Seattle Housing Prices: How Low Can We Go?

I'm gonna go with – new and unknown paradigm. At least I hope so, that old paradigm sucked.

A broken financial system, peak oil, and climate change; yes, this is a new paradigm.

I've been doing the chicken-little about the housing bubble since 2003, but even my pessimistic arse would be very surprised to see a further 22% decline in Seattle.

I see 5%, maybe 10% over the next couple of years and bounce along the bottom for a few years after that.

I may have blinders on due to a recent housing purchase however.

It probably depends on mainly on how big the next wave of foreclosures is. I can see a real deterioration in outer burbs, particularly the new tracts up in Snohomish and in the south towns. Cookie cutters make for easy comparisons.

I doubt the foreclosure wave will crest high enough to put a serious inventory glut in core Seattle, however, without a significant erosion of middle-class jobs.

The soaring, unchecked housing market of the last 10-15 years was the new and unknown paradigm. Once prices are corrected, I'm hoping we can look forward to normality again – that is, housing prices that rise or fall with the rest of the economy.

22% decline in real prices or in nominal ones? Big difference if you're a hyperinflation junkie. 22% decline in real prices is very plausible if we see inflation spike to recently seen historical levels.

Eventually the stimulus manna's going to run out and we're still going to have high unemployment with a stale economy. The money's not going to be there to keep home prices at their still unnaturally high level.

The growth projections assumed by the PSRC are derived from the State's economic model, which assumes job growth in line with past trends going forward. The assumption that we will have the same job growth in the next 20 yrs that we had from 1970-2000 is seriously questionable. I think center cities and walkable urban hubs will outperform suburb/exurbs, the the amount of growth in aggregate is probably a lot lower than projected by PSRC

Fall home prices fall! Renters rejoice!

Just wondering. Is the prediction for houses in Seattle proper, or is it the “Seattle area”?

Not much to rejoice about for renters.

The need to keep making mortgage payments on overvalued property serves as a disincentive to convert a condo to a rental that is at or below market rate. Convincing a generation of real estate speculators and developers who have been focused on condos and townhouses to settle for the lower profit margins of building rental units is not going to be easy or come quickly. And further service cuts at Metro will serve to keep inflating rental costs in the urban core of Seattle. Plus most renters are struggling to find consistent employment.

And yet look at this map showing in and out migration to King County: http://www.forbes.com/2010/06/04/migration-movi…

Presuming that trend is maintained, we have more people moving in than out… so at some point demand will rise for housing and prices will stabilize/rise. That point may well be 5+ years out and it's not likely to cause the bubble we saw, but net population increase has to affect pricing.

As prices fall, more people hang onto their houses/condos as they try to ride out the low prices. In the meantime they rent. Lower values could also lead to lower property taxes, which also leaves room for falling prices. Because many other renters are unemployed, that lowers demand. It puts those of us who rent and are employed in a better position.

Urbanism in its current state relies on a housing bubble, since its a market based ideology. It it were a stock I would be shorting it.

Where is the RE nerd on this?

Renters will either couple up or move to cheaper locales. There will remain a ton of supply relative to the demand: For rents to go up there has to be people willing and able to pay the higher rents, and you're just not going to see it given the direction the economy's heading.

That map's data is from 2008. Needs more current data.

That would be nice, but there's always a delay in data gathering. That's why I said 'Presuming that trend is maintained..”. However, since Seattle's seen more people migrate in than out for decades, I don't think it's a stretch to posit that the trend will continue. The magnitude of the trend may well be up for debate though (a net in-migration of 500 people in a year is very different in housing impact for 10,000…. )

http://www.calculatedriskblog.com/2010/06/have-…

Yes, 2008 is the new 1845. Data that is more then a week old is outdated, and should not be used in any discussion, especially about trends in population growth and migration.

Dan, it is so uncool to be a shill for the one bright spot in the otherwise bleak local real estate landscape just because you happen to work for the company that designed it. The last thing Seattle needs is another couple of hundred empty condos/apts/townhouses, etc., especially in Q.A., which has such a glut of empty or near-empty residential RE–not to mention unbuilt “craters,” much of it butt ugly. We would be so much better off as a city if we hadn't destroyed so much of our formerly affordable housing.

Which would prove the point relentlessly made by Paul Krugman in late 2008/early 2009 that this stimulus program was a much too anemic approach to the Keynesian intervention called for in a recession of this scale.

