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Wednesday, August 23, 2006

WCRER: Sales Slipping, Affordability Tanking

As a number of readers have pointed out in the comments, WSU's Washington Center for Real Estate Research has released their latest quarterly statistics. There's not much new in there for anyone that has been following the monthly NWMLS releases, but it's at least worth mentioning. Here's a blurb from the Associated Press report, courtesy of the Everett Herald.

Among Washington's largest counties, King County sales declined 13.7 percent, Pierce County slipped 10.7 percent, Snohomish County slid 11.8 percent, and Spokane County declined 11.9 percent.

The sharpest declines were seen in Island and Jefferson counties, each of which experienced nearly a 33 percent dip in sales.

Only three counties - Yakima, Thurston and Grant - reported modest increases in the number of homes sold.

But prices continued to increase across the state, though at a slower rate.
Here is an updated version of my graph of WCRER's numbers for King County.The Affordability Index (refer to my previous post for the definition) for King County continued its descent, down almost 7 more points to 70.4—the largest drop in the index in two years. One thing that is interesting is that rather than reporting inventory (# of homes on the market), the snapshot includes the number of units for which building permits have been issued. Although that measure was up just 6.7% statewide, King County had an astounding 4,217 units for which permits were issued last quarter, up 43.2% from last year. Remember that King County is already in the midst of a trend of increasing inventory and decreasing sales. If supply keeps shooting up (bolstered by increased building) and demand continues to wane, real price drops won't be far behind.

(WCRER (pdf), 08.2006)
(Associated Press, Everett Herald, 08.21.2006)
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emcityjill said...

Yay! Thanks Tim. I've been wondering what the opinions were about those building permit issuances. Good to see it seemed "astounding" to you as well.

Anonymous said...

We got a new headline today: Existing Home Sales Drop in July to Lowest Level Since January 2004.

But why are prices still so high here? When will they really go down in Seattle?

Anonymous said...

I think that the increase in permits is likely to have little or no effect on the downward phase of pricing. If prices start dropping signficantly, many of the new units will just go unbuilt (especially condos). The remainder (typically the first ones started) will take a while to start selling/complete, so by the time they hit the market they will represent a drop in the bucket relative to what should be high supply levels.

However, if for some reason prices do not drop, then the additional units will mercifully have the effect of at least slowing down the rate of appreciation (or perhaps tipping the balance to a slowdown).

Anonymous said...

I've been wondering what the opinions were about those building permit issuances. Good to see it seemed "astounding" to you as well.

It really shouldn't be astounding at all--the builders (and the investors that fund them) know that we're in a bubble, and they're all trying to get their goods to market before it pops. That's why there's such a sense of urgency.

If the RE market is going to keep going up, up, up forever, then there's no real reason to hurry up and build right now, as building in 5 years from now will still produce huge rates of return--even higher then those achieved today, assuming that RE prices continue to appreciate faster than the cost of building.

But if the market is going to cool off and prices stabilize or (gasp) fall, then watch out. Builders aren't stupid--they know how to strike while the iron is hot. Only once the hammer bounces off the cold, hard metal will they stop pounding. Chilled steel ahead!

Anonymous said...

Anyone on this board know about the progress with Cascadia.

I have been trying to gather data on the development and its impact to the area.

For the life of me, I can not imagine going forth with a project of such scale as we entering into a recession. In addition, this will be no ordinary recession. It will most likely be two, long and deep, back to back recessions, with a good quarter pumped in between.

Any information on Crashcadia would be appreciated.


Anonymous said...

I'd be interested to see what your affordability graph looks like for the '88-94 bubble/recession. Also, would be interesting to see a similar chart for San Diego, the "canary in the coal mine" for the real estate bubble. Perhaps the affordability index you plot has a long way to go before it reaches SD's levels? Or perhaps we are already there?

Anonymous said...

do you have a plot like this for Snohomish county?
Driving around Bothell/Mill Creek/Snohomish, things still seem to be booming around here.

Anonymous said...

>san diego, canary in the coal mine

I was looking over on "The Bubblemarkets Inv Tracking" site, and noticed that San Diego hit a ratio of 1:196 listing per population on December 10, 2005. With 14,591 homes for sale. Now they're at 1:130 and a record 23,562 homes for sale.

What's interesting is that we here in Seattle just hit the same ratio (1:197) on 08/09/06, 12,858 homes for sale.

I wonder how many months it will take for King County to reach 1:130? 8 months? I'd say six.

Dukes said...

For anyone interested in Bill Fleckenstein's take on real estate via the Wall Stree Journal story it is:

"Reckoning with Real-Estate Residue
To gain an appreciation for the ongoing pain in housing, I encourage everyone to read an especially well-written story in today's Wall Street Journal titled "After the Boom -- Housing Slump Proves Painful for Some Owners and Builders."

In this chronicle of how the party has turned into a bust, the writer includes two illuminating vignettes. The first one introduces a man who bought his house about five years ago for $212,000. Now he wants to sell it for just under $500,000 so that he buy another house for $920,000.
This is a good example of how folks behaved during the housing mania. In six years or less, they doubled, quadrupled, or by some other number multiplied the size of the house they thought they could afford.

Granted, this individual may potentially have planned on coming up with a sizable downpayment, thanks to the gains in his current home. But the size of his new mortgage will almost certainly be two or three times what it had been a few years ago, and the story didn't suggest he'd received a big promotion.

The second vignette describes the case of a woman who'd hoped to sell her house for $1.1 million (based on recent appraisals), but wound up selling it for $530,000. Such a 50% haircut is a not-unreasonable expectation, given the size of declines that are seen in the wake of a mania. The story contains many other useful data points that make it a true "keeper."

Just thought I would share...

The Tim said...

I'd be interested to see what your affordability graph looks like for the '88-94 bubble/recession.

Unfortunately, the WCRER data only goes as far back as '94, and I've only been able to locate complete NWMLS data as far back as '00, with incomplete data back to '93. I would love to have data for King County going back at least to the early 80's (if not further), but I just have no idea where such information would be located.

do you have a plot like this for Snohomish county?

I don't, although I may be able to make one. If I get some time this weekend I might look into it.