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2009 Q3
Published by
Thatch Mound
P.O. Box 2840
Woodinville, WA 98072
http://housingquarterly.com/
SOUND HOUSING QUARTERLY
A quarterly journal of analysis and insights for the Puget Sound housing market.
Covering King, Snohomish, Pierce, Kitsap, Island, Thurston, and Skagit counties.
Sound Housing Quarterly | HousingQuarterly.com
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Sound Housing Quarterly is published four times a year, in January, April, July, and October.
The most convenient method of subscription is through our website at HousingQuarterly.com.
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2009 Q3 Page 1 of 45
Sound Housing Quarterly | HousingQuarterly.com
Table of Contents
Executive Summary....................................................................................................................................... 3
What Today's Market Means for You ........................................................................................................... 4
Home Buyers/Buyer's Agents ................................................................................................................... 4
Home Sellers/Seller's Agents .................................................................................................................... 4
The Big Picture .............................................................................................................................................. 5
Economy.................................................................................................................................................... 5
Government Action................................................................................................................................... 5
Lending ...................................................................................................................................................... 6
Broad Puget Sound Indices ........................................................................................................................... 7
Case-Shiller................................................................................................................................................ 7
FHFA Purchase-Only.................................................................................................................................. 8
County-Specific Conditions ......................................................................................................................... 10
Real Estate Heat Index – 7-County ......................................................................................................... 11
King ......................................................................................................................................................... 12
Snohomish .............................................................................................................................................. 15
Pierce ...................................................................................................................................................... 18
Kitsap....................................................................................................................................................... 21
Thurston .................................................................................................................................................. 24
Island ....................................................................................................................................................... 27
Skagit ....................................................................................................................................................... 30
Additional Metrics....................................................................................................................................... 33
Affordability ............................................................................................................................................ 33
Pending and Closed Sales Volume .......................................................................................................... 35
Job Growth .............................................................................................................................................. 37
Foreclosures ............................................................................................................................................ 38
Heat Map ............................................................................................................................................ 38
King / Snohomish / Pierce Notice of Trustee Sale Chart ..................................................................... 39
Market Forecast .......................................................................................................................................... 40
Appendix A – Index Methodologies & Notes .............................................................................................. 43
Case-Shiller.......................................................................................................................................... 43
FHFA Purchase-Only ............................................................................................................................ 43
Real Estate Heat Index ........................................................................................................................ 43
Affordability Index .............................................................................................................................. 43
Appendix B – Resources for Further Research ........................................................................................... 44
2009 Q3 Page 2 of 45
Sound Housing Quarterly | HousingQuarterly.com
Executive Summary
Summer brought a mild surge in sales of the Seattle-area real estate and flattening prices. Both national
and local economic indicators were mixed, but the one-two punch of free money via the $8,000 first-
time homebuyer tax credit and cheap loans with interest rates in the 5s succeeded in drawing forward
some home buying demand.
Home prices across much of the country saw a sudden synchronized spike, but in Seattle the effect of
the stimulus was less pronounced. Locally some 22,000 jobs were lost in the Seattle metro area during
the third quarter, with losses spread across most sectors fairly evenly.
The stock market continued to rally in the third quarter, but skepticism about the sustainability of the
rally grew as consumer confidence continued to wane, savings fell, retail sales remained in the tank, and
problems in commercial real estate began to grow.
Nationally, home prices were down from a year earlier, but up through the summer. The Case-Shiller
20-city composite index was down 11.3% in August from the same month in 2008, but was up 4.3% from
May.
The eventual departure of Boeing from the Puget Sound became seemingly inevitable, with news that
North Charleston, South Carolina would be the most likely location for a second 787 production line
breaking in October. The Boeing Co. has shown an increasing disinterest in expanding their assembly
operations in the Puget Sound, and most signs currently point to a slow drawdown of their local
operations.
The statewide unemployment rate in Washington held more or less steady at 9.3% in Q3, nearly
matching the 9.8% nationwide U3 rate. The seven-county Puget Sound region still came in slightly
better than the statewide rate, declining just a bit to 8.9% (non-seasonally-adjusted).
Home prices in the third quarter came in higher than our expectations, as the rapid decline seen in
recent months came to a sudden halt due to the buying interest spurred by the tax credit and low
interest rates. Home sales turned positive year-over-year in most Puget Sound counties, but may be
reflecting borrowed sales that will show up as declines in the coming year.
The housing market and indeed the entire United States economy are still in a precarious, uncertain
state. Whether you are a buyer, seller, real estate professional, or investor, it is more important than
ever to perform a thorough and detailed analysis of any potential major decisions you plan to make in
the market.
On the following pages you will find practical advice about how to take advantage of the current market
conditions, a closer inspection of broad-based economic factors and housing indices, detailed statistics
for each of seven Puget Sound counties, and our forecast for the coming months.
We are always interested in improving the quality of the information and analysis we provide, so please
contact us if you have any suggestions or questions about this report. We can be reached through our
website at HousingQuarterly.com or via email at Editor@HousingQuarterly.com.
2009 Q3 Page 3 of 45
Sound Housing Quarterly | HousingQuarterly.com
What Today's Market Means for You
Home Buyers/Buyer's Agents
Patience will continue to pay off.
Although various government interventions have apparently succeeded in stabilizing Seattle-area home
prices in the short term, all stimulus programs have a limited-time effect. As winter rolls in, bank-owned
foreclosures continue to come on the market, and the national economic situation remains perilous,
there is little downside to carefully weighing all your options before jumping on a home.
Buying solely due to a tax credit doesn't add up.
