Will Seattle avoid recession, or feel the brunt?

It seems to be a foregone conclusion lately that the US is currently entering recession. Of course, much like the housing market, the some aspects of the economy are local, so we can’t assume that what’s going on nationwide will necessarily hit us here. Following are a couple of articles from the last few days that address the specific question of whether or not the Seattle area is likely to face recession.

Washington CEO: Is Seattle facing a recession?

Technically, no – Seattle isn’t likely to experience actual economic contraction in 2008. But with inflation rising and economic growth slowing, it may feel recession-like in the next couple of months for many in Washington’s business and population center.

First the good news: King County should continue to experience job growth. Boeing and Microsoft both have been expanding, and their most recent quarterly reports indicate this should continue, at least in the near term.

Now the bad news: Slower economic growth rates may not keep pace with inflation.

Consumer prices increased 4.6 percent in the Seattle-Tacoma-Bremerton metro area last year. That’s higher than the CPI increase for United States as a whole, which was 4.1 percent.

If your paycheck, or sales revenue, isn’t growing that fast, it’s still going to feel like a recession, even if the numbers show slight growth. And make no mistake, while the economy continues to grow, that growth is much slower.

I would be interested to hear a real estate agent’s explanation for how home prices in our area will continue to go up, despite increasingly tight household budgets, still-tightening lending standards, and the death of the “buy now because the market is red hot” mentality. As economic growth slows to below the rate of inflation, I think the top-end scenario for home prices would be that they remain flat. More likely I think that even if Seattle only experiences a “growth recession,” we’re likely to see prices declining at least moderately.

Seattle Times: No equal-opportunity recession

It’s difficult to believe the housing meltdown won’t at least singe Seattle. You can see some of the ashes already in the difficulties at Washington Mutual. Yet the region is in a stronger position than most.

That doesn’t guarantee a downturn won’t be contagious. Anything connected to the housing slump is vulnerable, and a deep trough could cause wider damage. But global demand for Washington products, such as airplanes, software and grain, and strong population growth remain advantages.

The more intriguing question is what happens during and after the downturn. Recessions are transformative events, no less for cities and states than for individuals and companies. They wring out imbalances and create winners and losers, sometimes unpredictably.

Seattle’s biggest exposure to a downturn may be complacency. Economic memories can be short amid so much prosperity. But it took years for the region to recover from the 2001 tech bust, a mild recession by national measures.

Like others, I question whether we can count on continued strong demand for airplanes and software in the midst of a recession. In fact, it would seem that many of the major products produced by Seattle fall into the “expendable” category when push comes to shove: airplanes, software, online shopping, gourmet coffee…

In the last recession, Seattle was hit harder than many other places. Don’t take my word for it, read this 2002 Seattle Times piece for yourself. Has the economic layout of our area changed in some significant way that will cause the opposite to be true this time around?

(Bryan Corliss, Washington CEO, 02.11.2008)
(Jon Talton, Seattle Times, 02.10.2008)

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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.

54 comments:

  1. 1
    Saul says:

    The last recession was very specifically a tech recession (the dot-com bust), and that’s why Seattle was hit so hard. As long as tech–Microsoft, Amazon, even Boeing–continue to need “labor”, Seattle should do well compared to the rest of the country.

  2. 2
    Runs With Scissors says:

    It’s really a tough call and while I hat the doom and gloom predictions, I am not sure the Seattle Big 3 are as “immune” as we may think:

    -Boeing is has a lot riding on Asian and Middle Eastern orders from which a ression in the U.S results in lower interst rates and cheaper dollars may = cheaper planes but also less demand for oil and Asian goods to help finance plane purchases.

    -Microsoft, who knows, but a company about to sink millions into a struggling CA tech company?

    -Amazon, highly dependend on discretionary spending, and poor stock performance this year.

    I am actually more concerned about the potential for port strikes and labor unrest this coming Summer on the West Coast. The implicatons of this to companies such as Expeditor’s Int’l as well as to the ports of Seattle and Tacoma (and many companies who buy from Asia are already making arrangements for shipping through other locations) could be the “straw that breaks the Camel’s back.”

