Real estate woes differ depending on market

Published 6:18 pm Saturday, November 20, 2010

Question: I read your article last week regarding the direction of home values. I think we could be surprised on the downside. First, it was reported last week that 28 percent of the mortgages in the Seattle area are underwater. That removes a significant source of potential home buyers as those folks are trapped in their home, waiting for prices to recover. I’m down 25 percent on my equity, not 5 percent. Your article also failed to mention the 7.5 million or so homes that are 60 days behind on their payments but not yet in foreclosure — the so-called shadow inventory. Finally, prices on homes will continue to go down until we think they won’t. People are waiting to buy because they believe that prices will go lower if they wait.

Answer: While I agree with many of your comments, you may be a little overly pessimistic. In real estate, the key to value is location, location, location. You can’t take national real estate trend numbers and apply them equally throughout the country. There is a great deal of variability between neighborhoods.

For example, according to Zillow.com home prices are down about 10 percent for the Seattle metro area compared to a year ago, but if you take a closer look at their numbers you will see that home prices are down 14 percent in Everett but they are down only 6 percent in Seattle and Bellevue. That’s an 8 percentage point home depreciation difference between housing areas that are fairly close to each other, and the differences continue as you examine different neighborhoods within each city. Some neighborhood home values hold up much better than others.

Therefore, it’s always difficult to put a single number on the housing market and be accurate at all. When I say home prices may fall by an average of 5 percent what I really mean is a range of about 3 to 10 percent, depending on the neighborhood. I thought I made that clear in my column, but apparently I did not.

And of course, nobody really knows what is going to happen, it’s just an educated guess. But I would caution against assuming that the Seattle-area market will follow the exact same path as the worst-hit housing markets in the country, such as Las Vegas and Phoenix. Those housing markets have historically been much more volatile than Seattle, with double the appreciation and depreciation rates we have experienced here. That has proven true again with the recent housing crash.

So while it’s true that 28 percent of homeowners in the overall Seattle metro area are underwater… the percentage varies widely from city to city and neighborhood to neighborhood, and overall we are far better off than the worst hit housing markets.

Also, the Mortgage Bankers Association reports that the percentage of homeowners who are behind on their mortgage payments has been decreasing this year, so the number of foreclosures should start to decrease as well.

I agree that the economy is bad, the housing market is slow and things are not going to improve for a long time to come. The only question is how much worse will it get.

Remember, though, that real estate is not a short-term investment, especially when you are buying yourself a home. Over the long haul, real estate cycles tend to work themselves out.

Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206, or e-mail him at economy@heraldnet.com.