Economic Analysis |
A Pacific Northwest Regional Economic Analysis.
This section provides a "macroeconomic" overview of the Puget Sound region within the context of our Pacific Rim setting. We have prepared this section for those readers more seriously interested in the economic, social and demographic context of Puget Sound, but who are unfamiliar with our present situation. The article was written "post-911", so understand that current and future economic trends are merely speculative. Much will depend on future events.
OVERVIEW. Puget Sound is the economic heart of the Pacific Northwest. For our purposes we'll consider the Pacific Northwest as the states of Washington, Oregon and Idaho, plus the Canadian province of British Columbia in extreme western Canada. Our resource-rich region is intimately related by trade activities to the entire Pacific Rim; especially Japan, Korea, Hong Kong, Singapore, and increasingly China. The resource-hungry "East" is a source of export for agricultural products, forest and timber products, minerals, passenger airplanes, machine tools and high-tech communications hardware and software. In turn we import from the Pacific Rim autos, clothing and manufactured goods. We are most closely connected in terms of geographic distance for shipping to the major economies of the Pacific Rim. Electric energy from waterpower is the only major regional resource we do not export to the "East". Trade however is our primary business; so in addition to product import-export, we have a huge business in trade support: railroading, shipping, marine facilities, trucking, warehousing and distribution, communications, and banking and insurance. Nationally real estate sales, on an annualized basis, continue well above 5-million housing units. Home sales figures for Puget Sound indicate an average increase in housing sales over the past three years of 11 percent annually, and a rate of about 65,000 units per year.
The population of the Pacific Northwest now exceeds 12.5 million. Over the past two decades the northwestern United States has a set of conditions attractive to residents and businesses alike. Population growth rates in the Pacific Northwest have been impressive for the past decade. Idaho was the fastest-growing PNW state with 28-percent growth for the decade, to 1.3 million. Washington state grew 21-percent during the same period to 5.9 million. Oregon's population grew 20 percent during the decade to 3.4 million. Lastly, British Columbia, Canada's most westerly province, is also Canada's most rapidly-growing province. Population growth rates exceed two percent per year for the past decade. Half of the 4 million B.C. residents live in Greater Vancouver, now a metropolis of over 2 million. However completely one understands the importance of trade and its related activities to the Pacific Northwest, far more important is our favorable position in Alvin Tofler's "Third Wave" - the economy of the "knowledge" worker. Whether the reader can accept this or not, the United States is leading the world in technological evolution and those cultural changes necessary to technological shifts. Always, technological change, to be effective, must be accompanied by changes in current mythology in order to overcome the usual and inherent resistance to change, change of all kinds. Change destabilizes and is inherently resisted in every human culture. In the end, technology always wins but the transition can be painful and enduring. It remains to be seen whether we can make the new and most important shift in recorded history: industrial worker to technological "knowledge" worker, a world where change is the only real constant.
As we begin the new millennium, four economic sectors will assume preeminence - computers, telecommunication, automation/robotics and re-education (continuous learning). These sectors will lead the "new" economy, and are the domain of the knowledge worker. Demand for more knowledge workers is insatiable, and the U.S. has had for many years a tight labor market for these workers. Immigration from a world filled with uncertainty is helping to ease our demand for knowledge workers. The keys remain; education, re-education, and re-training. For the Pacific Northwest, and especially Puget Sound, our time has come. Our inventory of knowledge workers is increasing more than 15 percent per year. These workers currently (year 2000 figures) have average annual wages of $67,200 at a time when all private workers in Puget Sound average $23,500 per year.
PUGET SOUND. Regional economics continue to follow patterns established in 1989, despite stock market anxieties and rising unemployment following "911". For the nation as a whole, the year 2001 will have continued slow growth, impressive "productivity" improvements, low inflation, rising unemployment through at least summer 2002, significant increases in "defense" spending, and corporate earnings varying from terrific to terrible. Corporate profits topped out about two years ago coincident with historically high price-earnings ratios. The stock market has become extremely volatile! It seems hard to understand how so many of the public can think that rising stock averages are their due.
Mortgage and other interest rates are, as we write, just over 6.5 percent, a 33-year low. Home loan rates rose briefly late last year on inflationary fears, but have since dropped impressively. We predict that these low rates will continue at least for the next year or two, as the economies of Asia and Europe soften dramatically. Meanwhile, the entire Pacific Northwest, and especially Puget Sound, continues to be a relatively good environment for both business and real estate. Considerable "downsizing" has already occurred within the dot-com community and among some other "high tech" industries; however, there is still a shortage of regional, skilled technical workers. Some local dot-coms will continue to be hit hard as exuberance finally yields to reality. However, many "wireless" and telecommunication companies continue to do well, showing impressive growth even within the past 60 days. The deck chairs are being rearranged but there is still enormous entrepreneurial energy in the Pacific Northwest.