    Then again, we can all play armchair economist all day on this subject. I don’t doubt however, that China will surpass the U.S. within the next 5 years from an Economic Superpower standpoint.

  3. 3
    nitsuj says:

    “I would be interested to hear a real estate agent’s explanation for how home prices in our area will continue to go up, despite increasingly tight household budgets, still-tightening lending standards, and the death of the “buy now because the market is red hot” mentality”

    Ummm DUUUHHHH, the mountains! The lakes! It’s special in Seattle!
    *sips Kool-Aid*

  4. 4
    Joel says:

    As long as tech–Microsoft, Amazon, even Boeing–continue to need “labor”, Seattle should do well compared to the rest of the country.

    Duh. The real question is will they continue to consume labor at the same rate as they are now. The signs point to no. Consumer spending is tanking. That will hit Amazon even as they continue to steal market share from brick and mortar stores. Travel is very discretionary so expect to see cancellations at Boeing. People and business will be more cautious upgrading software when money is tight so even Microsoft will be hit.

  5. 5
    Joel says:

    I don’t doubt however, that China will surpass the U.S. within the next 5 years from an Economic Superpower standpoint.

    I highly doubt that. Their economy depends on us buying their crap. They’re totally dependent on our prosperity.

  6. 6

    Great post, The Tim. I’ve been wondering the same myself. I don’t think we will be unscathed. However, I would like to believe we’ll fair better than other parts of the country. It’s very concerning…and I also find this a facinating time in our history. When I’m old and grey, maybe I’ll set back on my rocker and tell grandkids about this time…kind of like when my in-laws (they’re older and wiser than my parents) talk about Boeing and “Will Last the Last One that Leaves, Turn Off the Lights” sign.

    It will be interesting to see if when our mini-bump in the conforming loan level happens (within the next few weeks, I think) if people looking for homes from $600-$500k decide to jump in. Or “poof” nothing.

  7. 7
    Sniglet says:

    A global recession will hit ALL of Seattle’s major employers hard. Boeing will see their order book shrink dramatically as air travel plumets and airlines cancel orders (this happens in every downturn). Microsoft, and other tech-firms, will hurt as consumers and companies delay upgrades (many large companies are already cutting IT spending, particularly in the financial industry).

    On top of all this, EVERYONE in the Puget Sound is going to feel the effects of the global credit bust as loans get MUCH harder to qualify for, and the terms get much tougher (for both consumers and companies). Real-estate may be local in some small respects, but lending certainly isn’t: it’s global. We are already seeing the impact of the global credit crunch with losses in King County investments, and tightening of mortgage lending standards. And this is only the beginning. Count on mortgage lending to get significantly tighter in the next few years. Before this is through it will likely be near impossible to get a mortgage with less than 20% down (and that will likely be on the low side).

  8. 8
    The Tim says:

    Another thing to consider as far as Amazon is concerned is the growing threat that the Streamlined Sales Tax agreement poses to their business model. They’re fighting it, but losing. Nearly half the states have already signed on or are in the process of doing so, and as their budgets get stretched by deflating real estate revenues, you know they’re going to be looking for money wherever they can find it.

  9. 9
    biliruben says:

    “I think the top-end scenario for home prices would be that they remain flat.”

    Uh-oh. I think you have been talking to too many Realtors Tim. You’re suffering from Stockholm Syndrome!

    I’ll have start screaming “20 cents on the dollar” To balance you out.

  10. 10
    The Tim says:

    Uh-oh. I think you have been talking to too many Realtors Tim. You’re suffering from Stockholm Syndrome!

    Heh. Really though it’s not too different from what I’ve been saying for a while. I don’t think it’s very likely, but it is possible.

  11. 11
    Deran says:

    The metro Seattle/Bellvue area may be chokoblock full of people at all kids of very high paying jobs, but. It’s not like the folks making all the money have been socking it away for a rainy day (hahaha), they’ve been building up their debt as much as the rest of the folks. So when credit is tight, and capitalist economic growth slows they will end up with the same problems servicing their debt that those down the class food chain will.

