Declines in King’s Median Price Softened by Sales Shifts

Yesterday in our discussion about the wide variety of median price changes in neighborhoods around King County, a question came up: How can two thirds of the neighborhoods be experiencing median price declines but the county-wide median is basically flat?

This is a phenomenon we have addressed here in the past, but since it has been eight months since our last exploration of the subject, I thought it would be a good time for another brief refresher.

As you know, the median price is simply the middle point of all home sales in an area during a given month—the home sale which saw half the remaining sales come in at a higher price, and half at a lower price. This is a better measure than the average since it cannot be distorted by a single sale for tens of millions of dollars, but it does sometimes change in unintuitive ways as the mix of sales shifts from one area to another.

In order to explore this concept, we break King County down into three regions:

  • low end: South County (areas 100-130 & 300-360)
  • mid range: Seattle / North County (areas 140, 380-390, & 700-800)
  • high end: Eastside (areas 500-600)

Here’s where each region’s median prices came in as of February’s data:

  • low end: $215,475—$330,625
  • mid range: $265,000—$617,000
  • high end: $385,000—$1,325,000

In the following chart I have plotted the percentage of each month’s closed sales that took place in each of the three regions. The dotted line is a four-month rolling average.

% of Total King Co. SFH Sales by NWMLS Area

Over the past year, sales in the expensive Eastside have been steadily gaining share, taken from the least-expensive South County region in early 2009, and slowly eating away at the mid range Seattle / North County region in more recent months.

Here’s a look at just February 2009 and February 2010:

% of Total King Co. SFH Sales by NWMLS Area

Compared to exactly a year ago, South King’s share of the sales held pretty steady, but two percentage points shifted from the mid-range Seattle region to the more expensive Eastside.

The result of this shift on the median price is likely to be a median in February 2010 that is slightly higher than the February 2009 median, even if every house were to have held completely steady in price during the year. In other words, February’s 0.5% YOY median price decline was probably a slight understatement of how much the prices of homes in King County have dropped in the last year.

Lastly, here’s an updated look at this same set of data all the way back through 2000:

% of Total King Co. SFH Sales by NWMLS Area since 2000

The big spike in sales in the low-priced South King region during the bubble years followed by a notable post-bubble increase in sales in the close-in Seattle region fits nicely with my theory that many home sales in the outlying regions were driven primarily by people jumping into the first place they could afford because they were afraid of being priced out of the market forever.

Now that prices getting more reasonable and people are realizing that buying real estate is not a sure-fire way to effortless riches through endless double-digit appreciation, people are buying where they really want to live long term.

  

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.

28 comments:

  1. 1

    Good Question Tim

    Savvy realtor buyers for bargains aren’t fooled though, but there’s always someone who’ll buy anything with proper nudging by a good salesperson. I suppose that’s why I never went into sales, I’m great at it, but I may get rich on commissions but lose sleep on blatant dishonesty.

    Another good example of bad sales data are folks paying full sticker price for a new car….complete buffoons in my book, but whatever makes ‘em happy I guess…

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  2. 2
    Trigger says:

    So it looks like price declines are tapering off. What happened to the prices that were supposed to fall another 30-40%?

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  3. 3
    The Tim says:

    RE: Trigger @ 2 – Who here said prices were going to fall another 30%-40% from their current ~25% off-peak levels?

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  4. 4
    Scotsman says:

    RE: Trigger @ 2

    Patience, Grasshopper- this is the lull before the storm you keep hearing about. It takes time for the foundation to crumble, but crumbling it is.

    http://www.thegardenplanet.com/index_clip_image001_0004.jpg

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  5. 5
    gordonshumway says:

    By The Tim @ 3:

    RE: Trigger @ 2 – Who here said prices were going to fall another 30%-40% from their current ~25% off-peak levels?

    Uhh, the guy below you? ;)

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  6. 6
    patient says:

    Appreciate the effort but that’s a lot of words and graphs to say what we already know that the median is not a measure of home appreciation/depreciation. It measures the sales mix, period. Sometimes it moves together with appreciation and sometimes it doesn’t.

