Exuberant Frothiness in Seattle?

Question

This is my first post and before I continue, I'd like to thank the BP community for their extreme awesomeness. I have learned a lot in an incredibly short time - 3 weeks - and I see no end in sight for learning much more. This is possibly the best source of US REI advice on the planet, no question.

So... I was writing what was supposed to be my first post (about the blog Calculated Risk), and in the process I looked into some Seattle statistics. I went to Seattle Bubble, and then to Redfin, and what I saw was very interesting, and a bit surprising to me.

I read Tim Ellis' April post about a fellow who purchased a Fremont townhouse (Silicon Channel?) in May for $745,000. I read through the comments and saw folks talking about multiple escalation clauses, 100k+ bid-ups and the like, and it really made me think this would be a great topic for discussion. There could be many issues at play here, and I am writing a post about it in hopes of getting some diverse opinions. I'm looking at Snohomish County for MF at some point in the future. I am pretty familiar with the area, having tracked it closely from 2005-2009.

Before posting, I did a quick search on Seattle and saw Adrian Chu's response to a post about the Seattle market (great stuff, Adrian!) and I'm hoping some King/Snohomish county folks can chime in with their take on this.

This is the image that made me want to write this post:

Does it look like Seattle has the measles?

Ryland Taniguchi · Answer

Real estate tends to go in 18-year cycles because of the natural credit contraction cycles. That's been true since 1800 except for the 1940s (World War II) and 1973/1979 double dip. Stock markets tend to crash two times between real estate market crashes and a stock market crash has always preceded a real estate crash.

Today reminds me of the real estate market in 1997. We may have a small correction in 1-3 years caused by a stock market crash. If the crash affects the tech sector, this will have the greatest impact on the Seattle market just like 2000.

If you've been around long enough, you've seen seller markets and buyer markets. It is the natural order of supply and demand. Today, it's hard for builders to get horizontal (development) financing on permits and infrastructure on long plats (10+ lots) and this is keeping supply low relative to demand. Most banks simply won't lend on this type of stuff and will lend after permits are completed which can cost $40 k to $80 k per lot for the preliminary plat application process.

Jack B. · Answer

@Adrian Chu

I agree with the Seattle comparison to SFBA. As an IT professional, my salary is higher than all but the Senior Engineers at Google. And for a quarter mil you can still buy a good house within 30 minutes of Seattle. SFBA a million buys you a shack.

Steve B. · Answer

@Karyn T.

Your comparing apples and oranges.  Any loan at the interest rate you referenced isn't a government backstopped Sallie Mae.  The interest rate differential is the carrying risk of a defaultable private loan vs. a low rate non-defaultable, non-bankruptable, loan.  While it's fun to use those figures to make a point it is also misleading.  If people want to take private loans at ridiculous interest rates then both sides bear the relative risk.

Also it serves no purpose to talk in amorphous terms of whats unconscionable, fair, equitable, nice, or covered with sprinkles and rainbows.  Those are subjective terms whose definition varies by the speaker.  If someone takes a loan than their obligation to repay it isn't going to hinge on their specific  tough luck story.  Again the point is there are two proper ways to make student loans reasonable.

1.  private loans at high interest rates that are bankruptable

2. public loans at low interest rates that are not bankruptable

again you seem to be advocating the false notion that you can reasonable get both, a bankruptable, low interest, publicly backstopped loan.  This is a horrible idea.  The inflated cost of education is largely due to too much money in loans chasing worthless degrees for people that shouldn't even be in college in the first place.  Your solution makes this bad situation even worse.

Karyn T. · Answer

@Steve B.

No, I don't think anyone is "aspiring to join the working middle class".  However, with the predatory lending practices of current loans (COMPOUNDING interest at 6.8%-12%+) I think many bright people who would normally pay down their loans quickly and move on with life, are struggling to even make the minimum payments in our stagnant economy.  This combination takes engineers and turns them into janitors, once their credit is ruined by late student loan payments.

Most responsible students, especially those of us with professional or graduate degrees, are not looking to default, as default will generally have very, very negative repercussions on our employability.  That being said, life DOES happen, and to have no way to redemption after life has taken a wrong turn (think divorce, catastrophic accident, cancer, etc) is unconscionable, in my book.

