Seattle Bubble

In order to bring an even more complete picture of the Seattle-area foreclosure situation, I spent some time with Snohomish and Pierce County records, and pulled data on the number of Notices of Trustee Sale going back to 2000 for each county.

Here are charts of King, Pierce, and Snohomish County foreclosures from January 2000 through September 2008, with uniform y-axis scales to provide easier comparison:

The raw increase in sheer foreclosure volume has been fastest in King County, where January-September 2008 saw 2,166 more foreclosures than the same period in 2007. However, the percentage increase was largest in Snohomish County, where Jan.-Sept. foreclosures rose 86% over 2007. The percentage increase in 2008 through September was 83% in Pierce and 78% in King—a total spread of just 8 percentage points between the three counties.

Here’s another look at the data, scaled in terms of number of households per foreclosure (based on household data from the American Community Survey, assuming linear household growth between surveys):

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Since early last year, King County has gone from 1 foreclosure per approximately 3,000 households to 1 per 1,281 as of September. Snohomish County dropped from 1 foreclosure per over 2,000 households to under 900. Pierce—having rarely been above 1,500 households per foreclosure—has dropped from 1 foreclosure per around 1,400 households to 1 per every 537.

For comparison, the latest press release from RealtyTrac shows the nationwide rate to be 1 foreclosure per every 475 households, and puts Washington’s statewide rate at 1 foreclosure per every 1,383 households.

One more take on the data, the following chart simply indexes the number of Notices of Trustee Sale to 100 in January 2000 for each of the three counties, to give a directly comparable perspective of the rate of change between King County, Snohomish County, and Pierce County:

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Ther were 3.45 times as many foreclosures in King County in September 2008 as there were in January 2000, 3.65 times as many in Snohomish County, and 2.71 times as many in Pierce.

If you’re interested in an even more granular breakdown of the most recent data, check out the foreclosure heat map at Hotpads.com, which color-codes each zip code based on households per foreclosure.

The Center for Economic and Policy Research has released another report on the prospects for building home equity over the next four years, and much like their April report, their conclusions are not good for current home buyers hoping to build short-term equity.

Despite the collapsing housing bubble and consequent fall in house prices in bubble markets, the prospects for accumulating equity still look grim for homeowners as prices are still far from reaching their historical norm. The relative merits of owning and renting will be affected by the extent to which homeowners can accumulate equity. Even with the general increase in house prices at the same rate as the overall rate of inflation, homebuyers are at risk of facing plunging home values in bubble inflated markets.

Based on calculations that compare the cost of buying a home at 75 percent of the median house price, they predict that current home buyers in the Seattle area will have between -$117,471 and -$123,373 equity by 2012.

Here’s how Seattle’s situation compares to other areas around the country, according to CEPR’s calculations.

Figure 2 shows the updated projections of equity in the 100 largest metropolitan areas after four years for a household buying a home at 75 percent of the median price. Blue circles indicate positive equity, while red circles imply negative equity. The calculations deduct 6 percent of the projected sale price for realtor fees and other selling costs.

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The only metropolitan areas outside California predicted to have a larger amount of negative equity than Seattle are Honolulu Hawaii and Bridgeport Connecticut.

To calculate the projected negative equity, CEPR assumed that the (75 percent of median) house price will adjust over the next four years to a value of 15 times the annual rent (adjusted upward by 33% to adjust for the difference between apartments and houses and then again by 12.6% to account for rent increases). For full details on CEPR’s methodology, download the pdf (which has been added to the Library for future reference).

Let’s check out the three price tiers for the Seattle area, as measured by Case-Shiller. Remember, Case-Shiller’s “Seattle” data is based on single-family home repeat sales in King, Pierce, and Snohomish counties.

First up is the straight graph of the index from January 2000 through August 2008.

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Price drops continued in August at roughly the same pace for all three tiers. The low tier and mid tiers are still rewound to May 2006 with the high tier at June 2006 levels. The middle tier took the biggest hit in August, falling just under two points, or 1.1% in one month.

Here’s a chart of the year-over-year change in the index from August 2002 through August 2008.

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The low tier continues to take the biggest year-over-year hit, with declines reaching almost ten percent in August. Here’s where the tiers sit YOY as of August - Low: -9.7%, Med: -8.9%, Hi: -8.4%.

Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.

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After the low tier bounced down further than the other two tiers in post-peak months nine through eleven, everything has fallen back into roughly the same territory. The low tier still has the largest overall drop for every post-peak month since number nine. As predicted last month, the low tier has now lost over 10% from the peak.

(Home Price Indices, Standard & Poor’s, 10.28.2008)

It’s time once again for an update on the Case-Shiller Home Price Index. According to August data, home prices in and around Seattle continue to decline at a steady pace.

Down 0.7% July to August.
Down 8.8% YOY.

Last year prices fell 0.10% from July to August (their first month-to-month drop), and year-over-year prices were up 5.7%.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Portland extends its streak of outperforming Seattle to nine months, falling 7.6% YOY in August.

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Note: This graph is not intended to be predictive. It is for entertainment purposes only.

Here’s the graph of all twenty Case-Shiller-tracked cities:

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In August, eight of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops than Seattle (vs. seven in July and six in June). Dallas at -2.7%, Charlotte at -2.8%, Boston at -4.7%, Denver at -5.1%, New York at -6.5%, Cleveland at -6.6, Portland at -7.6%, and Atlanta at -8.5%. Phoenix just barely edged out Las Vegas for the largest year-over-year drop, with prices in both those cities falling over 30% in a single year.  There does appear to be something of a “bottom” in price decline intensity reached in Miami, with year-to-year drops having flattened at -28% for four months in a row now.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

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In the thirteen months since the price peak in Seattle prices have declined approximately 9%. The two cities with the most similar degree of price drops thirteen months after their respective peaks were Los Angeles and Las Vegas.

Here’s the “rewind” chart. The horizontal range is selected to go back just far enough to find the last time that Seattle’s HPI was as low as it is now. This gives us a clean visual of just how far back prices have retreated in terms of months.

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Seattle’s Case-Shiller value for August 2008 was fairly close to its May 2006 values. So now prices have “rewound” twenty-seven months. For comparison, the latest Case-Shiller data for San Diego shows a rewind of over five years. Ouch.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 10.28.2008)

Since the stock market is all over the news again today, I thought it would be interesting to look at some past stock crashes and see how the current one compares.

In the chart below I have graphed the crashes of 1929, 1973, 1987, and 2001 alongside the current fall, with the peak points aligned near the left. Each crash is scaled on the y-axis to show the percent of the peak Dow Jones price.

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Yesterday’s close was 380 days after the recent 2007 peak in the Dow. Here is the total drop 380 days after peak for each crash above:

1929: 38.6%
1973: 18.3%
1987: 24.2%
2001: 13.6%
2007: 38.6%

Will the current crash play out over the next two years more like 1987 or 1929?

Update: Updated the chart to reflect today’s close. The Dow has now fallen further in the current crash (40.8%) than it did in the same length of time from the peak in 1929 (39.9%).

When I posted August foreclosure data from RealtyTrac last month with data going back to 2005, a complaint was aired (which I agreed with) that 2005-2008 is not sufficiently long-term. So, I spent some time with King County Records, and generated the following chart of Notice of Trustee sales going all the way back to 1979:

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For the full legal definition of what a Notice of Trustee Sale is and how it fits into the foreclosure process, check out RCW 61.24.040. The short version is that it is the notice sent to delinquent borrowers that their home will be repossessed in 90 days.

As you can see, beginning in January of this year, Notices of Trustee Sales have been skyrocketing in a way not seen in the entire 30-year span of the data. They did drop significantly in August, down to 574 from 730 in July. However, they increased again in September, up to 607—a 76% increase over September 2007.

As prices continue to drop it will be interesting to see if foreclosures continue their unprecedented rapid increase.

Update: I was playing around with the graph a little more and thought this was interesting enough to add. It’s the same graph as above, but with the median single-family home price year-to-year change added and flipped vertically (I only have monthly median price data back to 1993):

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