Obviously the prospect of adding $8,000 (or $7,280, according to the latest proposals to extend the
credit) to your bank account after closing is a tempting prospect. However, given that $7,000-$8,000 is
only around 2% of the typical King County house, your finances will be much better off in the long run if
you take your time and negotiate the best deal you can instead of jumping in on a poorly-priced
property just to get a quick cash infusion.
If you buy, buy for the long haul.
The economy is on shaky ground. If you're thinking about buying a home today, and then "trading up"
in a few years—don't. Buy a home that you will be happy in for seven to ten years minimum, or don't
buy today.
Home Sellers/Seller's Agents
Forget location. Today it's price, price, price.
The houses that sell quickly in today's market are the ones that are priced to sell. Take your personal
attachment out of the picture. Make a frank assessment of nearby comps to see what is selling and
why. Look at stale listings to see the pricing mistakes others sellers in your neighborhood are making
and avoid them. Price realistically and you will find a buyer.
Next spring may not be any more of a seller's market than today.
Although it currently appears that some form of homebuyer tax credit will be extended into next year,
the damage of demand borrowed from the future may already have been done. Many buyers who
would otherwise have waited until next spring to buy may have pushed their plans forward under the
belief the credit would expire at the end of November. It may be better to get your home on the market
today and get it in front of as many buyers as you can than wait for a potentially disappointing spring
selling season.
Be aware of bank-owned inventory in your neighborhood.
Although they may not always be listed on the MLS, bank-owned homes are selling in nearly every
neighborhood around Seattle, and they are setting newly priced comps for your home whether you like
it or not. Don't just search MLS records for recent sales; look through the full public records of sales, as
well as keeping an eye on foreclosure notices for possible upcoming inventory that may be similar to
what you are trying to sell. With short sales, REOs, and standard MLS listings, today's inventory is much
more diverse than what was common even a year ago. By maintaining complete situation market
awareness you will give yourself the best chance of catching a buyer's interest and eventually closing on
the sale of your house.
2009 Q3 Page 4 of 45
Sound Housing Quarterly | HousingQuarterly.com
The Big Picture
Economic signals in the third quarter were mixed, with the stock market continuing to rally and home
prices in many cities across the country posting gains, while at the same time unemployment grew and
consumer confidence waned. Unfortunately, this appears to be the best "recovery" that recent
government stimulus actions are capable of mustering up, and some signs indicate that the effects may
be wearing off already.
Economy
Nationally the economic outlook in the third quarter was murky.
Retails sales up slightly
Personal savings down
S&P 500 up 15%
Job losses continued, unemployment up
Consumer confidence declining
Mounting commercial loan losses put stress on numerous local & community banks
Retail sales improved slightly, but still ended September down 6.6% from a year prior. The S&P 500
gained another fifteen percent through the quarter (on top of a 15% gain in the second quarter),
finishing the quarter above 1,000 at a level last seen in early October last year.
The personal savings rate declined in the third quarter, falling from a revised 5.9% in May to 3.0% in
August (the most recent data available as of publication).
Nationwide unemployment continued to rise in the third quarter, from 9.5 percent in June to 9.8
percent in September. The broader U-6 measure of nationwide unemployment rose from 16.5 percent
in June to 17.0 percent in September.
Unemployment in Washington State held mostly steady in the third quarter, inching up from 9.2 percent
in June to 9.3% in September (seasonally-adjusted). The non-seasonally-adjusted unemployment rate
for the Seattle-Bellevue-Everett metro area also held steady at 9.1 percent.
The latest figures for all government measures of national unemployment can be found here:
http://www.bls.gov/news.release/empsit.t12.htm
Here in the Seattle area the bankruptcy of major local developer Mike Mastro (of Mastro Properties) has
been making headlines since August. Columbia State Bank, Venture Bank and First Sound Bank—
collectively owed tens of millions on various Mastro projects—succeeded in forcing Mastro into Chapter
7 bankruptcy. Since that time, over a dozen of Mastro's properties have been released from the
bankruptcy proceedings, allowing the involved banks to proceed with foreclosure. According to an
October 16th article in the Puget Sound Business Journal, "only eight of the 72 parcels in which Mastro
had an ownership stake are worth more than what was borrowed against them."
http://seattle.bizjournals.com/seattle/stories/2009/10/12/daily53.html
Government Action
No additional major stimulus bills were passed in the third quarter, although as of this publication it
appears that a form of the $8,000 first-time homebuyer tax credit will be extended and expanded in
2009 Q3 Page 5 of 45
Sound Housing Quarterly | HousingQuarterly.com
2010, despite the fact that the original program is estimated to cost roughly three times as much as was
projected in February.
The effects of Senate Bill 5810 here in Washington State were readily apparent in the foreclosure
statistics, with Q2's massive spike followed up in Q3 with a dramatic decline as the newly-legislated 30-
day delay for certain owner-occupied houses began to fill in the pipeline.
Lending
Although mortgage rates spent most of the third quarter higher than they were in the first portion of
the second quarter, they did steadily drop following the spike up to 5.5%.
Given that the government is doing everything that they can to keep interest rates artificially low, it is no
surprise to see them still floating around the 5.0% range. Home sales across the country continued to
climb slightly in the quarter, no doubt in part due to these abnormally low rates.
2009 Q3 Page 6 of 45
Sound Housing Quarterly | HousingQuarterly.com
Broad Puget Sound Indices
Case-Shiller
Note: For index methodologies and important notes see Appendix A
Seattle's Case-Shiller Home Price Index came in at 149.54 for August (the latest data available). In the
twenty-five months since its July 2007 peak the index has fallen 22.2% (42.8 points). Twenty-five
months after their respective peaks, the10-city and 20-city indices had declined 21.0% and 20.3%.