I see that you have an engineering and finance degree....surely you are not making an argument that everyone who graduates with debt is "unqualified" academically, or with an "undesirable" course of study? Curious, which of your degrees did you get first?  Why did you get the second?

Steve B. · Answer

@Karyn T.

Have we really digressed so far in this country where the greatest aspiration of educated Americans is to join the "working middle class?".  I'm fairly certain this view is only shared by the destitute and privileged white people who, due to false politically motivated modesty, have to pretend they are just "common man" and pedestrian, much like Hillary.  If my kids said they set their goals on simple mediocrity, id be pretty embarrassed, especially after an extensive, expensive education.

Also you apparent opinion on student loans seems logically inconsistent to me.  The exact same people who say new-age politically loaded  terms like "predatory lending" are the exact same people advocating the federal backstopping of  loans to everyone regardless of academic qualification,  or the desired course of study.  It seems to me either the government should get out of the loan business for English, History, and basket weaving students and let and the lenders deal with these borrowers at their own risk and face the possibility of actual student default, and bankruptcy protection, or qualify these taxpayer backed, non-defaultable loans by insuring the quality of the academic endeavor (sic STEM).  You seem to be asking for the whole enchilada.  You want tax-payer backstopped loans as a "public good" but then it should be ok to default on them because we all aspire to the absolutely mediocre goal of the  "working middle class," as opposed to insouciance wealth I suppose, because we all know rich people are lazy and didn't earn their money.

Karyn T. · Answer

"If you follow the economist Harry Dent, he'd advise to sell everything and stock up on cash. My inference is he thinks we're on the verge of a MAJOR bubble nationally. That may exceed the last recession in terms of national housing values. And that the millionaire-maker days are just around the corner... if you have cash and credit."

@Thomas Coburn - I agree.  Too many of us are strapped with enormous or unaffordable student debt.  Millions of young people are going to go belly-up, and current law does not allow discharge, will trap them with IRS liens, garnishments, ongoing poor credit, etc, even though they are, technically, the part of the population we are ALL relying on to become the working middle class.  I've watched the vicious circle personally, with people who would NEVER intentionally default on credit....but when stars align, even the most educated or responsible can end up in the poor house with little hope of help or escape, due to current predatory educational loans & the laws dealing with them.

Jeremy Jones · Answer

@Nicholas Jones

check out this thread

Thomas Coburn · Answer

Hi Adrian. Great post.

A few of my thoughts.

* Economy: Knock-on-wood, but Seattle is among the lowest risk of recession anywhere in the country. The influx of tech jobs directly into downtown is staggering. My wife has a wellness center right on the edge of South Lake Union, and there already 10,000+ tech employees into an expected 50,000+ migration over 5 years. We're in year 2 of that process. Combine this with the strong blue collar/trades like Boeing, etc. and it's solid.

* Houses prices: I agree, prices have rebound, even surpassed 2007 in Seattle directly. They're close in surrounding areas.

* However: wages have not been increasing to match housing prices, from my experience. Also, and probably most importantly, the market - everywhere - is STILL highly artificially propped up by interest rates. I simply can't and don't believe interest rates can continue at historic lows given that many foreign investors have been pulling out because of not making a decent return.

* So, in my humble opinion, while I don't think we're in a bubble scenario, we're certainly at the top, and looking down, if not starting. Think about it... even a 1% increase in interest rates reduces the purchasing power significantly. A 2% jump? And prices are really affected.

So... that's what I'm planning on. Great to buy-and-hold, if you find a deal. But I'm trying to find and flip as fast as possible while loans are still cheap!

PS - If you follow the economist Harry Dent, he'd advise to sell everything and stock up on cash. My inference is he thinks we're on the verge of a MAJOR bubble nationally. That may exceed the last recession in terms of national housing values. And that the millionaire-maker days are just around the corner... if you have cash and credit.

Adrian Chu · Answer

Prices in Everett are catching up to pre-bubble values!

​Exuberant Frothiness in Seattle?

Most Popular Reply

Exuberant Frothiness in Seattle?