Pacific NW a "Rare Exception" (for now…)

I’m surprised that neither the Times nor the P-I chose to reprint this Associated Press article from yesterday: With few exceptions, Western real estate expected to stagnate. Why would they print an article with such a sullen headline? Because the Pacific Northwest is heralded as the “rare exception,” of course.

Although few experts predict home values will fall dramatically in 2007, many economists say prices throughout the West – particularly California and the Southwest – won’t improve for 12 to 18 months. The Pacific Northwest, where home prices are enjoying double-digit appreciation, is a rare exception.

Building booms in many markets over the past half-decade, combined with mortgage interest rates that have increased about 1 percent in the past year, have resulted in residential real estate stagnation in most markets.

One of the few exceptions to the nationwide slowdown is the Pacific Northwest.

In Washington, the number of houses sold in the third quarter of 2006 dropped 16 percent – but the median price surged nearly 12 percent from the same period last year, to $300,900, according to the Washington Center for Real Estate Research. In Seattle’s King County, the median price surged 14 percent to $432,600.

The dot-com bust of 2000 hammered the region, which shed a disproportionate number of manufacturing and technology jobs in the following half-decade. Homeowners there haven’t enjoyed the same run-up as investors elsewhere, said Glenn Crellin, director of the WCRER at Washington State University.

“Our real estate market essentially came to the party a little late. As a result, we’re going to be able to have a softer landing than many of the other communities nationwide,” Crellin said.

Speaking of the WCRER, while their latest report (pdf) shows building permits down across much of the state, King County is the glaring exception, with the number of units that building permits have been issued for up sixty-two percent. What was that they said about building booms leading to stagnation? Hmm…

I just love how skyrocketing real estate prices are always described in such positive terms in the media. “Home prices are enjoying double-digit appreciation,” and our market “came to the party a little late.” It’s always so fun when the price of goods increase faster than the consumers’ ability to pay!

We may have come late to the “party,” but apparently we’re not going to learn any lessons from the markets that were first to the party, and first to experience the hangover.

I also loved this little gem in the article:

About 97,000 Californians moved to Washington in 2005, making it the fourth most popular destination for Californians after Texas, Arizona and Nevada. Oregon was fifth, with more than 83,000 ex-Californians, the department reported.

California’s departing homeowners typically use their substantial equity to fund their next real estate investment. Although some Seattle and Portland residents grumble about “Californication,” the trend has helped keep home prices there rising, said Brian Kreick, broker for Lynnwood, Wash.-based Kreick Realty Group.

“I have clients from southern California who can’t believe what they can get up here for the money,” Kreick said. “I showed one guy a house in Redmond that was $830,000 and still needed a new kitchen. He thought it was a great deal.”

Oh yeah, that sounds like a great deal… What’s that saying about a fool and his money?

(Rachel Konrad, Associated Press, 12.11.2006)
(WCRER, Housing Market Snapshot, 11.2006)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    The Tim says:

    Also worth checking out is BusinessWeek’s version of the article, which left out any mention of Washington or the Northwest, and included this quote:

    “In order to play this ponzi scheme, the value of the homes had to go up faster than the economy grew and faster than people could service their debt. We’ve reached that limit,” Morci said. “The housing market sustained the economy at a time of very large trade deficits. It’s been a false prosperity.”

  2. 2
    meshugy says:

    One of the few exceptions to the nationwide slowdown is the Pacific Northwest.

    I think at this point the resilience of our market is due too strong local fundamentals:

    1) Stellar high income job growth – CHECK

    2) Population Influx – CHECK

    3) Shortage of available housing – CHECK

    I think the worst we’ll see in 2007 is a flat market. Most likely we’ll see some healthy appreciation in the 3-6% range.

  3. 3
    The Tim says:

    1) Stellar high income job growth – CHECK

    Unless you provide a source to back that up, I’m inclined to think that the “high income job growth” is greatly exaggerated.

    2) Population Influx – CHECK

    Lots of places have population influx as well as falling prices. All it takes is for building to exceed the influx, which brings us to…

    3) Shortage of available housing – CHECK

    Just plain false.

    Care to try again?

  4. 4
    meshugy says:

    Hi Tim…I’ve seen your arguments before. Unfortunately they’re not very convincing. If we had weak job growth, insignificant population growth, and abundant housing our market would look a lot more like Buffalo or Detroit. 14% YOY appreciation doesn’t happen unless the demand severely outstrips supply.

  5. 5
    The Tim says:

    In other words, you can’t provide a shred of evidence to back up any of your assertions, other than the increase in median sales prices.

    Sounds like a circular argument to me. You claim that “strong fundamentals” make our housing market “resilient,” and the only evidence you provide of these “strong fundamentals” is the apparent resilience of the housing market.