The "spring bounce" that we predicted in the Q1 issue never really materialized. While much of the
country saw notable increases throughout the summer, home prices in Seattle seemed to merely
plateau.
The uptick in prices elsewhere resulted in a shrinking of the gap between Seattle's index and the 20-city
composite index. As of August, Seattle's index was only 2.4% above the 20-city index (vs. an average of
30% lower 2003-2006).
2009 Q3 Page 7 of 45
Sound Housing Quarterly | HousingQuarterly.com
FHFA Purchase-Only
Note: For index methodologies and important notes see Appendix A
As of Q2 2009 (the latest data available at the time of publication), the Seattle-Bellevue-Everett Federal
Housing Finance Administration (FHFA) Purchase-Only Home Price Index (indexed to 1991=100) stands
at 256.54 (the above chart is re-indexed to 2000=100 to match the scale of the Case-Shiller chart),
having fallen a total of 14.9% in the eight quarters since its Q2 2007 peak. In comparison, the
nationwide index has fallen just 10.9% during the same eight quarters.
Just as we forecast a full year ago in our Q3 2008 report, the Seattle OFHEO index is continuing to fall at
a faster rate than the national index, shrinking the gap that opened between the two in 2005. In the
second quarter data, the nationwide index actually rose 0.8%, while the Seattle-Bellevue-Everett index
continued to fall, losing 3.7% in the quarter.
The average spread between the national index and the Seattle-area index from 2000 through 2004 was
11.9%. This difference peaked at 37.0% in Q3 2008, but has since declined to 28.4% as of the second
quarter data.
Again, keep in mind that the OFHEO index excludes jumbo loans (which before last year were any loan
above $417,000, while King County's median SFH price peaked at $481,000), therefore is likely to slightly
understate the degree of Seattle's home price decline to date.
2009 Q3 Page 8 of 45
Sound Housing Quarterly | HousingQuarterly.com
Above is a comparison of the FHFA Purchase-Only Index and the Case-Shiller Home Price Index for
Seattle. Note that FHFA's index is based on the Seattle-Bellevue-Everett Metropolitan Statistical Area
(King and Snohomish counties), while the Case-Shiller index is based on King, Snohomish, and Pierce.
As of Q2 (the latest quarter for which FHFA data is available) the indices stand at 163.7 (FHFA) and 149.0
(CS), down 14.9% and 22.5% from their respective peaks. Interestingly, the rise leading up to 2007 and
the peaks of the two indices tracked very closely to each other, with an average variation of just 0.2%.
The rather stark variation between the two indices since the 2007 peak is likely due to a combination of
factors. The FHFA's exclusion of Pierce County is no doubt having some effect, as the economic
downturn seems to be hitting the Tacoma area somewhat harder than King and Snohomish. Also, the
previously-mentioned exclusion of non-FHFA loans from the FHFA index is probably a factor as well.
2009 Q3 Page 9 of 45
Sound Housing Quarterly | HousingQuarterly.com
County-Specific Conditions
Here's a snapshot of vital housing statistics for the seven Puget Sound counties we track:
Supply (avg.)
Affordability
Real Estate
Heat Index
Months of
YOY Sales
Vol. (SFH)
YOY Price
Index
(SFH)
King -11.1% +9.8% 15.3 103.5 4.2
Snohomish -12.4% +13.6% 12.9 129.1 4.5
Pierce -9.5% +11.6% 13.2 146.5 4.4
Kitsap -7.8% +14.2% 13.4 131.5 5.1
Thurston -4.1% +1.5% 16.1 141.3 4.5
Island -1.7% -3.3% 6.8 120.4 11.0
Skagit -7.4% -9.7% 7.3 132.9 8.9
The one-two punch of the $8,000 first-time homebuyer tax credit and abnormally-low interest rates in
the 5's definitely had an effect on the Puget Sound housing market in the third quarter, though it was
not felt uniformly around the sound.
Sales increased the most in the central counties of King, Snohomish, Pierce, and Kitsap, with Thurston
experiencing only a very moderate bump in sales and sales actually continuing to decline in outlying
Island and Skagit counties.
Months of supply held mostly steady from the second quarter to the third, despite the increase in closed
sales, and an even larger increase in the pending sales metric, which has unfortunately been rendered
nearly meaningless by a soaring number of short sales combined with an NWMLS definition change.
The Real Estate Heat Index for all seven counties increased in the third quarter, due in large part to the
increase in sales activity. Even Island and Skagit—where sales continued to decrease—saw their REHI
increase, though they both remained in the single-digits. As seen on the following page, even with
recent increases, the REHI in all counties remains well below pre-bubble levels.
Read on for a detailed breakdown of price and sales statistics for each of the seven Puget Sound
counties in our coverage area.
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Real Estate Heat Index
2009 Q3 Page 11 of 45
Sound Housing Quarterly | HousingQuarterly.com
King
King 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price $437,983 $434,933 $446,067 $427,983 $396,833 $373,783 $383,333 $380,387
SFH Sales 4,524 3,688 4,676 4,510 3,117 2,303 3,971 4,954
Condo Price $284,807 $284,500 $288,308 $272,333 $279,348 $264,172 $256,483 $249,083
Condo Sales 1,877 1,267 1,573 1,383 919 717 972 1,228
Median single-family home (SFH) prices dropped just a bit (0.8%) from the second quarter to the third.
