Uncategorized

Spot the Fundamentals, Addendum

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.


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

26 comments:

  1. 1
    MisterBubble says:

    HA! I didn’t realize that Denver was one of the cities with higher incomes than Seattle!

    I have friends in Denver; I lived there for years. Considering that nearly everything in Denver is cheaper than it is here, that the quality of life is just as high (if not higher), and that it gets over 300 days of sunshine a year, I’m really not feeling the Specialness of Seattle….

    C’mon shugy…tell us why Seattle is so much better than everywhere else. Tell me how the rain, the insular people, and the lack of women make this place the appreciation capital of America!

  2. 2
    Chris says:

    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.

    Can you really be that naive? Have you even bothered to look at $eattle’s per capita pretty pink pony ownership? Does Minneapolis have streets made of crystal? What’s the annual precipitation of gooey, gooey gumdrops in Boston? Does Denver have an enormous magic troll lurking under a major highway?

    You people really need to open your eyes and see that the Emerald City is indeed $pecial.

  3. 3
    matthew says:

    My friend just sold his house in Denver for 202,000. He owned it for 5 years and come out with a whopping 10k in equity after RE fees.

    His wife his homesick for her family in the Seattle area and is making him move. He has been looking at RE in this area and is pissed that he was living in a 200,000 dollar new construction house, and now can’t afford a 1920 POS in Seattle.

    I love Denver, I would move there in a second if my agency would let me. Friendly people, good looking women, lots of outdoor activities, superior mountains to snowboard, sunshine, cheap housing, good transporation system, etc.

  4. 4
    meshugy says:

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

    Tim. I’m glad you to took the time to explain the flaw in your previous post.

    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

    Now, if you look at the actual prices (not just the change, I know you love that), you’ll see a different story.

    Median Prices:
    San Francisco-Oakland-Fremont $718.7
    Washington-Arlington-Alexandria $432.9
    Boston-Cambridge-Quincy – $397.5
    New York-Northern New Jersey-Long Island – $454.1
    Denver-Aurora – $247.5
    Minneapolis-St. Paul-Bloomington – $230.5
    Seattle-Tacoma-Bellevue $335.0

    Source: Latest housing prices for 149 single family home markets.

    So the only two cities that have higher income, and lower prices are Minneapolis-St. Paul and Denver. And quite frankly, I think there may be something a little weird in the data that is ranking those cities as having higher income then Seattle. Better places for pink ponies I guess…

    Either way, all the other cities have significantly higher house prices. The fact that most of them are declining means that they have reached their peak. But Seattle seems to have a long way to grow in price if San Fran is double our price, D.C. is 100K more, New York is over 100K more, etc. But their incomes aren’t that much higher:

    San Francisco-Oakland-Fremont $49,276
    Washington-Arlington-Alexandria $49,530
    Boston-Cambridge-Quincy – $48,158
    New York-Northern New Jersey-Long Island – $45,570
    Denver-Aurora – $42,574
    Minneapolis-St. Paul-Bloomington – $42,083
    Seattle-Tacoma-Bellevue $41,661

    At best, S.F. show an average of $8K a year more, but housing is double. We still have a way to go before incomes and housing prices reach the point they’re at with these other cities. We really seem undervalued….

  5. 5
    Mike says:

    Since when do (recent) prices tie into incomes?

    If individual incomes, as quoted by Mesh are driving prices, there’s some force magically filling in the shortfall. Not just in Seattle, but in every city listed.

    My guess is that shug posted these low income figures to prove that medians are irrelevant.

    They’re only irrelevant as long as people can use appreciation to pay their mortgage.

  6. 6
    Alan says:

    I think prices might be rising because of me. My grandmother always used to tell me that I was very special. Perhaps moving here has caused Seattle to be special too.

    It is unfortunate because now whenever I move somewhere I will not be able to afford to buy.

  7. 7
    Tim says:

    I love the Northwest – I grew up there and will be moving to Seattle within weeks (from SF), but I must say that San Francisco is a much, much, much nicer city than Seattle! Slightly off topic, I know, but there are other factors involved in why SF’s prices are much higher than Seattle’s besides median income. A lot of people buying in SF are located in other cities and want to have a place to stay while they visit. Seattle is a great city, but it will never attract the level of buyers that SF commands (domestically or internationally). While I’m at it, Vancouver is a much nicer city than Seattle as well. Although, their massive build-out of residential condos in the downtown corridor have eliminated a lot of the space for future businesses…which I think is turning Vancouver into more of a destination city leading to less organic growth. Seattle, at least, has this going for it. Reason for moving…I pay $2,300/month for a 1bdrm!!!

  8. 8
    Alan says:

    I apologize for that last comment. I was being silly.

    Shug makes some good points.

    Price elasticity is not necessarily linear. I do not know much about these things, but I expect that the elasticity curve tracks the income distribution. It may be the case that Denver and Minneapolis-St Paul have narrower income distributions (meaning most people make about the same), while SF and DC have wider distributions. Statistical moments (mean, variance, skew, and kurtosis) of the income distributions could be used to support or refute this theory.

