Uncategorized

Seattle Just Maybe “Behind the Cycle”

The latest Case-Shiller Home Price Indices data came out yesterday. The data runs a few months behind, so this release covers April. Here’s Aubrey Cohen’s take on the numbers in the P-I:

Seattle continues to defy a national trend of declining home values, but city house price increases are slowing, according to a Tuesday report.

Seattle-area prices for existing houses in April were up 1.3 percent from February and 9.6 percent from April 2006, according to Standard & Poor’s S&P/Case-Shiller Home Price Indices.

Both were the largest increases among the indices’ 20 major metropolitan areas, with Dallas equaling the monthly boost.

Pretty much the standard, rah-rah fluff. Aren’t we special, yadda-yadda.

But wait, there’s more! (Emphasis mine.)

But Robert Shiller, chief economist at MacroMarkets LLC, noted in a statement that Seattle’s year-to-year price increase was down from 17.8 percent in April 2006.“No region is immune to the weakening price returns,” he said.

The Seattle area’s year-to-year price increases have declined for 14 months, and April’s 9.6 percent rise was the lowest since May 2004.

“That is still a marvelous growth rate,” said Maureen Maitland, vice president of index analysis for S&P, in an interview Tuesday. “(Seattle) has held out quite a lot compared with others.”

Seattle also may be behind the cycle because the previous tech bust in 2001 delayed its entry into the latest housing boom, she said.

Seattle’s appreciation peaked in November 2005 — 14 months after the 20-city index. Hard-hit cities such as Detroit and Boston peaked in late 2003 and early 2004.

What’s that you say? Seattle may just be “behind the cycle”? Now where have I heard that before? Oh yeah, right here. Over and over.

Here’s another graph that attempts to visualize this theory. This one plots Seattle & Portland vs. Los Angeles & San Diego year-over-year price appreciation according to Case-Shiller. I’ve shifted San Diego and Los Angeles to the right by 18 months in order to roughly line up the period of peak appreciation.

Those curves sure look similar to me (note: “similar” not “identical”). If Seattle & Portland’s respective housing bubbles play out similarly to San Diego and Los Angeles, next Spring and Summer could be very interesting in the Pacific Northwest.

(MacroMarkets LLC, S&P/Case-Shiller HPI, 06.2007)
(Aubrey Cohen, Seattle P-I, 06.26.2007)

0.00 avg. rating (0% score) - 0 votes

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.

61 comments:

  1. 1
    Eleua says:

    Here is my question:

    If LA, Boston, SD, and Detroit peaked and have their descent cushioned by a “good economy,” what will happen to Seattle if its downslope is into a bad economy?

    LA, SD, Boson had low interest rates, “good” job numbers, and an accomadative FED, but Seattle may not be so lucky.

    What happens when the entire mortgage finance complex crumbles and there isn’t anyone there to catch Seattle?

    Next spring/summer will likely be very interesting. Had it not been for the unprecedented dead cat bounce in mortgage/building related stocks in the Mar-May 07 period, I think this spring would have been an unmitigated disaster for our housing market.

    Are we special or just stupid? How can we watch every other “special” market go negative and have a spike in foreclosures and not think that is what awaits us?

  2. 2
    Joel says:

    How can we watch every other “special” market go negative and have a spike in foreclosures and not think that is what awaits us?

    You obviously don’t watch enough daytime TV. According to The Secret all you have to do is want something enough and you will get it.

    On a related note, I wonder what kind of self-help books will be popular during the recession.

  3. 3
    Shawn says:

    How can Seattle be blind to the obvious?

    “The first reaction on hearing the bad news is one of classic shock. This initially may appear as if there is no reaction at all to the news. The person may nod and accept the news without appearing to be troubled by it. Inside, they have frozen out the news that has not really taken hold yet. To get the news through, they may need to be told several times.”
    Kübler-Ross

  4. 4
    Shawn says:

    “After the initial shock has worn off, the next stage is usually one of classic denial, where they pretend that the news has not been given. They effectively close their eyes to any evidence and pretend that nothing has happened.

