Seattle Bubble

From above the fold on today’s Seattle Times front page:

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How soon do you suppose we can expect an article explicitly making the claim that is subtly implied by this headline / photo combo? Let’s play “predict the headline.” Here’s my guess: Soaring Loonie Strengthens Seattle Real Estate. Of course, the real story will be (is) the declining dollar and the sagging market. But hey, the Times has never let reality get in the way of an uplifting puff piece before. Why start now?

Hot on the heels of an unusually balanced report on the latest NWMLS home sales data, Aubrey Cohen comes back with another piece on the local market, this one full of non-sensical rationalizations for continued price gains.

Ken Kam, of Honolulu, scoped out second-home possibilities during a Seattle visit last month.

“It seems like it’s an up-and-coming and popular place,” he said while looking through a Queen Anne town-house development in which units start above $800,000. “The prices are still lower than in Hawaii.”

Two doors down, Tim Hug and David Hofmann were washing a BMW outside the town house they moved into in June after relocating from San Francisco.

San Francisco’s still more expensive, but Seattle’s catching up, Hug said.

People such as those help explain new Census Bureau data, which show Seattle’s home values rising considerably faster than incomes in recent years.

The 2006 numbers, released Tuesday, show the value of a typical Seattle home is 7.7 times the median household income in 2006 — a 39 percent jump from the ratio in 2000.

Seattle’s ratio of home value to income is higher than the county, state and nation, although that gap has narrowed in recent years.

But Seattle still is far more affordable than cities such as San Francisco, where houses cost 12.3 times the median income, and Honolulu, where they cost 10.7 times the median income. This ratio increased by more than 50 percent since 2000 in Honolulu and more than 60 percent in San Francisco.

That disparity is one reason King County regional labor economist Cristina Gonzalez does not expect much fallout from Seattle’s rising prices on the wider economy.

“Compared to other West Coast cities, they’re not unthinkable yet,” she said.

So, the take-home message is that prices in Seattle are bound to keep rising, because all of the homes will be bought by wealthy people moving here from places where homes are even more ridiculously expensive. I actually buy the ‘rich out-of-stater’ theory to a degree, but I think the effect is fairly limited. Also, doesn’t the theory that wealthy people from more expensive housing markets are propping up our own market directly contradict the claim that Seattle is insulated from the housing bust going on across the nation? When prices drop in San Francisco and Honolulu, wouldn’t the situation reverse itself?

The article does include some balance, but only because it’s really just an Associated Press report with the local cheerleading tacked on. The AP portions are decidely less optimistic:

“We had an artificial economy,” said Brad Geisen, founder of Foreclosure.com, a Web site that lists foreclosure properties. “There was all this wealth created in real estate, and it wasn’t really created.”

Mark Zandi, chief economist at Moody’s Economy.com, likened the current housing market to the dot-com boom and bust a few years ago, when stock prices for many tech companies soared — before some of them ever turned a profit — and then crashed.

“The parallels are quite similar,” Zandi said.

Anybody remember how that dot-com bust turned out for Seattle?

(Aubrey Cohen, Seattle P-I, 09.11.2007)

The stories have been piling up in my inbox at a faster rate than I’ve been able to post them lately, so that means that it is time for another bubble link roundup. I’ve got a lot of ground to cover in this post, and I don’t want to totally clutter up the front page, so click below to read the entire post.

[Read more →]

Here’s yet another boilerplate national real estate article rah-rah’ing Seattle’s apparent resilience:

Amid all the news of plummeting national housing numbers, the premise still holds true that all real estate is local, and nothing supports that premise more than the statistics on local home price appreciation. The ka-ching from a house in Seattle rings just as dramatically as the bell tolling for a home in Detroit.Home prices and sales, while certainly susceptible to national macro-economic factors, such as mortgage rates and lending standards, rely largely on the local economy and local supply and demand. This is precisely why home prices in Seattle are up 10% from a year ago, according to the S&P/Case-Shiller Home Price Index, but down nearly 8% in Detroit. It’s the booming tech industry versus the slumping auto industry.

Home prices in Seattle have been on a tear, up for four months in a row, to a median price of $465,000 in April, according to the Northwest Multiple Listing Service. Confounding matters even more, the bulk of the homes that sold in Seattle in March went for above asking price.

“We just have a very strong market,” says Sara Hasan, financial analyst for Seattle-based McAdams Wright Ragan, a regional brokerage firm. “Two of the major employers are Microsoft and Boeing, and both are doing very well.”

Not to mention that Google has moved into the very limited real estate in the area, which makes another point: Seattle has very short land supply, further diminished by a growth management act, which restricts where and how many single family homes can be built. Limited land supply plus strong employment equals pricey homes.

