WCRER: Price Declines Get Rolling

The Washington Center for Real Estate Research has released their data for the fourth quarter of 2007, and it finally has some good news for home buyers. According to the WCRER calculations, home prices in Q4 dropped 7% from the previous quarter ($472,000 to $439,000), which naturally edged the affordability index up slightly to a still-anemic 72.4.

Here’s a graph of their data on “Median Resale Price” and “Housing Affordability Index” since 1994, when they first started collecting data:

WCRER: King County Home Prices & Affordability
Click to enlarge

There’s really not much more to say about this data, as it just confirms what we have known for months; that home prices in King County are finally retreating. News reports and real estate agents are likely to latch onto the minuscule increase in affordability and trumpet it as proof that “now is a great time to buy.” When price declines have only just begun and affordability is still only 65% of its 1994-2003 average, now is definitely not a great time to buy.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    patient says:

    Thanks for the data The Tim. From the graph it seems reasonable to assume decent price stability and thereby moderate or low risk of making a large loss when the affordability index hovers around 110. What median price would it take with the other parameters involved in the index at today’s levels to reach 110?

  2. 2
    The Tim says:

    Assuming 5.75% rates, a median KC home price of $295,000 (32% off today’s price) would result in a 110 affordability index. I don’t expect there to be a sudden 30% drop in prices, but if prices dropped 10% for three years in a row, while incomes increased 6% each year, that would get us to 110 again also.

    I’m not saying that’s very likely. I expect it to be much more drawn out. Like maybe 5% home price declines coupled with 3% income increases for 5 years, which would also get us back to 110. These types of things were discussed in some detail on the Seattle Soft Landing: Do The Math post, which incidentally is listed at the bottom of this post by my automated “Related Posts” do-dad. I should probably do another post along those lines with more recent data.

    You can also play with different scenarios on the “CatchUp” sheet on the Seattle Bubble Spreadsheet.

  3. 3
    patient says:

    Thanks The Tim, personally I would be ok with buying at 10% below 110. I consider that a large risk of the home temporary being reduced by 10% but a low risk of ending up 20% below and putting me underwater on the mortgage. It would be pretty cool to have the affordability index as part of your monthly updates of the mls data.

  4. 4
    Angie says:

    Thanks for those links, Tim. The thing that struck me about their data summary was that their housing affordability indices for first time homebuyers (which assumes smaller down payment and also smaller income than the general index) was below 100 in every Washington county except Adams. Yikes.

    Tangentially, and further regarding King County affordability–info on King Co property tax charges for 2008 were released today. Can’t speak for the rest of the county, but our bills are lower for 2008 than they were for 2007.

  5. 5
    patient says:

    In the graph it looks like the last time we had an affordability index of 110 was around Q2 2004 when the median was about $300k. Since median is hard to translate into what to expect to pay for individual homes would it be far fetched to instead assume that if/when you can get 2004 pricing you are pretty much getting a price close or below the mean? In 2005 affordability just comes crashing down so 2005 prices would be a dicy measure.

  6. 6
    AndyC says:

    From today’s Seattle Times:

    “The report from the Center for Real Estate Research also measured the ability of typical families to purchase typical homes, through the Housing Affordability Index.

    The index for Washington state stood at 90.5 for the fourth quarter, meaning a family with the median statewide income of $64,030 had a little over 90 percent of the income required to qualify for a mortgage on a home priced at the median of $293,900.

    It’s the most affordable that housing has been since the opening months of 2006.”

    That last line is my favorite!

  7. 7
    Ray Pepper says:

    “now is definitely not a great time to buy”

    But, I just sat in a Coldwell Banker conference and heard now is a GREAT TIME TO BUY.” ??

    The debate continues. But, the real answers can be found just one place this week…Your local Realtor…NO! Bubble….NO! Media…NO! Neighbor..NO!


    Booth 724. Seattle Home Show! We have arrived. T Shirts and All !!


