Seattle Bubble

Time again already for another inbox-clearing story roundup.

First up, the Seattle City Council is apparently in a development-regulating mood lately. Not only are they tackling the ugly townhome issue, now they’re going after “megahomes” as well.

After years of complaints about suburban-sized homes that devour lawns and encroach on neighbors, the Seattle City Council plans next month to consider limiting the size of some larger homes in single-family neighborhoods.

But changes that politically are palatable enough to pass may not quiet neighbors’ objections entirely.
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With roughly 65 percent of Seattle zoned for single families, politicians historically have been wary of changes affecting so many homeowners.

A proposal crafted by City Council President Richard Conlin, which the council is expected to discuss next month, may be a starting point.

On smaller single-family lots, his proposal would reduce a home’s maximum footprint to provide larger buffers and more green space between properties.

With energy prices shooting through the roof lately, and the prevailing winds blowing in the “green” direction, this seems to be a case of “to little, too late.” I think that like the SUV, the days of dominance for the McMansion are fading.

But that’s not the only new housing issue the Seattle City Council is taking up. They also took a vote on Monday regarding relocation assistance for condo conversions.

Developers who convert apartments into condos would have to pay some moderate- and low-income Seattleites considerably more in moving expenses under a measure approved Mondy by the City Council.

The council voted 8-0 to increase the amount of relocation assistance that developers pay from $500 to three times the monthly rent, for tenants making 80 percent of local median income or less.

The measure would also require developers to pay more in relocation help to some elderly tenants or others with special needs. The legislation goes to Mayor Greg Nickels.

The council also gave developers a break Monday: They would more easily qualify for an affordable housing tax break by including condos or apartments affordable to moderate-income residents under another measure approved by the council.

Because you know the condo-conversion wave is just getting started, after all. Developers are just going crazy, building as much as they possibly can…

…or maybe not.

Kemper Development has pushed back the timetable for its proposed Lincoln Square expansion in downtown Bellevue by at least 15 months.

The company had planned to break ground on the high-rise, mixed-use project by next spring. But Chairman and Chief Executive Kemper Freeman Jr. said Monday that construction won’t start until summer 2010 at the earliest.

He attributed the delay to the slowdown in the local condo market and to logistic complications the company would have encountered if it had expanded Lincoln Square while it was building a major addition to its Bellevue Square mall across Bellevue Way Northeast.

“We thought we could do it all at once,” Freeman said. “We finally said, ‘That’s nuts.’”

But hey, let’s end this post on a positive note. I bet you didn’t know that Ballard is still totally immune to the housing bust. Well, it is.

Despite the constant drumbeat of housing doom and gloom reported nationally, Ballard’s single-family home market is still rosy but has a few faded blooms.

Nationwide, home values have dropped nearly15 percent in one year. Florida’s market is swamped with listings and Las Vegas real estate investors lost their shirts.

However, according to Multiple Listing Service statistics in the Ballard zip codes 98107 and 98117, the average selling price is only down about 8 percent.

Inventory of single-family homes and townhouses for May and June is 222, nearly double that of last year’s listings, and average time on the market is now two months, twice last year’s. Still, area realtors and lenders say the market is relatively strong.

“The best stuff, like a sweetheart of a house on a pretty street in a nice neighborhood is getting full price, sometimes higher,” said Michael Busacca, a realtor with Skyline Properties’ Northgate office.
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“The media beats us up,” complained realtor Kevin Isaminger of Re/Max in Bellevue, who has listings in Ballard, and West Seattle where he lives. He said potential buyers lack confidence in the local market due to pessimistic news reports of troubled markets in other regions.

That darn media.

(Jennifer Langston, Seattle P-I, 06.30.2008)
(Angela Galloway, Seattle P-I, 06.30.2008)
(Eric Pryne, Seattle Times, 07.01.2008)
(Steve Shay, Ballard News-Tribune, 06.30.2008)

Last week the Puget Sound Business Journal ran a piece comparing King County to San Diego County. It was behind a subscriber-only wall, but now it’s fully available on their website: How King County dodged mortgage mess compared to San Diego. Unfortunately, the article doesn’t really have any new material that regular readers here haven’t seen before.

While the housing market’s downturn has certainly struck the Puget Sound region, it hasn’t wrought the widespread havoc that hit cities like Miami, Las Vegas and San Diego.

On the surface, there appear to be few reasons why the Puget Sound area has been able to escape the worst of the mess. Housing markets in both cities saw companies, jobs and people pour in during the first half of the decade. Both are desirable places to live. Home prices rose. And subprime mortgages were widely available.

But a detailed comparison of the two regions shows why King County’s economy is heralded as a bright spot across the country while San Diego County has come to represent everything that went wrong.

