Posted by: Timothy Ellis (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.

44 responses to “Crosscut: Seattle Population is Nowhere Near Current Capacity”

  1. Softwarengineer

    YES TIM

    The economists got mad at Malthus; so decided to ignore overpopulation and brainlessly pretend technology will allow population to grow and grow with no consequences.

    LOL….they can’t solve one simple dilemma with concurrent population growth; finite living space with more crammed in workers….the subsequent result that economists have no solution for:

    More unemployment, lower wages and more poverty getting worse and worse with more Seattle growth….

    Collapsed RE prices and collapsed wages go hand in hand like Tweedle Dee and Tweedle Dum….

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  2. Markor

    Yeah I’m sure that growth estimates have nothing to do with a “healthy” economy being dependent on growth. You know, one where developers make boatloads of money, and then feed political campaigns.

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  3. Indy

    But remember, vacant oversupply doesn’t matter much if the banks take possession and can keep the excess off the market as shadow inventory. Their “carrying costs” are relatively low, and they can also refuse to extend credit and fund new building projects – until overall demand catches up through this projected population growth.

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  4. deejayoh

    By Indy @ 3:

    But remember, vacant oversupply doesn’t matter much if the banks take possession and can keep the excess off the market as shadow inventory. Their “carrying costs” are relatively low, and they can also refuse to extend credit and fund new building projects – until overall demand catches up through this projected population growth.

    Carrying costs are low? I don’t think that is true. Yard care, vandalism, squatters, fines from municpalities. Banks are not set up to hold real estate and do not want to hold real estate. Vacant real estate is just inviting trouble.

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  5. wreckingbull

    RE: deejayoh @ 4 – Not to mention taxes. I don’t think banks have any interest in a buy and hold strategy. The only reason they are holding back now is to avoid an absolute meltdown in prices, starting a destructive positive feedback loop of more foreclosures. When things stabilize, they will be looking to unload.

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  6. b

    I think this has always been pretty obvious. The population of Seattle now is around the same that it was during the 1960s. There is a lot of room for growth before we have to start bulldozing old neighborhoods for skyscrapers.

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  7. Kary L. Krismer

    RE: deejayoh @ 4 – There’s also potential liability for injuries on the property.

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  8. David Losh

    Funny!

    I was researching for a comment and wanted to refer back to something in the Seattle Weekly. I put in a phrase something like where is David Brewster when we need him and it turns out that Crosscut is his publication.

    After the McDonald Douglas and Boeing merger was announced in 1996 Seattle boomed. Microsoft had launched Windows 95, then again Windows 97, which put us on the map globally.

    Benaroya Hall was opening and a new era of Seattle as a world class city made for all kinds of wild population projections. We soon got the new stadiums and Vulcan redevelopment.

    Down at DPD very fit young men and women with hand trucks of building plans stood in line to get approvals. I said and meant, hand trucks. It was nuts, The massive amounts of rezoning through the Comprehensive Plan corresponded with the Growth Management Act added to the hysteria.

    In my opinion, now that Boeing is kind of rocky, and Microsoft is a little iffy, the two biggest draws to the area are tarnished. What will happen to the excess housing units still to be built?

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  9. Ben

    I am always confused by anything that tries to consider Seattle without the surrounding metro area. The sprawl is seamless for a long way N / S / E from Seattle.

    Not that I disagree – the overconstruction out in Redmond is amazing and I await the consequences of all of the construction finishing.

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  10. Jonness

    By Kary L. Krismer @ 6:

    RE: deejayoh @ 4 – There’s also potential liability for injuries on the property.

    Are the banks also responsible for paying the property taxes? Also, I notice the banks often leave the houses unheated, and this devalues the homes.

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  11. Ira Sacharoff

    RE: Jonness @ 9

    I go into a lot of bank owned homes. Some of them are really disgusting. I was in one recently where old, cooked spaghetti in sauce remained on the counter , long spoiled, many months after the foreclosed on have left, and several where garbage was strewn everywhere. You got to have vision to get past the sights and smells. And yes, quite a few have no power, not only dmaging the house but making it completely unappealing.

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  12. mukoh

    RE: Ira Sacharoff @ 10 – My agent took me on a tour of some that he thought might be worth a clunker. One had just like you say, food still on the stove rotting, bottles of jack d around, cell phones and so on, almost like people left amid dinner. Eeery but very fun.

