Seattle market slowing

Housing market decline called likely to continue
Rising inventory forces sellers to cut prices

By AUBREY COHEN
P-I REPORTER

The typical house that sold in King County last month fetched nearly 10 percent less than the typical sale in July, according to statistics released Thursday.

Meanwhile, Washington's rate of troubled mortgages rose in the third quarter, but was increasingly better than the country as a whole, which saw record-high foreclosures and a mortgage delinquency rate that was the highest since 1986.

The median price for houses and condos that sold last month was $405,000 in Seattle and $385,990 for all of King County -- down from a year ago and from recent highs this summer, according to the Northwest Multiple Listing Service.

Some of this is from the influence of condominiums, which have been making up more of home sales and generally cost less. But the median single-family Seattle house price dropped 6 percent from August through November, mirroring the decline of nearly 10 percent countywide from July.


November continued a long trend of many more homes on the market than in 2006, with dropping sales.

Geoff Pfander put his Wedgwood house on the market in September for $535,000 and sold it last month for $505,000.

"We never reset our price, but the offer was lowball and we accepted it," he said. "We were so glad to be done, because the market was getting scary."

Andrew Gledhill, an associate economist with Moody's Economy.com, said the Seattle area's housing market has cooled because job growth has slowed a bit, while high prices and tighter credit have made it harder for many people to buy a home and sellers may have finally started giving up on unrealistic asking prices.

"I think you've had people that were trying to sell at certain prices because they thought the market was still hot," he said. "When it catches up, it catches up pretty quickly."

Moody's Economy.com expects Seattle-area prices to drop 6 percent to 7 percent from mid-2007 through next summer, get back to 2007 levels by about 2010 and be up about 10 percent from 2007 levels by 2012.

The homes that are selling now have to be well staged, marketed aggressively and priced below the competition, said Brigitte Pascutoi, the broker at John L. Scott Real Estate's Bellevue North office. Patrick Lashinsky, president and chief executive of Zip Realty, said many sellers haven't adjusted to the slowing market.

"There's still definitely a mind shift that has to take place," he said. "(Seattle) was by far the last market we saw in any part of the country to go through any sort of correction."

Lashinsky is not expecting Seattle prices to fall as dramatically as those in other parts of the country because they never rose as fast, and the area has a strong economy and a limited land supply.

"If you can get a good deal, buy it," he said.

Pascutoi said prices may drop some more, but it is the time to buy, assuming people are not expecting a quick profit.

"If they're buying it now, I think they should expect to stay in it for two to three years," she said.

Brent and Kaela Koepke have been "leisurely" looking at homes for two years.

"We're not in a rush, especially now that the market seems to be flattening out or even going down a little bit," Brent Koepke said while looking through a Ballard townhouse on Sunday.

They said they expect townhouse prices to fall and had planned to hold off on buying for another year, but felt cramped in their condo and just got preapproved for a mortgage.

"The more you look the more you want to buy," Kaela Koepke said.

Rob Cockerill and Michele Meyers bought a Broadview house at list price last month and weren't worried about prices dropping.

"We're thinking it's not going to get any better than this," Cockerill said. "We're San Francisco II up here."

According to numbers the Mortgage Bankers Association released Thursday, Washington delinquencies and foreclosures are continuing to rise but are going up more slowly and remain substantially lower than those of the nation as a whole. Washington ranked 47th among states in delinquencies and 49th in foreclosures in the third quarter. Moody's Economy.com statistics show Seattle's delinquency rate about 24 percent lower than the state's.

Subprime loans -- which generally serve people with poor credit and have been responsible for much of the turmoil in the mortgage industry -- made up 10 percent of Washington mortgages in the third quarter, compared with 13 percent nationwide, according to the mortgage bankers.



P-I reporter Aubrey Cohen can be reached at 206-448-8362 or aubreycohen@seattlepi.com.

Seattle holds up in imploding national market

Realtors told the housing boom is over.

By Elizabeth Rhodes, Seattle Times Real Estate Reporter

LAS VEGAS -- The National Association of Realtors' annual convention started with a bang -- literally -- Tuesday morning when the nearby Frontier hotel imploded, sending up a huge plume of dust and making the ground shake.

It was a decent metaphor for the current state of the real-estate industry. The boom is over and the dust is now settling, Lawrence Yun, the group's chief economist, told the thousands of real-estate professionals meeting here.

This is the first year since the Great Depression to register a nationwide decline in median home prices, Yun said. His latest numbers put the drop at 1.7 percent. "We're in a time of fear," he said.

For 2008, Yun is predicting prices nationally will be flat, as buyers react to gloomy housing-industry news by sitting this one out.

But, as Yun said repeatedly, real estate is intensely local. National trends mean about as much to buyers and sellers in any one city as a national weather forecast would mean to them.

That's why things will be bad in some areas, such as Ohio, which has experienced significant job losses, and good in others.

Yun suggested Seattle will continue as one of the bright lights, which it's been this year. Median year-over-year home prices have risen every month save October, when they were down slightly.


But Seattle's strength may go beyond the usual reasons: a strong local economy and good job growth propelling housing demand.

Yun suggested that Seattle may be joining such cities as New York and San Francisco as "superstar cities" whose desirability attracts affluent newcomers who bring the buying power to continue pumping up housing prices.

In Washington, the group issued its ninth-straight downwardly revised monthly forecast, saying nationally existing home sales will fall 12.7 percent this year to 5.66 million, down from 6.48 million last year and the lowest level since 2002.

The group forecast sales will rise slightly next year to 5.69 million, but that is down from last month's prediction of 6.12 million.

Yun's forecast shows existing home sales bottoming out in the current quarter, then rebounding by mid-2008.

