Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries Tagged as 'population'

Link Roundup: Condos So Bright, I Gotta Wear Shades

By The Tim on November 19th, 2007 at 1:06 PM · 43 Comments

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.”
…
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.
…
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)

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Welcome to Seattle Bubble

By The Tim on November 8th, 2007 at 1:20 PM · 99 Comments

Since I was on KING 5 News last night and KOMO 1000 radio this morning*, I thought it would be good to write up a slightly more detailed post aimed at answering the question: “What is Seattle Bubble about?” So, here’s a summary of the important points.

The Bottom Line: Now is not a good time to buy a home in Seattle.

Here’s why:

  • Irresponsible, loose lending drove prices to artificial highs, pricing out responsible individuals and families that just want to make a decent down payment and get a traditional loan on a reasonably priced house.
  • We are presently seeing a return to responsible lending standards, as the banks experience the consequences of writing loans to people who did not have the ability to pay them off. As lending standards continue to tighten, further downward pressure will be placed on home prices.
  • Macro-economic factors drove home prices up, and will in turn bring prices back down (yes, even in Seattle).
  • Home prices in Seattle did not rise as fast or as far as other places in the US, and likely will not fall as far. However, they will most likely fall.
  • Why will prices fall? Because the current level of local home prices is not supported by any of the fundamentals that drive a healthy housing market:
    • Incomes (1, 2, 3, 4)
    • Employment (1, 2, 3)
    • Population (1, 2, 3)
    • Rents (1, 2)

    All of these factors are indeed positive for the Seattle area, but prices began to rise out of control while Seattle was still recovering from being hit particularly hard by the dot-com recession. Thanks to the aforementioned easy lending, home prices during and since Seattle’s economic recovery have risen much faster and higher than these positive fundamentals support.

There are lots of people (like myself) who have little to no debt, great credit, and a good down payment, but are not willing to buy into an inflated housing market. We are not against home ownership. We are against taking out massive, dangerous loans to finance an otherwise unaffordable and overpriced asset. We are perfectly content to wait out the declining market, and will not be suckered by real estate salespeople who perpetually repeat claims that “now is a great time to buy.” They said that about the national housing market, and they were wrong. Once the home price drops were irrefutable, they began declaring that “the market has hit bottom” every three to four months.

Don’t take anyone’s word when it comes to what will likely be the largest financial decision of your life. Do the research, and determine if the market is right for you. That’s what Seattle Bubble is for: providing a resource where regular people can assess the local housing market on their own.

P.S. (I’d like to improve / refine this post and make a copy to link at the top next to “Home” and “Forum” as an “About” page. If anyone has any suggestions for improving this post with that end in mind, such as additional posts that should be linked or main points that I left out, please share your ideas in the comments. Thanks!)

* I tried to record the interview through the online stream of KOMO 1000, but halfway through they cut into the feed with an ad for a casino that ran for the entire remainder of the call. KOMO host Nancy Barrick is going to email me the audio tomorrow morning, and I will post it here sometime thereafter.)

Update: Here’s the audio from the interview on KOMO today:

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REALTOR® vs. Reality

By deejayoh on October 16th, 2007 at 11:00 AM · 48 Comments

Continuing The Tim’s trend of quick posts, I thought I would add this to the flurry of news today. King5 ran a news piece last night that is summarized in this article, entitled Home sellers upping incentives in crowded market

The piece quotes Reba Haas, one of the contributors over at Rain City Guide. She is quoted as saying:

“There’s too many people coming here for us not to have it continue to be strong,” said Haas.

Let’s see how that statement stands up to reality. Here is the most recent report on immigration from the Washington Department of Licensing.

DOL - Washington Immigration

Wow. Looks like the number of people coming to Washington is actually off 21.6% year over year. Perhaps some fact checking is in order?

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“Positive Fundamentals” with “Hints of Weakness”

By The Tim on June 26th, 2007 at 9:02 AM · 10 Comments

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)

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Spot the Fundamentals

By The Tim on March 28th, 2007 at 8:47 PM · 35 Comments

Let’s play a game. It’s called “Spot the Fundamentals,” and the way we play it is by looking at some of the “fundamentals” to figure out which ones are responsible for our area’s high home prices.

The frequent condescending argument of the cadre of Seattle area housing bulls (real estate agents, “analysts,” the press, and increasingly combative blog commenters—whom I suggest we all ignore) is that unlike most of the rest of the nation, Seattle home prices are firmly supported by strong fundamentals such as exceptional job growth, high-paying jobs, and increasing population, and as such will not decline.

Let’s play “Spot the Fundamentals” to see how well that claim holds up.

Job Growth
The Seattle area has “strong job growth,” right?

Well sure, if you call 3% growth in the last year “strong.” Of course, while Seattle was one of the few parts of the nation where housing prices rose double-digits last year, there were 85 Metropolitan Statistical Areas that had better “job growth.”