    And as The Tim rightloy points out:

    “I question whether we can count on continued strong demand for airplanes and software in the midst of a recession.”

    There will still be demand for both aricraft and software, but with out the same globalized momentum of consuming, the new consumer societies like India, Dubai and China will slow down their demand for our regions major products.

    They used to say (long ago; last summer) that the globalized nature of the economy makes it resilient to one regions problems. But the interconnectedness of the global economy makes it at least as suceptible to problems as before. And I think the same applies to the old idea that the US economy was very regionalized in someways. As the regions have been more tied into the global economy they become less stable.

  12. 12

    Seattle cannot remain immune to recession just as Seattle cannot remain immune to a real estate downturn. We’re part of the world, and are affected by what goes on in other parts of the country and the world.
    And as a recession spreads, it probably makes it more likely that Sound Transit will see their next ballot proposal go down in defeat.

  13. 13
    michael says:

    I think that China has some very big issues. The Communist party officials are becoming millionaires by extracting some hefty bribes from anyone making money. While their efficiency, savings rate, and motivation are impressive they have some structural difficulties that most people don’t recognize.

    NPR has been running some very interesting stories about the end of the American “Credit Culture.” The average American didn’t care about the crumbling integrity of our financial institutions when they could always borrow more but that may be coming to an end. School loans, 401k retirement accounts, mortgages, credit cards, and banks are so bloated with hidden fees and interest rate deception that it makes it almost impossible for all but the most sophisticted consumers to survive. People don’t even realize how much damage the Republican administration and Congress did but they soon will when they find out their 401k has a negative 4% interest rate, the bank ran off with 15% of their money in hidden fees, and their mortgage company suckered them into all kinds of junk that they don’t even realize. Most people don’t realize how much of the money they pay is actually hidden from them.

    We have never had a housing bubble. We have a credit bubble and it extends far beyond the housing market. Maybe we can just borrow more money from China, create bigger stimulous packages each year and then give it back to them in the products we buy. Does this sound crazy to anyone else?

  14. 14
    Scotsman says:

    I’ve been saying for some time that a global recession/credit squeeze is coming, and it will hit Seattle and all of the U.S. hard. Your typical analyst looks at current profit trends and backlogs, and comes to a conclusion about the future. This mode of analysis completely misses what is going on in the underlying structure of the world credit markets. Billions and billions of dollars have been lost over the past six months, and with a fractional banking system that translates into 8-10 times the capital lost in lost credit. We are about to enter into a slump that will take a decade or more to escape.

    As an example of how many lack a perspective, how can one say “Washington Mutual has had some hits but is hanging in there” when its value has dropped from 60 billion to 14 billion in a year? Thats $46 billion of capital LOST, which translates into close to half a trillion $ taken out of the credit markets. Add the losses at B of A, Countrywide, etc to that and multiply by ten. Ouch. The storm is coming- just because the wind isn’t blowing you hat off doesn’t mean the hurricane isn’t over the horizon.

    Without an understanding of some of the more obtuse aspects of economics, there is no easy explanation for how we got to the current point. But an analogy would be that everyone is looking at the walls and structure of a house and saying it looks fine….. while the foundation slips out from beneath it.

  15. 15
    Matthew says:

    Why would anyone think that this area is immune from recession while the rest of the country tanks?

    You would have to believe that:

    1. Boeing is going to continue to make large purchases of airplanes despite people cutting back. -Possible considering the aging fleet of many of the major airline companies, but how many are really going to be making large purchases considering rising fuel costs, reduced profit margins, and less travels due to a world wide credit contraction?

    2. People are going to keep shopping on Amazon.com despite tightening wallets. (What, retailers are already getting smoked?)

    3. People are going to keep buying PC’s in droves, XBOX’s, Zune’s, and Office 2007, and upgrade to Vista.

    4. People won’t cut out 5 dollar cups of coffee. (OH WAIT, THEY ALREADY HAVE?)

    Let’s face it, a recession is going to affect this region like any other in the U.S. This area is just as consumer driven as is any other place. A slowdown purchasing is going to mean a slowdown in goods shipped in through the Port of Seattle, of airplanes purchased from Boeing, of expensive cups of coffee, and the purchase of computers and MS software.

    WE ARE NOT DIFFERENT. REPEAT AFTER ME PEOPLE!

    The pink ponies will not save us!!!!!!!!!!!!!!!!!!

  16. 16
    Matthew says:

    That should say Boeing is going to make large sales, not purchases, of airplanes.

  17. 17
    Crystal says:

    The pink ponies will not save us!!!!!!!!!!!!!!!!!!

    Hey, I resent that remark.

  18. 18
    Matthew says:

    :) Sorry Crystal!

  19. 19
    stephen says:

    “It will be interesting to see if when our mini-bump in the conforming loan level happens (within the next few weeks, I think) if people looking for homes from $600-$500k decide to jump in. Or “poof” nothing.”

    I respect Rhonda a great deal and only gleaned the quote because I think the general reversal of these numbers is still what everyone has to come to grips with inside and outside of the RE/banking industry.

    Basic middle class homes in desirable areas that should be selling for 350-450 sky rocketed to these levels because of low interest and creative financing. I think the ‘mini-bump’ is an attempt to shore up these prices and will produce little. I believe few middle income people are looking for or can get financing for 500-600k homes anymore. That there are so many homes on the market currently in this price range is only because home owners wanting to sell are trying to maintain/hang on to this sentiment.

    A 30 year note on 550 is $3,386.44 @ 6.25 and with taxes/insurance and maintenance that is a 4k nut to crack each month. That’s a thousand bucks a week, 48k a year (take home) to service it, tax breaks aside, that’s one huge and unnecessary burden for the average middle to upper middle income couple. My wife and I are well into 6 figures and couldn’t possibly come near handling that loan without everything else totally sucking and just plain blowing off retirement savings.

    People like me grumbled and drove out 45 minutes to an hour to get something we could afford and others just threw up their hands and continued renting. Most folks here knew it couldn’t last and it didn’t. It so didn’t that it has damn near crashed the entire worlds financial markets and trimmed trillions of value out of what’s left.

    I also believe that the recession is going to be a further correction in this sentiment beyond RE. 40-50k cars, 5-10k vacations etc, etc. The past 5-10 years has been just a year in and year out of upping the bar.

    No the recession is not going to by-pass Sea-Tac and it is going to be very re-defining before it’s done.

    IMHO :-)

  20. 20
    rose-colored-coolaid says:

    Boeing is not the engine for job growth in Seattle that people want it to be. In commercial, I think they have had some short-term hiring to get the 787 out the door (almost). I think you’ll see growth from Boeing commercial grind to a halt (decline actually) once the first batch of 787s ship. In defense, Boeing has similar challenges. Frankly, the Puget Sound is among the most expensive sites for Boeing to maintain, and that limits how much growth you’re going to see here.

  21. 21
    patient says:

    rcc, you touch on another point with Seattle being an expensive site to maintain. The full force of the rise of the global economy. With asia rapidly becoming valid competitors in more or less all fields we face a very serious issue. The cost of business in the US. As long as Europe was the main competitor and we inflated together from a similar starting point things were fine. Asia is starting from a crushingly lower level of cost of business. The competition is serious and very real even in former safe areas as high tech and advanced services. The housing bubble is in my opinion one of the most damaging factors we have in this aspect but handled right it could turn into a saviour as well. Think about it, with half the housing costs across america salaries could pretty much be halfed with the resultingtsame standard of living as current. This could pretty much double our global competetivness wihtout being accused for manipulation of the market place. But no, instead our electives continue to push for packages to save the market and continue the unhealthy practice of us americans cannabalizing on eachother with inflated home prices and pushing us deeper and deeper into depth.

  22. 22
    patient says:

    Sorry, that last sentence should end with “debt” not depth.

  23. 23
    economist says:

    Think about it, with half the housing costs across america salaries could pretty much be halfed with the resultingtsame standard of living as current.

    Housing cost properly means the cost of shelter, i.e. the market rent. This is not the same thing as the price of a house, which has become ridiculously inflated in the last 5 years. That is going to drop back to rent equivalent levels. House prices can get out of whack with rents but they always adjust back.

    In a nutshell housing costs are driven by incomes, always have been, always will. Not the other way around as you seem to be implying.

  24. 24
    patient says:

    economist, you kind of solidifies my point. This time we have a chance to let home prices take the lead. This will increase the gap between income and fixed expenses which will give us room to attack foreign competitors with cost reductions when neccessary. Why do you think H1Bs is such a big issue? Because we don’t have enough skilled people in the US? Please, it’s because it’s to expensive to get US top talent if you want to stay competetive.

  25. 25
    Ray Pepper says:

    Seems like we continue to beat a dead horse with this.

    Home prices are coming down.
    Rental rates are going up.
    Were heading into recession(its already here).
    Crime will go up.
    Property taxes will continue to rise.
    Condo conversions are becoming Apts again.
    Consumer Credit will continue to deteriorate.
    Foreclosures and Short sales will curse our cities.
    Bellevue and Seattle will be least immune to housing declines.
    Short everything under the sun.

    On and on!

    But theres always a bright side:

    You guessed it!

    ***Free “YOUR ONLY TRUE FRIEND IN REAL ESTATE T SHIRTS” at the Seattle Home Show!***

    (Thank God your a bubble head and realize whats important in life)

    http://www.500Realty.net

  26. 26
    Ben says:

    Ray,

    You will look a lot more credible as a business owner when you can take the time to spell things properly.

    “Were heading into” -> “We’re heading into”
    “your a bubble head” -> “you’re a bubble head”

    And no, I am not kidding. You seem so keen to promote your business here, and I think you should know that when you spell badly it reflects badly on your business.

    Sorry to everybody for the off topic, but it pains me so.

  27. 27

    you don’t spell “properly”, you spell “correctly”…

    And no, I am not kidding. (sentence fragment) You seem so keen to promote your business here, and I think you should know that when you spell badly it reflects badly on your business. (run-on sentence, consider revising)

    get real Ben.

  28. 28
    softwarengineer says:

    WHAT DIFFERENCE DOES IT MAKE

    As we go into this ridiculous 2008 presidential campaign and listen to all our “pre-selected” candidates promise us change with no solutions; I ask myself as a Democratic [an Independent actually], what difference does it make?

    Boeing is now hiring 50% of its Seattle workers for the warlords, defense. Sooooo….ya get a Republican Liberal in there that wants to butcher axe defense spending and borrow more for overpopulation increases, Seattle’s clearly shafted [remember, Microsoft and Amazon are both selling to the warlord businesses and employees in Seattle too, so are the realitors]. Ya get a Democrat Conservative in there that wants a 20 year Iraq War and we’re likely bankrupted in 5 years anyway. And don’t count on China lending us more money, when we stop shopping at Wamart….

    Ohhhhhh…..we’ll start an industrial base and really start building commercial airplanes again in Seattle…..now you have me rolling on the ground, laughing my head off….

  29. 29
    Ray Pepper says:

    Good Lord! As a stickler on punctuation in my personal life I agree it makes people look inept. But, this is a blog. When I come here. I quickly write a response of what I deem important and the thought that pops in my head.

    Ben, Yes, you are very off topic. I would never address punctuation or grammatical errors while blogging. If it causes you pain then I suggest do NOT read my blogs. THE PAIN MUST STOP!! I rarely preview nor spend more then 3-10 minutes here. I tend to just see what people are bringing to the table.

    I hate grammatical errors but until I find more time I will just chime in here with my usual:

    Educate Yourself Washington! Find Your Gem! See you at the Seattle Home Show! blah blah blah..

