Vacation Link Roundup

Looks like I didn't miss too much Seattle housing news while I was gone. I'm looking forward to seeing the April numbers next week. Here's a summary of what I noticed while clearing my inbox:

• Seattle, Portland, and Dallas are the only cities of the 20 tracked by the Case-Shiller / S&P Index in which prices are still rising.
• Mr. Cohen discusses the latest Case-Shiller / S&P Index data in an article with more balance than usual. Don't worry though, it still includes the requisite quotes from realtors about "bidding wars" and "soaring prices."
• Foreclosures in the first quarter of 2007 in King County were up 37.6% from Q4 2006, and up 0.7% YOY.
• Ms. Rhodes does her part to pump up the local home salesmen's egos with another installment of add some rah-rah fluff to an AP article.
• Apparently there's a bit of a kerfuffle going on up in Snohomish County over the creeping spread of something that resembles the resulting offspring of an unholy union between condos and SFHs.

I'm also pleased to report that my nefarious scheme of going on vacation appears to have had the desired effect on the forums. Membership swelled by nearly 30%, and posting activity skyrocketed. Here are a few of the more popular and/or interesting threads:

• Boom on the eastside fueled by recent immigrants?
• What are the indicators signaling the end of the boom?
• To buy or not to buy????
• A Home prices versus inventory comparison

Therefore, I believe it is time to say goodbye to the open threads. For the foreseeable future, all user-driven discussion will take place on the forums. Thanks for your participation. I really enjoy reading what everyone comes up with.

Case-Shiller: Prices Flat in Seattle

Uh-oh...

Home prices go negative for first time in 11 years
Case-Shiller price index shows prices falling in 17 of 20 cities in January

WASHINGTON (MarketWatch) — U.S. home prices continued to fall in January, with prices in 10 major cities now down 0.7% year-over-year, according to Standard & Poor's and MacroMarkets LLC, which released the January Case-Shiller price indexes on Tuesday.

The 10-city index is down 0.7% in the past year, the first year-over-year negative reading since 1996. The 20-city index is down 0.2% year-over-year. A year ago, prices were rising 15%.

"The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market," said Robert J. Shiller, chief economist at MacroMarkets, in a statement.

Of course, since you already know how special Seattle is, you obviously know it was one of the three cities in which prices are not presently falling. But the picture isn't quite as rosy as you might think...

Home prices fell from December to January in 17 of the 20 cities; only Miami showed any price gains. Prices were flat in Charlotte, N.C., and Seattle. Prices were falling fastest in January in San Diego, down 1.7%, or a 22.4% annual rate. Prices dropped 1.1% in Los Angeles, or a 14% annual rate.

The 10-city index was down 0.8% in January, or an annual rate of 10%. The 20-city index was down 0.7% in January, or an 8.7% annual rate.

Eleven of the 20 cities had negative price appreciation in the past year, led by Detroit (down 6.9%) and Boston (down 5.6%). The biggest increases were in Seattle (up 11.1%) and Portland, Ore. (up 8.7%).

Prices have now retreated year-over-year in some of the regions that had the biggest price gains in 2004 and 2005. Phoenix is down 0.7% year-over-year. San Francisco is down 1.4%. Washington is down 3.9%.

I am reminded of an image that was circulating a while back. It was a photograph of a roller coaster just as the cars crested the peak and began the ride down. The various cars were labeled as different cities around the country, with San Diego in front (beginning to head down quickly), Phoenix in the middle (just starting a downward trend), and Seattle in the back (just "leveling off").

To me, it only makes sense that the cities that began the ridiculous run-up first (San Diego, Phoenix, etc.) will be the first to head down. Conversely, cities that were late to the wild appreciation party (Seattle, Portland, etc.) will be the last to experience price declines. But why bother with "logic" and "reason" when you can put your blind faith in the mystic power of "job growth" and undefined "fundamentals." 11.1% forever!

(Rex Nutting, MarketWatch, 03.27.2007)

Seattle Running 6-12 Months Behind

A common belief (one that I've repeated a couple of times here) is that housing trends in the Northwest tend to lag California and the nation as a whole by six months to a year. Obviously we cannot know exactly what will happen here, but if we have generally followed California and the national averages in the past, then we can look to them to get a general idea of where our housing market is headed in the near future.

Let's take a look at some graphs to see if the theory holds any water. All of the following graphs are from the Case-Shiller Index, which tracks same-home sales in 20 markets across the country, including Seattle:

Seattle Home Price Index

As we all no doubt already know, Seattle has experienced quite a climb in prices in the last few years. You can see in the graph that the gains really started to pick up steam around 2003-2004, but things seem to be leveling off presently.

San Diego Home Price Index

San Diego's rapid gains began in earnest 2002-2003, but they leveled off in 2005, and actually declined in 2006. Hmm, interesting.

Composite-20 Home Price Index

The composite graph appears to shoot up in 2003-2004, with a peak in early 2006, and declines since then. (Note that the composite graph tracks only 2000-present.)

Already you can probably see that on the way up, Seattle did in fact seem to lag the other two graphs. To help us visualize, I took the San Diego graph, and overlaid Seattle onto it, shifting Seattle one year back:

San Diego Home Price Index w/ Seattle Overlay

While they are of course not a perfect match, you can see that when Seattle is shifted back a year, both lines become suddenly steeper around the same point, and they both level off around the same point. This would seem to confirm the theory that Seattle's housing cycle has been lagging California (or San Diego at least) by approximately one year.

Here is the Composite-20 graph, with Seattle overlaid and shifted back by six months:

Composite-20 Home Price Index w/ Seattle Overlay

That looks like a pretty good match, too, with the two tracking very closely since midway through '03.

So what's the conclusion? During the recent unprecedented run-up in home prices, price growth in Seattle has lagged the nation as a whole by roughly six months, and San Diego by approximately a year. Both of these measures have shown real price declines in the past year, despite many positive factors (such as job growth, low unemployment, good interest rates, etc.).

Therefore, a reasonable person would conclude that there is a very real possibility that Seattle will also experience price declines in the coming year. On the flip side, a willfully igorant person would conclude that "Seattle is special" and we are totally shielded from experiencing similar price drops.

Declining prices are not by any means certain to happen, but ignoring the evidence that points to such a conclusion seems to me to be a pretty dumb move.

(S&P/Case-Shiller® Index, MacroMarkets, 01.2007)