Large year over year housing price drop in Seattle

AP: Excerpts from a recent Seattle Times article:

King County home prices tumbled to a new post-boom low in October, and no one is sure exactly why.

Weitz – no one can figure out why?!....hmmmm?.... Perhaps the greatest Asset Bubble in the History of America that we experienced in Real Estate is imploding? Perhaps the excessive un-employment? Perhaps the constantly rising cost of commodities because we continue to thrash the dollar via the Federal Reserve's QE programs? Perhaps the decreasing incomes for most of America? I can’t place my finger on it... Someday, we’ll figure it out.

As real-estate insiders offered a host of possible explanations for the drop Thursday, they also debated whether it's a harbinger of a new, long-term decline — or a one-time statistical blip.

The median price of houses that sold last month was $320,000, down nearly 15 percent from October 2010, according to statistics released by the Northwest Multiple Listing Service.

Weitz – 15%! That’s a large number. I’ve been writing on this for some time and don’t recall Seattle posting a YOY decline that bad.

The previous low, $334,000, came this March. The median had fluctuated in a narrow range, between $345,000 and $350,000, since then.

October's median condo price, $178,500, was down even more sharply year-over-year — 23 percent.

Weitz – Wow – a ¼ drop in 1 year –scary.

Single-family-home prices in Snohomish County were down 13 percent, to $235,000.

Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said he expects prices will continue to slip for another year.

"There's little pressure on buyers to be active, especially with interest rates not expected to rise for some time," he said. Mortgage rates have been at historic lows — even dipping below 4 percent for a 30-year term — for much of this year.

Compared with the same month in 2010, sales volumes were up in October for the fifth straight month. Buyers closed on 14 percent more houses and 30 percent more condos in King County, and 37 percent more houses in Snohomish County.

Weitz – that’s an odd dichotomy - Sales are up dramatically, but prices are down dramatically. Clearly, there is a dis-connect in the market. My conclusion: the high end is not selling. Conversely, cash buyers are coming in and collecting investment properties they can immediately cash flow with.

But those gains were overshadowed by the big decline in prices. King County's single-family median sales price was off more than 33 percent last month from its July 2007 peak.
The last time it was lower: March 2005.

Some possible causes of the October drop:

1) Tighter limits on "jumbo" loans: On Oct. 1 the limit on federally backed mortgages dropped from $567,500 to $506,000. That left buyers of higher-priced homes with fewer financing options, OB Jacobi, Windermere Real Estate's president, said in a prepared statement.

"It's only natural that this would cause downward pressure on October's median price," he said.

But Ellis, who also is a researcher for online brokerage Redfin, said homes likely to be affected by the new limit account for less than 4 percent of the King County market.

Weitz - I'm with Tim. I think it played a role (and will continue to play a role), but there are much bigger issues going on here.

2) "Distressed" properties: Bank-repossessed homes tend to fetch less from buyers, as do "short sales" for less than the seller owes its lenders.

Together, they made up about 31 percent of all King County single-family-home sales in October. That's about the same share as the last few months.

Weitz - this isn't going away - it's impractical to call this an excuse for a bad year. This is the new reality.

3) Cash offers: More buyers, especially investors, are making all-cash offers, Crellin said — and buyers are accepting them, although they often are lower, to avoid the uncertainties of financing.

Sellers of higher-priced homes also are starting to drop their asking prices, he added, and that could be pushing the median sales price lower.

4) Apples and oranges: The 1,489 King County houses that sold for a median price of $320,000 this October can't be compared accurately with the 1,309 houses that sold for a median price of $375,000 last October, some argue, because the mix has changed.

For instance: Ellis said that while Redfin's research also shows a big year-over-year drop in the median sales price last month, the price per square foot fell much more modestly.
That suggests "for whatever reason, people bought smaller houses," he said.

Weitz - See my comments on this below.

The geographic mix also shifted. Listing-service statistics show King County's lowest-priced areas — Southwest, Southeast and North King County — saw the biggest increases in sales last month. They also experienced the biggest price drops, and that brought the countywide number down.

In higher-priced Seattle and the Eastside, price declines were in the single digits.

Weitz – If I had to make a prediction, I expect the lower tier will continue to drop, but will be the first part of the market to recover as it simply makes sense to purchase these properties that can immediately provide cash flow via renters. Conversely, it is my opinion that the high end market will be much slower to drop (as has been shown), but will nevertheless drop and it will have a difficult time finding a bottom in the foreseeable future as incomes stay stagnant and the cash flow analysis vs. renting a similar property is way off – time will tell.

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