  8. 8
    Lake Hills Renter says:

    Tim, I hope Ray is paying you for advertisement.

  9. 9
    newbie says:

    Sorry for the off topic post.

    I find the 500 realty advertising here very unappealing. It would give me some piece of mind that they were paying for blog space like the other companies =).

    I for one am not interested in a companies thoughts on wheather or not its a good time to buy. In my mind this blog is for people who are looking to buy…not companies looking to sell.

    Any one else with me?

  10. 10
    rose-colored-coolaid says:

    W00T W00T! Affordability is back up.

    Look at it this way, houses are as affordable as they were in spring 2006. Let me remind you that houses were selling like hotcakes (I’ve never actually bought a hotcake, have you?) in spring 2006. Ergo, the realtors should be excited to know that we are now back in a spring 2006 market, rather than the fall 2007 doldrums.

  11. 11
    rose-colored-coolaid says:

    The debate continues. But, the real answers can be found just one place this week…Your local Realtor…NO! Bubble….NO! Media…NO! Neighbor..NO!

    So uh…let me get this straight. I shouldn’t listen to bubbles – agreed, since all they make is that popping noise and then they get soapy water on your ear. Also, I shouldn’t listen to my (one?) neighbor. And no media. Not even American Idol?!?

    And definitely don’t listen to any local realtors at all. Regardless of whether or not they are discount realtors, right Ray? Even if they have a booth at the home show and free shirts I should not listen right?

  12. 12
    Lake Hills Landlord says:

    I am not a Ray hater, but please Ray, make useful comments. It wouldn’t bother me to see a signature at the end of your comments for your company, but a lot of your comments lately have been “everything sucks but 500 Realty…talk to me to find out why”, which I don’t find to be helpful, insightful, or endearing. This isn’t the right forum for a hard sell.

  13. 13
    EconE says:

    Manic much Ray?

  14. 14
    BelRenter says:

    This is a terrific graph. I would love if you posted updates to it regularly, maybe every month. It gives me a clear visual target of when I want to buy.

  15. 15
    The Tim says:

    Well, I can’t update this exact graph every month, since the WCRER only releases data quarterly. However, I have my own calculation of the affordability index based on other available data that tracks pretty closely to the WCRER index. I update that monthly in the spreadsheet, and I can certainly post a variation of this graph based on that data on a monthly basis.

  16. 16
    Olaf says:

    Rose-Colored Coolaid interprets this data to mean houses are as affordable as they were in spring 2006. But there’s one KEY difference: In 2006, you could get yerself a jumbo loan with little more than a picture ID and a used Metro Transit transfer.

    The current credit crunch isn’t reflected in this affordabilty index, but I would argue that it’s the biggest factor pushing prices down.

    May I broach another quick topic? Some scheming real estate agents are tearing up the apartment buildings in my neighborhood (Eastlake) for condo conversions. I talked to one of them on the phone (in hopes of determining how long this aural torture was going to last), and he mentioned by the bye that the condo conversion market was still booming. He was completely gung-ho, talking about a rush to buy units in new buildings going up in the shadow of I-5, etc. I suppose that’s part of the Lake Union gold rush… but still, WTF? Is there a condo bust in this town or not?

  17. 17
    The Tim says:

    The current credit crunch isn’t reflected in this affordabilty index, but I would argue that it’s the biggest factor pushing prices down.

    That’s an important point. The affordability index considers only three variables:

    • home prices
    • household incomes
    • interest rates

    If there were a way to also figure in loan availability or qualification guidelines that would be ideal, but I don’t know of any numeric measure of such things, and apparently the WCRER doesn’t either.

  18. 18
    deejayoh says:

    WTF? Is there a condo bust in this town or not?

    Do you remember reading the stories about people running out to pick up the fish when the water pulled back before the Tsunami hit in Thailand? That’s the guy you had on the other end of the phone…

  19. 19
    johnnybigspenda says:

    If prices swing like a pendulum… this time too high, they will likely swing somewhat ‘too low’ for a period of time as well. (below the “110” ?)…

    If you’re a believer in reversion to the mean, the affordability index is THE thing to watch for the next couple of quarters

  20. 20
    disbelief says:

    I have a hard time believing that houses were as affordable in 03 as they were in 94, as this graph seems to indicate. Tim, what are the factors they are using to determine this info? (Sorry if I missed it)
    I would think that incomes would be a main factor, but I don’t think that incomes have even come close to keeping pace with the increase of home prices durring this time frame. Is this another case of distortion by use of the “mean” or average to represent incomes?

    Yet, If the history shown on the chart is any indication of future trends, then I would expect the affordability trend line still has quite a ways to rise, and the one representing home prices still has quite a ways to fall.

    Lastly, I really don’t understand WSU’s dedication to study of the RE market. Seems that there are more important economic factors available. And why would it be so closely tied to industry interests / players – I don’t see any participation by folks that would balance this bias either.

  21. 21
    TJ_98370 says:

    Do you remember reading the stories about people running out to pick up the fish when the water pulled back before the Tsunami hit in Thailand? That’s the guy you had on the other end of the phone…

    Too funny!

  22. 22
    The Tim says:

    The equation for calculating the affordability index is fairly straightforward:

    (Imo * 0.30) / Pmo
    monthly median household income = Imo
    monthly payment on a median-priced house = Pmo
    (principal and interest only, assumes 20% down and 30-year fixed rate loan at current interest rates)

    Or, put in plain English, it’s 30% of the monthly median household income / Monthly payment on the median-priced house assuming 20% down and a 30-year, fixed-rate loan.

    The reason ’03 was as “affordable” as ’94 is because ’03 had interest rates below 6%, whereas in ’94 they were 8-9%.

    The affordability index isn’t a perfect measure. It’s just one way of looking at home prices vs. incomes.

  23. 23
    Joel says:

    If you’re a believer in reversion to the mean, the affordability index is THE thing to watch for the next couple of quarters

    I prefer to compare monthly carrying cost to monthly rent. The problem with the affordability index is that there’s no way to tell if the desirability of a location has gone up or down. For example, if the Seattle area in the past few years has suddenly become a hot place to live then the reversion to the mean may only take us back to 100 or 90 or something. However, the desirability of the area should be reflected in the equivalent rent.

  24. 24
    Mack McCoy says:

    I wrote on the P-I site:

    how many months have the folks at Seattle Bubble maintained that prices were retreating when they weren’t, according to this chart?

    Seems to me that if this chart is your validation, you got some ‘splaining to do about all those other quarters that you said prices were gonna fall and they didn’t.

    So, Now is Definitely A Bad Time To Buy, right? Okay, I’ll be back next quarter, see how you did.

  25. 25
    Lake Hills Renter says:

    Funny, I don’t remember making any predeictions. But then we’re all the same over here, right?

  26. 26
    biliruben says:

    “…all those other quarters that you said prices were gonna fall and they didn’t.”

    Where is it that he said that, Mack? You obviously don’t read much over here.

    You remind me of those old blue-hairs protesting out in front of “The Last Temptation of Christ”. When you ask what they found objectionable, they just quote untrue hearsay because they wouldn’t deign actually watch the movie themselves.

  27. 27
    Matthew says:


    Move along, there is nothing to see here.

  28. 28
    deejayoh says:

    how many months have the folks at Seattle Bubble maintained that prices were retreating when they weren’t, according to this chart?</blockquote?

    Gosh – I think that would take us all the way back to what, January? Yup, last month I think it was first reported here htat prices went negative YoY.

    I sure am glad Mack posted it on his blog. That way both of his readers can enjoy it! He and Kary Krismer can have a real fun fest.

  29. 29
    John says:

    Is that Mack’s way of saying “it is always a great time to buy”? Got it, sir.