    My theory is that rent control reduces supply and raises housing prices. SF, NYC and DC all have rent control. Boston got rid of rent control in 1997. I cannot find anything that says Denver or Minneapolis have rent control. I am assuming they do not. Seattle does not have rent control.

    Santa Monica, Berkeley, West Hollywood, and some towns in New Jersey have rent control (see previous wikipedia article). Sadly, none of those are listed in Personal Income for Metropolitan Areas or the S&P Case-Shiller report.

    The Bubble buster has a graph of Boston housing prices since 1978. It looks like the inflation adjusted real price started going up just after rent control was abolished. That does not seem to support my theory.

    Off topic: I found these great WWII posters while I was writing this post.

  9. 9
    EconE says:

    I apologize for that last comment. I was being silly.

    why apologize?…it was pretty funny.

    oh…and the SM/Weho rent control…hardly an issue anymore…more of a thing of the past.

    Can’t speak for Berkeley because I’m not familiar with the Bay Area.

  10. 10
    Alan says:

    why apologize?…it was pretty funny.

    I worry that sometimes people do not realize when I am being silly.

  11. 11
    The Tim says:

    Now, if you look at the actual prices (not just the change, I know you love that), you’ll see a different story.

    I look at price changes because that is what is relevant. Knowing that actual home prices in Tulare, SD are dirt cheap is useless information. Knowing how cheap they are compared to their historical average and to local incomes is a the only information that it makes any sense to look at.

    So the only two cities that have higher income, and lower prices are Minneapolis-St. Paul and Denver. And quite frankly, I think there may be something a little weird in the data that is ranking those cities as having higher income then Seattle.

    I see. So because two of the cities (on a list of only six) don’t fit your tortured version of reality, you just ignore them? What?

    Either way, all the other cities have significantly higher house prices.

    Now you’re just outright lying. In fact 2 out of the 6 cities have lower house prices than the Seattle area, and yet home prices there are still declining.

    But Seattle seems to have a long way to grow in price if San Fran is double our price, D.C. is 100K more, New York is over 100K more, etc.

    To compare Seattle to San Francisco or New York and say “look, we’re undervalued!” is the height of ridiculousness. No matter what you or I may think, SF and NY are more desirable places to live than Seattle, period. If you think that there is some factor that has appeared in the last five years to make Seattle ~30% more desirable than it was pre-2000, then please explain exactly what that is.

    Honestly I don’t know why I waste my time responding to you, when misleading, self-contradicting, ridiculous, previously-debunked arguments like these are all that you ever bring to the table. I guess I can’t pass up such an easy smackdown.

  12. 12
    Grivetti says:

    If you think that there is some factor that has appeared in the last five years to make Seattle ~30% more desirable than it was pre-2000, then please explain exactly what that is.

    And you’ve hit the nail on the head, period… This is the Meshugy arguement and why most of his points can be tossed to the wayside.

    For starters, whenever the ‘Shugster moved here made it more desireable (apparently), lord knows where he’s from but he wasn’t borned and raised in Seattle, that much I can tell.

    To him, Seattle’s an overpriced iPod. He bought in to the city’s brand name, suckered in by its catchy marketing. “Yeah, I dig Seattle because of the organic lifestyle man!… Ballard Ave’s the new Haight St. circa ’69 man… so groovy”

    Which is funny, because I’ve spent my entire life here (‘cept grad school) and find the town’s Bohemian aspects have almost all but dissappeared..

    The dingy record stores have been replaced by the Starbuck’s CD racks, the vibrant music scene (and I’m not just talking the Grunge-era) has come and gone, Fremont solstice parade is attended by yuppie’s from the eastside… as I drive around, I no longer see the freak flags I once did. They’ve all moved on to greener pastures.

    But see, ‘Shug’s a day-late and a dollar short. The last thing a would-be-hipster wants to be told is that “you’re late to the scene and that the Halcyon days are gone.”

    He’s the epitome of the white-ear buds dude. Seattle’s is a brand name and he paid dearly for it, so to make fun of it, he brags and lies to draw attention to himself to somehow justify his purchase.

    Basically a good reason everyone should boycott his comments.

  13. 13
    Eleua says:

    Who is this Shugy that everyone keeps talking about?

  14. 14
    Alan says:

    I do not buy the argument that SF and NYC have higher RE valuations than Seattle simply because they are more desireable. If that were the case then the incomes would reflect that. Maybe the elasticity curve is that steep, but I my gut says they are not.

    The more I think about it, the more I think rent control is to blame. Newcomers to those cities have to pay higher than free market rates for non-rent controlled apartments. Their higher rents mean their equilibrium price for buying a residence is higher and so prices go up and stay up.

    I wonder if there is any way to get income data on renters vs owners.

  15. 15
    flotown says:

    Speaking of data, why has seattle kept appreciating while other cities have not? Seattle apparently is special in that regard. Is it just timing – late on the up, late on the down? or are other factors – growth management, some kind of weird massive group think exercise..at play here?

