FUD Busting: Home Prices Falling & Foreclosures

Fear, Uncertainty & Doubt (FUD) sell more media than just hope, facts and education could ever imagine… so we want to use our free, no ads media to help you sort the facts from the drama.

The biggest FUD stories we’re hearing from clients right now surround “the coming foreclosure crisis” and “home prices falling” into the future. While both of these are very effective headlines at creating emotion (I even felt a bit writing them), they have little basis in reality in our Puget Sound market.

Regional vs. National… First, let’s keep in mind real estate is always a regional market, not a national market. In many cases, ‘experts’ are focusing on specific markets where statistics create the greatest concern. 

Home Prices Falling… it is absolutely true Seattle metro area home prices have fallen in the past 12 months. A look at the Case Shiller index shows we peaked in May 2022 then fell about 13.5% through November… with the steepest losses being in May to September when mortgage rates were increasing from 5% to 7% and inflation was peaking as well. These declines moderated as inflation peaked at 9.2% and rapidly declined to 5.6% in November, and as mortgage rates peaked and then declined to 6.5%. 

We expect to continue to see these price declines flatten as this index is updated in the coming months since January inflation was 4.6% and mortgage rates were 6.1%.

Layoffs don’t loom as large as many media outlets as they may seem… while Microsoft & Amazon have announced historic levels of layoffs in the past months less than 10% of those laid off (about 3,000 people) are located in the Puget Sound region, and many of those laid in the tech field are being rehired quickly at non-tech firms who previously couldn’t compete yet still need staff to build their future. In spite of these layoffs, nationally and locally we find ourselves at historically low unemployment levels.

In the end, home prices are a direct product of the balance of supply (new & existing homes for sale), regional population growth & employment/wage growth. We’re continuing to see our regional population grow… yet, builders are not keeping up with current growth nor making up for the large deficit built up since 2008… and most everyone who wants a job is able to get a job and wages are growing. All of this is a recipe for long term growth in home prices. The only disruption in this is a very quick rise in interest rates which caused many to pause their plans until rates stabilize which they did in the final quarter of 2023.

What’s left is trying to time the ‘bottom’ which is anyone’s guess… My guess is the statistical bottom of this cycle will come sometime in May to July, however like all peaks and valleys we’ll only know it once it's passed us by which is why I continually remind myself of the Buffet Bet (check out our blog for this eternal wisdom).

Foreclosures: Oh… yeah… foreclosures… I genuinely don’t know how this is a story. Washington recently ranked as the 44th state by rate of foreclosures. We had  250 foreclosures in December for our 3.2 Million housing units. This represents 1 foreclosure for every 12,809 housing units which is a rate which is 550%+ less than the top 3 foreclosure states (South Carolina, New Jersey & Illinois). 

The greatest rates of foreclosures in our state were found in Grays Harbor, Skagit, Chelan, Lewis, and Pierce counties. Keep in mind, these are filing not completed (auctioned) foreclosures which are dramatically lower since many borrowers work with their lenders to find alternatives to foreclosures.  To say this is an incredibly low rate of foreclosures is a massive understatement. Even if we increased foreclosure by 400% (which is not forecast by any reliable economist), it would not even begin to meaningfully increase inventory levels in the Puget Sound region.

We hope these facts and figures help you balance the other stories you hear everyday. If you hear at FUD story about the housing economy please forward it to us, and we’ll research it and potentially feature it hear in our continuing “FUD Busting” column.