Next Housing Market to Crash? Seattle
Few American cities have weathered the national housing crisis better than Seattle. According to the recently released S&P/Case-Shiller Home Price Indices, home values in the drizzly gem of the Pacific Northwest have fallen a modest 4.4 percent over the past year—a cakewalk compared with former housing boom hot spots like Las Vegas (-25.9 percent), Miami (-24.6 percent), and Phoenix (-23 percent).
But that may soon change. In a recent interview with U.S. News, ZipRealty CEO Pat Lashinsky predicted that Seattle's so-far resilient housing market would suffer big losses relatively soon. Excerpts:
What makes you think the Seattle housing market is going to crash?
In Seattle, if you look at it right now, on a year-over-year basis, you will see that inventory levels [of unsold homes] are up between 45 and 50 percent. And then if you looked at prices—in the price report that just came out—it would say that prices are down in Seattle by 4 percent. This is exactly what we saw in the rest of the country six to nine months ago. We saw inventory levels starting to spike [and] properties were taking longer to sell. But the sellers were not willing to [reduce] the price; they were holding the line. And so you get into this scenario where buyers don't buy, because they have too many choices and they are trying to get a good value, and sellers are trying to hold on to their value. So now, nobody buys a home today, and then more homes go on the market tomorrow. And then all of a sudden, people have to sell or foreclosures come in. And all of a sudden it pops because everyone is competing against a significantly lower price.
So you are expecting this scenario to play out in the relatively near future?
Yeah. You'll start to see sellers [who] are unable to get their house sold that will be having to sell because of economic reasons or divorce or whatever the case may be. They will have to sell, so they will take their home price significantly lower to get it sold. Additionally, you will have more distressed housing because people [who] are in short sales or are having their loans reset are not going to be able to get out of their homes because nobody is willing to buy it because the price is too high. And so those will start to drop. This is just what's played out across the country. Then once those homes start to drop and the prices come down, then everyone else is competing against them. So it creates this kind of downward price pressure until you get back to a norm that buyers are more comfortable with. Right now, Seattle is literally following exactly what the rest of the country did. The supply-and-demand curve has definitely gotten out of whack.
Tags: Washington | housing market
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Reader Comments
very good insight
short article but with great insight, it's good to have a balanced and objective view of the seattle market.
Where's the data?
I have been a Real Estate Broker in Seattle for 30 years. Yes, the market is tough out there. But if one is going to make predictions for a particular area, one needs to look at data and trends. I work mostly the South End so I haven't tracked months of inventory in other areas. In West Seattle and Burien, the data isn't all that bad. Near the peak of the market in West Seattle, weeks, not months of inventory was 10-12. That was in Spring of 2007. Burien and Des Moines was about 15. By October, 2007, those numbers moved up to 27 and 32 respectively. Now, about 1 year after the peak, those numbers are 26 and 35. 26 weeks is just over 5 months of inventory. In the past 30 years, the range has been from about 8 to over 100 weeks or 2 to 24 months!!! The difference this time is that we have experienced about a 6-10% decrease in prices, not 4%! Months of inventory is holding up, so I see no reason for a continued substantial decrease in the core Seattle area.
The outlying areas however, saw higher appreciation and are now seeing more depreciation along with more months of inventory. We have seen an additional 1-2 months of inventory added in the past 7 months, so those areas aren't close to a bottom yet.
There are numerous people writing all kinds of articles. People need to KNOW what is going on from professionals who have looked at the raw data and know how to interpret it.
Where's the data for the supply/demand curve being out of whack? What's so bad about 6-10 months of inventory? That's the supply and demand ratio. The determinant about where the market is going is the trend of that months of inventory number. It's not rocket science. In addition, because of the amount of depreciation that has gone on, same house to house, or developments must be tracked for price changes to determine actual depreciation. Medians aren't accurate as more lower or upper priced houses selling can skew the median.
So what do I think is going to happen? 0-5% more depreciation in the core Seattle area and 5-10% more in those areas that enjoyed more appreciation during the bubble.
Talk and write after you do your research.
MLS
MLS stats in S.W. King County, has prices down 8% for the month of April year over year. Where are the justification for these prices even in Burien and West Seattle. In 2002/2003 the medium prices were 150k/200k in above areas, then loose lending took over. Prices have doubled, yet income personnal growth hasn't even come close. People claim that it's a buyers market and there waiting for prices to come down. Truth be had, generally people can not afford pie in the sky prices (minus loose lending standards). Real Estate agents were in denial in other bubble areas that have popped. Just as the one above is now, in the next 18 months I see a 100k price drop.
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