Seattle Bubble

Here’s the latest update on months of supply, or “absorption rates” for the 30 NWMLS areas in King County. For an explanation of what months of supply means, please refer to the original neighborhood MOS breakdown post.

Remember: Over 6 MOS is a buyer’s market, which gives buyers more negotiating power, but doesn’t mean homes are priced attractively for buyers or that it’s a good time to buy. Before this year, the longest that King County as a whole has sustained a MOS above 6 was 4-5 months in the winter of 1994-1995. April MOS for King County came in at 6.21 (up slightly from March), bringing the current run to eight months. In seven of the last eight years, March has been the low point for MOS (2003 was the exception, when MOS bottomed in July). It seems unlikely that the county-wide MOS will drop back below six this year.

In the graphs below, you’re looking at the MOS for the “Res Only” data from the NWMLS King County Breakout pdfs for the nine-month period of July 2007 through March 2008. The bar graph is centered vertically on 6.0 MOS, so that it is easier to visually tell the difference between a seller’s and buyer’s market (i.e. - shorter bars mean a more balanced market). Each graph again has the same scale on the vertical axis and has the King County aggregate figure plotted in red, so they can be easily compared.

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Here’s the latest update on months of supply, or “absorption rates” for the 30 NWMLS areas in King County. For an explanation of what months of supply means, please refer to the original neighborhood MOS breakdown post.

Remember our metric: less than 6 MOS is a sellers market and above 6 is a buyer’s market, meaning that buyers have better negotiating power, not that homes are necessarily priced attractively for buyers. Before this year, the longest that King County as a whole has sustained a MOS above 6 was 4-5 months in the winter of 1994-1995. March MOS for King County came in at 6.19 (slightly higher than February), bringing the current run to seven months.

In the graphs below, you’re looking at the MOS for the “Res Only” data from the NWMLS King County Breakout pdfs for the nine-month period of July 2007 through March 2008. The bar graph is centered vertically on 6.0 MOS, so that it is easier to visually tell the difference between a seller’s and buyer’s market (i.e. - shorter bars mean a more balanced market). Each graph again has the same scale on the vertical axis and has the King County aggregate figure plotted in red, so they can be easily compared.

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I was going to spread out the stats posts a bit, but since people have been asking for months of supply (a.k.a. “absorption rate”) data after yesterday’s inventory post, I’m posting it today. For an explanation of what months of supply means, please refer to the original neighborhood MOS breakdown post.

Keep in mind that we are considering below 6 MOS to be a sellers market and above 6 as a buyer’s market. Based on the sketchy pre-2000 data we have available, the longest that King County as a whole has sustained a MOS above 6 was 4-5 months in the winter of 1994-1995. With February’s 6.14 MOS, the current run is up to six months.

In the graphs below, you’re looking at the MOS for the “Res Only” data from the NWMLS King County Breakout pdfs for July 2007 through February 2008. The bar graph is centered vertically on 6.0 MOS, so that it is easier to visually tell the difference between a seller’s and buyer’s market (i.e. - shorter bars mean a more balanced market). Each graph again has the same scale on the vertical axis and has the King County aggregate figure plotted in red, so they can be easily compared.

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Let’s do some more number-crunching and neighborhood analysis. Here’s a detailed look at single-family house “months of supply” (MOS) over the last year, broken down by neighborhood. “Months of supply” is just a way of looking at the relationship between the number of homes on the market and the number of sales taking place.

To calculate months of supply for any area, you simply divide the total number of homes for sale by the number of pending sales. Generally 6 months of supply is considered a “balanced market,” while below 6 is a sellers market and above is a buyer’s market. Historically, the highest MOS for the King County area (post-1993, pre-2007) was 6.7-6.9 in the winter of 1994-1995 (based on the best available data, which is sketchy pre-2000). The current county-wide MOS is 7.54.

For the graphs below, I’ve again taken the “Res Only” data from the NWMLS King County Breakout pdfs for January 2007 through January 2008, this time plotting the monthly value of MOS for each area. I’ve broken the data into the same five graphs as the last neighborhood breakdown post. This time I’ve plotted them on a bar graph, centered vertically on 6.0 MOS, so that it is easier to visually tell the difference between a seller’s and buyer’s market. Each graph again has the same scale on the vertical axis and has the King County aggregate figure plotted in red, so they can be easily compared.

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Forbes has come out with yet another real estate “Top 10″ list, this time gabbing on about the “Top Home Sellers’ Markets.” Interestingly, Seattle is conspicuously absent from the list. They explain:

The Methodology
To measure inventory glut, we used Moody’s Economy.com and National Association of Realtors data that tracked a market’s current sales rate by projecting the amount of time it would take to sell off the excess housing stock at the current rate of sales.

We also looked at the change in sales rate over the last year to measure the relative tightening or loosening of the market. Finally, a measure of price stability was applied so as to prevent the list from being a rundown of upstart markets.

The measurements left out a few cities that lacked comprehensive data. Seattle, for example, has incredibly strong market fundamentals—the lowest vacancy rate of major metros at 0.9% and is a small geographic area not conducive to overproduction. It is a good seller’s market, but for tracking what we were after, Seattle data was incomplete for our analysis.

I’m not sure why their data was “incomplete” for Seattle, and I imagine that if they had access to everything they were looking for, it probably would have been on their list. However, while Seattle might be a better sellers’ market than most of the country, all indications are that we have been granted only a temporary reprieve.

While the language in the article makes their calculations sound fancy and complicated, it would appear that their primary measure of whether a city has a good “sellers’ market” comes by dividing the total monthly sales by the current number of homes for sale. This is commonly referred to as “months of supply” (MOS), but they are referring to it as the “rate of sales.” Here’s a graph of King County’s SFH from 2005 to the present:

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Forbes mentions that they “also looked at the change in sales rate over the last year to measure the relative tightening or loosening of the market.” As you can see, the Seattle market can only be described as “loosening.” At the end of May, MOS stood at 3.02, up 59% from last May’s value of 1.89, which was itself up 18% from the May 2005 value of 1.61.

Sales have been declining at an average rate of 10% year-to-year for the past 19 months:

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While inventory has been increasing by over 24% year-to-year for over a year:

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Is Seattle presently a seller’s market? Probably. Will it still be a seller’s market by the end of the year?

“Outlook not so good.”

(Matt Woolsey, Forbes.com, 06.22.2007)