Prices dictate the Pace of Sales

by Coldwell Banker Evergreen Olympic Realty, Inc. on November 20, 2008

An article in yesterday’s Seattle P-I points out that the State’s number of home sales dropped 36 percent from a year ago. It also correctly points out that this year over year comparison could be somewhat misleading because our state’s housing market continued its upward climb through much of 2007. As a result, our state’s drop looks much more severe than the rest of the nation, which has been correcting since 2006.

The drop in home sales in Washington State is simply an indication that some home prices are too high. So as sales have dropped so now too is pricing. King County’s median prices have declined 10 percent from a year ago to $427,000. Thurston County’s decline has been only 3.7 percent (from $265,950 to $256,000). Even with these price adjustments, the number of sales is still down. This is simply more evidence some homes are still priced too high.

Because California, Nevada, and Florida started correcting a full year before our market, we can look to those areas for clues on our market’s future. Before we do that, however, keep in mind that their highs were much higher than ours, which means their drops will look more severe as well. Despite these differences, the overall concept is the same. When demand falls well below supply, prices will adjust down to restore balance.

The price corrections in those other markets are now paying dividends by (1) returning price appreciation to more sustainable levels, (2) bringing home buyers back to the market, and (3) offering affordability in homes. Consider the following from yesterday’s Seattle P-I article:

“Metropolitan-area price changes ranged from a 13 percent annual increase in Elmira, N.Y., to a 39 percent drop in Riverside, Calif. Two other California metro areas, Sacramento and San Diego, posted the second- and third-largest drops, down 37 percent and 36 percent, respectively.
“Such declines helped give California the second-largest quarterly sales increase, 28 percent, among states. A similar pattern occurred in No. 1 Arizona, where sales were up 28 percent, and No. 3 Nevada, up 26 percent. Nevada had the biggest annual increase, 76 percent, followed by California, up 58 percent, and Arizona, up 49 percent.
“‘A pattern of sharply higher sales in areas with large price declines is well-established,’ said Lawrence Yun, the association’s chief economist. ‘Affordability conditions have consistently been a major factor in driving sales’.”
These numbers reflect the power of supply and demand to set prices.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.

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