Is Our Seattle Market in a Bubble?

Nobody knows whether our Seattle market is in a bubble because that kind of thing is impossible to know.

This is Part I of a two-part series.

Are we in a bubble? Will prices be coming down in our market soon?

In reality: I don’t know. The truth is, nobody knows. We’d all be better off if we didn’t have to answer this question because nobody really knows the answer. As famed economist and diplomat John Kenneth Galbraith once said, “The only purpose economic forecasting has is to make astrology look respectable.”

You’re not going to know if and when we’re at a peak in our market. You’re never going to know because it’s not possible to know.

I was on my annual ski trip this past winter with some friends when, as luck would have it, I got a chance to speak to a retired economist from the Federal Reserve about this subject. As a Realtor, I thought this was a golden opportunity. The man told me something very interesting. He said, “If you want to keep your job at the Fed as an economic forecaster, the trick is to make a lot of predictions and update them all the time because eventually some of them will be right.”

In other words, predictions are useless because some will be right and some will be wrong, and you’ll only remember the ones that were right. It’s like having a dream about meeting someone you haven’t seen in years and then running into them that same day. You think you’ve had a premonition, but here’s the thing: you dream about other things all the time that don’t ever happen. You never remember those failed “premonitions.”

“I’m supremely confident in one thing—it’s impossible to predict whether we’re in a bubble.”

Economic forecasting is like that—you only choose the ones that stick, and there’s no penalty for making false predictions. Whether you’re a stock analyst or an economic forecaster, all you have to do is be confident, and I’m supremely confident in one thing—it’s impossible to predict whether we’re in a bubble. Sure, someone can claim we are in a bubble and you’ll think they know something, but they don’t because all they’re doing is updating their forecasts. There are too many rare events you simply can’t predict.

In Seattle, home prices are currently being driven by natural market forces—lower inventory, high demand, and people moving here to get jobs at Amazon. In case you didn’t know, Amazon announced last week that they were looking to create a second world headquarters, and they’re demanding tax incentives to move.

Did anyone predict an RFP for a second city to host Amazon? Heck no! The president could make a nasty tweet about Jeff Bezos and their stock could go up or down based just on that, and nobody would have predicted it. Who knows?

You have to act like the question “Are we in a bubble?” is unknowable because it is unknowable. Make your decisions based on what the worst-case scenario is for you and take the most conservative approach you’re comfortable with.

That being said, what I will do in my next video is present you some market numbers and compare and contrast them with what the numbers looked like that last time our market was in a bubble. This will give you some context, but it won’t be valuable in terms of predicting if we’re currently in one because that’s unknowable. I’ll simply give you the opportunity the look at the numbers so you can decide for yourself what’s best for you.

I want to give a special shout-out to Roxy Hathaway and William Shadbalt for providing today’s question. As always, they’ll be receiving a $25 Amazon gift card in the mail soon. If you have any questions about our Seattle market or you’re thinking about buying or selling a home, don’t hesitate to reach out to me. I’d be happy to help!