I was thinking recently about the claim that we’ve been hearing lately from some sources that Seattle home price declines are over. The primary evidence they seem to provide for this hypothesis seems to be the slight bump in some Seattle-area median prices, and the uptick in sales.
I’m not convinced, but rather than just dismissing these predictions out of hand, I thought I’d try to compile a list of factors for and against the notion that local home price drops are over.
Seattle-area home price drops are probably over because:
- King County’s single-family median price rose over $30,000 from March to June
- Pending sales are up around 25% from a year ago.
- Closed sales are up slightly from a year ago.
- Inventory is down around 20% from a year ago.
- There’s a lot of wealth in the Seattle area.
- Mass psychology could suddenly turn and drive up prices again (i.e. – Robert Shiller’s Animal Spirits)
Seattle-area home price drops are probably not over because:
- Median prices can be a poor indication of actual short-term home price movement.
- Foreclosures are through the roof and still rising.
- Vacancy rates are still climbing.
- Many pending sales are turning out to be illusory.
- On-market NWMLS inventory excludes large amounts of new construction and bank-owned inventory.
- Sales have been rising in San Diego for over a year, but prices still fell another 20%.
- Local employers are cutting thousands of jobs.
- Financing requirements are tightening.
- Interest rates are rising.
- Thousands of empty lots sit ready to build on the slightest hint of a recovery.
- Virtually none of the excess debt in the system has been cleared.
- The $8,000 tax credit expires in November.
Personally I’m not convinced that home price drops are over, despite the slight upticks we’ve seen this spring and early summer. There are just too many factors at play that continue to put downward pressure on home prices, and too few factors pushing them up.
Of course, it’s entirely possible that I may have missed something, so let’s hear from some of you who believe that price drops are mostly over. What am I not considering? What’s your best argument for the claim that the bottom is in? What about those of you that think prices will continue to fall even further—have I left anything out of that side of the argument?
Let’s hear the best comprehensive arguments from both sides, so we can come to an informed conclusion.