This is smaller than last year's drop, but the average seasonal variation from second to third quarter
2000-2008 was a gain of 0.5%, so we're still looking at a decline in excess of what might be expected in a
normal market. Condos saw a 2.9% quarter-to-quarter decline, the same as last quarter, and right on
the average of the quarterly declines that have been seen since Q2 2008.
The median SFH price in King County for Q3 came in just under its Q3 2005 value, down 18.7% from the
Q3 2007 peak on a quarterly basis. Despite performing more poorly the last two quarters, condo prices
have still seen a smaller overall decline, falling 15.2% from their peak in Q3 2007.
Closed SFH sales recovered from the record lows seen the last few quarters, while condo sales
continued to mark new lows. SFH volume came in 32% lower than the third quarter average from 2000
through 2008.
2009 Q3 Page 12 of 45
Sound Housing Quarterly | HousingQuarterly.com
Due to the highly seasonal nature of the real estate market, year-over-year comparisons are the most informative
way to look at the direction and magnitude of change in real estate statistics.
King 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price -0.1% -0.7% -4.7% -8.8% -9.4% -14.1% -14.1% -11.1%
SFH Sales -28.0% -31.9% -36.3% -30.7% -31.1% -37.6% -15.1% 9.8%
Condo Price 6.5% 1.5% 0.0% -7.3% -1.9% -7.1% -11.0% -8.5%
Condo Sales -16.2% -38.7% -44.6% -47.5% -51.0% -43.4% -38.2% -11.2%
The sudden dramatic uptick in single-family home sales in the third quarter can be seen in the above
chart quite clearly. Condos did not see the same degree of improvement, which is somewhat surprising
given the number of local projects that are marketed toward first-time homebuyers—the group
presumed to be driving much of this sales spike due to the $8,000 tax credit.
On the pricing front, the rate of decline moderated in both single-family and condo sales, but both
remained in negative territory for the quarter.
Q3's SFH closed sales volume was 46% lower than the Q3 peak set in 2005. Condo sales volume was
57% below its Q3 peak.
Note that this data does not include new condos or SFHs that are sold directly through the builder
without going through the MLS.
2009 Q3 Page 13 of 45
Sound Housing Quarterly | HousingQuarterly.com
For information about the Real Estate Heat Index see Appendix A.
King 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH REHI 35.1 31.7 31.2 22.9 15.7 12.2 12.5 11.5 9.4 7.0 11.8 15.3
Condo REHI 52.4 45.1 43.9 30.8 21.0 12.5 13.1 10.9 9.0 6.8 7.8 10.3
The Real Estate Heat Index (REHI) uses supply, demand, and home prices to calculate the general "heat"
of the housing market. During the summer of 2005 the REHI for King County single-family homes
reached highs in the 60s, while the condo REHI topped out over 80.
With the sudden uptick in sales activity in both SFH and condos, it's not surprising to see the heat index
tick up slightly for both. That being said, this market is still quite a ways from what anyone would
consider to be "hot."
2009 Q3 Page 14 of 45
Sound Housing Quarterly | HousingQuarterly.com
Snohomish
Snohomish 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price $364,389 $357,575 $349,081 $340,650 $324,201 $313,300 $305,650 $298,313
SFH Sales 1,921 1,600 1,811 1,752 1,128 1,008 1,637 1,991
Condo Price $234,142 $241,000 $246,575 $255,580 $245,550 $252,730 $243,983 $231,333
Condo Sales 443 389 435 422 305 210 309 413
The long and steady decline of prices in Snohomish County single-family homes continued seemingly
unabated in the second quarter. Condo prices also continued the downward trend seen in the last few
quarters, hitting a new post-peak low.
Snohomish County's median SFH price dropped below $300,000 for the first time since Q2 2005, and has
fallen a total of 21% from the Q2 2007 peak.
As was seen across most of the sound, closed sales volumes jumped in Q3 in Snohomish, hitting a level
not seen since Q3 2007. Condo sales increased as well, but not by quite as much as was seen in SFH.
2009 Q3 Page 15 of 45
Sound Housing Quarterly | HousingQuarterly.com
Due to the highly seasonal nature of the real estate market, year-over-year comparisons are the most informative
way to look at the direction and magnitude of change in real estate statistics.
Snohomish 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price 2.4% -3.3% -7.5% -8.2% -11.0% -12.4% -12.4% -12.4%
SFH Sales -35.8% -34.9% -44.3% -37.9% -41.3% -37.0% -9.6% 13.6%
Condo Price 8.7% 4.0% 0.5% 4.0% 4.9% 4.9% -1.1% -9.5%
Condo Sales -20.9% -33.7% -43.1% -15.3% -31.2% -46.0% -29.0% -2.1%
Year-over-year price drops in Snohomish County single-family homes have held remarkably steady over
the last three quarters, falling 12.4%. Condo prices jumped from a meager 1.1% decline in the second
quarter to a sizeable 9.5% decline in the third quarter.
Closed sales of single-family homes increased year-over-year for the first time since Q1 2006, no doubt
thanks to tax credit incentives and abnormally low interest rates.
Note that this data does not include new condos or SFHs that are sold directly through the builder
without going through the MLS.
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Sound Housing Quarterly | HousingQuarterly.com
For information about the Real Estate Heat Index see Appendix A.
Snohomish 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH REHI 31.0 24.8 24.2 16.9 12.4 9.7 9.5 9.0 6.7 6.4 10.5 12.9
Condo REHI 40.7 41.7 39.9 20.6 16.7 11.8 10.7 11.1 9.2 6.7 9.4 11.7
The REHI in Snohomish County increased for SFH and condos for the second quarter in a row in Q3,
thanks to the increase in sales activity. It will be interesting to see if the market continues to heat up
once the dual incentives of tax credits and low interest rates are removed.
