Seattle Real Estate Market Overview

October 2010

Stan Humphries, PhD

Chief Economist
stan@zillow.com
206.470.7127
Current Market Performance

2
Home values in the United States

Source: Zillow.com

3
Foreclosures in the United States

Source: Zillow.com

4
Local markets: The Good, The Bad and The Ugly

Source: Zillow.com

5
Local real estate performance: The Good

Source: Zillow.com

6
Local real estate performance: The Bad

Source: Zillow.com

7
Local real estate performance: The Ugly

Source: Zillow.com

8
Home values: Seattle vs. US

Source: Zillow.com

9
Seattle home value trends by price tiers

Source: Zillow.com

10
Seattle foreclosures in perspective

Source: Zillow.com

11
Seattle home values in perspective

Source: Zillow.com

12
Peak-to-current change in home values

Source: Zillow.com

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Month-to-month changes in home values

Source: Zillow.com

14
Construction activity – Seattle (units, SAAR)

15 Source: Census Dept.,

Moody’s Economy.com
Housing starts – Seattle (units, SAAR)

16 Source: Census Dept.,

Moody’s Economy.com
Unprecedented decline in new home sales

17 Source: Census Dept.

Despite falling starts, supply still high and sales cycle long

18 Source: Census Dept., NAHB,

Moody’s Economy.com
Foreclosures increasing in WA; delinquencies high

19 Source: Mortgage Bankers

Assoc., Moody’s Economy.com
Continuing Challenges for Housing Market

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America is flush with empty homes

Source: US Census; Zillow

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 Current inventory level of for-sale homes is very high
Pent-up supply? 7% of homeowners
(5.3 million) want to sell if they see
signs of improvement

• We made some good

progress reducing
inventory levels last
fall with tax credits

• Did not work as well

this year

• In most months of
this year, we added
more homes to the
market than we took
off due to sales

• Monthly supply now

back to 2008 levels

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Lots of “shadow inventory” in the wings

• 7.3 million mortgages either in foreclosure or

delinquent as of March 2010. Pct Mortgages
• Accounting for shadow inventory, there was 45% more In Foreclosure 4.63% 2,407,600.00
supply than indicated in official NAR inventory numbers
as of Sept 2009. 30-90 Days Delinquent 4.47% 2,324,400.00
• This discrepancy is growing over time meaning that, > 90 Days Delinquent 4.91% 2,553,200.00
while official inventory has been falling, real inventory
is essentially unchanged.

23 Source: Mortgage Bankers Association; First

American/Corelogic
Negative equity among the largest metro markets

Source: Zillow.com

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Negative equity + unemployment = more foreclosures

Percent Single-Family
Unemployment
Metro Homes With Mortgages in
Rate
• Negative equity can only Negative Equity
be worked down by (March 2010) (March 2010)

sales/foreclosures, price USA 23.3% 10.2%

appreciation or paying Las Vegas Metro, NV 80.6% 13.8%
Orlando Metro, FL 74.8% 12.1%
down mortgage balances
Phoenix Metro, AZ 64.6% 8.9%
Reno Metro, NV 64.4% 13.2%
• We don’t expect much Modesto Metro, CA 60.7% 19.2%
Merced Metro, CA 58.8% 22.1%
price appreciation near-
Lakeland Metro, FL 58.5% 13.0%
term Fort Meyers Metro, FL 58.2% 13.5%
Stockton Metro, CA 57.7% 18.4%
Port St. Lucie Metro, FL 56.2% 14.0%
• Unemployment forecasted El Centro Metro, CA 54.9% 27.0%
to remain above 8% Vallejo Metro, CA 54.7% 13.0%
through end of 2012 Tampa Metro, FL 53.1% 12.7%
Riverside Metro, CA 51.2% 15.0%
Jacksonville Metro, FL 49.1% 11.9%
• Result: 3+ years of high Sarasota Metro, FL 47.8% 12.7%
unemployment visited on Madera Metro, CA 46.4% 17.5%
homeowners who can’t Melbourne Metro, FL 45.6% 12.2%
Bakersfield Metro, CA 45.6% 18.3%
easily sell or refinance
Vero Beach Metro, FL 45.2% 13.9%
their mortgages Miami-Fort Lauderdale Metro, FL 44.3% 11.5%

25 Source: Zillow.com
When will mortgage rates rise?

• Mortgage rates
are currently
helping the
market

• We’d been
expecting
mortgage rates to
be in the upper
5% range by end
of year. Seems
unlikely now.

• Fed QE, lackluster

GDP growth and
complete lack of
inflation pressure
have helped keep
interest rates low. Source: Zillow.com; see real-time rates and historical charts at
http://www.zillow.com/Mortgage_Rates/

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Mortgages resets and recasts are better news than before

• Alt-A resets and

Option ARM recasts
have been a concern

• Alt-A: Less
worrisome now with
low mortgage rate
environment

• Option ARM: Default

rates have already
been high in this
product so fewer
that will have to
recast
Source: Deutsche Bank Global Markets Research

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Conclusions

• Home values nationally will continue to fall until early 2011.

• Seattle bottom will lag the national bottom; mid- to late-2011.

• Likely another 5% decrease in the national ZHVI for a total peak-to-trough

decline close to 30%. Another 5-7% decline in Seattle for a peak-to-
trough of 32-34%.

• Further declines driven by foreclosures (themselves driven by negative

equity and unemployment as well as by more mortgage resets/recasts),
an already high supply of for-sale homes, and weaker demand after the
homebuyer tax credits lapse due to demand-shifting.

• Very anemic appreciation after bottom is reached; may not appreciate at

all in real terms for next 3-5 years.

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