Seattle Bubble

Ahh, Les Christie of CNN Money—the perfect national companion to our local captain of the real estate cheerleading squad, Elizabeth Rhodes. Where would we be without your frequent reports reminding everyone across the country just how special Seattle is?

In the middle of a nationwide housing slump, a few markets have held their ground – and then some.

In Seattle, for example, the median home sale price was $380,200 during the first three months of 2007, according to the latest stats from the National Association of Realtors (NAR). That’s a 12.3 percent year-over-year increase.

Ten other metro areas among the 156 markets covered by NAR also recorded double-digit, year-over-year price increases.

So what have they get that other markets don’t?

The main ingredient is a set of positive fundamentals, including strong job and population growth, which then fuel demand for houses.

Ah yes, the fundamentals. Gotta love those positive fundamentals. Our strong job growth that is so directly tied to home buying demand. Our surging population growth that so clearly exceeds the rate of homebuilding. Yup. Ya just gotta love those fundamentals.

Other factors also got the double-digit markets percolating. In nearly all of the areas, prices never overheated, remaining relatively low through the boom years. It’s easier to show outsized growth when you’re starting from a low base.

70% increase in five years? Perfectly normal. Definitely not “overheated,” no sir.

But wait, what’s this? Did I actually see a nugget of truth in this latest puff piece?

But even the strongest areas around the nation show hints of weakness that aren’t covered by NAR statistics.

According to Lennox Scott, of the John L. Scott Realty Company, one of the largest home sellers in the Pacific Northwest, the hottest Seattle neighborhoods are those closest to job centers.

“We see double the demand close in,” he said. “People don’t want the commute.”

Since the most expensive housing markets are the ones closest to the downtown core, that can make home prices appear higher when really it’s just the mix of sold houses that has changed.

The recent subprime mortgage crisis has also significantly changed the types of homes being sold. Demand has fallen among credit-damaged and low-income buyers, who typically buy lower-priced houses.

And tougher lending standards also make it more difficult for marginal borrowers to purchase. In Seattle, Erik Hand, president of Response Mortgage Services, Scott’s lending arm, said, “We’re having a harder time getting first-time home buyers approved.”

The result is that stats can still show double-digit price increases when, in reality, the market may have slowed substantially. It certainly seems that way to Lennox Scott.

“The market may have slowed substantially.” You don’t say. Well maybe there’s a glimmer of hope for our friend Les Christie after all.

(Les Christie, CNN Money, 06.26.2007)