Welcome to Housing Bubble 2.0

Are You Missing the Real Estate Boom?With home prices nearing their 2007 peak levels in the Seattle area (and no doubt exceeding them in some neighborhoods), I thought it would be good to step back from the monthly stats and take a big picture look at what’s going on in the housing market.

To answer the question of whether or not we are in another bubble, let’s compare and contrast the present frenzy to what the housing market went through during the Great Housing Bubble.

What’s The Same This Time

  • home prices rising at double-digit rates year-over-year
  • low inventory
  • homes sell fast & for over asking
  • stock market hitting new all-time highs
  • low interest rates

What’s Different This Time

  • more all-cash buyers, almost no zero-down buyers
  • no crazy loans (neg-am, fog-a-mirror, interest-only, etc.)
  • home price to income & price to rent ratios not as far out of whack
  • overall economy still on relatively weak footing (e.g. GDP)
  • interest rates at rock-bottom
  • affordability index not as low (thanks to low rates)
  • buyers are typically more cautious, e.g. not likely to waive inspection
  • builders focusing on rentals, few SFH & condos being built
  • less cheerleading from media & home salespeople

The net result of all this is a market that may be in early stages of another housing bubble, but it feels different, and it’s not likely to end the same way as the last one.

This time around it seems like rather than “fear of missing out,” home buyers are just frustrated and tired.

Since home price increases aren’t being built on top of suicidal financing like last time, we’re not likely to see a dramatic burst when things finally slow down. However, since interest rates have been so ridiculously low for so long now, it is likely home prices will be more sensitive to the inevitable borrowing rate increase when it does come.

Over the next month I’ll be posting some detailed, data-backed looks into some of the topics listed above. Let me know if there’s a particular item of interest to you.

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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
    Jeff says:

    Something else that’s different this time around is that the price to own has not diverged as much from rents. Rents have been growing at double digit rates in neighborhoods near downtown Seattle like Capitol Hill for a couple years now. During the last boom, home prices were about the same but I’d guess rents were 60-70% of what they are now.

  2. 2

    Inventory wasn’t low in 2006 and 2007. In fact many were claiming that the high levels of inventory would lead to future price reductions (too much supply).

    Also, I don’t necessarily know whether or not there are more cash buyers this time around. There have always been cash buyers, but I have only tracked that sporadically and only at the high end.

    Finally, I don’t know that I would agree that the strength of the overall economy is all that different, it just may be weak in ways we don’t realize that are different than before.

  3. 3

    I’m Guessing Most of the Flight Out of King County

    Is not home owners, they bought and they’re staying put, albeit they’re also not recent future home buyers either. I bet ya it’s sticker shock renters telling rich elite landlords in King County to find another tenant. Some of the rents are so high now in King County, why rent? Buy a cheaper home or condo. That’s the problem with rent, if it exceeds affordability, its hard to keep occupied and a loss for the flipper landlord.

    Hades, I’m a flipper landlord and charging no rent to family….yet, if my family weren’t protecting the unit, the Kansas Inspectors want to fee me to death, because I’m an out of state investor. Call my rent free family house sitters with no fees or a property manager on the cheap.


  4. 4
    David B. says:

    @softwarengineer – Price is only one reason at play[1], and it’s a fairly limited “flight” at the moment. King County is still growing, and demand for housing there still exceeds supply (if it didn’t, prices wouldn’t be increasing).

    [1] It didn’t figure much, if at all, in my own decision to leave King County. Kitsap County just suited me better: easy access to nature (sans Seattle’s freeway congestion) matters more to me than easy access to big metro area amenities. Though I may well be an exceptional case.

  5. 5
    Brian G says:

    Hey! Stumbled across your blog a couple months ago, and I’ve enjoyed reading your take.

    I’d love to see your take on rent trends, and outlook for condos vs single-family homes. As someone who recently took a new job on the eastside, I’ve been floored at how high rents are – they make buying a condo (which is something I probably wouldn’t have considered a year or two ago!) actually look like an attractive option. Even factoring in HOA, taxes, etc, a condo mortgage looks significantly cheaper than a comparable apartment. Makes me wonder if I’m missing something?

  6. 6
    David B. says:

    RE: Brian G @ – What expenses are you considering? Surely mortgage payment, HOA dues, and taxes. But what about expected special assessments? That could cause units in complexes where big assessments are obviously imminent to be artificially low. And don’t forget maintenance — the HOA won’t maintain everything in a condo. The things that are 100% yours are your responsibility to fix. Then there’s insurance.

    All that said, no, sale prices aren’t seriously out of whack with rents like they were, in, say, 2006. I was living in Seattle then and all it took was a cursory glance at asking prices to decide to continue renting.

    I’ll heartily second Tim’s presumption about buyers feeling frustrated. I was looking for something to buy most of last year and it was certainly exasperating to see almost no suitable properties for sale, and to stay longer in a rental I really didn’t like that much (which I had rented planning to move out of 6 to 8 months sooner than I actually did).

  7. 7

    Agree with David B. as to Special Assessments. However most people deciding between house and condo are often in the low tier price range of house, where the house will possibly be older and need more repairs and replacements as to roof and plumbing and other things in the first 5 to 10 years.

    In that regard paying a special assessment is often less expensive than putting a new roof or new sewer line on a house. So even special assessment on a condo is often not more than home maintenance and repair costs during the first 10 years or longer.

    To keep it somewhat even you would have to be mindful of “major components” of the condo and HOA. A house you buy will not likely have a pool, as example. If you buy a condo in a complex that has a clubhouse and an exercise room and a pool and a spa, then your maintenance costs will be more excessive than if you buy a house without those things.

  8. 8

    RE: David B. @

    Wasn’t sure what you meant by this “The things that are 100% yours are your responsibility to fix. Then there’s insurance.”

    Both a house and a condo will have insurance and most if not all of the condo insurance will be included in the HOA dues. You might have to add a small supplemental policy. But still cheaper than the insurance on a house.

  9. 9
    Corndogs says:

    Wrongo Chongo on inventory being the same ‘The Tim’. Inventory this low for this long has never happened… Demand is strong. When the investors start selling and the inventory starts creeping up you’ll be able to start talking bubble 2 but it isn’t going to happen.

  10. 10

    If I’m recalling correctly, prior to the bubble bursting in ’07, sales were slowing, and inventory was high and rising. Prices were still rising, but it looked pretty obvious to The Tim, and a few of us on Seattle Bubble, that the party couldn’t go on forever.
    Sometimes there are external things that affect home prices that don’t have to do with what’s going on locally. That can always happen, but at least locally at this time, things are going gangbusters.
    I recently read that if Amazon’s building plans over the next couple of years come to fruition, they will be occupying more office space in a concentrated area than anywhere else in the US.
    So if Amazon decides they’re going to relocate their operations to Kentucky, that should have some effect on housing prices. It’s unlikely, but Amazon has yet to report a quarterly profit, If I’m not mistaken. When Boeing lost the SST contract here around 1969, it had a huge and long lasting effect on local housing prices. In the years since then, we’ve been assured that it can’t happen again, because we’re so much more economically diversified. But with Amazon turning into a 1000 pound gorilla, and local politicians happily embracing that….at some point it’ll burst. Probably not within the next couple of years, and probably not as drastically, but….

  11. 11

    I’m seeing lots of hand-written signs using a Sharpie marker on cheap cardboard, with this:
    CALL US! 1-800-xxx-xxxx
    Not a sign of a bubble apocalypse but definitely something I saw during the 2000s run-up.

  12. 12
    Erik says:

    That break you took seemed to have cleared your head. This analysis makes sense this time. Good work.

    But corndogs is right, we are lower inventory now than before. The difference is substantial and deserves to be noted.

  13. 13
    The Tim says:

    By Kary L. Krismer @ :

    Inventory wasn’t low in 2006 and 2007. In fact many were claiming that the high levels of inventory would lead to future price reductions (too much supply).

    By Corndogs @ :

    Wrongo Chongo on inventory being the same ‘The Tim’. Inventory this low for this long has never happened…

    Kary, most of the bubble inflated 2004-2006. By 2007 the steam was starting to run out, hence the inventory increases. Most of 2006 was still low, though:

    It’s true that inventory is lower this time than it was last time, but last time inventory was still low relative to a more normal market.

