Here’s something that should be fun to discuss. I’m interested in hearing everybody’s ideas about the types of scenarios that may play out in the Seattle-area housing market. Best case, worst case, and most likely case. Here are my wild-donkey guesses:
Prices flat to +3% for ten or more years. Local economy keeps chugging, population gradually grows (but not at the predicted level), and density gradually increases. Affordability improves as incomes slowly catch up to prices.
Prices drop to 1997-1998 values over the span of approximately 5 years. National and local economy endure a moderate-to-deep recession for at least as long. Condo projects and cookie-cutter developments are halted mid-construction, resulting in little miniature “ghost towns” scattered throughout the Puget Sound. Affordability shoots through the roof, but very few people are able to qualify for home loans, which require 20% down, and cash-paid closing costs—no exceptions.
Most Likely Case
The way things are headed as of right now, I expect we’ll see a Japan-style housing downturn. Prices declining 2-5% per year for 7-15 years, eventually shaving off all of the gains of the bubble, and then some. Mild recession (as reported by the government statistics, anyway). Tighter lending standards persist, making it very difficult to get a house without 20% down in cash. Overall public sentiment shifts from “renting is for suckers” to “buying into a declining market is for suckers.”
A similar thread on this subject was started in the forums, titled Fallout Scenarios, with more of a broad range of possibilities for how this may play out. Be sure to check that out as well.
So what are your best case, worst case, and most likely scenario for the Seattle-area housing market? What factors do you think will determine which direction things end up going?