Seattle Bubble

Looking back at 2008
And now it’s the post we’ve all been waiting for (and by “we” I mean probably just me). Time to see which real estate “professionals” made housing market predictions that match closest with reality, which ones were more in line with the former Iraqi Information Minister, and what they’re all guessing for the coming year.

A year ago we rounded up 2008’s predictions into a single post: Predictions: 2007 Revisited, 2008 Prognosticated. As with last year, I’ll provide a list of the contenders, and a handly table for comparing our predictions with the reality of 2008. You can go back to the post to see the full context of all of the predictions.

The Contenders:

• Glenn Crellin, director of the Washington Center for Real Estate Research
• Matthew Gardner, local land-use economist
• Steve Tytler, Everett Herald Real Estate Columnist / owner, Best Mortgage
• Dick Conway, co-author of The Puget Sound Economic Forecaster / local economist
• Tim Ellis, editor-in-chief, Seattle Bubble

This year, the prize for the prediction closest to reality goes to… defending champion Tim Ellis of Seattle Bubble! Yet again, the total price change fell almost exactly in the middle of my range prediction.

To be fair, we are using King County SFH data as our sample set (as is standard practice on this site), while selecting different data sets makes some of the other predictions look better. For example, Steve Tytler forecast a ten to twenty percent drop for “the Puget Sound region.” If we look at all Puget Sound counties, the smallest drop was in Skagit, where prices fell 3.3%, and the largest drop was in Jefferson, where prices took a 23.6% plunge. However, that still leaves three counties (Skagit, King, and Jefferson) that were outside Steve’s range (four if we count San Juan County, where December’s median was down 45.6% from 2007, but based on just 9 sales).

On inventory, I predicted “year-over-year increases between 10% and 25% throughout much of the year.” Year-over-year inventory increases did not drop below 10% until September, so that looks like another win. My prediction on sales volume was arguably too optimistic, as I guessed they would drop “at least 5% to 15%.” Here in King County, total pending sales for the year were down 25%, while closed sales dropped 33%.

What’s ahead for 2009?
With 2008 out of the way, let’s look forward to 2009. Here’s a summary of all the predictions I was able to locate from local “professionals.”

Matthew Gardner:

Going forward, Gardner says, “we’ll be in a V-shaped year on prices.”

“The first half of the year we’ll continue to see declines,” he says. “The second half of the year we’ll start seeing a bit of an upward trend.”

In all, Gardner says, he wouldn’t be surprised if Seattle-area housing prices remain essentially flat — something that would actually be good news in some parts of the country.

Gardner qualifies his prediction in his quotes to the P-I:

Matthew Gardner, a Seattle land-use economist, said he expects prices to level off next summer, “if we see economic stimulus and further retraction in interest rates.”

Steve Tytler:

There is a fairly predictable 7- to 10-year real estate cycle and we are in the “down” part of that cycle. What makes the current cycle different is that we are entering what may turn out to be the worst national recession since the Great Depression. Now, I know that phrase is grossly overused. It seems that every few years some politician claims that the economy is the worst since the Great Depression, but this time I think it’s actually true.
…
I think that overall home prices will fall an average of 5 to 10 percent next year, but the depreciation rate will vary dramatically from city to city and neighborhood to neighborhood, just as we’ve seen wide variations this year.

J. Lennox Scott:

Scott thinks entry-level house prices (basically $500,000 and under in Seattle) have stabilized, so there may be no advantage to waiting.

In the mid- and upper-price ranges, “some people are waiting to see what’s happening,” Scott says, but even if those prices continue to decline, owners who sell at a reduced price also are likely to buy at a reduced price, so it’s a wash.

Looking forward, he is hopeful that the Obama administration will quickly pass a stimulus plan that will give the economy, and home sales, a boost.

More from Scott in a blog post by Aubrey Cohen:

But 2009 will be a year of “new beginnings,” Scott said. “It will also be a year of transition for the housing market, which will begin rebuilding itself starting with the more affordable price ranges.”

Unfortunately, those are the only firm predictions I could find from local “professionals.” Maybe they’re just trying to save themselves the embarrassment of being wrong yet again.

The Tim’s Predictions
My guess is that inventory in 2009 will be flat to slightly down from 2008 for most of the year. I am betting that the double-digit YOY drops in sales will not last beyond the first or second quarter, but will eventually flatten out and maybe even show YOY gains. My sales prediction is based largely on an assumption that home prices will continue to fall as well, eventually coming down to a level that is able to attract more buyers. This is what has happened in California over the last year, and I expect the trend will eventually make its way up north.

As far as a specific prediction on prices, my guess is about another 10 percent drop in 2009, which would put December 2009’s median at $363,150. My guess is that we may hit the end of the big price drops in 2010, then bob along on the bottom for a few years after that.

So there it is, your regularly scheduled doom and gloom. As always, what really happens is going to depend largely on a plethora of external factors that could go either way. Despite what so many people tried so hard to believe during the boom, Seattle is not encased in a giant glass bubble. Will Obama come riding in on a unicorn and magically save the economy? Will Boeing or Microsoft lay off tens of thousands? Does China decide to call their debts to America? Major issues like these will have big effects on our housing markets in 2009, and I’m sure whatever happens, we’ll be looking back a year from now in amazement.

What are your predictions? Let’s hammer this out in the comments. Also, here’s a poll: