Puget Sound Housing: What's the Sound a Bubble Popping?

I've been following housing in the Puget Sound area for about a year now. In fact, my recent obsession with economics and finance all started with digging into the itty gritty details of the real estate market in the area.

Last spring, Seattle denizens deluded themselves into thinking that our little neck of the woods was a real estate paradise. A magical land where every homeowner rides a pretty, pink pony on streets made of crystal. A land where gooey, gooey gumdrops fall from the sky. A land where housing appreciates 10%+ per year forever.

Seattle was the last holdout (except for the research triangle in NC), the last large metropolitan area that hadn't yet seen its housing bubble burst. Even though last spring markets in So CA, AZ, Las Vegas, and Miami were imploding, there were plenty of entrenched business interests in Seattle that were arguing that our market would be immune to the troubles spreading across the land. The enablers in the local media only made things worse, ignoring data that ran contrary to the interests of the real estate / industrial complex.

Yet, a harbor of rationality gleamed as a beacon through the real estate fog. I started reading SeattleBubble blog every single day. Then I started responding in comments and on the forum. It was fun, because there were a bunch of fools (Mashugana in particular) claiming that there was no bubble. People who could look at the data objectively knew the writing was on the wall, but the bubble hadn't blown yet. But by the time it all started to unwind and the Seattle bubble started to burst in the fall of 07, I found Calculated Risk and other finance blogs which showed that a bigger problem loomed than Seattle Real Estate, the potential collapse of the financial system in the US. Let's just say the gravity of that situation drew me in, and I spent less time at Seattle Bubble.

But I still pay attention to Puget Sound housing. Here's an update. The Tim has given a recap of the most recent data released by NWMLS for the month of Feb. He has been doing this for a long time and has very good stats and charts. I'll try to fill in a couple of gaps, especially Snohomish and Pierce Counties.

NWLS reports various data for counties in WA every month. There are two categories of data I've been following for some time: median price for a single-family home (SFH) and median price for a condo per month. I've been following three counties: 1) King, which includes Seattle and most of the urban density around Seattle. 2) Snohomish, which includes urban areas north of Seattle, of note is Everett. 3) Pierce, which includes urban areas south of Seattle, of note is Tacoma.

SFH

For Feb, median price for a SFH in King Co was $429,900, down -0.01% year-over-year (YOY). Essentially flat YOY. Here is a figure that shows YOY for median SFH in King Co since Jan 2003:

You can see that peak appreciation was in Oct 05, when the median price for a SFH increased nearly 20% in one year.

Median price for a SFH in Snohomish Co was $355,000, down -2.74% YOY. Here is the figure for YOY data since Jan 2003:

Peak appreciation in SnoCo was in Aug 05, when the median price for a SFH increased 23.6% in one year.

Median price for a SFH in Pierce Co was $265,750, down -7.40% YOY. Here is the figure for YOY data since Jan 2003:

Peak appreciation in Pierce Co was in Oct 05, when the median price for a SFH increased 25.4% in one year.
CONDOS

Median price for a condo in King Co was $189,000, up 1.31% YOY. Here is the figure for YOY data since Jan 2003:

In general, appreciation in the condo market has lagged the SFH market. I guess this isn't too much of a surprise, given that as people were priced out of SFHs, only condos were left in their price range. Peak appreciation in King Co was in Feb 07, cresting at 24.58% in one year.

Median price for condos in Snohomish Co was $245,000, up 9.87% YOY. It jumped significantly from last month, which came in at only $224,999. Here is the figure for YOY data since Jan 2003:

Peak appreciation in SnoCo was in Aug 05, when the median price for a condo increased 26.22% in one year.

Median price for a condo in Pierce Co was weak, only $198,950, down -14.15% YOY. Here is the figure for YOY data since Jan 2003:

Peak appreciation in Pierce Co was in Apr 06, when the median price for a SFH increased 25.12% in one year.

YOY has a number of drawbacks which I described in an earlier post. Most important is that it's retrospective in 12 month increments and will miss dynamics that are more recent. Another way to look at price changes is to normalize them to a particular date. Here is a figure that shows median price for a SFH in each of the three counties since Jan 2002.


You can see that if you look YOY, the data look basically flat. But if you look from the peak at ~ July 2007, things have tanked. Hard.

Here are the condo data:Pierce Co appreciated more quickly, which interesting because if you look at the normalized SFH data, all three counties look basically the same. I decided to look at how far off each category of home (SFH and Condo) for each county is off from the peak.


For King and Sno, SFH have fallen more than condos. For Pierce, SFH have fallen about the same as King Co, but condos in Pierce are WAY worse than Sno and King. Obviously this is because of what I mentioned earlier; that Pierce Co condos appreciated much faster than the other two counties.

Looking ahead, things are only going to get worse. SFH and condos for all three counties are much higher than they were last year, and the number of sales is about half. The mortgage crisis just gets worse and worse, with lenders tightening their standards. And with hints that many very large banks are, at the very least, teetering on the verge of insolvency, means that banks can't lend money they don't have. And with a significant recession looming, things will only get worse as people who don't have jobs won't be able to pay their mortgages. This will also make the foreclosure situation even worse, further deteriorating the market.

Things are ugly right now. Prospects do not look good.