Last week the Puget Sound Business Journal ran a piece comparing King County to San Diego County. It was behind a subscriber-only wall, but now it’s fully available on their website: How King County dodged mortgage mess compared to San Diego. Unfortunately, the article doesn’t really have any new material that regular readers here haven’t seen before.
While the housing market’s downturn has certainly struck the Puget Sound region, it hasn’t wrought the widespread havoc that hit cities like Miami, Las Vegas and San Diego.
On the surface, there appear to be few reasons why the Puget Sound area has been able to escape the worst of the mess. Housing markets in both cities saw companies, jobs and people pour in during the first half of the decade. Both are desirable places to live. Home prices rose. And subprime mortgages were widely available.
But a detailed comparison of the two regions shows why King County’s economy is heralded as a bright spot across the country while San Diego County has come to represent everything that went wrong.
First off, I agree 100% with what appears to be the basic premise of this article: that the housing bust won’t be as bad here as it will be in San Diego, Phoenix, Florida, etc. I don’t think anybody has ever tried to argue that things will be as bad or worse here.
Unfortunately, while the article promises a “detailed comparison,” it doesn’t really deliver.
Builders in San Diego raced to build homes to keep up with demand, pushing farther into the previously undesirable areas of southeastern San Diego County, far away from the ocean.
In contrast, Seattle builders were restricted in part by the state’s growth management law and weren’t able to build at nearly the same pace.
In addition, mortgage companies and banks in San Diego — including Seattle-based Washington Mutual — wrote thousands of subprime loans. Their counterparts in Seattle wrote far fewer.
Ok, those are some interesting assertions, but where’s the data? What were the per capita rates of new construction and subprime lending in the two counties? The article doesn’t say. In fact, the only data I’ve been able to find that compares lending in San Diego to the Seattle area shows suprisingly similar amounts in both areas.
Later in the article, they do cite some raw data on homebuilding:
In San Diego, developers got 9,749 permits for single family homes in 2002, up about 6 percent from 2000, according to the Building Industry Association of San Diego County. That pace held steady through 2004 and then started to fall. By 2007, building permits for single family homes had plummeted 64 percent to 3,508 from the heyday of 2002.
By comparison, King County’s single family building permit activity remained flat between 2003 and 2005, with about 1,300 permits filed each year, according to the Washington Center for Real Estate Research. In 2007, permits dropped slightly to 1,239.
So, San Diego permits went up in 2002, leveled off for two years, then fell. In King County they leveled off for two years, then fell— the same pattern as San Diego, but offset by a year.
Of course comparing raw data like this is rather deceiving since the population of San Diego County is 2.8 million, versus King County’s 1.7 million. A better comparison would be King, Snohomish, and Pierce combined, with a population of 3.0 million. And as anyone that’s spent much time driving around outside King County knows, there was a heck of a lot more development in Snohomish and Pierce than there was in King. (And there are a lot more foreclosures out there, too.)
Another big reason: It took Seattle longer to recover from the economic aftershocks of 9/11 and the dot-com bust. As a result, the city entered the housing boom late and “although it got heated, it wasn’t as seriously overheated as some of the other parts of the country,” said Glenn Crellin, director of the Washington Center for Real Estate Research, Washington State University’s real estate research arm.
“Our economy has done very well compared with many other parts of the country,” said Crellin.
Does it occur to folks like Mr. Crellin that perhaps the only sectors of San Diego’s economy that are suffering are those related real-estate, and that perhaps the reason our economy looks so great is because the housing bust here is only just getting started?
I also don’t understand how someone can say “we entered the housing boom late” then when we likewise exit the boom late, say “look how unique and strong we are!” How does that make any sense?
What lies ahead? Chad Ruyle, an estate planning attorney and co-founder of You Walk Away, a foreclosure advice firm, thinks San Diego is not near the end of its housing market downturn.
…
“No one can predict when the market will bottom out and return to normal,” said Ruyle. “But I think we’re only a third of the way through it.”
Seattle, on the other hand, has likely made it through the worst of its downturn and will slowly start recovering, said [University of San Diego professor Norm] Miller.
I’d be curious to know exactly what Mr. Miller is basing his theory on. Unfortunately, the article doesn’t say.
No offense to Ms. Grind, as I realize there’s only so much you can fit into an article of this nature. But I have to say that this article came across to me as light on details and high on wishful thinking.
(Kirsten Grind, Puget Sound Business Journal, 06.06.2008)
