King County Median prices fall over 10% YOY. Quite frankly, maybe today's Seattle Times headline will help the market.

This has been on my mind for a while, so I’ll throw it out there for people to discuss.  Sometimes a non-agent can introduce topics that the real estate community may be uncomfortable in discussing with their clients.  So, here goes…..

The topic:  Is this lousy news for sellers just the spice to get them to realize that the white- hot markets of 2005-2007 are long gone?

Price reductions have been taking place for sometime.  Months and months.   But, many have been token reductions and the conversations I hear and read on blogs is that,  in some instances, resistance has been fairly strong.

What good does it do when a seller who reduces a price by $3K on a $650,000 listing that has been languishing on the market for months?  If today, after weeks of small incremental reductions, the listing is priced at $550,000, there is no agent on earth representing a buyer that will take it seriously.  Especially after seeing the price reductions go on and on for months.   I don’t know who is torturing who:  the homeowner doing this practice or an agent who can’t pull the plug on the listing?  I’ve heard that not taking a listing is not in the DNA of agents (I’m teasing of course.)

I know of some agents who have broken their backs and have spent a lot of money on listings only for the seller to eventually pull the plug on the listing out of frustration.   And then, (drum roll please) have the $500K+ listing end up renting for under $2000.00/mo.  Any sellers out there understand the rent-to-price ratio relationship over the history of residential real estate?  Now, on the other hand, many of today’s agents have little experience in working through a correction and pricing and marketing a home effectively.  If we are honest, there was not a lot to do in a white-hot market to generate the offer: place the listing on the NWMLS and arrange a time with the seller to accept multiple offers.  I hear some were even nice enough to offer coffee and pastries to the agents sitting in cars outside of a property waiting for their turn to submit their offer.  How times have changed.

I have seen a couple of examples of the substandard work ethic and marketing in my neck of the woods in Snohomish Co:  outrageously poor marketing, only to have another professional agent come to the rescue and have a successful sale.  Good for that agent and good for the seller to recognize when a change is needed.

Will agents bring the Seattle Times clipped article to listing presentations?  When is real estate bad news good for moving sellers in the right direction and getting the market moving?  Perhaps today.  Or, maybe we still have a long way to go in understanding how damaging the excesses of next to zero lending standards will turn out to be and the artificial appreciation it fostered.

PS.  Those who are currently in the market to buy should be in conversations with your loan officers regarding the recent drop in interest rates.   Just today, our office is hearing that there are 30 yr fixed rates at 5.5% at par, some even indicating a small rebate at that rate.  Consult with your loan officer.

56 thoughts on “King County Median prices fall over 10% YOY. Quite frankly, maybe today's Seattle Times headline will help the market.

  1. My point is that the Seattle Times article should be a major shot across the bow of unrealistic sellers. And, ammunition for agents struggling to have their overpriced listings to get real or take the house off the market. Frankly, I think there are a lot of agents who would be relieved to release a listing and not have to worry about having to pacify unrealistic sellers and spend meaningless afternoons on Sundays at open houses. (especially with the recent great weather)

    The problem that is unpalatable, is that many of the sellers today were agents buyers in ’05 and ’06.

  2. Alan,

    Heck, why not? I never thought of that. If that is what it takes to help facilitate a sale, which is in the best interest of all parties, then by all means.

  3. Tim, great topic! So many issues to deal with in a market like this. First of all incremental price drops are the most painful and costly way to sell a house. Let’s take your example. The house is priced at $650,000 but is actually worth $620,000 today. That’s a little less than 5% over priced, which is very common since agents and appraisers use comparable sales within the last 6 months to price homes. If the Seller and agent use the incremental price reduction strategy they end up chasing the market down. Each time you drop the price hoping that this price reduction will be the one, just to be disappointed time after time.
    Depreciation Rate 10%
    Monthly 0.83%
    Price Drop 1.5% per month or $9,750
    List Price Market Value
    Month 1 $650,000 $620,000
    Month 2 $640,250 $614,833
    Month 3 $630,500 $609,710
    Month 4 $620,750 $604,629
    Month 5 $611,000 $599,590
    Month 6 $601,250 $594,594
    Month 7 $591,500 $589,639
    Month 8 $581,750 $584,725

