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About Seattle Bubble
Seattle Bubble is the Seattle area’s #1 resource for news, analysis, commentary, and community discussion on the local real estate market. This community site is focused on productive and open discussion of the local housing market, so that everyone involved can work toward a goal of improving understanding and dispelling myths.

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Masthead
Founded in August 2005 by Tim Ellis
Editor: Tim Ellis
Contributors:

Publisher: Thatch Mound, LLC
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Full Disclosure: Prior to July 2010, Tim had not been employed in any capacity in the real estate industry. However, as of July 8, 2010, Tim is an employee (Product Manager: Statistics, Trends, and Expansion, to be specific) of Redfin, a Seattle-based real estate brokerage and search technology company. However, Seattle Bubble remains Tim’s personal project, owned and operated by Thatch Mound, LLC, and in no way represents the views of Redfin. The content on Seattle Bubble is 100% owned by Tim and is not vetted, endorsed, or even necessarily approved of by Redfin.

Don’t take anyone’s word when it comes to what will likely be the largest financial decision of your life. Do the research for yourself and determine if the market is right for you. That’s what Seattle Bubble is for: providing a resource where regular people can assess the local housing market on their own.

Seattle Bubble promotes responsible home ownership by fighting ignorance, myths, and stereotypes. If you are a real estate agent that depends a steady flow of naïve home buyers or sellers, you probably won’t enjoy this site. However, if you are interested in buying or selling a home around Seattle and want to try to understand what’s going on in the market, this is the place for you.

A Brief History of Seattle’s Housing Market
Last updated: 07.19.2010

So what’s going on with today’s housing market in Seattle? Where have we been, and where are we going?

The Bubble (2003-2007)

  • Irresponsible, loose lending drove prices to artificial highs, pricing out responsible individuals and families that just want to make a decent down payment and get a traditional loan on a reasonably priced house.
  • Virtually anyone that could “fog a mirror” was given a loan, regardless of their ability to pay it off. The resulting record volume of sales (across the country and in Seattle) was simply borrowing home buyers from the future.
  • These macro-economic factors drove home prices up further than the fundamentals could support.
  • Home prices in Seattle did not rise as fast or as far as some other places in the US (though they did rise faster than many), but they still rose faster than they would have based on a strong local economy alone.
  • The resulting level of local home prices was not supported by any of the fundamentals that drive a healthy housing market:
    • Incomes – “Seattle has lots of high-paying jobs!” (See: 1, 2, 3, 4)
    • Employment – “Seattle is adding tons of new jobs!” (See:1, 2, 3)
    • Population – “Lots of people are moving here, and they’re not making any more land!” (See: 1, 2, 3)
    • Rents – “Rents are rising, and you’re throwing away your money if you rent.” (See:1, 2)
  • However, beginning in March 2007, the financial house of cards collapsed, knocking the legs out from under the Puget Sound housing market, which began to show price declines later in the year.

The Big Bust (2008-2009)

  • Home sales deteriorated dramatically once home prices began to fall, hitting all-time lows in early 2009.
  • At the same time, lending institutions significantly tightened their standards, driving even more potential buyers out of the market.
  • Meanwhile, the number of homes on the market shot to all-time highs, with King County SFH inventory exceeding 11,000 in late 2008.
  • This derth in demand combined with a historic excess in supply naturally drove prices down. Prices fell around 25% on average throughout the region between mid-2007 and late 2009.
  • These price drops were not distributed evenly around the Puget Sound. Some more desireable, close-in neighborhoods (like Magnolia) only fell around 10%, while those further out fell much further, sometimes dropping in excess of 40%.
  • The combination of falling home prices and major economic deterioration in the US and around the world led to a rapid rise in foreclosures, further increasing the supply.
  • In early 2009, the new $8,000 homebuyer tax credit breathed some life into the market, lifting sales volumes up from “shockingly, jaw-droppingly low” to just “pitifully low.”
  • Thanks to the infusion of buyers motivated to cash in on free money, prices around Seattle mostly plateaued during the tax credit, despite not having quite fallen to a level supported by underlying economic fundamentals such as local incomes and rents.

The Present (2010)

  • Despite interest rates that are at 50-year lows and homes priced better than any time in the last 5 or more years, home sales are still slumping.
  • Inventory has backed off its highs as sellers hoping to cash in on bubble pricing realize that they have missed their opportunity.
  • There are still quite a few homes on the market, but many of these are “stale” listings (stubborn sellers unwilling to drop an unrealistic price) or “distressed” (short sale or bank-owned) homes that may need a significant amount of work.
  • The government institutions of Fannie Mae, Freddie Mac, and the Federal Housing Administration have all but completely taken over home lending as most banks pursue easier profits in other investments.
  • Since the expiration of the homebuyer’s tax credit, the market has entered an uncharateristic summer slowdown, leading some to predict an immenent “double dip” in home prices.

The Future (2011 and beyond)

  • After falling about a quarter from their peak levels, home prices around Seattle are much closer to where the fundamentals suggest they should be than they were a few years ago, but are still 5-15% higher on average than where they will likely end up.
  • As prices continue to unwind, and home buyers realize that real estate is not a foolproof path to wealth, they are less willing to “drive ’til you qualify” when buying.
  • As a result, home prices closer to the city cores of Seattle and Bellevue have held up better than in outlying areas. This trend will likely continue for some time.

So is now a good time to buy?

With the economy on continued unsure footing and prices still likely to fall another 10-15%, it’s hard to call today a “great time to buy.”

However, the second half of 2010 is easily the best opportunity for home buyers in at least the last five years. Prices throughout most of Seattle are hovering around 2005 levels, interest rates are unbelievably low, on-market inventory is high, and there aren’t a lot of buyers out there competing with you.

Overall, your current chances are pretty decent that if you are patient, you can find a good home at a good price.

The Bottom Line

The most important thing to remember is that the decision of whether or not to buy is a personal one that only you can make. Don’t let a blog or a real estate salesman make that decision for you. Consider all the options and risks, and make an informed decision based on your unique circumstances. If you find a home that you love, at a price that you’re comfortable paying (i.e. – you wouldn’t be upset if the price dropped another 10-20%), and you plan to live there for a long time, then go for it. If you are looking at a home as a place to invest your money, then you should probably reconsider.

Again, don’t take our word for it. Go out there and do your research, and make an informed, intelligent decision. You’ll be glad you did.

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