Editor’s Note: I’d like to welcome new contributor Jonness to Seattle Bubble. He maintains the excellent set of tools at HousingCorrection.com and has provided an interesting analysis of housing data in his comments. – The Tim
An article in the Seattle P-I indicates that our home sales slowed more than anywhere else in the nation.
Sales of existing houses dropped more in Washington than anywhere else in the nation last quarter, compared with a year earlier, according to a new report. King County’s median sale price also dropped roughly 10 percent from a year earlier.
The state’s sales were down 36 percent from the third quarter of 2007, the National Association of Realtors reported. The next-largest annual drops were in Vermont and Delaware, where sales fell 33 percent.
A big reason why Washington’s annual drop is larger than other states’ is that its decline started later, meaning other areas had much slower markets a year ago.
According to Global Insight’s analysis, Washington is still overvalued, while bubble states California, Nevada, and Florida have largely corrected. It looks like Washington real estate has some fat left to trim in order to catch up with the rest of the nation.
(Aubrey Cohen, Seattle P-I, 11.19.2008)
uwp » Nov 20, 2008 at 4:03 pm
Well, I guess we are special after all!
Alan » Nov 20, 2008 at 4:24 pm
Look, you can’t go time shifting your data all over the place. It is misleading.
Fact: Washington is still above those other markets.
Fact: Sales are down so much because prices haven’t dropped very much.
Fact: I have a pink pony and I call him George.
EconE » Nov 20, 2008 at 5:11 pm
California largely corrected?
Yeah…sure…if you want to live in the desert exurbs or some other “chocolate” hole.
deejayoh » Nov 20, 2008 at 5:16 pm
Hey Jonness –
Nice first post. I like that Nat City report. Kind of ironic that the housing bubble put them out of business though
David Losh » Nov 20, 2008 at 5:39 pm
This has been another topic of conversation in the Real Estate community. Prices here are slow to go down. Buyers seem to be active, they want to make offers, and in the end nothing happens.
Just as an aside a property near my house has had three offers. The buyer and seller were $4K apart on the last offer and when the seller refused to go down the $4K more the buyer walked.
jonness » Nov 20, 2008 at 6:57 pm
Thanks deejayoh. The worst part about it is I’ve been using the National City data in my website charts. I’ll probably have to start using the OFHEO data from now on, which isn’t quite as accurate.
EconoE: I’m glad you got a kick out of that statement. I agree with your analysis (further deprecation will occur in the bubble states). However, there is a large disparity between the amount the leading bubble states have corrected and the amount of correction that has occured in the PacNW.
Many bubbleheads have a long-standing theory that Seattle is lagging the trend; thus, the bubble states are a leading indicator of what will eventually occur in Seattle (large price declines spread out over the course of years). Although, I meet few people who agree with Global Insight’s opinion of where fairly valued and undervalued occur, I believe its analysis has a lot of merit on a relative basis. It does a good job of showing how much relative fat still exists in the PacNW compared to everywhere else. The value in this for me is it allows me to understand what’s going to happen further into the recession when the unemployment rate hits 8% or so. IOW, there is no way the fat won’t eventually get trimmed. Furthermore, it’s common in a correction like this for prices to actually undershoot. So things could get really ugly before it’s all over. I think I’m preaching to the choir here though.
I think it’s important to keep in mind that much of the correction we’ve seen in the CA, NV, and FL occurred as a result of the subprime engine. We’ve blown through the majority of that mess, and other factors are currently driving prices further down, such as the horrible economy and the upcoming wave of alt-A resets. Who knows, if it gets cheap enough in Santa Barbara, I might end up relocating there. I’m quite fond of that place.
alex » Nov 20, 2008 at 7:27 pm
David Losh, if the buyer walks when he’s 4k below the seller’s counter-offer, he probably wasn’t that serious… probably would have walked even if the seller had agreed with the buyer’s terms.
