Seattle: A Needle in a Haystack

New York, London, and Los Angeles–all have felt the tremor of the sub-prime housing fiasco over the past few months, as evident by the decline in home values in these major cities. Homeowners have lost substantial amounts of home equity, while at the same time seen their adjustable mortgage rates rise, making their monthly payments greater, sometimes beyond their means. This led to a larger amount of foreclosures and subsequently a greater amount of houses entering the 'for sale' marketplace, creating an excess of inventory amidst wary home buyers. How then, in a time of such excess, can any major city boast appreciation in home values? Just ask home sellers in Seattle (one of only five major cities in the U.S. still seeing home prices grow) and they might say it is because Seattle is a hidden gem, or maybe because of all the rain; either way, there are undeniable economic factors of supply and demand keeping this lucky city afloat in the midst of the sub-prime storm.

For starters, Seattle is a desirable place to live. Located between water and mountains and geographically spread out amidst lakes and hills (downtown Seattle left, Bill Gates' home below), its scenery is naturalistic and unequaled in beauty. Not to mention, it boasts a top seat among America’s fittest cities (1st in 2005 and 8th in 2006) as well as the number one spot on the most educated (52% of Seattleites have college degrees). In other words, Seattle benefits from what is known as the “knowledge economy,” which draws highly educated individuals to live and work in the city.

So how does this translate over to the housing market? Well, in an area geographically dense with water and mountains, livable land is scarce, making homes a relatively valuable commodity (simple economics of scarcity). This creates a greater demand for homes than there is supply, causing housing prices to be greater than average ($439,000–median home price in Seattle as compared to the average U.S. median home price of $213,900). Additionally, the city has a below average public transportation system that, when compared to the likes of San Francisco's BART or London's Tube systems, is plain embarrassing (see image below). The disdain for public transit, though heavily used, keeps the city's housing market up due to the desire to live close to one's work.

Geographic availability, however, is not the only thing working in favor of Seattle's robust real estate market. The positive synergy created by Seattle's intelligent populace earning relatively high incomes is the amount of bad-debt loans is substantially below average. As of September 2007, 5.12% of all loans held in the United States are delinquent, verses 2.6% in the state of Washington during the same period. The outlook is even better for Seattle. According to economist Matthew Gardner, “[Mortgage delinquencies and foreclosures are] not happening to Seattle to any degree whatsoever…we’re not seeing any fallouts.” Furthermore, of the 40,000 prime-loans in Washington, only 167 are at risk. So with significantly less foreclosures, local lenders can afford to issue mortgages with lower yields than elsewhere in the country, enabling borrowers to remain present in the marketplace, and keeping the housing market in afloat.

What about Seattle's future? With the Bill and Melinda Gates Foundation's recent donation of $105 million to the University of Washington's Medical Research Center, which is part of the Cancer Care Alliance, Seattle instantly became the most funded cancer-research city in the country. This, along with the prosperity of Starbucks, Microsoft, and Boeing, lead city-planners to believe that Seattle's population will double by 2011 (currently 2.8 million, expected 5.6 million). If this becomes reality, not only will there be more traffic jams, but residential real estate within the city will become more precious as well-and Seattle will continue to defy the country's real estate crisis.