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Monday, December 11, 2006

Seattle-Area Home Prices "Likely to Decline"

My jaw dropped in amazement when I read this headline in my inbox yesterday: House prices likely to decline. Granted, it was a Q & A column in the Everett Herald, not a headline news item in the Seattle Times (which would have probably made me faint), but still, it's nice to see an admission like that in any of the local rags.

Question: I have been seeing stories in the news about the housing bubble around the country, with some areas seeing a drop in prices now that the big boom is over. Do you think that will happen here in the Seattle area too?

D.K., Lynnwood

Answer: ...Last year at this time, I went out on a limb and said that I felt that the local housing market was peaking. I thought that home prices would max out during the spring home-buying season and then level off. Home prices actually continued to increase through late summer, but the housing market has definitely cooled off in the last three months, as I had expected.

This week, the Northwest Multiple Listing Service released home sale stats for November and you can see that a trend is emerging. There were 35 percent more homes for sale last month than there were in November 2005. At the same time, there were 11 percent fewer homes sold in November compared with November 2005.
...
So I suspect that next spring when most sellers put their homes on the market, we will see a big increase in the inventory of homes of sale. And unless there is a large pool of prospective buyers out there, we will probably see the home market swing toward a buyer's market where there are more homes for sale than buyers. That's good news for home buyers who have been frustrated by skyrocketing home prices over the past few years, but not such good news for homeowners who need to sell soon.

As I said above, prices will likely flatten out and possibly decline slightly, but traditionally we don't have the kind of home price "crash" that happens in boom-and-bust housing markets such as San Diego, Las Vegas and Phoenix.
Of course, we also traditionally don't have the kind of home price "spike" that we have had in the last three years, where the median home price shot up nearly 50%.

He goes on to explain the possibility that speculators fleeing the market will further drive prices down. Much to my amazement, rather than repeating the oft-heard (but never backed up) claim that the Seattle market doesn't have many investors, he admits that their potential affect on the Seattle market is largely unknown.

I don't recall seeing (and couldn't locate) an article published "last year at this time" where he claims to have predicted Seattle's housing market peak. If anyone knows where to find a link to that, please post it in the comments. [Update: Thanks to Megan the Librarian below for pointing out the November 2005 article Mr. Tytler references above.]

Kudos to Mr. Tytler for pointing out the obvious trend and its likely result.

(Steve Tytler, Everett Herald, 12.10.2006)

22 comments:

Anonymous said...

I found the column:
http://www.heraldnet.com/stories/05/11/20/100bus_tytler001.cfm

Anonymous said...

I released today’s FREE report on Chicago. And it's a fairly normal market - that's strange for us CA natives... It joins prior FREE reports on Boston, Bakersfield, San Francisco, Seattle & Los Angeles.
thebubblebuster.com

The Tim said...

Megan,

Thanks for locating that. I'll put a link to it in the post.

AnalysisGuy,

I understand that you want to get a lot of attention on your reports, but I have a specific thread nearly every day for random links and off-topic comments. Your incessant "free reports" comments clearly fall into that category, yet you intentionally post them every time into the topic-oriented posts. If you continue to post these links in threads other than the Open Thread, I'm going to be forced to treat your comments as spam and delete them.

Thanks for understanding.

Anonymous said...

Thanks for posting this as a topic - I found this assessment to appear quite reasonable, and was curious what the collective wisdom of the Seattle Bubble followers would be (I posted a pointer to it in the open thread before this showed up)

Home prices actually continued to increase through late summer, but the housing market has definitely cooled off in the last three months, as I had expected

This seemed like a simple case of the bubble stretching out further than any reasonable person would expect.

I'm not personally expecting a huge crash, but I do think that the prices will decline, and am waiting to buy a house as a result. I think it will be fun to watch over the next year.

I only started watching about a month or so ago when I became interested (and financially prepared) to buy, but have been addicted to it ever since I started looking. I decided not to buy until I see how this all plays out.

Lake Hills Renter said...

I've been waiting for it to play out as well, but it's been for 1.5 years now. My obsession with it ended a while ago, now I just check the blogs now and then. I figure buying is at least a year off for me, probably more.

In some ways the boom ended faster than I expected, but the bust has taken longer than expected. Everything just seems to have stagnated.

Except Ballard.

seattle long term owner said...

ah ballard,

I drove through the area once and it reminds me of the east village in NY,

low quality, old homes priced exorbitantly and occupied mostly by young urban professionals... at least in NY most of those professionals were in the arts, actors, musicians, etc...

I wonder who lives in ballard and how they can afford what they're paying...

Let's see... you work for MS, you live in the east side..