Here are a few of the factors that will cause the economy to fall down a few more flights of stairs: (1) deepening of the Euro debt crisis, (2) crash of the Chinese economy, (3) depletion of bailout funds (sadly, we spent most of the economic stimulus $$ saving Bank of Fucking America and other vampire squid companies), (4) endless continuation of trillion dollar+ wars in the Middle East (or wherever, because we will never abandon the “War on Terr'” or our global so-called “peace-keeper” military-industrial role peak oil, (5) an aging population coupled with ever-rising health car costs stemming from our inability to pull off actual health care reform, (6) peak oil will make everything extremely expensive–no more cheap food from Mexico, Chile and other distant places, and (7) the enormous financial burden imposed by freak weather storm damage and the need to retreat from shorelines because of global heating. I've just hit a few of the highlights. I'm sure our economy will get slammed by additional factors that most people will refuse to see coming.

Doing the opposite of what big firms say you should do can be a great way to make money. Guess its time to buy real estate!

What exactly is “normal”?

It was only during the late 90s that Seattle acquired a hip cache.

For most of its life it's been a rainy backwater that people who wanted to evade the established order came to hide out in.

Normal for Seattle is unemployment and cheap single family homes.

The City Is Obsolete.

We are heading to Agraria.

http://www.yrihf.com/viewtopic.php?t=3227&highl…

I don't think she's around any longer. And while she is a very good writer, the tone and tenor of her work often was a bit too RAH RAH REAL ESTATE SIS BOOM BAH for a lot of us.

Lower property taxes will not be passed on to renters unless landlords are forced to by increased vacancies. I doubt that will happen in the urban core around downtown Seattle.

As for whether condo owners will rent at a significant loss just to make ends meet, or condo developers will actually rent their units rather than let them sit empty, we'll see. But I'm skeptical it will happen frequently enough and for long enough to have any significant impact on the rental housing market except at the margins.

I don't think rents will increase. But I doubt they'll decrease in any significant way south of 85th and north of, say, Dearborn. There have been far too many condo conversions and far too much of the affordable housing stock has been demolished or converted into single family homes for all the excess demand for affordable housing to be met by the current market. Gentrification is slowing, sure. But it's not going to be reversed. Hard to rejoice about a delay in gentrification, even if it's better than being displaced.

That's national data. If you look at Seattle data, you'd see 20+ years of rent increases broken by minor periods of stasis or occasional dips.

I don't know… I've seen rents slowly drop in the last couple years in some key central neighborhoods (U District, Queen Anne, Ballard, First/Capitol Hill) and they haven't spiked back upward, even though real estate agents have been slowly upping the asking price on homes in the area.

A lot happens to a market in two years. You can't cite data from two years back as if it reflects current market conditions.

There goes any chance of getting my HELOC bumped up to do that kitchen model. Oh well, at least I still have a job but looks like I won't be stimulating the economy anytime soon.

Anyone else think Goldman's comments have more to do with furthering the firm's investment strategy than with providing information?

“Normal” depends upon the time-frame. If you look at all of Seattle's history, double-digit (and sometimes greater) percentage increases each decade are the norm. Prior to 1960, the only decade without double-digit growth or more coincided with the Great Depression.

Then there were two decades of anomalous decline, which were caused by suburban sprawl associated with freeways and white flight. That won't happen again.

The new normal over the last 30 years has been single-digit growth. My guess is that 5-10% is “normal” for a city of our vintage. But we're in a near-Depression, with no end in sight, so 5% might be too high for the next decade. But when recovery eventually comes it will probably push us closer to 10% growth for a time, or even higher. In the long run, betting on 5-10% growth is wise.

20 percent lower makes sense to me. i see no reason for any recovery at all. it's the end of an era for america. God bless the new USSA.

of course prices will fall! doh…it's all about the fundamentals. People in Seattle get a wee bit self centered and think we are somehow different than the rest of the us economy? gimme a fucking break. we rose more slowly so we're falling more slowly (compare to vegas, miami, sd and other places) – but that doesn't mean we're not going to fall…enough with the fake news in the paper…this is reality.

Why do you assume there's going to be a recovery? To paraphrase prior posts; “peak oil, climate change, etc. = end of paradigm.” I.e., “normal” doesn't exist any more.

IMO, economy might recover somewhat, but in the long run, we're not likely to see another boom as strong as the late 90s, or even the run up to latest bubble bust.