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  13. Rack

    By b @ 5:

    I think this has always been pretty obvious. The population of Seattle now is around the same that it was during the 1960s. There is a lot of room for growth before we have to start bulldozing old neighborhoods for skyscrapers.

    http://www.cityofseattle.net/dpd/cms/groups/pan/@pan/documents/web_images/dpds_006607.jpg

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  14. Markor

    RE: Ira Sacharoff @ 10

    I was in one recently where old, cooked spaghetti in sauce remained on the counter , long spoiled, many months after the foreclosed on have left, and several where garbage was strewn everywhere.

    I’d prefer this, as a buyer.

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  15. Markor

    At what heating temp is the house not devalued? I keep the winter temp around 50.

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  16. Indy

    1. There is some skepticism with regards to my claim about “shadow inventory”. Don’t take my word for it, do a quick search on other respected housing sites/blogs and you can prove to yourself that this is a real phenomenon. The fact is, for whatever reason, a large fraction of the defaults that would, in normal times, have already been processed into foreclosures and REO sales have not yet appeared on the market.

    A family member of mine is a retired former officer (and current upset shareholder) of Marshall and Ilsley Bank and attends pretty much all events. In M&I Bank’s recent shareholder’s meeting, the issue of shadow inventory was deliberately included in the formal presentation – with the shocking figure that, nationwide, 1 out of 7 homes is currently vacant, but of those, only 1 in 6 are currently being offered for sale. In an answer to a question it was said that the reason this is called “shadow” is because the normal “months inventory” measure is necessarily skewed/potentially meaningless if whatever dam keeping these things off the market breaks.

    They also said that participation in TARP/CPP allowed them both to maintain large excess capital reserves as insurance and, at least in their troubled Arizona portfolio, also to “pace” the resale of repossessed properties, and wait and see whether the government will sweeten the giveaways to financial-institutions in a revised loan-modification program. They were convinced other banks were making similar decisions – so there is some indication of at least an informal, unspoken cooperation.

    2. Let me clarify some aspects of my claim. Carrying costs are not trivial – they are, in fact, fairly expensive if the banks do it right (and, unfortunately, some banks are essentially leaving some of their repossessions to the wolves and squatters until their overburdened workers can deal with the backlog – like the derelict properties described above in the comments). There are professional companies which (for a significant fee) will offer liability insurance, pay local taxes, physically maintain, and secure vacant housing units that will eventually be prepared for sale. It’s not cheap at all, but that’s not the question.

    The question is whether it’s cheaper than the losses you would experience on your entire loan-portfolio by flooding the market with huge amounts of distressed inventory at fire-sale prices vs. releasing vacancies at a regular, measured pace. Remember, as prices decline further – more, previously-positive-equity homeowners start to go underwater – which makes them more likely to default.

    In the end, it’s an accounting question that depends on the exact data, but in my view, it seems entirely plausible that losing, say, 10% to 20% per year in carrying charges on the value of half your inventory of distressed properties that you’re holding back could be less of a loss than the default-spawning effects of the price-declines that massive fire-sales could produce. Of course, any particular bank relies on the simultaneous, informal cooperation of the other banks – but that kind of cartel behavior is far from unknown.

    3. This is probably a short-term phenomenon trying to create a bit of stability and order in the midst of an extraordinary downturn, and until positive expectations return. Eventually, the banks will lose their taste for holding homes and this inventory will slowly but steadily “come out of the shadows” all those vacant properties will come on the market.

    That downward pressure on prices may not extend price declines, but it’s reasonable to believe that we won’t be able to move away from “the bottom” for some time to come given the sheer quantity of properties already in this category currently, and the likely significant influx of further foreclosures in the next two years.

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  17. Kary L. Krismer

    By Ira Sacharoff @ 11:

    RE: Jonness @ 9

    I go into a lot of bank owned homes. Some of them are really disgusting. I was in one recently where old, cooked spaghetti in sauce remained on the counter , long spoiled, many months after the foreclosed on have left, and several where garbage was strewn everywhere. You got to have vision to get past the sights and smells. And yes, quite a few have no power, not only dmaging the house but making it completely unappealing.

    I heard an agent who deals in REOs mention that some require the property to be fixed/cleaned up, on the agent’s dime, subject to reimbursement a few months down the road. And I’ve run into one where the agent paid the utilities, subject to reimbursement. And I came across another where the bank sent someone in to paint, without the agent knowing about it in advance, where neither of us that it particularly needed painting.

    It seems the banks are all over the board on doing things to these units, but at least not all of them are doing nothing.

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  18. Kary L. Krismer

    By Markor @ 15:

    At what heating temp is the house not devalued? I keep the winter temp around 50.

    That would be a bit on the cold side. I wouldn’t go below about 62. You don’t want people rushing in and out because it’s so cold.