Matthew » Nov 20, 2008 at 7:29 pm
David,
You don’t live in Maple Valley by any chance????
EconE » Nov 20, 2008 at 10:07 pm
Johnness…From what I could see, the subprime loans were written in the “subprime” areas of CA. Sure, you can get a house for 80% off in Compton…but would you want to live there? The “correction” in California has been more focused in the areas where the “weak hands” already were already holding subprime mortgages.
When the Option-ARM trade-up buyers get hit, the higher end will start to come down more. It really hasn’t fallen far at all and sales in decent areas are slow. When high end foreclosures flood the market (I’m seeing more and more) and people start buy in that segment again, the median price will rise. It doesn’t mean that the market still isn’t falling however.
It spreads like a cancer. Starts at the bottom and works it’s way up.
economist » Nov 21, 2008 at 1:29 am
I think it’s important to keep in mind that much of the correction we’ve seen in the CA, NV, and FL occurred as a result of the subprime engine. We’ve blown through the majority of that mess, and other factors are currently driving prices further down, such as the horrible economy and the upcoming wave of alt-A resets.
There is really only one factor driving prices down, everywhere.
Prices were too high. Period.
Buceri » Nov 21, 2008 at 4:34 am
Boeing warns of layoffs in 2009.
Memo to employees (source: Seattle PI) sent yesterday.
http://blog.seattlepi.nwsource.com/aerospace/archives/155052.asp
Ira sacharoff » Nov 21, 2008 at 9:55 am
It’s not easy to catch a falling knife. Sure, CA and FL fell first and fell further, but if calling a bottom were that easy, a lot more of us would be rich.
Yesler Hill » Nov 21, 2008 at 9:55 am
And yet; last night Aubrey Cohen posted this gem to the Seattle PI website:
http://seattlepi.nwsource.com/business/388778_realestate21.html
In which he does find RE people who will somewhat admit Seattle is finally catching up with rest of the US; but even then, the RE pundits can’t help themselves from tacking on admonishments abt the specialness of Seattle – things won’t get as bad here, things are already looking up here and of course the old favorite: Seattle has RE opportunities for developers; that have lots of cash!
As I’ve posted in reply to Cohen’s articles, I’d sure have a lot more faith in his speculations and reporting if he was not entirely dependent on the RE industry itself for all his quotes and stats.
But if he won’t give them the spin they want, I suppose he doesn’t get invited to these conferences and breakfasts?
johnnybigspenda » Nov 21, 2008 at 10:54 am
This will definitely be a topic of discussion on SB when it comes out:
S&P Set To Launch New Indexes of Condo Prices
Standard & Poor’s, publisher of the closely watched S&P/Case-Shiller Home Price Indices, is set to launch on Nov. 25 new indexes that track condominium prices in five major metropolitan markets—Boston, Chicago, Los Angeles, New York and San Francisco.
That is not the only move building on the popularity of the Case-Shiller indexes. For every season … there will be more real estate indexes from S&P. The company plans to create seasonally adjusted versions of the existing Case-Shiller indexes, that cover the residential real estate markets in the U.S—the 10-City, 20-City and National Composite indexes. S&P will also create seasonally adjusted versions of the three new condo indexes.
The existing Case-Shiller indexes are about to get even more exposure as they enter the exchange-traded funds world through MacroShares portfolios. These funds are not only unique for targeting the niche residential real estate indexes, but will launch using an initial public offering process never before used by the ETF industry (see story here).
David Blitzer, managing director & chairman of the Index Committee at Standard and Poor’s, said in a statement that condo prices behave very differently from residential home prices, and that the condo indexes will provide property owners and investors a more complete picture of the U.S. housing market, as well as more specific takes on relative real estate performance.
The condominium indexes covering the five major metropolitan areas will include historical data beginning in January 1995. The seasonally adjusted data will have the same history as its underlying index, which for the existing Case-Shiller indexes, goes back as far as January 1987.
