Seattle Bubble

Check out this delightful piece from today’s Wall Street Journal: Where home prices are hot now

The housing news isn’t all grim. Even as prices sag nationwide, there are several cities in the country where home values are climbing smartly.Portland, Ore., Boise, Idaho, Seattle, Salt Lake City, Houston, Austin, and Charlotte and Raleigh, N.C., are among the cities bucking the national trend. Homes’ appreciation there between the fourth quarters of 2005 and 2006 far exceeded the national average of 5.9%, according to the Office of Federal Housing Enterprise Oversight.

In some markets, like Boise and Seattle, the appreciation jumped well into the double digits.

Let me stop right there for a moment. The phrase “well into the double digits” didn’t strike me as reflective of reality, so I took a look at the actual OFHEO report (pdf). Sure enough, according to the government, homes in Seattle appreciated 14.5% from Q4 ‘05 to Q4 ‘06. NWMLS stats and the Case-Shiller index both reported lower figures:

Dec. ‘05 – Dec. ‘06
OFHEO HPI: +14.5%
S&P/Case-Shiller HPI: +12.1%
NWMLS Median (Res, King Co.): +12.0%

I think the difference lies in the following (emphasis mine):

OFHEO calculates appreciation based on repeat sales or refinancings of the same single-family properties.

Including refinancings may have worked in the past, but for whatever reason, it is now apparently skewing the numbers a bit higher than they are in reality. With that in mind, let’s take a look at some of the other claims made in the article…

There’s no single secret of these cities’ apparent success, but many of them missed the housing boom of the past five years. From 2001 to 2005, annual appreciation in these cities was between 2% and 5%, far slower than the 7% to 12% national average, according to the Office of Federal Housing Enterprise Oversight.

Between 2% and 5% from ‘01 to ‘05? Really? No, not really:

Quarter: OFHEO, Case-Shiller, NWMLS
Q4 ‘05: +17.2%, +18.5%, +17.3%
Q4 ‘04: +10.1%, +11.4%, +9.9%
Q4 ‘03: +5.3%, +7.1%, +11.3%
Q4 ‘02: +4.5%, +4.1%, +3.3%
Q4 ‘01: +5.6%, +4.5%, +5.6%

Looks like we got a late start, with only slight price increases in ‘01 and ‘02 but from ‘03 on, it was off to the races.

Now, their economies are strong…

Good thing our local economy is completely immune to any potential slowdown in the national economy, right?

…and housing prices are still perceived as affordable, luring buyers into the market.

Now it’s just getting ludicrous. No one but an ex-Californian perceives homes in Seattle to be “affordable.”

The growth of Portland, Salt Lake City, Boise and Seattle can be attributed in part to an influx of former Californians and people opting out of slumping Las Vegas or Phoenix.

Ah, well there you go.

While some worry that a new group of cities could face a boom-and-bust cycle, local real-estate agents and economists predict stable growth for the near future.

In other news, local burger franchise owners and beef producers predict stable growth for the near future in their own industry, as well.

Lest you still come away from the article with a puffed-up opinion of Seattle’s superiority, take a look at the seventeen cities with higher appreciation than Seattle (according to the OFHEO):

• Bend, OR
• Wenatchee, WA
• Provo-Orem, UT
• Salt Lake City, UT
• Boise City-Nampa, ID
• El Paso, TX
• Flagstaff, AZ
• Corvallis, OR
• Mount Vernon-Anacortes, WA
• Longview, WA
• Myrtle Beach-Conway-North Myrtle Beach, SC
• Wilmington, NC
• Miami-Miami Beach-Kendall, FL
• Ogden-Clearfield, UT
• Salem, OR
• Tacoma, WA
• Mobile, AL

I guess the Salt Lake City area is even more specialer than the Puget Sound.

(Dean Treftz, Wall Street Journal, 05.09.2007)