  6. 6
    meshugy says:

    Example A (from “Rare Exception”)

    About 97,000 Californians moved to Washington in 2005

    Example B:

    Office, commercial realty outlook ‘great’

    “Overall, the forecast for ’07 looks great,” said Grubb & Ellis Senior Vice President Craig Hill. “The market is extremely strong.”

    Employment in the Puget Sound region is expected to grow by 2.5 percent in 2007 and by 2.3 percent in 2008 — more than twice the projected national average. That means strong demand for office space.

    Yet vacancy rates, which today are about 7 percent in downtown Bellevue and about 10 percent in downtown Seattle, will drop next year — “perhaps even precipitously, and more in Seattle than in Bellevue,” Hill said.

  7. 7
    Anonymous says:

    I think at this point the resilience of our market is due too strong local fundamentals:
    1) Stellar high income job growth – CHECK
    Boeing is adding on avg 400 people per month in Everett & Renton since 2004, = 12,000+ (used to work there & a hiring finance mgr friend confirmed these #’s). Microsoft has added 4,400 people in the last 18 months in the Seattle area (HR friend also confirmed this).
    Have more examples of companies expanding, yet many of these jobs are significantly above the avg salary, thus people are able to afford housing. The job market is also booming in this region. Im currently searching for a new job while doing contract work and getting offers every day. Just wanting on a few responses from some companies to compare offers. Also unemployment in Seattle right now is 4.0% (Oct 2006), sounds like a tight labor market to me!

    2) Population Influx – CHECK
    The Puget Sound region had a net increase of ~60,000 people in the last 12 months, or about 10% the size of Seattle net increase.

    3) Shortage of available housing – CHECK
    Construction is everywhere in the region, yet there is signigicant demand to live in and closer to the city…thus more demand than supply. Not any huge condo developments sitting completely empty (might be a few units, yet takes a large portion of a development to show weakness in prices).

  8. 8
    The Tim says:

    A) I did not deny that people are moving here. I argue that supply is easily keeping up, and that psychology and easy money are pumping up prices rather than supply vs. demand.

    B) You said “Stellar high income job growth,” not “job growth.”

  9. 9
    plymster says:

    14% YOY appreciation doesn’t happen unless the demand severely outstrips supply.

    About 97,000 Californians moved to Washington in 2005

    In 2005, 28.9% of the population of Washington State lived in King County (according to state statistics. This suggests that about 28,000 Californians moved to King County in 2005. In 2005, a total of 47,306 new and existing, condos and homes were sold (according to the 12/05 NWMLS report). If only half of the 28k exCals bought homes/condos, that means that incoming Californians made up about 30% of the homebuying market in Seattle.

    What happens when 30% of the buyers in King County can’t move here because they’re underwater on their homes in California?

    It’s not 3-6% appreciation. You might get fewer sales, a rise in inventory, and stagnant prices or depreciation (which we are seeing).

    Prices are likely to drop like a rock, now that the Californian treasure trove is collapsing. Not everyone in King County is an exCal, or RE shill making six figures.

  10. 10
    The Tim says:


    I don’t doubt your job numbers (although the 2005 MS figure was an aberration, the usual number is more like 1,350), but my point of contention is that no one has shown any evidence to support the assertion that “many of these jobs are significantly above the avg salary.” Certainly some of them are, but is it enough to justify the high prices we’re seeing throughout the Greater Seattle area? I think not, and no one has yet to show me evidence to support that claim.

    I’ve already addressed the population argument.

    And lastly, demand doesn’t exceed supply just because you say it does. Either show me the numbers, or give me a detailed explanation why my calculations are wrong.

  11. 11
    plymster says:

    Let’s talk about Boeing’s “expansion”. According to this article, Boeing is turning away business, and “the earliest a new customer could get a plane is 2013”. Rather than open up factories and hire on people, Boeing is actively choosing not to increase their capacity in the face of 7 year backlogs and rising demand.

    Does that sound like a company that’s planning on expansion to you?

  12. 12
    Grivetti says:

    Rather than open up factories and hire on people, Boeing is actively choosing not to increase their capacity in the face of 7 year backlogs and rising demand.

    Exactly… the reason Mullaly got hired by Ford is that he’s very good at firing people and never hiring them back. Boeing shed 30,000 company wide jobs during the post-2001 recession and never hired them back…

    Here’s the breakout for Boeing Puget Sound…

    2001: 78,000 employees
    2006: 62,842 employees

    That’s a little over 7,000 less Boeing employees in the Puget Sound Region… so if some numbskull starts piping up about how well Boeing’s doing, just can it and look at the numbers…

  13. 13
    Grivetti says:

    1) Stellar high income job growth –

    2) Population Influx –

    3) Shortage of available housing –

    Dude, do you even read this blog? or do just drop turds in the punchbowl, like bad graffiti and move on? Ever time you fart some nonesense about nobody having reasonable arguements, Tim provides past posts regarding jobs (‘Let’s talk jobs’) and you choose to ignore them…

    The numbers don’t add… people cannot live off of equity alone… The California influx is due to skyrocketing Californian real estate, fueled by the Greenspan credit bubble… ergo, Seattle’s housing boom is fueled by the Greenspan credit bubble… therefore as California depressurizes, so do we… on a delay.