  30. 30
    dennis calvert says:

    Go Realty Ray GO ! GO ! GO !. Finally someone helping to bring down this sham of a profession. I checked out your site and its what I have been saying for a long time. Do you have a minimum? I’m not going to home show but can you mail me a shirt? I will wear it. I went to your site and I hope you guys can make it.

    Do you serve Island County?


  31. 31
    crashcadia says:

    I have been counting the for lease signs on commercial buildings on my way to work. It has gone from 4 signs a few weeks back to over 30 signs on my way in this morning.

    I have also noticed that the traffic has been light this past week.

    I guess CRE is following residential. Does anyone else have any observations.

  32. 32
    rose-colored-coolaid says:

    Olaf #16

    Sorry if it wasn’t clear, but my post was tongue in cheek. I.E. if I were a cheerleader, the fact that we are as affordable as early 2006 would be my justification for my cheerleading. Boy, a joke is never as funny when you have to explain it. :(

  33. 33
    Markus says:

    Homes are still selling in my area (North Kirkland). I really don’t see a collapse in home prices coming; maybe another 5% decrease, but there is still demand for housing close to Redmond and Bellevue.

    If a home should cost at most 4x your yearly salary (rule of thumb), then homes in my area are priced correctly +/- 5%.


  34. 34
    Lake Hills Renter says:

    I believe the historic norm is 2.5x to 3x annual salary.

  35. 35
    Herman says:

    Tim – this graph is great. You should have an area of your site where you maintain 4-5 of your favorite graphs and refresh them periodically. Then I can look them up whenever I want.

    Higher up on the posting list, you said that the affordability index accounts for people who already have a home. I assumed that meant it factored in the equity that a typical area homeowner already has. But I didn’t see that in the formula. Can you clarify?

  36. 36
    youneedamortgage says:

    I think that in 12 months we’ll be seeing a run-up of prices in Sacramento. Up/down/up/down/up/down.

    Bloggers are creating a yo-yo economy

  37. 37
    softwarengineer says:


    It certainly wasn’t the Bubble Brains. LOL

    Hey, you guys at NAR have been crying wolf against us Bubble Brains for 2 years now, you have any lamebrain real estate soft landing, we’re not really in recession hotair explanation to blog now?

    I know, the economic stimulus checks they’re cutting right now are just a passing anomaly and the economy will be growing gang busters come year’s end.

    A lot of Bubble Brains aren’t getting the real estate recession rebate checks they’re cutting tis May because our income is too high [above $75K and above $87K single income for even partial], and the joke of it is NAR, we don’t make enough to afford Seattle real estate either.

    How ya gonna get the $75K and less single incomes in your $430K homes without dessimating the rest of the economy by real estate bankrupting the Middle Class with 70%+ net pay mortgage/tax/insurance/maintenance pay-outs?

    How ya gonna get all banks to stop minimum 20% down requirements [now this would really throw a wrench in your plans] this year?

  38. 38
    deejayoh says:

    I think that in 12 months we’ll be seeing a run-up of prices in Sacramento. Up/down/up/down/up/down.

    Amazing that someone would pick Sacramento, of all places as a poster child.
    check the stats at radar logic for Sacramento.

    Prices are down about a third off of peak on a $/sqft – from $250 to ~$175.
    That’s a crash, any way you cut it.

    I can only assume this is a lame attempt at playing the troll, because you can’t be serious.

  39. 39
    no graghs/commom sense says:

    I was about to sell and hideout in a rental while the prices fell in this “bubble?” …I would be the smart one who sold high bought cheap….just not going to happen!
    You can graph away until the cows come home…but the real deal is common sense tells me…with a condo sitting next to the soon to be Factoria Mall revision to “The Marketplace” that my condo is going UP……downtown Bellevue is still building condos with about the same square footage (yes, some nicer stuff) but they are selling them…and at 300,000 above my price….I believe that with this new “Marketplace” and still considering the old “location, location” truth….common sense says hold on…because if not I will be driving by my old place( if I sell) in about three years needing to get out my car so I can kick myself around the block because the prices are now up about 150,000…so I’ll take a look at graphs three years from now….and smile that common sense says stay…buy this month if you can BUY because Spring is on it’s way and you know what that means…just like every year….the last quarter was a downturn because that is what it DOES…and in SPRING things come up…and with this new breath so will the prices of homes.

