Housing glut less severe in the Northwest

What’s going on with the housing market these days?

Bill Conerly says we’re now paying the piper for dramatic increases in sales three or four years ago.

Conerly’s no real estate expert, but he is an economist who studies these things. He was in Everett last week talking about the local economy, and he had some interesting things to say about home building and buying in the Puget Sound area.

Back in 2003 and 2004, he said, the region was building nearly 90 homes for every 100 new residents. Of course some people don’t want to buy a home, are buying a home with another person, can’t afford a home or are too young. So 90 new homes was far too many for 100 people under normal circumstances.

That said, home sales were at all-time highs and in some areas, you couldn’t build homes fast enough. That, Conerly said, is because loan rates were low, home prices were accessible and people rushed to get their slice of the American dream in unparalleled numbers.

Under normal circumstances, Conerly said, first-time buying candidates save for a down payment, work on clearing up their credit and eventually jump into the market. “In 2002, there were cheap mortgages and people were able to buy a year or two ahead of time,” Conerly said. “We weren’t creating additional demand, we were just borrowing from the future.”

Speculators were increasingly investing in houses, with many people entering the market to quickly resell the house for more money, a technique called flipping.

But prices started to rise more quickly in 2006, to the point where they are now too high for many first-time buyers, Conerly said.

The year-to-date median price for single-family homes and condominiums in Snohomish County is $350,000.

That drop in demand — or as Conerly calls it borrowing from the future — has left a lot of homes on the market for sale and pushed us from a seller’s to a buyer’s market. Many parts of the country were dramatically overbuilt in the last couple years, but the not the Puget Sound area, Conerly said.

After overbuilding in 2003 and 2004, building eased up. In 2005, the number of new homes dropped to about 58 for every 100 new people, which is a number pretty close to normal demand. Last year and this year, the number has dropped even further, to about 42 per 100, which is well below normal demand, Conerly said.

Nationally, there are about 1.5 million houses too many, Conerly said, adding he doesn’t expect a turnaround in the national housing market until 2009. “We’re not working off the overhang very fast,” he said.

But he said things are different here, mostly because we’ve been under-building relative to our population growth for two years.

“We’ve not fully worked off the number of houses we built, but we will work it off faster than the national average,” Conerly said. “This area is going to have continued growth for quite some time.”

Conerly’s prediction for home prices is similar to The Herald’s resident expert, Steve Tytler, whose weekly column appears on Sunday in the Real Estate section.

Both expect them to be relatively flat for the next couple of years before another upward climb.

“Anybody who has bought a house in the region and holds it for 10 years will do OK,” Conerly said. “Over a year or two period, there could be some losses.”

Mike Benbow: 425-339-3459; benbow@heraldnet.com.