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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

May 19, 2014 at 10:40 AM

Blowing a Seattle bubble?

After the Seattle Arts & Lectures event with former Treasury Secretary Timothy Geithner on Friday night, people talking to me at the edge of the stage were less interested in Too Big To Fail banks and the too-cozy Washington-Wall Street connection than the potential for a real estate bubble and crash in Seattle.

There’s no question we’re in a remarkable boom. Coming back from the University District a couple of weeks ago, I counted a dozen construction cranes on the north end of downtown extending into South Lake Union. That was just one trip, one angle of the city.

Here’s one rough measure: Seattle-Tacoma-Bellevue posted 19,517 residential building permits in 2013, according to the Census Bureau. That’s well below the 25,743 in 2006, before the recession. But it compares very well against similarly sized metros now. And this is in a climate without subprime loans or the other drivers of the national real-estate bubble and crash, a collapse of historic proportions.

Now, all-cash offers are common on houses and at least some of the money seems to be coming from buyers in Asia. The market is distorted because many owners are afraid to list their city properties because they fear not being able to afford another house in Seattle.

And this doesn’t include all the action in office construction.

I haven’t seen this question taken up by the always interesting Seattle Bubble blog, which has a wide lens on real estate, too. So here’s my best guess:

We’re not in anything approaching the kind of bubble seen in the 2000s, which was driven by macro factors as such events usually are. There is probably overbuilding in apartments, but such effervescences usually correct themselves after a few years. Which is not to say some individual developers won’t take a bath. The old joke, “How did I make a million dollars in real estate? I started out with ten million,” is grounded in painful experience.

Seattle, especially, is benefiting from the “back to the city” movement by younger people, empty-nest boomers and the creative class in general. It continues to have a diverse economy, including a vibrant start-up climate. The biggest fundamental driving construction is, and thus the biggest vulnerability. If investors stop believing in Jeff Bezos’ magic in a big way, trouble could come our way.

Nationally, the phenomenon of private equity and other playerz buying up tract houses, renting them out and turning the income into securities to resell to dupes clients is sure to come to grief, as well as risking turning many areas into tract-house slums. But the business model is just that, based on buying large numbers of distressed cookie-cutter houses, especially in places such as Vegas, Phoenix and California’s “Inland Empire.” Some of it is happening here, but Seattle’s unique city housing stock doesn’t lend itself to much of this.

Whatever happens, I’ve never seen a prolonged real-estate collapse in a major West Coast city or metro area. It is an inviting place to live and people are willing to pay for the privilege. Even the 1906 earthquake barely broke San Francisco’s stride. The sustained inflation of prices is even more pronounced in Vancouver, B.C.

So the market has its distortions and many people are being priced out, but it’s not a bubble…yet.

Watch Amazon’s stock price.

What do you think? The comments section awaits.

Today’s Econ Haiku:

AT&T wants

A Direct monopoly

Oh, just a cartel






Comments | More in | Topics: Real estate


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