    Typically, they will continue their life as if nothing has happened. In the workplace, they will carry on doing their job even if that job is no longer required.”
    Kübler-Ross

  5. 5
    David says:

    The decline of the housing market seems to be a reasonable prediction for the future, but how far and how fast is the real question. Looking at those graphs, Seattle was never as “hot” as the other three cities represented. Do you think the decline will reach negative YoY prices?

  6. 6
    BanteringBear says:

    I just pulled up all of the listings, regardless of price, of homes on between 1 and 5 acres of land in western Pierce County (Gig Harbor, etc.). Of the 251 properties which met the search criteria, a whopping 7 had offers. Yes, less than 3% of all listings had offers. Another 1% were contingent upon the buyers selling their own home. It’s already game over in that area. Yeah, I can hear it now…not my city, not my town, not my neighborhood, not my street, not my home, blah, blah, blah. The writing is on the wall.

  7. 7
    kaleetan says:

    “next Spring and Summer could be very interesting in the Pacific Northwest.”

    Its always next year with you guys…

    Another 10% gain for this year and now we will have to wait for next year for doom and gloom in seattle

    …Some things never change….

    Just wait till next year…then its gonna be really bad…

  8. 8
    deejayoh says:

    Here is a snapshot of the same markets from the early 90’s crash. The data for seattle only starts in 1990, so you can’t plot back as far as the other west coast markets – but as you can see, the pattern is pretty similar in terms of trailing – and yes, it can go negative.

  9. 9
    CCG says:

    Remember, if you feed the troll, you encourage it.

  10. 10
    redmondjp says:

    While on that topic, anybody else notice the lack of input from (a certain resident of) Ballard lately?

  11. 11
    Finance says:

    The Tim – Wow, you must have some good powers to see into the future as it shows LA & SD prices way into 2008!

    Or did you just overlay the charts onto eachother on a template? Thats a statisitcal no-no, as the scaling gets way out of wack (Im sure Deejoyoh can tell us how that can allow data to be skewed however you want even more than normal data mining). If the timelines arent consistant you cant compare the data (like apples to pick ponies).

  12. 12
    The Tim says:

    I don’t know what you mean by “just overlay the charts onto eachother on a template” but I’ll explain the graph for your benefit.

    The x-axis on the bottom, whose dates range from June ’02 to September ’08, applies only to Seattle and Portland, as indicated by the label next to the axis, “Date (Seattle & Portland)”.

    The x-axis on the top, whose dates range from January ’01 to April ’07, applies only to San Diego and Los Angeles, as indicated by the label next to the axis, “Date (LA & San Diego)”.

    The y-axes for both (left and right) are the same, -10% to 40%.

    So please inform me exactly what “scaling” is getting “way out of wack.”

    Thanks!

  13. 13
    deejayoh says:

    Finance –
    Reading is Fundamental

    I’ve shifted San Diego and Los Angeles to the right by 18 months in order to roughly line up the period of peak appreciation.

    did you happen to note the two different horizontal axes?

  14. 14
    deejayoh says:

    and wtf does this mean?

    If the timelines arent consistant you cant compare the data (like apples to pick ponies).

    So, in your world, I couldn’t compare say, MSFT since it IPO’d to GOOG since it IPO’d, since they didnt occur in the same time frame? Who makes those rules, again?

  15. 15
    Finance says:

    I just did see the differences, thanks for the update DJ.

    Sorry for the confusion The Tim, my bad…I even looked at the chart twice. However, the LA & SD markets had ~40% higher % spike than Seattle, so any decline would most likely be lets just say ~40% less.

  16. 16
    NoFate says:

    I’ve yet to hear a good explanation why Seattle and Portland lag the rest of the US, though I agree it’s the case. And I think we lagged in the last downturn also in the early 90s (as deejayoh noted).

    Anyway, it just bugs me because if we can’t explain it, it means we don’t truly understand it.

