Aubrey Cohen reports on a recently-released report out of Harvard. The report isn’t your usual rah-rah, go housing type of fluff, and actually shows Washington State as being among the markets with a larger percentage of risky loans. I don’t imagine it’s a coincidence that there’s not even a passing mention of the report in the Seattle Times…
The U.S. housing market will struggle with too much supply and falling prices for a while yet, but its biggest problem is that homes are too expensive for too many families, according to a report released Monday.
“It is too early to determine when the housing slump will end,” the 2007 State of the Nation’s Housing report from the Harvard University Joint Center for Housing Studies says. “House prices are only beginning to soften, loans most at risk are just starting to hit their reset dates, and credit standards have tightened.”
Home prices in and around Seattle are holding up, but the area faces some of the same challenges as other parts of the country, according to the report.
What?!? I thought Seattle was special! Completely and totally insulated from any ills that affect the rest of the country. Say it ain’t so.
The report calls overbuilding and job losses “far greater threats” to house prices than rapid appreciation. Local experts pinned Seattle’s continued increases in house prices on its strong job growth and growth management’s constraints on supply.
“As much as the builders tend to dislike the Growth Management Act, it has probably prevented them from their own excesses in the most recent cycle,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.
Overbuilding, you say? Good thing we don’t have any of that here. And I’ll agree that job losses would tend to exhert downward pressure on prices, but just as prices can continue to rise in spite of job losses, they can also drop in the face of “strong job growth.”
I also haven’t yet seen an explanation as to why the Seattle area housing market is only just now experiencing a tightening due to Growth Management, when it was in place 10 years before the current run-up. The only thing I’ve seen that comes even close to an explanation is a weak argument that Growth Management policies are “constantly changing.” If that’s the reason, then what specific change led to the sudden supposed limit on supply?
And, although Seattle’s prices have increased rapidly in the past few years, those increases did not meet the Harvard center’s definition for “severe overheating” — at least a 15-percent increase per year for three consecutive years.
Let’s take a look at King County’s SFH price increases for the last few years:
2003-2004: ~10%
2004-2005: ~15%
2005-2006: ~14%
2006-2007: ~10% (so far)
Phew! Looks like we just barely dodged the bullet on that one.
According to the center, 7.8 percent of Seattle-area mortgages were for investors last year — good for 125th place among the 332 areas in the report.
That’s relatively low, but still well above the 50th percentile. I wonder how they define “investors.” Curious that this little detail was left out of the article. Anyone have the time to dig up that information?
The report also broke out state percentages of loans where buyers only pay interest or can even pay less than their interest charge, meaning their balance increases. Washington had a 30 percent rate of interest-only loans — sixth among states and higher than the national rate of 22 percent — and a 12 percent rate for payment-option loans, fifth among states and more than the U.S. rate of 11 percent.
…
In the Seattle area, 33.3 percent of homeowners and 47 percent of renters spend more than 30 percent of their pretax income on housing. That’s 13th among the nation’s largest 50 metro areas for burdened homeowners and 38th for renters.
Yow! Even with 30% of loans being interest-only (state-wide, I’ll bet it’s higher for King County), a full third of home-buyers (in the Seattle area) are still spending more than 30% of their income on their home loans. That sounds like a stellar, healthy market to me, yes sir.
Wait, no. That sounds like a market ripe for correction.
(Aubrey Cohen, Seattle P-I, 06.11.2007)
It’s that time of the month again… time to check in with the local press to hear the same old regurgitated message about how great and healthy our housing market is.
Elizabeth Rhodes, Seattle Times:
What gives? Local home-sales market is softening, but prices keep rising
Local home sales cool off; why are prices still hot?
The housing market cool-down has arrived.
King County buyers had 52 percent more houses and condominiums to choose from last month compared with the previous May — by far the biggest year-over-year increase this decade, including during the recession of 2001-02.
Part of the reason for the increased inventory was that buyers were dragging their feet. King County’s pending sales — deals signed but not yet completed — declined 7.5 percent in May compared with a year ago.
