Bad Housing News
Real Estate around Seattle
Bad housing news? The sky is not falling.
Real Estate is one of the most frequent topics of the daily news. Naturally, I pay attention to it, so a story headlined “Housing collapse 2.0 continues…” caught my eye. I found the story’s statistics suspect and disagree with the notion that real estate will lead us into the next recession. This is not 2007 when mortgage loans were handed out like cheap candy. In the next recession, real estate will be a victim, not the cause.
Data is not the same as information.
To keep informed about the Seattle area real estate market, I follow and study the numbers reported by the Northwest Multiple Listing Service – NWMLS. To that end, I have set up location and price-specific searches that are of interest to my clients. One of those reports showed a home that had been listed for $17,750,000 and sold, after only 65 days on the market for a mere $8,350,000. At first glance, this seemed to confirm the national news that luxury homes were sold at much-reduced prices. That’s bad housing news. Upon closer examination, it not only proved that all real estate is local but that each transaction has its own story.
The story behind this transaction was that the property was a pre-construction listing. The sale was predicated on the idea that the buyer would purchase it as envisioned by the seller. The list price was for a luxurious Lake Washington lakefront mansion built according to the plans included in the listing. I can’t say for certain, but it appears the buyer was only interested in the nearly one acre of land with moorage at the tip of Hunts Point, one of the most exclusive locations in the 98004 Zip code. Moreover, the buyer paid with cash. None of this is bad housing news.
As expected, the hefty 47 percent price reduction had an impact on the statistics for homes sold between $3 and $18 million. For the 65 days the home was on the market, the difference between list and sold price for the 14 homes sold in that price range averaged minus 12.6 percent. However, when not counting the exceptional transaction, the remaining 13 homes in the price range averaged minus two percent.
One overpriced home can skew the data.
Most substantial price reductions are not the result of unusual circumstances but the result of overpricing. For that, let’s look at the Kirkland 98034 zip code and homes sold for the same time period in the $750 thousand to $1 million dollar price range. The 32 homes sold for 0.5 percent above list price. Looking at them closely, there was one overpriced home which sold for 38.5% below list price. Taking that home off the list, the 31 remaining homes sold for 1.2% above list price. Overpriced homes also stay on the market much longer which impacts the average negatively. That makes for bad housing news.
Late housing news is bad housing news.
Bad housing news sells. Worse, late housing news also sells, especially if it’s bad. The monthly example of late housing news is generated by the Case-Shiller report. It dominates the real estate news cycle across the country for about two weeks starting about the 26th of each month. Its national real estate market findings are about three months old. Yet it is sold as news month after month by all major news outlets and countless local news sources. It dominates the news and influences the conversations in bars, at the office, and in the living rooms across this land. I know because people ask me about it all the time.
The Case-Shiller report is a helpful history lesson. I tell people to wait for about the 6th of each month when the NWMLS reports the prior month’s results for the Seattle area and western Washington. You’ll find the monthly news release on SeatteRealEstateNews.com.
Just remember, even current statistics don’t tell the entire story. Don’t believe all the bad housing news. When you list your home, don’t overprice!
First published by Gerhard as his May 2019 View from the Street Newsletter.