  14. 14
    john_law_the_II says:

    meshugy, your strong fundamentals applied and were used by the housing bulls to say why the US didn’t have a housing bubble.

    what happened to that thesis?

  15. 15
    john_law_the_II says:

    “Seattle’s housing boom is fueled by the Greenspan credit bubble… therefore as California depressurizes, so do we… on a delay.”

    yep, and it appears seattle is just about 1 year behind. the arguements as to why their isn’t a bubble- strong fundamentals- is straight out of last year’s NAR script. reading meshugy I feel like I’m in a timewarp.

  16. 16
    Anonymous says:

    Don’t forget these jobs:

    All Icos workers losing their jobs

    By Luke Timmerman

    Seattle Times business reporter
    Eli Lilly is laying off all 700 employees at Icos, including all 550 in Washington, as part of its pending purchase of the state’s largest locally based biotech company.

    The cuts will become effective over the next year if Icos shareholders ratify the proposed $2.1 billion sale at a shareholders vote at its Bothell headquarters next Tuesday.

    Icos said in mid-November that most employees had gotten layoff notices but hadn’t confirmed until now that all workers are being dismissed.

    luckily these people will just set up startups in South Lake Union and ride the SLUT (South Lake Union Trolley) to their downtown Condo homes

  17. 17
    Anonymous says:

    Quick question. At what point do the ‘sold’ signs go up? I know its a bit different on a state to state basis, but I’ve been noticing some homes popping off the MLS after a long inspection period with no ‘sold’ sign. Do they even have to put it up here?

  18. 18
    john_law_the_II says:

    so much for fundamentals.

    “‘It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’ said CEO Robert Toll. ‘Instead, it seems to be the result of an oversupply of inventory and a decline in confidence: Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.’”

    LEREAH: Well, you know, it takes a perfect storm for a local market to have price softening, where prices actually turn down, not up. You need to have some serious job losses in a local marketplace, or you need to have interest rates go up 2, 3, 4 percentage points. That’s not going to happen. Or let’s just assume, if that doesn’t happen, how do you get all these markets where the balloon bursts rather than air coming out of the balloon?

    I would suggest that most of these markets, and to your viewers right now, air will come out of most of these balloons, which means rather than…

    WILLIS: Right.

    LEREAH:…50 percent appreciation in Vegas, you’ll now have 15…

    WILLIS: David, I want…

    LEREAH: …percent.

    WILLIS:…I want to get you to one quick question here, though. What do homeowners do if they’re in a market that is facing declines?

    LEREAH: Well, if you’re facing declines, it really depends on your own situation. If you’re going to live in that house for a number of years, because you’ve got children going to school, you don’t have a problem, because prices always come back in real estate. Real estate is an appreciating asset…

  19. 19
    betamax says:

    it appears seattle is just about 1 year behind. the arguements as to why their isn’t a bubble- strong fundamentals- is straight out of last year’s NAR script. reading meshugy I feel like I’m in a timewarp.

    Yep, so enjoy ‘shug while you can. In 6 mths he’ll be a ghost, just like all the trolls on Ben’s blog that have vanished in the last 6 mths.

  20. 20
    Anonymous says:

    The immigration variable has been greatly exaggerated – if not entirely incorrectly applied.

    The pro-RE media has been artificially associating immigration (even intra-state) with RE demand for years. The truth is, immigrants weren’t the reason demand was so high – the immigrants can’t afford the housing. The buyers of all these houses were you and me.

    Instead of buying and selling one house every 20 years, we bought and sold a house every eighteen months (statistically speaking). For this reason, the demand dropping off so precipitously in California will clearly give us a temporary (but only temporary) reprieve from the Great Land Slide of 2007.

    High income jobs are likewise suspect. People in California can’t afford their real estate unless it is increasing 20 percent per year. The same will be true here. And if homes turn into better places to live than to invest, rich people will want stocks, currencies and precious metals more than real estate for investment. Being a landlord is horrid when the renter has nothing to lose. Real Estate has turned into a bad investment and like the Titanic, money this big doesn’t turn on a dime.

  21. 21
    seattle long term owner says:

    I think whoever bought into ballard a year or so ago are one of the smarter investors…

    Ballard is likely to ride the bubble a few months longer than elsewhere due to the yuppies can do and everybody but me attitude…

    But eventually the reason ballard became popular (good prices) will no longer be there and even that market will stagnate…

    I also think the smart ballard investor knows he needs to get out soon or ride the wave down as well…

    Just like California and its suburbs (Arizona and Nevada)… when Magnolia and Queen Anne prices start improving, ballard will be the first to suffer…

    Anybody who will argue otherwise is probably in major denial… ballard over queen anne?

    The higher you get, the harder your fall…

  22. 22
    Ardell DellaLoggia says:


    I usually just “read”, but thought I’d answer that:

    “Quick question. At what point do the ‘sold’ signs go up? I know its a bit different on a state to state basis, but I’ve been noticing some homes popping off the MLS after a long inspection period with no ‘sold’ sign. Do they even have to put it up here?”

    In NWMLS, the Buyer’s Agent has 72 hours to put up a SOLD sign on the Seller’s agent’s post & sign. It’s really “advertising” and not a “public notice”, so it doesn’t HAVE to go up, and I rarely put them up. It’s not a State to State thing, every mls has its own rules on SOLD strips and riders..

    IF the Buyer’s Agent doesn’t put one on (called Sold Strips here and they staple on to the post, use once and throw away), the Seller’s Agent can put one.

    In some parts of the Country they are illegal, usually places where they have racial issues. But not many areas have that restriction.

    In any case, a SOLD RIDER in most parts of the Country is an advertisement for the agent, and not a notice to the public, so it is optional everywhere.

    Rules to not show as “available” when sold, are about advertising in print ads and on the internet. To show it available after it is sold, within reason, 7 days I think is the max, is considered “false advertising” and fineable in most places. Zillow has a 7 day refresh notice and had that in the past, though IDX sites usually change status within 24 hours of event.

    Hope that answers your question. Off the mls here means Pending until sign comes down. That can happen day one if there is no inspection contingency, or it can happen a few days before close of escrow, if the inspection issues are negotiatied almost to the end.

    I’ll go back to reading and lurking now :-)

  23. 23
    Anonymous says:

    Thanks Ardell,

    That does answer my question. I’ve been tracking a few properties that have been having long inspection periods. One was subject to inspection for about 4 weeks, popped off the mls 2 weeks ago, and still has the for sale sign up. Just seemed kind of odd to me.

  24. 24
    Mikhail says:

    A growing population, and economy, don’t necessarily translate into booming real-estate markets. Phoenix and Las Vegas are some of the fastest growing cities in the nation and both of them are experiencing real-estate downturns.

    I would also like to point out that the Puget Sound area has had an enourmous housing construction boom that is MORE than keeping up with population growth. You just have to drive out to Isaquah, or Maple Valley, to see the new sub-divisions which seem to go on forever. This rabid building phenomena has been taking place in the exurbs all around the Puget Sound, and will surely come back to bite developers when the market turns south.

    The old argument that housing is in short supply in Washington due to land-use restrictions doesn’t hold water. California is MUCH more restrictive in permitting, yet we see housing prices taking a dive there too.

    I still don’t see any reason why the Puget Sound is “special” from other regions. Moreover, if the rest of the nation experiences a major real-estate downturn in 2007, I don’t see any way the Pacific Northwest can remain immune. Lending policies are set on a NATIONAL basis. If lenders start experiencing major losses in Florida, California, and elsewhere, that will lead to credit tightening EVERYWHERE else. The recent turmoil in sub-prime mortgage backed securities is a case in point: rates on sub-prime loans have risen EVERYWHERE, not just in Florida and Arizona.

  25. 25
    WaitinginMarysville says:

    4 weeks for inspection is normal. Not that the inspection takes that long, but it generally takes at least 4 weeks to close and they just leave it subject to inspection or contingent.

    We have a friend who has been a janitor at Boeing for many years. He makes about $20 and hour. The newer janitors only make about half that amount, and there are signs that they are trying to phase out the old high pay janitors. It would be interesting to compare the average salary at Boeing now compared with 2001.

  26. 26
    rentalbliss says:

    What does high paying jobs have to do with this market? Our median income is still what it is (not enough for the median house), and housing prices are still getting more and more unaffordable, hence all the toxic loans out there. The top 10% earners are not buying 90% of the homes. I agree there is no way Pacific NW is going to hold out while the nations tanks. Even flat appreciation would kill the market and increase foreclosures, who is going to get an IO ARM with flat appreciation, the only way they make sense is with higher than normal appreciation. It is simple the vast majority of people cannot afford the homes. It will be the driving force on the way down along with the fear of being finnancially ruined for life if you decide to jump in and marry that house. People will hear it everyday from the rest of the nation and that will be enough for many. Maybe now we can get back to a normal market with real fundamentals and affordability, maybe people will even understand that yes you do have to pay that off someday.

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