What hasn’t dropped off was what buyers paid; prices continued their incongruous climb. The median price of a house in King County reached $469,000 in May. The median, which means half sell for more, half for less, has climbed every year since 1985.
…
Why would prices grow when basic economic logic says when supply outpaces demand, prices will fall?
Glenn Crellin, director of the Center for Real Estate Research at Washington State University, suspects it’s because a softening market gives buyers more wiggle room to buy more house. When they do, that makes the median prices paid rise, he said.
…
WSU’s Crellin and the National Association of Realtors expect the Seattle area’s home prices to continue to go up this year. The national association is predicting an increase of about 5 percent this year. That modest figure is above what it expects will be the national average but well below Seattle’s recent appreciation growth, which hit 16 percent last year.
Here’s more on Crellin’s explanation for why prices aren’t declining:
Sellers, still believing their homes are worth top dollar, price them at that. But buyers know the market is softening so they feel free to shop around. Sales slow and, as even more houses come on the market, inventory increases.
Finally, sellers either cut their listing price or agree to take less.
Buyers, realizing they can get more house than they initially thought, stretch their price range to buy up. That makes prices rise, Crellin explained.
Well I must say I’m rather surprised that Ms. Rhodes is finally reporting on the skyrocketing inventory and plunging sales. It’s only been going on for about a year now. However, Mr. Crellin’s explanations for the rising prices seem a bit tortured to me. Prices are rising because there’s more inventory? Huh?
I’m sure it has nothing to do with the fact that low-end buyers are having a more difficult time finding financing (thanks to the sub-prime shake-out), or the fact that in the last 12 months, the percentage of King County homes sold in less expensive South King County has dropped by three points while the percentage of homes sold in more-expensive Seattle proper has taken up the three-point slack. Nah, couldn’t be any of those things. Moving on…
Aubrey Cohen, Seattle P-I:
Seattle home sales shoot up
Seattle buyers, who have increasing selection and increasing competition, don’t seem to be discouraged by a shaky national home market, according to data released Tuesday.
Seattle home sales shot up in May by 21 percent, compared with May 2006, according to the Northwest Multiple Listing Service. That’s the largest year-to-year boost in more than two years and the third straight month that sales increased, after year-over-year declines for 10 of the previous 12 months.
The number of homes on the market, however, shot up by an even-more-impressive 60 percent from May 2006. Last month’s median home price in Seattle was $425,000 — down 1.2 percent from April but up 2.4 percent from May 2006.
“We’re remaining remarkably resilient,” said Matthew Gardner, a local land-use economist.
While the market is declining, it’s still good, he said. “We’re declining from a peak.”
Bob Melvey, assistant manager of Windermere Real Estate’s Ballard office, said the market has slowed, but it hasn’t reversed.
“I’m getting less multiple offers on listings, but everything that I’m listing is still selling at the list price or close to it,” he said. “Market times are a little bit longer.”
…
Gardner said he considers six months the threshold for an oversupply of homes on the market and doesn’t expect an oversupply in the next couple of years.
“I’m getting a bit concerned about 2010, though,” he said. “It looks like an awful lot of [condo] units will come to completion then.”
I love how Mr. Cohen focuses in on Seattle proper, in order to proudly broadcast the fact that “home sales shot up.”
Devona Wells, Tacoma News Tribune:
Let the home sellers beware
Rising prices and sinking sales made for a mixed housing market in Pierce County last month as several thousand homes vied for buyers’ attention.
The median price for stand-alone houses and condominiums increased, compared to the same month a year ago, by a respectable 6.9 percent to $281,000, according to figures released Wednesday by the Northwest Multiple Listing Service. King County’s median price came in at $411,868.
Pierce County’s pending sales, however, declined 21 percent – the largest year-over-year drop so far in 2007 and the biggest in the Puget Sound area.
At the same time, the number of homes listed for sale skyrocketed – up 57 percent to 8,039 over the previous May.
