Here’s our monthly look at Seattle’s price tiers from Case-Shiller. Remember that Case-Shiller’s “Seattle” data is based on single-family home repeat sales in King, Pierce, and Snohomish counties.
Now here come the graphs. First up is the straight graph of the index from January 2000 through March 2008.
At its peak, the low tier’s index was over 15 points higher than the high tier. As of March, the difference has shrunk to 10 points, a clear indication that homes in the low tier are so far experiencing steeper price drops than those in the high tier.
Here’s a chart of the year-over-year change in the index from June 2002 through March 2008.
The low and high tiers both nearly doubled their YOY decline from last month. Here’s where the YOY price change for the three tiers sit as of March – Low: -6.3%, Med: -4.4%, Hi: -3.2%.
Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.
Declines in the high and mid tiers continued to moderate somewhat, but the month to month drop in the low tier was the largest yet, at nearly 2%. The total decline from peak ranges from 7.0% for the high tier to 8.9% for the low tier.
At this point, even if the index suddenly and unexpectedly leveled off, prices in the three tiers would be down between 7 and 8 percent year-over-year by August. If values continue dropping between 0.5% and 1.0% per month, all three tiers will hit -10% around August.
(Home Price Indices, Standard & Poor’s, 05.27.2008)









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< hrf="http://www.bzjrnls.cm/sttl/strs/2008/05/26/dly11.html" rl="nfllw">http://www.bzjrnls.cm/sttl/strs/2008/05/26/dly11.html< hrf="#" clss="rplyt" nclck="rplyt('49075','∓#91;trll∓#93;','101'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('49075','∓#91;trll∓#93;','Strngth n Jbs = Strngth n Hsng prcs\r\n\r\nNt tht th lrgst jb lsrs r ls th hrdst ht n hm prcs.\r\n\r\nTh Sttl-Tcm-Bllv r rcrdd 33,800 nw jbs n th pst yr, whch ws th frth-hghst mnt f jb grwth n th .S., ccrdng t .S. Dprtmnt f Lbr prl sttstcs rlsd Wdnsdy. \r\n\r\nLdng th ntn wth vr-th-yr mplymnt ncrs ws th Hstn r (p 71,000 jbs), fllwd by th Dlls-Frt Wrth r (p 66,800 jbs) nd th Nw Yrk-Nrthrn Nw Jrsy r (p 57,600 jbs). \r\n\r\nn rs tht mply mr thn 750,000 ppl, th Sttl-Tcm r shwd th ntn\'s ffth-grtst vr-th-yr prcntg ncrs n mplymnt t 2 prcnt. Ldng th ntn n prcntg grwth f mplymnt wr fr Txs rs: th Hstn r (p 2.8 prcnt), fllwd by th stn r (2.7 prcnt), nd th Dlls-Frt Wrth r nd Sn ntn, td t 2.3 prcnt ncrs. \r\n\r\nTh stts f Mchgn, Clfrn nd Flrd ld th ntn n mplymnt dcrss. \r\n\r\nTh lrgst vr-th-yr dcrs n mplymnt ccrrd n Dtrt r (lss f 50,900 jbs), fllwd by Rvrsd-Sn Brnrdn-ntr, Clf. r (lss f 17,900 jbs), Ls ngls r (lss f 17,500 jbs), Mm r (lss f 15,200 jbs), Tmp-St. Ptrsbrg, Fl., r (lss f 13,800 jbs), nd th Cp Crl-Frt Myrs, Fl., r (lss f 12,600 jbs). Th lrgst vr-th-yr prcntg dcrs n mplymnt ws rcrdd n Flnt, Mch. (dwn 6.4 prcnt), fllwd by Cp Crl-Frt Myrs, Fl. (dwn 5.3 prcnt), Npls-Mrc slnd, Fl. (dwn 4.6 prcnt), nd Sgnw-Sgnw Twnshp Nrth, Mch. (dwn 3.8 prcnt). \r\n\r\nhttp:\/\/www.bzjrnls.cm\/sttl\/strs\/2008\/05\/26\/dly11.html','101'); rtrn fls;">Qt
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Correlation is not causation. For example, the same DOL report notes that year-over-year job growth in San Francisco (the SF MSA, to be specific) is 0.8%.
http://www.bls.gov/ro2/eu9490.pdf
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That is a very weak argument. There is little or no correlation between job growth and home prices. I have the data for 372 MSAs in the US. Comparing normalized data (% Change in job base vs. % change in home prices) across these markets for one year, the correlation is 20% – very low.
Take the same approach for Seattle market as a time series across 1990-2006, and the result is a little better (43% correlation) but that is a small data set.
Housing starts follow jobs. Housing prices don’t.
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What is puzzling me is the “asking price” numbers I saw on housingtracker.net
http://www.housingtracker.net/askingprices/Washington/Seattle-Tacoma-Bellevue/
the median asking price in STB area has gone up by 2% compared to 3 months ago. Does it mean
1) sellers are still in the wishful thinking mode
2) they are going to get a worse closing price/asking price ratio given that the sale prices are on the way down?
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the point to timing the market is sentiment, not median transaction price.
if everything looks bad and getting worse, you may be able to negotiate an extra X% off asking price because the seller will expect to have to sell it for less to someone else later if they don’t sell it now.
as soon as people see sentiment moving up, though, you’ll have to pay asking or above.
this part of the market cannot be timed. not very easily, anyway
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Thanks, Deejayoh. I hadn’t even thought to question the correlation case.
Vboring: I agree that sentiment is a factor, suspect that we’re seeing the low tier take a dive partly because these are the people living closest to the margins; those in the upper tiers have hedges that insulate them, at least temporarily and maybe longer, from looks-bad-and-getting-worse. But how long do you think the lag is between sentiment picking up and houses again tending to sell for asking price? I don’t think it happens in a flash and don’t know (do you?) how responsive the market would be to a very slight uptick in sentiment. And sentiment doesn’t turn on a dime.
I wish we could get away from this “timing the market” meme. I don’t think any of us are trying to time the market, get a gold star and bragging rights for buying in at absolute bottom. I won’t kick myself at all if I miss the bottom and end up buying a few months into a re-appreciation trend. So I’m not timing the market, I’m monitoring the market, and aside from the size of the purchase-to-be this behavior isn’t any different from what consumers of discretionary goods do every day. In that sense, not even a big deal.
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ZipRealty CEO predicted that Seattle is the next market to crash.
http://www.usnews.com/blogs/the-home-front/2008/05/29/next-housing-market-to-crash-seattle.html
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The claim is not that prices will go up because there are more jobs. Rather, the claim is prices can’t go significantly lower if there is only one year of inventory left. In an area as large as what is used for the Seattle CSI, the price is not going to differ much from cost of construction. Close in to Seattle proper, a large part of the price is land speculation, but there the inventory is still at 6 months and the prices are already strong, as they are in all high-end areas on the west coast. For farther out areas, the prices is still falling, but it won’t be for long, because of the large flow of people into the area.
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I wonder what the % of those employment increases/decreases are real estate specific? It would not be surprising that areas which have burst already have worse employment figures for last year than Seattle because they lost a lot of construction, financial and agent/broker jobs. It would also not be surprising if a lot of the job creation in Seattle during last year was still real estate related.
The Fed, the speech I linked before, does not believe that unemployment is a factor in the housing bust, they also found little correlation. However, unemployment is certainly being caused by the housing bust, which probably does not help things.
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What are the low/mid/high price ranges again?
I just did a little search of what I call “sellers who finally gave up hope”: homes with 2000+ sqft, on the Eastside, less than 15 years old, 3+bed, 2+bath.
That’s the bottom of the “desirable range” for me, at least. I have seen this kind of house “sticking” to an asking price right around 500k, and that limit has been really hard to break.
Now, I joyfully see a few listings like this one: http://www.johnlscott.com/propertydetail.aspx?IS=1&ListingID=31920260&SPID=17240096
I hope more sellers “see the light” like this guy did.
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RAL like many others, take the most simpler approach to justify buying a home.
His example of strength in employment, look at Houston and Charlotte. Both have very strong employment, both markets is at about half of Seattle’s median price.
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hmmmm US News and World report joins the chorus …..
http://www.usnews.com/blogs/the-home-front/2008/05/29/next-housing-market-to-crash-seattle.html
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Jon –
My post in #103 was in response to RAL, not yours. However, I’ve looked at that license data as well.
I have two thoughts about your argument
1) the rate of housing starts has exceeded population growth for the last ten years. Even factoring in changes in household size, the housing stock has grown faster than the population. that has been discussed at length here previously. You can’t just look at current inventory
2) the rate of immigration to the state has slowed dramatically. Check the charts at OFM. The inflow from California has pretty much ended.
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Charlotte
Estimated median household income in 2005: $47,131
Estimated median house/condo value in 2005: $159,900
Median gross rent in 2005: $732.
Housing density: 952 houses/condos per square mile
Seattle
Estimated median household income in 2005: $49,297
Estimated median house/condo value in 2005: $384,900
Median gross rent in 2005: $804.
Housing density: 3226 houses/condos per square mile
The density explains a lot of the increased premium on the value of land. Charlotte seems more comparable to the farther out areas outside of Seattle in that regard. People are willing to pay for the enjoyment of a urban environment. I seriously considered moving to Charlotte last year. I decided to stay here for a variety of reasons, but I can certainly understand the draw to Charlotte.
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Alex,
Agreed the housing supply outran the demand over the past decade. However, that spigot has been turned off for now, and it is just a matter of a few more months before the supply drops to the normal level.
The inflow has slowed, but the April data shows it is still enough to absorb the inventory. I’m not saying we are going back to 2005 in price increases. I’m just saying there won’t be much more of a drop, based on using real data rather than just doing the “technical analysis” of that US News article.
RAL’s data explains the price drops in other areas. There are vacant houses there that won’t be filled any time soon, so those areas don’t have a floor on their prices.
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I was surprised to find out how nice Charlotte was in terms of employment and RE price…
I thought it was just a tiny little town!
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jon -
If you think supply has stopped, then I recommend you get out of the house and drive around a little bit more. There are still a million cranes all over Seattle/Bellevue, and they are still building thousands of new townhouses and regular homes all over the suburbs in KC.
Even in other parts of the country where the bubble burst a year ago are still seeing supply growth. The lag time is more like 2-3 years for these kind of projects, they don’t just stop working on them one day. They will be overbuilding well into the future because they have to.
This, of course, takes no account into the overhang of “investor” purchases, which the Fed links I provided earlier in the thread show that Seattle had investor-owned purchases of a similar magnitude to the worst areas of California. When price declines really start to occur later after the summer, especially from new home builders on the brink, you can bet that 2009 is going to be a bloodbath.
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Jon,
Inventory spigot has turned off? According to what data? Do you read the inventory tracker to the right of this blog? We started May at 11,832 SFH and are currently sitting at 12,591 SFH.
Doesn’t look like an inventory slowdown to me…. BTW sales are way down YOY, so by any measure it is doubtful that the excess inventory is going to subside any time soon.
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“Inventory spigot has turned off? According to what data?”
Over on the right hand side of this page. Where it says “Inventory”.
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Sorry posted too soon. It has stopped growing over the past week. And sales are up over the past couple of months.
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Jon
oops. That was me in #110. Stupid wordpress
I’m not sure that I’d agree that the housing supply “spigot has been turned off”
John L. Burns shows that 12-month total for housing units permitted in Washington was 32,000 units. 19,000 were in Seattle. That’s 67% of peak permits (which we know outstripped population growth). Most of the correcting markets are now at 20-30% of peak. That’s what it looks like when the spigot gets turned off. And most of this housing is likely still WIP, so it will be added to inventory.
Try this little test: go to your favorite listings site and just look at “new construction” vs. the total. I make it out to be ~20% of total listings. – 2500 units in King County. So you have lots of new construction that is coming on a bit at a time. It isn’t going away as a factor in inventory any time soon, and any case it’s not the dominant portion of listings anyway
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and it is just a matter of a few more months before the supply drops to the normal level.
Jon, you are living in an alternate reality. Last month inventory was higher than it had ever been. Today it is 15% higher than that. Growth slowed last week because it was Memorial Day weekend. We’ll probably top out this summer, but every other market has shown that inventory tops are accompanied with massive price declines. Don’t see any reason why Seattle will be different.
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Jon,
I’ll give you 10 to 1 odds on any amount of money that you want to wager that inventory will be higher at this point next month.
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There are still 6,000 drivers per month moving into WA, so construction isn’t going to a complete stop, what with only a few months worth of excess supply at this point. Those areas where constructions is at 20% of peak are in areas that are losing jobs, not gaining them.
I agree that the inventory trend isn’t going to come to a dead stop after just 1 week of data, but remember that were are just two days away now from a likely 200 monthly downward adjustment in MLS data.
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jon, Tim changed the SFH number to use the first feed which doesn’t have the same “correction” that the third feed does.
5/30 11am
Feed 1: 12597
Feed 3: 14331
I expect Feed 3 to see a 2000 unit correction in a few days.
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Alan,
Feed 1 is more stable, but it does tend to correct by a few hundred on the first of the month as well. Example from May 1:
The official King SFH inventory count from the NWMLS for the end of April was 11,424, which was itself another 200 below the “corrected” Feed 1 value.
If this trend holds, my guess is that we will see the official NWMLS KingCo SFH inventory for May at about 12,250, which would be a 7% increase over April, and a 40% increase YOY. So Jon’s “spigot has been turned off” comment is clearly not supported by the available data.
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People talk about timing, but there are major issues yet to be clarified:
1. Whether we are headed into an economic depression that socks the job market even in blessed Seattle. This includes apparent economic armageddon brewing in California.
2. The banks look assured of weathering this storm
3. The peak of the rotten mortgages arrives through 2009, and into 2010 as I’ve heard,
4. the efffect of all the baby boomers panicking and selling their biggest asset, their house, because they have nothing put aside for retirement. This is exaggerated by the previous three.
I remember the dotcom debacle and the predictions of a disaster and how long predictions were scoffed at and how long it took to become truly clear.
When the verdict is in on these four major issues, then I will feel confident buying a house or investing in general. You might miss the bottom, but we’ll stay at the bottom for a while before people jump in, so it should be an easy call. The hard call currently seems to be not catching the falling knife, especially in Seattle, because our fall has not gathered much steam, and this area does have jobs.
Urban areas will also fare better than suburbs as people are losing interest in a driving-intensive lifestyle, so this could offset a general decline. There are many possible other wildcards which make things worse, not better.
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Is the the end of month price drop we were expecting?
06.01.2008 04:00 12749 13619 14593
06.01.2008 05:00 12602 13619 14593
06.01.2008 06:00 12542 13619 14594
Odd time though. It usually happens early in the morning.
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