First off, I agree 100% with what appears to be the basic premise of this article: that the housing bust won’t be as bad here as it will be in San Diego, Phoenix, Florida, etc. I don’t think anybody has ever tried to argue that things will be as bad or worse here.

Unfortunately, while the article promises a “detailed comparison,” it doesn’t really deliver.

Builders in San Diego raced to build homes to keep up with demand, pushing farther into the previously undesirable areas of southeastern San Diego County, far away from the ocean.

In contrast, Seattle builders were restricted in part by the state’s growth management law and weren’t able to build at nearly the same pace.

In addition, mortgage companies and banks in San Diego — including Seattle-based Washington Mutual — wrote thousands of subprime loans. Their counterparts in Seattle wrote far fewer.

Ok, those are some interesting assertions, but where’s the data? What were the per capita rates of new construction and subprime lending in the two counties? The article doesn’t say. In fact, the only data I’ve been able to find that compares lending in San Diego to the Seattle area shows suprisingly similar amounts in both areas.

Later in the article, they do cite some raw data on homebuilding:

In San Diego, developers got 9,749 permits for single family homes in 2002, up about 6 percent from 2000, according to the Building Industry Association of San Diego County. That pace held steady through 2004 and then started to fall. By 2007, building permits for single family homes had plummeted 64 percent to 3,508 from the heyday of 2002.

By comparison, King County’s single family building permit activity remained flat between 2003 and 2005, with about 1,300 permits filed each year, according to the Washington Center for Real Estate Research. In 2007, permits dropped slightly to 1,239.

So, San Diego permits went up in 2002, leveled off for two years, then fell. In King County they leveled off for two years, then fell— the same pattern as San Diego, but offset by a year.

Of course comparing raw data like this is rather deceiving since the population of San Diego County is 2.8 million, versus King County’s 1.7 million. A better comparison would be King, Snohomish, and Pierce combined, with a population of 3.0 million. And as anyone that’s spent much time driving around outside King County knows, there was a heck of a lot more development in Snohomish and Pierce than there was in King. (And there are a lot more foreclosures out there, too.)

Another big reason: It took Seattle longer to recover from the economic aftershocks of 9/11 and the dot-com bust. As a result, the city entered the housing boom late and “although it got heated, it wasn’t as seriously overheated as some of the other parts of the country,” said Glenn Crellin, director of the Washington Center for Real Estate Research, Washington State University’s real estate research arm.

“Our economy has done very well compared with many other parts of the country,” said Crellin.

Does it occur to folks like Mr. Crellin that perhaps the only sectors of San Diego’s economy that are suffering are those related real-estate, and that perhaps the reason our economy looks so great is because the housing bust here is only just getting started?

I also don’t understand how someone can say “we entered the housing boom late” then when we likewise exit the boom late, say “look how unique and strong we are!” How does that make any sense?

What lies ahead? Chad Ruyle, an estate planning attorney and co-founder of You Walk Away, a foreclosure advice firm, thinks San Diego is not near the end of its housing market downturn.
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“No one can predict when the market will bottom out and return to normal,” said Ruyle. “But I think we’re only a third of the way through it.”

Seattle, on the other hand, has likely made it through the worst of its downturn and will slowly start recovering, said [University of San Diego professor Norm] Miller.

I’d be curious to know exactly what Mr. Miller is basing his theory on. Unfortunately, the article doesn’t say.

No offense to Ms. Grind, as I realize there’s only so much you can fit into an article of this nature. But I have to say that this article came across to me as light on details and high on wishful thinking.

(Kirsten Grind, Puget Sound Business Journal, 06.06.2008)

Remember how when prices were going up, up, up, one of the reasons it was allegedly justified was “high construction costs”? See this post for a lengthy example of a local real estate professional making that argument. Well, luckily for us, it would seem that construction costs are dropping like a rock. Or, perhaps not so luckily…

A slump in the housing market and low lumber prices have resulted in shutdowns at 18 sawmills in the Pacific Northwest, industry experts say.
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All told, [Analyst Claudia Shank Hueston of JP Morgan] said, 18 mills in the region are being shut down for varying periods, including indefinite closures of Hampton Lumber operations in Morton and Willamina, Ore., Seneca in Eugene, Ore., and Rosboro Lumber in Vaughn, Ore.

With homebuilding drastically reduced, lumber prices fell to $238 per 1,000 board feet at the start of the month, 15.6 percent lower than a year ago, according to the trade publication Random Lengths.

Obviously it would take a while for lower material costs to be reflected in completed construction, but if material costs are dropping 15 percent per year, doesn’t it follow that the price of new construction homes will soon be dropping as well?