  17. 17
    softwarengineer says:

    WHAT ME WORRY?

    I’m sure a lot of you bubble bloggers get accused of being negative and not looking on the bright side. The MSM method is just immerse yourself in “stupor bowl” and American Idol and forget about the facts.

    Well, most of us are bubble bloggers technical backgrounds and facts are what we thrive on; of course a steady paycheck with enough money for the dentist and our kids futures play on our “negative thinking” planning for their and our financial survival futures.

    But what the heck, live in dream world like the Seattle Times/PI would have us do, read Mad magazine and smirk, “What me Worry?

  18. 18
    deejayoh says:

    so any decline would most likely be lets just say ~40% less.

    so if you are saying that if SD/LA see a 20% decline, then we’ll see a 12% decline (40% less) I probably agree. I think there is too much downward momentum to pull up before we hit negative territory though.

  19. 19
    jimmycrackcorn says:

    “I’ve yet to hear a good explanation why Seattle and Portland lag the rest of the US”

    What if instead of lagging the other parts of the country we are leading them..

    Instead of 2 years behind we are 5 years ahead of the rest.

    I am sure i could overlay some graphs to prove my point somehow

  20. 20
    The Tim says:

    Another interesting thing I noticed about the Case-Shiller data:

    From 2000 to 2003 (pre-NW-bubble), Seattle & Portland were averaging in the ballpark of ~5% per year appreciation, which then shot up to 15-20% in the peak bubble years of 2005 and 2006.

    From 1999 to 2002 (pre-SoCal-bubble), San Diego and LA were averaging in the ballpark of ~15% per year appreciation, which then shot up to 25-30% in the peak bubble years of 2004 and 2005.

    When you look at it that way, SD and LA appreciation doubled, while Seattle and Portland appreciation quadrupled. I’m not saying that really means anything (otherwise I would have put it in the post), but it’s an interesting way of looking at things.

  21. 21
    deejayoh says:

    I am sure i could overlay some graphs to prove my point somehow

    Have at it Jimmy… I await your conclusions

  22. 22
    Transplanted Sys Eng. says:

    Anouther way of looking at the C-S data is to look at the Avg Month to Month gain/loss and compare it to what is happening this year. I downloaded the C-S spreadsheet did the M to M calculations and determined the average M to M gains (I was interested in seeing what months had the largest growth in prices). I then started comparing this to the 2007 to see how 2007 is performing compared to an “Average Year” as shown below:
    Avg 2007
    Jan 0.06% -0.03%
    Feb 0.41% 0.51%
    Mar 1.09% 0.86%
    Apr 1.25% 1.31%
    May 1.28%
    Jun 0.95%
    Jul 0.61%
    Aug 0.44%
    Sep 0.30%
    Oct 0.29%
    Nov 0.09%
    Dec 0.06%
    Year 6.83%

    As you can see we currently are slightly below avg which says we could still see an avg Y to Y price increase of6.5% by year end (compared to the 11% for 2006). However, I believe we will really struggle the 2nd half of the year and 5% or less Y to Y is believable.

  23. 23
    Transplanted Sys Eng. says:

    Sorry, I’m new to posting try this:

    Yearly Average
    January 0.06%
    Feburary 0.41%
    March 1.09%
    April 1.25%
    May 1.28%
    June 0.95%
    July 0.61%
    August 0.44%
    September 0.30%
    October 0.29%
    November 0.09%
    December 0.06%
    Year 6.83%

    2007
    January -0.03%
    Feburary 0.51%
    March 0.86%
    April 1.31%

  24. 24
    george says:

    Let’s give credit where credit is due. There’s balance in that article. He quotes both Robert Shiller and Maureen Maitland at S&P. He also reports the facts about what the market did over the last year.

    The Seattle Times has never once quoted Shiller or anyone from S&P from what I’ve read. They always seem to go for Lawrence Yuan of the national real estate cheerleaders association, and then for “balance” talk to some local RE industry cheerleader.

