As usual, only three things matter about real estate: location, location and location.
Those locations are Wall Street, Washington, D.C., and Beijing.
Bear this in mind as we head into what was historically the sweet season for building, selling and buying.
Washington state added 2,500 construction jobs in February. Even so, overall construction employment statewide and in the Puget Sound region is at levels comparable to those of the 1990s.
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Privately owned housing starts statewide were 1,315 in January. Compare that to levels of 3,000 a month or more in the mid-2000s.
The numbers are similar nationally. For example, the National Association of Home Builders/Wells Fargo tracking of single-family housing starts shows 667,000 in December. That’s 1985 levels.
Or consider the national delinquency rate on single-family mortgages. It fell to 8.21 percent in the fourth quarter. That’s far better than 11 percent in 2010, but in most years before the crash it was around 2 percent.
In booming Seattle, single-family house prices have recovered from the trough of the recession, even if they remain below their (unsustainable) 2007 peaks.
Yet according to Zillow, 15 percent of mortgage holders were “underwater” (had negative equity) in King County in the fourth quarter. But the number was 30 percent in Pierce County and 23 percent in Snohomish.
So it’s difficult, more than seven years since the real-estate bubble popped, to proclaim any return to normal. Much less has housing returned to its place as a pillar of the economy.
To use a broad brush: Single-family housing remains deeply wounded. Apartment construction has done better but in many areas risks overbuilding. Commercial real estate avoided a total meltdown but is only middling outside of such hot spots as downtown Seattle and Bellevue.
At the same time, much of Seattle and the Eastside are residential sellers markets. All-cash offers are common. Supply is tight. As for commercial building, look at all those cranes on the skyline.
The new abnormal can seem bewildering, so let’s get our bearings by returning to location.
Wall Street was one of two major culprits behind the housing bubble, especially by taking mortgages, including risky subprime, and turning them into securities it sold to investors.
In the aftermath, Wall Street found a new way to profit, buying houses and renting them out.
My colleague Sanjay Bhatt wrote last Sunday about how private-equity outfits such as Blackstone have entered the Puget Sound region, often buying up houses with all-cash offers. This kind of deal accounted for one of every 14 purchases in the Seattle area last year.
In fact, these investors are late to the region. They began the spree in 2011 especially in distressed areas such as Phoenix and Las Vegas, gradually amassing some 200,000 houses.
As before, many have done more than fix up and rent houses. They have securitized the income stream from rents and sold it to investors. What could possibly go wrong?
This action has done more than distort prices, give a false sense of recovery, risk degrading neighborhoods with rentals and crowd out first-time buyers.
As Menlo Park, Calif., analyst Mark Hanson points out, it has created a new bubble.
The savvy players have been followed by other investors, often highly leveraged. This group is now driving the increase in investor sales nationally.
But as Yves Smith, the pen name for Susan Webber, of Aurora Advisors, points out on her popular blog Naked Capitalism: The smart money has been quietly exiting the housing market in most places since last spring. “Stupid money” has flooded in.
Washington, D.C., is home to the other major perpetrator of the housing bubble, Alan Greenspan’s Federal Reserve and its easy-money policies.
Under Ben Bernanke, the Fed undertook extraordinary measures to keep the recession from becoming another Great Depression. Unfortunately, zero-interest rates and purchases of mortgage bonds helped fuel Wall Street’s rental-housing play.
With the tapering off of this stimulus, Janet Yellen’s Fed may have punctured the new bubble. How much this leaves the rental-housing players exposed to trouble remains to be seen.
As Warren Buffett said, “You only find out who is swimming naked when the tide goes out.”
Thus, between the taper and relatively higher interest rates, it is no surprise that the housing market has cooled.
Paralyzed by partisan gridlock, D.C. has done little to fill the hole in demand created by the Great Recession. Austerity has slowed the recovery, trickling down to potential homebuyers by perpetuating high unemployment.
The relative lack of investment in infrastructure has also held back construction jobs.
Also, years of misbegotten policies helped create stagnant wages and a $1 trillion student-loan bubble. No wonder many potential homebuyers, especially first-timers, are forced to rent. In the past, first-time buyers would have been the major force behind the market. Not now.
Beijing matters to real-estate sectors because China has the potential to bring on a worldwide recession as it deals with a shaky banking system, high debt and an attempt to rebalance its economy to be less dependent on exports.
It can also be seen as a proxy for all the emerging markets now suffering as dollars exit for better returns at home. Many hard landings are happening, and as they accumulate the risks to the American economy grow.
Location is certainly working to Seattle’s advantage. With a diverse, high-wage economy that includes a booming Boeing and Amazon.com, we are far better off than most places.
Last year, the Urban Land Institute and PricewaterhouseCoopers ranked Seattle No. 6 nationally among real-estate markets for 2014 and nothing has happened to alter that assessment.
But for housing especially, and construction generally, the overhang from the recession continues nationally. We have a long way to go before reaching the old normal.
You may reach Jon Talton at email@example.com