Don't Pass Go, Don't Collect that Easy Equity: Sobering Numbers for 2008 Real Estate

The National Association of Realtors has unleashed a media campaign with the theme "Affordability has improved!" When I heard this on the radio this morning, I had to stop and consider whether this is true. After all, home prices are dropping and interest rates are at historic lows. Sounds good. Sounds really good......................but, let's look at reality for a moment:

Today I'm going to share some sobering and grim real estate statistics from both a national and local perspective. Please believe me, for those of you who have excellent credit, secure employment, cash reserves and a desire to purchase a home, this may be an "affordable" market. But, let's not sugar-coat the overall market. It's still a risky place to be:

Foreclosure Filings At Record Highs - UP 81%

Here are several snippets from an Associated Press report today regarding home foreclosures in 2008:

• More than 2.3 million American homeowners faced foreclosure proceedings last year, an 81 percent increase from 2007

• Nationwide, more than 860,000 properties were actually repossessed by lenders, more than double the 2007 level

• The four states with the highest foreclosure rates last year were Nevada, Florida, Arizona and California

• Moody's Economy.com, a research firm, predicts the number of homes lost to foreclosure is likely to rise by another 18 percent this year before tapering off slightly through 2011

If you're an optimist, this may be good news. Indeed, this will expose a huge number of properties to potential buyers, possibly at bargain prices. The down side is illustrated in an old rule of thumb regarding foreclosure: for every home in a neighborhood that goes into foreclosure, the value of the neighborhood drops by 1% of sale value. So, even if your neighborhood is weathering the down market well, the adjoining neighborhoods may very well cause downward pressure on your property values. Remember, whether you like it or not, we are all in this together.

ABSORPTION RATES IN PUGET SOUND, KING AND SNOHOMISH COUNTIES

Absorption rate = Number of weeks/months it takes to sell the current inventory at the present rate of sales.

I have assembled the graphs below to illustrate the absorption rates for our local market. If you want to look these over in detail, just click on the graphs:

KING COUNTY, WA ABSORPTION RATES - 2003-2008

One positive event was the drop of almost 15% of the active homes & condos from the market in December. This should have happened far earlier in the year. Having said this, it's very important to note that only 10% of the available inventory went pending (offers were accepted). One must also take into consideration that a significant number of these pending sales are a result of short sales. This means the transactions may never close before being sold at auction.

PUGET SOUND ABSORPTION RATES - 2003-2008

As a whole, Puget Sound absorption rates in December were even lower than King Co, at 8.2%. There was a 13% drop in active listings.

SNOHOMISH COUNTY, WA ABSORPTION RATES - 2003-2008

Snohomish County was a bit of a surprise with a slightly higher absorption rate than King County at 10.2%. There was also a drop of almost 13% in active inventory.

So let me be clear: we are in the midst of extremely difficult times in real estate. I take offense to any blanket statement that "now is a good time to buy a house." This is simplistic baloney. There are simply too many factors outside of low prices and interest rates that affect the market today. One final thought: as you look at the graphs above, they look rather pathetic. The lines on the graph have managed to hit rock-bottom. I suppose the only way to go is up. Just make sure if you jump on the ride, wear your seat belt!

Monopoly picture courtesy of vinduhl