Unfortunately for the Bull Cadre, a 3% increase in jobs does not account for an 11% increase in home prices during the same time frame. As we have previously explored in detail, job growth (and reduction) in the Puget Sound has had little to no correlation with housing prices.

High-Paying Jobs
Yeah, but even though the job market isn’t growing by leaps and bounds, thanks Microsoft, salaries are shooting through the roof… right?

Hmm, maybe not. In fact, income growth in the Seattle area was so slow recently that we made it onto a “lowest of” list. Somehow I must have missed it when that little news tidbit hit the papers.

Another swing and a miss for the Bull Cadre.

Population Growth
Well, people are moving here faster than ever, so that pretty much forces home prices higher, doesn’t it?

County 2000 pop. 2005 est. % chg. %/year
King 1,737,034 1,793,583 3.26% 0.64%
Pierce 700,820 753,787 7.56% 1.47%
Snohomish 606,024 655,944 8.24% 1.60%

(source)

Not. If there actually were people moving here in droves, then yeah, that would explain home prices rising an average of 9.4% per year (King County SFH, 2000-2005). However, that clearly does not describe reality.

Looks like strike three for the Bull Cadre.

Fundamentals vs. Speculation
Here’s a refresher:

As I have demonstrated before, Seattle area rents (which are not subject to speculation) have indeed been tracking fairly well with “the fundamentals.” Home prices clearly have not.

How anyone can (with a straight face) argue that “strong fundamentals” will prop up Seattle area housing prices, when they have so clearly been propelled by factors other than fundamentals, is completely beyond me. You can believe whatever you want to believe about where prices will go from here, but to say that they will be propped up by “strong fundamentals” is just willful ignorance, in my opinion.

If anyone believes they can explain how Seattle home prices have actually been tied to fundamentals since 2000, and wishes to civilly bring such an argument to the table, backed up by hard data (such as what is found in this post), then by all means be my guest. However, don’t waste your time with one-liners, “bitter renter” put-downs, and simplistic observations of inventory and ongoing price increases, as they will be ignored.

(Bureau of Labor Statistics, US Dept. of Labor, 01.2007)
(Bureau of Economic Analysis, US Dept. of Commerce, 09.2006)
(US Census Bureau, Population data: 2000-2005, 2005)
(King County Budget Office, Affordable Housing 2006, 01.2007)

Thanks go out to reader Dennis O. for pointing out some of the data in this post.

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What Cities Does Seattle Compare To?

By The Tim on February 13th, 2007 at 1:46 PM · 55 Comments

In the last few days I’ve run into a few comments in various discussions about Seattle real estate that have caught my attention:

Dean Jones, Condo Marketer:
“You might cringe at condos that sell for $2,000 a square foot. But it would be twice that in New York. We’re still, relatively speaking, a bargain.”

Bob, Urbnlivn commenter:
“When I look at the prices in New York, Tokyo, Hong Kong and London where new apartments can routinely fetch $1500 per sqft, Seattle still isn’t that expensive but it is getting there.”

Emkorial, Ars Technica Forum Member:
“Seattle is a MAJOR city. Like LA and NYC.”

What I find interesting about these comments is the tendency to justify Seattle home prices by comparing Seattle to large, major cities. Is this a valid comparison? Is Seattle really a major city like LA or NYC?

Usually when people refer to a city as “large” they are referring to the sheer population of the city. However, population density also has something to do with it, because otherwise any city that expanded their boundaries enough could claim to be a “major” city. So we could rephrase the question to ask: “What cities most closely match Seattle’s population and density?”

To answer that question, I made a list of a handful of major world cities and a number of large-ish US cities. Here are the population, land area, and population densities of each:

Seattle Population Density Compared

I have highlighted the six closest cities to Seattle in each separate category: population (orange), land area (green), and density (yellow). When looking only at population, Seattle is most similar to cities such as Las Vegas, Vancouver, Milwaukee, Portland, Cleveland, and Sacramento. When comparing land area, St. Louis, Cleveland, Baltimore, Milwaukee, Sacramento, and Las Vegas are all fairly close. Lastly, when you compare density (which the chart is sorted by above), Seattle is comparable to Los Angeles, Baltimore, Buffalo, Detroit, Cleveland, and Milwaukee.

There are two cities on the list that are similar to Seattle in population, land area, and density: Cleveland, Ohio and Milwaukee, Wisconsin.

Keep in mind that I am not attempting to compare all available statistics (such as income, economy, home prices, etc.) for these cities. I simply wanted to determine which cities Seattle should be compared to when discussing city size.

And now we know the answer: Cleveland and Milwaukee.

Update: Some people pointed out that my “highlight the three next highest and the three next lowest” method does not meet the rigorous scientific standard that the readers of this site deserve. Therefore, in the interest of science, I present this updated chart:

Seattle Population Density Compared

In this chart I have highlighted cities that are ±20% of Seattle in each category. As you can see, Cleveland and Milwaukee are still a close match to Seattle, with the city of Baltimore, Maryland joining the list.

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