In recent articles for Crush The Street, I’ve explored rising real-estate prices, and their sustainability. Typically, the commonplace and somewhat predictable boom-bust cycle determines that excessive exuberance towards any financially-related sector results in a correction. The higher the lift, the further down the market will correct.
That’s the typical reasoning that observers – and participants – of the Seattle housing market employ. The northwestern metropolis enjoys unprecedented demand. According to a CNBC report, the entire state of Washington has the hottest real-estate market in the U.S. And right now, no signs exist that the stupendous trend will end. Scott Cohn of CNBC writes:
Seattle-area real estate agent Jerry Martin said he first entered the business in 1977, which means he remembers the days of double-digit mortgage rates and multiple booms and busts. That includes the bubble in 2006 and 2007 and the historic collapse that followed. None of that, he said, quite compares to the “craziness” that has been going on lately.
“It would not be unreasonable for a three-bedroom, one-and-three-quarter bath, 1,500-square-foot home to go on the market and within the hour or two you’re looking at multiple offers,” he told CNBC. “We’ve had situations where 20, 30 offers were coming in on a piece of property.”
I should backtrack one bit. One sign does exist, and it’s a significant warning: real-estate prices continue to skyrocket, sending prospective residents further and further away from the city center. For the Seattle housing market, it appears like it’s 2005 all over again.
While anecdotal, I distinctly remember a conversation I had with my friend, discussing our local real-estate market. He lamented the surreal nature of people buying up homes despite not having a sustainable income. Of course, we know what happened at the conclusion of that boom-bust cycle.
So the Seattle housing market should be avoided at all costs, correct? Nothing to do here except wait for the inevitable, and to later scoop up prime homes at basement-level real-estate prices?
Not so fast. Director of the Washington Center for Real Estate Research at the University of Washington James Young states that it’s premature to call a bubble. Young had this to say:
“A bubble happens when you have the prices going up without the demand going up,” he said. “You’ve still got demand going up in Washington, so I don’t see a huge issue here.”
And he’s right about the demand. While real-estate prices are mooning as the kids like to say, the Seattle housing market specifically benefits from massive job creation. And not Taco Bell jobs, mind you, but real, living-wage technical jobs. We’re talking stalwarts like Amazon, Microsoft, and Boeing – companies that are bellwethers of the American economy.
So is the Seattle housing market then exempt from the pernicious boom-bust cycle of real-estate prices? Ultimately, I have to say no. While demand certainly does exist, job creation depends obviously on the economy. And to have a strong economy requires geopolitical stability considering our globally-connected business ecosystem.
If for whatever reason the employment market softens, that can send the Seattle housing market crashing in a hurry. Those prices are only sustainable right now because of the jobs. But that’s a tenuous situation. The current presidential administration isn’t known to handle difficult affairs diplomatically.