Despite the horrific events of "911" involving airliners, the Boeing Company is poised to become one of the great economic engines of the 21st-century. They still have problems: "competing" with the subsidized five-nation governments attempting to sell airframes that are (appropriately) called "airbuses". With the rapidly softening economies of the EU, these governments will find it increasingly hard to sustain their inefficient airframe employment base. Second, Boeing is still wrestling with the problems of "digesting" the whale they are attempting to eat (McDonnell Douglas). They will succeed in doing so over the next three to four years. Lastly, Boeing continues to find effective strategies for wrestling with their Byzantine labor unions, who simply don't get it! They too will eventually be drawn into, first the 20th- and then the 21st-century - the Third Wave. We suspect that Boeing has used the events of "911" to announce massive layoffs. In reality these never occur. Typically a third of the announced cuts are implemented, apparently to "cull some deadwood". Nonetheless, the activities of Boeing in Puget Sound have a major impact, and we predict that their employment will drop fairly sharply for the next two to three years. One very bright spot. Real estate in most of Puget Sound is selling at record prices, though at rates less than the halcyon days of 1998-1999. Seattle, Bellevue and Redmond now average home prices near national records. Housing "affordability" has become a serious challenge in Puget Sound.
WHIDBEY ISLAND. Located in northern Puget Sound, about four air miles west of Everett, is benefiting from technology industry expansions that have continued for the past eight to ten years. The "mainland" areas of Mukilteo, Everett and Seattle are increasingly attractive to "high-tech" start-up and expansion. Boeing's large-plane plant in Everett produces the largest-selling passenger aircraft in the world. A significant number of Boeing employees live on Whidbey and "commute" daily to the mainland. The once traditional industries of forestry and agriculture have, since the 1940's, passed to the U.S. Navy with its large air station at Oak Harbor. The Navy is by far the largest employer. Annual budgets of almost $300 million provide employment for about 9,000 military and civilian jobs. In 2000, traditional industries employed a mere 2-percent of the labor force, while government and public schools employed approximately 56 percent of the labor force.
The Island is one of two large islands that together with a few islets make up Island County. The county seat is Coupeville. There are only three incorporated places: Oak Harbor (27,000 population), Coupeville (1,400 pop.) and Langley (950 pop.), but these contain more than half the entire island's population. Total island population is now 56,700; the "northern half" having about 40,000 and the "southern half" about 17,000. The average household income in 1999 was $24,800, island-wide. We estimate that South Whidbey household incomes are now about $63,000. Preliminary 2000 Census figures on income are not yet available, but we suspect they have risen somewhat. These income differentials partly explain the dramatic apparent differences between the social character of North Whidbey and South Whidbey.
RELOCATION AND REAL ESTATE. Corporate relocation is an important segment of real estate activity in Puget Sound. On Whidbey Island, however, relocation serves primarily the needs of the U.S. Navy. We really understand the Navy relocation situation and are here to assist them in all aspects of relocation, to, or from, Whidbey. We know what its like to have a family relocate to a new station in an unfamiliar community, while the military member is deployed. We'll assist with rental or purchases, Navy housing options, financing, schools, utilities and the many other details of relocation. We Americans owe our military our gratitude. They continuously work to preserve the freedoms we citizens so often take for granted.
The year 2000 was one of change for Whidbey Island real estate. Sales contracted, due in part to our volatile financial and securities markets. There were on Whidbey, north and south, just under 1000 industry sales - 726 homes and 271 acreages or lots. Eighty-five percent of all sales were homes, the remainder unimproved land. Total industry sales during 2000 aggregated to almost $156 million. What's going on with home sales? Speaking generally, other than a decline from last year's very active market - for the first time in twelve years, all trends are a continuation of events we have discussed over the years. Those readers interested in earlier "micro" phenomena, or past articles on local real estate should visit our major real estate "web site": www.whidbey-realestate.com/whidinv.htm.
The average single-family detached (SFD) home sale, island-wide was $180,900. On North Whidbey, the 277 previously built homes sold for an average $171,700, while new homes sold for $176,500, on average. On South Whidbey, existing SFD home sales averaged $246,600, and new "spec " homes, $192,200. "Spec" homes, those built first and then sold, continue to decline in number and relative dollar value. Only 96 such new homes were sold. Expensive "spec" homes (those above $300,000) sell very slowly. Each year custom home construction (houses 'built to order') increases in number of units and values. Interestingly, while sales numbers fell last year, average sales prices continued to rise. Waterfront properties sold quite well.
Depending upon what part of the U.S. you come from, real estate values will generally appear to be affordable. Only if you come from the South or Mid West, should you expect to find housing more expensive. We too face "affordability" problems, however, we have prices that, while not "cheap", are affordable for most new residents. Unfortunately, we have little low-priced housing on South Whidbey, requiring that some who would choose to live there are finding they must buy further north on Whidbey where housing costs are lower. There's still a wide variety of land and acreages for those who choose to build. Even waterfront is available - for those willing to pay the price. Currently, (September 2001) homes on North Whidbey average $180,200. On South Whidbey the average is $236,000. Land averages about $8,500 to $12,000 per acre based on our standard 5-acre zoning, and up, for view land. "Inexpensive" building lots have a median value of $36,000. Waterfront property can be very expensive, but is available. Expect to pay more than $200,000 for good "Sound-frontage". Electric power rates are very low by national standards, and domestic water is generally abundant and extremely inexpensive. Property taxes here are the second lowest of any county in Washington state. For 2001, Whidbey Island tax rates average $9.84 per thousand assessed valuation. Also, there is no state income tax, on earned or unearned income.