That’s a convincing-sounding equation. Too bad that actual research shows it doesn’t at all explain Seattle’s high home prices. It’s more like limited land supply (growth management) plus strong employment equals a plausible, but entirely false explanation for continued (but slowing) home price gains.

It’s not that we don’t have somewhat limited land and strong employment. It’s just that when you actually take the time to do your research you find little to no correlation between those factors and home price gains.

(Diana Olick, CNBC, 11.05.2007)

Many of you pointed out the latest in a series of paid advertisements masquerading as reporting in yesterday’s Seattle Times. The apparent purpose of the “article” was to convince the reader that 2007 is a great year to buy a condo in downtown Seattle, at any cost.

[Condo developer David] Thyer insists that Seattle isn’t like other cities, where developers are struggling with an oversupply of new condos. There’s a demand for condos in downtown Seattle, he says, drawing a contrast with the speculative buying frenzy that has led to a boom-bust scenario elsewhere in the country.

On Friday, political and business leaders met over breakfast at the Westin Hotel for an annual review of downtown Seattle. Real-estate economist Matthew Gardner shared Thyer’s optimism, telling an audience of about 700 that demand for new places to live downtown will remain “very positive.”
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Developers say the new condos will sell, but will they sell at the prices developers want?
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In Miami and Las Vegas, developers have had to drop their prices after condos outnumbered buyers.

Part of the problem is that many buyers regarded their new condos as investments and had no intention of living in them.
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[Dean] Jones [president of Realogics, a local condo-marketing firm] estimates that speculators accounted for 30 percent or more of all new condo purchases in Miami and Las Vegas, compared with “no more than 15 percent” in Seattle. Now, developers require buyers to disclose if they intend to live in their new condos in an effort to limit speculators, Jones said.

Ada Healey, a vice president at Vulcan Real Estate, said speculators represent a “very modest minority” of its buyers. Thyer, president of R.C. Hedreen, said he tries to limit speculators to no more than 5 percent.
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[Seattle real-estate agent Brett] Frosaker counts at least four projects where a significant portion of the condos sell for $1 million or more. Never before, he says, has downtown seen so many ultra-expensive condos come online at the same time.

“A lot of research shows there’s a market for them,” he said. “But it hasn’t been proven yet.”

So, a bunch of condo developers, condo marketers, and real estate agents all say that “it’s different here.” What a shock. And what evidence, pray tell, do they have to support that assertion? Estimates, intentions, efforts, and (I’m just guessing on this one) a sprinkle of pixie dust.

Matt Goyer, proprietor of the local condo enthusiast blog Urbnlivn also had some critical thoughts about this article that are well worth reading. Considering that he is already a condo believer, it is commendable that he takes these cheerleading articles with such a large grain of salt. Kudos, Matt.

(Amy Martinez, Seattle Times, 02.11.2007)
(Matt Goyer, Urbnlivn, 02.11.2007)

In a Lynnwood Journal puff piece that reads more like a sales ad than a news article I found these interesting anecdotes:

Local lenders, such as Golf Savings Bank, are offering incentives, such as $1,000 off closing costs for certain new home communities, like Edmonds Cascade Cottages.

And local developers, such as Puget Sound Homes of Everett, are extending generous buyer’s incentives for purchases of homes into January, to spur sales activity during a typical slower time of the year. However, as the market heats up again after the 15th of January, these buyer’s incentives may go away.

Realtor Rick Horst, from the Everett office of Windermere Real Estate, represents Puget Sound Homes and Bellrose, a community of 28 single family homes located at the north end of Mill Creek. According to Horst, buyers at Bellrose can choose between a 2007 Ford Mustang, with a $23,000 MSRP, a $17,000 buyer bonus for use in closing costs and/or down payment, or having their first six months worth of mortgage payments paid by the developer.
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One example of this [builder incentives] is the Acadia community of homes in Silver Lake, currently being offered for presale through John L. Scott Real Estate. Listing Agent Paula Hovander believes builder D R Horton will extend some portion of the buyer bonus offered in December, when the presale campaign was launched for their community of 36 single family homes. A total of seven homes were sold in December, with a $10,000 buyer bonus offered through DHI mortgage as an incentive to quick start presale activity.

Aren’t these the kind of things that builders do when they are having a hard time selling at current prices? If the local housing market is as “healthy” as some would have us believe, why would homebuilders be resorting to bribes to get people to purchase new homes? Not having been shopping for a hew home lately I couldn’t say how common this is becoming, but the fact that it’s happening at all is still more evidence that things are slowing around here.

I kind of wish that we had a local blog that followed new single-family homes the way that Matt over at Urbnlivn follows condos. It would certainly help give us a better idea of how much the market is softening.

(Jolene Anderson, Lynnwood Journal, 01.08.2007)