  25. 25
    VictoryHeights says:

    I’ve only been reading Seattle Bubble for a few days but I’ve quickly come to the conclusion that most of the people here suffer frame the same problem that they accuse the media of having. Just as they seem to be cheerleading the real estate market, you people seem to be shitting on it. All news is good news for them; all news is bad news for you.

    Furthermore, the “analysis” you present cracks me up. It is called a cycle. Real estate prices tend to rise and fall in cycles. Just because you can over lay price data to show the cycles in several markets, doesn’t mean you’ve provided any insight into a possible “bubble.” Time to stop reading Seattle Bubble.

    Maybe I’ll check back next year… or the year after…. or the year after. Eventually you may be right. Don’t worry; I’ll just adjust the horizontal axis to demonstrate you were right all along.

  26. 26
    Lake Hills Renter says:

    LOL, another drive-by troll. Thanks for contributing nothing. Don’t bother checking back.

  27. 27
    sniglet says:

    deejayoh said:

    Here is a snapshot of the same markets from the early 90’s crash. The data for seattle only starts in 1990, so you can’t plot back as far as the other west coast markets

    Was the percentage of negative amortization and interest only loans in the Seattle area greater during the boom prior to the ’90s real-estate downturn? If these kinds of “exotic” loans are less prominent today than in past booms then perhaps the current downturn won’t be as severe as historical precedents.

  28. 28
    synthetik says:

    Sorry, off topic:

    I’m helping a friend prepare his house for sale and we’re possible looking for someone to stage it for him. Someone that has a few pieces of furniture, such as an unusually short full size bed, small couch, etc…

    Anyone know someone that does this? Anyone that isn’t associated with RCG would be fantastic.

    I also might need someone to help me build a white picket fence for him too! He’s in columbia city area.

    Thanks!

    email: industrialove [at] gmail.com

  29. 29
    vancouverdr says:

    One factor that caused a lag in the Pacific NW (Seattle and Portland) is that the smartest Californians realized their huge equity gains in the past few years and cashed out. Then they looked all around California (not just at Washington and Oregon, but at Utah, Arizona, Idaho, Montana, and Texas) and realized that they could purchase much larger, nicer houses and have cash left over to stash in the bank). So they bought, which fanned the flames of the boom in these areas. (I wish I had done that!) For the most part, these other states have lagged California, as well.

    I suspect that Boeing’s great success in recent years, and Microsoft’s to a lesser extent, have in fact helped Seattle’s housing market. I don’t know how successful they will be going forward.

    I also think we won’t crash as hard as Cali in the end, but if you think we will escape a decline because our rise hasn’t been as great, check out the Case-Shiller chart for Detroit. It is butt-ugly, and Detroit never approached where we are now in terms of price gains.

  30. 30
    Joel says:

    Was the percentage of negative amortization and interest only loans in the Seattle area greater during the boom prior to the ’90s real-estate downturn?

    From what I understand, these kind of exotic mortgages didn’t even really exist until the current bubble. This is the biggest credit bubble in the history of the world.

  31. 31
    sniglet says:

    From what I understand, these kind of exotic mortgages didn’t even really exist until the current bubble.

    Really? I’ve heard of 100% financing deals even back in the ’80s. But I guess that may not be the same thing as “interest only”. Even on that level I wonder if 100% finance deals were more prevalent in the Puget Sound during previous booms than they are today.

  32. 32
    Buceri says:

    Actually I’ve heard interest only loans go back to the 1920s; and I don’t need to tell you when they disappeared back then.
    Why is Seattle behind? I think it’s based on the fact that it is not an exotic second/vacation home location, unlike California and Florida (#1 & 2 in current foreclosures). You had to be very gutsy to buy an investment property in Seattle in the past 24 months.
    Great discussion.

  33. 33
    Andrew says:

    jimmycrackcorn said:

    “I am sure i could overlay some graphs to prove my point somehow”

    No, you could not. At least not and have it be a valid analysis. One of the first rules in modeling is ‘parsimony’ of variables the second is ‘ make it no more complex than you must.’ Seattle has consistently lagged other parts of the country in other economic indicators, so a lagging model makes sense. If you can show a leading model and do without statistical trickery or bad assumptions I’d like to see it.

    Tim and DJ follow the basic rules of good modeling consistently, and it gives them a good bit of credibility. In fact I am sure they are wrong on some of the details, simply because all models are wrong, but some models are useful. Theirs seem to be in the ‘useful’ category.

    Jimmy, if you think you can come up with something that shows Seattle leading, please do so and show it to us, and explain your reasoning.

    If you don’t know enough to explain why you think what you do, than you don’t know enough to evaluate the information presented here. If that is the case, your opinion is certainly yours to keep, but it is an uninformed one.

    I hope you can do better for yourself in the future.

  34. 34
    Eleua says:

    vancouverdr,

    I wonder what would happen to PNW home prices when Californians are trapped in their homes due to being upsidedown? When 40% of your market dries up, you have to figure it will have a very binary and negative effect on what it is you are selling.

    I think we will fall much harder than California. I know I am probably alone in this prediction.

  35. 35
    Buceri says:

    Rapid inventory increase just this week.
    King County SFH (Windermere)
    June 15…..9240 homes
    June 22…..9390 ”
    Today……..9637 ”
    400 Homes (about 4.3%) increase in 13 days.
    Spring/Summer is supposed to be the peak; correct?

  36. 36
    The Tim says:

    Buceri,

    I’ve noticed the same thing. Unless a bunch of homes go off the market in the next few days, this June is going to see the largest May-to-June inventory increase on record, almost by a factor of two.

    Generally September is the peak inventory month in a given year, and at the current rate of increase, we could easily see 11,000 SFH in King County by then. It will be interesting to see if inventory continues to pile up this fast throughout the summer.

  37. 37

    […] VictoryHeights on June 27: I’ve only been reading Seattle Bubble for a few days but I’ve quickly come to the conclusion that most of the people here suffer frame the same problem that they accuse the media of having. Just as they seem to be cheerleading the real estate market, you people seem to be [censored] on it. All news is good news for them; all news is bad news for you. […]

  38. 38
    TJ_98370 says:

    I’ve yet to hear a good explanation why Seattle and Portland lag the rest of the US,….

    As vancouverdr mentions, I know for a fact that part of the reason Seattle / Portland lags the rest of the U.S. is because of the California transplants (equity locusts?). And I’ll even go as far to say that the California transplant phenomenon is occurring in eastern Washington and Idaho also. Example – I personally know a couple who sold their 1300 sq ft house near LA for around $750,000 about two years ago. They then moved to northern Idaho and bought a 3000 sq ft, lakefront home for around $400,000. They are living off of the difference as part of their retirement income. (I would imagine they took a hefty hit on capitol gains?) Anyone familiar with the Lake Pend Oreille area can tell you that there is a distinct lack of millionaire Microsoft software people in the area, so $400,000 is a hefty chunk of change to the local residents. Another example – a house in my neighborhood (Kitsap County), that was assessed by the county as being worth $430,000, was sold to an elderly California couple for $716,000 about a year and a half ago. Then, before they moved in, they proceeded to remodel the basement, which I am sure wasn’t cheap. None of the working stiffs that I know in my neighborhood can afford a $716,000 house.

    I realize the above is anecdotal evidence, and a very small sample, but it is real experience.

  39. 39
    deejayoh says:

    Over 9600 today. Wow. I keep having to reset my forecast to the upside. Just last week, I was thinking we wouldn’t see 10,000 until the end of July. Looks like that will be a low estimate now.

    It will be verrrrry interesting to see what happens to sales. I am guessing they are really dropping off, which is driving the inventory numbers. But maybe they are going up together?

    June is typically the last “hot” month for sales:inventory. That ratio has averaged about 38% over the last 6 years. Same ratio falls to about 31% by Sept.

  40. 40
    Buceri says:

    Tim;

    I would be surprised if this pace is kept. Then again, spring/summer should be when inventory numbers show a decline, not severe increases.

  41. 41
    deejayoh says:

    Buceri –
    I wouldn’t be surprised. On average, Peak inventory occurs in Sept.

    200-2007 Inventory Averages
    January 6,049
    February 6,213
    March 6,525
    April 6,999
    May 7,442
    June 7,481
    July 7,545
    August 7,344
    September 7,576
    October 7,410
    November 6,926
    December 5,804

  42. 42
    Buceri says:

    deejayoh;

    I can’t argue against those numbers; but they blow me away. What’s with the drops in Nov. & Dec.? I have to assume that most sellers don’t even bother to list then. But the increase in January is not significant. What explains the drop in August? “School starts next week; let’s hurry and close”.
    Thank you for the stats. Great numbers.

  43. 43
    Steve says:

    The Tim said,

    on June 27th, 2007 at 2:21 pm

    Another interesting thing I noticed about the Case-Shiller data:

    From 2000 to 2003 (pre-NW-bubble), Seattle & Portland were averaging in the ballpark of ~5% per year appreciation, which then shot up to 15-20% in the peak bubble years of 2005 and 2006.

    From 1999 to 2002 (pre-SoCal-bubble), San Diego and LA were averaging in the ballpark of ~15% per year appreciation, which then shot up to 25-30% in the peak bubble years of 2004 and 2005.

    When you look at it that way, SD and LA appreciation doubled, while Seattle and Portland appreciation quadrupled. I’m not saying that really means anything (otherwise I would have put it in the post), but it’s an interesting way of looking at things

    think this was due to the steady trickle of Californians to Oregon and Washington in the 80s and 90s – it’s how my wife’s family got here. In Portland at least, “Californian” has long been a dirty word. In the 90’s, the Portland location of California Pizza Kitchen went out of business because Portlanders wouldn’t patronize something perceived as being from California.

  44. 44
    TJ_98370 says:

    Steve,

    You’re right. There was a strong anti-California mentality in the 80’s and 90’s. I remember the “Don’t Californicate Washington” bumper stickers.

  45. 45
    Eleua says:

    TJ,

    Where can I get some of those stickers?

    I live in the same area as you and my LL is an X-Cal RE agent that came up here and bought property hand-over-fist. She is now having cash flow problems. No wonder, she subsidizes me to the tune of $3K/mo – I only wonder what her other 8 properties are like.

    The California model of “buy and hold” is going to burn her.

    Once the equity locusts dry up, you won’t be seeing many $700K homes in NK.

    E

  46. 46
    deejayoh says:

    What’s with the drops in Nov. & Dec.? I have to assume that most sellers don’t even bother to list then.

    A lot of listings get pulled off the market during the holidays. My own experience last time I sold a house was that my realtor called me the end of december and said “we need to relist your house in the new year, come in and sign the paperwork”. I am not sure if that is is standard operating procedure, but she made it sound like it was. didn’t matter to me, since I figured that resetting DOM was a good thing – but I think it contributes to the dip.

  47. 47
    deejayoh says:

    E –
    You know, I’d always thought that California equity locust was urban legend, then I saw the third chart on this site that summarizes cross state migration based on surrenders of drivers licenses.

    Interesting to say the least. Surrenders of CA licenses peaked in 1990, just as CA was starting to tube, and Seattle kept going another 12 months. Fast-forward to 2005 – and guess what?!? Another surge in surrenders of California licenses…

  48. 48
    Eleua says:

    DJO,

    You are da Man! I was using gut instinct and anecdotal observation of the glut of X-Cals in our region, but you have the proof.

    Just for fun, I will take my kids to Battle Point Park on Bainbridge and chat up the other dads. When I’m feeling a little snarky, I’ll slip in the question, “What part of California did you move from?”

    I’m not kidding. Almost all don’t give it another thought and tell me. One occasion, I chatted up a guy from Virginia, but he chuckled and said, “No kidding. Everyone is from California.”

    It is the 59th county of California.

  49. 49
    deejayoh says:

    E –
    Well, then this is just gonna make your day. I noticed the date on that report was the end of June, 2005. I guessed it might be an annual report.

    Guess was released on Wednesday! This year’s version.

    oh look, what has happened to that California migration?!?!

    I am going to see if I can get the data for that chart, there’s some analysis to be done there…

  50. 50
  51. 51
    mydquin says:

    Since this never got addressed in the last thread, let me post it here. I have yet to see any theoretical justification for why Seattle’s market lags other markets. Data points on a graph are by definition not theory. This article makes some reference to the 2001 tech bust, but offers no explanation.

    mydquin said,

    on June 3rd, 2007 at 10:13 am

    Two major logical problems underlying this graph.

    1) Graphs are built on numbers. However, without understanding the qualitative factors driving those numbers, the graph is largely meaningless. We’re probably going around in circles for the Nth time here, but many of the comparison cities in this graph are influenced by fundamentally different sets of economic (i.e. the PROFESSIONAL labor market) and geographic factors (i.e. water barriers, scenic views).

    2) On a related note, differentially re-setting the peak of each city’s trend line graph to time 0 is a statistical slight of hand with no basis in theory. I keep hearing people here talk about how the Seattle market lags the rest of the nation, but I have yet to hear a reasonable explanation for why that is so.

    I suppose you could claim that Seattle strong local economy and it’s unique geographic features delayed the onset of the downturn. However, if you are going to make that claim, then you basically need to quit acting like Seattle is NOT different from those other cities. Moreover, you also need to seriously consider the possibility that while Seattle has experienced the same nation-wide influences (e.g., changes in national interest rates, bank lending practices), the negative impact of each of those national forces just happens to be less severe due to positive local forces.

    Bottom line: technical analyses, like this graph, are pretty weak and possibly misleading without stronger theoretical justification.

  52. 52
    deejayoh says:

    mydquin –
    I don’t even know where to start with this one. The theory is that all these markets are subject to the same macro-phenomenon – a credit induced real estate bubble. If one accepts that theory, they are indeed comparable.

    I am guessing you don’t accept that theory – given you put forward a bunch of local drivers of real estate prices as justification. So it sounds like you have a different theory, for which you offer no justification or proof. I think if you read some of the old posts, you’ll see that Tim has covered every factor you talk about ad infinitum – and none of the factors you put forth (jobs, land, etc) explain the boom in housing prices.

    If you have “strong theoretical justification” to add in that vein, bring it! I think a spirited case for why Seattle is special would be a great contribution. But criticism without proposing a better explanation is, well – just that.

  53. 53
    Steve says:

    I lived in BOS up to 2000, in SEA 2000-1, and PDX 2002 to present. My perception comparing 2001 SEA/2002 PDX (late peaks) to 1999 BOS (early peak) was that SEA/PDX had surprisinly bad economies. As mentioned above Californians were certainly moving here steadily throughout the 80s and 90s. I think the widely shared theory is that most Californians moved here (and to SEA) following a runup in their values (caused by the credit bubble, strawberry picker homebuyer, etc.) giving them equity to spend/outbid up in the NW. Then investors saw noteworthy intitial gains and historically low/affordable prices went “all in.” Just my .02.

  54. 54
    mydquin says:

    deejayoh,

    You misunderstand my point. I do not disagree at all that there are common nation-level facotrs, like interest rate changes, at work. Indeed, I think there should be some commonality in the patterns across local markets.

    However, Tim’s hypothesis goes beyond that. Tim not only suggest that there are similarities, he also suggest that 1) the pattern in Seattle is simply delayed by 18 months and 2) that the amplitude of the cyclical swings in Seattle will be comparable to that of other local markets.

    Yet, Tim has offered no theoretical justification for why there is an 18 month delay. He has simply laid empirical trend lines on top of each other. That is not theory. This is dust bowl empiricism.

    On the other hand, Steve has finally offered some semblance of a theory that carpet-bagging Californians created an “echo” bubble in Seattle. However, that theory is highly questionable in many respects. For example, it is not at all clear that a significant portion of home purchases over the last few years were by Californians or any one else from “standard” cycle markets. Even if there have been a lot of out of state buyers, if those Californians stay in Seattle, then the demand curve has just permanently shifted. Indeed, reports have suggested that the proportion of real estate investment homes to primary residences in Seattle is significantly lower than in other markets. So there are a lot of unanswered questions, but give Steve credit for offering an actual theory that can be discussed.

    The most likely explanation is that while Seattle is affected by many of the same national forces, local forces (e.g., a strong PROFESSIONAL job market, Seattle’s unique geography, Seattle’s less materialistic culture) have softened and will soften the fluctuations in the market created by the national forces.

  55. 55
    deejayoh says:

    OK –
    I get your point. Couple of thoughts
    1) we trailed in the last cycle by about 12 months. The timing appears similiar on this one. I am not sure why, but it is consistent.
    2) I got the data for california immigration from the DOL and compared it to home prices. Interestingly, there appears to be ZERO correlation As a matter of fact, the biggest periods of migration in the last cycle appears to happen after the boom ended and prices were falling. Not sure how to parse that one.

    As for local forces – while seattle job growth has been good, check Tim’s post on fundamentals. Seattle had one of the slowest wage growth rates in the country in 2004-05. bottom 10! That suggests to me that professional job growth hasnt’ been all that rosy

  56. 56
    BanteringBear says:

    Eleua posted:

    “I think we will fall much harder than California. I know I am probably alone in this prediction.”

    Actually, no, you’re not a lone. I’m right with you on this. I think that when it’s all said and done, the Puget Sound region will have received a throttling worse than that of CA.

  57. 57
    finance says:

    BanteringBear – What is your rational for such a pessimistic outlook for Seattle? Can you provide some factors that show to make a much more negative impact than CA? It would be interesting to see what you find.

    Since housing prices did not escalate as much over the past 5 or 7 years, why would prices get hit harder..?

    At least what I can see the stock prices of companies in the NW are increasing much more than the stock market, companies are still hiring at a greater rate in 2007 than the rest of the nation, and more people are moving here than in prior years (1.5% increase in Seattle in the past year, there was an article on it last week in the paper). Also with all the commercial buildings going up will increase the number of people working in the downtown Seattle/Bellevue areas…wouldnt that increase demand somewhat to live closer to work, thus increasing rents/prices.

  58. 58
    Eleua says:

    My reasons for a dire prediction for PNW RE prices stem from the massive influx of Californians that will likely be shut off. If they are trapped in their California home, due to market conditions/bad debt, they can’t move here. That removes a huge swath of buyers, but most importantly, it removes the buyers that are accustomed to paying well above market rates for homes.

    If people move here from Alaska, or Oregon, they don’t pay the premium that Californians do.

    That’s a double-whammy.

    Also, other markets are falling into an economy that can catch falling home prices. It is reasonable to think the last market to fall will fall into an economy that is in full retreat. Support levels will be falling hard.

    Lastly, I don’t believe the local economy is exotic enough to justify anything close to current home prices.

    The only thing that is remotely bullish for PNW home prices is massive exodus of nuclear families that don’t want to live in a community that is morphing into a Third-World balkanized mess. That’s as PC as I can put it.

  59. 59

    […] it’s not difficult to say at all. In fact, I’ve said it before, and I’m going to say it again right now: Seattle’s downturn has merely been […]

  60. 60

    […] That said, it is interesting to note how closely Portland and Seattle have tracked San Diego since the first time I posted this graph just over a year […]

  61. 61

    […] since we first introduced this graph in June 2007, we have stated that it is totally speculative, not intended to be predictive, and for […]

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Please read the rules before posting a comment.