ECONOMIC PULSE
An update on the local and national economy
Posted August 2007
Housing: a high-wire act
The Puget Sound region’s housing market is going strong and continues to defy the problems of the nation’s housing market. And that’s good news for the local economy.
“The local housing market is still performing its high-wire act,” said Douglas Pedersen, a principal in the respected local firm of Conway Pedersen Economics Inc. He noted that people are pouring into the region in search of jobs, and that “the strength of the market, especially in terms of home prices” is “mind-blowing.” There were 33,700 annualized housing permits issued in May, which “represented the fourth-highest monthly total since the end of 2000.”
How many jobs? People? Households? Employment is forecast to increase by 50,600 additional nonfarm payroll jobs in 2007. Net migration is estimated at 44,400, which added to natural increase yields 65,900 more people. More jobs plus more people means 28,600 more households. Natural increase is more births than deaths.
A few stats from Conway Pedersen will put the U.S. versus Puget Sound home markets into perspective. In May, national home sales were down more than 11 percent year over year and home prices were down almost 2 percent. Compare that with the Puget Sound region where sales were down less than 6 percent and prices were up more than 13 percent. The Puget Sound region is King, Kitsap, Pierce and Snohomish counties.
“We’re probably already seeing some of the effects in home sales from the national mortgage credit crunch,” noted Pedersen. “The region’s economic fundamentals (employment and income growth, unemployment rate, etc.) are stronger than the national economy, which should help us weather the storm.”
The national mortgage crunch is worth discussing, even in a hot market like Seattle’s.
Glenn Crellin, director of the Washington Center for Real Estate Research, noted that in the state of Washington, and more pronounced in the Puget Sound region, there are fewer home sales than a year ago and the inventory for sale is “at record levels. That said, there remains a relative balance between listings and sales as of June, meaning that significant price discounting and falling prices are not expected to be widespread in the next few months. The Seattle area is not immune” to the normal rise and fall of housing prices but it is insulated by job growth which is “significantly outpacing the nation.” Crellin said that in the months ahead he expects home sales to soften and a modest increase in listings. “Access to credit will be a continuing problem where only well qualified buyers will be able to secure financing in the short run.”
The median price of single family homes is over $400,000 in Seattle, which leads to some concern about the interest rate of jumbo loans (loans greater than $417,000). Locally, loan rates for both conventional 30-year fixed loan rate and jumbo loans were the same August 13 as they were on August 1.
Access to credit nationally may "put the brakes on house price appreciation in our market, which is not necessarily a bad thing because we've seen such rapid buildup of house values that the spread between house values and incomes has become disproportionate,” according to Matthew Gardner, principal in Gardner Johnson LLC. “I am not expecting any form of price decline, but am expecting a flattening in appreciation through the remainder of this year. We're taking a well-deserved breather."
There is a bright spot in housing affordability. In the first quarter of 2007, incomes averaged an increase of 8.1 percent while home prices went up 8.4 percent and mortgage rates dropped slightly. The three factors together mean a 0.8 percent annual increase in the housing affordability index – i.e. slightly more people can qualify for home loans, according to Conway Pedersen.
Speaking of affordability, the flip side deals with sellers of homes. An owner who bought several years ago and saw double-digit increases in property value will still realize much more than he paid for the home, even in the unlikely event that prices decline a bit, according to Crellin. Declines are not expected here, but increases in price are expected to be in single digits, not double digits.
So why is our housing market in so much better shape than most of the rest of the nation? It all starts with jobs, which are being created here. More jobs mean more job seekers moving here from other states and nations. They need places to live. So we build more housing. All of which means more people needing groceries, doctors, restaurants, furniture stores, haircuts, schools, roads, etc. The wealth gets spread around, multiplying its effect on the economy. When people move, they often break their established shopping patterns and are open to new stores and services. It’s up to the retailer to capture this new business!
Base: Puget Sound area is King, Kitsap, Pierce and Snohomish counties.
Sources: Copyright Conway Pedersen Economics, Inc., Seattle, WA http://www.economicforecaster.com June 2007; email interview with Glenn Crellin; phone interview with Matthew Gardner, NABE, principal in Gardner Johnson LLC Gardner Johnson is a real estate, land use and economic advisory company.
A steady volume of home sales is predicted for the Puget Sound region through 2008
Base: King, Kitsap, Pierce and Snohomish counties. Date is shown by year and quarter.
Source: Copyright Conway Pedersen Economics, Inc., Seattle, WA http://www.economicforecaster.com June 2007
SEATTLE AREA ECONOMIC TRENDS
| U.S. ECONOMIC INDICATORS | Q3-07* | Q2-07* | Q3-06 | |
| U.S. GDP (billions) | $11,719 | $11,640 | $11,444 | |
| Annual Growth % Change | 2.7% | 2.8% | 1.9% | |
| Inflation (CPI) U.S. | 2.065 | 2.053 | 2.032 | |
| PUGET SOUND ECONOMIC INDICATORS | Q3-07* | Q2-07* | Q3-06 | |
| Inflation (CPI) (Seattle-Bellevue-Everett) | 2.148 | 2.134 | 2.096 | |
| EMPLOYMENT | 1,830,500 | 1,817,300 | 1,778,500 | |
| - Government | 282,700 | 281,600 | 280,800 | |
| - Wholesale & Retail Trade | 277,300 | 275,700 | 271,000 | |
| - Professional & Business Services | 247,000 | 244,600 | 236,500 | |
| - Information ( incl. Software Publishers) | 89,400 | 88,500 | 84,600 | |
| - Aerospace | 77,600 | 76,300 | 71,900 | |
| Unemployment Rate (Seattle-Tacoma-Bellevue) | 4.7% | 4.7% | 4.5% | |
 Housing Permits |
26,400 | 27,500 | 27,500 | |
| Home & Condo Sales | 77,600 | 73,700 | 73,600 | |
| Average Home Price | $430,100 | $426,000 | $399,300 | |
| U.S. 30-Year Mortgage Rates | 6.3% | 6.3% | 6.6% | |
 RETAIL SALES ($ billions) |
Q3-07* | Q2-07* | Q3-06 | |
| Total Taxable Retail Sales | $74.787 | $73.743 | $70.629 | |
| Goods | ||||
| - Motor Vehicles & Parts | $13.940 | $13.694 | $13.258 | |
| - General Merchandise | $7.579 | $7.444 | $7.080 | |
| - Food & Beverage | $7.499 | $7.410 | $7.167 | |
| - Gasoline Stations | $5.583 | $5.480 | $5.128 | |
| - Building Materials & Garden Supplies | $4.886 | $5.007 | $4.688 | |
| - Furniture & Electronics | $3.507 | $3.465 | $3.284 | |
| - Clothing & Accessories | $3.053 | $3.008 | $2.868 | |
| Services: | ||||
| - Food Services & Drinking Establishments | $5.729 | $5.637 | $5.379 | |
| Note date change | May-07 | Apr-07 | May-06 | |
 Airport Passengers (Sea-Tac) |
2,659,890 | 2,460,985 | 2,580,885 | |
Base: King, Kitsap, Pierce and Snohomish counties. Sources and Data Notes: Unless otherwise noted, source is Copyright Conway Pedersen Economics, Inc., Seattle, WA http://www.economicforecaster.com June 2007
* Projected
Housing permits are for residential, privately owned units. Retail Sales - only major categories listed. Sea-Tac International Airport Traffic and Operations Summary