Kenmore Undressed

Sit Down, Take a Deep Breath: Sobering Numbers for 2008 Real Estate

Don’t Pass Go, Don’t Collect $700,000,000,000

The National Association of Realtors has unleashed a media campaign with the theme “Affordability has improved!” When I heard this on the radio this morning, I had to stop and consider whether this is true. After all, home prices are dropping and interest rates are at historic lows. Sounds good. Sounds really good………………….but, let’s look at reality for a moment:

Today I’m going to share some sobering and grim real estate statistics from both a national and local perspective. Please believe me, for those of you who have excellent credit, secure employment, cash reserves and a desire to purchase a home, this may be an “affordable” market. But, let’s not sugar-coat the overall market. It’s still a risky place to be:

Foreclosure Filings At Record Highs – UP 81%

Here are several snippets from an Associated Press report today regarding home foreclosures in 2008:

• More than 2.3 million American homeowners faced foreclosure proceedings last year, an 81 percent increase from 2007

• Nationwide, more than 860,000 properties were actually repossessed by lenders, more than double the 2007 level

• The four states with the highest foreclosure rates last year were Nevada, Florida, Arizona and California

• Moody’s Economy.com, a research firm, predicts the number of homes lost to foreclosure is likely to rise by another 18 percent this year before tapering off slightly through 2011

If you’re an optimist, this may be good news. Indeed, this will expose a huge number of properties to potential buyers, possibly at bargain prices. The down side is illustrated in an old rule of thumb regarding foreclosure: for every home in a neighborhood that goes into foreclosure,  the value of the neighborhood drops by 1% of sale value. So, even if your neighborhood is weathering the down market well, the adjoining neighborhoods may very well cause downward pressure on your property values. Remember, whether you like it or not, we are all in this together.

ABSORPTION RATES IN PUGET SOUND, KING AND SNOHOMISH COUNTIES

Absorption rate = Number of weeks/months it takes to sell the current inventory at the present rate of sales.

I have assembled the graphs below to illustrate the absorption rates for our local market. If you want to look these over in detail, just click on the graphs:

KING COUNTY, WA ABSORPTION RATES – 2003-2008

One positive event was the drop of almost 15% of the active homes & condos from the market in December. This should have happened far earlier in the year. Having said this, it’s very important to note that only 10% of the available inventory went pending (offers were accepted). One must also take into consideration that a significant number of these pending sales are a result of short sales. This means the transactions may never close before being sold at auction.

PUGET SOUND ABSORPTION RATES – 2003-2008

As a whole, Puget Sound absorption rates in December were even lower than King Co, at 8.2%. There was a 13% drop in active listings.

SNOHOMISH COUNTY, WA ABSORPTION RATES – 2003-2008

Snohomish County was a bit of a surprise with a slightly higher absorption rate than King County at 10.2%. There was also a drop of almost 13% in active inventory.

So let me be clear: we are in the midst of extremely difficult times in real estate. I take offense to any blanket statement that “now is a good time to buy a house.” This is simplistic baloney. There are simply too many factors outside of low prices and interest rates that affect the market today. If you enter the real estate market this year it is incumbent upon you to do the following:

• Sit down with your accountant or financial planner and ponder deeply the advantages/dis-advantages of owing a home. You may find that no matter how low your monthly payment may be, renting might still be the best option for you right now.
• Don’t expect you’re going to get a “deal” by purchasing a short sale, foreclosure or bank-owned property. Noone is going to give homes away. Also, purchasing these types of distressed properties can be complicated and you may waste time and money trying to purchase them.
• If you are a true INVESTOR, then think of houses/condos as an investment. Good luck. I wish you well. If you’re a “civilian” read these words carefully: A HOME IS NOT AN INVESTMENT, A HOME IS NOT AN INVESTMENT! In the past my colleagues used to get angry at me for saying this, but, I only need point out the current state of affairs to prove my point. Besides, historically, homes generally appreciated at the rate of inflation (5%-8%). The market has experienced a horrible case of “irrational exuberance” that has now come back to bite us.
• Finally, when you’re absolutely ready, hire a real estate agent/professional to help you purchase a home. Also, keep this in mind: real estate agents are experiencing tough times these days. Please respect the agency relationship with your agent. This means your agent may, and should expect a written commitment from you as a buyer. As a seller, listing agents may ask you to put “skin-in-the-game with regard to marketing costs. Don’t be offended. Agents are not non-profit enterprises.

One final thought: as you look at the graphs above, they look rather pathetic. The lines on the graph have managed to hit rock-bottom. I suppose the only way to go is up. Just make sure if you jump on the ride, wear your seat belt!

If you found this information helpful, I’d also recommend you visit the excellent blog: Debra Sinick’s East Side Real Estate Buzz and her excellent article: http://eastsiderealestatebuzz.com/2009/01/15/what-were-the-chances-of-selling-your-seattleeastside-home-in-the-last-two-months-of-2008/

Monopoly picture courtesy of vinduhl

Graphs courtesy of Alan L. Pope & Associates, Inc – Real Estate Appraisers & Consultants

Share