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Tess Vigeland: We’ve been hearing for a long time now that the economy will not get better until the housing market turns around. Well this week we learned that mortgage default notices in California dropped by 40 percent in the first quarter from the same time last year. As California goes, so goes the nation, right? Perhaps.
But you would also do well to take a long look at what’s going on here in Seattle. And that’s exactly what we’re going to do this week as we broadcast from the Emerald City.
Vigeland: Seattle’s Volunteer Park sits atop one of the city’s tallest hills. And we’re here to get a sense of the area’s housing geography. Two-and-a-half years ago, “Forbes” magazine labeled this the most stable housing market in the country. And for some time after that, Seattle managed to stay as upright as its famous Space Needle, while other communities slid off a cliff.
But the froth in home prices eventually matched the froth on the city’s beloved lattes. And now the market is in a decaffeinated decline.
For a better view, we walked up a narrow flight of 106 steps to the top of the park’s water tower. A perfect vantage point for a discussion with Stan Humphries. He is the chief economist for the Seattle-based real-estate website Zillow.com.
Vigeland: Hi Stan! Nice to meet you at the top of Seattle.
Stan Humphries: Nice to meet you. How do you do? It’s a pleasure to be here.
Vigeland: Very well. Thank you.
Humphries: Brought some nice weather with you.
Vigeland: We certainly did. Yeah, straight from southern California. You’re welcome.
Obligatory weather jokes out of the way, we looked out the tower’s windows — with a 360-degree view of the Seattle housing market. And I asked Humphries for an overview.
Humphries: The Seattle housing market went into decline a lot later than the rest of the country. The rest of the country peaked in the second quarter of 2006, whereas the Seattle housing market peaked just about a full year later.
Vigeland: And why was that?
Humphries: The first factor has to do with the… Seattle didn’t see the big run up that a lot of the big coastal markets did, like Los Angeles and San Francisco and many parts of Florida. The other factor has to do with just the overall economy of the Northwest does tend to lag the rest of the country in terms of the cycles that it undergoes.
Vigeland: So, what is the state of the housing markets then? Home prices must’ve taken a dip?
Humphries: Seattle’s actually a very typical market, when you think about the rest of the country, that so many of the reports that we hear about, will focus on the real hard hit markets, like Vegas and Phoenix, where values are down half of what they were at the peak. Seattle has been much more typical. Home values are down 24 percent from peak, and that’s exactly where the nation is. And, like the rest of the country, in 2009, we’ve seen some stabilizations in those depreciation rates.
Vigeland: So we’ve been talking about really the metro area, and we’re looking here to the west at downtown, the Space Needle. Let’s move around the water tower just a bit and look out to the east, across Lake Washington.
So let’s go over to this window here. Tell us a little bit about the situation across the lake.
Humphries: With Lake Washington, we’re actually seeing one of the key demarcating boundary lines for Seattle housing performance in the region. Where areas within the Seattle city, so on this side of the water, have, in general, held their values better during the housing downturn than outlying areas from Seattle. And outlying areas here, since we’re on the Puget Sound, really means areas in the northeast and south of us, since we can’t really go further west, without being underwater
Vigeland: Right, and how are housing values there?
Humphries: They’re really underwater out there. So, if you were to draw concentric circles around Seattle proper with the center of the circle being the Space Needle, as you got further away from there, you’ve had larger price declines. So that’s a larger change in home value from the peak. That actually is a very common pattern right now in the current recession. Most metropolitan areas have seen some fairly large gradations between an urban, suburban and rural housing performance.
Vigeland: Well, shall we head back down stairs and take a look at the specific area that we’re in, Capitol Hill?
Humphries: Sure, that’d be great.
Vigeland: OK. Let’s go.
A short walk away we stopped in front of a grand, white, four-story home on a corner lot in Seattle’s Capitol Hill neighborhood. Humphries pulled out his iPhone, clicked on the Zillow app and pinned the value of this house at…
Humphries: Um… about 2.95 million. And then this one next to it, looks to be quite a bit less. About just over $1 million.
This tree-lined oasis — 14th Street — is known as “Millionaire’s Row.”
Humphries: In general, it’s a pretty hefty price point, even by Seattle standards. The typical home here sells for about $300,000. In the area we’re walking around right now, which is one of the more historic areas right next to Volunteer Park, homes will fetch typically more than $1 million.
Vigeland: Any foreclosure issue here? Are prices dropping?
Humphries: In Capitol Hill, we just still have home values dropping quite substantially. Foreclosure rates are less than half of what they are than the rest of the city. And a lot of it has to do with the affluence of the home owners here.
Vigeland: Yeah, you just look around, and I can’t imagine these folks are having the same issues as other home owners might.
Humphries: They haven’t had the same issues, and they haven’t had to endure foreclosures yet, but we have a lot of people who are negative equity in this area.
Humphries: Yes, absolutely. Who would’ve bought back in 2004, 2005, 2006, and have seen their home values decline substantially. Because of the financial resources of the demographic that lives here, they’re able to ride it out. But at some point, this demographic is going to have to sell and that could start to contribute to lower prices here.
Vigeland: Well, I have to leave this neighborhood, but let’s head to Renton. One of those concentric circles that you talked about and see how things are going there.
We arrived in downtown Renton — southeast from Capitol Hill — and headed for the Liberty Cafe on 3rd Street.
Vigeland: Hey Stan.
Vigeland: Through the magic of radio, we’ve gone 15 miles in about 10 seconds.
Humphries: It’s amazing.
Renton sits on the south shore of Lake Washington. The city is probably best known as the historic home of aerospace giant Boeing, which began its corporate life here in 1941. 737s are among the models still built on the sprawling campus. But Humphries told us Renton fell victim to the housing crisis earlier than Seattle proper.
Today, one home in every 600 or so is in foreclosure, after partaking, like the rest of the country, in the boom.
Humphries: Renton did see, like the larger Seattle metro, it saw some increase in home values — again, relative to either what you could rent a house for on a median household income, it did see some escalation. What Renton really did see, though, was a lot more home construction. So a lot of those were at lower price points, relative to the Seattle metro.
Vigeland: Is it fair to say that Renton is kind of the typical American suburb, when it comes to housing issues?
Humphries: I think in many ways, you could say that for a suburban environment, Renton in many ways is typical of what you see in a lot of other areas. As the housing recession took hold, you did see a dramatic drop in home values. So in Renton, home values are down at about 27 percent from their peak. I think it’s typical for a suburban community in the U.S. right now.
Vigeland: We’ve been talking a lot about the Seattle area and how it is reflective or not of the U.S. housing market. But can you give us an overall sense of prediction of where the market is going and give us any ray of sunshine, even here in a rainy city?
Humphries: Sure. I’ll do my best there Tess, to give you a little bit of sunshine. In the near term, unfortunately, what sunshine is there out there, has to do with us stabilizing a horrific downturn, as opposed to seeing a return to the go-go years in another part of this decade. So, I tend to think that from where we are right now, we’re going to see a bottom in home prices nationally some time, before the middle part of this year. So by June, we would see an end to sustained price declines. The closer to we get to June, the more the market is testing my commitment to that prediction. After we hit bottom, we’re going to see three, possibly five, years of very flat housing performance in the U.S., which I think will be counter to many people’s expectations.
Vigeland: Well, that wasn’t a whole lot of sunshine. I suppose a little sliver, which is appropriate to this generally gray day.
Stan Humphries is the chief economist at Zillow.com, which is headquartered right here in Seattle. Thanks so much. It’s been fun traveling around the city with you.
Humphries: Thanks, Tess. It’s been fun to have such a pretty day and see so many different parts of the city.
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