Seattle Bubble

Let’s follow up yesterday’s heavy downer of a post with some lighter fare. I think it’s time for another link roundup.

So you say they’re not making any more land, huh? Well, maybe not, but that doesn’t mean we’re running out of places to build houses. No, I’m not talking about condos. I’m referring to something a little more green…

A few years back, when Lolly Shera’s son was 9, he peppered their yard with four treehouses he banged together from scrap lumber, like a modern-day Huck Finn.

His mom can still glimpse some of them — from the window of her own treehouse, a professionally built getaway she uses as an art studio.

…

Unlike the kiddie versions, Shera’s Fall City treehouse has power, insulation, plug-in heat, alder paneling, stairs and a deck. Its expansive windows mimic the fire lookouts she stays in when she’s hiking and climbing in the backcountry.

Check out some of the pictures. Those things really are amazing.

On less of a fun note, much like the rest of the area, over in West Seattle rental prices are on the rise:

Rental rates have increased in West Seattle by 7 percent to 10 percent in the last year, but the demand for rentals is stronger than ever.

“For landlords, this is the best rental market I’ve seen,” said Mike Gain, of Cayce and Gain Real Estate Management. “We don’t have any vacancies that just sit.”

…rental rates have climbed “back to reasonable rates,” said Gain.

So if you read a little bit into that last line there, you’ll catch the implication that rental rates for the last few years have been artificially low, and their recent increases are simply a return to the mean. That sounds fairly reasonable actually, and makes the media’s scare-mongering over rent increases even more amusing.

Over in Ballard, some developer is apparently unaware of just how late to the party they would be if they began yet another condo conversion in a year or two.

Officially, Lock Vista residents don’t even know for sure they’ll be ousted. But a city inspector canvassed the buildings earlier this month offering “condo conversion” as an explanation, residents said, and that was enough to set off a chain reaction that’s led to an outpouring from community members — including a number of other Seattle residents who say they also lost their apartment homes to condos recently.

Seattle condo-development company the Northlake Group is interested in buying the apartments. But Lock Vista residents don’t even know exactly who’s selling the complex; they’ve never met their landlord. John Fox, a representative of the Seattle Displacement Coalition, said the apartments belong to a Bellevue-based businessman.

Good luck with that.

And lastly, let’s end on an amusing note with a press release from King County titled: Wise real estate investment could fund numerous county service improvements.

A wise real estate investment eight years ago has put King County in position to possibly consolidate more services downtown in a new King County Administration Building at no new cost to taxpayers. The economics of replacing the deteriorating, 37 year old administration building would be strengthened with the possible sale of the eight-story King Street Center in Pioneer Square.

Unsolicited private sector inquiries into possible purchase of King Street Center illustrate the high demand for quality office space in Pioneer Square. Analysts think the county could possibly sell the property for more than double its original $65 million cost. If the county gets the price it wants, it would move two of the county’s largest departments from King Street to a planned new Administration Building at Fourth and James. The consolidation would create new efficiencies and give citizens easier access to services.

“Our smart investment in King Street Center could return tremendous new value to citizens in both dollars and services,” said King County Executive Ron Sims.

Yeah, it was a “smart investment” to buy property in 1999, just before the biggest real estate bubble the nation has ever seen. Not “lucky,” but “smart.” Because, you know, they saw the bubble coming.

(Cecelia Goodnow, Seattle P-I, 08.22.2007)
(Rebekah Schilperoort, West Seattle Herald, 08.13.2007)
(Angelo Bruscas, Seattle P-I, 08.22.2007)
(Press Release, King County, 08.21.2007)

Dang, my inbox has been flooded with stories lately. Here’s a recap of some of the more interesting ones related to the local housing market. Click below to read tales of rising rents, flaming hot office markets, expensive and stale listings, virtual property tours, disappearing mortgage options, booming condos, and more!

[Read more →]

It’s getting more and more difficult for the local press to pretend like everything is roses, bubbles, and white puffy clouds in the local housing market. So, what’s the next best thing to pumping housing? Spreading fear about renting!

Renters have been saying loudly that rents are rising steeply and vacancies are few.

Now comes fresh proof they’re right.

Average rents in the region jumped almost 2 percent between the first and second quarters of this year and are now 9.1 percent higher than this time last year, reports apartment analyst Tom Cain, of Cain Inc. He surveys 149,000 King and Snohomish county apartments quarterly.

The current two-county average is $1.14 per square foot, or $967 per unit.

Meanwhile, the vacancy rate continues to drop, now at 4.24 percent for the two counties. Anything under 5 percent is considered tight.

“The rental market will continue to tighten as a result of job growth, in-migration and a combination of an insufficient amount of new construction to fill demand and apartments leaving the rental pool for conversion to condominiums,” says Cain, publisher of Apartment Insights Washington.

Obviously it would be stupid of me to try to argue that rents have not increased. I will however point out that while the article seems to imply that 9% per year increases are somehow indicative of a new trend, and likely to continue consistently for years, this is likely not the case. Rents are directly tied to wages. You can’t go out and get a 0%-down, I/O-ARM to finance your rent.

Rents are experiencing a temporary spike due to the extended period of stability and even decreases during and after Seattle’s post-dot-com economic downturn. Unless wages have been and continue to increase at 9% per year, rents will most likely jump a bit, then increases will fall in line with incomes.

To support this premise, I pull this statistical standby out of the vault:

Click to enlarge (source)

Notice how from 1999 to 2000, rents and incomes tracked (on average) perfectly? Also notice that from 2000 to 2005, rents lagged a bit behind incomes. Incomes experienced 5 years of 2.7% annual increases (average), for a total increase of approximately 14.2%. Rents’ total increase was 3.5%. Assuming that income increases hold mostly steady, it will take just two years of 8% rent increases for rents to catch up to incomes.

Put another way, eight quarters of 2% rent increases would bring rents back in line with incomes. Since early 2006, rents have been rising fairly steadily at roughly 2% per quarter. That’s six quarters, out of the eight required for rents to catch up. Remember, rents are not dictated by what landlords wish they could charge, they’re dictated by what the market can bear, i.e. - what people can afford to pay based on their income.

In all likelihood, rent increases will have tapered off significantly by this time next year. But don’t expect to read an article that comes to that conclusion in the Times any time soon.

(Elizabeth Rhodes, Seattle Times, 07.15.2007)

The Seattle P-I is running an article about some interesting survey results regarding mothers’ attitudes toward working. Despite the fact that more mothers are working full-time, fewer think that it’s best for the family.

After generations of debate about working mothers, only about a fifth say full-time jobs are ideal, fewer than held those views 10 years ago, the Pew Research Center reported in a survey released Thursday.

Yet most of these women aren’t getting what they want. Although 60 percent of working mothers say part-time jobs were ideal, only 24 percent actually hold those positions, Pew reported, citing Bureau of Labor Statistics data.

How does this relate to housing, you ask? Well, why do you think they’re working full time when they believe their family would be better off if they didn’t?

Nicole Grant is one of those mothers looking for work-family harmony as an apprentice electrician and mother of a toddler. The 29-year-old can’t work part-time and says most employers simply haven’t adjusted to women in the workplace.

…

Most mornings Grant leaves her Columbia City home by 6 a.m., long before her 1-year-old son Flynn wakes, to get to work. Without her income, she and her husband, a general contractor, couldn’t afford to live in Seattle.

“Despite taking a lot of pride in my work, I’m regularly overwhelmed emotionally,” Grant added.

