Seattle Bubble

Here’s a video piece that aired this weekend on King 5 Up Front with Robert Mak where he poses some questions about Seattle’s housing market:

More homes for sale, prices going down… Is it a good time to buy?
…
Where’s the bottom? And just how long might the slowdown last?

Unfortunately, to find the answers to these questions, he turns to people whose income is derived entirely from selling homes. What do you think they’re going to say?

Windemere Realtor Paul Slusher admits that the Seattle area is currently sitting on a record-high inventory of homes for sale, but gives it a delightful spin by calling it a “buyers market.” He says potential home buyers are “nervous,” but encourages them to jump in, because “you have leverage over sellers.”

Suzanne Britsch, with New Home Trends, Inc. (a company that sells housing market statistics and analysis to home builders to “help you stay ahead of the market“) tries to scare potential buyers into jumping in now by declaring that waiting for the bottom of the market is worthless: “The problem is, is when it flips, it goes in one day! You know… I mean… So you never know when the bottom is.” She also plays the “running out of land” card (which has been refuted on this site here and here, among other places): “That bubble never breaks. I mean… Because, it—we have too many impediments to development here, to really overbuild this market.”

And lastly, Robert has Chairman and CEO of John L. Scott Real Estate J. Lennox Scott himself in-studio for a free advertisement of John L. Scott’s services. Referring to the Fortune forecast, Scott quips: “That’s not the projections that we’re seeing. We’re in one of the best markets in the nation here in the Northwest. We have positive job growth, we have low interest rates… And we just do not see that taking place.”

We’ve busted the “job growth will keep home prices propped up” myth here so many times, it’s not even funny. Yes, if the jobs situation was cruddy, the housing market would suffer (e.g. Detroit). But just because we have a good job situation doesn’t necessarily mean that homes will continue to sell at over-inflated prices (e.g. San Diego).

Scott admits that things are slow, but writes it off as a normal market cycle: “Well, we’re definitely in the adjustment phase of the real estate cycle. Every time you come off a frenzy market, a surge market… you do see sales pull back. Sales activities does lower about ten to fifteen percent. And right now, we’re going through the mortgage market scenario… that’s getting better every week. And, in fact, rates are just as good as they were in July.”

Except, sales were lower by ten to fifteen percent this time last year, and now they’re down from that another thirty percent, for a total decline of thirty-five to forty-five percent in sales activity. That doesn’t sound like the normal market cycle Mr. Scott described. And how can he sit there with a straight face and describe the present situation in the mortgage market as “getting better every week”? Somebody should tell that to Washington Mutual and Citibank. A little later in the segment he admits that easy money drove the disparity between income and home prices, but pegs it entirely on interest rates, ignoring the lack of lending standards. Rates may still be reasonable, but a huge number of people who would have qualified for a massive loan in 2006 are now completely shut out (as they should be).

Mak: Should I be scared though, of jumping in, and then seeing the price continue to slide, even once I’m in?
Scott: You’re not going to see the prices come off that much. They may come off ever so slightly off the peak.

While Fortune at least can point to the logic behind their analysis, all that Scott offers up is discredited clichés and blanket statements with no supporting evidence. Granted, the available time to make points in a news segment like that is limited, but he could have at least said “we don’t see that happening, and here’s a brief explanation of why.” Is “positive job growth” seriously the best argument he can come up with?

At the end of the segment, Robert invites viewers to share their thoughts about the housing market on the Up Front blog. Here’s the post if you’re so inclined. Maybe when the spring bounce fails to materialize next year, I can get Robert to have me in-studio to explain what’s really going on with the housing market in Seattle.

(Robert Mak, King 5 News Up Front, 11.10.2007)