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  7. 7
    David Losh says:

    I’m going to throw this in because it’s anecdotal. The guy supplying the for sale signs to agents says they just keep ordering signs, but they are taking down very few.

    This year, compared to other years, more people are spending more money getting properties ready for sale. Home owners are more willing to listen to the agent.

    It would be interesting to see what the median price buys you this year compared to last year, or the year before.

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  8. 8
    The Tim says:

    By David Losh @ 7:

    It would be interesting to see what the median price buys you this year compared to last year, or the year before.

    That’s an interesting question, David. Here’s an example I pulled up quickly from the sales records for 98117, the Loyal Heights / Crown Hill area, which is in NWMLS area 705. The February 2009 and February 2010 medians were both around $400,000.

    Feb-09 sale: $392,000 for a 2-bed, 1-bath, 1,150 sqft home on a 3,700 sqft lot.
    Feb-10 sale: $397,000 for a 3-bed, 1.75-bath, 1,800 sqft home on a 4,600 sqft lot.

    Very interesting. I will do some more research for other areas around Seattle to see if this pattern holds up.

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  9. 9
    whatever says:

    @ Tim

    Ouch… did you notice that first house you posted ($392) sold 1 yr earlier for $455k?

    http://www.redfin.com/WA/Seattle/8060-17th-Ave-NW-98117/home/165647/nwmls-28042994

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  10. 10
    Hugh Dominic says:

    If I understand your theory:

    Seattle prices are still declining. A rising median is a false signal, caused by more transactions of higher-end homes. Higher end homes finally started moving because their wealthier sellers took longer to accept the market reality.

    Is that right? It’s an interesting theory, please keep exploring it.

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  11. 11
    corncob says:

    Medians are worthless, they only “worked” during appreciation years because everyone was appreciating and the sales mix was staying roughly the same. Those days are long gone.

    As for anecdotal data, in both homes that I watch (with the same price range as last year) and rentals (signing a new lease soon, decided to wait to 2011) I know that you definitely get more bang for your buck this year than last.

    One thing I would like to ask, is anyone else noticing a lot more not-marked-as-such short sales on RedFin, etc? I keep seeing homes that are listed at OK prices, then you see the last sale was $200k more. I seriously doubt there are more than a handful of people in the entire region who can take that sort of hit for real, so I am guessing most of these are short sales and the agent “forgets” to mark that. Yet another deception to add to the “why I hate Realtors™ in general” bucket.

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  12. 12

    RE: corncob @ 11 – It depends on what price range you’re looking at. If you’re looking at prices above about $600,000 it is rather likely they put over $200,000 down and/or have funds to pay the balance.

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  13. 13
    Mike says:

    I believe price declines are overdone just as “The Tim” said. -25% decline and we are done. Prices are flat and anecdotal evidence suggests that if anything, prices may go up by EOY.

    Job market is bouncing back. Once people have jobs, then they will come back buy houses… stay tuned……

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  14. 14
    Daniel says:

    I would be interested in data on supply by sale price tier. As has been mentioned, maybe a larger supply of high priced homes (highest sales tier) has build up that started to sell in more recent months. To better account for the difference between listing and sale price, one could plot a comparison of listing price tier boundaries versus sale price tier boundaries.

    I had a long day at work so this may be a bad idea =)

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  15. 15
    HappyRenter says:

    RE: Daniel @ 14
    I like this idea, too. It would be interesting to see whether the time series of the price of sold homes follows the time series of the price of listed homes with a certain time delay, probably 6-12 months.

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  16. 16
    pfft says:

    By Hugh Dominic @ 10:

    If I understand your theory:

    Seattle prices are still declining. A rising median is a false signal, caused by more transactions of higher-end homes. Higher end homes finally started moving because their wealthier sellers took longer to accept the market reality.