    By Corndogs @ :

    Demand is strong. When the investors start selling and the inventory starts creeping up you’ll be able to start talking bubble 2 but it isn’t going to happen.

    Yes, demand is currently strong. It was also strong in 2005, while the bubble was inflating. Note that I’m not saying that we’re going to see another crash or that a collapse is just around the corner. I’m just saying that the market has shifted into something resembling a housing bubble, but very different from the last one.

  14. 14
    Erik says:

    RE: Corndogs @
    On a side note, I am working as a contractor for boeing like you do. The reason I took the job was cause I don’t want to move. I would have taken a lower paying job somewhere else just not to move. Only way I’d move is if it was somewhere nicer, I could rent my house out, and get paid per diem.

  15. 15

    By The Tim @ :

    Kary, most of the bubble inflated 2004-2006. By 2007 the steam was starting to run out, hence the inventory increases. Most of 2006 was still low, though:

    You must be reading that chart differently than me. The peak of the market was July 2007. The inventory was high in parts of 2006 and 2007, and sales were pretty decent too. Yes inventories went higher in 2008, but over 10,000 active listings in 2007 was a lot of inventory. Back then I attributed the high inventory to the fact that high prices bring more supply, in part because I ran into people who were selling only because the prices were so high. Some of those people picked rather outrageous prices, and that also increased the inventory since the listing just sat without selling.

  16. 16

    RE: David B. @

    Statistics Please

    The Seattle Times article I shared is better than just an unsubstantiated opinion on King County Flight.

    Again, even in a harsh rent area like King County, there will be upper tier homes fetching excessive prices. I’m not arguing that. I’m just pointing out the limited weak trends you emphasize with historically low inventory aren’t mainstream or middle income generated at all. IMO, this can’t last because of this fact.

  17. 17

    One more thing about 2006 and 2007 that affects both that period’s volume and inventory levels. After about 20 years of local real estate always going up, by that point in time there were a lot of people who thought that they could repeatedly buy property, hold it for 2-3 years, sell the property and buy something better. They were basically planning on leveraging their way up to a higher end home, and they needed the appreciation in the old home to finance the new home.

    After the peak that type of thinking though left a lot of people in homes that they didn’t really like that much. Homes they thought they could live with for two to three years. That probably contributed a lot to the 2008 and 2009 inventory.

  18. 18
    David B. says:

    RE: Ardell DellaLoggia @ – “The things that are 100% yours are your responsibility to fix.”

    If it’s 100% yours (i.e. it’s not a shared element), it’s your responsibility to fix. For example, if the bathroom sink starts leaking, that’s not a common element, it’s an interior fitting. The HOA won’t fix it for you. Yes, there’s less such expenses for a condo than for a detached SFH, but such expenses still exist — and should be budgeted for in any cost estimate of condo ownership.

  19. 19
    David B. says:

    RE: softwarengineer @ – The very article you cited mentioned that King County’s population is growing, and there’s statistics aplenty to be found on this very site that housing costs in King County are going up and inventory is limited.

    Some people are leaving King County, true. That hardly makes it an “exodus”. It’s not Detroit or Cleveland.

  20. 20
    Deerhawke says:

    If we want to play what’s the same and what’s different, here are my candidates.

    What’s the same.

    It sure feels like a bubble. When you see fairly priced properties get bid up by $200K or more, it is hard not to feel this way. (Example https://www.redfin.com/WA/Seattle/2332-N-62nd-St-98103/home/304138) The pace of price increases sure doesn’t seem measured and sustainable.

    We are hearing the meme again. People quote the number of construction cranes in the city and say that the reason for the rapid price increases in real estate is that we are becoming “the next San Francisco” or “the next Silicon Valley”. It is certainly true, but hearing it over and over again as though it really explains anything is darned annoying.

    What’s different.

    There is an old saying that when your barber or taxi driver starts giving you stock tips, you should cash out your portfolio. Unlike in 2006, these days I don’t get sheetrock installers telling me about their flips and rental units. They can’t get access to the phony financing that was available then.

    The city is busier, growing more quickly and traffic is way worse. If you weren’t trying to get anywhere on the day of the fish truck disaster, you should count your lucky stars. It is a sign of things to come. We have finally met the combined limits the Growth Management Act and our underplanned transportation system. That is why (unlike 2006) there is a greater divide in prices now between the close-in neighborhoods and all the rest.

    I am going to side with those who say that supply really is much tighter than in 2006. At a certain point, a quantitative difference becomes a qualitative difference.

  21. 21
    David B. says:

    RE: Deerhawke @ – Regarding “the next San Francisco”, I think Seattle will simply never reach San Francisco’s prices. Reason is most people prefer a drier and sunnier climate than Seattle has. (I actually like the Pacific NW climate better than coastal California’s, but I’m part of a minority on that.) If Seattle’s prices ever did manage to catch up to SF’s, it would just encourage people to move to SF instead, and market forces would then reestablish the traditional price difference.

    Seattle’s price point today is basically the same as when I first moved to this area in 1989: significantly more expensive than most non-coastal cities, yet significantly less expensive than the most expensive coastal cities. I see no reason for that to change.

  22. 22

    RE: David B. @

    True David

    But I was speaking trending for the future, the article snippet:

    “…This doesn’t mean that newcomers aren’t flocking to King County. They are. But the new data shows that the outbound flow increased even more dramatically than the inbound in 2014….”

    If this keeps up King County will decrease in population due to high prices.

    Also the graph in the article is a small percentage of homes in King County. The dismal sales listing is also a small percentage of existing homes too [most aren’t for sale], same with foreclosed, its a small percentage, but when you compare it to the actual dismal listing base, it’s substantial.

    Apples and oranges.

  23. 23
    David B. says:

    RE: softwarengineer @ – “If this keeps up King County will decrease in population due to high prices.”

    That’s a pretty big if. San Francisco has much higher housing costs than King County, and the population hasn’t dropped there. In fact, it’s at an all-time high: http://www.sfgenealogy.com/sf/history/hgpop.htm

  24. 24
    Erik says:

    RE: David B. @
    Global warming will make seattle climate comparable to sf in 20 years. If you want to decrease that time, you could spray an aerosol can at the ozone layer. If will all chipped in with some aerial pollutants, I think we could have Cali weather in 5 years. All those Californians would scammer like rats to seattle and make us very wealthy.

  25. 25
    David B. says:

    RE: Erik @ – For a troll, you sometimes stumble across valid points. Yes, climate change might eventually force many people to leave California, primarily due to water shortages.

  26. 26

    RE: David B. @

    I was asking about the part you cut off…insurance. I agreed with you on the first part. :)

    You said :”Then there’s insurance.”

    I asked: Both a house and a condo will have insurance and most if not all of the condo insurance will be included in the HOA dues. You might have to add a small supplemental policy. But still cheaper than the insurance on a house.

    I thought you were referring to condo when you said “then there’s insurance” but you probably meant the house.

    Important to note to Brian G., though he may have stumbled in and left, that I have been hearing a lot of talk about insurance that covers special assessments. Depending on the condo, that might be worth looking into.

  27. 27
    Blurtman says:

    RE: Erik @ – But be aware when buying ocean front property, lest you be underwater. And additional upside: Yakima Valley becomes the new Napa, climate wise.

  28. 28
    Rental Watch says:

    Excess housing inventory, grossly inflated but falling prices, fraud in every transaction.

    Housing prices have a very long way to fall.

  29. 29

    RE: Rental Watch @ RE: Rental Watch @

    Yes Rental Watch

    My SE King County Home Assessment fell 10%, my property taxes fell about 25% YOY for 2015. Sounds to me like our “booming” economy is saying no to at the voting polls to any and all property tax increases lately. We all must be rolling in dough?

    As the rich elite take over Seattle, don’t expect their numbers to include support for special property tax measures for schools, they mostly have no children. They’re greedy [how do you think they got so rich] and most don’t depend on Social Security either, so Democrat or Republican rich elite; they’re for completely draining our Social Security dry too.

