Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries from March 30th, 2007

Office space in Snohomish Co. 17-18% vacant, Industrial good.

By S-Crow on March 30th, 2007 at 8:00 AM · 12 Comments

Speaking of small business creating jobs: Snohomish Co. office space is currently showing vacancy at about 18%. In Lynnwood, the office vacancy rate is approximately 25-30%. Industrial space (read: Boeing & suppliers) appears firm.

Office space, meanwhile, remains harder to fill. Cushman & Wakefield and Colliers International commercial property firms reported that 17 to 18 percent of the county’s premier office space was empty last quarter.

“The cause and effect of this is that tightening in King County tends to push people up I-5 to Snohomish County,” Hoban said, though he said there are also a few new businesses sprouting up locally that have leased offices in Everett.

I suppose one could argue that just because there is a good chunk of office space available for small business (who typically drive the economy with job creation), that does not mean that hiring is slowing. Mixed signals?

Doing business in Edmonds recently, I noticed the sign-carrying-day-workers holding large signs on the corner of 205th & Hwy 99. “Comp USA Closing: everything 30-50% off.” I also recently read that Circuit City is laying off staff. If consumer products are flying off shelves at these stores, why are these stores closing and laying off staff? What businesses will be taking over these large stores once they vacate?

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Spot the Fundamentals, Addendum

By The Tim on March 29th, 2007 at 4:58 PM · 26 Comments

Fact: As of 2005, Seattle area per capita income is the 15th highest in the nation (source).

Fantasy: “That pretty much says it all.” i.e. – Incomes in the Seattle area are so high, that it doesn’t matter how slowly they are growing. High incomes alone will keep home prices from falling.

Reality: Of the six metro areas with higher per capita incomes than Seattle in 2005 that are included in the S&P/Case-Shiller Home Price Index, all six have experienced YOY home price declines in the past year (source). Three of the six have experienced a smaller total increase in home prices since 2000 than Seattle.

The table below shows Seattle and the six other metro areas with larger per capita incomes that are also covered by the S&P/Case-Shiller Home Price Index. “S&P HPI” values are normalized to 100 in January 2000, so the present value (January 2007) indicates how much home prices have risen since then.

Rank Metro Area S&P HPI YOY Chg
2 San Francisco, CA 211.77 -1.4%
4 Washington, DC 238.05 -3.9%
5 Boston, MA 168.28 -5.6%
8 New York, NY 211.50 -0.9%
13 Denver, CO 135.86 -1.1%
14 Minneapolis-St. Paul, MN 167.98 -0.9%
15 Seattle, WA 183.92 +11.0%

Seattle definitely sticks out as an apparent winner, for now. Honestly, I don’t know the reason that prices are continuing to rise here, but I do know some things that are not the reason, and “high incomes” is one of those things.

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Spot the Fundamentals

By The Tim on March 28th, 2007 at 8:47 PM · 35 Comments

Let’s play a game. It’s called “Spot the Fundamentals,” and the way we play it is by looking at some of the “fundamentals” to figure out which ones are responsible for our area’s high home prices.

The frequent condescending argument of the cadre of Seattle area housing bulls (real estate agents, “analysts,” the press, and increasingly combative blog commenters—whom I suggest we all ignore) is that unlike most of the rest of the nation, Seattle home prices are firmly supported by strong fundamentals such as exceptional job growth, high-paying jobs, and increasing population, and as such will not decline.

Let’s play “Spot the Fundamentals” to see how well that claim holds up.

Job Growth
The Seattle area has “strong job growth,” right?

Well sure, if you call 3% growth in the last year “strong.” Of course, while Seattle was one of the few parts of the nation where housing prices rose double-digits last year, there were 85 Metropolitan Statistical Areas that had better “job growth.”

Unfortunately for the Bull Cadre, a 3% increase in jobs does not account for an 11% increase in home prices during the same time frame. As we have previously explored in detail, job growth (and reduction) in the Puget Sound has had little to no correlation with housing prices.

High-Paying Jobs
Yeah, but even though the job market isn’t growing by leaps and bounds, thanks Microsoft, salaries are shooting through the roof… right?

