Seattle Bubble

The point has been made many times here that exposure to downturns needs to be viewed in the context of how much a market rose during the boom.  I thought it would be interesting to test this by comparing the total percentage gain during the boom years to the total percentage drop from peak to date across a bunch of markets, to see if I could establish a clear relationship or correlation between the two.

For the purposes of this comparison, I used the following definitions:

• “Boom” returns are the total appreciation between 09/2001 (based on the oft cited relationship between the Fed taking down short term lending rates and the housing boom) and the peak for each market.
• “Bust” returns are the total decline from peak to the latest reported numbers.

I used the Case-Shiller report for May as the source of all the numbers. The results are kind of interesting:

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This snapshot does appear to support the assertion that there is a good correlation between boom and busts cycles across markets -and that generally speaking,  the more you go up, the more you go down. But there appear to be outliers versus the trend: Namely, Detroit on the down side, and Seattle, Portland, Charlotte, and possibly New York on the up side. This is interesting to me because the relationship between up and down markets is usually cited as evidence that the Seattle market will remain relatively stable compared to other markets - when according to this view, we appear to be bucking the trend and perhaps poised for a fall.  We are down 7% to date when the trend line suggests we should be off 15-20%

What does it mean?  Who knows. There isn’t any hard and fast rule that says every market must follow all other markets, but the inverse relationship between booms and busts does appear to be pretty strong. And it certainly is the case that Seattle has not seen as much “bust” as would be expected when compared to all other markets.

Last month’s Case-Shiller data showed a slight increase in prices month to month, possibly signaling the end of the bust for Seattle. Or not. This month’s Case-Shiller Home Price Index would seem to indicate that the bust is not over yet.

Down 0.5% April to May.
Down 6.3% YOY.

Last year prices rose 0.95% from April to May, so the year-over-year figure for the index has once again set a new record as it punches through the 5% threshold.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Portland actually increased again in May, but still had an over 5% year-over-year decline. Both Northwest cities continue to perform worse than San Diego or L.A. did at this point in their downturn. This is most likely due to the financial crunch, which had not yet gained full steam 17 months ago.

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Again I’d like to point out that this graph is not intended to be predictive. That said, it is interesting to note how closely Portland and Seattle have tracked San Diego since the first time I posted this graph just over a year ago.

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

Click to enlarge

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.

Click to enlarge

Seattle’s drop ten months off of the peak is still larger than 10 out of the 11 other cities on the chart, including Portland. At this point in San Diego’s decline, prices were down only 1.5%, San Francisco was down 3.3%. Those cities have now seen a total decline of 29% and 25%, respectively.

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.

Click to enlarge

Even with the month-to-month drop, May’s index for Seattle (178.67) was still slightly higher than March (178.29), so I guess we still can’t say with certainty that March wasn’t the bottom. But let’s just say I won’t be surprised to see the index drop again in June.

It is also worth noting that with year-over-year price drops now over 6%, two prominent local real estate insiders have already had their 2008 predictions proven wrong. Matthew Gardner: “For 2008, Gardner is predicting anywhere from zero appreciation to home prices falling as much as 5 percent.” Dick Conway: “Conway anticipates average Puget Sound-region home prices will decline less than 1 percent next year…”

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

(Home Price Indices, Standard & Poor’s, 07.29.2008)

As you may recall, a few months ago the NWMLS statistics for April showed a slight increase in prices (+2.0%) month-to-month. Well, the April Case-Shiller Home Price Index has been published, and surprisingly, they show an increase for April as well, but not nearly as much:

Up 0.7% March to April.
Down 4.9% YOY.

According to Case-Shiller, home prices in Seattle did get a slight spring bounce, and inched up slightly to “only” 6.6% below their July 2007 peak.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Portland and Seattle seem to be moving in virtual lock-step for the last few months. Portland also saw a month-to-month increase in April. Both Northwest cities are performing worse than San Diego or L.A. were at this point in their downturn. This is most likely due to the financial crunch, which had not yet gained full steam 17 months ago.

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

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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.

Click to enlarge

Again note that Portland and Seattle both had little bumps with the most recent data. However, even with the bump, Seattle has still declined more in the nine months since its peak than 10 out of the 11 other cities on the chart, including Portland. At this point in San Diego’s decline, prices were down only 1.2%, San Francisco was down 3.5%. Those cities have now seen a total decline of 28% and 25%, respectively.

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.

Click to enlarge

With the apparent “spring bounce,” the price rewind stayed steady in April at approximately 21 months.

Still no bottom in sight down in California, which means the “it won’t get as bad here” talk still doesn’t really have a baseline to compare with. I highly doubt that March was the bottom for Seattle. You can see that a number of other cities have bounced up and down on their way down to 20%+ declines, and that is probably all that’s happening here.

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

(Home Price Indices, Standard & Poor’s, 06.24.2008)

The March Case-Shiller Home Price Index came in fairly close to, but slightly worse than the NWMLS statistics for the same month.

Down 0.9% February to March.
Down 4.4% YOY.

According to Case-Shiller, home prices in Seattle have now declined a total of 7.3% from their July 2007 peak, and have retreated to just above where they were in June 2006.

In related news, if you are looking for a laugh, check out this recent column over at Inman News: Put a gag on Chicken Little. In it, the author actually tries to argue with a straight face that Case-Shiller is the least accurate gauge of home prices. Her “logic” is centered on the fact that data from Case-Shiller shows larger price drops than indices from OFHEO (which includes refinancing and only conforming loans), the NAR (you know how trustworthy they have proven themselves to be), and Realogy (parent company of Century 21, ERA, Coldwell Banker, and Sotheby’s International Realty—definitely no bias there, either), so obviously Case-Shiller must be incorrect. Heh.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Portland’s YOY drops nearly caught up with Seattle in March, coming in just over 4% to Seattle’s 4.4%. The vertical axis on most of these graphs had to be expanded, due to the continued declines in cities such as San Diego and Miami, now topping 20% YOY, and 25% total decline from the peak (with still no sign of slowing).

Click to enlarge

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

Click to enlarge

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.

Click to enlarge

8 months into home price declines, Seattle has shed 7.3% off the peak. At this point in San Diego’s decline, prices were down a whopping 0.5%, San Francisco was down about 3%. They have now seen a total decline of 26% and 23%, respectively.

Here’s the “rewind” chart I introduced last month. 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.

Click to enlarge

Prices have been rewound approximately 21 months to June 2006. In the 8 months since Seattle’s peak prices, 13 months of price gains have been wiped out.

One thing I hear a lot is that price drops will never get as “bad” here as they will in Florida or California. I agree with that assertion. However, even if we take that as a given, we won’t really know anything about where Seattle’s bottom will be until we finally see a bottom in Florida and California. San Diego and Miami are down 26% so far, but who is to say they won’t continue dropping until they reach 50% off? They’re certainly not showing any sign of leveling off any time soon. If that were to happen, prices in Seattle could drop “only” 35-40% (which would put us at 2003 prices) and still not be as “bad” as Florida or California. A scenario like that seems entirely plausible to me.

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

(Home Price Indices, Standard & Poor’s, 05.27.2008)

Update: Here’s the Aubrey Cohen’s P-I story on the data. Apparently Elizabeth Rhodes at the Times is too busy today to do anything more than add a single sentence to the AP story.

Winter for Seattle home prices continued in February according to the latest data from the Case-Shiller Home Price Index.

Down 1.0% January to February.
Down 2.7% YOY.

The only people surprised by this data are the real estate agents that really believed it in 2006-2007 when they told people that it was “a great time to buy.” Home prices in Seattle have now declined a total of 6.5% from their July 2007 peak, and have retreated to roughly where they were in July 2006.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Seattle’s YOY drop continues to beat Portland, which saw a 2.0% drop in February.

Click to enlarge

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

Click to enlarge

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.

Click to enlarge

Hey, we improved slightly from Miami’s crash course. Phew!

And just to help us visualize the drops better, I’m introducing a new chart this month. In this one, I’ll adjust the horizontal axis 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.

Click to enlarge

So far, we’ve turned the dial back a total of 19 months, to July 2006. Looking at that another way, in the 7 months since Seattle’s peak prices, 12 months of price gains have been wiped out.

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

(Home Price Indices, Standard & Poor’s, 04.29.2008)

Update: Here are the links to coverage at the Seattle Times and Seattle P-I.

Home prices in Seattle continue to decline, at an increasing rate, according to the latest data from the Case-Shiller Home Price Index.

Down 1.76% December to January.
Down 1.25% YOY.

In a big surprise to absolutely no one, Seattle is now officially in the realm of year-to-year price declines. What a change from just one year ago, when prices were up 11.14% year-over-year. It only took six months of declines from the peak to get here. Home prices in Seattle have now declined a total of 5.55% from their July 2007 peak.

Here’s the usual graph, with L.A. & San Diego offset from Seattle & Portland by 17 months. Despite a sharp drop down in Portland, Seattle’s YOY is still slightly worse than our neighbors to the south.

Also, here’s an interesting coincidence: The total time from peak year-over-year appreciation to year-over-year depreciation in Seattle came in at 25 months. Most cities went negative quicker than that (Detroit was the fastest at 11 months), but two cities took longer, Minneapolis and Las Vegas. One city took exactly as long as Seattle. I bet you can guess which one… San Diego. Heh.

Click to enlarge

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

Click to enlarge

Here’s an update to the peak-decline graph I posted last month, 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 total months since each individual city peaked.

Click to enlarge

I don’t think anyone would have guessed that for the first six months on the way down, the city we would follow the closest would be Miami. Yow. But don’t anybody worry, I’m sure the bottom is in. Just like it has been for each of the last twelve consecutive months.

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

(Home Price Indices, Standard & Poor’s, 03.25.2008)