*rubs hands like Mr. Burns*

ETS Date (return to Seattle): April 18, 2012.

“The projections for Seattle’s long-term population and job growth are still robust compared to most US cities. … Will things eventually return to “normal,” or has something broken for good, forcing us into a new, unknown paradigm?”

Assuming perpetual “long-term growth” is the core flaw of the current paradigm. There are limits to growth. The only way Seattle can keep growing without acknowledging that fact is for people to move here from somewhere else. But that option for growth in Seattle ignores the global picture. Which is not a pretty picture: climate change alone is scary as Hell, and the other resource issues like peak oil are almost as troubling. Global capitalism is almost certainly going to crash before the end of this century, all the ignoring of it by “ain't Seattle great” and we're going to go back to “normal” and have more people and more consumption, etc. notwithstanding.

We need to come up with a vision of where we'd rather be. How about thinking about what it means for your daily life to not have cheap energy? Please, think about it, because that's the imminent reality, and housing is only one part of our lives that is never going to be “normal” again as a result.

I approve of this methodology!

I disapprove.

How many people who are pontificating have spent any time in Seattle? Our real estate market is always crazy.

Housing prices went in the toilet in the early 70's and stayed that way until the late 80's when the California Gold Rush part II drove up prices. Then they slumped. Then the dot commers came in, then they slightly slumped. Then they went crazy in the late 90's, then they crashed.

If you don't like the housing prices in Seattle, wait five minutes.

Do you have a link to any data on this? Would be curious to see.

More immigration means higher prices.

The best source may be simpler than a report: Go to craigslist and search for studio, 1 bedroom and 2 bedroom housing (and yes, CL is how I've gotten every apartment I've had since moving here in 2004 and I have never lived under a shady manager/landlord, so I can vouch for its reliability).

Of course, if you haven't had to search for housing much at all in the last few years, you're not going to have much of a point of reference. If you have, you can compare prices to what you encountered 2-3 years back.

I agree with that. It was a band-aid approach at best done as a gamble that a few tax breaks would spur the U.S. economy naturally upward. Whoops!

This is a tired argument, to the extent that it is an argument at all. More immigration means higher prices if and only if those immigrants can afford to participate in the housing market.

Three or four families of immigrates would do the trick. Come on here, do people want their real-estate to go up in price or not?

The housing bubble was based on a debt scam, that's gone. You either replace the debt scam with another source of funding or housing goes back down to their historical 3-4 times income. Peasant income has been dropping for a decade now. The peasants are competing with overseas peasants making 1/10 th their wages.

So, you can either have 1980's real-estate prices OR more people. Take yer pick, because the debt scam is over.

I agree with this. Seattle is headed from some tough times. Only delayed by having microsoft and boeing. The microsoft millionaires who got lucky in the 90s still don't realize they were lucky. The money supply is going to slowly decrease from the general population because no new money is going to replace the 90s boom. They were just lucky that the fed pumped up there economy for the last four years.

seattle sucks. been here 10 years and want to leave asap. average houses here cost more than LA, boston. gimme a break. its a depressed place where people have to drink coffee or have a light box at home to get “sunlight” to keep their eyes open and not depressed.

Seems to me one way to enhance value in real estate is to offer more, not less property for the price. So, low density zoning could help stabilize the region. Collapsing potential buyers into super dense blocks such as the above merely hastens the demise of the market.

I think Seattle should be de-densifying…tearing down substandard buildings and houses and outlawing the travesties pictured above. Also we need to rescind GMA and let people get full sized 2 acre plots.

If they can't manage to sell these box properties, that may well be what ultimately happens as the market responds to supply/demand shifts.

Real estate agents don't up prices. Prices are determined by sellers. I realize that I may not be a typical RE agent. I often suggest to clients that they be realistic and price their homes on the low side so that they can sell their home and be done with it. I've declined listings when sellers insisted on an unrealistically high asking price. Despite the reality of the situation, home sellers are often convinced that their house is special and unique and desirable, and who cares what price the market suggests?

oh it's “global heating” now?

Everything will be fine.

Nope. Sellers follow the advice of real estate agents, who will push clients to make desirable moves. Some sellers are demanding but most heed the advice of an agent. Agents do mostly dictate the market.

Don't forget the other side of the equation. It's possible that (1) increasing urbanization will drive prices up in the city, down in the suburbs. Ok, that's all I've got. But your point 6 would help this.

You may doubt 225, but mark your calendar for two years out. I have seen it already in DC