The last time we saw price increases like this, it was followed by the real-estate crash. But there are important differences between now and then.
Stein’s “Law,” named after economist Herb Stein who coined it, posits that “If something cannot go on forever, it will stop.”
Which brings us to housing prices in the Seattle metropolitan area. As my colleague Mike Rosenberg
reported, prices shot up 13.3 percent in May vs. the same month a year ago. It was far beyond the 5.6 percent of the
Case-Shiller home price index for 20 large metro areas, and continued Seattle’s No. 1 ranking for the ninth straight month. Not only that, it happened despite less interest here by foreign investors.
Major differences apply. In 2006, the bubble was nationwide and goosed by a pliant
Federal Reserve, by Wall Street’s appetite for risky mortgages that could be securitized and resold into a dangerous, deregulated financial system, and by the liar-loan excess of subprime mortgages. Rising house prices not only became disconnected from the economy, in many places they
were the economy.
Not so in Seattle. As a result, we were hurt far less (with the exception of losing big national mortgage-lender
Washington Mutual) than many other metro areas. By contrast, prices in Phoenix, an epicenter of housing speculation and collapse, are still well below their pre-crash highs.
This cycle, Seattle has benefited from its diverse economy, but especially from a large and growing tech sector. Tech-heavy metros have been the ones that have defied the slow growth that otherwise characterized the comeback from the recession. Population and jobs keep growing. Demand for well-paid tech workers is very high here (see
this and
this). And, significantly, Seattle is cheaper than the Bay Area while offering amenities that attract top talent.
Nationally, subprime has largely been extinguished and Wall Street has gone on to other rackets lines of business. Employee counts in construction are about where they stood in 2000.
Stein’s law will kick in at some point. Prices may even fall modestly. Then they will keep rising again. This has been the cycle of top West Coast markets for decades.
But… some comfort for those of you seeking Old Testament justice. There are risks to the outlook, even beyond earthquakes or an awakening of our pet volcano. Almost anything not-normal seems possible in the new administration, from seeking revenge against what the president calls “the
Amazon Washington Post” to a serious recession caused by reckless re-deregulation, to a war on the Korean peninsula. The trouble, of course, is that many of the most vulnerable will be most hurt.
In the meantime,
I’ll stick with Stein.
Direct Link:
http://www.seattletimes.com/business/economy/are-seattle-housing-prices-headed-for-a-crash/
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