There's Something Going On With Home Prices, Especially in Seattle

by Robert Carbery

There’s no real estate bubble, what’re you talking about? At least that’s what Zillow’s Chief Economist Dr. Svenja Gudell told Curbed Seattle recently about the national housing market.
“We aren’t in a bubble, and won’t be entering one anytime soon,” Gudell wrote over email. “There are big differences between the market then and the market now: Then, loose credit, speculation and overbuilding were ingredients in a recipe for disaster.” Sure, there are some structural differences between the last peak and today, but there are still many concerns that we should be aware of. Here in Seattle, home prices are rising at astronomically rapid rates, faster than at any time since 2006 right before the bubble burst and the crash hit hard. And prices are quickly rising in many other metros from coast to coast.
Zillow data shows Seattle metro home values rising above the last peak in 2007. Yet, buyer demand remains at elevated levels. “Now, healthy homebuyer demand is being driven largely by a stable economy and demographic tailwinds, which is exactly what we would expect in a healthy market,” explained Gudell. “Supply has been slow to catch up to this demand, which is causing home values to grow at a faster clip than we might otherwise expect. Beyond that, the market’s fundamentals look largely healthy.” Healthy is a not the term I would use to describe the current market but I don’t work in residential real estate research.
There’s something very peculiar going on in Seattle, full of money from deep-pocketed overseas investors and high-earning tech workers. Combine that with a lack of new construction and you have a perfect storm for exponential price increases as we’ve seen.
Seattle area home prices have risen faster than anywhere else in the nation and this has been the case for the last ten months. Typical single family homes are costing 13.4% more than they did a year ago, according to the latest Case-Shiller home price index, released on Tuesday. Only Portland was in the neighborhood with 8.2% growth in home values. All segments of Seattle’s housing market have been affected, from starter homes in far flung areas to luxury mansions in the most desirable locations, there are no cheap options anymore. On average across the country, home costs increased only 5.8%.
The typical home in Seattle now costs nearly $750,000, while it’s $860,000 on the Eastside, which includes Bellevue, where Amazon just opened its first regional office outside of Seattle, Kirkland, where Google occupies almost 400,000 SF of office space, and Redmond, where Microsoft has its 500 acre campus and occupies over 13 million SF of commercial space.  
Fastest-rising home prices compared with a year ago behind Seattle and Portland? Number three is Dallas +7.7%, fourth is Detroit at +7.6%, tied with Denver.
Furthermore, housing prices are rising much faster than average hourly wages. According to the latest BLS data, wages for all US workers rose 2.5%, way below the Fed’s target of 3.5-4.5%. Economists still cannot explain how at this low level of “unemployment,” the wages are not being boosted significantly enough. The Fed’s commitment to spiking inflation by printing money that is brought into existence by creating debt is impossible and made even more so with such tepid wage growth.
And yet, US housing remains on a tear in major metros nationwide. According to the latest Case Shiller data, every single US metro saw home prices grow at a higher rate, while 16 of 20 major cities experienced price growth of 5% or higher, which is double the average wage growth. This discrepancy is making it even more difficult for first-time homebuyers to get into the market by putting down that down payment which is becoming increasingly unaffordable at these rates of growth.
There’s certainly something strange going on in Seattle, the hipster capital of the world, where no one but the richest can afford to buy a home.
When will that bubble burst? I won’t be around to find out as I am moving out of socialist Seattle and back down the coast to California this weekend where I might be able to afford a house someday.
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