    Is that right? It’s an interesting theory, please keep exploring it.

    it could be that higher end buyers were not purchasing homes because they didn’t want to look like they were spending lavishly in a recession.

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  17. 17
    Hugh Dominic says:

    RE: corncob @ 11 – I have seen more short sales that were not listed as such, yes.

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  18. 18
    Hugh Dominic says:

    RE: pfft @ 16 – but their rationale aside, you agree that more higher end volume is falsely skewing the median upward. What makes that interesting is that it’s the reverse of the RE agents protests that low end foreclosures and short sales were falsely skewing the median downward in 2008-2009.

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  19. 19
    Jonness says:

    By Trigger @ 2:

    So it looks like price declines are tapering off. What happened to the prices that were supposed to fall another 30-40%?

    10 years of flat to slowly declining house prices against general inflation as the dollar sinks into the abyss would do it as would numerous other plausible scenarios.

    If only I had realized, back in July 2007, all you have to do to get ridiculously wealthy is borrow the money to by a house. I am still kicking myself for not listening to the NAR on that one! Silly me. I bought my home prior to the bubble and own it outright. Instead of being leveraged to the gills with debt, I save over 50% of my income. Pity me; worship you.

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  20. 20
    TheHulk says:

    RE: pfft @ 16

    Ha ha. That is ridiculous. We arent talking about multi-million dollar properties in Manhattan or beach front properties in Malibu here for people to worry about “spending lavishly in a recession”.

    Here are a few realistic reasons on why high end home prices are falling (equivalently people are getting “more” house for their money than the year before):
    1. The so called “equity move-up” train has ground to a halt and is in fact going in reverse. This means no more condo/townhouse first time buyers looking to “upgrade”. Once you remove the bottom layer if the ponzi scheme the whole thing collapses pretty quickly.
    2. Loans are much harder to come by. Gone are the days of jumbo interest only ARM loans that enabled a 5 figure income to buy a 600k+ home.
    3. Seeing how much prices have dropped in the last 2 years has finally brought back a healthy dose of reality to this market. Most of the “newcomers”, by that I mean anyone who purchased a house in the last 15 years had never seen a house price go down. Guess what, it is an asset like anything else.

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  21. 21
    pfft says:

    By Jonness @ 19:

    By Trigger @ 2:
    So it looks like price declines are tapering off. What happened to the prices that were supposed to fall another 30-40%?

    10 years of flat to slowly declining house prices against general inflation as the dollar sinks into the abyss would do it as would numerous other plausible scenarios..

    that sounds more like a wish than analysis.

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  22. 22
    Mark says:

    The Tim,

    I know someone that bought in that area back in May of 2006. They paid 380K for a house that was a little less than 1000 sq ft. The house was built in 1910. The lot is a little over 5000 sq ft, and it is on a busy street, 24th Ave. NW.

    They’ve remodeled the kitchen and bathroom since that time. They’ve refinanced twice since the initial mortgage. Once to suck some vapor equity out to redo the kitchen, and the second time to take advantage of lower rates. On the second refi, they had to get a waiver from the second lein holder to remain in second place.

    They plan on doing the right thing and staying in the home, make all of their payments and such. I figure that they are into that place for about 475K. Long term, this is going to kill any kind of plans for early retirement, new cars, vacations, whatever people spend money on, they have agreed to be debt slaves for many years to come!

    Looks to me like they are into their place for about $475 per square foot.

    They won’t be players in the larger economy for quite some time!

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  23. 23

    RE: corncob @ 11
    Yup. The previous rule was that the listing agent had to disclose the short sale status at least in the agent to agent remarks of the NWMLS listing. Unfortunately, lot of them are still doing that even though they’re now supposed to check the ” 3rd party approval” box, which would make it appear to the public.
    If you suspect a listing on Redfin or another public listing is a short sale, it probably is. But if you want to make sure, send me ( or another friendly neighborhood RE agent) the listing numbers and I’d be happy to look it up.

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  24. 24
    Jonness says:

    By pfft @ 21:

    that sounds more like a wish than analysis.

    There’s no wishing about it. I came close to buying a 2nd home in 2007 in order to be closer to work. Back then, the NAR’s famous motto was, “house prices can never go down. They will appreciate forever. That’s because they don’t make land anymore.

    But I was too afraid of depreciation to be able to sign on the dotted line. Soon enough, prices started falling. Instead of paying thousands every year in interest on debt, I decided to save over 50% of my income toward a downpayment while prices fell. After awhile, my bank account was bulging, and houses were way cheaper. Not only was I making a killing on saving instead of servicing debt, I was making a killing on house price depreciation as well.

    It really took very little intelligence to figure this all out. I simply looked at the amount credit available at the bubble peak compared to the amount of credit that will be available over the next few years while the banks deleverage.

    You see. Copernicus didn’t just figure out the sun was the center of the solar system, he also was in charge of the mint. From watching the money supply, he developed a very simple formula–MV=PQ. Most RE agents don’t now about the formula, so they continue to guess at straws about where house prices are headed. And most uninformed economists believed hyper-inflation would have set in long ago due to the massive printing that’s taken place. But here’s the key: M=MB/R. You see, it doesn’t matter how much money gets added to the system. If the banks hold the money in reserves instead of lending it, that money never enters the economy. Therefore, the buyer pool stays much lower than during the bubble when strawberry pickers could buy million dollar homes with 0-down and no salary check.

    What this means is, if you have the ability to save money, do not buy a home until the banks start lending enough money to increase the amount of money in general circulation. In short, credit money directly competes with cash for goods and services. The consumer is tapped out; thus, the banks won’t lend. We have been seeing one of the best times in history to be saving toward a downpayment on a house. I have taken full advantage of this situation. There is no wishful thinking about it. It’s as plain as the nose on your face.

    Anybody that believes there is more risk to the upside right now than the down side is sleep walking. Investment is about probability and risk management. Nobody can be right 100% of the time, but those who play by the rules are rewarded over time with more good bets than bad.

    Keep in mind. Leading up to the Great Depression, lending standards went in the sewer, and even the shoe shiner on the corner could get rich by simply borrowing money and investing it in the stock market. It seemed like a no-brainer.

    Old habits die hard. The American housing bubble is dead and gone. In order to get rich, people are going to have to start using their brains, saving, and investing wisely.

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  25. 25

    By Ira Sacharoff @ 23:

    RE: corncob @ 11
    Yup. The previous rule was that the listing agent had to disclose the short sale status at least in the agent to agent remarks of the NWMLS listing. Unfortunately, lot of them are still doing that even though they’re now supposed to check the ” 3rd party approval” box, which would make it appear to the public.
    If you suspect a listing on Redfin or another public listing is a short sale, it probably is. But if you want to make sure, send me ( or another friendly neighborhood RE agent) the listing numbers and I’d be happy to look it up.

    BTW, there’s no excuse for a short sale listing not to be disclosed. It’s impossible to get past the check box when entering the listing. Even on listings entered before the box was added it will prompt for information if any change is made to the listing.

    Do note, however, that not all listings that might appear to be a short sale are actually short sales. If the seller has money to bring to the table at closing, then it’s not a short sale. A short sale is only where third party (bank) approval is required, and if there’s money to pay off the loan from some other source, then it’s not a short sale.

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  26. 26
    Trigger says:

    So how much do you speculate the prices will have to go down? It seems that they stopped falling!? Tim – what is your bet here?

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  27. 27

    […] 15, 2010 | Leave a responseIn our conversation last week about median prices, David Losh brought up an interesting question:It would be interesting to see what the median price buys you this year compared to last year, or […]

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  28. 28

    […] Whole TruthJuly 2009: Median Price Still Being Distorted by Geographic Shifts in SalesMarch 2010: Declines in King’s Median Price Softened by Sales ShiftsPosted in Counties, Statistics | Tagged histogram, median, sales Posted by: The Tim Tim Ellis is the […]

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