Seattle Bubble

The New York Times yesterday ran a story about the struggling condo market in many parts of the country, and with as much attention as it received, you just knew the local news couldn’t let it go unanswered. Enter Aubrey Cohen of the Seattle P-I with Seattle bucks trend on slumping condos.

Seattle’s market was not to blame for a recent decision to change a planned 34-story downtown building from condominiums to apartments.

Rather, the slumping condo markets in cities such as Washington, D.C., Las Vegas, Miami and Boston affected the national firms that fund such buildings, said John Schwartz, northwest regional director of Keller CMS, which is managing the Terry Avenue Apartments project.

“There was quite a bit of skittishness,” he said. “I think the Seattle market clearly has a little different story to tell, but a lot of the big equity players, they take a wider view.”

The frenzied condo market in many cities has collapsed since the middle of 2006, dragging down prices and scuttling projects — or at least forcing them to change, according to a New York Times report Tuesday.
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Seattle’s housing market has fared better than those in other parts of the country in recent months, with continued year-over-year price increases, despite increasing inventory and falling sales, according to the Northwest Multiple Listing Service. The area’s condo market, meanwhile, has been stronger than the market for other types of homes.

Seattle real estate professionals and economists agree that the city’s job creation, relative lack of speculators and the fact that its boom never rose as high as other places kept its housing market healthy.
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A Boston real estate consultant cited about 600 condo projects in the city’s metropolitan area, with about 49,000 units in various stages of development, according to the Times story. Seattle has fewer than 9,000 condos in the works, according to Williams Marketing Vice President Warren Ballard.

“We don’t have anywhere near the volume of construction that some other markets have,” Ballard said. “You cannot go anywhere in Seattle and find a finished, brand-new condo to buy.”

Really? I guess Mr. Ballard hasn’t bothered reading Urbnlivn lately, where Matt has been tracking dozens of condos coming (and sometimes sitting around) on the MLS.

Let’s see how this article holds up to the standard “our market is magically stronger than all others” type of article. Prominent mention of continued appreciation: check. Citing job growth as keeping housing strong: check. Un-supported claim of fewer speculator purchases than elsewhere: check. Looks like we’ve got all the makings of the classic Seattle real estate fluff piece.

Plus, as a bonus, Mr. Cohen threw in the odd comparison of the Boston “metropolitan area” (population 4.4 million) with just “Seattle” (population <600,000). So the Boston metro area has seven times the population and five times as many condo projects as the city of Seattle. Go figure. Also, it is made apparent later in the article that the 9,000 condos figure doesn’t include apartment conversions, which numbered 7,000 (this time in the entire Seattle metro area) just last year.

In any case, direct numerical comparisons with other markets seems rather pointless to me. What really matters is whether there are more condos coming online in the next few years than there is demand. Maybe demand for condos in Seattle is just a lot lower than other cities, and 9,000 will push us over the edge. Who knows? It’s not like we can count on Aubrey Cohen to actually do some serious investigative reporting on condo demand.

(Aubrey Cohen, Seattle P-I, 01.17.2007)

Update: Over at Seattlest, Michael van Baker compares Cohen’s reporting to the Titanic’s claim of being “unsinkable.”
Meanwhile, condo enthusiast Matt Goyer of Urbnlivn says that “this article is just a little too go-go-go, even for me.“

An oft-cited argument by those who believe prices in Seattle are totally justified is that the number of “investors” here is not at the level of other, more obviously bubbly cities. However, no one ever seems to be able to provide any actual statistics to back up this assertion. While it does not actually answer the question of “how many local purchases are by investors” a new study at least provides a little insight into the investment situation in Seattle.

Why have home prices risen so dramatically in many parts of the country?One of the reasons often cited is flipping — investors buying homes they never intend to live in, sometimes freshening them up, then selling months later for many thousands more than they paid.
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However, it’s been hard to know exactly where flipping is frequent enough to be a factor — and whether flippers are really on a gravy train to riches.

A new national analysis has begun to answer those questions. It shows that flipping in the Seattle-Tacoma-Bellevue area has increased over the past five years but is still below the national average. The only Washington city that does mirror the national average is Spokane.

The analysis — by HomeSmartReports.com, a California firm that tracks housing data — examines flipping in 147 metropolitan areas across the U.S.

A home is considered flipped if it sells twice within a nine-month period, said Michael Ela, the firm’s president.
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The latest numbers, reflecting transactions that occurred this spring, show that 4.7 percent of national home sales were properties that were flipped. This is down from the previous six months. Sales include houses and condominiums.
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In the Seattle-Tacoma-Bellevue area, some 3.5 percent of spring home sales were flips, Ela said. This is down from 4 to 4.5 percent in the preceding six months but above the five-year average of 2.4 percent.

I don’t doubt that many anti-bubble types will latch on to this story as “proof” that Seattle real estate prices are justified, and not propped up by investors. However, I don’t think that this study should offer much comfort to those with that viewpoint. Seattle’s rate of flipping is only slightly below the national numbers, and as recently as late last year was right up there with the rest of the nation.

Also, remember that the oft-repeated argument is that Seattle doesn’t have as many investors as other cities. Since the study was limited to 9-month flipping, it really doesn’t provide a complete picture of amount of investment that’s going on in our area. Even our local blogging real estate investor Eric has rarely (if at all) closed a deal in nine months or less.

Does Seattle have less flipping than other bubble cities? Yes, slightly. Does Seattle have less investment purchases than other bubble cities? Who knows?

(Elizabeth Rhodes, Seattle Times, 09.30.2006)