Is the Seattle boom becoming a bubble–and then a bust?

Seattle boomLiving half of the 1980s in Houston, I experienced up close and personal that eternally repeating economic pattern long known as the boom-bubble-and-bust. I watched the same cycle living for seven years in the Los Angeles area just before becoming New To Seattle. As a New York City property owner for more than three decades. I’ve experienced a couple of BB&Bs.

I’d say Seattle is well into that ominous pattern. To me, the only question is whether the city is still in the boom phase or already has moved into more risky bubble territory. If so, a bust with its many, many problems might not be too far off.

Home prices have gone up nearly 19% in a year, many times the rate of inflation (Zillow, which happens to be based in Seattle, says my own home has appreciated 37% in less than four years!) A quick drive around the city shows massive new construction under way, all of it, undoubtedly, financed with borrowed money that some day has to be paid back. Much of the downtown action is centered around’s plan to ramp up its estimated 20,000 workforce by building more tall buildings. Apartment complexes are seemingly going up one after another on every major street in town, and not a few of the minor ones, too.

Laissez les bons temps rouler! You see it everywhere in Seattle.

According to the latest U.S. Census estimate, Seattle’s population went up in a single year by 18,000 people to 653,000 folks. That’s a 2.8% increase that gave it the nation’s highest growth rate among big cities.

This also is not too far from the 3%-plus population growth that Houston posted annually in the 1970s and early 1980s amid an epic boom. An epic boom, I should add, that petered out just a few years later when the rising price of oil stalled and then crashed. That took down with it almost every bank and construction company, although it allowed me to buy a repossessed home for about 50% off.

I’m already seeing locally classic signs of foolhardiness. For the past century Seattle’s average annual rate of population growth has been less than 1%. You can look it up. Population in 1910: 237,000. Estimated population in 2013: 652,000. That works out to a long-term compounded rate of 0.99% a year. But rather than look at Seattle’s historic growth rate, or maybe boosting it by half again to 1.5%, planning seems to be taking place by starting with that 2.8% number–nearly triple the historic  rate to start with–and then projecting upward out for a number of years.

History in other places has shown this leads to a lot of empty commercial buildings and living units. That’s what betting on the come will do.

The big B word is even being bandied about by others in Seattle. “I’m worried about another bubble,” The Seattle Times recently quoted one real estate broker as saying.

A bubble, by the way, is when assets are bought and sold in large volume for ever-increasing prices far above their intrinsic worth, usually with increasing amounts of borrowed money. It gets its name because, like a real one made out of soapsuds, there isn’t much substance nor does it take much to make it explode–a mere prick, or its economic equivalent, like a widespread realization that things are crazy or a competing technology that threatens the local mainstay. But unlike detonated liquid detergent, the aftermath of an economic bubble can be profound. Behind the boomy run-up is the Greater Fool Theory–the notion that no matter what was paid, someone out there will buy it for more. But in a bust, almost everyone becomes a seller–at a time when there are few buyers.

As I see it, the history of the United States is essentially the history of booms-bubbles-and-busts. Economic roller-coasters have been more the norm than the exception, as American as John Wayne, the Super Bowl and Al Gore. There have been a dozen or so of national ones, and countless local ones. For most of the country’s existence, we have not been more than 10 years from the start or end of a BB&B, or some cousin of sharp economic volatility.

The first big debacle came when the country was only eight years old (if you count the Declaration of Independence as the birthday). A boom and bubble exploded into the bust called the Panic of 1785. Missed that one in your high school history class? It came just two years after the end of the Revolutionary War, surely one of the few world conflicts ever to be waged–with considerable bloodshed–over taxes. I won’t bore you with too many details, except to say that there was increased borrowing followed for all kinds of interesting but predictable reasons by an inability of borrowers to repay their loans. That ruined both borrowers and lenders.

In succession we had the Panic of 1792, the Copper Panic of 1795, the Panic of 1797, the Depression of 1807, the Panic of 1819, the Panic of 1837, the Panic of 1857, the Panic of 1873, the Panic of 1884, the Panic of 1893 (which did in several Seattle fortunes), the Panic of 1896, the Panic of 1907, the Panic of 1910,  and the Great Depression starting in 1929, which lasted a really long time.

After maybe 10 more recessions, which are sort of minor booms-bubbles-and-busts not rising to the level of a panic, we are now only a few years past the end of the Great Recession, which definitely was the result of a BB&B. This was caused in large part by wild lending for real estate assets not really worth that much.

Not all BB&Bs are national. I mentioned the 1980s episode in oil-rich Houston. In the 1920s Florida experienced much the same pattern in raw real estate, especially when it was discovered that some of the land used as collateral was swamps and one of the salesman was noted scamster Charles Ponzi. While national, the Great Recession hit particularly hand in places reliant on subprime real estate loans to not-so-creditworthy borrowers, like Southern California, Arizona and (again) Florida.

What could prick an impending bubble in Seattle? Growth of a competitor, like China’s Alibaba Group, to, which seems to be responsible for much of Seattle’s economic expansion. A realization that online buying is so prone to hackers and thieves that cash and brick-and-mortar stores are safer. Resistance by newcomers to squeezing into new apartments not much bigger than a large closet. Even a big earthquake, tsunami or something again out of Mount Rainier, long classified as one of the world’s most dangerous volcanoes.

The one saving grace about a bust is that prosperity usually returns. Eventually. After the peak before the stock market crash of 1929, it took 25 years for stocks to get back all their value. That’s a long wait anywhere, but especially in a hurry-up place like Seattle.

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