Gail Jensen, a Crescent Realty agent in Spanaway who primarily works with sellers, said she’s counseling them to price smart.
“I haven’t seen a stagnant market like this in 18 years,” Jensen said.
Dick Beeson, a Multiple Listing Service director, said Wednesday that the supply of homes countywide remains at six months – any more and the market would be considered one that favors buyers. North Tacoma sits at the better end of that measure, with about 4.5 months of supply, while Gig Harbor has entered buyer’s market territory with a supply of homes that would take eight months to sell, said Beeson, a Windermere broker.
“It seems like the listings are not hard to get. What’s hard to get are well-priced properties. Sellers being realistic is one of the main problems,” he said.
Uh-oh, looks like the serious slowdown has officially arrived in Tacoma, as they bump on past that magic number of 6 months of supply. But don’t worry, I’m sure the disease won’t spread north.
Mike Benbow, Everett Herald:
Home prices continue to climb
Home sales in Snohomish County continued to slow down in May and the number of houses on the market continued to rise, according to a report Wednesday from the Northwest Multiple Listing Service.
Continuing a monthslong trend, that didn’t stop prices from rising. The median sale price last month was $353,779, a figure more than 9 percent higher than the number a year ago.
Mike chose to go with the straight-shooting style of report this month, pretty much just listing the facts, and leaving out overly optimistic quotes from realtors and “local economists.” Good for him.
Rolf Boone, The Olympian:
County home, condo sales see gains
Thurston County home and condominium sales gained some strength in May as sales dropped about 6 percent compared with a 15 percent drop in April sales, the Northwest Multiple Listing Service reported Wednesday.
…
Greene Realty Group real estate agent Blake Knoblauch said the county’s housing market still is strong, though he acknowledged that its biggest problem is that it has more than 2,000 listings.
Home sellers today have to carefully consider the price, location and the condition of their homes, he said.
“Entice (buyers) with price and ‘wow’ them with value,” Knoblauch said.
Real estate agent Jackie Tosland of Abbey Realty, who closed five transactions in May, said the county’s housing market either goes up or “levels out,” but it rarely suffers like other housing markets nationally.
However, the first-time buyer continues to be shut out of the local housing market, Tosland said.
“There has been a noticeable decrease in first-time buyers and lower-end homes,” she said.
Sucks to be you, first-time buyers in Thurston County. This housing market will only ever “level out,” so says Ms. Real Estate Agent lady. It was in the paper, so it must be true.
(Elizabeth Rhodes, Seattle Times, 06.07.2007)
(Aubrey Cohen, Seattle P-I, 06.06.2007)
(Devona Wells, Tacoma News Tribune, 06.07.2007)
(Mike Benbow, Everett Herald, 06.07.2007)
(Rolf Boone, The Olympian, 06.07.2007)
Maybe I’m just in a “mood” this morning, but this story in today’s Tacoma News Tribune really cracked me up.
A morning of housing pep talks greeted builders, real estate agents and government folks Thursday: Build green. Be brave. If Coeur d’Alene, Idaho, can go urban, so can you.Economist Glenn Crellin, director of the Washington Center for Real Estate Research, kicked things off at the 2007 Housing Forum at the Rhodes Center in Tacoma with a slew of statistics to illustrate a healthy Puget Sound-area market, especially compared with some states.
“My bottom line is we don’t want to panic. We need to be brave. Real estate markets will see some softness, but they’re not going to disintegrate,” he said.
If we just close our eyes and wish hard enough, we can keep our housing market strong! Be strong, everybody! Wish hard!
Crellin, who last year bought a second home in North Carolina, did acknowledge the shrinking number of South Sound residents who can afford to buy. Crellin’s Charlotte town home cost less than $210,000, with upgrades.” It would be nice if we could import that kind of market” here, he said.
Funny you should say that, Mr. Crellin… I wonder how we could possibly end up with cheaper houses in the Puget Sound… Hmm… That’s a tough one.
(Devona Wells, Tacoma News Tribune, 05.25.2007)
