Case-Shiller: Home Prices Drop 10% in a Year

Time for a monthly check-in of the S&P/Case-Shiller Home Price Indices (HPI).

For an explanation of how the Case-Shiller data is calculated, check out their methodology pdf. Also remember that the data released on the last Tuesday of a given month is for the period two months prior (i.e. – October data is released in December).

Here are the basic Case-Shiller stats for the Seattle area* as of October:

October 2008
Month to Month: Down 1.4%
Year to Year: Down 10.2%
Change from Peak: Down 11.4%

The following chart shows the Seattle HPI scaled such that the July 2007 peak is 100% on the y-axis. Data on the x-axis is scaled to display the last time (pre-peak) the Seattle HPI was at or lower than it was in the latest data (March 2006).

Price declines in Seattle have continued at roughly the same pace that they increased on the way up, with October’s drop bringing prices back one more month into the first quarter of 2006.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves, so you can compare Seattle’s performance to other areas across the country:

And here’s one more chart, in which I have lined up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.

Seattle has been declining the least amount of time of all the markets Redfin serves, but continues to see larger respective post-peak price drops than every market but Los Angeles. The current rate of price declines in Seattle seems to match somewhat closely to where Washington, DC was at this point in their decline. DC has now seen total declines of over 25% since their peak.

Home price declines here in Seattle are definitely not as extreme as those in southern California. However, prices are still dropping at a near-record rate for this area, and as of yet are showing no signs of slowing down soon. If Seattle home prices continue to follow close to the pattern of the other markets around the country that peaked earlier, home sellers will be in for a rough 2009, while home buyers will be sitting pretty.

*[Case-Shiller defines Seattle as the Seattle-Tacoma-Bellevue, WA Metropolitan Statistical Area, which includes all of King, Pierce, and Snohomish counties.]

Biggest Discounts December Update

Let’s have an update on where buyers are currently getting the biggest discount off the asking price. This data should help potential buyers to know which neighborhoods are softer in terms of sale price discounts off list price, better equipping you when making an offer and helping you know where to look for potential bargains.

In the charts below, we have taken all sales data from the last two and a half months in Redfin’s Seattle coverage area and sorted it by zip code. We calculated the overall difference between the sale price and the list price. Note that this reflects the final list price, after all price drops in the listing. Any zips with fewer than ten sales are excluded from the top and bottom ten rankings, but interested readers may download the full data summary in Excel format (xls).

Here are the top ten zip codes with the largest overall discount:

The discounts continue to be big on Vashon Island (98070). In fact, much of the top ten was the same as last month, with Mercer Island (98040) coming in third, and the Bellevue zips of 98004 and 98005 still making the top ten as well.

The overall discount for the Seattle area increased from 3.4% last month to 4.1% this month, indicating a slight increasing in the willingness of sellers to bargain with buyers.

Here are the ten zip codes with the smallest discounts:

Of the 3,142 sales we tracked in the 2.5-month period, just 24 homes sold for more than 20% off the asking price, while 305 homes sold for more than asking.

As a whole, the trend is currently moving toward larger discounts for most neighborhoods. This could very well be a seasonal effect. As we continue to watch this data we will be able to get a better picture of what sale-to-list discounts tell us about the overall health of the local real estate market.

City/Town/Neighborhood December Price Reduction Update

Let’s take another look at which cities and towns have the most price reductions.

The following charts show the percent of MLS, FSBO or REO listings that were price-reduced at some point before leaving the market (either sold or removed unsold from the market) in the past 90 days. Cities/towns or neighborhoods in which the number of homes taken off the market was too small to provide believable estimates are excluded from ranking.

For those that are interested, I have uploaded the full data set in Excel format here. In order to keep from overwhelming you with charts, I am leaving out the top ten cities/towns/neighborhoods with the least reduced-price listings from the post, but you can still see that chart in the downloaded file.

First up are the top ten cities with the most price-reduced listings:

Of the 141 cities/towns we ranked in the Seattle area this month, 100 had price-reduced ratios of fifty percent or more. Bremerton, Navy Yard City, and East Renton Highlands were the only cities/towns to make the top ten last month and this month, with a consistently high volume of price reductions.

Getting a little more granular, let’s look at the top ten Seattle area neighborhoods for price reductions:

88 of the 134 neighborhoods we ranked in the Seattle area had a price-reduced ratio of fifty percent or more. Northwest Everett held its place at the top of the list, while Newport Hills and Cascade View carried over from last month’s top ten as well.

