Seattle Bubble

Here’s a brief roundup of a bunch of noteworthy items that have popped into my inbox and RSS feeds in the last day or two.

Aubrey Cohen: Current economic woes more like 1873 than 1929.

“When commentators invoke 1929, I am dubious,” writes Scott Reynolds Nelson, a professor of history at the College of William and Mary. “According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany’s inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now.”

Nelson continues: “In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls ‘the real Great Depression.’ She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years.”

Noted.

Seattle Times: Microsoft hiring plans to face “adjustment” as tech spending slows

Microsoft confirmed Friday it’s re-evaluating its current hiring plans and “will make some adjustments as appropriate.”

Those adjustments are likely to be downward, given Chief Executive Steve Ballmer’s recent comments about Microsoft being affected by the economic slowdown.

Although the company still intends to keep growing, any reductions are unsettling for a region reeling from the fire sale of Washington Mutual, the sale of Safeco, a Boeing strike and a sputtering housing market.

Seattle Times real estate blogger Cindy Zetts shares some recent meandering excerpts from her blog, in which she appears to be trying to spin today’s market positively.

Aubrey Cohen also gives a good outline of what the local foreclosure auction scene looks like today.

That’s the foreclosure auction scene these days: lots of houses for sale, lots of cautious investors and an increasing number of civilians who think it might be a good place to get a home at a bargain price.

And lastly, Mr. Cohen again, who points out in his blog that local real estate broker Coldwell Banker Bain is thumbing their nose at the national Coldwell Banker office, declining to participate in the 10% off “10-Day Sales Event.”

“While I appreciate the effort to ‘make something happen’ relative to the more adversely affected markets in the U.S., we strongly feel the ‘retail’ mindset of this promotion is not appropriate,” Ron Sparks, managing vice president Coldwell Banker Bain, said via e-mail. “Homes are unique, and each brings a nuanced value proposition to the market. We do our very best to properly price our listings every day.”

In other words, “Seattle is special. Homes here are worth whatever we say they’re worth, and these stubborn buyers just need to deal with it.”

Here’s a thread to discuss some of the not-so-great big news that has come out recently for the Seattle-area’s two biggest private employers.

Boeing:

• Loses out on $40 billion Air Force tanker contract

Microsoft:

• Facing class-action lawsuit for Vista hardware requirements
• Cutting boxed Vista prices (possibly due to disappointing sales?)
• Still trying to buy Yahoo!

Not exactly a heaping helping of good times for the area’s two flagship employers, frequently touted as having the fortitude to maintain the local housing market entirely under their own economic power.

What are your thoughts about how Boeing and Microsoft are doing, and what effect it will have on people buying and selling houses?

It seems to be a foregone conclusion lately that the US is currently entering recession. Of course, much like the housing market, the some aspects of the economy are local, so we can’t assume that what’s going on nationwide will necessarily hit us here. Following are a couple of articles from the last few days that address the specific question of whether or not the Seattle area is likely to face recession.

Washington CEO: Is Seattle facing a recession?

Technically, no - Seattle isn’t likely to experience actual economic contraction in 2008. But with inflation rising and economic growth slowing, it may feel recession-like in the next couple of months for many in Washington’s business and population center.

First the good news: King County should continue to experience job growth. Boeing and Microsoft both have been expanding, and their most recent quarterly reports indicate this should continue, at least in the near term.
…
Now the bad news: Slower economic growth rates may not keep pace with inflation.

Consumer prices increased 4.6 percent in the Seattle-Tacoma-Bremerton metro area last year. That’s higher than the CPI increase for United States as a whole, which was 4.1 percent.
…
If your paycheck, or sales revenue, isn’t growing that fast, it’s still going to feel like a recession, even if the numbers show slight growth. And make no mistake, while the economy continues to grow, that growth is much slower.

I would be interested to hear a real estate agent’s explanation for how home prices in our area will continue to go up, despite increasingly tight household budgets, still-tightening lending standards, and the death of the “buy now because the market is red hot” mentality. As economic growth slows to below the rate of inflation, I think the top-end scenario for home prices would be that they remain flat. More likely I think that even if Seattle only experiences a “growth recession,” we’re likely to see prices declining at least moderately.

Seattle Times: No equal-opportunity recession

It’s difficult to believe the housing meltdown won’t at least singe Seattle. You can see some of the ashes already in the difficulties at Washington Mutual. Yet the region is in a stronger position than most.

That doesn’t guarantee a downturn won’t be contagious. Anything connected to the housing slump is vulnerable, and a deep trough could cause wider damage. But global demand for Washington products, such as airplanes, software and grain, and strong population growth remain advantages.

The more intriguing question is what happens during and after the downturn. Recessions are transformative events, no less for cities and states than for individuals and companies. They wring out imbalances and create winners and losers, sometimes unpredictably.
…
Seattle’s biggest exposure to a downturn may be complacency. Economic memories can be short amid so much prosperity. But it took years for the region to recover from the 2001 tech bust, a mild recession by national measures.

Like others, I question whether we can count on continued strong demand for airplanes and software in the midst of a recession. In fact, it would seem that many of the major products produced by Seattle fall into the “expendable” category when push comes to shove: airplanes, software, online shopping, gourmet coffee…

In the last recession, Seattle was hit harder than many other places. Don’t take my word for it, read this 2002 Seattle Times piece for yourself. Has the economic layout of our area changed in some significant way that will cause the opposite to be true this time around?

(Bryan Corliss, Washington CEO, 02.11.2008)
(Jon Talton, Seattle Times, 02.10.2008)

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.
…
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.”
…
“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)

Turns out we’re not the only ones that harbor some doubt about Microsoft’s ability to single-handedly shelter Seattle from a housing downturn. That exact subject was the topic of a recent Times editorial by Brier Dudley.

Microsoft may not be minting millionaires anymore, but it’s growing at a time when Seattle’s glad for anything that can keep its housing market from crashing like in other parts of the country.

The company has buffered the region before. But the question I have, as we watch for darkening clouds, is whether Microsoft will have that same effect if the economy hits a truly rough patch in the future. It no longer has the same flexibility, now that its growth is slower, its investors are more restless and its latest venture — advertising — is more cyclical.

Being an opinion article, it is understandably light on hard facts and research, but it gets across the point that while Microsoft’s effect on the region is certainly positive, it’s probably not positive enough to save us from the inevitable.

Duh.

(Brier Dudley, Seattle Times, 10.15.2007)

Dow, Nasdaq, S&P500

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Microsoft & Boeing

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Update: By request, here is a graph of today’s stock performance for a handful of other locally-based companies.

Other Seattle-Area Companies

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For those of you keeping score at home:

• Boeing: -1.95%
• Microsoft: -4.12%
• Amazon: -5.00%
• Starbucks: -3.94%
• Nordstrom: -7.59%
• Costco: -3.48%
• Washington Mutual: -2.25%

Some immunity.