The Ringing "Ka-ching From a House in Seattle"

Here’s yet another boilerplate national real estate article rah-rah’ing Seattle’s apparent resilience:

Amid all the news of plummeting national housing numbers, the premise still holds true that all real estate is local, and nothing supports that premise more than the statistics on local home price appreciation. The ka-ching from a house in Seattle rings just as dramatically as the bell tolling for a home in Detroit.Home prices and sales, while certainly susceptible to national macro-economic factors, such as mortgage rates and lending standards, rely largely on the local economy and local supply and demand. This is precisely why home prices in Seattle are up 10% from a year ago, according to the S&P/Case-Shiller Home Price Index, but down nearly 8% in Detroit. It’s the booming tech industry versus the slumping auto industry.

Home prices in Seattle have been on a tear, up for four months in a row, to a median price of $465,000 in April, according to the Northwest Multiple Listing Service. Confounding matters even more, the bulk of the homes that sold in Seattle in March went for above asking price.

“We just have a very strong market,” says Sara Hasan, financial analyst for Seattle-based McAdams Wright Ragan, a regional brokerage firm. “Two of the major employers are Microsoft and Boeing, and both are doing very well.”

Not to mention that Google has moved into the very limited real estate in the area, which makes another point: Seattle has very short land supply, further diminished by a growth management act, which restricts where and how many single family homes can be built. Limited land supply plus strong employment equals pricey homes.

That’s a convincing-sounding equation. Too bad that actual research shows it doesn’t at all explain Seattle’s high home prices. It’s more like limited land supply (growth management) plus strong employment equals a plausible, but entirely false explanation for continued (but slowing) home price gains.

It’s not that we don’t have somewhat limited land and strong employment. It’s just that when you actually take the time to do your research you find little to no correlation between those factors and home price gains.

(Diana Olick, CNBC, 11.05.2007)

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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
    Shawn says:

    The psychology is so interesting. For years all we hear from the press is how there is no bubble. They could have been trying to warn the public. Now, many people are losing money and worse, their homes. Still, rather than learning and trying to help those in Seattle, instead the press tries to find an anomaly. I guess in the end, it is the public’s own fault. They seem to prefer a rosy illogical picture, rather than a sound realistic reality check. I listened, and got out of the market in ’99, and I refused to buy in LA in the bubble. I entertained moving to Seattle because prices “were” lower, and my family lives there. But now I also refuse to buy in Seattle. I just can’t give some guy a few hundred k markup with no sound reasoning. I can go anywhere in the country, and now, Seattle has lost any pricing allure it “had.” If it seems ridiculous to buy a house in LA that is 300k over what is a realistic price, is it any better to buy a home in Seattle that is just 200k over what is a realistic price? (those numbers are just an example of when its overpriced, a little less overpriced is not any better than overpriced in general, esp when there are places where homes are not overpriced)

  2. 2
    HomerLoanseeker says:

    “That’s a convincing-sounding equation. Too bad that actual research shows it doesn’t at all explain Seattle’s high home prices. It’s more like limited land supply (growth management) plus strong employment equals a plausible, but entirely false explanation for continued (but slowing) home price gains.”

    Where is the actual research that shows that a limited land supply (growth management) plus strong employment is an entirely false explanation for continued (but slowing) home price gains?

    Can you quote any souces besides yourself?

  3. 3
    The Tim says:

    Yes, actually I can:

    The common assumption is that by limiting the supply of developable land, all growth management policies reduce the supply of housing. Basic economic theory suggests that if housing supply is low relative to demand, then the price for it will be high, reducing its affordability. While this reasoning may seem logical, it is far too simplistic. Housing prices are actually determined by a host of interacting factors, such as the price of land, the supply and types of housing, the demand for housing, and the amount of residential choice and mobility in the area.


  4. 4
    HomerLoanseeker says:

    Thanks for the link tim, I will read through it.

    So, if limited land supply and a strong economy are not the reason for Seattle’s high prices, what is?

    And why are these news sources getting it so wrong? Is there any reason you see why seattle’s housing market is so strong?

    Besides the usual pink pony responses?

    What is the reason for the double digit increase in your opinion?


  5. 5
    Lionel says:

    homeloanseeker, I wouldn’t discount arrogance as a driving force in the Seattle market. Having grown up in West LA, I count myself as an expert on this (as I would had I grown up in Manhattan or the Bay Area or, apparently, Seattle). This arrogance is measured in a near-complete disregard for other people, that what affects them can’t possibly affect us, because we’re so smart and rich, and gee whiz, EVERYONE wants to live in West LA or Manhattan or San Fran or Seattle. It takes us a while to figure out national trends, because we feel that we’re completely insulated from them. I had a friend who bought a house in Marina Del Rey recently for a ton of money. His wife overheard me talking about the foreclosure disaster in Memphis, and responded, “but that can’t happen here.” It can happen and will here as it will in Seattle.