On the neighborhood level (but not at the city/town level), there is a slight tendency for neighborhoods with lower listing prices (per square foot) to have a larger share of reduced-price listings. If you’re looking for sellers that might be more willing to negotiate a lower price, these would be the places to look.

A Look at Seattle Supply and Demand

Let’s take a look at the big picture of supply (residential listings on the market at month-end) and demand (closed home sales). Having an idea of what is going on with supply and demand can be an excellent way to measure the general “strength” or “hotness” of a real estate market, and often will provide a hint of the future direction of home price changes.

Here’s a brief market summary for single-family sales, based on the lates data I have available:

November 2008
Active Listings: up 2.2% YOY
Closed Sales: down 43.0% YOY
Median Price: $395,000 – down 9.2% YOY

Our first chart displays the raw supply and demand data back through 2005:

You can see that this year and last had extremely high levels of inventory compared to Seattle’s boom years of 2005 and 2006. November inventory is just barely over last year’s levels. The big hurt in Seattle is in closed sales, which were absolutely anemic throughout 2008, and dropped big in November.

Here’s a look at the year-over-year (YOY) change in the previous chart. YOY is the best way to interpret the direction of the market, due to the highly cyclical nature of real estate.

Inventory has basically flattened out on a year-over-year basis, while closed sales seem to be continually testing new lows.

Other markets around the country have seen a strong uptick in sales after prices start to drop considerably, and I expect the same thing will happen here in Seattle. However, the most recent data shows prices only slightly (~10%) off the peak, which is clearly not yet low enough to start moving buyers into the market.

What Other Data Do You Look At?

This morning I attended the IREM Forecast Breakfast and earlier in the week I talked to an investment manager for a major northwest developer. Based on both of those interactions here’s a list of other data points that folks might want to consider if you’re trying to answer the question when is a good time to buy:

Supply side:

• AIA Billings Index. Are architects billing more or less? Currently, less. They’re one of the earliest indicators
• Housing permits and starts. Are the projects that architects are designing getting to the permit phase?
• Current inventory level and prices. Something we blog about here.

Demand side:

• Consumer Price Index. What is happening to the rent component? Expect volatility and rent decreases as more supply comes online.
• Local job growth. What are the hiring pipelines for the large local businesses (Microsoft, Amazon, Expedia, Gates Foundation, Boeing, Costco)?
• Net migration. How many people are moving to Seattle versus out? (It’s decreasing but still forecasted to be positive.)
• Local GDP. What components make it up? Are the major ones growing or shrinking? Real estate and construction have dominated recently. This doesn’t bode well for the future.
• Payroll. Growing? Declining? Likely declining more.
• Closed NWMLS transactions. Something we blog about here.

Data Sources

I was also pointed at some interesting data sources that you might not be aware of:

• Impresa Consulting’s contribution to Williams Marketing’s Fall Forecast (second half of the deck)
• Urban Land Institute – Emerging Trends publication. $62.95.
• Conway Pederson’s Economic Forecaster. Starts at $395/year.
• Insitute of Real Estate Management – Washington Chapter Forecast Breakfast. $75.
• Case-Shiller which we blog about here.

As for predicting the recovery, Lennox Scott’s comments, really resonated with me:

J. Lennox Scott, chairman and chief executive of John L. Scott Real Estate, predicted that residential real estate’s comeback will be led by first-time home buyers, close to downtown. Cheaper gasoline, interest rates that may decline to 4.5 percent and a small inventory of appropriate houses will fuel a surge in that segment, Scott said. But he didn’t predict when it will occur.

So keep an eye on transaction volume below the conforming loan limit of $576,500.

Open House: 2Br Bellevue Townhome

Open House Dates and Times:

Saturday, December 6th, 1-4pm

11987 SE 4th Pl #502
Bellevue, WA 98005

Seller Comments

Coffee Shop of Choice:
Tully’s on Main Street or Top Pot Doughnuts are always great for a treat!

Favorite Restaurant in the Area:
There are so many great places to eat close by! For casual dining we love to walk to Whole Foods or Sushi Land. For a fun night on the town there’s Joey’s or the Twisted Cork Wine Bar, both good for making new friends. For a special dinner we like to go to Seastar, or enjoy the fantastic view from Daniel’s piano bar.

Favorite Places to Go:
The beautiful Bellevue Botanical Gardens are literally right in our back yard, and we spend a lot of time walking the trails there. It is such a fun place to take guests, with it’s renowned holiday light display, and beautiful flowers in the summer! There are so many things to do in Downtown Bellevue! The new Lucky Strike Bowl is open, and Lincoln Square is a easy place to catch dinner and a movie. It’s all about 5 minutes away!

Best Features of the Home:
The architectural details really stands out, with nice moldings and high ceilings, to archways and beautiful windows. We love the open floor plan which makes it a great place to entertain. The built- in entertainment wall provides plenty of space for the latest in electronics and the cozy fireplace makes the living room warm and inviting. One of us can be on the computer in the nook/office area and still be part of what is going on in the rest of the living space. The laundry room area is upstairs near the bedrooms – someone put some thought into this design! Our home also has a private deck and garden we really enjoy.

Has there been any remodeling?:
We put in new carpet and have repainted. We have a nice size extra storage area in the garage, so we added modular shelves to hold our “stuff”!

Favorite Room:
Hmmm…this is a tough one to decide – we love to hang out in the living room and watch TV, or read in front of the fireplace. On the other hand, we both like the feel of the master bedroom with it’s sunny, western exposure and views.


Most Romantic Spot:
Meydenbauer Beach, on Lake Washington, is a beautiful spot for a romantic picnic, and to watch the sunset.

What’s in the neighborhood?:
Whole Foods Market and the shopping at Bellevue Square are close by. We love to walk and bike the miles of trails in the area. Wilburton Park, with it’s many ball fields and playground is just a short walk past the Botanical Gardens. Beyond that is Kelsey Creek, another place it’s fun to go with family or friends. The Park and Ride provides express service to the airport, and easy access to Seattle, Bellevue and the surrounding area, and is walking distance!

What you will miss most:
Our home has provided us with all of the fun and convenience that Downtown Bellevue has to offer, and a peaceful refuge as well! Who could ask for more?!!

Case-Shiller: Seattle Home Prices Down Nearly 10% from Last Year

While most of us were out enjoying the holiday break last week, the folks at S&P/Case-Shiller released the latest data for their home price indices, which provides the most accurate measure of single-family home price trends for twenty markets across the country. Since S&P’s coverage conveniently includes each of the eight markets that Redfin provides service in, let’s take a look at the home price data from the S&P/Case-Shiller Home Price Indices (HPI).

I apologize for my tardiness in this post. Future posts regarding the Case-Shiller data will be more timely.

Before we get to the charts, let me give a brief explanation of what the Case-Shiller HPI is. To calculate the index, they look at repeat sales of single-family homes over an “arms-length” period of time. Home sales that include things like major remodels, property splits, and sales between family members are disregarded, and sale pairs are weighted based on the length of time between each sale. After all this, the current month’s data is used to calculate a three-month rolling average which is the reported HPI. Data is released on the last Tuesday of every month, for the period two months prior (i.e. – September data is released in November).

For a more detailed explanation of their full process, check out their methodology pdf.

Here are the basic Case-Shiller stats for the Seattle area* as of September:

September 2008
Month to Month: Down 1.4%
Year to Year: Down 9.8%
Change from Peak: Down 10.1%

The following chart shows the Seattle HPI scaled such that the July 2007 peak is 100% on the y-axis. Data on the x-axis is scaled to display the last time (pre-peak) the Seattle HPI was at or lower than it was in the latest data (April 2006).

Aside from a brief uptick in April, home prices in Seattle have been steadily declining since peaking in July last year. The fastest declines so far came between October last year and January this year, and September’s 1.4% month-to-month drop was right up there with this period of rapid decline.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves, so you can compare Seattle’s performance to other areas across the country:

And here’s one more chart, in which I have lined up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.

Home prices in Seattle peaked far later than almost every other Case-Shilller-tracked city, and have therefore understandibly not fallen nearly as far as many other cities to date. That being said, price declines in Seattle are actually on the more extreme side so far compared to where other cities were 14 months from their respective peaks.

Since Seattle’s home price peak was not as high as many of these cities (such as LA and San Diego) it seems unlikely that home prices will end up falling as much here. Of course, this may be of little comfort, since home prices in those cities are already over 30% off their peak and rapidly approaching 40 to 50 percent off.

With the relatively tame degree of home price drops experienced in Seattle so far, fence-sitting home sellers still have a chance to sell before the Seattle area experiences the more extreme drops of 20% or more, which at this point would seem to be a virtually unavoidable minimum bottom.

*[Case-Shiller defines Seattle as the Seattle-Tacoma-Bellevue, WA Metropolitan Statistical Area, which includes all of King, Pierce, and Snohomish counties.]