Gangbuster Job Growth, Lackluster Incomes

One of the most frequent arguments you’ll hear if you ask someone to try to justify Seattle’s high home prices is job growth. It usually sounds something like this: “We’ve got Boeing and Microsoft, and all these highly-paid, high-tech jobs are continually being added to our strong economy.”

Well, as you all know, we’ve beat this subject to death around here, but Seattle Times business reporter Drew DeSilver brought some excellent statistics to the table yesterday that simply cannot be ignored.

Four years into the recovery from the steep recession of the early 2000s, the state’s economy is by most accounts humming like a well-tuned V-6 engine. More Washingtonians are working than ever before, the state unemployment rate hovers near a 30-year low, and last year the state’s average wage rose 5.3 percent.

But those top-line measures don’t tell the whole story: A Seattle Times analysis of state jobs data shows that most of the new jobs created in the current expansion don’t pay all that well, and fewer high-wage jobs have been generated than during the late-1990s boom.

Consider:

  • Of the 240,000 jobs created in Washington between 2002 and 2006, almost 70 percent were in fields where the average weekly pay was less than $832 a week (or $43,264 a year). That’s the income calculated as a “living wage” in Washington for a family of two adults and two children, according to Penn State’s Poverty in America project.

  • Several of the fastest-growing job categories — in retail, hospitality, agriculture and social services — were at the lower end of the wage scale.

    For instance, more than 26,000 administrative and support jobs have been created, with an average weekly wage of $605 — about $31,500 a year. General retailers added almost 9,900 jobs, paying on average $460.53 a week, or less than $24,000 a year. Bars and restaurants generated more than 20,000 jobs, paying an average of about $280 a week, or $14,550 a year, though those workers rely on tips for much of their pay.

  • The current recovery has so far generated far fewer high-paying jobs than the last boom, which ran roughly from 1995 to 2000.

    those heady dot-com years
    those heady dot-com years

    During those heady dot-com years, businesses statewide created more than 99,000 jobs paying more than $50,000 a year — 30.6 percent of all new jobs — primarily in Internet, telecommunications and other high-technology fields.

    But between 2002 and 2006, just 57,000 jobs paying above $50,000 were created in Washington — 23.7 percent of the total.

  • Many high-paying industries — notably telecommunications, electronics manufacturing and air transportation — have continued shedding jobs during the current recovery. Statewide, those three sectors combined to lose more than 11,000 jobs, with an average weekly wage of $1,275.59, between 2002 and 2006.

Keep in mind that in order to afford the median house in King County ($470,000 as of June), an family must have a gross yearly income of $95,000, assuming they have the $94,000 down payment. If they’ve only got enough for 5% down, it would take $115,000 in yearly income.

If the Times’ analysis is to be believed, there is pretty much no way that high-paying jobs have been the driving force behind Seattle’s housing boom. In fact, it’s just the opposite:

As a rule, economists say, higher-wage jobs support lower-wage ones: The Boeing machinist buying camping gear helps sustain the sales clerk who sells it to him. As high-paying jobs boomed during the 1990s, so did those further down the wage scale: The same tech boom that generated 14,485 software jobs (average pay, including options payouts: well over $250,000) created 36,430 administrative-support jobs (average pay: about $23,560).

But until fairly recently in the current expansion, lower-paying jobs were being created without much of a bump in higher-paying jobs. So where was the support coming from?

Housing. More specifically, the housing boom that has boosted home values across much of the state and sent Seattle-area home prices into the ionosphere.

As house values soared and mortgage rates fell, homeowners had the best of both worlds. Even if you lost your dot-com job and were temping to pay the bills, you could refinance your mortgage or tap into your home’s equity to maintain your spending levels. And tens of thousands of people did just that.

“The housing boom definitely brought about a different kind of growth,” said Andrew Gledhill, who tracks Washington for the research firm Moody’s Economy.com. Especially early in the recovery, he said, retail jobs grew much faster in Washington than in the nation at large.

“There’ve been few other periods in history when home values were appreciating so much and people were borrowing so aggressively on the value of their homes,” Gledhill said.

Until about 2005, the state’s fastest-growing job categories tended to be either real-estate related (construction, mortgage banking, real-estate brokers, etc.) or in the retail and hospitality industries.

But as Kriss Sjoblom, an economist at the business-oriented Washington Research Council noted, “Construction can carry an economy in the short term, but not in the long term.”

That sounds pretty similar to what I said about the whole jobs situation back in May of last year:

So here’s my thesis: Jobs (at least partly) drive housing. The job situation in Washington (and the Seattle area) has been doing pretty well lately. However, a large amount of the job growth has been in housing-related industry. Therefore, when housing slows due to other forces (such as increasing interest rates or higher lending standards), the job market will slow, thus causing housing to slow further. Lastly, high tech jobs—including Microsoft—are not growing at a fast enough rate to rescue us when/if construction and real estate experience a significant slowdown.

In conclusion, high-paying jobs at Boeing and Microsoft are not going to keep Seattle home prices afloat. It’s not that such jobs don’t exist, it’s just that they’re such a tiny percentage of the total number of jobs being created, that their effect on the housing market is extremely limited.

Take us home, Drew.

However, many of the state’s core industries — those that both employ a lot of people and pay well — haven’t grown at the pace seen in previous years.

Consider aerospace again. The last time the industry went on a hiring binge, between 1996 and 1998, it added 33,100 jobs in the span of 2-½ years.

Boeing, which employed 104,000 Washingtonians at the peak of the last cycle in June 1998, reported just 71,781 Washington workers at the end of July — despite the big buildup for the new 787 Dreamliner jet. The leaner payroll is a consequence of the company’s aggressive streamlining of its production processes and outsourcing of much work previously done in-house.

Even software, which barely took a breather during the recession, isn’t adding to payroll the way it used to. The software sector routinely posted job growth in double digits during the 1990s, but since the end of the recession growth has been mostly in the 6 to 7 percent range.

(Drew DeSilver, Seattle Times, 08.05.2007)


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.

36 comments:

  1. 1
    Grvetti says:

    This was a great article…

    Well one thing is obvious, according to Elizabeth Rhodes, not only must the Real Estate advertising department is located in a different building from her desk (you know, to avoid the appearance of impropriety with the S.Times pay masters?), I can only assume Drew’s desk is somewhere in another building as well, because she obvious can’t get it together to back blanket Realtor statements about “robust job-growth driving housing demand” with any sort of statistic or fact…

    Remember these Rhodester gems?…

    “All the fundamentals are in place for good job growth and in-migration…Fueling the replay will be wage and job growth, which spur demand,”

  2. 2
    SLTO says:

    are the days of honest reporting finally back? The kool-aide must be running dry and the party sobering up…

    considering the media always lags actual events… I wonder what’s next…

  3. 3
    Buceri says:

    Then, cheap money is to blame. What else is there?

    Off topic; but related. It’s very telling when Wal-Mart blames gas prices for not hitting their numbers. Gas goes up 30% in a year, so the monthly household gas bill goes from let’s say $200 to $260. Wal-mart housholds can not absorve the $60 increase? Imagine what $200 to $500 mortgage jumps do to those families.

  4. 4
    Buceri says:

    I am sorry for the spelling on the previous post.

  5. 5

    I’D ADD ANOTHER STATISTIC

    There are only $30-40K lower paying jobs available and the average Seattle household income is 1.2 workers, as its been at that average level for decades.

    Can Seattle families afford $1000 1-2 bdrm apartment rent, let alone its clear they don’t qualify for a Seattle Condo anymore?

    I imagine Texas or cheaper midwest states are looking far better for a lot of salary stretched Seatte-ites. Its also ludicrous to think with all the guest worker and outsourcing hitting Seattle’s dwindling low pay job market, that all the stay-at-home moms can get jobs to double up the incomes….

    Since when did it take two incomes to survive in America?

  6. 6
    mr beeth says:

    more than likely the loss of profit at wal-mart from gas prices comes from their increased cost of shipping. if they haven’t raised their prices, they lost profit margin based on increased cost of operation.

  7. 7
    Buceri says:

    Mr beeth; wal-mart and money managers that follow the stock have been very clear. There was a decrease in business based on low income shoppers not spending; this income level makes the core customer base for Wal-Mart (while Costco’s numbers are still going up). Throw in there that these low/mid wage workers rarely have proper health insurance, and it comes as no surprise that there is a significant percentage of families in this country that are one paycheck away from bankruptcy. The Japanese have their savings to weather their financial storms; we do not.

  8. 8
    Carlislematthew says:

    I very much agree with the article, and the reasoning behind it. It’s obvious to almost all intelligent observers that the market has been inflated by risky financing which is now coming to an end.

    However, I think we should be careful about using the entire range of incomes to decide if something is affordable or not. Whether you like it or not, low income jobs have RARELY given families the ability to own a home. I believe the rough percentage is that about 30-35% of residences are rented. If you look at the incomes, you’ll find that these people *tend* to have lower incomes. (yes yes, there are exceptions of course, no need to get all weird and start foaming at the mouth). So when you look at the median income, you cannot directly compare that to the median value of a house for sale.

    What you *can* do is look at the median income of people looking to buy a house and compare that. It’s possible and perhaps even very likely that the only people buying that come into the state are the ones with high incomes. It doesn’t matter that it’s a small percentage, but if they’re all looking to buy houses, that will affect prices. I mean, inventory is at about 10,000 right now and that’s high compared to the last few years. It only takes 5000 additional buyers a year to put a large bump in demand.

    Where I think the traditional “echo chamber” journalist goes wrong is that the demand created would in no way have inflated the prices to the point they are at today without stupid financing. Prices would have perhaps gone up 5% a year, people would have bitched they couldn’t afford a house, builders would have caught up, and we would have been fine.

  9. 9
    Mike2 says:

    ” Wal-mart housholds can not absorve the $60 increase?”

    The average Wal*Mart shopper has a family income of $40K.

    Imagine that. A family living on $40K/yr. In a society where a low 6 figure family income is just a step above working poor, Wal*Mart is in the extreme low end of retailing.

  10. 10
    Buceri says:

    Mike2; they are the biggest retailer in the world and their core $$$ come from the US. And $40K is very close to the national household mediam income these days ($48K?). About $17K is the government poverty threshold. If your household income is over $100K, your are at the top 5%. Might be sad; but true.

  11. 11
    Matthew says:

    I believe this all comes back to the point that Eleua has been making for a while.

    What if housing IS the economy?

  12. 12

    Hi Carlislematthew,

    Yes, I agree, since 1978, housing in Seattle has always been a top 20% of the income level endeavor. The problem is “new jobs”.

    There simply aren’t enough higher paying “new jobs” to help Seattle. The unemployment rate is just a barometer of what we’ve settled down for in salaries.

    Some of laid off Seattle-ites from 2002-2003 could get re-hired by Boeing lately, but ya know, they likely aren’t in the “current” housing market anyway, they bought in a long time ago.

    Its new young blood you need and guest workers make even less than most domestic re-hired laid offs. Its hopeless to expect Bill Gates’ type foreign outsourcing to help Seattle real estate.

    We need a major interest rate uptick to support domestic retirement annuities too, or hardly no one will be able to afford to retire earlier to let our kids in sooner to the dwindling Boeing type employment.

    Think about it pragmatically, low interest might have kept homes selling temporarily [but the subprime monster payment downturn is growing each day, as we recalculate their mortgage payment contracts in coming years for low income subprime families, most of the new Seattle real estate market], but it also keeps retirees not in the housing market at work longer….

  13. 13
    rose-colored-coolaid says:

    Carlislematthew, I think your statement is pretty accurate, but about 70% of households are currently home owners. So what you really want to compare is median income of the top 70% with median home prices. That would certainly lessen the disconnect, but I think not by much.

  14. 14
    Joel says:

    It’s possible and perhaps even very likely that the only people buying that come into the state are the ones with high incomes.

    You’ve obviously never heard of Interest Only, Pay Option Arm, 0% down, and Stated Income loans.

  15. 15
    nitsuj says:

    http://seattletimes.nwsource.com/html/businesstechnology/2003823451_mortgage06.html

    “Seattle-based Washington Mutual, another big lender, in March stopped offering such loans to subprime borrowers, typically people with poor credit. It also reduced the size of loans to other borrowers.

    “It used to be that we would finance a loan up to $1 million with no down payment for a first-time homebuyer,” said Daniel H. Aminoff, a senior loan consultant at Washington Mutual Home Loans in Alexandria, Va. “But as of March, we will only finance a loan of $417,000 with no down payment.””

  16. 16
    explorer says:

    A more realistic article about what most everyone has known on the street for many years is long overdue. Better late than never.

    Anyone have recent stats for the actual percentage of renters in-city in Seattle, or where objective data can be found outside of the 2005 census?

    Last I heard renters were slightly just over 50%. That incuded a lot of people who are renting SFH’s, not just apartment and repartment dwellers.

  17. 17
    Mike2 says:

    “But as of March, we will only finance a loan of $417,000 with no down payment.””

    Ha, Meshugy couldn’t afford to buy his own house again even at 2005 prices using todays standards.

  18. 18
    PDX Renter says:

    http://www.bestplaces.net/city/Seattle_WA-55363000031.aspx

    Data updated January 2007

    Renters make up 50.39% of the Seattle, WA, population

  19. 19
    Buceri says:

    “we will only finance a loan of $417,000”. Yeah, a mortgage of $417K is manageable!!!

  20. 20
    Nude says:

    PDX Renter,

    I think King County as a whole is probably a better representation of the area. According to Sperling’s 39% of King county rents… http://www.bestplaces.net/County/King_WA-HOUSING-DATA-45303300031.aspx

  21. 21
    Dan says:

    Good info…rising credit rates are affecting the market due to the America’s overspending on credit cards plays a significant factor in the housing market. I recommend this report on home sales that is useful…

    Home Sales Report: What’s Left?

    -Cheers!

  22. 22
    TJ_98370 says:

    Off topic –

    Gig harbor and Bellingham mentioned in Ben Jones’ HBB today.
    Deep Into a Buyers Market

  23. 23
    Ichiro Vader says:

    Thanks for the update TJ_98370. Someday we will achieve daily topic status over there.

  24. 24
    Peter Parker says:

    We paitently waited for almost an year …and Now we see some home prices are down by 50K ( from 525K –> 475K ) in Bothell ……

    Thank god I was able to convince my wife that it is ok stay in huge apartment and pay rent rather than dump all money into House …

    For those of you wondering about our income ..we both earn 6 digits ..and we can afford to buy a 500K house ..

  25. 25
    id says:

    Buceri,

    According to wikipedia (I know not always the best source), the top 5% for household income is 167K and up. 100k is probably closer to top 17 or 18%.

    id

  26. 26
    You guys are sick.... says:

    Why is everyone on here jumping up and down that the market is slowing down? Are you all so bitter that you couldn’t afford to buy? I’m frankly surprised and disgusted by the excitement you apparently feel at the thought of people losing their homes.

  27. 27
    kpom says:

    “You guys are sick…. said,

    on August 7th, 2007 at 2:03 pm
    Why is everyone on here jumping up and down that the market is slowing down? Are you all so bitter that you couldn’t afford to buy?”

    You forgot jealous (as in Jealous Bitter Renters).

    Yeah, we’re all psychological cripples, due to our pathetic inability to get on the Equity Escalator, and our stubborn unwillingness to buy houses with suicide financing.

  28. 28
    Alan says:

    Why are people so excited that I am priced out of this market? Those people are really sick.

  29. 29
    tlw says:

    To the person with the handle “You guys are sick….”:

    Did you have any sympathy for the people that lost money during the tech bubble burst? Why or why not?

    How was it different from people that are losing the bet that their homes will continue to appreciate perpetually? They gambled and now they lost. Simple as that, just as betting in the stock market.

  30. 30
    bitter says:

    I’m frankly surprised and disgusted by the excitement you apparently feel at the thought of people losing their homes.

    No, no. Get it right. We’re not excited about people losing their houses, we’re excited about you losing your house.

  31. 31
    Olaf says:

    We’re not bitter. We’re just smarter. (And, okay, we also have a visceral dislike for the real estate bimbos who drive around in new Jaguars and SUVs while supposedly trying to find us the best price on a house. But that’s beside the point) America has a long history of boom-bust cycles based on the illusion of the Free Lunch — in this case, the preposterous claim that your house will gain value forever, like a magic ATM machine. Some of us did the research and showed some restraint during the last couple of years, knowing the promised appreciation rate was simply unsustainable, despite the constant nattering of home-owners about how only idiots rent. So yes, I admit it, those of us who had some discipline in ’05 and ’06 are now feeling a bit of Schadenfreude for the dopes who believed the Bimbos and their buddies the Mortgage Brokers. It’s not noble of us, but it’s pretty human.

  32. 32
    kpom says:

    Adding to the Schadenfreude is the fact that most of the Bimbos and their buddies the Mortgage Brokers apparently drank their own Kool-Aid and “invested” heavily in real estate with neg-AM or I/O loans, so they get to sink along with the clients they fleeced.

    “You guys are sick….” – you wouldn’t happen to have a job in the RE industry, would you?

  33. 33

    […] Gangbuster Job Growth, Lackluster Incomes […]

  34. 34
  35. 35

    If you think the housing industry slump that has hit the rest of the nation (and starting to hit Seattle) is just about house prices, think again. The collapse of the housing industry nationwide has sent shock waves through just about every business from car dealerships to clothing stores (yes, this means lost jobs due to lost incomes). In the sad but big picture, we’ll be talking about the good ol’ days when you “could” find a job that paid 40K a year before we completely sold-out our country to Wal-Mart and China. Does anyone remember that Detroit use to be Americas Boom town? Which is now a ghost town. We use to buy quality products made by American’s in America? Now we buy lead tainted products from China. The point: Things change in this world and Seattle isn’t an invincible safe haven. Good luck!

  36. 36

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