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Real Estate: Crib Notes by Joe Nabbefeld

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Crib Notes
By Joe Nabbefeld

July 28, 2016

Crib Notes: Will this red-hot market let us down easy?

Special to the Journal

It's still not clear what will cool this smokin' hot housing market and these unsustainable price increases.

Will it be an easing, a plunge, a bursting or what?

We pray for an “easing.” Last December in Crib Notes' annual economic forecast, we reported that local economists' best guess was no significant easing until 2018, the second year for the next U.S. president. In 2018, the country as a whole would go thru a “normal 10-month correction.” That's also called a normal recession (nothing like that last whopper we had).

THAT's an easing.

So now eight months later, has anything changed? And what could crop up nationally, internationally or locally to change that?

One looming national easing-ingredient didn't really happen yet: The Fed started its predicted raising of interest rates late last year but then the Fed eased up. After the Brexit vote rates came back down to near-historic lows.

So we've powered on with these soaring prices — not just to buy, but to rent.

Crib Notes thinks the Fed will do some more quarter-point increases, maybe two a year, until that fateful year of 2018. Wiser prognosticators expect more increases than that, up more than 1 percent 12 months from now. Crib's reasoning is that the national economy, and international economies, are nowhere near as strong as ours in this area. They don't need slowing like the Northwest might.

Crib didn't survey real economists for this piece. Crib is a Realtor, not an economist, and this column gives a view from the Realtor trenches.

The prediction in that December piece was that if one of the two major presidential candidates wins, then the 2018 correction will be “normal.” If the other one somehow wins, our view is the correction will be three times worse, due to lack of experience. And it might start sooner.

That would be an easing, tending toward a plunge.

We've survived that before.

Next comes Amazon. Crib regularly tells you readers that as Amazon goes, so go housing prices here. Amazon is the stems cells of our economy. Boeing, Microsoft, UW, Starbucks, City Hall; they're all very large employers and are important. Okay, not City Hall! But the one that is the growth tip, that is increasing jobs at a phenomenal pace, is Amazon.

Not just jobs at Amazon, but all around Amazon. More lawyers, accountants, truck drivers, restaurant servers, hotel desk staff, police, firefighters.

Crib doesn't know when Amazon will stub it's toe. Or hiccup. Or inhibit those stem cells. But Crib thinks it ain't coming just yet. Is it? Do you know?

It will be front page news once some analyst says Amazon flubbed something, or a quarterly SEC filing says hiring will be flat for the next quarter, or a big layoff will happen.

One friend who's pretty good with these things said it appears Amazon has effectively accomplished it's build-out and is now ready for the transition to cash-cow.

That friend thinks one big question is when does Amazon start hiring people in other places instead of continuing to concentrate on South Lake Union. Do you know when? If Amazon does that, that would be an easing.

We wonder how Amazon would fare if we get that three-times-worse recession in 2018. It's not axiomatic that Amazon would even hiccup. It rolled right thru the Great Recession, seemingly because it was still in the build-up-to-take-over-the-world stages.

But Amazon will cool. Eventually. Count on it.

The next force at play is just natural capitalist economic flow. Nationally and locally we are attempting to grapple with the widening gap between uber-rich and the poor, with a shrinking middle class in between. That's a bubble itself that will burst. It has advanced like a bad cancer into the unhealthy range.

We see it here in these unsustainable housing prices. We closed recently on a sale for a younger couple with two kids who had to look in Renton to find a home to buy. She's a third grade teacher; he's a part-time service worker and stay-at-home dad. They said the other day that every one of their friends have migrated out of Seattle. Same with the older couple of teachers who migrated to Tacoma in search of a home.

Forces like that ebb and flow. They build then push over their banks. People can only commute so far in such mind-bending traffic. Light rail will be painstakingly slow in making that commute more palatable.

Ten and 15 percent annual increases in housing prices can't be, and aren't, matched — as housing prices must be — with income gains.

This doesn't tell us anything about “when” though.

We won't be cranking out new housing to meet the high, un-met demand (which we call “low inventory” of houses and condos to buy). That's just not in this city's and this region's DNA. We'll try. We'll do our painful best, but it won't happen.

If anything we've lately done the opposite by dampening the production of townhomes (see last month's Crib) and veritably stanching the production of micro-studios to rent. Almost no new condos can be built, and there's no sign yet of that changing (unless prices push significantly higher yet). Adding a handful of backyard DADU's would be nice — but have a negligible impact.

Will global warming play a role? It still seems like a slow-moving juggernaut, eventually a total killer (economically and otherwise) but not yet. (Note: Didn't we fix that last year anyway? To listen to the national candidates, you'd have to think so!)

We don't have the crazy no-docs-needed lending, crazy-uncle appraisals and crazy look-the-other-way regulation that blew up the bubble that burst in the Great Recession. That's not a force here. That's why we even dare talk of a possible easing, whenever that comes.

Real estate goes in cycles. Our brand of capitalism goes in cycles. Sometimes vicious cycles. An easing will happen.

Joe Nabbefeld is a Realtor with Windermere Capitol Hill. You can reach him at http://www.RealSolutions.biz. He was the DJC's commercial real estate editor back in the late 1990s and early 2000s.

Joe Nabbefeld is a Realtor with Windermere Capitol Hill. You can reach him at www.RealSolutions.biz. He was the DJC's commercial real estate editor back in the late 1990s and early 2000s.

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