Seattle home prices zipping upward, but slowdown likely
The Seattle market is up 11.9 percent for the 12 months ended in May — nearly enough to keep pace with a 12.2 percent surge for a 20-city index of U.S. home prices.
Seattle Times business reporter
The housing market in Seattle and other major U.S. cities has been racing ahead on full throttle in recent months, but experts say the price growth should soon slow to a more normal pace.
The Greater Seattle market in May posted a 3.1 percent monthly gain, its largest since April 1990, according to data released Tuesday. The region’s 12-month increase was 11.9 percent — the biggest annual gain since December 2006.
Seattle’s not alone: The widely watched S&P/Case-Shiller 20-city home-price index rose 2.4 percent from April to May, and 12.2 percent over the year.
All cities registered price gains, and for the first time two cities, Denver and Dallas, surpassed their pre-crisis peaks. Seattle was one of five cities posting monthly gains of over 3 percent.
“You have to go back to the bubble years to find something that strong, although we’re still making up for lost ground,” said Craig Lazzara, senior director at S&P Dow Jones Indices.
May was the third straight robust monthly gain, showing the recovery in Seattle, like elsewhere, was accelerating.
Cities hit hard by the bursting of the housing bubble are roaring back: Atlanta, Las Vegas, Phoenix and San Francisco all recorded annual gains of more than 20 percent in May.
But that doesn’t mean a new bubble has formed, experts said: Seattle’s price level in May was still 20 percent below the previous peak, Lazzara said; the national average is 25 percent below.
Homes on the bottom end of the price range aren’t seeing as much recovery as the top end, data from S&P Dow Jones Indexes show.
In the Seattle market, homes in the lowest third of all transactions are about 33 percent below their pre-crisis peak, while those in the highest third are just 17 percent off their peak.
The index’s May figures adds to mounting evidence of a real recovery in the housing market and that all major areas are coming off the bottom:
• There were 20 percent fewer completed foreclosures nationally in June — the 19th straight month of decline — with 49 states seeing declines, Calif.-based CoreLogic reported Tuesday.
Nationwide, 2.5 percent of all homes with a mortgage were in some stage of foreclosure, down from 3.4 percent a year ago. In the Seattle area, 2 percent of mortgaged homes were in the foreclosure process, down from 2.2 percent last year.
• Seattle-based Zillow, which produces its own home-value index, reported last week that U.S. prices at the end of June were up 5.8 percent over the year, the largest annual gain since August 2006.
“The housing recovery is here to stay,” said Svenja Gudell, a Zillow senior economist. “We’re not at the edge of another cliff where we’ll see housing prices fall.”
• Last week, the Federal Housing Finance Agency reported that U.S. house prices rose 0.7 percent in May — the 16th consecutive monthly gain in its index — and 7.3 percent over the previous 12 months. Home prices, by that index’s measure, are back at January 2005 levels.
Pace not sustainable
But homeowners shouldn’t assume their homes are appreciating by double digits just because the Case-Shiller index has risen by that much, Gudell cautioned.
The 20-city home-price index includes sales of foreclosed homes by banks.
Banks tend to sell foreclosed homes at a discount, Gudell said, and investors who bought many of these properties are now selling them for unusually large gains. Those distort the actual rate of growth in home prices, she said.
Still, Zillow’s own index showed Seattle area home prices rose in June 12 percent over the year.
Even if prices are rising at double-digit rates, experts agree it won’t last long.
Home prices essentially track inflation over the long term, but now home prices are far outpacing inflation, said Glenn Crellin, associate director of research at the University of Washington’s Runstad Center for Real Estate Studies.
Inflation is nearly 2 percent, yet home prices have risen about 12 percent, if the Case-Shiller index is correct.
“That’s not a sustainable disparity,” Crellin said.
The question is when the rate of growth will begin to slow down.
Experts say a combination of rising mortgage interest rates and more homes going on the market should lead to a moderation in home price increases. In Washington state, the average current fixed rate on a 30-year mortgage is 4.21 percent, according to Zillow, the same as last week.
A weakening of the economy could also cool the market’s red-hot pace.
Last week the Mortgage Bankers Association forecast weaker U.S. economic growth for the rest of this year, partly due to higher inflation related to sharp increases in oil prices and housing rental costs.
And while the economy continues to create jobs, more and more of them are part-time or temporary positions. As a result, the nation is unlikely to see this job growth translate into the same demand for homes seen in previous recoveries, the bankers group said.
Sanjay Bhatt: 206-464-3103 or firstname.lastname@example.org