(Associated Press, Seattle P-I, 02.05.2008)

The still-tightening market for financing real estate is not only taking a bite out of individuals’ ability to buy homes. It’s also starting to affect the ability of large new construction projects to get financing to even begin building. New projects like a waterfront condo complex in Everett.

The start of condominium construction on the Everett waterfront will be delayed by at least six to nine months after a major financial backer dropped out because of the nation’s mortgage mess, developer Maritime Trust said Monday.

“They just flat out got out of the construction market and are selling the unit that was going to do our construction loan,” Maritime’s Bert Mears said Monday.

He was referring to Merrill Lynch, which fired its CEO this fall after reporting a third-quarter loss of $2.24 billion, primarily due to writing off $8.4 billion in losses in subprime loans.

Lynch had agreed to be the main lender for the $98 million project that involves 137 condominiums. That’s the first phase of a $400 million redevelopment called Port Gardner Wharf for up to 660 condos and additional retail, office and commercial space on 65 acres.
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Mears said he’s still seeking a replacement lender and may have to wait because of all the publicity about problems in the national housing market.

“We’re talking to a couple of other people,” Mears said. “I don’t think anyone wants to push the button until we get some of this (problems in the nation’s housing market) off the front page.”
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“It’s extremely important that this project happen,” [Port commissioner Connie] Niva said. “It’s the beginning of a lot for Everett. It signals that private investment can be successful in Everett. If it looks like we can’t get a quality development done in Everett, that’s a problem.”

I really am amused by the rationalization that people are frightened away from investing by news headlines. Of course it doesn’t have anything to do with market realities or the financial bottom line. It’s those darn scary front pages. If only the news would buck up and start reporting all the good things about the housing market, project financing would appear, a horde of individual buyers would storm the market, and the pretty pink ponies would again walk the streets in peace and harmony.

Or something like that.

But not to worry, because the Seattle area is temporarily the most driest part of the sinking ship that is the housing market.

Mears said he’s confident of financial backing for the project because the local economy is strong.

“The good news is that of all the (housing) markets in the country, this is the strongest,” Mears said. “The great news about the Seattle area is the incredible amount of jobs at places like Boeing and Microsoft.”

Ahh yes, Boeing and Microsoft. That would be the Boeing that added less than 200 jobs in Everett (half of which pay $10-$13 an hour) for the fancy new 787 Dreamliner. And the Microsoft that has what, one small office in Everett? Yeah, those two are definitely a great reason to spend 400 million dollars building hundreds of waterfront condos.

I can’t fathom why the investors aren’t falling over each other to throw money at that. I mean seriously. Boeing! Microsoft!

(Mike Benbow, Everett Herald, 12.18.2007)

While I was enjoying a relaxing weekend with my visiting brother-in-law, playing a copious amount of Xbox 360 and Wii games, the local press was going into overdrive with the real estate booster articles. It’s not worth my time or yours to have separate posts for each of them, so here is a link roundup. (Danger: Sarcasm ahead.)

The first three reports in today’s roundup were spawned by an upbeat report on the local condo market that was released by none other than our hero, Glen Crellin.

Elizabeth Rhodes, Condos a bright spot in housing market:

Overlooked for years as a significant housing source, condominiums are now a rapidly growing presence providing a ray of sunshine in an otherwise gray local housing-sales scene.

The condo market is healthier than the detached-house market, and prices are holding their own. Those are the key findings from an analysis released Friday of the Seattle-area condominium market by Glenn Crellin, director of Washington State University’s Center for Real Estate Research.

It was pointed out to me by a reader that the online edition of the Times article was peppered by as many as six ads for local home sellers (I never see ads, thanks to Firefox + Adblock Plus). See a screenshot to the right (click to enlarge). The ads are clearly determined by scanning the text for keywords, but it was still amusing that ads for Prudential Realty, Polygon (houses), John F. Buchan (houses), Olive8 (condos), Brix (condos), Bellevue Towers (condos), The Burnsteads (houses), and ZipRealty were covering the page as people viewed the upbeat report about how great our market really really is. Really.

Aubrey Cohen, Seattle’s housing holding up in market:

The Seattle area’s housing market is stronger than the nation’s, and condominiums have held up better than houses. Still, the market is slowing, economists said at a forum Friday.

Thank the economy for the area’s vigor, Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said at the annual forecast breakfast sponsored by Williams Marketing, a Seattle firm that works with housing developers.

Hmm, Williams Marketing… now where have we heard that name before… Oh yeah, only in about every P-I real estate article, that’s where. So, the Washington Center for Real Estate “Research” is teaming up with a condo marketer to tout our area’s great market? How terribly surprising.