  6. 6
    wreckingbull says:

    To me, the biggest contributor to our bubble was the ability for people to buy a 1/2 million dollar home with almost nothing down. How many people do you know that have 50-100K sitting in the bank?

    This ability is more or less gone now. What is fueling the market today is the waning inertia of the Ponzi scheme. Yes, we had more momentum going into this mess, but that just means it will take us a little longer to expreience the hangover.

    I am quite happy to sit on the side and watch the music stop and the sheeple scramble.

  7. 7
    Wesley says:

    …rely largely on the local economy … It’s the booming tech industry versus the slumping auto industry.

    Are these guys ever going to figure out that the “micro” economics of Seattle is driven by Boeing and not “micro”-soft. Airplanes are not high tech. It’s plain old blue collar manufacturing of a product that is fueled by gas (sound familiar), and with gas prices continuing to rise, well we all see what is happening to the auto industry… do you remember the economic impact last time Boeing had a major layoff.

  8. 8
    meshugy says:

    So, if limited land supply and a strong economy are not the reason for Seattle’s high prices, what is?

    Good point loanseeker…the argument used to be that loose lending practices and artificially low interest rates were to blame. But now that the mortgage industry has been reformed and interest rates are up, there’s no other reason then good ol’ fashioned demand fueled by jobs and population growth.

    Higher rates/loan reform did take some of the zing out of the market. But prices in Seattle will continue to rise, albeit at a slow rate. We’re headed for 3-6% appreciation in the coming years. Less then appreciation of the boom years, but very healthy and a far cry from anything like a drop in prices.

    However, everyone is saying the FED will lower rates this summer. So we could have an echo boom come August…

  9. 9
    biliruben says:

    But now that the mortgage industry has been reformed and interest rates are up…

    Lending reform has barely begun, and we haven’t even seen it’s effects yet in the stats.

    Interest rates are still incredibly low for anyone who has any ability to look back more than a few years.

    Your ass is talking again, Shug. Keep your panties on, so as to muffle the nonsense.

  10. 10
    maynardsrevenge says:

    Tim, great study that you cited. I notice on the page following the page where your quote comes from, there is this bit of analysis that seems contradictory to your point, yet it comes from the same study:

    Both traditional land use regulations and growth management policies can raise the
    price of housing. In the end, both traditional zoning practices and growth management
    policies can increase home prices, but they do so in different ways.

    • Traditional zoning and other planning and land use controls limit the supply and
    accessibility of affordable housing, thereby raising home prices by excluding lower income
    households. Evidence shows that certain growth control and land use policies actually reduce jurisdictions’ housing supply and the affordability of their housing.

    The study explains that some growth management policies actually assist in keeping housing affordable–although in areas that are geographically quite dissimilar to Seattle. Is that your assertion? Do you think that the land use policies in the Puget Sound favor affordable housing?

    I also read this study by Demographia that seems contradictory to your assertion.


    Although the study captions data from around the world that correlates housing unaffordability with growth controls, the best data from the US comes from Harvard economists working out of the Joint Center for Housing, the Kennedy School of Government, and the Institute for Economic Research.

    Some quotes: The Harvard University Joint Center for Housing Studies State of the Nation’s Housing Report
    2005 notes that “development constraints drive up land and construction costs as well as
    prevent new housing from keeping pace with rising demand.”

    Glaeser found that Boston area house prices had been inflated 60 percent by policy driven
    land scarcity.

    The Harvard data is also newer than the Brookings data, which was taken at the trough of the national recession in 2002. I am certain that the study of Portland in the Brookings’ study would be quite different were it conducted later.

  11. 11
    wreckingbull says:

    Glaeser found that Boston area house prices had been inflated 60 percent by policy driven
    land scarcity.

    So did someone invent a land-making machine in Boston which has caused prices to drop 15% there in the last 18 months?

    We have covered this before but, here are the knifes that butter the bread at Harvard’s Joint Center for Housing ‘Studies’:

    Policy Advisory Board- Member Companies


    84 Lumber Company

    AFG Industries, Inc.

    Andersen Corporation

    Armstrong World Industries, Inc.

    Beazer Homes USA, Inc.

    BlueLinx Corporation

    Boise Cascade, LLC

    Boral Industries

    The Bozzuto Group

    Bradco Supply Corporation

    Builders FirstSource

    Building Materials Holding Corporation

    Canfor Corporation

    Centex Corporation

    CertainTeed Corporation

    Champion Enterprises

    Countrywide Financial Corporation

    Crosswinds Communities

    Fannie Mae

    Fortune Brands Home and Hardware

    Freddie Mac

    GAF Materials Corporation

    Georgia-Pacific Corporation

    Gibraltar Industries

    Hanley Wood, LLC


    The Home Depot

    Hovnanian Enterprises, Inc.

    Huttig Building Products, Inc.


    Johns Manville Corporation

    KB Home

    Kimball Hill Homes

    Kohler Company

    Lafarge North America

    Lennar Corporation

    Louisiana-Pacific Corporation

    Marvin Windows and Doors

    Masco Corporation

    Masonite International Corporation

    McGraw-Hill Construction

    Meritage Homes Corporation

    MI Windows and Doors, Inc.

    Moulding and Millwork, Inc.

    Move, Inc.

    National Gypsum Company

    Oldcastle Building Products, Inc.

    Owens Corning

    Pacific Coast Building Products

    Pella Corporation

    Pro-Build Holdings, Inc.

    Pulte Homes, Inc.

    Realogy Corporation

    Reed Business Information

    Rinker Materials Corporation

    The Ryland Group

    S&B Industrial Minerals S.A.

    The Sherwin-Williams Company

    Simpson Strong-Tie

    Stock Building Supply


    UBS Investment Bank


    Whirlpool Corporation

  12. 12
    Lionel says:

    From the WSJ:

    The fourth category is what I call the Static Cities. These are 18 metropolitan areas with immigrant inflow between zero and 4%, with domestic inflow up to 3% and domestic outflow no higher than 1%. They seem to be holding their own economically, but are not surging ahead and some are in danger of falling back. Philadelphia makes the list, and so do Baltimore, Hartford and Providence in the East.

    Surprisingly, some Western cities that boomed in the 1990s are in this category too: Seattle (the tech bust again), Denver, Portland.

  13. 13
    arroyogrande says:

    “So, if limited land supply and a strong economy are not the reason for Seattle’s high prices, what is?”

    Easy credit (no money down, no closing costs, cash back at closing, low teaser rates, neg-am loans) and the feeling that “if you don’t buy now, you’ll be priced out forever”.

    The San Francisco bay area has limited land and a booming economy. Plus, “everyone wants to live there ” (just like Seattle!) However, the median price has been going lower for the past six months or so. The core of San Diego has a booming economy, and no where to build, and “everyone wants to live there”…yet it’s down even more. Here on the Cali central coast, we have a booming economy, limited development because of “slow growth” initiatives, and as we all know, “everyone wants to live here”. Our median is down 10% from last year.

    Again, limited growth, booming economy, and everyone wants to live here. And they WERE buying, even though prices had doubled, but people’s incomes had not.

    Now things have changed. People are no longer willing to risk a risky mortgage that stretches them month to month with a fear of a rate reset when there is no longer “guaranteed appreciation”.

    First it was San Diego, then SF and central coast Cali, then it will be inland empire and Los Angeles…Seattle is just a matter of time.

    Real estate is local. Financing for it and “credit bubbles” are global.

  14. 14
    uptown says:

    I find it enlightening that many people in Seattle think there is some kind of land shortage. It helps to explain the current bubble. Look around and you will see plenty of parking lots and single story buildings in most areas that are zoned for mid and high rises.

    Seattle does not have the restrictive zoning that used to be found in CA, and was responsible for their inability to build more density near the employment centers. San Jose is only just getting around to building residential higher than 5 stories and there are few midrises near the core.

    BTW – Windermere shows listings up 6% from the beginning of May.

  15. 15
    Mike says:

    But now that the mortgage industry has been reformed and interest rates are up,

    This guy isn’t in the US, is he?

  16. 16
    Grivetti says:

    But now that the mortgage industry has been reformed and interest rates are up

    hahahaha! Yeah, all good now! completely reformed and overhauled! Nothing but 20% 30 yr fixed now, no more dodgey mortgages…

    and interest rates are up, hahahah!, that’s it, they’ve spiked, all those ARMS are set to cruise for a landing…


  17. 17
    tacoland says:

    “We’re headed for 3-6% appreciation in the coming years.”
    Meshuy, I’m not sure your logic to support that figure is correct. Lending standards may have tightened a bit but they still appear loose based on the deals I’m seeing from friends and family to THIS DAY, Based on King County’s price movement thus far this year one can extrapolate the same 10 to 12% rise again this year. I’m a realist, but thats not to say I don’t seeing an impending crisis on the horizon all this liquidity has enabled educated and uneducated alike to go into debt the like we have never seen in this country. When I mention my thoughts to friends, family & co-workers I’m deemed crazy, off my rocker, doom & gloomest, hateful of their pretty new things. I’m really not hateful but gravelly concerned. Alas I fear I am indeed crazy – All of us are except Meshugy who just tries to show us what is really going on.

  18. 18
    Deejayoh says:

    Home prices in Seattle have been on a tear, up for four months in a row, to a median price of $465,000 in April, according to the Northwest Multiple Listing Service. Confounding matters even more, the bulk of the homes that sold in Seattle in March went for above asking price.

    Interesting that in the four months the median price has been on a “tear” the Case-Shiller index for seattle has shown HALF A POINT of appreciation. Which do you believe? I’ve already shown how price per square foot has dropped during the same period. Does anyone believe we are still talking about the same type of houses in that median number?

  19. 19
    meshugy says:

    The San Francisco bay area has limited land and a booming economy. Plus, “everyone wants to live there ” (just like Seattle!)

    But prices in SF have risen about 4 times as much as Seattle’s over the past several years. They just went too far and need a correction. Seattle’s appreciation was much healthier and therefore a correction is unlikely.

  20. 20
    Lionel says:

    So Shug, Seattle prices have risen 80% or so over the last 5 years. So NoCal’s prices have risen 4X that, or 320%? Wow, that is some appreciation.

    And you’re right, there’s no chance of a correction in Seattle, because subprime won’t impact it the way it has Cali. But then again, maybe that doesn’t matter:

    Scott Anderson, a senior economist at Wells Fargo said the fallout from the once-hot mortgage industry is just starting as fewer borrowers can qualify for loans.
    “It’s not just subprime, it’s across the mortgage spectrum,” he said. “It’s going to get a lot worse before it gets better.”

  21. 21
    maynardsrevenge says:

    WreckingBull: I am afraid I don’t follow. Are you advancing a line of argument?

    Boston median prices haven’t fallen 15% in the last 18 months. Housingtracker shows prices as basically flat for that time. S&P has it at -4.7% YOY (as stated in the article Tim cites in the original post). Where are your numbers from?

    Regarding what I presume was an ad hominem effort at discrediting the validity of the Joint Center’s work, have you read their reports? I will presume not. The discussions in the report talk about many of the things that are frequently cited on blogs like this one, e.g. subprime financing, investor/flipper activity, equity withdrawals, rising inventories etc.

    Principle financing for the report also comes from the Ford Foundation, whose mission is to: ‘* Strengthen democratic values, * Reduce poverty and injustice, * Promote international cooperation and * Advance human achievement’ People on their board are members of organizations like the Africa Genome Education Institute and the HIV Center for Clinical and Behavioral Studies. Just the sort of people you would expect to be shilling for the REIC. These are the people that you want to impugn with your comment?

    It’s unfortunate that you would reject a body of data based simply on their financiers, some of whom happen to be affiliated with the construction industry. When you want to write a report about an industry, who do you talk to for financing? Someone in a wholly separate industry? For my money, if I am going to commission an expensive study, I am going to want some results that I actually find useful. There are far better marketers available than JCHS.

    What I really want to know though is why Tim chose to cite the line that he did without any accompanying analysis? I read his prior post and I don’t think he really understands how the GMA works and that it applies, not only to King County, but to every city within King County independently. He claims that the UGBs have been static within King County since 1994 when in fact they are in a state of almost constant change. Tim fails to mention that, since the adoption of the GMA in 1990, 10 new cities have incorporated in King County, with almost 300,000 residents altogether. For reference, that means that over 25% of King County’s current cities have been incorporated since the passage of the GMA, containing 17% of the County’s residents. Each one of those cities has its own Comprehensive Plan that has to identify growth limits and UGBs. Additionally, the most desirable cities have severely limited growth or placed moratoria on new development in recent years.

    I think the GMA does effect supply and pricing. Tim disagrees. I want to know why, beyond his self-citation of a post that was not correct in its understanding of its subject.

  22. 22
    Deejayoh says:

    But prices in SF have risen about 4 times as much as Seattle’s over the past several years.

    Well, that is a statement that bears no resemblence to reality.

    You are either intentionally trying to mislead, or you are seriously delusional.

    If it’s the former, you ought to try being a bit more subtle. However, I suspect its the latter. As usual, you have made a baseless assertion

  23. 23
    The Tim says:

    Here’s why I don’t buy the GMA argument.

    The theory is that GMA is (artificially) restricting housing supply, and therefore are a major factor in rising prices. However, housing supply has been increasing faster than housing demand, as measured by population and household size.

    So if growth management is restricting supply, but supply is still increasing at a faster rate than housing demand, how is growth management responsible for rapidly increasing prices?

    Doesn’t it seem much more likely that the “buy now” mass psychology is the driving factor in prices (demand side), rather than growth management policies (supply side) that in practice still allow homes to be built more quickly than demand increases?

  24. 24
    kiwi77 says:

    It seems to me to be pretty much a matter of housing costs outstripping income. I hear all the talk about how Boeing and Microsoft will carry Seattle with high wages, but are wages really that high? There are a lot (though fewer) of manufacturing people at Boeing and they don’t make $100k. What’s the average wage at Boeing for production people? $30/hr? Probably not that high, but let’s be generous and say $40/hour. That translates to $80k/year. If there are two partners who both work, let’s be generous and give a wage of $120k/year. We all know that in fact the average Seattle family income is far less than that. How about taxes? Deduct 25% for SS, taxes, etc (I’m being really generous here). That leaves 90k takehome. A 100% mortgage on $550k, with taxes, P&I, etc. comes to about $4200 or $50400/year. Lets have a few credit cards and a car payment and another small loan, about $1250/month. Total expenses for the year for debt service is about $65000, or 70% of take home. What about the kids? What about clothing, what about food, what about the new flat screen? What about the second car? Any retirement savings? What if this is an adjustable rate loan and the interest goes to 8%? All of a sudden the house payment is $5000/month. What I’m trying to say is that these prices are not supported by incomes. I don’t care how many times anyone says ‘high tech’ the fact is most people are not executives or scientists or have jobs that pay wages high enough to keep buying these houses. I suspect that a lot of home purchases are partially financed by selling a previous house, as I have done. All good and well, but someone has to buy that old house. It can’t keep going.

  25. 25
    The says:

    When I ask people at work who have bought recently, or people in my neighborhood (new development), they all – to a fault – say they bought a little over their heads to a) avoid getting ‘priced out forever’ and/or b) hoping to catch lightning in an equity bottle. Many are Asian immigrants, I’d say 80% Microsofties, with roommates just trying to get a piece of that free money going around. Herd effect is still in place it seems.

  26. 26
    The says:

    OK, replace ‘a little over their heads’ with ‘a lot’. As long as banks can sell the appreciation #’s they’ll still give out riskier loans. I have gotten 2 calls this week trying to sell me on a nothing down loan, so banks are still making those bets up here it appears.

  27. 27
    The Bruce says:

    One thing that concerns me is that my poor neighbors honestly will float their new 4000 mortgages with the high hopes for hitting the lotto hey have by simply destroying their quality of life. They simply have no disposable income. In fact, 7 neighbors on my block had to go in on a community lawn more. We’re talking about a $200 lawn mower. What I’m afraid of is that they’re in it to feel this pinch for the long, long haul.

    I’m sorry, but in this country, somebody making 80k at Microsoft, with a roomie making the same, should be able to afford his house, that 3-4 year old Corolla he drives, and still have enough to buy his own damn lawnmower or go have a social life. Do we blame it all on lack of fiscal common sense or education? What happened?

  28. 28
    The Bruce says:

    ** ouch, my wireless keyboard is having issues.. sorry for the poor grammar and spelling.. **

  29. 29
    Scott says:

    With respect to whether growth management laws drive up home prices. I lived in Portland, OR for four years from 2000 on. Needless to say there is a lot of talk and press coverage there about this exact issue. Oregon’s growth management laws were passed in the 1970’s, and in fact the 1980’s home prices particularly in the city of Portland went down(largely due to the implosion of the timber industry). Home prices didn’t really take off until the exodus of people from California where the defense industry was downsized in the 1990’s kicked into gear.

    Also, the growth boundaries in Portland sometimes were not necessarily the primary roadblock to homebuilding. I recall a number of instances where builders proposed developments within the city of Portland where the neighbors killed the projects because they thought the modern homes(smaller sq footage, smaller lots) didn’t fit the “character” of their existing neighborhoods.

    Also, the boundaries of Portland metro’s growth boundary were very poorly conceived. If you look at a map of the boundary, it looks like a gerrymandered Congressional district. The biggest mistake was limiting development near the state’s biggest employer Intel, and leaving land clear on the far east side of the metro available. So people were driving from Gresham to Hillsboro to get to work because they couldn’t afford anything near Intel.

    I actually sold my house in 2004 in Vancouver, WA to a couple where the husband worked over in Washington county. That seems absurd to me.

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