Now, the article doesn’t specify whether Mr. & Mrs. Grant are renting or paying a mortgage, but I suspect it’s the latter. Granted, even when renting, Seattle can be unaffordable for a family on a single below-median income. But don’t general contractors make a pretty decent wage? Let’s run some numbers…

Using the Center for Housing Policy’s online tool, we can compare the income required to afford to buy vs. rent in Seattle, and how the income of various occupations stack up. The tool doesn’t have an option for “general contractor,” so I selected “Construction Laborer” and “Construction Manager.” I think it’s safe to assume that as a general contractor, Mr. Grant’s income is somewhere between those two. Here’s what the situation looks like for a general contractor and an electrician buying a home in the Seattle area:

It looks like Nicole Grant was right. According to the CHP, a $72,000 salary from her husband plus a $50,000 salary of her own only barely add up to enough to buy that Columbia City home. But maybe they’re renters. Let’s see how that looks…

Oh my. It looks as though they would be able to afford to “live in Seattle” on just one income, even if her husband was making a construction laborer’s wage of just $18.67/hour ($38,839/year).

Clearly there is a lot of supposition here, and we don’t have the complete picture. Maybe they are renting, but couldn’t find a 2-bedroom apartment for under $900 per month (although ForRent.com shows plenty). Or maybe they “need” more than two bedrooms. However, it would appear that the need to “own” a house is more important to the Grants than Nicole being able to stay home, and avoid being “regularly overwhelmed emotionally.”

I have a feeling that’s the case for a large number of full-time working mothers. Home “ownership” has become so important, that people have become willing to sacrifice their financial, emotional, and physical well-being to obtain it. I’m not passing judgement on people’s personal choices, but I do have a problem with someone making a general statement like “we can’t afford to live in Seattle on just one income” when the truth is in fact “we can’t afford to buy a ridiculously overpriced home in Seattle on just one income.”

You make choices, and you live with them.

(Paul Nyhan, Seattle P-I, 07.13.2007)

The following question was posted by “Newbie” in yesterday’s thread:

I have been reading here for the past couple of months, my purpose being to understand if it is worth buying a house/townhome in seattle.

Now, landlord just increased my rent by 15%. This is pushing me towards seriously considering buying. What do you suggest?

A 15% increase sounds pretty excessive (unless the previous rent was extremely low), but I suppose it would be possible if the landlord believed for some reason that they could actually get that price. Leaving aside judgments about the veracity of the question, I’m sure there is a lot of advice out there for Newbie on how to find a good deal on a rental, and plenty of opinions about buying a townhome.

It is worth pointing out that if Newbie is a resident of Seattle proper, the law requires that your landlord provide a 60 day written notice of any rent increases larger than 10% (p. 3). For more information about renter’s legal rights with respect to rent increases in Washington State, refer to Tenants Union of Washington State.

What kind of constructive input would you have for someone in Newbie’s situation?

I’m working on a post that I’d like to make this week where some real-world examples of renting versus purchasing would be really handy. There’s a thread on the forums on the subject, but I’d like to pose the question here as well.

Basically what I’m looking for are some concrete examples (with links and addresses) of homes available for rent vs. comparable homes (i.e. - similar bed / bath, square footage, lot size, neighborhood, etc.) available for sale. Ideally I’d like to throw some condos vs. apartments into the mix as well.

Here’s an example of my own to kick things off. (I did this research a few weeks ago, and since then both have gone off the market, so I don’t have links anymore.)

For Rent:
1,840 square foot house
3 bedroom, 2.5 bath
2-car garage
8,282 square foot lot
Near 74th Pl NE & NE 148th Ln, 98028
Price: $1,495 / month

For Purchase:
1,850 square foot house
3 bedroom, 2.5 bath
2-car garage
9,660 square foot lot
Near 87th Ave NE & NE 132nd Pl, 98034
Price: $424,950
PITI*: $2,750 / month
* (Assumes 20% down, 30-year fixed @ 6.625%, Insurance @ 0.46%, property taxes at 1.15%)

So what are your best rent vs. purchase examples in the Seattle area?