    Moving to the empirical, I do think seattle is unique in that I don’t know many people that leave and don’t come back. Its not a sunshine paradise that draws people in droves from all corners of the world, but those who find themselves here tend to like it here. I can’t say the same for more popular cities like DC, SF, NYC, where people show up and do they stint and then move on. SF is the closest comparison of the three in that regard.

  16. 16
    matthew says:

    Flotown,

    I work for the fed govt, and the majority of the people in my office are not from the PNW. I have seen a lot of people move, and not come back.

    In fact, the majority of people in my office that are not from the PNW, are looking to get the hell out. I have spent a good part of my life in the PNW, so I am somewhat different. The climate, the politics, and the overall culture of Seattle doesn’t bother me as much as is does as many of the other people from other areas of the U.S.

    To say that this place is more of a magnet that is luring people back moreso than any other city, I don’t know if I buy that.

  17. 17
    Richard says:

    Moving to the empirical, I do think seattle is unique in that I don’t know many people that leave and don’t come back.

    That’s interesting, over half of my friends and college classmates left Seattle during the 2001-2003 recession for lack of job opportunities. Only one has moved back, and he’s making less here than he was in California (Mechanical Engineer).

  18. 18
    darth_s says:

    I can speak for myself. I spend the majority of my time(I am an immigrant)here in Seattle, and some time in CA and TX. To tell the truth, the city I hate the most is Seattle! The cloudy sky is so depressing. If not for job and relatives, I would not hesitate to move out of here. All of my friends from UW that left for CA never want to come back. In CA, if you don’t have anything to do, you can just go to the beach and relax, enjoy the sunshine. Here, during the dark, wet weekends, there is NOTHING for you to do.

  19. 19
    flotown says:

    So, then, is it fair to say that people who most dislike the city are most inclined to believe that a massive revaluation will occur? I ‘ve heard others post how much they like it here, but think prices are out of whack with fundamentals (like I do), but I’m wondering if the sentiment against the city/region is strong on this board.

    anyhow, I was just tiring of the numbers debate and wanted to hear some opinions om qualitative aspect of the city.

    FYI- I grew up in Norcal. Not that great. I really like Seattle, even despite of the weather.

  20. 20
    matthew says:

    No Flotown, Eleua, Synthetik and The Tim are some of the biggest bubble believers and I believe they all like living in the PNW.

  21. 21
    Kaleetan says:

    Wow, the biggest surprise in this post is that grivetti went to grad school.

    I thought i remember you said that you had a low paying job? Maybe I was thinking of someone else…

    Business? Law?

  22. 22
    darth_s says:

    The point I tried to make is that Seattle is SPECIAL, either specially good or bad, is totally SUBJECTIVE. You can make it either way. I don’t see how you can provide a hard and undisputable argument to support or refute it. So, the only valid arguments are the ones that Tim has been talking all along: job growth, income, population, etc. So far, it seems that there nothing special about Seattle that stands out compared to other bubbling cities that are deflating at this moment.

  23. 23
    Joel says:

    flotown:

    I grew near San Jose, lived in the Philippines for 2 years, Utah for 5 years, Houston for a summer and then here on the Eastside for the last 7 months. I thought I would love Houston because of the heat and humidity (I get hold easily and my skin is always so dry). It ended up being just too hot to do anything outside during the summer which is no fun, although I did like the humidity. Plus the stupid gulf coast has no waves. What’s the point of going to the beach? Utah is blazingly hot and dry during the summer and depressingly cold, dreary and dry during the winter. There’s not a whole lot of diversity and there’s no ocean (waves or no). The South San Francisco Bay Area has the best weather in the world, jobs a plenty, good diversity, large metros, but still close to beautiful natural areas. However, the cost of living is ridiculous and gun laws are oppresive (if you value personal liberty like I do). I personally would never want to live in the People’s Republic of California ever again. The Seattle area is not too dry not too humid. Winters aren’t as harsh as in Utah and the summer and fall are gorgeous. I personally don’t mind the rain after living in the Philippines for 2 years. The job market is good for my field. We live close to nature and the diversity is as good as in California.

    While I like the weather in the Bay Area, I’m not willing to give up my personal freedoms for it. Here in Seattle I get most of what I get in California, plus more money, more freedom and more trees. It’s not perfect, but it’s the best for me.

  24. 24
    uptown says:

    shug –
    Since when is Tacoma (Seattle-Tacoma-Bellevue) part of the Seattle metro area? Including Tacoma (and it’s suburbs) would bring the average cost down of Seattle and the eastside.

    —-
    I love the weather in this area. I found CA weather boring, and BTW: when it rains down there, it pours. In Seattle, it just kind of drizzles for an hour or so; then the sun pops out in the afternoon. Of course, closer to the moutains they get more rain – why MS is in Redmond is beyond me (rain keeps the employees at their desks?).

  25. 25

    […] Doubtful. Again, we’ve covered this before. Incomes are neither growing all that fast, nor high enough to prevent home prices from declining. […]

  26. 26

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Please read the rules before posting a comment.