Hmm, maybe not. In fact, income growth in the Seattle area was so slow recently that we made it onto a “lowest of” list. Somehow I must have missed it when that little news tidbit hit the papers.

Another swing and a miss for the Bull Cadre.

Population Growth
Well, people are moving here faster than ever, so that pretty much forces home prices higher, doesn’t it?

County 2000 pop. 2005 est. % chg. %/year
King 1,737,034 1,793,583 3.26% 0.64%
Pierce 700,820 753,787 7.56% 1.47%
Snohomish 606,024 655,944 8.24% 1.60%

(source)

Not. If there actually were people moving here in droves, then yeah, that would explain home prices rising an average of 9.4% per year (King County SFH, 2000-2005). However, that clearly does not describe reality.

Looks like strike three for the Bull Cadre.

Fundamentals vs. Speculation
Here’s a refresher:

As I have demonstrated before, Seattle area rents (which are not subject to speculation) have indeed been tracking fairly well with “the fundamentals.” Home prices clearly have not.

How anyone can (with a straight face) argue that “strong fundamentals” will prop up Seattle area housing prices, when they have so clearly been propelled by factors other than fundamentals, is completely beyond me. You can believe whatever you want to believe about where prices will go from here, but to say that they will be propped up by “strong fundamentals” is just willful ignorance, in my opinion.

If anyone believes they can explain how Seattle home prices have actually been tied to fundamentals since 2000, and wishes to civilly bring such an argument to the table, backed up by hard data (such as what is found in this post), then by all means be my guest. However, don’t waste your time with one-liners, “bitter renter” put-downs, and simplistic observations of inventory and ongoing price increases, as they will be ignored.

(Bureau of Labor Statistics, US Dept. of Labor, 01.2007)
(Bureau of Economic Analysis, US Dept. of Commerce, 09.2006)
(US Census Bureau, Population data: 2000-2005, 2005)
(King County Budget Office, Affordable Housing 2006, 01.2007)

Thanks go out to reader Dennis O. for pointing out some of the data in this post.

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Case-Shiller: Prices Flat in Seattle

By The Tim on March 27th, 2007 at 9:26 AM · 94 Comments

Uh-oh…

Home prices go negative for first time in 11 years
Case-Shiller price index shows prices falling in 17 of 20 cities in January

WASHINGTON (MarketWatch) — U.S. home prices continued to fall in January, with prices in 10 major cities now down 0.7% year-over-year, according to Standard & Poor’s and MacroMarkets LLC, which released the January Case-Shiller price indexes on Tuesday.

The 10-city index is down 0.7% in the past year, the first year-over-year negative reading since 1996. The 20-city index is down 0.2% year-over-year. A year ago, prices were rising 15%.

“The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market,” said Robert J. Shiller, chief economist at MacroMarkets, in a statement.

Of course, since you already know how special Seattle is, you obviously know it was one of the three cities in which prices are not presently falling. But the picture isn’t quite as rosy as you might think…

Home prices fell from December to January in 17 of the 20 cities; only Miami showed any price gains. Prices were flat in Charlotte, N.C., and Seattle. Prices were falling fastest in January in San Diego, down 1.7%, or a 22.4% annual rate. Prices dropped 1.1% in Los Angeles, or a 14% annual rate.

The 10-city index was down 0.8% in January, or an annual rate of 10%. The 20-city index was down 0.7% in January, or an 8.7% annual rate.

Eleven of the 20 cities had negative price appreciation in the past year, led by Detroit (down 6.9%) and Boston (down 5.6%). The biggest increases were in Seattle (up 11.1%) and Portland, Ore. (up 8.7%).

Prices have now retreated year-over-year in some of the regions that had the biggest price gains in 2004 and 2005. Phoenix is down 0.7% year-over-year. San Francisco is down 1.4%. Washington is down 3.9%.

I am reminded of an image that was circulating a while back. It was a photograph of a roller coaster just as the cars crested the peak and began the ride down. The various cars were labeled as different cities around the country, with San Diego in front (beginning to head down quickly), Phoenix in the middle (just starting a downward trend), and Seattle in the back (just “leveling off”).