    In this case the seller drops the price almost $10,000 per month and it still takes 8 months to catch up with the declining value. The ideal situation is to price the house aggressively right from the start. This is where curbing your optimism during the agents interviews pays off since the most common strategy for getting a listing is giving the seller “their

  4. The new assessments coming in the mail are killing us. Someone was a bit overly optimistic with those in many areas.

    I showed a house today (great value BTW and fab view) that was priced at $100,000 or more under the OLD assessed value. I couldn’t help but wonder what the new assessed value was.

    I’m hearing about 20% assessed value hikes all over Kirkland. What were they thinking? Who could think prices on 1/1/08 were up 20% from 1/1/07?

    Sellers all ready to price just right…until they see their new improved jacked up assessed value! It’s a crime and a shame and I don’t blame the sellers for wanting to believe in that great value in the mailbox from the assessor.

  5. I blame them! For years sellers have been aghast at how “low” the assessed values have been compared to what their homes “must” be (and have been) worth. Now that the AV is too high, they insist that the valuation is suddenly accurate?

    I have always bristled when the assessed valuation comes up in the conversation as anything other than a relative data point for what the MARKET value really is. We are often asked to help appeal these erroneous valuations, and my first question always is: “If you think this is too high, would you agree to sell the house for such a high/inflated price?”

  6. Tim, you’re right on with the rates although yesterday, they bumped up about 0.125% (still great). We’ll have to see what today brings.

    Consumers who are considering refinancing should also take actions if their values are coming down. A low appraisal (which is based on what other homes have sold for in the last 6 months–ideally–similar to the subject property) can be a refi killer (or make the rate higher than originally quoted or pmi, etc).

  7. Ah, yes Rhonda. Good info regarding the potential for lower appraisals.

    Gordon- sounds like agents have their hands full with those assessments.

    Ken C – Excellent case in point.

    Alan re #5: What I see out in the burbs is resales trying to compete with new construction that is priced 10-15% lower. Tough sell for the resale. So those $600K ramblers (especially those 30 yrs old) are going to have a tough time.

    I really think that the smarter agents will show a financial spreadsheet to their sellers of what it will take in today’s lending environment for a buyer to qualify. Income, credit, down payment etc…

  8. Gordon wrote: “We are often asked to help appeal these erroneous valuations, and my first question always is: “If you think this is too high, would you agree to sell the house for such a high/inflated price?

  9. There were two lines that struck me as “right on” in the lengthy article I read in the paper yesterday.

    One from an agent saying that it is not enough to be “competitive”. The price has to be “compelling”.

    One from a buyer who plans to buy before year end who said all I really want is a fair price, really.

  10. I wrote a piece over at P-I land that focused on the size of the month to month drop.

    I keep crediting Ardell for pointing out that it was coming, based on the pendings, but that doesn’t get to causation. The size of the price change is unusual, in either direction.

    My best guess currently is that it was the end of 100% conventional financing (perhaps Rhonda or Tim could pin a precise date on that). My blog piece asked for other ideas, and there haven’t been any that have really grabbed my attention. Maybe people here have some ideas.

    BTW, as discussed there, in King County 40%+ of the listing that sold obtained an acceptable offer within 30 days, for over 98% of list. Within such a short time, it’s reasonable to assume there were not price cuts on most. Over 60% were only on the market less than 60 days. That sort of refutes the idea of the worn out seller, because 60% of the sellers would control the median.

  11. Rhonda,

    What I am seeing, which is getting a bit annoying, is “instant equity” all over the place. People who had the home appraised a few months ago for buying purposes, are leaving appraisals on the table that are higher than the asking price.

    I saw one the other night that had the appraised value and “instant equity” number written on a big blackboard in the kitchen.

    Sellers saying “did you tell them it just appraised for more than the sale price?!” People don’t really care. In a down market, we expect the appraisal to be high, because the appraisal uses sold comps from a higher market. In a down market all comps are from “a higher market”, by definition.

  12. Ardell, on the make me move, I’ve only seen it the once, but I guess it’s a good reason for an agent to always check Zillow to see what the owner has done.

    Also, on appraisals, IMHO refinance appraisals are not worth the paper they’re written on, and never have been (well for over 20 years anyway). It would be a surprise to see one that wasn’t 10% high.

  13. I am not sure how much the first headlines about 11% YoY price drops in the LA Times helped their market (prices in LA have dropped some 30% now). If headlines about 11% price drops are healthy for the market, does that mean front page stories about 20% declines or an FDIC seizure of WaMu would be even better?

    We might start to see a general awareness that things have “changed” begin to grow. But this cuts both ways… Sellers may be more realistic in pricing, yet buyers may get even more skittish about jumping on board.

  14. Unexpected low appraisals are happening and are sinking some refinances. Actually, it isn’t the appraisal so much as it is the home and borrower consumer debt being over leveraged.

    Speaking of refi’s (I know we are WAY off topic here, but that’s blogging) we have had files that were dusty for months now revived due to the drop in interest rates.

  15. Tim wrote: “Unexpected low appraisals are happening and are sinking some refinances. Actually, it isn’t the appraisal so much as it is the home and borrower consumer debt being over leveraged.”

    This is due to what I describe as using your house as an ATM machine. There are a lot of people that repeatedly run up credit card debt and then refinance to pay it off. It works as long as house values (and income) are increasing. But it’s not a sound financial practice in any market.

  16. Kary and Tim, houses could (not saying should) be used as ATMs when values were appreciating. In this market, it’s the lack of comps or low comps that are producing lower appraisals.

    Both appraisers and underwriters are being extra conservative with their figures when reviewing comps.

    So I would say this is more about lower values than over-mortgaging. Although, that certainly has not helped this situation.

  17. I hear ya Rhonda. I’m just saying…

    Looking at the underlying secured financing….tells a good part of the story and whether or not there is a chance of the refi going forward. If I were an LO, it is one of the top tasks I’ll look at: what are the payoffs and what are the terms of the underlying note(s). In my mind, if a borrower has a low LTV situation then the appraisal takes on less of a concern.

  18. I should add the latest refinance appraisal I saw was done about a year ago, before the whole controversy over appraisals arose. It’s possible they are different now than they’ve been the last 20 years.

  19. I made alot of money in the Florida real estate market and the attitude you are describing here is pretty much what things were like right b4 the bottom fell out. I don’t think it will be as severe here but I do think prices are going to drop further at this point, maybe another 10%. Seattle is pretty oblivious to how the rest of the country is being affected by the economy and housing slowdown. And it doesn’t help that the stock market is about to break down to new lows. Sigh.

  20. Well, if the Seattle/Puget Sound Region does experience further declines in housing prices, such as 10% or more, it will present a lot of problems here.

    Today, Alaska Airlines just announced 850-1000 job cuts due to severe pressure of fuel costs and economic softness. Alaska is based here in Seattle but has major operations in California too. I’m not sure how many of those job cuts will be in Seattle, but I’m sure there will be a good handful.

  21. Tim wrote: “if the Seattle/Puget Sound Region does experience further declines in housing prices, such as 10% or more, it will present a lot of problems here”

    Why? A 22% price decline from peak would be tamer than what many other parts of the nation has seen. Why would such a decline hurt the Puget Sound all that dramatically? Also, exactly what kinds of problems do you suppose we might see?

  22. Sniglet, ignoring people who refinanced for additional money, I think a 22% drop here would affect a lot more people (as a percentage of the population) because it would cover a time frame going back further. If you go up 22% in one year, and then drop 22% in one year, you’re really only affecting a small number of purchasers (maybe about 30,000 at peak King County sales rates.)

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