Debra Smith, Condo prices in county up 65 percent in 7 years:

Buyers balking at buying a condominium take note: It’s a better investment than people often think, according to a report released Friday.

The price of condos in Snohomish County rose nearly as fast as single-family homes, and in King and Pierce counties, condos performed better, according to the report by director Glenn Crellin of the Washington Center for Real Estate Research at Washington State University.

Psst… here’s an investing secret: Past performance does not guarantee future results. Pass it on.

Elizabeth Rhodes, Rebound talk is big at Realtors annual gig:

Lennox Scott has worked through many market cycles in the decades he’s been in real estate and predicted many months ago that the Seattle market would slow.

So he’s not surprised that it has. Nor is he particularly worried about, calling it no more than “an adjustment phase.”
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Florida’s Palm Beach County, north of Miami, currently has a 50-month supply of homes for sale.

Las Vegas is also in dire straits for sellers with a two-year supply.

Both had market forces Seattle never had: runaway homebuilding plus thousands of investors who flooded those markets hoping to get rich quick by buying and flipping houses.

Ahh, the old reliable “compared to the absolute worst markets in the country, we’re not half bad” argument. Is it just me, or does it seem like Lennox Scott has turned the volume up a few notches on the “don’t call it a real estate bust” album? He’s being quoted all over the place lately.

Mike Benbow, Housing glut less severe in the Northwest:

Under normal circumstances, Conerly said, first-time buying candidates save for a down payment, work on clearing up their credit and eventually jump into the market. “In 2002, there were cheap mortgages and people were able to buy a year or two ahead of time,” Conerly said. “We weren’t creating additional demand, we were just borrowing from the future.”

Speculators were increasingly investing in houses, with many people entering the market to quickly resell the house for more money, a technique called flipping.
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After overbuilding in 2003 and 2004, building eased up. In 2005, the number of new homes dropped to about 58 for every 100 new people, which is a number pretty close to normal demand. Last year and this year, the number has dropped even further, to about 42 per 100, which is well below normal demand, Conerly said.

Nationally, there are about 1.5 million houses too many, Conerly said, adding he doesn’t expect a turnaround in the national housing market until 2009. “We’re not working off the overhang very fast,” he said.

But he said things are different here, mostly because we’ve been under-building relative to our population growth for two years.

“We’ve not fully worked off the number of houses we built, but we will work it off faster than the national average,” Conerly said. “This area is going to have continued growth for quite some time.”

This article has the least amount of cheerleading of the bunch, and at least offers some actual statistics and doesn’t just parrot the usual real estate mantras. However, we’re still being fed the “better than the national average” and “continued growth” type of lines, apparently intended to ease any fears that we will experience a downturn at all. Given the figures they gave about the rate of building 2003-2007, and assuming that the present rate of building and population growth keeps up (a big assumption), we’re still looking at 3-years’ worth of new construction oversupply. But don’t worry, we’ll work it off “faster than the national average,” so everything will be okay.

(Elizabeth Rhodes, Seattle Times, 11.17.2007)
(Elizabeth Rhodes, Seattle Times, 11.17.2007)
(Aubrey Cohen, Seattle P-I, 11.16.2007)
(Debra Smith, Everett Herald, 11.17.2007)
(Mike Benbow, Everett Herald, 11.19.2007)

First up in today’s news quickies is word from Snohomish County that—guess what?— the housing boom has ended. No, seriously. The party is over.

Snohomish County’s housing boom is over.

Builders are laying off workers, houses are staying on the market longer, and the overall number of permit applications has dropped by hundreds compared to last year.

“Nearly every developer has or is contemplating layoffs, and it’s because of the slowdown in the market,” said Mike Pattison of the Master Builders Association of King and Snohomish Counties.

…

“The housing peak is over,” said Todd Britsch, president of Bothell-based New Home Trends, which tracks new construction. “These type of frenzies come around every 20 years.”

Instead, the region will see a normal and healthy housing market, Britsch said.

“The market is going into — and homebuyers need to understand this — a normal, sustainable, healthy housing market, and we’ll see an average appreciation of 3 percent a year for the next three or four years. Then we’ll start this cycle all over again. In five years, we may reach 10 percent a year.”

And what evidence does Mr. Britsch bring to the table to support his claim that we are transitioning to a “normal, sustainable, healthy” market? Nothing! That’s right, no evidence whatsoever. But the article is definitely heavy on optimism. It’s full of all kinds of quotes from builders and realtors about “natural cycles” and “fantastic numbers.” You keep the faith, boys.

(Jeff Switzer, Everett Herald, 10.07.2007)