Seattle Bubble

My jaw dropped in amazement when I read this headline in my inbox yesterday: House prices likely to decline. Granted, it was a Q & A column in the Everett Herald, not a headline news item in the Seattle Times (which would have probably made me faint), but still, it’s nice to see an admission like that in any of the local rags.

Question: I have been seeing stories in the news about the housing bubble around the country, with some areas seeing a drop in prices now that the big boom is over. Do you think that will happen here in the Seattle area too?D.K., Lynnwood

Answer: …Last year at this time, I went out on a limb and said that I felt that the local housing market was peaking. I thought that home prices would max out during the spring home-buying season and then level off. Home prices actually continued to increase through late summer, but the housing market has definitely cooled off in the last three months, as I had expected.

This week, the Northwest Multiple Listing Service released home sale stats for November and you can see that a trend is emerging. There were 35 percent more homes for sale last month than there were in November 2005. At the same time, there were 11 percent fewer homes sold in November compared with November 2005.
…
So I suspect that next spring when most sellers put their homes on the market, we will see a big increase in the inventory of homes of sale. And unless there is a large pool of prospective buyers out there, we will probably see the home market swing toward a buyer’s market where there are more homes for sale than buyers. That’s good news for home buyers who have been frustrated by skyrocketing home prices over the past few years, but not such good news for homeowners who need to sell soon.

As I said above, prices will likely flatten out and possibly decline slightly, but traditionally we don’t have the kind of home price “crash” that happens in boom-and-bust housing markets such as San Diego, Las Vegas and Phoenix.

Of course, we also traditionally don’t have the kind of home price “spike” that we have had in the last three years, where the median home price shot up nearly 50%.

He goes on to explain the possibility that speculators fleeing the market will further drive prices down. Much to my amazement, rather than repeating the oft-heard (but never backed up) claim that the Seattle market doesn’t have many investors, he admits that their potential affect on the Seattle market is largely unknown.

I don’t recall seeing (and couldn’t locate) an article published “last year at this time” where he claims to have predicted Seattle’s housing market peak. If anyone knows where to find a link to that, please post it in the comments. [Update: Thanks to Megan the Librarian below for pointing out the November 2005 article Mr. Tytler references above.]

Kudos to Mr. Tytler for pointing out the obvious trend and its likely result.

(Steve Tytler, Everett Herald, 12.10.2006)

I read the a question and answer in the Everett Herald about researching the market before buying a home, and I couldn’t help but feel that the columnist’s advice was a little lacking.

Question: I’m attempting to research the housing market, but I don’t want to even think about buying for at least a year because I am committed to a one-year lease. How can I efficiently do the research without a real estate agent? I assume most agents would not be interested in working with a client who will not be buying a home for at least a year. I’ve attended numerous Sunday open houses, but I feel I may be missing valuable properties.
- B.G., Bellevue

Answer: You are wise to get to know the local housing market before you make an offer on a house. In real estate, as in most areas of life, knowledge is power. You will not be able to recognize a good deal until you have done your homework.

You are on the right track. At this point in your search, Sunday open houses are the best way to research the market. You should also read the home sale ads in the newspaper every week. After a few weeks of touring homes and scanning ads, you should get to the point where you can drive up to a home and guess its price within $10,000 before setting foot inside.

When you can do that on a consistent basis, you will know that you have a good feel for the market value of homes in your area.

Once you know what a home is likely to sell for, you can quickly recognize a bargain when you see one.

Since the reader apparently isn’t in a hurry to buy a house, shouldn’t they also spend some time researching whether it is a good time to buy into the market at all? The columnist admits that “the market may be slower by next year,” but they fail to address any type of market trend research.

How would you answer B.G. in Bellevue? What kind of research should he be doing to find out for himself whether it really is a good time to buy or if he’d be financially better off renting for a while longer?

(Steve Tytler, Everett Herald, 05.21.2006)

In a real estate advice column this weekend, Everett Herald reporter Steve Tytler explains the difficulty of finding good foreclosure deals in Seattle’s still-at-least-lukewarm market:

Question: Where can I learn about investing in foreclosures?D.E., Renton

Answer: There are some truly extraordinary bargains to be found in the foreclosure market. Unfortunately, finding these bargains is like finding a needle in a haystack. I know, because I have tried to find them myself. To listen to the late-night TV real estate hucksters, you’d think people in foreclosure are just waiting to give their house away for half its fair market value. Nothing could be further from the truth.

Think about it for a minute. If you lost your job and fell behind on your mortgage payments, are you going to hand me the keys to your house just because I’ve shown up on your doorstep to save you from foreclosure? Probably not. Most people want to keep their homes, and in the vast majority of cases, they find a way to come up with enough money to head off the foreclosure auction.

Or if they can’t raise the money, they put their home up for sale through a real estate agent and attempt to recoup as much of their equity as possible before the foreclosure auction.

It’s true that as long as the market is at least a little warm, there just aren’t going to be many deals in foreclosures. However, I think we all know what will happen when things level off and/or start to decline—combined with rising interest rates… That will be the time to be in the market for foreclosure properties.

(Steve Tytler, Everett Herald, 04.23.2006)