The new indexes will be part of the supplemental home price data series that are normally available by 9:30 a.m. on the last Tuesday of every month.
Ray Pepper » Nov 21, 2008 at 11:31 am
Just came off a whirl wind tour of Vegas, Reno, and Sacramento. Many years of inventory that needs to be cleared out. Nearing a bottom in those areas? I think not!! We have many more down legs ahead. Prices are down 50% but I say it still has a LONGGGGGGGGGG way to go. The jobs in the Casino industry are evaporating. The rooms are cheap and they are struggling BIG TIME. As for Sacramento…What a vast wasteland of cracker-box homes.
Amy M » Nov 21, 2008 at 11:59 am
Fannie and Freddie have announced that they will hold off on foreclosures until Jan. 9th. Here’s the story as posted on Bloomberg.
http://www.bloomberg.com/apps/news?pid=20601213&sid=aYq97me3bUCw&refer=home
Hey, at least people can stay in their house for Christmas.
Amy M » Nov 21, 2008 at 12:01 pm
Just had a friend email me. The 3 Boeing engineers renting her condo on Mercer Island didn’t get their contracts renewed. So much for the “if you have an education and good skill set you’re fine” theory.
Amy M » Nov 21, 2008 at 12:09 pm
Ray:
Couldn’t agree more about Sacto. Hubby and I were there in May and you’re right on. What a wasteland of junky look-alike homes. Sun or no sun, I don’t care how close it is to CA wine country, you couldn’t pay me to live there with even higher taxes and inefficient government. Not a lot of jobs either. They are so messed up. Even their gated communities have gates on them. Who the ? do they think is coming to steal their ugly stuff anyway?
I once saw a comparison of Roseville (suburb of Sac) to Redmond. When we were there we drove through it and the big event in town was being sponsored by the bail bondsmen. No way is Roseville even close to Redmond, more like Kent or Burien.
AZ is another heavily hit state. My dad lives just outside of Tucson. He says there are good signs there that things are leveling off but that’s because it was never as overbuilt as Phoenix and less expensive to begin with.
economist » Nov 21, 2008 at 12:16 pm
if calling a bottom were that easy, a lot more of us would be rich.
Calling a bottom in RE is easy. Rent equivalence or better and flat prices for a year. Has worked almost without fail since WWII.
softwarengineer » Nov 21, 2008 at 12:30 pm
CALLING A BOTTOM TO THIS ECONOMIC MELTDOWN MESS AND SEATTLE HOME PRICES
To me its really easy to call the RE bottom in prices in Seattle.
When we depopulate the credit crisis, we can start to flatten out and hit bottom.
If we try to grow out of it, it will continue to worsen, without end. We’re simply out of fish, lumber, water, oil, etc; and adding growth on more unending debt in America is clearly unsustainable and totally unworkable.
uwp » Nov 21, 2008 at 12:42 pm
I’m going to stick up for Sacramento here.
It’s an hour and half from San Francisco. An hour and a half from Tahoe, and an hour and a half from Napa. That’s a pretty good spot to be (although, nowhere near as green as up here).
But then you have to factor in the people. Californians are a different breed.
Lake Hills Renter » Nov 21, 2008 at 1:49 pm
Am I the only one who cringes when they see the words “seasonally adjusted numbers”? To me that means “doctored”, or at the very least “changed”. I just want raw numbers, not numbers adjusted to what someone else thinks is right. Anyone know what formulas are used to seasonally adjust numbers?
Blue » Nov 22, 2008 at 9:21 am
Are prices reallying dropping in Redmond/Seattle?
I dont think so – I have been checking the websites of RedmondRidge,Camwest builders. Particularly camwest has not reduced prices.
Are the slow sales due to prices not dropping (or) Are these builders fooling with these huge numbers on website, where as in reality accepting bids much lower than those prices listed on the website.
I am confused.
Matthew » Nov 22, 2008 at 10:48 am
Blue,
No, prices aren’t really dropping. It’s all propaganda.