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  19. Kary L. Krismer

    By Jonness @ 10:

    By Kary L. Krismer @ 6:
    RE: deejayoh @ 4 – There’s also potential liability for injuries on the property.

    Are the banks also responsible for paying the property taxes?.

    There is no responsibility for paying real estate taxes. They are simply a lien against the property. If you don’t pay, the county’s only remedy is to foreclose. So as the taxes accrue, the bank will simply get less money because the taxes come first.

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  20. Kary L. Krismer

    By Indy @ 16:

    1. There is some skepticism with regards to my claim about “shadow inventory”. Don’t take my word for it, do a quick search on other respected housing sites/blogs and you can prove to yourself that this is a real phenomenon. The fact is, for whatever reason, a large fraction of the defaults that would, in normal times, have already been processed into foreclosures and REO sales have not yet appeared on the market. .

    Not that I disagree with your claim that there is a lot of shadow inventory, but I don’t know how you determine that there are defaults that ordinarily would have been processed. Banks have always taken a long time to start foreclosure procedures.

    And because of the new foreclosure laws I’ve mentioned, it’s possible they’re ahead of schedule at this point, but almost three weeks behind where they were because the law went into effect about three weeks ago (June 26).

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  21. Markor

    RE: Kary L. Krismer @ 18

    You mean it’s devalued only when for sale? I thought y’all were talking about structural damage.

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  22. Markor

    RE: Indy @ 16

    Great post. The Redfin Inland Empire forum (CA) shows that buyers there are making dozens of offers on REOs sight-unseen in the hopes of snagging one. Sounds like a fire sale there. A new real estate office is building in Sarasota, FL to handle the expected massive unloading of REOs (larger than the current flood there); expected because banks are telling them to prepare. Seems this is the more profitable path for banks than trickling houses to try to uphold prices. At least where they’ve got a lot of inventory.

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  23. jon

    RE: Indy @ 16

    with the shocking figure that, nationwide, 1 out of 7 homes is currently vacant, but of those, only 1 in 6 are currently being offered for sale.

    According to the table in the article linked below, the vacancy rate has only gone up slightly since 2003.

    http://www.usatoday.com/money/economy/housing/2009-02-12-vacancy12_N.htm

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  24. Kary L. Krismer

    By Markor @ 21:

    RE: Kary L. Krismer @ 18

    You mean it’s devalued only when for sale? I thought y’all were talking about structural damage.

    Well below a certain point inside and pipes are more likely to freeze, especially those located in exterior walls and the crawlspace. And there MAY be mold issues keeping a house too cold, I’m not sure.

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  25. Markor

    RE: jon @ 23

    True, if 61% is “slightly”.

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  26. Indy

    RE: jon @ 23

    The shareholder’s meeting presentation counted all housing units – both apartments and houses, here is what it said,

    “19 million houses and apartments are vacant, 1 out of 7 homes” and of those, “Only 1 out of 6 vacant homes are for sale”

    This, by the way, in a slide entitled, “Market Challenges Lie Ahead – Vacancy” with “Shadow Inventory” in a scary highlighted block at the bottom of the page.

    From the USAToday data – the combined figures look like this:

    2000 – 9.4%
    2001 – 10.6%
    2002 – 11.1%
    2003 – 12%
    2004 – 11.8%
    2005 – 11.6%
    2006 – 12.5%
    2007 – 12.4%
    2008 – 13%
    2009 – 14.1% (from M&I’s statement)

    So from 2000 to 2009 – the overall vacancy rate has increased 50% – which I think is mostly evidence of overbuilding. But also from that USAToday article, like Markor was saying, the homeowner rate has increased faster as a proportion – and is in 2009 over double the rate it was in 2000.

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  27. Indy

    RE: Kary L. Krismer @ 20 – Here’s a decent article about it. From the article:

    In normal times banks immediately turn REOs around and up them up for sale, but that’s not happening at a very fast clip these days. The Realtor’s chief economist, Lawrence Yun, called it a “business decision” by the banks:

    “I believe that many banks including Fannie and Freddie, who are also holding onto some properties, are releasing foreclosed properties in a measured way so as to not to flood the market which they perceive then perhaps could lead them to even more drastic price cuts. So they are releasing properties on a measured pace as a business decision to minimize losses.”

    “So what exactly is the size of this shadow inventory? Hard to say, but estimates are that it could be around 700,000. This of course does not include the foreclosures that are still in process…”

    That “business decision” line is key – it’s not just the usual long length of the foreclosure process, and even new moratorium/counseling laws and loan-modification programs are insufficient by themselves to explain the absence of large numbers of repossessed properties from the real-estate market.

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  28. David Losh

    RE: jon @ 23

    In vacancy rates for rental that is a huge increase. 7% was bad 10% is devastating. 3% good, 5% managable. 7% bad then every pre cent up is that much worse. You’re going from 1.6% to 2.9% in owner occupied. That’s double for owner occupied. That’s bad.

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  29. Kary L. Krismer

    RE: Indy @ 27 – You’re going to use Yun as a source? ;-)

    I could probably do some searching and see what the average delinquency was (in months) back in 2007 and compare it to today. The problem is, I’d need to look at about 50 notices to get a decent sample.

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  30. Rack

    By Kary L. Krismer @ 24:

    By Markor @ 21:
    RE: Kary L. Krismer @ 18

    You mean it’s devalued only when for sale? I thought y’all were talking about structural damage.

    Well below a certain point inside and pipes are more likely to freeze, especially those located in exterior walls and the crawlspace. And there MAY be mold issues keeping a house too cold, I’m not sure.

    My family had a ski lodge, up at Alpental. We would winterize the pipes whenever people left, and shut off the heat. When we would show up on a Friday night, it would be 20 or so degrees in there. Many times it would remain empty for weeks. I can’t ever recall mold problems due to this, I think moisture is a larger contributing factor when it comes to mold than the cold is.

    I think this is something that Softy keeps barking about, but if its really that big of a problem, then why isn’t my unheated garage full of mold?

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  31. Jonness

    By Markor @ 21:

    RE: Kary L. Krismer @ 18

    You mean it’s devalued only when for sale? I thought y’all were talking about structural damage.

    Many of the homes I go into are unheated and smell like mold. I’ve seen floors wrinkling up from too much humidity. When I walk in a house, and it smells like mold, I immediately have zero desire to buy the home. I have no intention of spending the next 30-years of my life making payments on a house that gives me health problems.

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  32. Markor

    I would think that mold would prefer warmth over cold. Heaters don’t dehumidify, right? Maybe heat masks the smell of mold. Or maybe it’s just that mold grows unabated during vacancy, which tends to be unheated.

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  33. Markor

    RE: Indy @ 27

    Can you imagine the spreadsheet that determines the release-to-market pace? Negative signs everywhere. Then they use the Solver tool to find the input values that minimize the total loss. In places where the cat’s out of the bag, like SW Florida, the spreadsheet tells them to sell everything, stat!

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  34. Jonness

    RE: Markor @ 32 -

    As the temperature increases, the air can hold more moisture. So a cold room with 90% humidity will lose humidity relative to increasing the temperature in the room. And of course, as a warm room cools, the humidity will increase relative to the temperature decline.

    Light helps to deter mold growth. Thus, cold, dark, and damp basements are especially problematic.

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  35. Jonness

    Speaking of foreclosures:

    http://www.bloomberg.com/apps/news?pid=20601103&sid=aGAr2pZ9UC1o

    “Aug. 13 (Bloomberg) — Foreclosure filings in the U.S. climbed to a record for the third time in five months in July as falling home prices and the recession left more homeowners unable to keep up payments or refinance.”

    Seeings how foreclosure moratoriums were in affect in July along with much government effort and stimulus to combat foreclosures, this is significant. And of course, winter is approaching. Hello house price drops! Good by bottom callers.

    Sooner or later, the banks are going to get burned for holding depreciating assets. Rising unemployment will assure a nice rise in prime defaults as well. Fun stuff coming our way.

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  36. Markor

    RE: Jonness @ 34

    Good explanation, thanks!

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  37. Kary L. Krismer

    RE: Jonness @ 35 – Locally I’ve made a big deal of changes to Washington and California law as at least partially driving our recent increases.

    http://blog.seattlepi.com/realestate/archives/175792.asp

    But when CA has a partial moratorium in effect since mid-June and you get numbers like this, that’s pretty amazing. Now it’s possible that the CA foreclosure processors not only moved to WA, but also to AZ. There are a lot of houses in AZ too. But CA is a huge part of the national market, and so when you see nationwide increases when CA is presumably decreasing, that’s amazing.

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  38. Cheap South

    RE: David Losh @ 8

    David; it was just last Saturday that I was “selling” Portland and Seattle to my almost out of college cousin here in Florida. But I did mention that looking back, those sweet 90s when we lived there, were indeed the decade of Seattle. MSFT was hiring like crazy, and its stock was making many young millionaires quit and start their own tech ventures; Amazon would go public in ’97, Real Networks; the country was learning about a coffee company named Starbucks. Mortgage rates were about 7-8.5% (a RE agent told me I could make that in MSFT stock in a day). And all the newbies wanted the non-existent “Frasier view”.

    But I told my cousin; “that was then”. Who knows what’s coming??

    I have to admit that is hard to believe the traffic we experience during our current yearly summer vacations in the PS is the same (or worse) than what people had back in the 60s.

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  39. Rack

    By Jonness @ 34:

    RE: Markor @ 32 -

    As the temperature increases, the air can hold more moisture. So a cold room with 90% humidity will lose humidity relative to increasing the temperature in the room. And of course, as a warm room cools, the humidity will increase relative to the temperature decline.

    Light helps to deter mold growth. Thus, cold, dark, and damp basements are especially problematic.

    The humidity remains the same, the relative humidity increases to the point of saturation causing condensation.

    That is how a dehumidifier works, cooling air causing condensation removing moisture.

    However the difference between 32 and 50 degrees isn’t really all that significant, while the difference between 70-90 is.

    Houses that have mold problems, typically have other moisture issues.

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  40. Indy

    RE: Kary L. Krismer @ 29

    You’re going to use Yun as a source? ;-)

    Heh, fair enough! But in this case, I’ll use the legal evidence concept of a Declaration Against Interest to allow a suspension of disbelief of an otherwise less than entirely trustworthy source.

    I could probably do some searching and see what the average delinquency was (in months) back in 2007 and compare it to today. The problem is, I’d need to look at about 50 notices to get a decent sample.

    It would be a big challenge to produce conclusive evidence on a large scale. So far, I’ve only seen a few statistical-inference anaylses or individual-house anecdotal evidence. The holy grail of the “shadow inventory” cartel quantity-control theory is something that proves the point – essentially a database of delinquent properties with “current status” vs “date of first default” vs “bank interaction history”.

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  41. David Losh

    RE: Cheap South @ 38

    The golden era for Seattle is yet to come. My comments are about the exuberance for creating housing units. The City Council was hell bent on pushing that growth in this area, the demand in this area, would push the price of housing out of the reach of people. That seemed to be true in 2005.

    Those town house units, the condo permits, and rezoning of neighborhood commercial were in response to a perceived future demand that, in my opinion, never materialized the way it was projected.

    The traffic was another problem that should have been addressed by developer dollars. In the county developers were required to do infrastructure improvements to some formula. In city that infrastructure development was paid for by the city and state. The off ramp to Northgate is a prime example.

    Then we had the transit tax dollars. It seems that if we have a traffic issue we can simply put in a transit center to fix that. Never mind that people drove to the transit center then drove away. That issue or the issue of connector neighborhood transit has never been addressed. All we ever do is make bigger jestures (misspelling intended).

    The future development in Seattle will depend on having a vision that can repair the damage the past twelve years has done. We need a vibrant down town core to absorb the housing units created there. We need to concentrate on that and let neighborhoods deal with the messes they have. The city counclil should be having hearings on neighborhood needs rather than pushing a development agenda. I would stop short of calling for a moratorium on building, but think it will slow naturally.

    There are many places around Seattle that should be allowed to grow at thier own pace. Now would be the time for the city councils to start listening to the voters rather than developers.

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  42. Markor

    RE: Cheap South @ 38

    Let’s not forget about grunge! My apt. roof deck had close to the Frasier view, on Queen Anne. Stand on 2nd Ave N, where it curves to meet Highland Dr–I bet that’s where they took the picture.

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  43. Jonness

    By Rack @ 39:

    The humidity remains the same, the relative humidity increases to the point of saturation causing condensation.

    That is how a dehumidifier works, cooling air causing condensation removing moisture.

    However the difference between 32 and 50 degrees isn’t really all that significant, while the difference between 70-90 is.

    Houses that have mold problems, typically have other moisture issues.

    Air doesn’t need to reach the saturation point in order for mold and mildew to grow. Molds typically require relative humidity levels above 55% at the surface on which they grow. Thus, maintaining relative humidity below 50% inhibits mold and mildew growth. Seattle air is typically about 75% relative humidity during the winter months. Basements typically have much higher relative humidity than elsewhere in the home. Raising temperature lowers relative humidity. For instance, if outside air at 20 degrees F and 65% RH is drawn inside and heated to 70F, its RH drops to about 10%. Light is another good way to combat mold and mildew growth.

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  44. Herman

    RE: Cheap South @ 38 – Dude you are so right. 1992 – 2001 was Seattle’s golden age.

    There is more money here now, and more development, and less “life”. It’s not like it used to be.

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