However, many other economists are far less optimistic. They predict weak sales, sinking new home construction and falling prices through next year and emphasize that those problems could worsen if the economy sinks into a recession.

The Realtors group said the median price for U.S. existing homes -- the point at which half sold for more and half for less -- will sink to $218,200 this year and remain basically flat next year at $218,300. In October, the median price for single-family homes in King County was $443,950. In Snohomish County last month, the median was $374,334.

If median prices on the national level fall this year, it will be the first price decline in the nearly 40 years that the trade group has tracked median prices.

Other ways to measure national housing prices, such as the Case-Shiller index, have already shown price declines.

Oprah Show guest: Seattle real estate is booming

Oprah Winfrey guest Suze Orman, famous financial advisor, author and television personality, was asked to give a couple who was deeply in debt some financial advice. She called Seattle the hottest real estate market in the country. "Suze told [the couple] they must sell their California home and move to Seattle, Washington," Oprah's website explains. "With a booming housing market and high-tech industry, Suze says Seattle is particularly well suited to both Felice and Phil's strengths--Phil is a computer contractor and Felice was once a mortgage broker."

Read more about Felice and what else Suze says. Maybe we'll see Phil and Felice on the ferry next year!



Felice, you don't look happy!

Seattle one of America's most stable housing markets

According to Forbes, "Nationwide, home prices are falling, sales are sluggish and the number of foreclosures is mounting. Ask any economist and you'll hear that things are bad, and likely to get worse. Unless you live in Seattle, where the market is slowing but fundamentals remain strong." That market includes Kitsap County.


The Emerald City has experienced strong price appreciation over the last six quarters, and that's expected to continue in the new year, though at a slower pace. In addition to a very low housing inventory and a strong sales rate, there are few non-conforming and high-risk loans on the books than in other cities, which means the area will likely see fewer defaults in the coming months than the rest of the country's markets.

In Pictures: America's Most Stable Real Estate Markets
Also primed for a stable year are Pittsburgh, Columbus, Ohio, and Dallas. They follow Seattle in our ranking of the country's 10 most stable markets. All are projected to have median home sale price increases next year, thanks to a combination of factors including lower-than-average inventory levels, little price volatility and high job growth.

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Best & Worst U.S. Housing Markets

To arrive at our list, we teamed with Moody's Economy.com to develop three prediction models based on a range of factors that affect how prices move. These include, among other things, the state of local economies, new construction contracts, foreclosure rates, local credit markets, sales rates, affordability and inventory. Each of America's 40 biggest cities was ranked on all three models, with price appreciation counting one half and sales rates and credit models accounting for the other half. Data were drawn from the U.S. Census Bureau, National Association of Realtors, Equifax (nyse: EFX - news - people ), a credit-market tracking firm and Moody's Economy.com.

Behind The Numbers
The first model looks at projected median existing home price growth from fourth-quarter 2007 to fourth-quarter 2008. Factors influencing this data include the market's inventory of unsold homes and the amount of new construction underway, both of which have obvious effects on supply. Housing affordability and local construction costs also play a role, acting as indicators of the market's ability to accommodate first-time buyers and new construction. Next is job growth, which attracts people to the area and increases their ability to buy a home.

Expensive markets like Seattle and San Francisco, which have low housing inventories and low construction costs, do well by this measure. Most of the top performers, however, are affordable, high-job growth markets like Dallas and San Antonio.

"It largely reflects that these markets never went through the boom and aren't going through the severe bust," says Mark Zandi, chief economist at Moody's Economy.com. "Price growth is not great, but [these markets] are not having house price declines. [All markets] are experiencing pricing problems, but in these markets it's less of a problem."

Moody's second predictive model examined market activity by calculating sales rate, which measures how quickly unsold inventory is expected to sell, and turnover, which measures how much of the overall housing stock those sales represent.

For example, the projected volume of home sales in San Francisco for the coming year represents a low 1.1% of the market's overall housing stock. In a market like Los Angeles, hamstrung by foreclosures and inventory glut, a 1% to 2% sales rate is potentially devastating--but given San Francisco's supply-side fundamentals and low foreclosure rates, prices are expected to modestly climb.

The last measure took into account delinquency and foreclosure predictions. By this model, adjusted-rate mortgage- and subprime mortgage-rich Detroit, Riverside, Calif., and Las Vegas got hammered, while Pittsburgh and Seattle performed well.

Regarding this measure, "it's important to differentiate between [delinquencies]: how many people are late relative to their most recent due date and how many people are in the process of losing their home," says Douglas Duncan, chief economist of the Mortgage Bankers Association. "Ninety percent of all 30-day late pays get fixed. Serious delinquencies are 90 days past current due dates."

When lending problems like this occur, the markets hit hardest are those with a high proportion of non-conforming loans. The most troublesome types are subprime mortgages and jumbo mortgages--those that are above the range of Fannie Mae (nyse: FNM - news - people ) and Freddie Mac's (nyse: FRE - news - people ) $417,000 securitization limit. Because few banks eagerly take on mortgages that aren't backed by Freddie and Fannie, the spread on jumbo loan interest rates compared to those of regular loans is at an all time high, according to data from HSH Associates, a credit-market tracking firm.

With fewer lenders wanting to take on jumbos and no banks willing to securitize jumbos, that adds another barrier to sales, especially in an expensive market. In Atlanta, for example, where the median home-sale price is $175,500, it's not an enormous setback, but when securitization stops in Los Angeles--where the median price is $593,000--a greater chunk of market activity halts.

As a result, cheaper markets are more likely to be healthier, as loan activity is less constrained.

Still, no market finds itself in a boom. As Zandi points out, discussing which markets are the healthiest "is a relative term."

"It's not like any of these markets are going gangbusters," he says. "Even Seattle: It's been very strong, but conditions are weakening and this year, at best, will be an OK year."