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:
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)