Ray Pepper » Nov 22, 2008 at 10:57 am
Amy and UWP I grew up in San Jose and moved to Bellevue in 1986 when I was 19. My parents, who are now in their 80’s, moved to Gardnerville over Kingsbury grade from Tahoe. Truly God’s country if there is such a place. I have been through Sacramento all my life and I have never seen a city so depressed other then my visits to my brother who lives in El Paso. Just across the border is Juarez Mexico the worst place I have been. Comparing Jarez and Sacramento is unfair and extreme but I would never contemplate living in either.
I need to go visit Tuscon more. My grandparents lived there and I’m also told Scottsdale is wonderful. But, I still like the 3.5 hour drive from Carson to the Bay Area and 45 min drive to Lake Tahoe. In less then 8 years I will be most likely be living in Dayton, Gardnerville, or Minden Nevada running the 500 Realty office out of Carson City or doing my nursing again .
After leaving Seattle I will not live in a big city. Phoenix and Vegas are out of the question. You couldn’t pay me to live in Sacramento 20 years ago, and most certainly not now.
Another Tim » Nov 23, 2008 at 7:00 am
Don’t the “real” numbers concerning depreciating values depend on the time line you’re viewing and the rate of inflation?
For example: If you bought a house in 2000 for $250,000 and now, according to best estimates, it’s worth $325,000, would that mean it increased in value?
If inflation has been 4% over that time period have you lost value?
From another perspective; if you make your baseline the price at the peak and say the house was worth $400,000 then but now it’s $325,000 have you lost $75,000?
Jonness » Nov 23, 2008 at 6:53 pm
@26
I think it’s situation dependent. But one situation that comes to mind is the following:
If you compare the rise in median household income to the rise in median home price, you’ve lost big time .
Here’s my thinking:
According to Global Insight, in Q2 of 2008 the Seattle median house price was $395,000.00. In Q1 of 2000, it was $212,000.00.
Thus, if you divide the 2000 median house price by the 2000 median household income, you get 3.78.
212000 / 56106 = 3.78
So take the 2008 median household income and multiply it by 3.78. You end up with $260,185.00 in value.
68832 * 3.78 = 260185
Now subtract the actual cost of a house in q2 2008 from the actual value of the house had in q1 2000 adjusted for inflation.
395000 – 260185 = 134815
If you bought a house in Q2 2008, you’ve lost $134,815.00 in 2008 dollars. If you bought at the peak, you actually lost more than that. Thus it is quite understandable that we are seeing house price depreciation during this recession, and we will see a heck of a lot more due to hard times as well as lending standards tightening even more than they were in q1 2000.
A similar analysis can be carried out for any city in America. I have been attempting to automate this process for the 330 cities I track, but I haven’t found reliable data that can be directly compared yet.
Median Household Income source: http://www.ofm.wa.gov/economy/hhinc/medinc.pdf
buystocks » Nov 24, 2008 at 12:49 am
jonness,
Quick question since it sounds like you’ve done this to many areas with the 2000 data. Have you noted differences in the multiplier(in your example 3.78) in the others areas? Or is the variability in home prices across regions more just a function of the median incomes?
Another Tim » Nov 24, 2008 at 5:33 am
Thanks Jonness. I like your choice of median income. It would be even clearer if there was an established baseline of value for the dollar. That way the depreciation of the dollar (or loss of purchasing power) would be combined with the valuation change in housing.
Jonness » Nov 24, 2008 at 8:39 pm
buystocks:
I haven’t checked any other cities. I haven’t found the data I need to do all 330 cities I track, so I might make a dynamic chart for WA and a few other states I have data for.
Another Tim: That’s a good idea. Adjusting down using compound inflation each year, you would have lost approximately $105K in actual value if you bought a median priced Seattle house in q2 2008 instead of q1 2000.
Here’s the inflation data I used to do the math:
http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp