Seattle Bubble

Seattle was mentioned today in this piece from CNNMoney.

NEW YORK (CNNMoney.com) — Home price increases have slowed nationwide and even reversed in many markets. Inventories are up and new home builders are cutting back. More and more sellers are having difficulty selling their properties.
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For some sellers selling their old home quickly is critical: They’ve already made other plans.

Tom Shipp, Seattle: “My partner and I purchased a new home in Seattle, before we listed our current home on the Eastside. Our agents were confident that our current home would sell in 2 weeks and advised that we not make a contingent offer on the new house. . . . [the bid] was quickly accepted.

Ninety plus days, a second mortgage, and a bridge loan later we are still trying to sell our Eastside property! We just made our first double mortgage payment and are feeling desperate and depressed. We are supposedly still in a “hot” market and our property has what the agent’s say are the three mandatory factors for a quick sale; price, location, and condition.”

(Les Christie, CNNMoney.com, 09.28.2006)

Why this is in the news again is beyond me, but apparently CNN/Money is really keen on some dude that uses a secret formula to determine which housing markets are overpriced. We talked about this same guy’s babblings just three short months ago, and very little has changed since then.

After years of local home markets getting more and more overvalued, the trend has reversed, according to an analyis (sic) published this week.

Each quarter, Local Market Monitor, which provides research to the real estate industry, assesses 100 markets, comparing selling prices to “equilibrium” values. Company president Ingo Winzer bases those values on local economic and population growth, construction costs, vacancy rates, household income in the area and interest rates.
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Winzer says that 56 of the 100 markets he covers are now fairly priced, up from 54 last quarter.

As I pointed out last time, this dude’s “analysis” of the “Seattle/Tacoma” region covers so broad an area as to be completely and utterly useless. June median home prices (residential & condo) across the area in question were as “low” as $275,250 in Pierce County, and as high as $415,000 in Seattle. To take such a broad range of data and make a determination that it is all a “FairValue” is ludicrous.

Furthermore, I’m calling BS on the numbers given in the report. Take a look at the first quarter report. The home price listed for Seattle-Tacoma is $311,000. Now notice that in the second quarter report, that number went down, to $308,700. Excuse me? Last I checked, median prices were still going up in King, Pierce, and Snohomish counties. This report has zero credibility. I wish I could say that I’m shocked (or even a little surprised) that it was unquestioningly parroted by CNN.

(Les Christie, CNN Money, 07.25.2006)

A number of readers pointed out the latest series of rah, rah, real estate stories from Money Magazine that sing the praises of real estate in Washington State. The gist of the articles is that while the slowdown in real estate is undeniable in most of the country, the crystal ball predicts that a number of areas in Washington State will defy all logic and economic reason and continue to experience double-digit appreciation, so you should totally invest all your money in Washington real estate so you can cash in on the party.

As forecasts for housing price growth have cooled for most of the country, they are calling for booming values in the state of Washington.

For the June issue of MONEY Magazine, Fiserv Lending Solutions and Moody’s Economy.com provided forecasts for the coming 12 months for 380 metro areas – they predict that five of the top 10 fastest growers will be in Washington. Ten of the top 17 will be.
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“Although price growth has been steady in Washington, it has not been outstripping the economic fundamentals,” says Celia Chen, Director of Housing Economics for Economy.com.

The real estate markets have been pretty much balanced in the Northwest while many others have been sellers-markets for years.

Lennox Scott, who runs John L. Scott real estate, one of the biggest brokers in the Northwest, attributes much of the future market strength in Washington to job growth. “Microsoft announced it’s hiring 10,000 more people,” he says. “Boeing is hiring. The anomaly of historic low mortgage rates drove prices for the past few years. Job growth will drive them for the next few.”

Microsoft and Boeing are driving our stellar job market? Where have I heard that argument before? Oh yeah, four posts ago, that’s where. I guess Lennox doesn’t read this blog yet.

By their reckoning, the Seattle-Bellevue-Everett region (why so encompassing?) is sitting pretty in position to gain another big 10% in the coming year. That would bring the median house price in King County to roughly $465,000 by April 2007. I suppose it’s possible, but my gut feeling tells me that just ain’t gonna happen. Of course, I don’t even own a crystal ball, so what do I know?

Here are their forecasts for various cities in Washington. “Historical” refers to home appreciation from 2001 to 2005 (an amusing usage of the word “historical”), while “Forecast” is what the crystal ball predicts for June 2006 – June 2007:

(Les Christie, CNN Money, 05.18.2006)
(Tara Kalwarski, Money Magazine, 05.18.2006)

Update: A reader pointed out in the comments section that a mere eighteen days ago the very same reporter (Les Christie) at the very same news source (CNN Money) presented a forecast from the very same firm (Fiserv Lending Solutions) that was mysteriously very different. In fact, the highest forecasted appreciation for a Washington metro area in the May 1st report is lower than the lowest forecast in today’s report. Hmm.

(Les Christie, CNN Money, 05.01.2006)

A commenter pointed out this article on CNN Money a few days ago regarding overpriced coastal housing markets:

Some of the most overheated U.S. housing markets did become a little less overvalued during the fourth quarter of 2005 — but homes there didn’t actually fall in price.Other factors, such as rising income, combined to increase what Local Market Monitor president Ingo Winzer calls the equilibrium value — what the typical house should sell for . Winzer compares the equilibrium value to actual prices to compute the percentage overvalued.
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The more overvalued a market is, the more likely it will regress toward its equilibrium, according to Winzer. He also says that the greater the overvalue, the larger the correction will be and the longer the time period before the market starts growing again.

An overvalue of 40 percent or more indicates very high risk of correction, he says.

So, according to Ingo’s secret formula, Seattle-Tacoma is only 8% overvalued, ranking as a “FairValue” and not likely to “regress.” Not surprisingly, I find myself unconvinced. Though I do wonder what the numbers would look like if they focused more on just King County. The figure given in their table for “Seattle-Tacoma’s” actual home price is a mere $311,000. That’s probably correct for such a broad area, but as we all know thanks to the huge headlines last week, King County’s median home price of $405,000 is 30% higher than that, and 41% higher than the “equilibrium” value.

In other news, I’d appreciate it if the tone of the comments was taken down a notch. There’s no reason to get snippy with one another. Also, I happen to quite like Seattle. This is not the “We Hate Seattle” blog. If you just want to complain about the town, you can start your own blog for that. Thanks.

(Les Christie, CNN Money, 04.07.2006 )

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