“Positive Fundamentals” with “Hints of Weakness”

Ahh, Les Christie of CNN Money—the perfect national companion to our local captain of the real estate cheerleading squad, Elizabeth Rhodes. Where would we be without your frequent reports reminding everyone across the country just how special Seattle is?

In the middle of a nationwide housing slump, a few markets have held their ground – and then some.

In Seattle, for example, the median home sale price was $380,200 during the first three months of 2007, according to the latest stats from the National Association of Realtors (NAR). That’s a 12.3 percent year-over-year increase.

Ten other metro areas among the 156 markets covered by NAR also recorded double-digit, year-over-year price increases.

So what have they get that other markets don’t?

The main ingredient is a set of positive fundamentals, including strong job and population growth, which then fuel demand for houses.

Ah yes, the fundamentals. Gotta love those positive fundamentals. Our strong job growth that is so directly tied to home buying demand. Our surging population growth that so clearly exceeds the rate of homebuilding. Yup. Ya just gotta love those fundamentals.

Other factors also got the double-digit markets percolating. In nearly all of the areas, prices never overheated, remaining relatively low through the boom years. It’s easier to show outsized growth when you’re starting from a low base.

70% increase in five years? Perfectly normal. Definitely not “overheated,” no sir.

But wait, what’s this? Did I actually see a nugget of truth in this latest puff piece?

But even the strongest areas around the nation show hints of weakness that aren’t covered by NAR statistics.

According to Lennox Scott, of the John L. Scott Realty Company, one of the largest home sellers in the Pacific Northwest, the hottest Seattle neighborhoods are those closest to job centers.

“We see double the demand close in,” he said. “People don’t want the commute.”

Since the most expensive housing markets are the ones closest to the downtown core, that can make home prices appear higher when really it’s just the mix of sold houses that has changed.

The recent subprime mortgage crisis has also significantly changed the types of homes being sold. Demand has fallen among credit-damaged and low-income buyers, who typically buy lower-priced houses.

And tougher lending standards also make it more difficult for marginal borrowers to purchase. In Seattle, Erik Hand, president of Response Mortgage Services, Scott’s lending arm, said, “We’re having a harder time getting first-time home buyers approved.”

The result is that stats can still show double-digit price increases when, in reality, the market may have slowed substantially. It certainly seems that way to Lennox Scott.

“The market may have slowed substantially.” You don’t say. Well maybe there’s a glimmer of hope for our friend Les Christie after all.

(Les Christie, CNN Money, 06.26.2007)


About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

10 comments:

  1. 1
    deejayoh says:

    Case-Shiller stats were released today for April. Seattle came in at 1.3% gain M2M. I was surprised, to say the least. I expected it to still to be positive, but at less than half of that number. Spring bounce, perhaps?
    Y2Y number was 9.6% – compared to I think just over 10% last month.

  2. 2
    deejayoh says:

    Oops. Forgot the link

  3. 3
    Greg Kirkos says:

    Look at other markets. In some areas near Boston, homes have appreciated 80-100% in two years. Now they’re deflating there. Now contrast that to Seattle: 70% in 5 years is 11% a year. 70% in five years is no big deal.

  4. 4
    deejayoh says:

    Greg –

    I am not sure where you are getting your numbers, but they don’t seem accurate, at least not compared to the CS Index.

    The Boston market (hey, sounds like a chicken chain!) was up 82% from the beginning of 2000 when it peaked in Sept 2005. It has since dropped 13% in a little under 2 years to sit today at 68% appreciation this century.

    By contrast, Seattle was up 59% from the beginning of 2000 in Sept 2005 , and has since added another 29% of appreciation to sit at 88% appreciation.

    In other words, we’ve outgained Boston by 42 points in less than two years. Sounds like it’s getting worse, not better.

  5. 5
    TJ_98370 says:

    Since the most expensive housing markets are the ones closest to the downtown core, that can make home prices appear higher when really it’s just the mix of sold houses that has changed.

    The result is that stats can still show double-digit price increases when, in reality, the market may have slowed substantially. It certainly seems that way to Lennox Scott.

    On the bright side – a year ago there was no way the MSM would have printed anything like the above two statements.

  6. 6
    Brian says:

    Hey Tim, I’m a fairly new reader, and enjoying your blog, but I have 2 comments:
    1. It’s going to sound lame, but I’m sometimes a bit thrown off by your use of sarcasm. If you can make it a bit more clear or tone it down a bit I think it’d be easier to read, and probably more professional.
    2. I don’t know if you can do anything about it, but Google Reader doesn’t handle your quotes properly, so you can’t tell what’s a quote.

    Good analysis though. I think it’s really funny how people can say that 70% in 5 years is no big deal. Oh how their tone will change over the next decade.

    Have you read Shiller’s “Irrational Exuberance”? I recently finished it and did a writeup on my blog if you’re interested.

  7. 7
    YuorFavoriteBH says:

    So I own a SFR in Queen Anne. Does that make me smart? Can I take out the HELOC for my 52″ plasma and H2?

  8. 8
    Finance says:

    The Tim – I never really noticed you actively editing out posts prior to Google Reader…is it getting like RCG in here or what, lol?

    I realize now that the above graphs are showing where the markets peaked, however you will also notice that the LA & SD markets peak was ~40% higher than Seattle’s peak! Thus, my conclusion is that our market would most likely decline ~40% less than them as well…seems quite logical.

    Brian – I met Shiller once at WSU when he came to speak to our class and give a presentation. He even signed my copy of Irrational Exuberance. I read it again last summer, but he is an economist (which means its filled dry statistical terms), but a good book.

  9. 9
    The Tim says:

    Finance,

    Not sure what you mean by “actively editing out posts.” The only editing I do to comments is to modify them for formatting, such as changing a pasted-in URL into a proper HTML link.

    As far as the graphs go, let’s keep that discussion on the appropriate post.

  10. 10

    […] Here are a couple of comments that have been posted recently to Seattle Bubble: Brian on June 26: […]

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