Wednesday, July 10, 2019

Your servile young life in the rapidly gentrifying state...

'Average price of a Bellingham home sold in the past three months was $516,669, the first time that the average home price has topped $500,000. "It's unsustainable," Muljat said Thursday. "This trend cannot continue." '
Quote from the Bellinghan Herald article by Robert Mittendorf at

Perhaps the question youth really should be asking local politicians as we approach a full and contentious primary this week is: "How the heck am I ever going to own a home or afford a family in this economy?"  A number of new data points this week suggest a future of long term servitude to low wages in the face of rapidly and dangerously escalating housing prices. Home prices in Bellingham, up 14.9% since April 2017, just can't seem to slow down. Bellingham housing prices can only be described as hot.  And your wages, despite recent claims to the contrary, are nothing special!  

Now....where to begin? Ah yes, the 'over-heated' housing demon has apparently returned. If you want to know more about this just ask Deputy Chief Economist at Freddie Mac Len Kiefer who seems like he really knows his stuff. Or at least knows how to sling some R code. I am indebted to him for the code for the chart below which shows national housing prices on a tear. Most of us would ask upon seeing this: Can another precipitous recession be nearby? Click to enlarge the HPI based chart below and be sure to check out what Mr. Kiefer has to say about our current housing expansion.

Not sure enough to trust my first instincts, I dug a little further and wrote some housing query code. Below is a lattice panel barchart of the FRED  'All Transaction Housing Price Index' (left to right) for the Bellingham MSA, Seattle-Bellevue-Tacoma MSA and Spokane-Spokane Valley MSA indexed at 100 for 1995, with a year 2000 origin point that I display starting at 100. Data for Bellingham is from . Man, those HPI curves are brutal. Glad my wife and I got on that roller coaster in 2003. Click to enlarge the chart:

You all know how that goes for those us who bought our homes in the Columbia neighborhood before Bellingham was 'discovered': raising two kids, building equity, building a family, vacationing in the San Juans, math teams, swimming practice, music lessons and generally having the good but purposeful life... But maybe you don't know how that all is because you are stuck at a Bellingham median wage job in a boisterous Whatcom county that just keeps sucking in retirees and Californians with more $$$ than you can ever possibly have or compete against in a home bid! New BLS data shows that neither our hourly mean or hourly median wages are anything special. Here we are by Metro Statistical Area (MSA) ranked by hourly mean (H_MEAN). We are somewhere in the middle of the pack between Walla Walla  and Longview!

But let's look a little closer at wage data as it relates to housing costs. The complicated chart far below groups the hourly mean wages on the X or horizontal access by their count on the Y or vertical access.  The top horizontal access multiplies a monthly salary based on those hourly mean wages by .33 or the 1/3 of gross salary figure commonly used to apportion individual  or household housing costs now. This is sometimes called "The Front-End" ratio. When I was younger that ratio was routinely cited at 1/4 of your monthly salary. But that wasn't going to work anymore so economists changed it! The vertical red lines are set at this monthly housing allotment for four levels:

  •  < $1K
  • $1K - $2K
  • $2K - $3K
  • > $3K 

Yes, it is more than possible that two people at the median hourly wage ($19.05) for the Bellingham MSA could cobble together a $2K plus monthly mortgage/rental payment. But is $2K/month even reasonable now in the Bellingham market Mr. Mittendorf and Mr. Muljat discuss here? Probably not. Click to enlarge the chart.

Given Bellingham's  strong immigration patterns and waterfront plans to attract even more people, those of you who are young and want a home here have limited options:

(1) higher household income
(2) significant inheritance

It is possible you may find deals ("the worst house in the best neighborhood") when the economy tanks again, but will you still have a job?  My intuition is that we live in a very bifurcated economy consisting of those who can afford homes and those who can not. The global housing economy means others are coming here with their cash, but not necessarily bringing wages and jobs that enable existing residents to compete with these cash inflows.  This is fundamentally a have or have not housing economy. The economic effects will change social structure, market economies, and public policy. For most youth in Bellingham now, those effects may well discourage home buying and family formation.

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