    Remember, I’m the one that needs to be censored!! Right?? Ben come get your shirt!

    http://www.500Realty.net

  30. 30
    Nolaguy says:

    Christine Gregoire would be very upset about all this open talk of recession. She has a theory that if you talk about it, it will be a self fulfilling prophesy!

    Mayor Nichols is doing his part, by promising not to say the “R word”.

    Everything will be fine,

    ssssshhhhhhh…..

  31. 31
    Ben says:

    Joel // Feb 12, 2008 at 5:15 pm

    I highly doubt that. Their [China’s] economy depends on us buying their crap. They’re totally dependent on our prosperity.

    This is a common misconception. It was largely true seven or eight years ago, but the Chinese economy of today is no more dependent on the US economy than we are of theirs (arguably less so).

    First Point: China now exports more to Europe than it does to the US. The US now buys less than 20% of all Chinese goods.

    Secondly (and more important): Their economy is now surprisingly balanced, with much more internal demand than they are given credit for. The Economist has an interesting article to this point:
    http://www.economist.com/finance/displaystory.cfm?story_id=10429271
    The true export to GDP ratio for mainland China is less than 10%. Much lower than Japan or Germany, two economies generally thought of as well balanced.

    I’m not sure I agree with the original poster’s 5 year timeline, but China will be the dominate economic global force in the next few decades.

  32. 32
    Confusa says:

    I think all you need to do is take a walk around downtown and see all the closed and closing businesses to answer this question. The number of building that have been vacant for months with no new businesses moving in is astounding.

  33. 33
    wreckingbull says:

    Their economy is now surprisingly balanced, with much more internal demand than they are given credit for

    Decoupling is still a theory. I don’t think I would hang my hat on it just yet, although it is hard to deny that China is in a better position to weather a U.S. recession. They will certainly feel it.

  34. 34

    HEY BEN, WAKE UP AND SMELL THE $100 A BARRELL OIL COFFEE

    How can most Chinese, making like bucks an hour [or less] afford cars and gas like Americans?

    Ohhhh…Toyota will make a killing selling what to China?

    And Europe and the rest of the world….lol….don’t you invest in international stocks in Europe or Asia? Well if you did, you’d know YTD, they’re -9%…..that’s right -9% YTD. American stocks are -6% YTD by the way. Looks like when America sneezes, they come down with AIDS…..

    Nope, when America stops buyin’ at Walmart, China will go back to what it was before Nixon started the ping pong games; an overcrowded Communist country with workers making a buck an hour instead of bucks an hour. When America stops buyin’ from Europe, they’ll probably go back to makin’ cheap VW Beetles again.

  35. 35
    Joel says:

    China now exports more to Europe than it does to the US.

    And how is Europe doing?

  36. 36
    Matthew says:

    Here is what I found for the top nations China exports to:

    * United States = $162.9 (+30%)
    * Hong Kong = $124.5 (+23%)
    * Japan = $84 (+14%)
    * South Korea = $35.1 (+26%)
    * Germany = $32.5 (+37%)
    * Netherlands = $25.9 (+40%)
    * United Kingdom = $19 (+27%)
    * Singapore = $16.6 (+31%)
    * Taiwan = $16.6 (+22%)
    * Russia = $13.2 (+45%)

  37. 37
    Matthew says:

    As someone who has lived and worked in Shanghai, they are 10 times more screwed than us.

    The boom that is going on in that country cannot sustain itself. The workers are already becoming consumers and are going to start demanding a fair wage. When this happens, they are going to lose their labor advantage and the entire boom that has been fueling their economy based on the backs of slave labor is going to falter.

  38. 38
    aldreth says:

    Seattle will feel the brunt of any “recession”. Our companies are based off of consumer discretionary spending, (microsoft and overpriced software/Boeing and plane tickets) Whether you like it or not, a recession will hit Seattle hard, if not harder than most areas. We have completely unrealistic prices, and unrealistic wages that hold no support for real “values”

    One only need look south (california) for an example of what is inevitable.

