Well, at least our market isn’t on the verge of collapsing…

On this gray, dreary January Monday — where the weather isn’t even cold enough for snow in the mountains, at least not those elevations reachable by chair lift — I thought I’d pass along this “glass is half full” insight. First the bad news — which is no surprise at all: home values here in King County are now at 2005 levels, plus sales volume remains significantly depressed (by historical standards, putting aside the risk of a “new normal”). Not good. Sorta like the weather.

On the plus side, though, it could be worse. Much worse. Apparently, the hardest hit markets in the nation (Michigan, Nevada, perhaps others) appear to be heading towards total collapse. Yep, that’s right, values continue to depreciate until they reach… zero (or something in that neighborhood). OUCH! That’s neither a buyer’s nor a seller’s market. Rather, its a market from which everyone should extricate themselves as soon as possible. Run for the exits!

Obviously, this is just an opinion, and undoubtedly there are some rosier viewpoints. But I think this article makes a pretty compelling argument that some parts of the national housing market really will never, ever recover — at least not in the lifetime of a potential buyer or seller.

48 thoughts on “Well, at least our market isn’t on the verge of collapsing…

    • The primary point of the post was the absolutely terrible condition of other markets. But since you asked…

      Ardell, you think prices have stabilized over the last two years because you called the “bottom” of the market about two years ago — you’re invested! 😉 Needless to say that conclusion is open to some debate. For example, the NWMLS — the same source cited in the Times link — reported that 18 months ago the median home price in King Co. was $395k, indicating a further 5+% depreciation in values over the last year and a half. So I guess this is “news” to you, huh? 😉

      • To follow up further: Locally, prices fell another 1.1% between October and November 2010, and 4.7% year over year. In other words, regardless of whether Ardell correctly called the bottom two years ago — er, I mean regardless of whether or when prices stabilized at 2005 levels, there is growing evidence that prices will fall further. The explanation? Prices stabilized in 2010 due to the homebuyer tax credit, which provided artificial support to the market. With that credit gone, the market is returning to its “normal” trajectory following the bubble.

      • Craig,

        The bottom was two years ago…then it went up 5%…then it went back down 5%…but not lower than “bottom” of 3/09 when it was in the $360s not in the $390s. $390s was “Spring Bump” of 2009. That’s why you can’t use an 18 month time frame, and have to use same month YOY. June prices are higher than January prices is not “news”, it’s seasonal fluctuation.

        That’s the problem with “news”. No one wants “the story” to be same old, same old. But truth is we have been at April 2005 pricing, with seasonal adjustments, for two years. Even with the ups and downs we are only moving from Late 2005 pricing to earlier 2005 pricing. 2005 beginning to end had a lot of variance.

        So no…2005 pricing is not “new” news.

        If I put on high heels and then take them off and on again in rapid succession, I am not getting taller and shorter. June is the real estate market in high heels.

  1. Reality check…this is really simplifying things but YES Seattle is different than other Markets..it’s on the top 10 list of where is is best to RENT and NOT to buy..I know first hand as I was a renter from late 2007 til Nov 2010. It also is one of the most expensive cities. The reason the market hasn’t crashed as hard in Seattle YET is because people have more money to HOLD on, so they are holding their losses. They believe that the prices will go back up, so they HOLD on or RENT out a loss, but this can’t go on for too much longer. Everyone knows someone in that situation, everyone. Also, because it is more expensive than other places, a 30% loss in value will have a much harder impact.

    • Dawn — I don’t necessarily disagree with your point that maybe we still have a ways to go before we bottom. Anecdotally I completely agree with your point that many people are renting at a loss every month simply to avoid foreclosure, and/or remain in the house and continue making payments even though they may never, ever recoup the lost equity in the property. I see this ALL the time. At least until they speak with me…

        • I certainly do not have a “one size fits all” approach to my clients’ legal issues. Everybody has their own unique issues and considerations that requires specific legal counsel. That said, yes as a VERY GENERAL matter I believe owners who are seriously underwater should default on their mortgage, particularly if they need to move out for some reason (job relocation, growing family, etc.).

          • And so with all of these people making a decision to default over the next couple of years, what do you think will happen to the real estate market?

          • Ah yes, the rhetorical question that nicely sums up the future outlook. Obviously more defaults = more foreclosures = more downward price pressure. Does the Seattle market have enough going for it — such as decent job prospects, restrictive land use (whether by geography or regulation), etc. — to weather further downward pressure? Time will tell. But yes I appreciate your point!

  2. Jerry — so there’s Mercer Island, and then the REST of the Seattle area? That sounds pretty simplistic to me. I think a better way of considering things is to recognize that even within one market there are significant differences in prices, value retention, etc. In other words, there are MANY “separate parts” of the Seattle RE Scene, and MI is just one of them.

  3. This is very different from any other cycle. Collapse is the wrong word, correction would be better.

    If we take credit as the bubble that burst it changes property as an asset class. The property was a vehicle for generating a return.

    There was never a cycle of double digit appreciation of property prices without inflation. We didn’t have inflation. Inflation was mild. We are on the verge of deflation now.

    My favorite place to wait out the correction is Peru. The problem there, today, is that property prices have doubled in the past seven years. Credit is available everywhere. There are new stores, malls, and housing development. In other words they are on the verge of a correction coming within the next five years.

    We, in the business of Real Estate, have to look at the global market place. Banks, the life blood of financing properties, certainly look globally for returns. Once the global market stabalizes we will have a more consistant correction in pricing here.

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