Clients and friends keep ask­ing me: what do you think of the Seat­tle hous­ing market?

From per­sonal obser­va­tions and expe­ri­ence I know that Seat­tle area homes are sell­ing if they are:

• com­pet­i­tively priced,
• well pre­pared for sale
• offered by a moti­vated seller, and
• mar­keted aggressively

I’ve listed and sold two Seat­tle prop­er­ties in March which met these four cri­te­ria. Dur­ing the same time I’ve also helped two buy­ers pur­chase homes.

Buy­ers have plenty of choice and will buy when the above cri­te­ria are met. Obvi­ously, buy­ers are up against tougher lend­ing stan­dards. Still, first-time buy­ers with good credit, steady income and sav­ings for a siz­able down pay­ment have the pick of the lit­ter — if they can afford it.

The prob­lem with Seat­tle res­i­den­tial real estate is afford­abil­ity.

Cur­rently, the aver­age Seat­tle area home price is $414,518, just about dou­ble the national aver­age of $207,272.

Why’s that?

• More peo­ple are mov­ing to Seat­tle than are leaving.
• Seat­tle com­pa­nies are still hir­ing and open­ing offices here, such as Google.
• The local gov­ern­ment cur­tails land use.
• The local geog­ra­phy fos­ters exclusivity.

Take a look at a Seat­tle area map and what you see are bod­ies of water dis­sect­ing the land. What you get is an abun­dance of highly desir­able water­front prop­er­ties. Add the undu­lat­ing hills that rise from these waters and you get desir­able view prop­er­ties. Water­front and views sell for a premium.

The solu­tion for many first-time buy­ers is to “go condo” or to buy fur­ther out and set­tle for a longer com­mute. In the mean­time, prices on some Seat­tle area homes are com­ing down. One exam­ple is Kirk­land con­dos, espe­cially those at the higher end. The high­est fore­clo­sure rates are south and north in cities like Burien and Mon­roe. These fore­clo­sures came about through the com­bi­na­tion of easy credit, lofty expec­ta­tions of appre­ci­a­tion, and per­haps opti­mistic assess­ment of increased per­sonal income.

What the Experts say about the Seat­tle hous­ing market.

PMI Cor­po­ra­tion, the com­pany that pro­vides pri­vate mort­gage insur­ance, looked at the risk of home prices declin­ing over the next two years (pdf file). Seat­tle ranks in the least risky group. Speak­ing to the sta­tus quo, The Wall Street Jour­nal shows the Seat­tle area in 197th place out of 200 when it comes to mort­gage pay­ment delin­quen­cies (by value) of 30 days or more.

Another mea­sure of the same table is the cur­rent price level when com­pared to the peak of the US hous­ing mar­ket which the WSJ deter­mined to be the fourth quar­ter of 2005. Com­pared to that peak (being 100%) the national aver­age price level is now at 91.9 per­cent — a drop of 8.1 per­cent. Seat­tle home prices, how­ever, have still risen fur­ther since then to 117 percent.

This would sug­gest that it’s about time for Seat­tle home prices to cool down fur­ther. Fore­clo­sures excluded, what I see is a stand-off between sell­ers and buy­ers. Seat­tle home sell­ers can’t believe prices are com­ing down, buy­ers are won­der­ing by how much.

Let’s take the 12-month bar graphs of Kirk­land con­dos sold in 2007 and com­pare them to how many Kirk­land con­dos were for sale on Jan­u­ary 2, 2008 at 9 am. Again, we do this sep­a­rately for zip codes 98033 and 98034.

98033 Zip Code: Con­dos Sold (2007) and For Sale (01/02/2008)

Start­ing at twelve-o-clock, the green seg­ment rep­re­sents the 124 active list­ings as of Jan­u­ary 2, 2008 at 9 am; and the fol­low­ing laven­der seg­ment the 28 homes “in Escrow” (Sub­ject to Inspec­tion, Pend­ing) at the same time. Start­ing with the orange seg­ment begins the year 2007 with 29 homes sold in January.

The idea behind this pie-chart is to exam­ine the “absorp­tion rate,” i.e., how long will it take to absorb (sell) the homes cur­rently for sale. Tak­ing a look back it would take about three months to sell all but 10 of the homes for sale at the begin­ning of 2008. That’s if we assume the same num­ber of sales as in the first three months of 2007 (114 homes sold).

Declin­ing condo sales in the last three months of any year are nor­mal. Usu­ally condo sales pick up again after the new year. Will 2008 repeat that pat­tern? What if the drop in sales toward the fall and win­ter of 2007 con­tin­ues in to the first months of 2008? Then it will take nearly five months to sell those same 124 condos.

98034 Zip Code: Con­dos Sold (2007) and For Sale (01/02/2008)

The 2007 Kirk­land condo sales pat­tern for the 98034 zip code is sim­i­lar to the 98033 zip. And, it rep­re­sents the same ques­tion? Will we see the same January-sold jump as in 2007?

Note: the source for these graphs and related bar graphs is the North­west Mul­ti­ple List­ing Ser­vice (NWLS). The trans­la­tion of the data to graphs is mine and so are any errors.

As we enter 2008, let’s take a quick peek in the rear view mir­ror, specif­i­cally at Kirk­land con­dos by two zip codes: 98033 (down­town Kirk­land and mostly west of I-405) and 98034 (fur­ther north, like Juanita area and east of I-405, like Kings­gate area).

98033 Zip Code Kirk­land Condo Sales

Sales in this more expen­sive and, thus more pres­ti­gious, of the two zip codes peaked in March and dropped off con­sid­er­ably after July. This is not abnor­mal but the arrival of the first bad news about the sub-prime mort­gage surely played a role in the rate of the drop in sales.

98034 Zip Code Kirk­land Condo Sales

In the 98034 zip code, sales show an unusual three 4-month cycle with the first peak in March (nor­mal) and a sec­ond peak in Augusts — per­haps the “last hur­rah” for the year. After Sep­tem­ber, the mort­gage malaise, real or imag­ined, put sales in a steeper than usual decline.

More of the same for Kirk­land Sin­gle Fam­ily Homes to follow.