Seattle Bubble

As the far-reaching economic consequences of the popping of the housing/credit bubble unfold, local governments are feeling the pain. Snohomish County faces a $9 million shortfall for 2009, forcing a hiring freeze. While down in King County, Ron Sims just announced that 255 jobs will be cut.

Financially ailing King County will send layoff notices to as many as 255 employees today, on top of 150 jobs already eliminated.
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Paring next year’s general fund to $644 million, Sims said, meant cutting $93 million from what would have been needed to maintain current levels of government service.
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The budget is out of whack because revenues from sales tax and investments have dropped while the cost of employee benefits, cost-of-living adjustments, fuel and new labor contracts have risen.

One large factor in the drop of sales tax revenues is probably the end of the housing ATM. As documented at Calculated Risk, Mortgage Equity Withdrawal plunged to near zero in the second quarter 2008.

Seattle Times columnist Jon Talton runs through some more ways that the economic crunch is weighing on Seattle.

In recent days, the gravity of the crisis for the Puget Sound region may have been overshadowed by the gut-wrenching gyrations of the stock market — itself a marker for the lost wealth in a place heavily populated by investors. But Microsoft’s announcement of re-evaluating its hiring situation is very big. Boeing and the striking Machinists, seeing the gravity of the moment, are talking again.

Nordstrom same-store sales falling nearly 10 percent in the five weeks ending Oct. 4 is a warning for what’s to come for other retailers based here. As retirement nest eggs are vaporized, jobs lost and houses foreclosed, those vaunted consumers can no longer prop up the economy.

Nor can we count on exports. The world economy is slamming into a recession, and last week the International Monetary Fund warned of “extremely serious” consequences, including famine.

Yikes. I guess when folks were going around touting Seattle’s economy as special and stronger than elsewhere, they didn’t really consider the far-reaching effects of the bursting bubble. The bottom line seems to be that this mess runs deeper than anyone really realized.

(Keith Ervin, Seattle Times, 10.14.2008)
(Calculated Risk, 10.06.2008)
(Jon Talton, Seattle Times, 10.12.2008)

Here’s a pair of interesting articles from the Puget Sound Business Journal this weekend.

Puget Sound job growth slowing to trickle

The [Puget Sound] Economic Forecaster, published for the last 15 years and used by companies and governments across the region, is predicting the four-county region will add just 5,900 jobs in the third quarter of this year, boosting employment a fraction of a percent to 1.86 million.

In the fourth quarter, the region is expected to lose 4,100 jobs — a 0.22 percent decrease from the previous quarter — ending the year with employment of 1.856 million.

That’s in contrast to the 2.9 percent annual growth rate in 2007, compared with 2006. The region added 51,500 jobs in 2007. Conway expects a growth rate of 1.7 percent in 2008.

“We’ve seen the economy all of a sudden go limp recently, largely because of the collapse of the housing and credit markets,” said Conway, who also is the senior member of the Governor’s Council of Economic Advisors.

Much of the slowing job growth can be traced to the construction and financial sectors, which have been shedding jobs statewide over the past few months.

I thought our strong local economy was based on Boeing and Microsoft, not this shakey construction and financial stuff that’s been causing so much trouble everywhere else. Well, that’s what they were telling us anyway.

But if you’re a landlord, fear not. “Experts seem comfortable with rent levels.”

Residential Real Estate: Demand from Puget Sound area renters sustains a ‘landlord’s market’

…experts crunching local rental-unit supply and renter-demand projections seem comfortable with the rent levels expected over the coming year or two.

Even with a surge in unsold homes and condos competing in the rental arena, the consensus counts on sufficient rental-minded residents to keep vacancies and rents at landlord’s-market levels.

Residential real estate distress nationwide, in fact, is actually giving something of a boost to the local rental arena, observed veteran rental agent Michael Wilson, broker/owner at Windermere Property Management in Seattle. The relatively healthy local employment scene is still attracting newcomers, he said, “but they’re nervous about buying, so they’re renting instead.”
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Meanwhile, the Seattle vicinity remains one of the most attractive markets for savvy apartment investors able to identify and provide what renters want today, added Bob Hart, president of Beverly Hills, Calif.-based Kennedy Wilson Inc.’s hyperactive KW Multifamily division.
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Despite the slightly lower prices investors have been willing to pay for apartment properties here and elsewhere of late, Hart said, it would take a real economic calamity to significantly diminish renter demand.

Oh, good. Luckily, there’s no economic calamity on the horizon, whatsoever. Erm… wait…

(Kirsten Grind, Puget Sound Business Journal, 09.12.2008)
(Brad Berton, Puget Sound Business Journal, 09.12.2008)

The last time we checked in on unemployment data for the Seattle area, local data was rapidly catching up to national stats, with statewide unemployment jumping from 4.7 percent in April to 5.3 percent in May, and Seattle-area unemployment bumping up seven-tenths of a percent to 4.1 percent.

Well, it didn’t take long for Washington to catch up with the nation.

Unemployment in Washington state last month jumped to its highest level in 3 1/2 years, as job seekers surged into an economy that is having trouble generating enough new jobs for them.

The state jobless rate was 5.7 percent in July, up from a revised 5.4 percent in June (it was originally reported at 5.5 percent), according to figures released today. Washington now has the same jobless rate as the United States as a whole, after 13 straight months of outperforming the nation.

The state’s economy gained 3,300 payroll jobs in July, after losing a downward-revised 1,800 jobs in June. July was the fifth straight month of little to no change in the nonfarm payroll figures, suggesting that Washington’s jobs engine is stuck in first gear.
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In the Seattle metro area, the unemployment rate rose to 4.3 percent last month from 3.9 percent. About 8,500 people reported entering the labor force in July, but only 1,800 of them found work right away.

When/if our unemployment rate reaches 5 or 6 percent, I wonder if local real estate agents will still be extolling the virtues of our “strong employment” that “holds up the local housing market?” Or maybe they will start to realize that the strong housing market has been at least partly responsible for holding up the area’s strong employment.

(Drew DeSilver, Seattle Times, 08.12.2008)

Update: Here’s a more in-depth article from Drew DeSilver in today’s Times.

Mike Benbow reports from The Everett Herald.

[Addition from The Tim]
As noted in the forums, local construction equipment manufacturer Genie Industries is also laying off “120 full-time workers and an undisclosed number of temporary workers.” The P-I has the story.

Genie employs roughly 3,000 people, making it the second-largest employer in Redmond. For what it’s worth, it is also where I worked until January (when I left of my own volition).