The rest of the country is seeing the bubble deflate in very real terms. All across the country, the weird mortgages that people got in irrational exuberance are now producing record percentages of defaults.
Here it Seattle, it is a little bit different. The pyramid scheme hasn’t collapsed, but it is definitely slowing down. Tear-downs on steep grades aren’t selling in bidding wars the first week they go on the market any more. The good stuff is selling, but even good stuff at high prices isn’t moving. The market is slowing, but not everyone has realized that the party is over yet.
Meanwhile, the developers push on, and thousands of ugly condos and horrific townhouses are sprouting up. In the $300K to $500K range, middle class families still fight with real estate investors over houses. The investors will buy some new appliances, repaint the interior and have the house back on the market in six months for 50% over what they paid for it.
The bubble-burst hasn’t happened, but the writing is on the wall. The market can’t sustain the growth of the last 10 years. Expecting first time buyers to buy condos or town homes instead of single-family homes only makes sense when the condos and town homes are affordable, but the new condos and town homes within easy commuting distance of the city are still priced 10-15 times higher than the median income.
There is only one possible outcome to this craziness.
If we are lucky, the prices will stabilize into a much lower growth. This will mean that people who poured their life savings into their homes will essentially earn 0% on their investment and will have to figure out how to save for their retirements or kids tuitions some other way.
If we are unlucky, prices will start to slide, banks will start to call in the low down payment loans, and Seattle will be in for serious trouble as the property tax income dries up quickly and people can no longer afford their homes. Especially, with the new difficulty in declaring bankruptcy, this second option becomes quite scary.
I do think we’ll end up somewhere in the middle of those two options, but I’m no economist, I’m just a realist. People are still moving into the area and that will continue to provide a stabilizing factor to home prices (although I would expect to see immigration velocity slow as the cost of living here continues to increase). Hopefully, it will all work out. But then again, there isn’t any way I’m going to see real estate as an investment in the Seattle area for the foreseeable future.
Here are some links that got me thinking (again) about this:
The Nerd’s Eye View on leaving Capitol Hill
The Seattle Times: Houses here cost more than you think This article makes the developer seem noble, like he’s looking out for the little guy. If you’ve ever seen the Townhome, Seattle Style, you know that, in actuality, they are soulless, neighborhood destroying, street-life eliminating little towers of evil. I’m not against town homes, I actually think that they are a decent way to do density if they are zoned well and integrated into the neighborhood (see: Pittsburgh, Philadelphia, Boston, and New York for examples). In Seattle, it is all about the quick buck. Tear down a house on a 4000 square foot lot and throw up four town houses in a 2×2 configuration with a tiny alley between them so that you can almost get a car into the garages that are inexplicably in the center of the lot. Those things are turning the city into a vast, ugly, uniform housing development.
Seattle Weekly: Rich Man, Poor Man A side-effect of the crazy condo market in Seattle is that a lot of apartment owners are converting their buildings into condos to cash out while the money is good. The net effect: less rentals available, and the cost of living rises. So far the flood of new condos into the Seattle market hasn’t collapsed the prices, but they definitely are not going up like they were a year ago. Especially because a lot of the initial buyers of the new units were investors who are now having a hard time turning their units over for a profit. (explaining the previously rising prices)
Seattle Post-Intelligencer: Sound Off on “Bungalows biting dust for Suburban-Style Homes” The original article is ok, but the response to the article is a much better read if you are trying to plumb the minds of the Seattle Zeitgeist. Of course, there are some nut-bag comments thrown in, but a lot of very reasoned expressions of opinion on all sides of the argument.