You work for Boeing, you live up north

You work downtown -- there you go... you may live in Ballard...

are there that many high paying jobs downtonwn? I ask because I don't know...

meshugy said...

I drove through the area once

Which part? Ballard makes up most of NW Seattle, it's bigger then Wallingford, Laurelhurst, U District, and Fremont put together. Some parts are extremely nice....others run down. In general, it's gentrifying at a rapid pace. There's a new construction or massive remodel on nearly every block.

low quality, old homes priced exorbitantly

Actually, Ballard has the same stock of housing as the prestigious areas of Queen Anne and Wallingford. Mostly pre war Craftsmans and Victorians. Very highly coveted by people who appreciate vintage housing.

I wonder who lives in ballard and how they can afford what they're paying...

Several of my neighbors work for Boeing or Microsoft. I'm self employed so I can live anywhere....just like it here. It's a lifestyle choice...lots of amenities within walking distance. The beach at golden gardens, shopping in downtown ballard, parks everywhere. Nice views and great for kids. Also fast to downtown. I would die a slow painful death if I had to live in a big nuevo housing development on the East side....too much driving, no sidewalks, no shopping close by. But some people like that...which is fine. It's just not for the demographic who likes Ballard.

MisterBubble said...

I wonder who lives in ballard and how they can afford what they're paying...

Yuppies. Endless, bland acres of yuppies with inane tastes, boring lifestyles and visions of equity dancing in their latte-addled heads. The type of people who think that "cute" is worth several hundred thousand dollars more than substance, and who kill any true sense of comunity and interesting culture by burying it in polar fleece, and running it flat with SUVs and strollers.

In short, the type of people who see nothing wrong with a $2 cupcake.

Once upon a time, Ballard was working-class -- fishermen and factory workers. Then, it was a place for the old folks with their right-side blinkers on in the left-hand lane. Most recently, it was a place for the artists and service workers who were priced out of Fremont. But they made Ballard too interesting, and in Seattle, interestingness is the kiss of death for a community. Now these people are being priced out of the "vibrant" community that they have defined (they're moving to South Seattle....if you're trying to get the jump on the "hot" Seattle neighborhood of 2015, think "White Center"....)

Nowadays, Ballard is just a place for people who want the illusion of living in a "vibrant" community without having to give up the conveniences of raising their larvae in a relatively sterile suburban lifestyle. With an organic farmers' market, of course...

wreckingbull said...

Actually, Ballard has the same stock of housing as the prestigious areas of Queen Anne and Wallingford. Mostly pre war Craftsmans and Victorians. Very highly coveted by people who appreciate vintage housing.

Alright, lets not outright lie to our out of Ballard friends here. You know better than this. Ballard has very different roots than than Queen Anne or Wallingford. It was a working class neighborhood. The modest housing reflects this. Now we have McMansions getting stuffed into 4500 square foot lots.

Richard said...

You work downtown -- there you go... you may live in Ballard...


My girlfriend lives about 4 blocks from Golden Gardens and works downtown. She's getting tired of the commute - it's not as short as it looks on the map.

seattle long term owner said...

Gentrifications has always been a very fragile flower...

During boom cycles, neighborhoods gentrify... during the bust cycle... they only too quickly de-gentrify... when the eyesore next door fails to become a McMansion, the McMansion beside it only too easily becomes a 4 family dwelling apartment...There's money in gentrification, until the boom ends... then you wish you're not the neighborhood that was going to gentrify next but never made it...

I hope this does not happen to your precious ballard, I wish every area gets gentrified and we all live in good communities...

I just can't wait for gentrification which is why I bought into a nuevo development with many community park/playgrounds where my future kids can play without threat of traffic running them over (other than my neighbors of course)..

True I can't walk to the store or to a bar or club, but why would I want to? I lived in New York before been there, done that... it's overrated, but it's a lifestyle my sister still enjoys... so I guess it's a matter of choice...

Richard said...

Actually, Ballard has the same stock of housing as the prestigious areas of Queen Anne and Wallingford.

Mesh looks at the 2 blocks next to the bluff and extrapolates.

Grivetti said...

I'm self employed so I can live anywhere....just like it here. It's a lifestyle choice...lots of amenities within walking distance.

Dude, if you could live anywhere and you decide on Ballard, I can understand your 'struggling artist' station in life, because you have a severe lack of imagination...

I live in Ballard/Phinney and if I could swing it, there's about 50 other locales in the U.S. I'd rather be living than shelling out insane cash (sorry debt-load) for dingy crafstman in a marginally interesting part of town... and if I did the math and was willing to write-off my financial future to the whimsy of Seattle Real-estate, I'd locate to a city with a little more authentic 'culture', forgoing the Starbuck's fast-food variety...

wansuiclay said...

AFAICT, Seattle is just a bunch of Kirk Cobain Vitamin D deficient wanna-be's wandering around with a cup of coffee. Wow.. Cool. On the other hand the east side is a mixture of WASPS and H1-B Microsofties. So, I guess there are worse places to live, but as for me, if it weren't for Microsoft, I would still be down in Encinitas, CA. Now thats a cool ass place.

meshugy said...

Dude, if you could live anywhere and you decide on Ballard, I can understand your 'struggling artist' station in life, because you have a severe lack of imagination...

Not really starving....making well over 6 figures so that makes Ballard very affordable.

Grivetti said...

Not really starving....

'struggling artist'...

Nolaguy said...

Who lives in Ballard?

Well, I'm guessing the people that are buying there now are folks who can't afford to buy a home in Magnolia, Queen Anne, or North Capital Hill - but they want to live close to DT.

It's rapid rise in housing prices is because it is more affordable than the above mentioned 'hoods, and not as risky as CD, Beacon Hill or Columbia City - not because of the charming housing stock.

The downtown area of Ballard does have more options now - which is a good thing. But the big reason for people moving there is price.

MisterBubble said...

It's easy for real-estate agents to make six figures, Grivetti.

Meshugy may play music as a hobby, but he's provided more than enough evidence that he's a real-estate "professional" in disguise.

meshugy said...

Meshugy may play music as a hobby, but he's provided more than enough evidence that he's a real-estate "professional" in disguise.

Wow...you're really paranoid. What's next? Black helicopters? Ha ha....

Only $ I've made in real estate is the 120K or so that my house has appreciated since April 2005.

Goldeneye977 said...

Hi Tim,
Some of your arguments supporting the housing bust in Seattle are not correct. For example you say that Seattle has never had a run up of 50% in 3 years. That's not correct. House prices rose 45% in just 2 years from 1989-91. It then fell 10% in 1992 but quickly recovered in the next 10 months.

Now I am also a home buyer waiting on the sidelines, hoping for the prices to fall in Seattle, but I don't see *anything* which is negative about the housing here (except for wishful thinking). Every housing bust article I read have claimed that Seattle is a safe place and I have begun believing it. Boeing, which was not doing well a couple of years ago is doing great now. Microsoft as usual is rocking. Zoning laws are strict here and that has created a supply constraint. If you check http://www.housingtracker.net/ you will find that inventory in Seattle decreased by 8% this month. There is nothing here to suggest even a remote housing bust in Seattle. At best, prices will level off, but I fear come next year, prices will again rise by 15%. if that happens, everyone waiting now for prices to fall will get screwed.

redmondjp said...

goldeneye,

Have you been reading this blog very long? Every point that you bring up to support your contention that there is no bubble has been addressed, repeatedly in some cases.

It's normal for inventory to drop at this time of year. Hardly anybody is shopping for a house right now. Everybody that can wait to sell, is waiting until spring.

Here we go with the Boeing and Microsoft arguments again--do you personally know the median wage that the new-hires at these companies are making (if so, please do share)? [This is a dead horse--if I poke it any more, black clouds of flies will eminate from within.] The issue is the disparity between median income and median house prices. You can throw all the new Boeing and MS jobs you want at that, and it won't change that ratio back to the historical one that has been typical for decades.

And land? We've got plenty of it. Look all over the Eastside--we are 'californicating' lots like nobody's business--taking one lot and building two houses on it (one in the former back yard, one where the front yard should be). With many of the 30-45 year old homes on larger lots, this trend can continue for a long time and keep increasing the # of residences using the same space. And everytime I drive into Seattle proper, I'm shocked at the number of new multifamily buildings going up in what were single-family neighborhoods. Same amount of land, but 2-3-4-5x the living density that was previously there.

A shortage of land is not the problem nor the cause for the runup (if it was, then there would be absolutely no reason for the runup in prices in places like Arizona or Las Vegas, with developments put out in the middle of nowhere).

Goldeneye said...

Hi Redmondjp,
About land, even I feel that there is a lot of land here. But the fact is, the land is under the control of the state and the state does not release much land to builders (as in Neveda or CA). That has limited oversupply here (which is plaguing FL, Sacremento). The recent runup in MSFT stocks recently has put some cash into MSFT employees' pockets. Likewise for Boeing. Although I wish housing prices would go down here, I cannot see how. There is nothing to suggest that there is anything wrong in this market. I can understand the market dropping in Las Vegas or Phoneix, but this place looks really strong.