    Just common sense…..I will predict that in the last quarter of this year the prices will once again go down or hold their own …because that is what they do!

    I have no in depth studies but I can lift my head up and look around…..Microsoft is expanding and Boeing is building for commercial …..Downtown Bellevue has more cranes than people…follow your gut…..Buy something now!

  40. 40
    george says:

    Wow, the report’s editor is Matthew Gardner who said there is no bubble in Seattle and predicted 10 percent appreciation in 2007.

  41. 41
    b says:

    cascasia – if you think commercial is hosed (it is), I suggest you put some play money into SRS for a year

    Markus – How many of those people buying today have another 1x of their salary for a downpayment, and 1/2x in the bank for emergencies? How many could afford those prices if mortgages were 8%? The credit crunch is just beginning and housing is going to experience massive worldwide deflation, Seattle included.

  42. 42
    Jackson Wallacee says:

    I’ve been looking to buy for a while, and I’m still seeing home prices go up. It just seems that worse and worse trash is foisted off at the same price, and the unremodelled old goodies are being picked off as time goes by. I want to see this RE market crash because I think its ludicrous and I want to buy, but Seattle has quite a industrial and tech base now, and with the fact that we could still see huge population increases as more people migrate here from completely burned-out hellholes across the US, I do just wonder if we will just keep going up and up. No, I am not an RE person, and I wont buy out of my means. Hopefully the boomer demographic will play a factor in this area, too. Location is still a huge factor.
    Who really wants to live in pierce county or Federal Way?

  43. 43
    deejayoh says:

    You can graph away until the cows come home…but the real deal is common sense tells me…with a condo sitting next to the soon to be Factoria Mall revision to “The Marketplace” that my condo is going UP…

    yup, plenty of fish out there still. go git ’em!

    how long has that factoria mervyn’s site been vacant, anyway?

  44. 44
    b says:

    Jackson –

    The market is crashing in California, which has a more robust economy than Seattle and better weather. Nobody is going to move to Bellevue for MS if they can live in Palo Alto for the same price, so I wouldn’t worry about a huge influx of people driving up prices. Also, prices are bounded by the credit markets, which are in the process of disappearing. Nothing like 20% down required and 9% mortgage rates to “help” prices along.

  45. 45
    softwarengineer says:


    Oooops, sorry, I meant No Graphs Common Sense.

    Geee…the wonderful city of Bellevue you mentioned. Did cha know Bellevue was mostly built in the 50s for the lower middle class? Kind of explains all those dinky flat roofed over priced homes out there. I lived there for 4 wondeful years in the mid 90s, owned a home in Lake Hills too….but a warning…..don’t drink the water, it comes out brown and my house had replacement pipes too. There was a spring pouring from the street, oh what the heck, probably the rusted infrastructure falling apart. Hey, what do expect, the pipes were laid out cheap in the 50s.

    I’m so glad I bought a newer home outside of Bellevue with newer infrastructure, I can drink the water now….lol…

    Ya mentioned Microsoft and Boeing with all its commercial orders. LOL

    Don’t ya read the Boeing websites? 50% of Seattle area Boeing jobs are for the warlords, defense, now. When your President Obama takes over and butcher axes defense, kiss your property values good-bye, even worse than the current recession impacts right now….I know, Bellevue, the land of rusted water, is immune….LOL

    How’s VISTA sales doing at MSFT? Us geeks wouldn’t touch that O/S, we’re all still happily on XP or switched to MACS….so has the US Government.

  46. 46
    Cougar says:

    Slow economy drives WA state income down $423 million – Saturday, February 16, 2008

    Seattle Times article – they won’t allow to link -Permission to reprint or copy this article or photo, other than personal use, must be obtained from The Seattle Times. Wonder why~ hmmmmmmmmm.

