking a foolish black-and-white approach to the bubble question; clearly there are some indicators that there is a real estate bubble, but the consensus seems to be that the risk of home prices plummeting is low. Home prices will probably be flat until inflation prices back to “normal” levels. My concern is that if house prices do pop precipitously, there are going to be serious consequences for home owners and non-homeowners alike.
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…The one argument I do not buy is that our land use laws are making property more expensive; builders are cranking out hundreds units and making loads of money on each unit, meaning they could continue profiting even at lower price levels.
Again I’d like to reiterate my request that my readers exercise civility and friendliness when commenting on these posts.
(Chuck Reiling, Rain City Real Estate Guide, 04.28.2006)
(Galen Ward, Rain City Real Estate Guide, 04.29.2006)
Credit bubble leading to Real Estate Bubble IMO is where we sit.
Chucky, Chuckeeeey…. you sound like a snake oil salesman man! I’m sitting on a half mill cash and I would not touch this market with a ten foot pole. Yeah, I’m from Cali and your eyes are big but Seattle will go down as every bubble town in this country. Why is Au over 600 an oz?
As usual, Chuck misses the point: yes, people live in houses, but current housing demand is primarily speculative; the only reason people are buying in volume at absurd prices is because they expect to sell for even more absurd prices later. Though Ponzi demand may continue for a surprisingly long time, the supply of greater fools is finite – a fact which those caught up in the excitement invariably forget or ignore.
Type II demand-driven bubbles don’t seem to burst, they just seem to pause while the world catches up.
The distinction made between bubble types is sophism. If demand is based on fundamentals, then it’s not a bubble. And though not all bubbles burst (fundamentals can develop over time), all bubbles are certainly capable of bursting. Making false distinctions between bubble types and assigning risk to one type but not the other is wishful thinking at best; at worst, it is outright deceit trotted out as reassuring fact.
And did he say really say “while the world catches up”? Great, I’ll look forward to my salary doubling soon.
Betamax,
You nailed it. If salaries don’t catch up, the bubble will burst.
That was the difference between the previous runup and this one. Inflation can only find its way to housing via wages/salaries.
Keep a lid on salaries, and housing won’t go anywhere.
I too wondered why the “There Is No Housing Bubble” blog disappeared without an explaination. Weird.
“people are willing to stretch to get the home they want”
just substitute ‘people’ for ’suckers’ and I think you get the gist of this article
Act fast: In many Seattle neighborhoods, few homes are for sale
Although most of this article is derived from a Realtor, it correlates pretty well with my own observations of the market in N.Seattle. (i.e., tight inventory, bidding wars, and soaring prices. However, I don’t feel it’s a “remake of 2005.” I think it’s a little slower this year. We’ll know more when the MLS #s come out next Friday.
Just north of downtown Seattle, where the competition is the fiercest, buyers find that anything in livable condition priced fairly and under $500,000 is selling almost instantly, said Jon Hunter, a John L. Scott agent who works that area.
“Every home under $450,000 is getting multiple offers,” Hunter said. “It’s pretty insane.”
“It’s also keeping King County prices climbing, putting to rest any notion that ours is a “bubble market” where prices will stall or even fall.”
Put to rest? ROFL
This chart is interesting…..it shows inventory and pending sales by neigborhood. Just about everything in N.Seattle has over a 100% sale rate. Seems that houses are selling faster then they can be listed.
See: Chart
Well that’s depressing.
Anybody have a good theory for why the inventory is so incredibly low lately? Something weird is going on . . . I feel a disturbance in the Force.
inventory is actually a lot higher then last year..almost double in some areas (which isn’t saying much because it’s still super low). But sales are keeping up so the market is still very compettitve. However, I think the overbidding is probably slowing down a bit. You don’t see houses 50K-70K overbid as much as you used to. It’s now more like 10K-30K over. But the base prices are higher, so the median price is still inching up.
Is the whole “Type I”, “Type II” bubble nominclature something these realtors made up? I have not encountered it before.
If you look at prices in the San Francisco bay area, you would conclude that Seattle has a long way to go before there is a real bubble. Urban areas with strong economies can sustain median house prices way over the median income–it just means that most folks cannot afford to buy unless they have equity, or outside help.
I have been hearing so much about this housing boom bubble and how it will burst. I will tell you one thing that I have sure noticed. A lot of people are getting thier real estate licenses. Our website The Real Estate License Professor helps future realtors realize thier career goals and I tell you we have helped a lot of these people lately. I am not sure if this will affect supply or demand having so many “middle men” selling but it sure is a sign that real estate is hot. I hope it stays that way.
Keep dreaming, Tom… keep dreaming.
[...] a lot better than the fingers-in-ears, “la la la, I can’t hear you” approach we’ve seen on other local real estate blogs. I may not agree with all of the conclusions he comes to, but at [...]