I was wondering if you could write a post sometime on the relationship between interest rates and home prices (or direct me to a previous post if you’ve already done this). My husband is feeling pressured to buy a home within the next couple of months b/c he thinks interest rates will go up soon and we will have to spend more money for a house. I feel that an increase in interest rates will cause home prices to drop further. What is the historical relationship between interest rates and home prices? Have home prices ever declined before when interest rates go up? What data exist to inform your opinions on this? Also, does an increase in interest rates usually lead to an increase in inflation?

First, here’s a post I wrote back in June on the subject of interest rates and home prices: The Consequences of a Market Full of Monthly Payment Buyers. I’d also like to point out another more recent post that argues that It’s a Great Time to Rent.

Also, please be aware that feeling “pressure” is never a good reason to buy a home. Never.

Okay, let’s tackle the specific questions quoted above. In order to attempt to explore this issue, we’ll look at King County home prices (inflation-adjusted using the CPI) and mortgage interest rates over the last 60 years.

Prior to 2007, there were two extended periods of time during which inflation-adjusted King County home prices fell: 1969-1975 and 1979-1985 (each highlighted above in yellow). Interestingly, mortgage interest rates were indeed rising going into both of those periods.

From 1965 to 1974, interest rates rose over five points. Meanwhile, home prices dropped over 20% from their peak. During a period of relatively stable (though definitely still high) interest rates between 1975 and 1979, home prices shot up. Then, as interest rates began their steepest climb, shooting up nine points in four years, home prices fell again, dropping 20% off the peak.

It is interesting to note that the dramatic price declines that we are currently seeing is the first time that home prices have fallen for an extended period of time without a corresponding period of rising interest rates.

The national picture looks similar, although the 1969-1975 decline is much less pronounced, and there is an additional period of declining prices between 1990 and 1996, during which interest rates were declining.

(Note that the interest rate on the above chart does not exactly match the first chart, as the above chart is taken directly from the data provided by Robert Shiller on his Irrational Exuberance website.)

It was also asked “does an increase in interest rates usually lead to an increase in inflation?” I believe that high interest rates and high inflation usually happen around the same time, but I don’t think it’s necessarily accurate to say that the increased interest rates lead to increased inflation. More likely they’re both symptoms of larger economic forces at play.

All that being said, it is important to be aware of a couple of things. One, people have been expecting interest rates to rise for about a year, and yet they continue to hover around 5%. Buying based on where you think interest rates are going to go is probably not a good plan.

Two, if you do end up buying in a high interest rate situation, keep in mind that you can always refinance if rates go down later. However, if you end up buying in a high purchase price situation, then home prices go down later, you won’t have the luxury of refinancing into a lower principal balance.

Lastly, I’ll take this opportunity to repeat the advice I have given since launching this site about when it is best to buy a home. If you find a house that you believe is priced fairly, that you can afford using a conventional fixed-rate mortgage, that you will be happy living in for at least ten years, and you won’t be distraught if the value goes down, then go for it.

Frankly, who cares about interest rate or home price trends if it is important to you to buy a home and you can afford to buy a home you love? Just don’t allow yourself to be fooled into believing that buying a home is a great investment, or that you have to buy now or risk being priced out forever.

Granted, we’re not talking about a lot of money here (relative to the cost of most Seattle-area homes), but fifteen refinances in less than five years?!? Followed (not surprisingly) by a foreclosure last year. That has to be some kind of a record.

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Here’s a link to this month’s NWMLS press release: Northwest MLS members report 28 percent increase in pending sales from year ago

“More certainty” and “more stability” in the market contributed to a boost in activity during January, according to officials from Northwest Multiple Listing Service. Brokers reported an increase of nearly 27 percent in pending sales (purchase offers made and accepted, but not yet closed) from December and a 28 percent jump from twelve months ago.

Two other indicators of activity fell — inventory and sales prices. There were 3,915 fewer active listings of single family homes and condominiums in the MLS system compared to a year ago, a drop of about 10.3 percent. Sales prices area-wide for January’s closed sales declined about 4.8 percent from year-ago figures. (The NWMLS service area covers 21 counties.)

“We anticipated there would be improved sales in the first-time buyer market and are encouraged to see activity gaining ground in the higher price ranges as well,” observed NWMLS director Joe Spencer, the president and COO of John L. Scott Real Estate. He cites historically low interest rates, great affordability, and the home buyer tax credits as factors for “helping push us into a more stable market,” and noted he expects to see this momentum continue in the coming months.

At least they dropped the lie from last month that “affordability has never been better.” Now it’s just “great affordability.”

[NWMLS director Dick] Beeson said the fast-approaching tax credit deadline is expected to boost activity in the next few months. “This year will be better than last because of more certainty in the market,” he remarked.

Certainty that the government is going to end their 2009 programs to prop up prices? I can see February through April being better, but if the Fed’s MBS purchases really end and no new tax credit is enacted, I think there is a distinct possibility that sales will drop to frigid levels again, pushing prices even further down.

Click below for this month’s roundup of real estate reporting, or the lack thereof.

Eric Pryne, Seattle Times: Median price of homes rises in Seattle, keeps dropping in suburbs

Home prices in the city of Seattle rose in January for the first time in nearly two years while they continued to fall in the rest of King County, according to one closely watched measure.

The median price of a house that sold in Seattle last month was $415,000, up from $400,000 in January 2009, the Northwest Multiple Listing Service said Thursday.
…
“Now that profit is no longer a given in people’s minds when buying a home, buyers are realigning their priorities,” Tim Ellis, editor of the Seattlebubble real-estate blog, said in an e-mail.

“They are less likely to ‘drive till you qualify’ when they realize that they probably won’t be able to sell that far-flung home in a few years for tens or hundreds of thousands more than they paid and then move to the neighborhood they really wanted to live in in the first place,” Ellis said.

I shared my take on the divergence in price patterns between the close-in neighborhoods and the outer suburbs with Eric via email.

Gerry Spratt, Seattle P-I: Seattle home prices up for first time since March 2008

Home prices in Seattle were up 2.63 percent in January compared with a year ago – the first such rise since March 2008 – according to the latest numbers from the Northwest Multiple Listing Service.
…
The uptick in prices and activity, along with a drop in inventory, indicates a stabilizing market.

“For several months now we’ve been seeing stabilization in all of the home price measures as inventory is pulled down,” said Lawrence Yun, chief economist for the National Association of Realtors, in a Tuesday news release. Yun was talking about the national market, and the Seattle market recently has lagged behind the national trend by several months.

In King County, pending sales – a good indicator of market health – continued their upward trend in January but prices didn’t follow.

Wow, quoting Lawrence Yun and calling pending sales a “good indicator.” Double-fail.

Mike Benbow, Everett Herald: Prices drive spike in home sales

People bought more homes in Snohomish County in January as prices continued to fall.

Pending sales, deals made in January that didn’t close, climbed 42 percent last month and closed sales weren’t far behind, climbing 37.9 percent, the Northwest Multiple Listing Service reported Thursday. There were 949 pending sales last month and 495 completed sales, the listing service reported.

“The market has definitely picked up, with more interest and action by buyers,” said Dick Beeson, a Windermere owner/broker in Tacoma. “Sellers are expecting better results this year than last year, but not necessarily higher prices.”

Why shouldn’t they expect higher prices? Beeson has been calling the bottom since sometime in 2008, after all…

Kelly Kearsley, Tacoma News Tribune: Pierce County home prices down 13%

People might be buying homes, but it’s not pushing Pierce County home prices up.

The number of pending and closed home sales increased by 16 percent and 31 percent respectively in January, according to figures released Thursday by the Northwest Multiple Listing Service.

But the area’s median home price still dropped by 13 percent over the year to $205,000.

Short sales and foreclosures continue to drive down the area’s home prices, local realtors said.