  39. 39
    Runs With Scissors says:

    Matt, let’s re-visit this a little bit:

    The boom that is going on in (this) country cannot sustain itself. The (homeowners) are already becoming (debtors) and are going to start demanding a (bailout). When this happens, they are going to lose their (equity) advantage and the entire (housing) boom that has been fueling (our) economy based on the backs of (credit) is going to falter.

    And you are right, the boom in China can’t sustain itself, and will run the same course as it did in the U.S.: from an agriculture-based economy, to an industrial-based economy, to a tech/service based economy. And once they can’t sustain the boom any longer they can call all those U.S. Treasury notes in ;-)

  40. 40
    matthew says:

    Runs,

    Not arguing that our economy isn’t hosed. Merely arguing that the current bubble in China is far greater than ours.

    Their economy is based on shipping cheap crap to the U.S. to feed our demand for cheaply made Chinese goods. Once we implode, they implode, only by a magnitude of 10. They still need us more than we need them. Anyone that still believes in the theory of decoupling needs to take a look at what the Heng Seng does a day after the S&P plummets.

    P.S., if our economy totally collapses, no one is going to buy any U.S. treasuries from China.

  41. 41
    Ben says:

    The coupling of the stock markets has a lot more to do with threats to future US direct investment than it does to US consumption.

    As for me, I’d rather go long on Chinese stocks at this point than on US ones.

  42. 42
    matthew says:

    Ben,

    It has plenty to do with both, and both are dried up.

    Don’t worry, your eyes will be opened after the Beijing Olympics. Mine were opened in Shanghai this summer.

  43. 43
    Bryan says:

    “Technically, no – Seattle isn’t likely to experience actual economic contraction in 2008. But with inflation rising and economic growth slowing…”

    What about the “inflation rising” bit of this CEO’s assessment of the economy. Inflation is the best thing that can possibly happen for a homeowner with a big mortgage. If we experience true inflation, then we are talking about a general rise in price and wage levels. Prices go up, wages go up, RENT goes up, your fixed rate mortgage payment stays the same.

    Lately Bernanke is lowering interest rates in the face of rising inflation. To me that looks like a homeowner bailout in disguise. Whether it’s intentional is another question. Inflation is one way to bring market rent back in line with the cost of a house.

  44. 44
    Matthew says:

    Bryan,

    Bernanke is lowering interest rates in the face of deflation. The monetary base is being destroyed, not created.

    Yes we are seeing signs of price inflation, but the Fed is more scared of a Japan like deflationary spiral than they are about immediate term price inflation.

  45. 45
    deejayoh says:

    If we experience true inflation, then we are talking about a general rise in price and wage levels. Prices go up, wages go up, RENT goes up, your fixed rate mortgage payment stays the same.

    Lets look at the facts:
    – home prices are falling – one of the largest asset classes in the economy. Is this inflationary?
    – commodities like corn, wheat, oil, copper are at all time highs – but worldwide demand is weakening in the face of a recession. Do you expect that to drive inflation?
    – Banks are refusing to lend or just plain out of assets, meaning the “monetary multiplier” has plummeted – drastically restricting the money supply. Inflationary?

    Wouldn’t bet on it, personally.

  46. 46
    rose-colored-coolaid says:

    in response to #21.

    You’ve taken it a step further, but my point was that the Seattle area is not even competitive (price-wise) against most other USA locales. Sure, we’re cheaper than San Fran/NYC. Heck, we might (…maybe…) even be cheap compared to LA, Chicago or Boston. But that about sums it up.

    Businesses are spreading out. Boeing already has. I wouldn’t be surprised if MS spread out their offices significantly in the next few years. Maybe put the Office group in Denver, the games division in Houston, who knows.

  47. 47
    NotaBull says:

    “Lately Bernanke is lowering interest rates in the face of rising inflation. ”

    No, Bernanke is lowering interest rates in the face of an expected moderation in inflation (or downright DEflation) due to a downtown and/or recession. The balancing act is that if the downturn is less steep then expected and Bernanke lowers rates too lower, then *that* would be inflationary.

