King County Real Estate Blog

The most recent Northwest Multiple Listing Service compiled statistics for King County show a year over year deprecation of 12.8% for sold single family listings from February '07 to February '08. Prices have indeed dropped, but not in the manner that a simple percentage reflects. A large percentage of the homes that are selling in King County are short sales (see Short Sale 101 for a definition of short sales), and these short sales are selling at prices far below market value. In addition, we now have a large number of bank owned listings which are priced aggressively to sell quicker than anything else on the market. Finally, we have very motivated sellers who may have lost their jobs or are simply tired of waiting around for the right buyer to walk through their door, which is taking longer due to fewer active buyers. All of these aforementioned transactions result in lower purchase prices which drag the median price of homes down.

What is important to remember about the deprecation in regards to “median” prices is that half sold for more, while half sold for less. Also, the “average” prices of sold single family homes in King County has dropped in that same year over year stretch at the rate of 10.9%. These aforementioned percentages are still an inaccurate reflection of particular areas as they are county wide (and can sometimes be state or nation wide depending on the reporting source); they do not take into consideration particular neighborhoods. For instance, an older home in Burien on a busier street may have depreciated at a rate of 15% while a home in Magnolia with a view may have only depreciated 5%.

Also, headlines are often intentionally deceiving to grab interest.  For instance, the headline of the recent Seattle Times article "March home sales, prices continue to decline compared with a year ago in King County" gives a doom and gloom outlook.  Yes prices dropped, but that same article talks about the positive news that pending sales are way up compared to year ago... how could that have been left out of the headline?

What does all this mean? It means to take each report you hear on TV or read in the newspaper with a grain of salt. I’m not going to say that everything has been peachy, but there are certain factors, or even headlines, that skew the statistics and do not fully represent the big picture.

The bottom line in our current real estate market for me is that there are two major factors to consider:

1) It is a difficult time to sell. Meaning, if as an investor you are pondering a fix and flip strategy, keep in mind that you may have a difficult time selling the property because there are fewer buyers out there than normal. Basically, whether you are a regular home owner or an active investor, just keep in mind that it is a difficult time to sell.

2) Because buyers are scarce and sellers are motivated, there are some killer deals available that have loads of equity in them (short sales and bank owned listings are prime examples) that many investors and first time buyers are taking advantage of. Investors and first time buyers are finding undervalued homes that have instant equity because they can appraise for a higher amount than the low price they negotiated with a desperate seller.

Here is an excerpt from an April 8^th article from the Wall Street Journal talking about how to interpret reported housing statistics:

* “But if you are thinking of buying a home, here's the more positive news: While overall market averages may not be as cheap as you might have expected, you can probably ignore them.

There are plenty of deals taking place far below the official average levels. The indices are masking a huge disparity in prices.

Even the National Association of Realtors concedes distressed sales – including foreclosures and short sales – are closing about 20% below "normal" market rates. (Never mind how to define "normal").”

And here is an excerpt from that same Wall Street Journal article that speaks to why people are finding this a good time to buy:

* “If you can borrow at 4.5% or 5% over 30 years, many purchases start to look appealing. Especially if we get a hefty dose of inflation down the line.

If that happens, your monthly payments will be low and you'd get to repay the principal over time with devalued dollars. That's a double win.

Inflation isn't guaranteed: The bond markets are only predicting about 1.4% inflation over the next 10 years, and BCA Research recently reminded clients that deflation, or falling prices, remains a danger. Unemployment is still rising and recent wages actually fell.

Yet if you had to bet from here, you'd bet on inflation in due course. The government is running massive deficits and has the printing presses at full throttle. That's the classic recipe.

And inflation is the debtors' friend -- which is why it is surely going to prove the politically expedient way out of this mess.

Anyone purchasing hard assets like real estate, with a 5% fixed rate loan, ought to make good money if that happens”

“Aggressive buyers are finding some simply terrific deals. And they're paying with cheap debt, too.

Default rates are rising. Lots of sellers are forced. A buyer with options holds all the cards.”

* "The Case for Buying a Home Right Now" by Brett Arends – April 8^th, 2009 from the Wall Street Journal Online