It doesn’t look like the situation for underwater home sellers in Pierce County is likely to improve very soon. Sell now or be priced in forever.

I couldn’t find a piece from the Olympian this month. Perhaps Rolf Boone is on vacation.

Update: The Olympian story posted a day late. Here it is.

Rolf Boone, The Olympian: More homes go on market

The number of Thurston County homes newly listed for sale last month rose above 500 units, likely the result of sellers wanting to take advantage of tax incentive programs and lower prices or those needing to sell their houses or condos because of falling property values, new data show.

The 505 homes newly listed in January marked a 4 percent increase from the 484 newly listed in January 2009, according to Northwest Multiple Listing Service data released this week. The data are combined figures for single-family residences and condominiums.
…
Real estate broker Ken Anderson, the owner of Coldwell Banker Evergreen Olympic Realty, said he was encouraged by the county’s pending sales, which rose nearly 4 percent last month to 302 units from 291 units last year, he said.

Although fewer homes sold last month, an increased number of pending sales likely will result in more closed sales in February or March, Anderson said.

…or not, because pendings have very little correlation with actual closed sales lately.

(Eric Pryne, Seattle Times, 02.04.2010)
(Gerry Spratt, Seattle P-I, 02.04.2010)
(Mike Benbow, Everett Herald, 02.05.2010)
(Kelly Kearsley, Tacoma News Tribune, 02.05.2010)
(Rolf Boone, The Olympian, 02.06.2010)

Here’s your King County SFH summary, with the arrows to show whether the year-over-year direction of each indicator is favorable or unfavorable news for buyers and sellers (green = favorable, red = unfavorable):

January 2010	Number	MOM	YOY	Buyers	Sellers
Active Listings	7,523	+8.7%	-16.5%
Closed Sales	956	-34.6%	+41.8%
SAAS (?)	2.33	+17.1%	-30.9%
Pending Sales	1,765	+24.9%	+52.3%
Months of Supply	4.3	-12.9%	-45.1%
Median Price*	$375,000	-1.3%	-2.0%

Closed sales usually tumble from December to January, but last month’s -34.6% drop was quite a bit higher than the -19.9% average December to January fall from 2001 through 2009. Only in January 2005 did closed sales fall more month-to-month, dropping from 2,813 in December ‘04 to 1,677 in January ‘05 (-40.4%).

Feel free to download the updated Seattle Bubble Spreadsheet, and here’s a copy in Excel 2003 format.

Here’s your closed sales yearly comparison chart:

More closed sales in January 2010 than 2009, but less than every other year on record.

Here’s the graph of inventory with each year overlaid on the same chart.

Lower than 2008, 2009, and 2003. Higher than any other year.

Here’s the supply/demand YOY graph. In place of the now-unreliable measure of pending sales, the “demand” in the following two charts is now represented by closed sales, which have had a consistent definition throughout the decade.

The sales spike is falling off almost as fast as it spiked up.

Here’s the chart of supply and demand raw numbers:

Starting off 2010 slightly better than 2009, but lower than every other year…

Here’s the median home price YOY change graph:

And lastly, here is the chart comparing King County SFH prices each month for every year back to 1994.

Still bobbing along somewhat of a floor there.

Here’s a few news blurbs to hold you over until tomorrow’s reporting roundup.

Seattle Times: Median price of homes in King County drops 2 percent from a year ago January
Seattle P-I: Seattle home prices up for first time since March 2008

Developer Lexas Cos. said this week that on June 5 it will raise the asking prices 3 to 7 percent for about 70 unsold units that have been on the market since last spring.

Another 22 units that will be released for sale May 1 also will have higher price tags.

Lexas principals John Midby and Eric Midby said prices are going up partly to send a message to prospective buyers: If they’re waiting to buy until prices drop, they’re reading the local market wrong.

July 2009: Some Luxury Condo Developers Finally Dropping Prices (not Escala!)

At Escala, another luxury downtown Seattle condo tower near completion, Eric Midby, of Lexas Companies, said the developer has no intention of reducing prices.

January 2010: Escala prices are scaled back (third story, scroll down)

Escala was completed last fall. Now it’s … dropping its prices.
…
“We’ve all been waiting for yesterday to come back,” said Bob Rennie, whose firm took over marketing of the 269-unit tower at Fourth Avenue and Virginia Street in November. “It’s time to make business decisions.”

Just five units have closed at Escala, according to county records. Rennie says 67 more buyers are under contract — but he knows that in this market, that doesn’t guarantee much.

They’ll all be contacted over the next few weeks and offered reduced prices as an inducement to stay, Rennie says without giving specifics.

Who could have possibly foreseen that raising prices on luxury condos as the housing market experienced the largest collapse in history would not succeed in enticing buyers? That’s just crazy.

Here’s your preview of January’s foreclosure and home sale stats:

First up, total home sales as measured by the number of “Warranty Deeds” filed with the county:

This year’s drop in warranty deeds from December to January was nearly the same as last year’s: -37%. If single-family home sales follow a similar pattern (dropping roughly the same as a year ago), that would put January’s closed SFH at around 1,060, up 58% YOY. Since last January and February saw the lowest 1-month volume of sales since 2000 (as far back as our data goes), a 60% YOY gain certainly isn’t out of the question.

Next, here’s Notices of Trustee Sale, which are an indication of the number of homes currently in the foreclosure process:

January saw the first year-over-year drop in Notices of Trustee Sale in King County in nearly three years. That’s certainly notable. Unfortunately, foreclosures are still very elevated.

Here’s another measure of foreclosures, looking at Trustee Deeds, which is the type of document filed with the county when the bank actually repossesses a house through the trustee auction process. Note that there are other ways for the bank to repossess a house that result in different documents being filed, such as when a borrower “turns in the keys” and files a “Deed in Lieu of Foreclosure.”

Actual completed foreclosures were up from last year, though the 36.5% year-over-year increase was smaller than any month in 2009.

Lastly, here’s an approximate guess at where the month-end inventory was, based on our sidebar inventory tracker (powered by Estately):

Down 15% from last year, but still 26% above the 2000-2007 average for January. Is the pent-up supply contining to grow, or are inventory levels still elevated, keeping down prices?

Stay tuned later this month a for more detailed look at each of these metrics as the “official” data is released from various sources.

The following charts are based on data from the FDIC, the NCUA, and Calculated Risk’s latest Unofficial Problem Bank List (updated 01/29).

First up, here’s a map of all of Washington State’s banks and credit unions. For the banks, troubled banks are in red, non-troubled are in green. The size of each circle represents the total assets of each institution:

Next, here’s a visual of where our state’s troubled banks are located. Washington’s twenty-five troubled banks are only spread through eight counties, with the bulk of the problem centered in King, Snohomish, and Spokane counties.

Spokane County has only two troubled banks, but with the biggest in the state based there (Sterling), the size of the problem is somewhat overwhelming. 37% of Washington’s banks (by size) are currently on the unofficial problem bank list. 40% of that total is Spokane-based Sterling. The next-largest troubled bank in Washington is Everett-based Frontier (who recently posted a $34 million Q4 loss), representing just 13% of the assets in troubled banks.

Also, if you’d like to play with a full-screen version of the map that allows the selection of multiple counties, you can do that here.

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This time I was able to locate sold price info for Texas and Indiana, so the list below is the complete set of price, rent, and income data for the 25 largest cities in the US by population. Data is current as of November 2009. For a historical comparison, hit this 2007 Fortune table (the “The P/R Ratios” tab has 15-year averages).

Also, if you’re just interested in how things look around the Seattle area, hit this October post that breaks down seven neighborhoods in the area (note that the method used in that post is different than the one used to compile the table below).

Note that the “P/R” column is the median price divided by the median rent over the course of a full year, which is the “Rent” column times twelve.

Click on any column header to sort by that column.

Also, I pointed this out in our mid-week open thread, but thought it was worth mentioning here as well. I find it fascinating what a telling indicator it is of just how much the general mindset about home ownership has changed when you compare the comments on my 2007 post over at Get Rich Slowly and J.D.’s follow-up from Wednesday.

A selection of comments from each post…

2007:

• This is one of the worst pieces of financial advice I have ever seen. Yes, if you want to get poor slowly, by all means rent instead of buy.
• House values also increase over time. A renter gets no benefit from this.
• I hate it when PF Blogs let someone post about how renting isn’t such a bad deal. Renting sucks. How much do the renters benefit when property values rise? They don’t.
• All else being equal, when you rent you’re paying the mortgage, utilities, repairs, etc… AND the landlord is making a profit.
• Debt is not always bad – it can work as a multiplier for your financial leverage, and at least when buying a house, you’ll probably get a return.

2010:

• A lot of the time I wish we were still renting.
• I’ve done both, and am currently stuck with a house I am renting because it won’t sell. I probably won’t buy again.
• I appreciate this. I rent, I plan to keep renting for a long time, and I get very tired of friends and coworkers giving the whole “throwing your money away” crap.
• I came pretty close to buying a few times before I figured this out, and I’m really glad that I didn’t. I don’t envy any of my friends who are upside down on their mortgages and stuck wherever they are, but even ignoring the bubble/burst effect, ownership isn’t always that great of a deal over the long haul.
• I really appreciate how much money I save by renting in just time usage alone.
• This is a great article. Thank you for the insight. I’ve read several articles on this topic but this is the best one I’ve seen.

What a difference two and a half years makes.

With this latest release we have made a few notable changes. First and probably most interesting to the readers here is a new lower price. Now you can subscribe for a full year for just $60, or purchase a single issue for $20. Second, beginning with this issue we are now also covering Whatcom County. The real estate statistics covered in Sound Housing Quarterly now include 65% of Washington State by population.

Here are a couple of highlights from the fourth quarter issue.

The Real Estate Heat Index (a proprietary index I created that uses supply, demand, and home prices to calculate the general “heat” of the housing market) rose in six of the eight Puget Sound Counties I track in the fourth quarter, declined in Thurston and was flat in Skagit. Here’s a look at King, Snohomish, Pierce, and Kitsap:

Meanwhile, affordability actually increased in all eight counties, thanks to median home prices continuing to decline from Q3. That said, after updating the affordability index with the OFM’s October 2009 income estimates, the recent trend line for affordability was adjusted lower. As a result, the latest reading still came in below pre-bubble levels in all eight counties.

The full version of Sound Housing Quarterly includes detailed data and analysis for King, Snohomish, Pierce, Kitsap, Thurston, Island, Skagit, and Whatcom counties.

Head over to HousingQuarterly.com to subscribe to Sound Housing Quarterly. You can also download a free single-page summary of this quarter’s report, or head over to the free archive to check out last year’s Q3 and Q4 reports in full at no charge.

Note that the tiers are determined by sale volume. In other words, 1/3 of all sales fall into each tier. For more details on the tier methodologies, hit the full methodology pdf. Here are the current tier breakpoints:

• Low Tier: < $270,312
• Mid Tier: $270,312 – $402,072
• Hi Tier: > $402,072

The breakpoints for the tiers fell again in November, declining 0.6 to 1.1%.

First up is the straight graph of the index from January 2000 through November 2009.

The low tier fell 0.1% month-to-month, the middle tier fell 0.3%, and the high tier dropped 0.6%. The high tier hit a new post-peak low, while the low and middle tiers both sit slightly higher than where they were earlier in the year.

Here’s a chart of the year-over-year change in the index from January 2003 through November 2009.

The year-over-year situation improved slightly again in all three tiers. Here’s where the tiers sit YOY as of October – Low: -11.1%, Med: -9.5%, Hi: -11.2%.

Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.

Bouncing along the government-sponsored floor, but for how long…

(Home Price Indices, Standard & Poor’s, 01.26.2010)

Down 0.5% October to November.
Up 0.3% October to November (seasonally adjusted)
Down 10.6% YOY.
Down 22.7% from the July 2007 peak

Last year prices fell 2.5% from October to November (not seasonally adjusted) and year-over-year prices were down 11.2%.

Here’s our offset graph, with L.A. & San Diego time-shifted from Seattle & Portland by 17 months. San Diego’s year-over-year jumped above zero for the first time in over three years. Portland came in at -7.5%, Los Angeles at -3.5%, and San Diego at +0.4%, all better than Seattle.

Note: This graph is not intended to be predictive. It is for entertainment purposes only.

Here’s an interactive graph of all twenty Case-Shiller-tracked cities, courtesy of Tableau Software (check and un-check the boxes on the right):

Also in positive YOY territory: San Francisco, Denver, and Dallas.

In November, fourteen of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops (or saw year-over-year increases) than Seattle (same as August through October). Dallas at +1.4%, San Fancisco at +1.0, Denver at +0.5%, San Diego at +0.4%, Washington, DC at -0.6%, Boston at -0.7%, Cleveland at -2.5%, Los Angeles at -3.5%, Charlotte at -5.5%, Atlanta at -6.2%, New York at -7.1%, Minneapolis at -6.8%, Portland at -7.5%, and Chicago at -8.5%.

The only other cities still experiencing double-digit year-over-year declines are Miami, Detroit, Tampa, Phoenix, and Las Vegas. Some company.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

In the twenty-eight months since the price peak in Seattle prices have declined 22.7%, a new post-peak low.

Here’s a complementary chart to that last one. This one shows the total change in the index since March for the same twelve markets as the peak decline chart.

Seattle is actually down since March, as are Las Vegas, Tampa, and New York.

The following chart takes the post-bubble years of 2007, 2008, and 2009 and indexes each January’s Case-Shiller HPI to 100 so we can get a picture of how this year’s declines compare to last year:

Ever since August 2009 has been out-performing 2008.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 01.25.2010)

What will get the economy going in 2010?

Conditions would seem to be ideal for a decent recovery, if not a sharp snapback. Interest rates are low. Energy prices are comparatively low. Deferred spending and depleted inventories mean pent-up demand. A weak dollar against other currencies ought to make our exports more attractively priced and our products more competitively priced here at home.

What’s missing is an intangible – confidence. Lots of companies report increased activity in the form of requests for quotes. But everyone’s waiting for everyone else to make the first move to translate those queries into actual orders and purchases. They all want to be convinced the worst is over and the rebound will be real – and they’re waiting for proof in the form of someone else taking the lead. Get confidence back, you’ll get your recovery.

It’s good to see Bill’s voice getting out there again. It’s interesting that he brings up confidence. The problem of confidence is something that seems to be coming up a lot lately…

In another article posted today by the Bellevue Reporter, Seattle economists predict slow recovery in 2010

The days of banking on high-risk investments are over, at least until our short-term memory problems allow for the next economic bubble.

But don’t expect history to repeat itself any time soon. Economic forecasters predict a slow recovery from the massive recession that tore through world markets last year.

Pent-up demand normally creates high levels of snap-back growth after a recession, like the one in 1982. But that isn’t likely to happen this time around, according to Michael Dueker, head economist for Russell Investments North America.

“It’s time to pay the piper for the fact that we’ve had a financial crisis,” he said during a recent economic-forecast conference in Seattle.

Bottom line: credit is hard to come by, and 90 percent of the U.S. gross domestic product is dedicated to bailouts and stimulus funding, which keep our economy afloat, but make it hard to bounce back.
…
The future doesn’t look so bright for real estate and development.

Around 38,000 construction jobs were lost last year, and home values dove a minimum 25 percent in most cases.

Jim DeLisle, director of graduate real-estate studies at the University of Washington, predicts the housing market may take another 18 months to bottom out, while it could be another four years before anything significant happens on the development front.

Worse yet, DeLisle predicts a debt crisis on the horizon for commercial real-estate owners.

“We’re not out of the ballpark,” he said. “This isn’t over yet.”

DeLisle also suggests a new crisis looms in the form of bullet loans coming due within the next few years.

Sounds like the graduate real estate studies program at UW may be a little more unbiased than the industry-funded Washington Center for Real Estate Research over at WSU.

(Bill Virgin, Tacoma News Tribune, 01.24.2010)
(Joshua Adam Hicks, Bellevue Reporter, 01.25.2010)

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Raha said the nation’s big banks are in better shape and are mostly back to normal in terms of lending money to customers with good credit. But he said regional banks continue to struggle because they had so much invested in real estate and other sectors that were seriously hurt by the recession.

He noted that small businesses get their money from regional banks, so when they hurt, so do small businesses. That’s important, he said, because small businesses account for 64 percent of the new jobs in this country.

“Credit remains particularly tight for small businesses because they depend mostly on community banks,” Raha said, adding, “For growth we need private business spending to drive the recovery.”

He noted that if we don’t get private job growth we might get a second recession. “We’re not out of the woods yet,” he said. “We could get a double dip in the fourth quarter.”

We have been following the growing problem with Washington-based banks for a while now. This is definitely one of the biggest issues to watch for the state’s economy in the coming year.

The economist noted the federal tax credit for home buyers has been a help, something he referred to as incentivized growth. But he said there are a lot of homes and a lot of commercial buildings that are vacant now.

It will take at least a year for homes and longer for commercial buildings to be sold to the extent that they promote self-sustaining construction growth, he said.

Raha expanded on his outlook for real estate in a speech to the Washington Realtors yesterday in Olympia.

Raha said he expects the residential housing market to improve in 2011, while the commercial real estate market could take until 2012 to recover. Helping both will depend on the pace of economic recovery and some areas of the economy that still need to show improvement, he said.

This includes the easing of credit from community banks, consumer confidence and the absorption of excess housing, Raha said.

Although large, national banks have started lending again, credit still is tight at state-chartered community banks because they are “disproportionately” exposed to the slower commercial real estate market, he said. Consumer confidence also hasn’t improved because consumers are largely influenced by unemployment rates and the price of gasoline, Raha said. Washington’s jobless rate hit 9.5 percent in December, according to state Employment Security Department data.

Here’s a look at consumer confidence via the Conference Board:

I find it interesting that the disparity between the Present Situation Index and the Expectations Index continues to grow. The Present Situation Index hit a new low of 18.8 in December, while the Expectations Index has increased dramatically from a low of 27.3 in February to 75.6 in December.

So I guess the big question for the real estate market is whether people will be willing to (or if they are able to) buy homes on expectations alone.

(Mike Benbow, Everett Herald, 2010.01.21)
(Rolf Boone, Olympian, 2010.01.22)

Types of things you could add include funky homes for sale (but don’t steal MLS listing photos), empty or stalled developments, lockbox benches, for sale sign forests, etc. Use your imagination and have fun.

I have added a widget to the sidebar on the front page just under the charts that will display the latest photos from the group pool, so that everyone can join in the fun right from the blog.

Here’s a photo I added to the group that was emailed to me by a reader.

Enjoy!

Option 1: A 3,150 square foot “beautiful, well maintained Craftsman” sporting an “open floor plan with designer touches,” located on a 4,584 sq. ft. (0.1 acre) lot in the idyllic 47th parallel north right here in Seattle.

Craftsman not your cup of tea? Take your pick one of 33 Seattle homes in the same general price range, including this 1,815 sq. ft. condo or this 3,200 sq. ft. beast of a house described in the listing as “magnificent,” “expansive,” “elegant,” and “stunning.”

Option 2: Your very own 25-acre private island. Two two-bed, two-bath cottages, one with a hot tub. Located in the 40th parallel south in Chile, considered one of South America’s most stable and prosperous nations (by Wikipedia anyway).

Hmm…

As it turns out, local internet entrepreneur Andy Liu didn’t end up walking away from Olive8 after all.

One of my more popular blog posts was on my decision to walk away from Olive 8. I was ready to walk away, but did engage in a few interesting conversations with the folks there. Needless to say, we were able to come to an agreement to purchase property there. It’s far from clear that I bought at the bottom, nor was I trying to time the bottom. In fact, I’m probably early as only about 25% of the units are actually closed, there’s a lot of units still available. However, I approached the decision in a few different ways.

First, the decision was a purchase decision first and an investment decision second. Like I mentioned in past blog posts, when you buy a car, it’s a purchase decision, rarely is it an investment decision where you are trying to calculate your return on investment and equity gains after acquiring the car. Because my wife and I really enjoyed the location of the property and the conveniences of the property – it fit us well for a purchase decision.

If I’m reading between the lines correctly here, it sounds like the sales people at Olive8 negotiated a lower price with Andy to keep him from walking away. I also find it interesting that he mentions that “only about 25% of the units are actually closed.” According to a February 2008 Seattle Times article, over 75% of the units were pre-sold at that time. Considering that closings have been taking place since April last year, it definitely looks like they are still having some problems getting that building filled.

Andy’s post also includes some great advice for anyone considering buying a home, whether it’s an expensive upscale condo or a modest craftsman in Everett:

Once we decided it was a purchase decision first, we did want to make sure that we were not overpaying – in the car example, even if you decided that you wanted that Toyota doesn’t mean you should pay sticker. In real estate, you can always buy below market, but you can rarely sell above market. So, the lesson is to make sure you get in at the right price. For us, that meant that we don’t purchase more property than we can afford.

If there was a lesson learned from the recent real estate debacle, it’s that real estate does not always go up and becoming overleveraged leaves you exposed to potentially horrible options. In fact, our decision was to downsize to a place that we wanted, reduce our exposure to leverage and stay well within our budget. There’s always the temptation to buy up and lever up and bet on the real estate market with your personal property, I enjoy risk and often take risk, but for less liquid assets like real estate and levering just seems like a bad risk-reward proposition.

Remember, I’m just arguing for your personal property. For an investment property or buying undervalued properties, it might be different. Why overspend on your personal property when you can evaluate much better opportunities with professional investors that could bring better returns? My thesis is to keep your personal property to something that you like and equity returns are like icing on the cake and keep your investing decisions with strict criteria to secure the best returns. There are a lot of great asset classes out there, find the ones that best suit you.

Exactly. This is basically the same message I’ve been pushing here on Seattle Bubble for years, and it’s just as true today as it was in 2006.

Andy also gives some thoughts about the broader economy and buying assets as an investment. It would appear that he is definitely in the inflation camp on that discussion.

It’s great to read an update on Andy’s experience in negotiating with a developer and the thought process that went into his decision to ultimately buy. I wish the best of luck to Andy, and hope that he enjoys his new home.

Hat tip: Urbnlivn

As of Monday night, I have switched the blog half of Seattle Bubble over to a brand-spanking-new layout.

Highlights:

• News Wire on the sidebar (via Twitter)
• Market charts updated daily on the sidebar courtesy Altos Research
• Better category organization w/ dropdown menus
• Less wasted space at top of page
• New comment preview function that doesn’t bog down your processor while you type.

In addition, the sidebar is much cleaner when you navigate away from the front page. Also note that The log in / out and new account creation has been moved to bottom of sidebar under “Accounts.”

The new layout is based on the Hybrid News WordPress theme, created by WordPress guru Justin Tadlock.

I will be working on updating the forums in the next month or so as well, in addition to going through all of the old content and sorting it correctly in the newly-organized categories.

Let me know what you think, and whether anything is broken. Thanks!

As usual, courtesy Tableau Software (available free to use online soon!), the neighborhoods SAAS update is rocking sweet interactive data visualizations.

In the charts below I have taken the calculated value for SAAS and subtracted 2, in order to better visualize the difference between a buyer’s market and a seller’s market. Using this method, negative SAAS values indicate a seller’s market, while positive values indicate a buyer’s market.

Summary

King County’s overall SAAS jumped back above the “balanced” level, coming in at 2.10 for December (November was 1.52). 9 of 30 areas came in below 1.75 as seller’s markets, 12 of 30 came in above 2.25 as a buyer’s market, and the remaining 9 were more or less balanced between 1.75 and 2.25.

Hit the jump for the rest of this month’s interactive charts and commentary.

Here’s a year-over-year comparison for each NWMLS neighborhood.

Year-Over-Year Comparison

Only a few areas came in as stronger buyers’ markets than December 2008, with 11 markets flipping from buyers’ markets last year to sellers’ markets this year.

Regional History

Lots of neighborhoods ticked up from November to December, despite the seasonal adjustment inherent in the SAAS calculation. The fake expiration of the tax credit is probably to blame there.

The three toughest markets for sellers were Downtown Seattle condos (701) at 4.8, Jovita / West Hill Auburn (100) at 4.0, and Des Moines / Redondo (120) at 3.8.

The three best markets for sellers as of last month were Queen Anne / Magnolia (700) at 1.3, Skyway (360) at 1.4, and West Bellevue (510) at 1.5.

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The Google Real Estate Index tracks queries related to “real estate, mortgage, rent, apartments” and so forth. To see more details on the queries that make up this index, visit Google Insights for Search.

The index is set to 1.0 on January 1, 2004 and is calculated and displayed below as a 7-day moving average. The index is currently calculated only for US search traffic.

Since they provide the ability to download the underlying raw index data, I thought it might be interesting to compare this index with the Case-Shiller 20-city home price index. Here’s a plot of the two, both re-indexed to January 2005 = 100:

There definitely seems to be some similar behavior between the two there. This could be interesting, since the Google REI is updated every week, while we have to wait months for the Case-Shiller data. It is also worth noting that unlike some other measures of the real estate market, Google’s REI in 2009 did not manage to beat 2008, and continues to mark new seasonal lows as of the most recent data.

Here’s a look at the YOY change in both indices since 2005:

They both went firmly negative around the same time, in early 2007, and hit their lowest points in late 2008 / early 2009 at nearly -20%. Both have recovered somewhat, but the latest reading for the Google REI dropped back down to nearly =15% again.

Finally, here’s a look at the two indices again re-indexed to January 2005 = 100, but looking at the Google REI as a 12-month rolling average to smooth out the strong seasonal effects:

No sign there of a let-up yet in the decline. Based on Google’s measure of people’s interest, it would seem that the real estate market has yet to find a bottom. This data seems to square with a recent survey by The Conference Board that found that just 1.9% of Americans are currently in the market to buy a house, a 27-year low.

[Update] Commenter Rojo points out that using Google Insights for Search beta, you can look at a similar index specific to regional markets. Here’s their plot for Seattle-Tacoma along with the nationwide data. During much of the boom years, Seattle’s interest in real estate was higher than it was nationwide, but since 2008, we have been coming in 5-10 points lower.

Data Sources:

• Google Real Estate Index
• Standard & Poor’s

December 2009
King: 773 NTS, up 17% YOY
Snohomish: 417 NTS, up 41% YOY
Pierce: 523 NTS, down 10% YOY

Now that I’m turning into an expert with Tableau, I thought I’d go ahead and put our foreclosure (notice of trustee sale) data into an interactive table, as well:

The percentage of households is determined using OFM population estimates and household sizes from the 2000 Census. King County came in at 1 NTS per 1,009 households, Snohomish County had 1 NTS per 682 households, and Pierce had 1 NTS for every 656 households (higher is better).

Now that all of 2009 is in the bag, here’s a look at the last 10 years of total foreclosure notices and closed sales each year:

According to foreclosure tracking company RealtyTrac, Washington’s statewide foreclosure rate for 2009 of one foreclosure for every 78 housing units was 24th worst among the 50 states and the District of Columbia. Note that RealtyTrac’s definition of “in foreclosure” is much broader than what we are using, and includes Notice of Default, Lis Pendens, Notice of Trustee Sale, and Real Estate Owned.

Lastly, here’s a look at the raw number of trustee sale notices sent in each county every month over the last ten years. For King County the data goes all the way back to 1979, just drag the date filter on the bottom all the way to the left to view the data.

I think it’s fair to describe the current level of foreclosures as “still seriously elevated.”

Note: The graphs above are derived from monthly Notice of Trustee Sale counts gathered at King, Snohomish, and Pierce County records. For a longer-term picture of King County foreclosures back to 1979, refer to the final chart in this post. For the full legal definition of what a Notice of Trustee Sale is and how it fits into the foreclosure process, check out RCW 61.24.040. The short version is that it is the notice sent to delinquent borrowers that their home will be repossessed in 90 days.

Let’s take a look at December NWMLS statistics from around the sound. As usual, courtesy Tableau Software (available free to use online soon!), the Around the Sound update is rocking sweet interactive data visualizations.

Feel free to download the old charts in Excel 2007 and Excel 2003 format. To get specific info about a certain point on any graph in the post below, float your mouse pointer over the data.

Before we get to the cool stuff, here’s the usual table of YOY stats for each of our eight covered counties as of December 2009.

December 2009	King	Snohomish	Pierce	Kitsap	Thurston	Island	Skagit	Whatcom
Median Price	5.8%	9.9%	9.0%	8.1%	8.2%	4.5%	12.2%	4.2%
Listings	20.5%	19.0%	17.7%	24.7%	9.1%	1.5%	3.6%	8.3%
Closed Sales	57.4%	89.0%	53.5%	79.5%	29.4%	104.5%	19.7%	59.1%
SAAS	2.1	2.5	2.8	2.3	3.1	2.6	3.7	2.3

Dang, looks like Skagit County is being left out of this party.

Summary

Hit the jump for the rest of this month’s visualizations.

The visualization below looks at closed sales in each county in December 2008 and December 2009:

Closed Sales

Everybody saw a pretty decent spike compared to last year, but Skagit’s was still pretty weak compared to everywhere else.

Here’s our comparison of median prices in each county at their respective peaks and in December 2009:

Change from Peak

Nothing much has changed on this graph since the spring. Eventually of course the free money handouts are going to run out, and we’ll see what happens then…

Seasonally Adjusted Active Supply

Everybody shot back up into “buyer’s market” territory in December, but almost everyone came in with a lower SAAS than last year (Thurston being the exception).

So what’s going on up in Skagit County? Did some big employer recently shut down or something? Why are home sales there so much weaker than the rest of the Sound?

Here’s an update of our problem bank map:

View Washington’s Troubled Banks in a larger map

While “just” 27% of Washington’s banks are on the problem list, when sorted by bank size (in terms of total assets as of 09/30/2009), the problem is a little worse.

Washington’s troubled banks make up 37% of the total banking industry in the state, when measured by assets. Washington State also still retains its #1 title for the most assets in problem banks of any state in the country.

First up, let’s see how everyone from 2009’s post did.

The Contenders:

• Matthew Gardner, local land-use economist
• Steve Tytler, Everett Herald Real Estate Columnist / owner, Best Mortgage
• J. Lennox Scott, Chairman and CEO of John L. Scott Real Estate
• Tim Ellis, editor-in-chief, Seattle Bubble

This year’s winner for the closest prediction is Steve Tytler, whose guesses have consistently been the closest of anyone actually in the industry. My price guess looks like it will probably end up being the closest if you use Seattle’s Case-Shiller data (October was down 12.4%), but to be fair and consistent, we’re sticking with the NWMLS median, so Steve gets the prize this year.

Here is the text of my predictions on inventory, sales, and prices last year:

My guess is that inventory in 2009 will be flat to slightly down from 2008 for most of the year. I am betting that the double-digit YOY drops in sales will not last beyond the first or second quarter, but will eventually flatten out and maybe even show YOY gains.
…
As far as a specific prediction on prices, my guess is about another 10 percent drop in 2009, which would put December 2009’s median at $363,150.

Inventory did indeed end the year down, and sales showed YOY gains. Overall, my biggest shortcoming was in failing to foresee the February implementation of the $8,000 tax credit, which clearly provided a short-term boost to the market.

The Real Estate Non-Market
This brings me to my giant caveat for 2010. The excellent real estate analyst Rich Toscano wrote a great piece in November about the increasing difficulty of Forecasting the Real Estate Non-Market that I feel is quite relevant.

…the real estate “market” is now as much a political entity as it is an economic entity. The government has gone to amazing levels of effort to prop up the housing market. …huge amounts of money are being borrowed or simply created out of thin air and shunted directly into the housing market through multiple channels. Even as demand is thus boosted, supply is being constrained by foreclosure moratoria and opaque and arbitrary financial industry bailouts.

The net effect is that government intervention is exerting an enormous influence on the housing market. So one can’t just look at fundamentals as in the good old days. Instead, one is forced to practice a sort of real estate Kremlinology in an attempt to figure out how fiscal and monetary policy will affect, or cease to affect, the market.

Looking Back at Where We Have Been
Of course, it’s still fun to make wild guesses, even if we don’t know what the government will pull out of their future taxpayer-funded hat next. But before we get to this year’s predictions, I thought it might be informative to drop a few charts. The following three charts go back through 1993, which is as far back as I have been able to locate consistent NWMLS data on home prices.

First up is King County’s median SFH sale price, adjusted for inflation in November 2009 (the latest CPI data) dollars.

In November 2009 dollars, the July 2007 peak was just barely shy of $500,000, peaking at $499,545. December 2009 came in 24% off that peak. Next, here is a chart of home prices and King County median household incomes, indexed to January 1993.

Something still seems a bit, shall we say, off about that. Lastly, here is King County’s affordability index:

Definitely an improvement there, but a lot of what is keeping that above 90 is the crazy low interest rates, being held there thanks to the government. See above.

The Crystal Ball Gets Murky
So, let’s see what predictions we can find from the usual suspects for 2010.

Oddly enough, it seems that fewer and fewer local real estate professionals are willing to step out on a limb with predictions. The only article I was able to find that referenced 2010 and quoted Gardner, Crellin, and Scott was Eric Pryne’s piece in the Times: Tax credit fuels home-sales bounce, but will it be just a blip?.

Here’s all those three had to say in that article:

In February, Congress approved an $8,000 tax credit for first-time homebuyers in hopes of kick-starting moribund home sales.

“It worked,” Lennox Scott, chairman and CEO of John L. Scott Real Estate, said at a recent industry forum. “That’s what completely activated the market.”
…
After plummeting 20 percent in 18 months from its summer 2007 peak, the median price of a single-family home sold in King County slipped only slightly more in 2009.
…
And next year? “They’re not going to go up,” Jill Wood, Windermere Real Estate president, said of home prices. “They’ve probably leveled off for now.”

Even that assessment may be optimistic, others say. Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said it’s more likely that prices will continue to decline through midyear.
…
The question now is, how many prospective buyers remain? “Were we stealing future demand?” Seattle land-use economist Matthew Gardner asked at a recent forum.

So we’ve got no prediction from Scott, an ambiguous forecast of a decline from Crellin, and a question from Gardner that he likely already knows the answer to. We did also get a bonus forecast from Jill Wood of prices having “leveled off.”

The only commentator I’ve found still willing to join me in predictions is perennial Seattle Bubble favorite Steve Tytler. Here’s his piece: Forecast for 2010 housing market: slow decline

I think average home prices will continue to drop a little, but the pace of depreciation will continue to slow. Overall, average home prices may fall about 5 percent, but as always the rate of depreciation will vary from neighborhood to neighborhood. In general, highly desirable neighborhoods, especially those close to major job centers, will do better than outlying areas.

Will we hit the housing market bottom in 2010? Maybe. You can only know for sure that a market has bottomed in retrospect when you can look back at housing prices on a graph and see the point where they stopped going down and started going up and stayed up. We may very well hit that point some time next year, probably late spring or summer.

Kudos to Steve for still being willing to stick his neck out there.

The Tim on 2010
So finally we get to my predictions for the coming year. Keeping in mind that unknown future government meddling will probably throw off any guesses I make today, my outlook for 2010 is pretty similar to what I saw for 2009. I don’t think Seattle home prices have bottomed yet. If allowed to adjust to market fundamentals, they’ve probably got at least another 10% to fall, maybe a bit more. I would expect most of that to come this year.

Barring any additional free money giveaways, sales will probably show YOY gains during the first part of the year, and be more or less flat for the second half. I suspect that interest rates will rise, possibly up into the sixes, which when combined with the borrowed sales thanks to the tax credit, will end up supressing sales as the year winds down. Inventory will probably be flat to down slightly.

There you have it, The Tim on record for 2010. Now lets’ hear your predictions in the comments, as well as in this poll:
Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

Please vote in this poll using the sidebar.
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First up, here’s an update to one I posted last month, with the monthly pending and closed numbers as well as a forecast of closed sales based on a linear relationship with the pending sales from two months prior:

Not much change there. The closed sales for December came in a little lower than our linear forecast predicted, but not by a lot. I still expect January’s closed sales to drop below 1,250 based on this relationship.

Next, here’s a chart of the difference between each month’s closed sales and that same month’s pending sales for 2009 as well as the average of 2000-2008:

Every month in 2009 but February and November came in with a significantly lower difference between the two than the nine-year average. This means a lower than usual number of closed sales compared to the number of pending sales, and December was no different.

Lastly, here is a look at the total difference between calendar-year pending sales and closed sales for every year since 2000 (which is as far back as I have access to reliable data):

2008 had twice as high a difference than any year prior, and 2009 came in with over four times the discrepancy of any year 2000-2007.

So if you’re wondering why I continue to insist that pending sales have become a useless measure, wonder no more.

Here’s a link to this month’s NWMLS press release: Western Washington pending home sales mark best December since 2006

“Home for the holidays” took on special meaning for 4,399 buyers whose purchase offers were accepted during December, according to the latest report from Northwest Multiple Listing Service. That volume of pending sales was up more than 35 percent from a year ago and marked the best December since 2006.

Take special note of the focus on the totally unreliable measure of pending sales in the headline and lead paragraph in this news release. You’ll be seeing a lot more of that spin repeated in the following articles. This was my favorite part of the release though (emphasis mine).

“Affordability has never been better,” said Dick Fulton, a past chairman of the NWMLS board of directors whose career spans more than two decades.

Bzzt, wrong. The following chart is updated through Q1, and the affordability situation hasn’t changed much since then, coming in at 97.0 based on December’s data.

“Affordability has never been better” only for values of “never” that exclude almost every year prior to 2003.

Click below for this month’s roundup of real estate reporting, or the lack thereof.

Eric Pryne, Seattle Times: Home sales on King County’s Eastside lead December activity

Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said he was “pleasantly surprised” by the December sales volumes throughout Western Washington.

He had anticipated a bigger drop from November, when many first-time buyers rushed to close to meet a deadline — later extended — to qualify for an $8,000 federal tax credit. In King County, the month-to-month decline was just 7 percent.

As for the strong sales on the Eastside, Crellin speculated they may be fueled in part by sellers with mounting financial troubles who now are willing to accept lower prices than a few months ago.

“I suspect there is some bargain-hunting going on in those neighborhoods,” Crellin said of Kirkland and Redmond.

As I noted yesterday, between 2000 and 2008 closed sales increased an average of 1.85% between November and December, so a month-to-month decline of 7% still represents about 140 fewer sales than we may have expected to see had we followed the historical trend for this time of year. That said, I’m sure that some of the fall off we would have expected to see was mitigated by the extension of the tax credit. Without the extension we probably would have seen a month-to-month drop in excess of 10%.

Gerry Spratt, Seattle P-I:

The Northwest Multiple Listing Service showed pending sales of condominiums and single-family homes in King County – a key indicator of recent activity in the housing market – were down 10.93 percent in December compared with a month earlier.

Activity generally slows as the holidays approach. While 2009 was no different, the drop in pending home sales countywide was the smallest since at least 2001. Since 2002, pending home sales have declined an average of 22.98 percent November to December.

In Seattle, pending sales were down 12.16 percent from November, but up 32.7 percent from a year ago.

If pending sales were being measured in the same way that they had been up until 2008, these types of comparisons would be more meaningful. As it is, there is a well-demonstrated disconnect between the current measure of pending sales and actual closings that makes looking at pending sales little more than an amusing distraction.

Mike Benbow, Everett Herald:

Home sales in Snohomish County increased significantly in December and strong pending sales gave agents hope for the new year.

There were 779 homes sold in the county last month, a 78 percent increase in comparison to a year ago. Pending sales, those that begin last month and should close in January, were up 31 percent, the Northwest Multiple Listing Service reported Tuesday.
…
The local home sales were in distinct contrast with the national figures released Tuesday by the National Association of Realtors, which showed a sharp drop in November sales of existing homes. The sales of new homes are reported separately by the national group.

In addition to also taking the NWMLS bait and focusing on the useless pending sales numbers, Benbow also makes the same bizarre mistake that was made (and later corrected) by the SeattlePI.com writer yesterday. Comparing the national month-to-month data from October to November with the Seattle area month-to-month data from November to December is completely nonsensical under normal circumstances, but with the fake November expiration of the tax credit thrown into the mix it becomes even more foolish. So much for journalism.

C.R. Roberts, Tacoma News Tribune:

Puyallup Realtor and president of Washington Realtors Bill Riley was fully attentive and simply pleased Tuesday at numbers released by the Northwest Multiple Listing Service.

“This is good,” he said, pointing to a figure showing pending home sales in Pierce County in December were up 30.19 percent over the same month in 2008.

“That’s good news,” he said. “Any time pending sales are up 30 percent, you have to pay attention.”

Again with the pending sales. What a waste.

Rolf Boone, The Olympian:

The Thurston County real estate market finished on a high note in December after a year that was characterized by fewer home sales, falling prices and foreclosures.

Instead, home sales surged nearly 30 percent in the final month of 2009, according to Northwest Multiple Listing Service data released Tuesday.

Last month, 226 homes sold compared with 174 in the same month a year ago, an increase of 29.8 percent, the combined single-family residence and condominium data show. Although more homes sold in December 2009 than in December 2008, fewer homes sold last month than the 277 units that sold in November 2009.

It isn’t stated explicitly in the article, but those are actual closed sales numbers. Kudos to Rolf Boone for ignoring the nonsense pending hype and looking at the actual hard data this month.

Here are a few bonus stories from local TV and radio:

Meg Coyle, KING 5: Home sales above average in King County
Bellamy Pailthorp, KPLU: Home Sales Still Going Strong in December
Tracy Ellis, KGMI (Bellingham): County Sees Home Sales Increase For 2009

Regarding that KING 5 headline, in December 2009 there were 1,462 closed SFH sales in King County and 1,413 pending sales. The 2000-2008 average closed and pendings for December are 1,862 and 1,486, respectively (and the pending numbers aren’t really comparable). So no, home sales are not “above average.” Sorry.

(Eric Pryne, Seattle Times, 01.05.2010)
(Eric Pryne, Seattle Times, 01.06.2010)
(Gerry Spratt, Seattle P-I, 01.05.2010)
(Mike Benbow, Everett Herald, 01.06.2010)
(C.R. Roberts, Tacoma News Tribune, 01.06.2010)
(Rolf Boone, Olympian, 01.06.2010)

Here’s your King County SFH summary, with the arrows to show whether the year-over-year direction of each indicator is favorable or unfavorable news for buyers and sellers (green = favorable, red = unfavorable):

December 2009	Number	MOM	YOY	Buyers	Sellers
Active Listings	6,918	-15.8%	-20.5%
Closed Sales	1,462	-7.1%	+57.4%
SAAS (?)	1.99	+34.5%	-36.5%
Pending Sales	1,413	-10.6%	+55.1%
Months of Supply	4.9	-5.8%	-48.8%
Median Price*	$380,000	+2.7%	-5.8%

Interestingly, last month’s pending / closed chart predicted around 1,650 closed sales for December, but the actual number came in about 10% lower than that.

Between 2000 and 2008 closed sales actually increased an average of 1.85% from November to December. With future sales having been borrowed by the tax credit and shifted into this summer and fall it is not too surprising to see a month-to-month drop instead this year as we head into winter.

Feel free to download the updated Seattle Bubble Spreadsheet, and here’s a copy in Excel 2003 format. Click below for the rest of the usual monthly graphs.

Here’s how the closed sales situation is shaping up compared to previous years:

More closed sales in December 2009 than 2008 or 2007, but less than every other year on record.

Click below for the rest of this month’s graphs…

Here’s the graph of inventory with each year overlaid on the same chart.

The inventory in the last three months of this year actually ended up following very closely with 2002.

Here’s the supply/demand YOY graph. In place of the now-unreliable measure of pending sales, the “demand” in the following two charts is now represented by closed sales, which have had a consistent definition throughout the decade.

Here’s the chart of supply and demand raw numbers:

Even after the tax credit boost, 2009 was still a pretty anemic year for home buying demand.

Here’s the median home price YOY change graph:

And lastly, here is the chart comparing King County SFH prices each month for every year back to 1994.

2009 is the year of the bobbing median price apparently.

Here’s a few news blurbs to hold you over until tomorrow’s reporting roundup.

Seattle Times: King County home sales surge in December for seventh straight month
Seattle P-I: Seattle-area home sales remain strong, report says

Here’s your preview of December’s foreclosure and home sale stats:

First up, total home sales as measured by the number of “Warranty Deeds” filed with the county:

Last year warranty deeds increased 23% from November to December, while closed sales (SFH + condo) increased just 2%. This year, warranty deeds decreased 5% from November to December, so it seems safe to assume that total closed sales will probably decrease as well, and possibly by more than 5%. I’d guess that King Co. closed SFH sales will come in somewhere between 1,300 and 1,400, down 17% MOM, but up 40% YOY.

Next, here’s Notices of Trustee sale, which are an indication of the number of homes currently in the foreclosure process:

Looks like a bit of a plateau since the new law went into effect. If foreclosures hold around this high 700’s level for another month we’ll actually see a year-over-year decrease next month.

Here’s another measure of foreclosures, looking at Trustee Deeds, which is the type of document filed with the county when the bank actually repossesses a house through the trustee auction process. Note that there are other ways for the bank to repossess a house that result in different documents being filed, such as when a borrower “turns in the keys” and files a “Deed in Lieu of Foreclosure.”

Up 88% from last year, and up 17% from last month.

Lastly, here’s an approximate guess at where the month-end inventory was, based on our sidebar inventory tracker (powered by Estately):

No surprise to see another month-to-month decline here, as December is always the lowest month. Look for listings to begin ramping up again in the coming months.

Stay tuned later this month a for more detailed look at each of these metrics as the “official” data is released from various sources.

Foreclosures are up in Washington State. What’s your experience with foreclosure in this housing market? You can call into the program today between 12:40 and 1 pm at 206.543.KUOW (5869) / 800.289.KUOW. Or call our listener line to leave a message before the show: 206.221.3663.

The show’s producer asked me what my take is “on the foreclosure problem / solutions,” to which my succinct response was that “it is a regrettable mess, but unfortunately one that must play out in order for the housing market and the economy as a whole to return to a healthy state of sustainable growth.”

Guy’s other guest will be Linda Taylor, Housing Director at the Urban League, who I am told has a “different perspective.”

Update: Here is the audio from the segment. I come in about 7:45 into it.

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Note that the tiers are determined by sale volume. In other words, 1/3 of all sales fall into each tier. For more details on the tier methodologies, hit the full methodology pdf. Here are the current tier breakpoints:

• Low Tier: < $273,459
• Mid Tier: $273,459 – $404,605
• Hi Tier: > $404,605

The breakpoints for the low tier fell slightly in October, while the high tier breakpoint rose a bit. This is the first time I’ve noticed the two breakpoints moving in opposite directions. It would seem to indicate a wider spread of homes being sold than in recent months.

First up is the straight graph of the index from January 2000 through October 2009.

The low tier rose 0.4% month-to-month, while the middle tier rose 0.4%, and the high tier bumped up 0.2%. Only the high tier regained its September losses. The “rewind” situation held steady again, with low tier sitting about where it was in April 2005 and the middle and the high tiers at May 2005 levels.

Here’s a chart of the year-over-year change in the index from January 2003 through October 2009.

The year-over-year situation improved slightly again in all three tiers, with the high tier again seeing the smallest bump. Here’s where the tiers sit YOY as of October – Low: -13.7%, Med: -10.9%, Hi: -13.0%.

Lastly, here’s a decline-from-peak graph like the one posted yesterday, but looking only at the Seattle tiers.

If interest rates start to rise next year as most people are expecting them to, and the tax credit is truly allowed to expire, it will be interesting to see if this price plateau holds.

(Home Price Indices, Standard & Poor’s, 12.29.2009)

Up 0.2% September to October.
Up 0.4% September to October (seasonally adjusted)
Down 12.4% YOY.
Down 22.4% from the July 2007 peak

Last year prices fell 1.4% from September to October (not seasonally adjusted) and year-over-year prices were down 10.2%.

Here’s our offset graph, with L.A. & San Diego time-shifted from Seattle & Portland by 17 months. SoCal’s year-over-year is still shooting up toward zero. Portland came in at -9.9%, Los Angeles at -6.3%, and San Diego at -2.4%, all better than Seattle.

Note: This graph is not intended to be predictive. It is for entertainment purposes only.

Here’s the graph of all twenty Case-Shiller-tracked cities:

In September, fourteen of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops than Seattle (same as August and September). Denver at -0.1%, Dallas at -0.6%, San Diego at -2.4%, San Fancisco at -2.6, Washington, DC at -2.8%, Boston at -2.8%, Cleveland at -3.5%, Los Angeles at -6.3%, Charlotte at -7.0%, New York at -7.7%, Atlanta at -8.1%, Minneapolis at -8.4%, Portland at -9.9%, and Chicago at -10.1%. Vegas still holds the #1 spot for the largest year-over-year drop, falling 26.6% in the year.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

In the twenty-six months since the price peak in Seattle prices have declined 22.4%.

Here’s a complementary chart to that last one. This one shows the total change in the index since March for the same twelve markets as the peak decline chart.

Back above 100 slightly at 100.15, which is higher than March, May, and September’s readings, but lower than June through August. Basically this summer has been the summer of incredibly flat home prices in Seattle. I guess anybody who came to “regret their decision to delay buying a home” from last fall to early this year got to spend the whole summer wallowing in their regret. Or something.

The following chart takes the post-bubble years of 2007, 2008, and 2009 and indexes each January’s Case-Shiller HPI to 100 so we can get a picture of how this year’s declines compare to last year:

It definitely looks as though the tax credit demand seems to have held out Seattle’s spring price plateau for much longer than last year. It will be interesting to see if the effect continues beyond next month, when the giveaway was originally set to expire.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 12.29.2009)

In 2007, developers excavated a deep hole in downtown Seattle at Second Avenue and Pine Street for the foundation of a 23-story luxury hotel and condo tower.

They filled the hole in 2009.

That pretty much captures the kind of year it’s been for commercial real estate in the Seattle area.

The development pipeline dried up. A few projects were halted midconstruction.

Office and industrial vacancy rates soared. Rents fell. Condo developers, desperate for sales, resorted to auctions and big price cuts to unload units. Banks foreclosed on some properties.

And 2010 won’t be any better, according to year-end forecasts by developers, brokers and other industry insiders.

“2010 in my world is going to be rough,” Bart Brynestad, who heads the Seattle office of industrial developer Panattoni Development, told one recent industry gathering.

“I think we have just seen the tip of the iceberg on what’s coming,” said Tom Parsons, senior vice president of developer Opus Northwest.

The tip was sobering enough. During 2009 developers delivered 2.4 million square feet of new office buildings in greater downtown Seattle — the equivalent of more than 1 ½ Columbia Centers. At last count, more than 90 percent of it remained unleased.

The attached graphic (pdf) shows that office vacancy rates have gone from around 8% in 2006 and 2007 to nearly 20% in 2009.

Looks like it’s a great time to rent office space in Seattle.

(Eric Pryne, Seattle Times, 2009.12.27)

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Then, a similar graphic from the most recent Seattle Business Magazine. The red rectangle on the first graphic shows the area that the second graphic covers.

I guess Seattle wasn’t all that “under-condo’ed” after all. Who knew.

Hat tip: Urbnlivn

Here’s our usual table of YOY stats for each of our seven covered counties as of November 2009.

November 2009	King	Snohomish	Pierce	Kitsap	Thurston	Island	Skagit	Whatcom
Median Price	6.3%	11.6%	5.0%	7.5%	8.9%	24.7%	24.1%	7.8%
Listings	19.2%	22.2%	21.4%	26.4%	13.7%	2.1%	2.1%	10.9%
Closed Sales	81.1%	120.1%	81.1%	55.6%	59.6%	86.4%	162.8%	87.9%

Here’s a simple chart of closed sales in each county in November 2008 and November 2009:

Every county around the sound got a nice closed sales boost from the combination of a cruddy November 2008 and the fake expiration of the homebuyer tax credit. Sales in Snohomish and Skagit were more than double 2008.

Here’s the comparison of median prices in each county at their respective peaks and in November 2009:

Thurston is still turning in the smallest overall decline at 18.5%, while Island and Skagit have both hit over 30% so far. Still no clear sign of a bottom anywhere around the sound.

Just for kicks, I downloaded the data from Redfin for all closed sales records for single-family homes in King County within the last month. According to the Redfin data, there were a total of 1,312 sales within the 11/23/2009 to 12/19/2009 period. 124 of these sales (9.5%) were flagged as a short sale.

Here’s a histogram of the price breakdown for the 124 short sales in the last month:

For comparison, here is a histogram of the 1,188 sales that were not marked as short sales:

42% of short sales in the past month were for homes that sold for $300,000 or less, while only 34% of non-short sales fell in that same price range. The biggest difference in the breakdowns above seems to be in the $300,000+ to $400,000 range. Above $400,000, there wasn’t much difference in the breakdown between short and non-short.

As for what is currently on the market, 16.4% of the 6,649 single-family active listings are marked as short sales.

Here’s the histogram of asking prices for current short sale listings:

And here’s the histogram of asking prices for non-short sale listings:

Interesting difference between those two. Not much of a difference between the current listings and the solds on the short sales, though.

Looks to me like short sales are skewed slightly toward the low-end, both in listings and in closed sales. I also find it interesting what a large proportion of the active non-short listings are priced over a million (16%) vs. the proportion of closed non-short sales over a million (just 4%). Looks like a lot of wishful thinking out there in the high end of the market.

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