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Originally published November 3, 2011 at 2:00 PM | Page modified November 4, 2011 at 7:19 AM

Puzzling plunge: 15% year-over-year drop in county home prices

King County home prices tumbled to a new post-boom low in October, and no one is sure exactly why or whether it's a harbinger of a new, long-term decline — or a one-time statistical blip.

Seattle Times business reporter

Median home prices in King County

July 2007: Peak of the housing boom

$481,000

October 2011: Post-boom low

$320,000

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

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.

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.

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.

But Tim Ellis, who writes the real-estate blog Seattlebubble.com, said he's not making too much of the October numbers.

"One month does not a trend make," he said. "I'm inclined to take a wait-and-see approach."

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.

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:

• 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.

And Crellin said buyers who closed in October probably had financing arranged before the tighter limits took effect.

"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, according to an analysis by Washington Property Solutions, a short-sale negotiating firm. That's about the same share as the last few months.

But Bonnie Bell, broker with Northwest Elite Real Estate in Issaquah, said she's seeing more short sales and sales of bank-owned properties on the higher-priced Eastside.

And Mike Elliott, assistant manager of Windermere's Renton South office, said distressed properties continue to make up a disproportionate share of sales in lower-priced South King County, in part because there's not much higher-priced inventory.

"When you get below $200,000, it's a pretty hot market — sometimes we get multiple offers," he said.

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.

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.

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.

It's dangerous to read too much into the countywide numbers, Joe Spencer, president and chief operating officer of John L. Scott Real Estate, said in a prepared statement:

"Not every home has dropped 15 percent in value," he said.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

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