  30. 30

    RE: Brian G @

    Be Very Careful Before You Sign Any HOA Fees With a Condo

    I’m hearing like $600/mo alone in Renton too….downtown Seattle can easily be 3 times or more than with “lucky devil” parking for a car and a weight room….then you pay your mortgage, maintenance and insurance. I did see a rare single QFC in the downtown Seattle area, albeit walk there….the parking is a complete joke. There’s plenty of Subways in downtown Seattle, their chicken may even not include vein hardening preservatives, like nitrite and nitrate. The rest of their meat is suspect though. Bon appetite.

  31. 31
    Erik says:

    RE: David B. @
    Yes, I may be a troll, but that doesn’t mean I don’t have valid points from time to time.

    If I don’t troll, these commenters have the same boring conversations and make the same computer jokes day after day. I rattle some life into these people so they defend their reasoning and I can read their logic and actually learn. The programmers all think the same and make similar comments, agents like to talk sale specifics, and lawyers talk legal issues. I’m getting them out of their specific zone they are in so I can actually learn something.

    Did you ever watch Bevis and butthead on mtv? Tim is Bevis and the rest of the programmers are butthead. Tim says inventory is low and wreckingbull et al say yah… Inventory low hm hm hm.

  32. 32
    David Madrona says:

    The economy nationwide may be mediocre, but Seattle is on fire. Amazon is building new towers like crazy. Have you ever tried to get on I-5 at 5pm from South Lake Union or downtown, its impossible. Worse than getting on the lower deck of the Bay Bridge in San Francisco. Im sure many of these commuters would like a nice home in central Seattle. So theres certainly lots of demand for housing in Seattle area near job centers.

  33. 33

    RE: David Madrona @
    Yes David

    When gas hit $1.99/gal earlier this year I noticed an uptick to traffic [perhaps an extra $30-40 in the purse for burgers and beer]?

    Then, a month later its near $3/gal again and I recently drove through the downtown I-5 Convention Ctr mess at 55-60 MPH on a Saturday night at 730PM….the traffic was almost “non-existent”.

    I see gas going down again, they have no where to store it.

  34. 34

    RE: David Madrona @

    Yes David

    Even our stagnant 1.9M Total Labor base the last 8 years in the tiny strip of land called Bellevue/Seattle/Everett clogs the inadequate 1970 freeway system at rush hour. When I’m retired this year, I’ll do all my boogie night weekends with no traffic competition and weekdays travel not at 6-9AM and 3-6PM….retirees rule in Seattle….LOL

    No wonder so many of Seattle residents don’t work….I’m joining them ;-)

  35. 35
    Dave says:

    There’s a lot of things over the next few years that could fuel a bubble. Higher interest rates, low wage growth, lack of infrastructure investment, and perhaps the biggest is probably Baby Boomers. The majority of Boomers are ill prepared for retirement. Many of them will have to sell or tap their home equity to make ends meet. Millennials already saddled with record debt, are mostly cautious on big purchases and lavish spending thus far, but that could change. I believe if you have a house to sell 2015 is the year… that last several end of term Presidential election years have been beyond awful for all investments.

    2016 – ??????
    2008- beginning of the great recession – Wall Street bailout, $5 trillion+ in Fed Quant Easing to prop up banks – Obama elected
    2000 – tech bubble, asian financial crises, recession – GW Bush elected
    1992 – housing bust, japan recession – Bill Clinton Elected
    1987 – historic market crash… S&L bailout crisis – GHWB elected
    1980 – inflation, high unemployment, high interest rates, decade worth of stagflation – Reagan elected…

  36. 36
    Roger Ingalls says:

    I enjoyed getting reacquainted with your site. Love the data driven opinionating. Do you ever run stats that exclude new housing/new condo purchases? That allows a cleaner picture in some ways. Thanks!

  37. 37
    Jerm says:

    One thing that may be different this time around, is that prices in smaller cities and suburbs have not run up like they have in large US cities. So this time around, there is somewhere to run to for cheaper living, and with both rents and prices high, more incentive to run. In 2006 the bubble was more widespread.

    There is also the Millenial wildcard, with lots of biological clocks ticking louder every day. Drop the NK from DINK and suddenly a whole lot of math changes. Surely there are many well paid people in Seattle that will make that math work, but IMO there are also many in this age group stretching to make it work without kids. When the cost of daycare and another bedroom or two hits home, those suburbs start to look a lot more attractive.

  38. 38
    Jeff says:

    How about some comments on what is going on in the Bellevue market specifically west of 405 between I90 and 520.
    The prices are going up 30% a year…..

  39. 39
    Web Peirce says:

    I have read this blog for 10 years now. Love it. I am a small time SFH landlord/developer in North Seattle, and now own a 4-lot parcel/rental in Burien. I am short-platting the back 3 lots there under the 3rd runway flight-path as I suspect it may be the center of the blue-collar universe soon enough with all closer neighborhoods going chic in 5-10 years. I like the neighborliness in Burien; I have 5 pieces of heavy equipment within 2 doors and helpful neighbors that like to help out with the earthwork.

    Thanks for hosting this conversation. It contributes to my thinking greatly without the normal level of editing/de-spinning that is needed for most info on the matter. I’ll comment if I see a need, but you guys have it covered from my perspective.

    My personal interest is price tolerance trends in low-end Seattle-area new construction (350-450K) and home rentals. If you need to crowd-source data sources or crunch numbers, I can lend a hand. Just put out the word and I’m sure we can help you out Tim!

  40. 40
    Michael Debejos says:

    Bubbles are defined by rising prices driven by underlying forces that are not sustainable.

    Well, one thing we know that’s not sustainable for the long term is near zero interest rates. So which is it — either zero interest rates have not been a major driver of higher housing prices? Or zero rates will continue forever?

    Because if neither is true, I don’t see how you can escape the conclusion that when rates rise, prices house will tank.

  41. 41
    PS says:

    RE: Kary L. Krismer @ 2
    There are lot of cash buyer… this weekend i was shocked. people just putting cash check on table ask price + 70,/100K…. I ran out from few Open House. it cash buyer market

    currently its a big bubble.

  42. 42

    RE: PS @ 41 – I wasn’t saying there weren’t a good number–only that I didn’t know whether there are more now than before. Back in 2006-2007 it wasn’t that easy to track that sort of thing because the volumes were too high for me to do it.

  43. 43

    RE: PS @ 41

    People writing a check for $100,000 over asking at an Open House? I did hear someone say that at an Open House to scare people away, and they did not do what they said at that Open House.

    Be careful that is not a ploy and strategy to try to create a better playing field with fewer offers. No one writes a check at an Open House for $100,000 over asking. And if they do, it’s not binding without a contract.

    I absolutely see people doing things at Open Houses to scare buyers away for their own good reason. That is why I do fewer of them and almost never in the first week on market if I expect it to sell in a week’s time.

    If they can somehow be the only offer by being bold and blustery at an Open House, even if they were willing to pay $100,000 over asking, do you think they would do that if they end up being the only offer?

    I see people coming to Open House and loudly bad-mouthing the house for the same reason. To try to disuade other potential buyers at the Open House.

    Looks like he succeeded in your case. Give me the address. Let’s see if it sold for $100,000 over asking all cash.

  44. 44

    RE: Ardell DellaLoggia @ 43 – Hopefully they made the check out to the agent! ;-)

  45. 45
    Bubble Burst says:

    This is definitely the best chance in US history to make a lot money by selling your house ! Don’t waste this once in a blue moon chance.
    Currently the buyers from China and CA. are super crazy, they are still kinda thinking the housing price in Seattle is very low compared with in China and CA and has much investment value. So however junk your house is nowadays, you seller can easily get 5-10 offers coming in to bit each other, so it’s not hard at all to ask more 100k than your house is fairly worth. The local buyers are scared by the low inventory and these competitive cash buyers from China and CA., they become desperate about the house market, they fear that they’ll have to pay extra 50k-100k usd to buy the house if they don’t do that right now, so they can’t wait any more.
    This is the reality of Seattle housing market right now.

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