Seattle Bubble

At the rate that news stories are suddenly pouring in on the local housing downturn, you would think that the slowdown just came out of nowhere and surprised everyone. Now that the local press has finally woken up to reality about the housing market, there have been too many articles for me to cover each one with a separate full-length post.

Rather than going with a “link roundup” format, I’m going to go a different route today, and just post a bunch of really short posts all in a row. Scroll down the main page to check them all out.

In related news, the slowdown has become big enough news that even the local talk shows are discussing the topic. This morning I caught part of the “Kirby & Co.” show on AM 570, where co-host Carleen Johnson mentioned the eight homes for sale on a single street in her neighborhood, many of them for sale since late spring. 25-year-old co-host Matt Haver told of his desire to get into the housing market, but lamented that he was priced out, and was told by his father that he would be “crazy” to get into the current market.

I called in with a plug for Seattle Bubble, and commented that A) anyone could have seen this coming since home prices were bid up to ridiculous heights thanks to easy lending, and B) by this time next year, home sellers are going to be longing for the market of 2006. I wish I had been able to record it, because I think I made my points fairly well.

Anyway, scroll down for today’s local bubble news quickies.

A pair of articles today from the Seattle P-I and King 5 News focus in on those poor, poor sellers that actually have to work to sell a home in today’s slow market. No longer are run-down shacks full of years of accumulated junk being bid up to ridiculous heights. Now, you actually have to clean out your crap, paint a few walls, steam-clean the carpets, take decent pictures, and—oh yeah—knock a few thousand (or a few tens of thousands) off the price.

A year ago, buyers regularly bid above asking prices, waived stipulations such as inspections and used escalator clauses, which raise offers over competitors’ bids up to a set ceiling. Now, good homes in nice neighborhoods with realistic asking prices still can get multiple offers, but many sellers put more time and money into fixing them up, offer more incentives and accept more conditions, including offers contingent on sale of another home.

These days, it would take twice as long to sell the current number of homes on the market in Seattle and King County as a whole at their current sales paces than it would have a year ago. Seattle had 50 percent more homes on the market in September than a year earlier, while the countywide increase was nearly as large. Pending sales, which can be the best indicator of recent market activity, declined by more than 25 percent in Seattle and 30 percent countywide.

Update: Matt Goyer over at Urbnlivn points out a Baghdad Bob-style denial of reality from a condo marketer quoted in the P-I article. “Prices have not been cut.” Wait, yes, they have.

How about trying some of those good ol’ incentives to lure in an unsuspecting victim buyer?

Selling a home in the Seattle area has become tricker. What used to sell in one week can now take months. Home sellers are going to more and more extremes, offering enticing incentives to hook a buyer.

Those boom days when homes in Seattle could be sold in a matter of hours are for the most part over. Residential homes can languish on the market for months, so sellers are relying on incentives to try and seal the deal.

I expect a lot of languishing to carry on through the winter, and probably throughout next year.

(Aubrey Cohen, Seattle P-I, 10.16.2007)
(Roberta Romero, King 5 News, 10.16.2007)

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)

Remember that slowdown in state revenues that we were warned about by our state’s chief economist ChangMook Sohn last year? Well guess what? It’s here!

Washington’s construction industry continues to expand, but real estate tax collections are $18 million below expected levels.

The state Revenue Forecast Council says taxable real estate activity in the past month was nearly 26 percent lower than a year ago, the sharpest decline in 12 years.

In related news, despite the fact that King County government (and Ron Sims specifically) have seen the revenue slowdown coming for nearly two years now, we’re now being faced with new taxes to cover the real estate shortfall.

King County Executive Ron Sims proposed three new taxes Monday, even as he warned that a slowdown in housing construction will strain the county’s general fund during the next two years.

Sims said in his annual budget address to the Metropolitan King County Council that he told his staff to “go back to the drawing board” in September after financial advisers warned that a downturn in construction would hit the county hard. The revised budget, which also calls for higher bus fares, trimmed 2008 spending in order to soften an expected 2009 budget shortfall.

…

Construction downturns are particularly challenging for the county because property taxes are the biggest source of money for the general fund.

Too bad nobody in King County government thought to restrain spending during the times when real estate was flying high and money was flowing in. Not that this is anything other than government business as usual, but it’s still annoying.

(Associated Press, The Olympian, 10.11.2007)
(Keith Ervin, Seattle Times, 10.16.2007)

Aubrey Cohen has really been picking up the pace lately, with the new blog and an increased number of articles. One of his latest articles mentions that the rate of new foreclosures is actually recently increasing in Seattle at a faster rate than the country as a whole.

Although the Seattle area continued to have fewer foreclosure filings and smaller annual increases in filings in September than elsewhere in the U.S., the gap has narrowed somewhat since August, according to a report Thursday.

Area filings increased nearly 31 percent in September from a year earlier and 6 percent from August, according to RealtyTrac, an Irvine, Calif., company that tracks foreclosure activity. U.S. filings were up 99 percent from a year earlier, but declined by more than 8 percent from August’s 32-month national high.

Of course, the increase is only in month-to-month statistics, which aren’t especially useful for determining long-term trends. We’ll keep our eye on the foreclosure rate to see if it turns into a pattern.

(Aubrey Cohen, Seattle P-I, 10.11.2007)

First up in today’s news quickies is word from Snohomish County that—guess what?— the housing boom has ended. No, seriously. The party is over.

Snohomish County’s housing boom is over.

Builders are laying off workers, houses are staying on the market longer, and the overall number of permit applications has dropped by hundreds compared to last year.

“Nearly every developer has or is contemplating layoffs, and it’s because of the slowdown in the market,” said Mike Pattison of the Master Builders Association of King and Snohomish Counties.

…

“The housing peak is over,” said Todd Britsch, president of Bothell-based New Home Trends, which tracks new construction. “These type of frenzies come around every 20 years.”

Instead, the region will see a normal and healthy housing market, Britsch said.

“The market is going into — and homebuyers need to understand this — a normal, sustainable, healthy housing market, and we’ll see an average appreciation of 3 percent a year for the next three or four years. Then we’ll start this cycle all over again. In five years, we may reach 10 percent a year.”

And what evidence does Mr. Britsch bring to the table to support his claim that we are transitioning to a “normal, sustainable, healthy” market? Nothing! That’s right, no evidence whatsoever. But the article is definitely heavy on optimism. It’s full of all kinds of quotes from builders and realtors about “natural cycles” and “fantastic numbers.” You keep the faith, boys.

(Jeff Switzer, Everett Herald, 10.07.2007)