Reset housing recovery just around the corner
There's no evidence the old housing boom can return. Americans face too much housing inventory, too much debt.
Special to The Seattle Times
Finding bottomDecline in home prices from peak to 4Q 2011:
Source: Case-Shiller Index, Federal Housing Finance Agency
Experts have been calling a bottom for the housing market ever since the bubble began to collapse in 2006. They've been uniformly wrong. Are we finally there?
David Stiff, chief economist of Fiserv, the financial-services technology company that produces the widely followed Case-Shiller indexes, says yes.
House prices nationally are expected to stabilize by the end of summer and start to rise by an annualized rate of 3.9 percent over the next five years. For the Seattle-Bellevue-Everett metro area, prices are seen rising at a 5 percent annualized rate.
But that won't come before an additional 3.3 percent price decline through the rest of this year. The Seattle area was late to the party, with prices reaching their peak in the second-quarter of 2007 compared with a national peak in the first quarter of 2006.
"There's always a danger of being premature," Stiff told me last week. "But a number of favorable factors are going to put a floor under prices."
Among them: better employment numbers, fewer markets dominated by foreclosure sales and bank-owned properties, and affordability at record levels. Fiserv studies data from 380 markets nationwide.
"Seattle is a very unique market," Stiff said. Thanks to aerospace, software, life sciences and other economic assets, it has a deep, specialized labor pool making good money. He expects Seattle to stabilize sooner.
Other data back this up. According to the Runstad Center for Real Estate Studies at the University of Washington, sales of existing houses in King County rose more than 12 percent in the first quarter compared with the same period in 2011, even as median prices fell 6.6 percent. Indeed, anecdotal evidence points to bidding wars for houses in the best locations, especially in Seattle.
House resales rose 10.9 percent in Pierce County and 18.5 percent in Snohomish County.
Building permits for single-family houses are very slowly recovering, and apartment construction is booming in central Seattle.
Still, there's no evidence the old housing boom can return. Americans face too much housing inventory, too much debt.
That's a good thing for the environment, preservation of rural land and avoiding the inefficiency and cost of infrastructure in sprawl development.
But it also means Americans won't be using double-digit, house-price increases, home-equity loans and house flipping to make up for stagnant wages.
Falling prices are necessary to make the market function again, but this also slices off a big chunk of paper wealth that owners enjoyed at the peak. Others bought then and are underwater, owing more on their mortgages than the house is now worth.
Also housing construction, the last big factorylike work in most places nationally, won't return to the boom years.
The damage from the collapse remains significant, even if Washington didn't overbuild to the extent seen in the Sun Belt. The state lost 70,000 construction jobs during the Great Recession, the largest decline felt in any sector. For local governments, a significant revenue source dried up as building stopped.
Samuel Anderson, executive officer of the Master Builders Association of King and Snohomish Counties, said recently at Town Hall Seattle that he's "feeling optimistic for the future of housing and the housing industry, even if the glass may still seem half empty to many of our members in the wake of the recession."
One vote of confidence he cited is the quiet entry into the region of major builders, such as Toll Brothers, Henley Homes, Newland Communities, Lennar, Richmond American and Pulte.
At the same time, he warned that tighter lending, loss of subcontractors and workers, limitations on developable land and lack of government officials to process permits risk holding back a recovery.
"What local elected officials found out in this recession and housing collapse is that the residential housing industry has been their ATM machine. My new best friends are mayors and city council" members, he said.
Anderson also made the point that the region needs to embrace greater density inside existing urban-growth footprints and resist the NIMBYs. "The problem in many urban areas is that the community hates sprawl but doesn't want increased density in their neighborhoods."
So, a bottom — at last? I'm prepared to buy in.
Risks remain. Job growth has slowed along with the economy, millions are still unemployed, the eurozone disaster could spread pain here and we're always at risk of the new asset bubble cooked up on Wall Street.
Low interest rates won't help millions who can no longer qualify for a mortgage. Most were either ruined in the crash, are unemployed or have seen their wages stagnate or fall. Too many young adults are facing massive student loans and poor prospects for the well-paying jobs necessary for household formation.
As a nation, we resist making the conscious, strategic reset necessary to be competitive, sustainable and restore middle-class economic mobility.
So the New Normal won't feel normal, even if for now, and for many, Seattle is an island of prosperity.
You may reach Jon Talton at email@example.com. .
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest