Seattle Bubble

Here’s yet another boilerplate national real estate article rah-rah’ing Seattle’s apparent resilience:

Amid all the news of plummeting national housing numbers, the premise still holds true that all real estate is local, and nothing supports that premise more than the statistics on local home price appreciation. The ka-ching from a house in Seattle rings just as dramatically as the bell tolling for a home in Detroit.Home prices and sales, while certainly susceptible to national macro-economic factors, such as mortgage rates and lending standards, rely largely on the local economy and local supply and demand. This is precisely why home prices in Seattle are up 10% from a year ago, according to the S&P/Case-Shiller Home Price Index, but down nearly 8% in Detroit. It’s the booming tech industry versus the slumping auto industry.

Home prices in Seattle have been on a tear, up for four months in a row, to a median price of $465,000 in April, according to the Northwest Multiple Listing Service. Confounding matters even more, the bulk of the homes that sold in Seattle in March went for above asking price.

“We just have a very strong market,” says Sara Hasan, financial analyst for Seattle-based McAdams Wright Ragan, a regional brokerage firm. “Two of the major employers are Microsoft and Boeing, and both are doing very well.”

Not to mention that Google has moved into the very limited real estate in the area, which makes another point: Seattle has very short land supply, further diminished by a growth management act, which restricts where and how many single family homes can be built. Limited land supply plus strong employment equals pricey homes.

That’s a convincing-sounding equation. Too bad that actual research shows it doesn’t at all explain Seattle’s high home prices. It’s more like limited land supply (growth management) plus strong employment equals a plausible, but entirely false explanation for continued (but slowing) home price gains.

It’s not that we don’t have somewhat limited land and strong employment. It’s just that when you actually take the time to do your research you find little to no correlation between those factors and home price gains.

(Diana Olick, CNBC, 11.05.2007)