Here’s a familiar song, courtesy of Tom Kelly at the Everett Herald.
It used to be a popular notion among local real estate agents that the Northwest housing market lagged behind the California market by about six months.
I thought about that idea recently when I read that home sales decreased 30.1 percent in August in California from the same month in 2005, the largest sales decline since August 1982.
Things are a bit different here, and will continue to be. According to the Northwest Multiple Listing Service, home sales were down about 15.7 percent in September from the same month last year yet prices were up 9.4 percent, marking the first time in two years that year-over-year price growth has not been in double-digit territory in Western Washington.
The premise of this article appears to be that the Northwest only lags California on the way up, but we won’t have to worry about following California down. Let’s see how well the author backs up that claim.
While the past 24 months have been crazy, the long-term outlook for the Puget Sound housing market continues to be bright. Here’s why.
Availability of jobs props up the housing market, and the job outlook for Western Washington continues to be extremely healthy, according to data compiled by Stewart Title Company. In fact, the Seattle-Tacoma-Everett area is expected to add jobs at a rate of double the national average for at least the next three years. While homes might take longer to sell and sellers again are considering offers contingent on the sale of the buyer’s home, local prices are not headed backward or even close to a “soft landing.”
Okay, so our housing market will remain strong because there are plenty of jobs available. But wait, what happened to the California comparison? What does the job situation look like in California? Are jobs not plentiful there? Tom doesn’t say.
Instead, he totally drops the original point he seemed to be making, and closes the article with a series of bold assertions.
“No housing market has ever collapsed unless the underlying economy went sour,” [real estate economist John] Tuccillo said. “Short of recession, this means that virtually every housing market in the U.S. will hold up even though sales may slump and prices decline.” He did note, however, that home prices may slump in upper-Midwest rust belt areas.
What about a worst-case scenario — mass foreclosures and rising inventories?
“If the United States undergoes a recession in 2007, the housing market will do much worse than we anticipate, but so will autos and retail,” Tuccillo said. “Exotic mortgage instruments will have an impact in increasing the foreclosure rate, but in any loan made before 2005, the consumer is in a positive equity position and will weather financial distress.”
So, when your friends in California swear the sky is falling and real estate will no longer be the same, remind them that property is cyclical and that their neighborhood will rebound when the “down” period ends late next year.
And, the down period in the Puget Sound will mean slower, not negative, appreciation.
Sweet. Home prices definitely won’t drop significantly unless there’s a recession, but even if there is one, every pre-2005 loan will be totally safe, and worst case, all the pain will be over by the end of next year. Those are good things to know. I’m glad Mr. Kelly let us in on this reassuring absolute knowledge that he and his real estate economist friends are in possession of.
(Tom Kelly, Everett Herald, 10.15.2006)