What the heck is going on in Seattle’s Real Estate market?

One of the benefits of being involved with Zillow (as an advisor and director) is that their PR folks occasionally pass my name onto reporters as a potential source for an article about Zillow, or about real estate in general. 

So it came to pass about six months ago, when Zillow was launching their “EZ ad” product, that I spent about an hour with Michael Cate, of King 5, a local tv station, tomorrow.  Mike produces a weekly segment called “Up Front with Robert Mak”   (http://www.king5.com/upfront/).   That interview boiled down to about three seconds on screen. 

Wanting to use up the 14:57 that I have left, Mike called me last week for my perspective on “the market.”  It’s a question I get regularly from friends and clients during the best and the worst of times — “how’s the market?”  It’s a generic question that really demands more than a generic response (sort of like “how you doin’?”), but I doubt the asker typically wants my full blown treatise on what’s going on.  Except Mike, who probably needs to get as many angles on what is clearly a changed real estate  market in Seattle.  But thinking about the interview got me thinking about the market.

So what the heck is going on

The short answer is that since early August, when the credit markets blew up with the sub prime mortgage news, we’ve seen more balanced interaction between buyers and sellers.  This is a result of longer market times, which has created more inventory.  There’s simply more time for a buyer to make a reasoned decision about what to buy, without having to jump into the fray and compete with other bidders for a limited choice of homes.  Unfortunately, we haven’t seen a balanced market for nearly eight years — it’s been a seller’s market, with record low market times, record high list price/sales price ratios, and a lot of frustration for buyers in all price ranges. 

If you’ve been around long enough to remember the “Californication” of Seattle in ’88-90, you probably remember the major slowdown in late ’90 through about ’92.  Then from ’92-’99, it was a market where multiple offers were the rare exception; where buyers could actually shop, preview, offer, negotiate, and then work through inspection and financing contingencies.  To say this current market is a bad market is missing the point that it’s only not as good as it’s been for sellers; it’s MUCH BETTER for buyers, and I think it’s much more typical of what a balanced market should be.  What it was for much of the ’90’s.

In King County, the market time for the 2004 condos and houses that closed in October was, on average, 59 days; average sales price of the houses was $547,205.  These are homes that probably had offers, and went pending, in August and September.  There have been 28,374 residential units (houses and condos) that have closed through 10/31/07.  This rate of sales, at 2831/month, was 44% higher than the October figure.  So the Fall slowdown in sales has slowed much more than normal. 

For the sake of comparison, last October (2006) there were 3023 closed sales (over 50% more than 10/07), with an average SP of the houses = $537,922 ($10k < than 2007).  Market time for those 3023 sales was 40 days, 17 days less than last month.  And the seasonal slowing of sales was less marked:  October was just 6% slower than the average month in 2006.  More sales, lower market times.   But 2006 didn’t have the August Mortgage Meltdown which we’re just starting to work through in terms of jumbo and other conventional mortgage availability (the subprime mortgages are gone forever — or at least until we forget about this fiasco).

The interesting thing is that in terms of peaks, 2005 was the top of the mountain.  35763 closed sales through 10/31/05, 3576 sales/month (October had 3384).  Average market time for the October closings was 35 days, with average sales price of houses = $473,921 (about 10% < 2006).

So sales are slowing (in terms of unit volume and time on market); average sales prices are still stable in King County (up 2% or so year over year).  There are segments of the market where I think prices have fallen — I’ve seen some condo projects that have same unit sales as much as 10% below their 2005 or 2006 prices, and some converters have reduced prices to the point where they are taking losses to close out their projects.  And of course there are lots of price reductions on these long suffering unsold listings.

But if you’re a seller, don’t fret.  Sales ARE happening.  42% of those 10/07 sales had market times < 30 days; the average was 57 but the median was 39 days…so there are some BIG market times that bring that average up.  If you’ve been on the market for 60 days, you’re still below the average of 74 days for active listings.  Above all, gather information.  Know the recent sales and how they compare to your home; don’t assume you can price on par with last March’s sales — you need to be priced to compete with all of this current inventory.  If you’re able to and you get a contingent offer, consider it (lots to evaluate here, but we’ve seen more CONT’s in the past three months than in the prior 10 years combined).  Be open to input from reliable, experienced sources. 

Buyers — enjoy the relative peace of being able to make an informed decision.  Maybe take one, two trips to a given house before making an offer.  But don’t assume that because the market is slower than it was that the seller is desperate, or that there’s a “deal” to be had.  Seller and Buyer still get to negotiate that mutually agreeable market clearing price, and the seller may not be as flexible as you think he should be.  But enjoy the choices available.  Especially in the lower end of the market: A year ago if you wanted to buy a home for < $350,000 in north Seattle…well, good luck.  Now there are 440 houses and condos available in Seattle north of the Ship Canal in that range.  With a median King County household income of $60,700 (in 2005, last year for which I found data), and putting together a 5% downpayment, these homes are yours. 

So it’s slowed down.  And while acknowledging that any encouragement to buy sounds like a self-serving pitch from an industry spokesperson…well, it’s nice for our buyers to have some options and if you’re thinking Seattle’s your home for the next 3+ years, it might not be a brilliant move to wait for a general depression or burst bubble.  Interest rates are terrific, including the jumbo loans now that those programs have settled back down (when I started selling real estate out of college in 1989, as a fresh faced econ grad, rates were JUST dropping into single digits.  9% was cause célèbre.  Now anything over 6.5% seems usurious.)  Job growth, local economy — good, good.  Weak dollar = stronger exports…good for a port city.  Net positive migration.  Except for the effect of the mortgage thing, I’m surprised the change in the market conditions has been as dramatic as it’s been. 

Of course last Fall it felt slow.  And in February, it was back to the races.  It will be fun to see what the new year brings. 

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