    I’m not saying that he’s doing the right thing, or that his timing is good. Just that he expects the downturn to moderate inflation at about the same time as the lowered rates take effect in the real economy, which is months after the actual change in rate.

  48. 48
    patient says:

    rcc, that would make a lot of sense. Move divisions to places where the median home price is around $100k. Heck then they could even offer to buy a place for employees outright and offer sometging like 30-40% lower salaries. I’m sure they could wiggle some good deals with the cities and states as well with free space and perhaps tax deals since they bring jobs and future tax income. To have large scale operations in expensive sites as Seattle makes very little sense.

  49. 49
    patient says:

    I see that we are only number 57 on NARs list of 4Q YoY appreciation.
    http://money.cnn.com/2008/02/14/real_estate/home_prices_fall_for_year/index.htm?postversion=2008021411

    Doesn’t sound that special does it.

  50. 50
    Bryan says:

    On inflation

    Well there are some forces on both sides of the inflation picture. We’ve got the negative wealth effect from the deflating bubble and falling asset values within the US. But globally inflation is the problem. (go to google news and type “inflation” or “china inflation”)

    Now maybe Bernanke wants to keep inflation low, and maybe he will succeed. But he knows that consumer spending is 70% of U.S. GDP, and that we have to keep consumer spending up. Matthew is right that the fed’s biggest fear right now is a deflationary spiral like Japan’s. That’s why they are likely to overreact on the side of inflation. A little extra inflation is a good thing for the consumer who is a homeowner.

    It may be that, like japan’s case, the force of the deflating bubble can’t be overcome with interest rate cuts. If we get to 0% interest rates and deflationary forces persist then we end up in 10 years of moping deflation like Japan. But if the fed and the white house can possibly do it then they will err on the side of inflation.

  51. 51

    Not sure if the change is official, but the 2007 King Co median income reported at FFIEC is $75,600. I believe 2006 was $74,300. Sadly, I do not think we are keeping up collectively with inflation (1.75% increase in incomes), compared to a 4.6% increase in CPI.

    And this in an area touted as having better employment than most.

    Does anyone have the national numbers for median HH income 2006 vs 2007? I cannot dredge it up

  52. 52
    Hairy says:

    Regarding RCC’s comments in #46, rather than Microsloth moving a division to an area with $100K houses like Gastonia, North Carolina, why not move the division to a place with $10K annual salaries, like Bangalore?

    Better yet, give the kids in Kandahar a chance to strut their stuff at the low, low wage of fifty cents an hour. Give ’em ten stock options and they’ll be pissing themselves with excitement and joy. So what if they don’t know how to program yet; neither do Microsloth’s existing employees! (I’ve contracted at the Evil Empire, so I know this from first-hand experience.)

    BTW, Chicago is a much cheaper place to live than Seattle. It’s where I’m stuck now. I miss kayaking, and I’m freezing my @$$ off right now, but houses are $100K less for an otherwise-equivalent neighborhood and house.

  53. 53
    WaitingForSanity says:

    Could somebody explain the 3 column in the inventory table (the table I get when I click on one of the inventory numbers on the top page of this site). I.e., right now when I click on the 10022, I get a table, and the the last line in this table says:

    02.20.2008 22:00 9936 10800 10022

    10022 is the inventory for King County. What are the other two numbers?

  54. 54
    chris b says:

    I think you should just back date the economy by 10 years. For all intents and purposes we have been in a recession since 2000 with an artificial bubble/bust inside. If you look at real GDP with “Mortgage Equity Withdrawl” out of the equation we have skirted a dismal outlook since the .com bust. If you imagined the last 5 years never happened and went back to that time, that is where we are and will continue to be. Housing is a long term investment, since we will always need a place to hang our hats. Real Estate is a vehicle for those who use “depreciation” not apprecation. Let’s get back to basics…That whole I.O.USA thing is alot more frighting than “normal” cycles. It won’t be a Japan 1990’s thing but we have to pay the piper and take out licks.

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