To me, it only makes sense that the cities that began the ridiculous run-up first (San Diego, Phoenix, etc.) will be the first to head down. Conversely, cities that were late to the wild appreciation party (Seattle, Portland, etc.) will be the last to experience price declines. But why bother with “logic” and “reason” when you can put your blind faith in the mystic power of “job growth” and undefined “fundamentals.” 11.1% forever!

(Rex Nutting, MarketWatch, 03.27.2007)

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Condomania in Tacoma!

By synthetik on March 26th, 2007 at 8:10 PM · 41 Comments

Tacoma: Your mission, should you choose to accept it, is to sell 1,500 high-end condos in 14 months:

Hundreds of new, pricey condominiums exclude young singles needed for a thriving city core, according to the author of a study analyzing the downtown housing market.

Builders and developers say land costs and water views push prices beyond the mid-$200,000 range generally considered doable for the first-time buyer. And even though the number of unsold units remains high in some neighborhoods, they say demand is strong for high-end condos. Tacoma’s average new condominium price, according to the study, was $348,893 at the end of last year.

The 149-page report, finished last week, identified three kinds of future condo buyers: female baby boomers, young professionals, and married folks with no children at home. It recommended adding edgy lofts and more small spaces that Generation Y buyers can afford.
…
As of December, all six neighborhoods surveyed averaged 14 months of condominium inventory, which measures how long it would take to sell everything built and approved.

A healthy market for new construction tends to be in the six- to 12-month range, said Deanna Sihon, the study’s author.
…
Since 2004, nearly 400 condos have been sold downtown with another 525 for sale and about 1,500 proposed, according to the study.
…
A year ago, a hot market meant condo shoppers had to make rapid buying decisions, said RE/MAX real estate agent George Pilant.

Not so now.

“Buyers have so many choices they don’t feel a sense of urgency,” he said.
…
As in any type of residential real estate, demand is driven by population and job growth, said Paul Turek, an economist with the state Employment Security Department.

But condos are a niche product that at higher inventory levels, he said, raise this question: Will good-paying jobs needed to sell such downtown housing continue to be created?

“I suppose that’s where the gamble is,” he said. “In the Tacoma area, we have some high-paying jobs. Whether there’s enough to support the building of the condos remains to be seen.”

Good luck with that. Seriously.

(Devona Wells, Tacoma News-Tribune, 03.25.2007)

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Condomania in Everett!

By synthetik on March 26th, 2007 at 7:53 PM · 6 Comments

Better be careful the next time you drive through Everett, you’re likely to get burned, the condo market there is so hot!

On paper at least, downtown Everett is poised for explosive growth.

Nearly 800 new downtown condos and apartments are in various stages of planning.

There’s a good chance some of the projects scattered across a dozen development sites will not get off the ground, officials acknowledge.

Still, long-term growth, a property tax subsidy and a strong local economy, buoyed by jet sales at the Boeing Co.’s Everett factory, work in the city’s favor.

…

The condo market in the Puget Sound area remains hot, in spite of a wave of foreclosures and slumping housing sales creating jitters and sliding prices elsewhere.

Developers in Everett talk about “pent-up demand” and say they aren’t deeply concerned their projects will create a glut of vacant condos for sale, as is the case in Las Vegas and parts of Florida.

“I think the local market is way stronger than people realize,” said Joe Zlab, who plans to break ground on Rockefeller Square, a 40-unit condo building on Rockefeller Avenue, north of Everett Avenue, this spring.

…

It’s only a matter of time before Everett begins to resemble more affluent Seattle suburbs, including Bellevue or Kirkland, said Anthony Aversano, a Mountlake Terrace remodeling contractor.

“Seattle is overpriced, Bellevue has access problems and is also too expensive,” Aversano said. “It’s not a place where people can go unless you’re working for Microsoft and have been there for a long time.”

Gus Boutsinis, a Mill Creek developer working on a 130-unit condo project on 41st Street and Colby Avenue, agrees.

“We think Everett is ready,” he said. “It’s where Seattle was 15 or 20 years ago.

Yow! Smokin!

(David Chircop, Everett Herald, 03.25.2007)

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