Good news! Seattle housing prices drop!
One of today's top stories is the decline of housing prices in the Seattle area, where the average price has dropped 1.3 percent, comparing January 2008 with the previous January. It's the first such year-over-year drop since 1991. Not to worry, says The Seattle Times' story, "others across the nation fared much worse."
Why "worse"? Shouldn't the term be "better"? Haven't we been deploring high housing prices for years, saying how they are driving off residents and preventing our children from ever returning to Seattle? Why don't we think of dropping prices as a blessed public good?
Hypocrisy, that's why. The lamentations about affordability are mostly just pious hand wringing, usually by people who are secretly pleased at how much their home values have been going up. Our local papers follow right along, boasting about how much better we do in keeping prices high than other cities.
Not only will it be good for the economy to deflate the housing bubble. It could be just what the doctor ordered for the affordability problem in Seattle, assuming we can get prices dropping faster. And we should be taking steps to see that there is a public benefit from foreclosures and dropping prices, not just an opportunity for bottom feeders.
A good example of capitalizing on sinking prices is in a proposal from Massachusetts Democratic Rep. Barney Frank, who is pushing for $10 billion in federal loans and grants to help local government and nonprofit groups buy and renovate vacant foreclosed houses, stipulating that they must be sold or rented to people with low and moderate incomes.
Such homes, left vacant, can attract crime and harm a neighborhood, so moving fast makes sense. Often the homes require little in the way of improvements, yet they can be purchased at deep discounts as banks are eager to get them off their rolls. There are significant numbers of them, as high as 40 percent of home sales in cities such as Las Vegas and San Diego.
Former Mayor Charles Royer, who is heading up a task force to address affordability issues for workforce housing, says the idea might work here. Key would be finding an agency or a nonprofit with enough scale to handle the challenge. "Maybe the Seattle Housing Authority?" suggests Royer.
I have another nomination: Washington Mutual, which owes the region and the nation, big time, for perpetuating the risky-mortgage frenzy that we are now all suffering from.
Comments:
Posted Wed, Mar 26, 4:27 p.m. inappropriate
WELL PUT DAVID: Right clear through. Ever climbing home prices
are poison. Falling prices will be an unpleasant medicine but
we might luck out and have ten years of relatively stable
prices. We can hope.
Posted Wed, Mar 26, 5:06 p.m. inappropriate
Of course declining home prices are a good thing.: I agree, declining home prices are a good thing. I've been saying that for years now. It always amuses me when people label predictions of dropping home prices in Seattle as "doom and gloom." What nonsense.
Posted Thu, Mar 27, 7:24 a.m. inappropriate
Go, Barney Frank!: Of course, if this keeps up nationally, your wandering adult children will be able to live wherever they want. But I'm happy to see hypocrisy slammed!
Posted Thu, Mar 27, 9:47 a.m. inappropriate
Decrying-: This long-time residential architect has never seen the logic of decrying falling house prices. Ever-rising building costs take a lot of the fun out of creating family homes- in my native Seattle and everywhere else. Jerry Gropp Architect AIA PS
Posted Thu, Mar 27, 9:55 a.m. inappropriate
RE: Of course declining home prices are a good thing.: By the way, anyone that is interested in getting into this conversation in far more depth is welcome to join us over at Seattle Bubble. </shameless self promotion>
Posted Thu, Mar 27, 2:31 p.m. inappropriate
Hmmm: I might be more willing to agree with Mr. Brewster if along with falling housing values my real estate taxes showed the same proportional drop. I tend to agree with Mr. Gropp and the ripple effect from the depression in housing will, I fear, be long reaching. It would take a full-blown depression before my children could afford to purchase a home in Seattle, and if that were the case - where would they find the money?
Posted Thu, Mar 27, 5:15 p.m. inappropriate
RE: Decrying-: Yes, but without high house prices, you can't finance new construction.
I'm not saying high prices are good.
Posted Sat, Mar 29, 8:27 a.m. inappropriate
don't forget about supply and demand and where houses for new homeowners will come from: I'd be interested to know the number of potential home buyers that would benefit from dropping house prices. First, we must keep in mind that there is only a limited number of houses available that can be sold. As another commented, low prices means no new houses. The reason for this is that drops in prices means the land value is going down - not the cost of building materials (labor and materials). In fact, building materials and labor will undoubtedly continue to go up even as house prices fall. Therefore, investors will not build houses. If the solution to that is for the government to build housing, that could be done now without detrimenting current homeowners.
As a homeowner in my 20s, I understand the desire to have easier entry into the housing market. However, if the goal is to help people into the market, you have to ask, where will the homes comes from, and will it benefit more people than it will detriment. Based upon limited supply and increasing demand, my guess is that making houses more affordable will bankrupt just as many people as it will help into the housing market. Without such bankruptcy, the houses wouldn't come available for the new homeowners to purchase.
Yes, people with vast amounts of equity who have long been homeowners could ride out the price drops will nearly no negative consequenses (e.g. if they sell for less, they can also buy for less). But where the available houses will become available is from those young home buyers like me who invested everything into their home and do not have enough equity to at the current prices to economically survive the type of price drops that will make housing more affordable for others to enter the market.
This raises the question of how much you are hoping for prices to drop? 10% certainly would not make any significant dent in overall housing affordability - but it could put a large number of homeowners in situations where there house is worth less than they owe on it (especially when taking into consideration the additional 8-9% in selling costs). Even a 20% drop at todays prices would not open the doors to new homeowners. 30 to 50% drops may help a number of the middle class make the jump, but then again, the prices were at this level only a few years ago, so those that didn't enter the market at that time are probably the very young buyers who did not have jobs or were not in the market when prices were at that level. So even at 30-50% price reductions, the new home buyers that will likely benefit most are the young buyers who are just building their careers. It would be great to help those people out, as I was not long ago one of those people. However, to help them into the market, we'll have to force others out of the market somehow, and that will likely be the people like me or others who borrowed against their equity up to more than 60 or 70% to where they would owe more than their home is worth and would be forced into bankruptcy in the event of a job loss, or a forced move, or just a reduction in income that occurs while their house is worth less than what it is worth.
To verify this theory, all you have to do is look at the reason for the dramatic price drops across the country - foreclosures.
This is just the basic economics of supply and demand.