Fusion | Bubble Trouble? Or Inflate Gate?
Bubble Trouble? Or Inflate Gate?

Bubble Trouble? Or Inflate Gate? January 15, 2016 | By Al Doyle

General Posts industry trends, real estate

Those of us in the New Home industry who survived (or didn’t) the housing crash of 2007 remain a bit testy on the subject of “housing bubbles”. A “bubble” is an over inflated market characterized by the specter of an imminent burst. In fact, if there is not impending burst, there can be no bubble.

What has some people on edge in the Seattle market these days is the “hot” residential market. Both for-sale and for-rent markets are doing very well and some people think, “What goes up, must come down”. Another factor blowing up the bubble theory is that some nervous Nellies in the media are fanning those flames—i.e. The Seattle Times’ Jon Talton, December 1, 2015, “Are We Headed for a Housing Bubble?”, and Zillow on December 9 declaring in a “The “Sky is Falling” tone: “Experts Think the Housing Bubble is Back”.

Headlines and articles like this are titillating, but pretty useless. Let’s look at the underlying factors of the Seattle market that might explain rising house prices. First of all, our local economy is strong, and the pricing of homes is driven by market-based competition resulting from job growth. More people are moving into Seattle for high-paying jobs. The people want a decent place to live. For a long time, Seattle homes were undervalued, due to the effects of the 2007 bust. Seattle has regained most of the post-2007 losses, and as housing prices go, we may be far more expensive than Waco, Texas, but we are still almost a third below San Francisco and other markets with high-tech workforces.

Second, the lenders are acting quite sane. In the early 2000s, lenders ran amuck with sloppy, sometimes crooked, and, nearly always, too lax lending requirements. They were getting away with it by bundling good loans with bad loans and selling them off to suckers: investors like you, me, and the neighborhood banks. People who have no business buying homes were getting huge loans and driving prices up artificially. Yeah, that really sucked!

Third, the Feds seem to be keeping a better eye on the economy and seem to want sincerely to keep us all out of another mess. The recent tiny hike in the Fed rate ticked up home loan rates. (They made their move on the day we applied for our mortgage, thank you Fed!). As home loan interest rates slowly tick up, home prices stay steadier.

Fourth, is the factor of supply and demand. There is not enough supply in new homes or resale homes in the Northwest to fuel a huge and widespread pricing boom. The diminished inventory will also shield against a rapid drop.

But, with all due respect to these market factors, let’s keep a close eye on housing. Over the years, the housing market in the Northwest has proven that almost anything can happen, and when it happens, it happens quickly.