  47. 47
    mike2 says:

    at the risk of responding to a troll…

    Downtown Bellevue has more cranes than people…follow your gut…..

    My gut tells me Bellevue is going to be one of the harder hit areas in the CRE slump.

  48. 48
    rose-colored-coolaid says:

    I’m confused by Mr. ‘No Graphs or Common Sense”.

    Downtown Bellevue has more cranes than people

    So your advice is that I purchase housing for cranes…and then rent it out? It’s unconventional, but brilliant. I am a little concerned what will happen when this particular breed of Orange Crane flies home.

    …follow your gut

    Swell. First, I followed my gut to Taco Bell. Then I followed it to Burger King. Now I have a huge gut and I follow it every were.

    In all seriousness though. Don’t sell. There are enough transaction costs involved in buying/selling a home, that trying to time the market is generally a stupid idea. That’s the real common sense. For your sake, I hope 3 years from now you aren’t kicking yourself around the block every night when you come home to a house work $50k less than it is today.

  49. 49

    Tim, just a question? How do you calculate MOS using pending sales? Wouldln’t it make more sense to take the average closed sales over the past 12 months if you are generous, then divide that into the amount of inventory on the market? Or use the last 3 months of closed sales if you want to be conservative.

    Full disclosure. I am a Realtor, and do enjoy reading your stats and comments. Keep it up.

  50. 50
    patient says:

    Roger, personally I’m not interrested in how many months the current supply would actually last if no more homes were added (since that’s never going to happen anyway ). What I’m interrested in is a measure here and now at this moment what the relationship is between the inventory and sales. Month of supply is that measure. I would prefer to have it with closed sales instead of pending though since some pendings to not close but it’s ok as is.

  51. 51

    The only problem is that all months are not equal in sales, and the other problem is that if you are trying to compare local DOM with other area’s DOM outside this state the calculation should be the same. I calculate this number for a small neighborhood or area surrounding a property when I am trying to arrive at a value-either to purchase or to list. I always use closed sales, those are real numbers that I can depend on.

    The other huge issue is that Pending sales can sit on the MLS for months. Month end pending sales can include carryover from several preceding month’s, not to mention the fall out of pending sales that never make it to closed.

  52. 52
    patient says:

    “The only problem is that all months are not equal in sales”

    Roger, that’s not really a problem and it’s the reason why it’s good to track mos every month. If all months where equal there would be no need to do that. The mos that The Tim provides is not to forecast how long th esupply will last it’s just a measure of inventory compared to sales at a given month.

    Pendings are a bigger issue since closed is what really counts but as long as you use the same measure consistently it’s kind of ok.

  53. 53
    rose-colored-coolaid says:

    The only problem is that all months are not equal in sales

    I tend to agree with this sentiment. Which raises a question, does each month usually make up the same percent of sales for the year? E.g. May is usually twice as busy as October?

    On solution could be to normalize against the most recent month. If January normally accounts for 5% of sales, then multiply the January sales by 20x to get estimated 2008 sales, then calculate months of supply from that yearly estimate (where one month of supply = 1/12 expected annual sales.)

  54. 54
    rose-colored-coolaid says:

    Oh, here’s another thought. You’ve got the data, if you can fit a decent function to the sales graph and the supply graph, then you could use your mad calculus skilz on the derivative of SUPPLY/DEMAND (where SUPPLY is the function for supply and DEMAND is the function for demand).

  55. 55
    The Tim says:

    For what it’s worth, I didn’t make up the MOS figure, I’m just using it. I got it from the NWMLS themselves, who occasionally report on it. See an example here. They use pending sales, so I use pending sales, so as to reduce confusion. If they’re defining “months of supply” as:

    [total inventory at the end of the month]
    [pending sales for the month]

    Then I’m going to stick with that definition if I’m using the same term. If we come up with a better measure of market performance, we’ll give it a new name.

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