Washington vs. the U.S., Why Our Area’s News May Not Match the Rest of the Nation’s

by Coldwell Banker Evergreen Olympic Realty, Inc. on September 10, 2009

Positive news in the housing market is now consistently reported around the country. Sales are increasing, prices are inching up in some places and drops in values are easing in other areas.

In our blog we have even been reporting our area’s share of positive news. After a couple of years of consistently tough news, these positive signs are certainly welcomed. However, our local market overall is still in a correction mode – and we expect to trail the rest of the nation in the housing recovery. The reason is that our market was late to begin its correction.

While much of the rest of the country, including the hardest hit states, started to correct in late 2005 and early 2006, our market remained strong until the summer of 2007.

Several factors helped our market delay the correction – a strong job base and low unemployment, significant inbound migration to the state, and a lot less overbuilding than occurred in places like California, Nevada, Arizona, and Florida. In addition, our region’s property values did not jump as high as these other states. For example, from 2000 through 2006, California’s median home price jumped an astounding 124.5%. Washington’s median price increased 72.5% during the same period (Source: www.FHFA.gov).

While our price increases were nowhere near California’s, the appreciation was still far above our historical levels of growth. We would have expected just 41% average price appreciation from 2000 through 2006, based on our local area’s historic price appreciation prior to the 2003-2006 seller’s market (5.9% per year).

Ultimately, our level of price appreciation proved too much, pushing well above the level of sustainable demand. This triggered our market’s correction in the second half of 2007, a full 18 months after most of the rest of the nation.

Given that our market did not fly as close to the sun as places like California, we might not be a full 18 months behind that state when it comes to marking our bottom. However, we are certainly going to lag behind.

Chart 1 below shows the price history of a $200,000 home purchased in the year 2000. California’s trajectory is much more extreme than Washington’s. California prices have now corrected below its historic trend line of price appreciation. This significant drop reflects the serious oversupply of homes that persisted there over the past several years.

Click image to enlarge.

Now that prices and supply are down, home sales there are bouncing up. According to the California Association of Realtors, in 2008 California experienced a 26.8% increase in sales of existing homes. There is a 25% increase expected this year. That market is returning to more sustainable times.

For our part, Thurston County remains above its historic trend line for price appreciation despite two years of price declines. Chart 2 shows that our average price is still almost 6% above expected levels.

Click image to enlarge.

Still, more and more sellers are pricing their homes right to reflect today’s reality. We see everyday that even though the market overall is still correcting an individual home may already be at its market bottom. This is reflected in the 12.2% uptick in home sales during August. Buyers are clearly recognizing the value of these well-priced homes and they are acting quickly to buy them. See our July 30, 2009 post.

The key is getting back to relative affordability in all price segments. Many price segments, such as under $250,000, are at levels of affordability not seen in more than five years. Other market segments are still overpriced.

The Federal Housing Finance Agency’s quarterly report ranking 297 U.S. cities for price appreciation shows that we are behind the rest of the nation in price adjustments. The report ranks cities’ price gains over the past 5 years, one year, and latest quarter. Olympia ranks 11th best for price appreciation over the past 5 years. That number is simply unfathomable. We are a great area, but number 11 in the country?

Just nine months ago our ranking was 12th on the list, but don’t take that as a sign that things are improving. Rather it shows how much the rest of the country has fallen. Our 12th place ranking last year was the result of almost 61% price appreciation over the previous 5 years. Our 11th place ranking this year reflects just 39% price appreciation over the past 5 years. So in three quarters we’ve dropped 22% points of price gains.

Earlier this decade, we ranked closer to the bottom of the list, with a ranking in the bottom 15% of the nation. (See Chart 3 below). We should not expect to stay in the top 3% of the country. And, in fact, the change is already happening. Olympia’s ranking for price appreciation over the last year is 213th, and over the last quarter is 237th.

Click image to enlarge.

The data shows that our market’s correction was simply late in starting. We will continue to correct and settle out in more sustainable territory.

So as we continue to hear positive news coming from around the nation, you’ll know that our local market news will continue to lag until next year. Further proof, once again, that all real estate is local.

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

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