Fall 2011 Seattle Area Real Estate Update

With inventories down close to 20% year over year and sales up over 30% in September, this has resulted in stiff competition for move-in ready homes that are priced right in good neighborhoods. However there is a lot of cross currents in the economy at present and even with historically low interest rates which should get more buyers shopping, they are not going to buy overpriced homes. In fact, prices are down an average of 9% year over year (close to 30% from the peak of 2007). While we should be encouraged by the combination of shrinking inventory and year-over-year gains in sales, it is too early to tell if we are out of the woods for more price declines.

If we do have a double dip and another recession is on the horizon, it is estimated prices could go down another 10%, this creates fear among buyers and has slowed up the market in the last few weeks. Going into the fourth quarter there is typically a slower sales volume but the serious buyers who have to buy are the shoppers this time of year. The best advice to a seller is to take advantage of lower inventories, get your home in its best show condition, price appropriately and position yourself to sell above your competition.

Pricing appropriately is easier said than done in a market that continues to correct. Another analysis of where prices are going is to look at price to rent ratios. Nationwide, the ratio of home prices to yearly rents is 11.3, down from 18.5 at the peak of the bubble, according to Moody’s Analytics. The average from 1989 to 2003 was about 10, so valuations aren’t quite back to normal. Detroit and Miami are relatively inexpensive for buyers, with price/rent ratios of 5.6 and 7.7, respectively. New York and San Francisco are more expensive, with ratios of 17.6 and 17.2, respectively. Seattle’s price/rent ratio in January of 2011 was 24 and 22.5 in June 2011. It’s worth noting that the average was 26.6 between 1990 and 2003. While higher than the national average of 10, still historically below our area average especially when you take into account the low interest rates making home ownership even more affordable (estimated back to 1970′s levels when the income component is overlaid).

Unfortunately, because we are at a cross roads with a lot of factors at play (world economics, unemployment, US elections), we might not know for a few months and into early next year what the future has in store.

For more info on the best cities to buy versus rent visit: http://online.wsj.com/article/SB10001424052970204774604576629443313035736.html