2009 Q3 Page 17 of 45
Sound Housing Quarterly | HousingQuarterly.com
Pierce
Pierce 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price $273,762 $265,583 $267,000 $254,258 $240,084 $238,050 $231,492 $230,000
SFH Sales 2,066 1,716 2,276 2,101 1,546 1,329 1,890 2,344
Condo Price $206,542 $199,142 $200,273 $193,747 $196,650 $201,665 $175,290 $170,165
Condo Sales 243 190 239 194 166 98 131 171
Pierce county median prices declined slightly in the third quarter for both single-family homes (down
0.6%) and condos (down 2.9%).
Closed sales volumes in Pierce jumped up for single-family homes, hitting a two-year high. Meanwhile,
condo volumes improved from the unusually low levels seen in Q1 and Q2, but still remained relatively
low compared to 2008.
Pierce County's current SFH median price still sits just under the Q2 2005 levels, while the condo median
again came in just above the level set in Q4 2004.
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Sound Housing Quarterly | HousingQuarterly.com
Due to the highly seasonal nature of the real estate market, year-over-year comparisons are the most informative
way to look at the direction and magnitude of change in real estate statistics.
Pierce 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price -1.0% -5.1% -5.6% -11.0% -12.3% -10.4% -13.3% -9.5%
SFH Sales -35.1% -35.6% -30.8% -23.9% -25.2% -22.6% -17.0% 11.6%
Condo Price -4.5% -11.0% -11.6% -10.8% -4.8% 1.3% -12.5% -12.2%
Condo Sales -19.8% -39.3% -29.3% -11.4% -31.7% -48.4% -45.2% -11.9%
Single-family and condo median prices both notched year-over-year declines around 10% in the third
quarter.
Meanwhile, sales volumes of single-family homes in Pierce improved dramatically, swinging from a 17%
year-over-year drop in the second quarter to a 12% year-over-year gain in the third quarter.
Note that this data does not include new condos or SFHs that are sold directly through the builder
without going through the MLS.
2009 Q3 Page 19 of 45
Sound Housing Quarterly | HousingQuarterly.com
For information about the Real Estate Heat Index see Appendix A.
Pierce 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH REHI 21.6 17.4 16.3 12.2 9.9 7.9 9.7 8.7 7.4 7.1 10.1 13.2
Condo REHI 22.4 19.0 13.1 7.5 7.8 5.9 7.9 7.2 7.2 4.8 6.1 8.5
Repeating the pattern seen in King and Snohomish, Pierce County's REHI continued to climb steadily
upward in the third quarter, bumping just over the levels seen in Q3 2007.
2009 Q3 Page 20 of 45
Sound Housing Quarterly | HousingQuarterly.com
Kitsap
Note: for counties averaging fewer than 50 closed condo sales per month, condo prices are not charted.
Kitsap 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price $271,591 $267,905 $268,396 $269,789 $244,500 $235,050 $241,667 $248,833
SFH Sales 658 557 672 683 525 440 650 780
Condo Sales 55 22 37 33 18 11 28 26
Kitsap median single-family home prices continued to increase slightly (3.0%) in the third quarter,
moving to the highest level seen since Q3 2008, up a total of 5.9% from the short-term bottom seen in
Q1.
Compared to the Q3 2007 peak, Kitsap's single-family median has fallen 17.4%.
Sales volumes of single-family homes continued to rise from the Q1 low point, reaching the highest
point seen since 2007.
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Due to the highly seasonal nature of the real estate market, year-over-year comparisons are the most informative
way to look at the direction and magnitude of change in real estate statistics.
Kitsap 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price -3.1% -6.1% -9.3% -10.5% -10.0% -12.3% -10.0% -7.8%
SFH Sales -23.5% -26.2% -28.8% -23.2% -20.2% -21.0% -3.3% 14.2%
With two quarters of price increases, the year-over-year rate of price declines in Kitsap has moderated
back down to roughly 8%, a smaller drop than has been seen since early 2008.
As with the other more populous counties around the sound, closed sales marked a sharp increase year-
over-year, jumping more than 10% from Q3 2007. However, Q3 2009's 780 closed single-family sales
still came in 43% below the peak third quarter seen in 2005.
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For information about the Real Estate Heat Index see Appendix A.
Kitsap 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH REHI 18.4 16.5 15.5 13.0 9.9 7.9 8.2 8.4 7.7 7.2 11.1 13.4
Kitsap's REHI improved again in the third quarter, reaching a two-year high, but still remaining clearly
down in the "cool" range.
2009 Q3 Page 23 of 45
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Thurston
Note: for counties averaging fewer than 50 closed condo sales per month, condo prices are not charted.
Thurston 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price $260,713 $259,360 $262,567 $252,817 $251,325 $246,952 $240,642 $242,327
SFH Sales 813 679 842 861 638 533 704 874
Condo Sales 35 32 61 33 29 5 18 11
Median single-family home prices inched up slightly (0.7%) in Thurston in the third quarter, but
remained below the level seen in the first quarter.
Single-family sales volume also increased, setting a two-year high for Thurston. Condo sales remained
barely on the radar, down nearly 80% from the peak third quarter in 2007.
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Due to the highly seasonal nature of the real estate market, year-over-year comparisons are the most informative
way to look at the direction and magnitude of change in real estate statistics.
Thurston 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price 2.5% 1.3% -4.0% -6.1% -3.6% -4.8% -8.4% -4.1%
SFH Sales -23.5% -22.7% -25.7% -23.8% -21.5% -21.5% -16.4% 1.5%
Thurston's annual rate of decline dropped back down to 4.1% in the third quarter. Excluding the
somewhat erratically fluctuating prices in Island County, Thurston continues to show the smallest price
declines around the sound.
Just like its neighbors to the north, sales volumes turned positive in Thurston County. However, the
increase was not as dramatic as those seen in King, Snohomish, Pierce, or Kitsap counties, likely due to
the fact that the recent sales declines in Thurston were also not as dramatic.
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For information about the Real Estate Heat Index see Appendix A.
Thurston 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH REHI 21.5 17.9 18.7 17.3 14.4 12.0 12.9 12.9 11.4 11.0 13.2 16.1
Thurston's REHI continued to bump up in the third quarter, retaining Thurston's position as the
"hottest" market around the sound, despite still being in a relatively "cold" range below 20.
2009 Q3 Page 26 of 45
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Island
Note: for counties averaging fewer than 50 closed condo sales per month, condo prices are not charted.
Island 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price $305,594 $298,767 $287,325 $276,635 $280,500 $247,918 $259,499 $271,917
SFH Sales 203 188 240 246 159 136 216 238
Condo Sales 12 14 13 13 8 9 19 16
Median prices continued to climb in Island County in the third quarter, but still remained below the level
seen at the close of 2008. Sales volume climbed somewhat, but failed to surpass the level seen just last
year in the same quarter.
The highest number of closed sales in a third quarter for Island County came in 2005, when 608 homes
were sold. Q3 2009's level came in 61% lower than that peak.
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Due to the highly seasonal nature of the real estate market, year-over-year comparisons are the most informative
way to look at the direction and magnitude of change in real estate statistics.
Island 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price -1.3% 2.2% -8.1% -13.5% -8.2% -17.0% -9.7% -1.7%
SFH Sales -39.8% -30.1% -30.4% -31.1% -21.7% -27.7% -10.0% -3.3%
With the increases in price seen in the last two quarters, Island County median prices moved up to
almost a break-even point year-over-year in the third quarter.
Closed sales saw a smaller decline than recent quarters, but still came in negative compared to last year,
breaking from the pattern seen in most other counties around the sound.
2009 Q3 Page 28 of 45
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For information about the Real Estate Heat Index see Appendix A.
Island 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH REHI 15.7 11.6 12.5 10.7 6.7 6.4 6.3 6.0 5.0 4.4 6.1 6.8
Island County's REHI increased just slightly again in the third quarter, but not by as much as was seen
between Q1 and Q2, and remained in the single-digits. Once again, Island County's REHI was the lowest
seen in the seven Puget Sound counties we track.
2009 Q3 Page 29 of 45
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Skagit
Note: for counties averaging fewer than 50 closed condo sales per month, condo prices are not charted.
Skagit 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price $268,404 $270,333 $266,800 $252,387 $265,333 $245,833 $228,233 $233,630
SFH Sales 368 264 352 319 196 165 245 288
Condo Sales 20 17 19 16 9 7 21 20
Median prices in Skagit County increased slightly in the third quarter, bumping up 2.4% from Q2. Sales
increased as well, but like Island County failed to exceed 2008's levels.
Condo sales declined slightly from the second quarter, but were above the level of a year prior.
Q3 2009's volume of closed sales was 54% lower than Q3 2004—the highest second quarter on record.
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Due to the highly seasonal nature of the real estate market, year-over-year comparisons are the most informative
way to look at the direction and magnitude of change in real estate statistics.
Skagit 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH Price 2.4% 3.6% -6.3% -6.6% -1.1% -9.1% -14.5% -7.4%
SFH Sales -5.4% -32.5% -33.3% -35.4% -46.7% -37.5% -30.4% -9.7%
The year-over-year rate of price declines in Skagit County moderated slightly in the third quarter, but
remained lower than it has been prior to 2009.
Closed sales volume declined nearly 10% from a year prior, which is a considerably less dramatic drop
than the 35% to 45% drops seen just a few quarters ago.
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For information about the Real Estate Heat Index see Appendix A.
Skagit 06-Q4 07-Q1 07-Q2 07-Q3 07-Q4 08-Q1 08-Q2 08-Q3 08-Q4 09-Q1 09-Q2 09-Q3
SFH REHI 16.8 16.0 18.2 14.3 12.1 8.5 9.2 8.2 6.2 5.0 6.2 7.3
The REHI in Skagit inched up slightly in the third quarter, but still remained in the single digits. Only
Island County's had a lower REHI in the third quarter than Skagit County.
2009 Q3 Page 32 of 45
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Additional Metrics
Affordability
The affordability index is based on a simple calculation of median household income, median single-
family home price, and interest rates. An index of 100 indicates that an 80% mortgage on the median-
priced home would cost 30% of the median household income (the historic definition of "affordable
housing") to service monthly. An index above 100 means that it would cost less than 30%, while below
100 means more than 30%. See Appendix A for details on how the affordability index is calculated.
The third quarter was another mixed bag for affordability around the sound, as increased demand due
to government tax incentives inched prices up in some counties, counteracting the affect of declining
interest rates in King and Pierce counties. King came in for Q3 at 103.5, Snohomish at 129.1, and Pierce
at 146.5.
Affordability in King exceeded the 2000-2003 average by 2.5% in Q3, while Snohomish came in 0.8%
above the 2000-2003 average, and Pierce was 2.5% above the '00-'03 average.
Our post-correction peak affordability target is still 121 for King, 154 for Snohomish, and 172 for Pierce.
2009 Q3 Page 33 of 45
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Affordability in the outlying counties declined uniformly in the third quarter, with Island County taking
the largest hit.
Kitsap's Q3 affordability index stands at 131.5, Thurston's was 141.3, Island's was 120.4, and Skagit's was
132.9.
With Q3's drop in affordability, all four outer counties are again below their 2000-2003 affordability
index averages: Kitsap by 13.8%, Thurston by 13.2%, Island by 10.9%, and Skagit by 2.3%.
Our target for post-correction peak affordability is 183 for Kitsap, 196 for Thurston, 162 for Island, and
163 for Skagit.
2009 Q3 Page 34 of 45
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Pending and Closed Sales Volume
This chart measures the difference between pending sales (offset one month) and closed sales of single-
family homes and condos, which can be interesting as a measure of general financing health.
The 7-county gap between pending and closed sales backed off the peaks seen in the second quarter,
but remained above the 30% mark for most of the third quarter, which is still far higher than the
average 5% gap that was seen from 2000 through 2004.
It seems likely that this metric will not see a significant decline until the number of short sales declines.
However, even once we reach a time when short sales are again highly uncommon, the number of
"failed" sales will probably remain higher than the 2000-2004 average due to the new, more inclusive
definition of what constitutes a "pending sale."
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The above chart is another take on the data from the previous chart. This chart displays the difference
between the total cumulative pending sales across the sound from January through August each year
and the total cumulative closed sales for a period offset by one month.
So far 2009 has seen over twice as many sales completely "drop off the radar" as any other year, and
more than the pre-bubble years of 2000 through 2004 combined.
2009 Q3 Page 36 of 45
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Job Growth
Data from the Washington State Economic Security Department shows an extended malaise in the Puget
Sound job market, as the construction sector still leads the way with seven consecutive months of yearly
job losses in excess of 17%. The other sectors we follow declined between five and eight percent.
The overall number of non-farm jobs in the Seattle area dropped 5.5% from September 2008 to
September 2009, down from a revised 4.3% drop in June.
The manufacturing sector around Seattle continues to experience relatively large job losses as well,
falling 8.9% from September 2008 to September 2009.
Even excluding the above-charted especially poorly-performing sectors, the rate of job losses in all other
industries in the Seattle area still fell 3.0%.
2009 Q3 Page 37 of 45
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Foreclosures
Heat Map
Source: HotPads.com October 2009
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The rate of foreclosures lightened in the third quarter in some regions around the sound, notably in
central and south Seattle, but other outlying regions still seem to be experiencing an increase in
foreclosure rates. Visit HotPads.com and click "foreclosures" for a fully interactive heat map.
King / Snohomish / Pierce Notice of Trustee Sale Chart
Notices of Trustee Sale (the 90-day notice sent to delinquent borrowers that their home will be
repossessed) dropped off significantly in the third quarter, with 5,741 properties receiving notice
between King, Snohomish, and Pierce. King County saw 2,659 NTS in the quarter, Pierce had 1,712, and
Snohomish had 1,370.
As we noted in the Q2 issue, the extra-dramatic spike in the rate of foreclosure notices in the second
quarter was due to the state legislature's passage of Senate Bill 5810, which was passed in April and
took effect on July 26.
Q2's massive spike in foreclosure notices was likely due to a rush of lenders filing notices to beat the July
26 deadline, and this quarter's lull can probably be attributed to the new 30-day delay that was
introduced into the foreclosure process by the legislation.
Interestingly, if you calculate the rate of growth in total notices from Q4 2007 to Q4 2008 and extend it
into 2009, Q3's total number of notices falls just 48 above that line.
2009 Q3 Page 39 of 45
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Market Forecast
First, let's see how the third quarter compared to the forecast we made in the second quarter issue:
Thanks to an unusually synchronized showing of sudden price strength across the country this summer,
the Case-Shiller home price index came in slightly above our range of predictions for the quarter.
The lesson here seems to be that one should never underestimate the power of free (and cheap)
money. The government handout of $8,000 to first-time homebuyers may not make much financial
sense in the face of falling prices, but combined with artificially low interest rates still in the 5s, it seems
to have been enough to generate a miniature buying frenzy this summer, pushing prices just over our
expectations.
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Let's also have another look at the original forecast we made back in the Q4 issue:
In our Q4 issue we predicted that:
The most likely scenario for 2009 lies somewhere between Forecasts B and C, putting Seattle-
area home prices approximately twenty-five to thirty percent off the July 2007 peak.
The unexpectedly flat summer has moved prices from slightly below our expected range to slightly
above it. It will be interesting to see if the price declines resume as the generally slow winter season
sets in.
Following is our revised one-year forecast. Due to ongoing massive government interventions we have
slightly adjusted our forecast methods used in previous issues.
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Three of our four forecast methods converged roughly a year from now in the -10-12% range, while the
third is essentially flat for the year. Total price drops from the peak in the above scenarios range from
22.4% off down to 31.8% off.
As of this writing, it appears as though Congress will be extending the homebuyer tax credit, and
expanding it to include more buyers. This will likely continue to have an effect on home prices, but it is
doubtful that the upward pressure will be as strong as the original $8,000 credit that expires at the end
of November.
The various tax credits and other forms of buyer incentives have the seemingly positive effect of
boosting home sales in the short term, but many of those sales are merely "borrowed" from the future,
leading to an inevitable crash in volume when the stimulus is removed. This effect was witnessed on a
shorter timeframe with the "Cash for Clunkers" car trade-in program, which caused auto sales to surge
in August, and then crash in September.
The only way to avoid the same effect in the housing market would be to make the tax credits
permanent, which would be prohibitively expensive, poorly targeted, and economically unwise.
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Appendix A – Index Methodologies & Notes
Case-Shiller
From the S&P/Case-Shiller website:
The S&P/Case-Shiller Home Price Indices measures the residential housing market, tracking
changes in the value of the residential real estate market in 20 metropolitan regions across the
United States. These indices use the repeat sales pricing technique to measure housing markets.
First developed by Karl Case and Robert Shiller, this methodology collects data on single-family
home re-sales, capturing re-sold sale prices to form sale pairs. This index family consists of 20
regional indices and two composite indices as aggregates of the regions.
Data for the S&P/Case-Shiller Home Price Index can be downloaded monthly free of cost from their
website in Excel spreadsheet format.
FHFA Purchase-Only
The primary difference between the Federal Housing Finance Agency Home Price Index (formerly
maintained by the Office of Federal Housing Enterprise Oversight) and Case-Shiller is that the FHFA
index is limited to mortgages "securitized by Fannie Mae or Freddie Mac."
From the FHFA website:
The HPI is a broad measure of the movement of single-family house prices. The HPI is a
weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or
refinancings on the same properties. This information is obtained by reviewing repeat mortgage
transactions on single-family properties whose mortgages have been purchased or securitized
by Fannie Mae or Freddie Mac since January 1975.
For more information visit: http://www.fhfa.gov/Default.aspx?Page=14
Real Estate Heat Index
The REHI is a proprietary index developed by Sound Housing Quarterly. Home price changes, sales
volumes, and inventory are combined and weighted to arrive at the index value. An index of 25 or
higher indicates a "hot" market, in which home sellers have a strong advantage over buyers. Values
below 25 represent a "cold" market, where buyers have the power.
Affordability Index
The affordability index is based on three factors: median single-family home price as reported by the
NWMLS, 30-year monthly mortgage rates as reported by the Federal Reserve, and estimated median
household income as reported by the Washington State Office of Financial Management.
The historic standard for affordable housing is that monthly costs do not exceed 30% of one's income.
Therefore, the formula for the affordability index is as follows:
Note that the affordability index is not intended to be a measure of what home prices "should" be, as it
does not factor the "desirability" of a region. The most useful way to view the affordability index is to
compare the current value of a given region to that same region's index in the past.
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Appendix B – Resources for Further Research
The following websites provide detailed data and/or analysis on the subjects covered by this journal.
Housing & Employment Data
Website Name Available Data
http://www.nwrealestate.com/ Northwest Multiple monthly real estate sales reports
Listing Service (prices, sales volumes)
http://www.homeprice.standardandpoors.com/ S&P Case-Shiller S&P/Case-Shiller Home Price Index
http://www.fhfa.gov/Default.aspx?Page=14 Federal Housing OFHEO Home Price Index
Finance Agency
http://www.workforceexplorer.com/ Washington State Washington State employment &
Employment Security job statistics
Department
http://www.ofm.wa.gov/economy/hhinc/ Office of Financial Washington State income
Management estimates by county
http://www.redfin.com/cities/1/seattle Redfin City, Neighborhood, and Zip Code
level real estate data for the
Seattle area
County Parcel Viewers
Website Name Available Data
http://www.kingcounty.gov/operations/GIS/ King County Parcel
PropResearch/ParcelViewer.aspx Viewer
http://web5.co.snohomish.wa.us/propsys/Asr-Tr- Snohomish County
PropInq/PrpInq01-Entry.asp Parcel Viewer
http://www.co.pierce.wa.us/cfapps/atr/epip/ Pierce County Parcel
search.cfm Viewer
http://kcwppub3.co.kitsap.wa.us/ParcelSearch/ Kitsap County Parcel
Sales and tax information for
Viewer
specific parcels of land.
http://www.geodata.org/parcelsrch.asp Thurston County
Parcel Viewer
http://www.islandcounty.net/PublicInformation/ Island County Parcel
Property/AccountSearch.aspx Viewer
http://www.skagitcounty.net/Common/Asp/ Skagit County Parcel
Default.asp?d=assessor&c=search&a=ParcelSearch Viewer
&p=Search.asp&st=parcelid
2009 Q3 Page 44 of 45
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County Records Search
Website Name Available Data
http://www.metrokc.gov/recelec/records/ King County Records
http://198.238.192.100/localization/menu.asp Snohomish County
Records
http://hartweb.co.pierce.wa.us/ Pierce County Records
http://kcwaimg.co.kitsap.wa.us/recorder/web/ Kitsap County Records
Public records such as real estate
sales information, Notices of
https://fortress.wa.gov/thurstonco/eagleweb/ Thurston County
Trustee Sale, etc.
thurstonrecorder/web/splash.jsp Records
http://www.islandcounty.net/auditor/ Island County Records
(written request only)
http://www.skagitcounty.net/Common/asp/ Skagit County Records
Default.asp?D=AuditorRecording&C=Search
&p=Search.asp&a=Recording
Real Estate & Economic News Websites
Website Name Available Data
http://seattlebubble.com/ Seattle Bubble News and discussion about the
Seattle-area real estate market &
related topics
http://twitter.com/SeattleBubble/ Seattle Bubble An ongoing feed of news stories of
Twitter Feed interest on local real estate
http://www.citizenrain.com/realestate/ Citizen Rain: Combined news feed of nearly
Real Estate every Seattle-area real estate blog
http://www.calculatedriskblog.com/ Calculated Risk National and international
economic news and analysis
http://globaleconomicanalysis.blogspot.com/ MISH'S Commentary and analysis on
Global Economic global economics
Trend Analysis
http://bigpicture.typepad.com/ The Big Picture Macro perspective on capital
markets and the economy
2009 Q3 Page 45 of 45
