What's up with Zillow's valuation system in King County for July 2009?

By Reba Haas

Real Estate Agent with Team Reba of RE/MAX Metro Eastside www.TeamReba.com

July 23, 2009 05:57 AM

Has anyone else noticed that the Zillow estimates have started showing spikes in values in the close in metro areas but they continue to show drops in the outlying areas? I find this interesting since within the past couple of months the Seattle metro area has been classified a "declining market" by the financial/banking sector.

We've had more than one lender tell us that appraisals continue to be an issue and the Seattle market has now been hit with it, not just areas like Kent, Maple Valley, Renton, Tacoma, etc. Five (5%) percent of all deals that are being written right now are failing and mostly due to either contingent sales not closing, or appraisals/financing issues. While it can all be confusing because of the array of places that we get data you have to take a broader view overall.

Let's take a quick look at what's been happening lately:

1. Zillow estimates show fluctuations in Seattle metro area spiking values in the past month.

2. Zillow estimates show continued downward trends in outlying areas of King/Snohomish County.

3. Pierce County continues to have some of the highest foreclosure rates, particularly in Tacoma.

4. Expected timeline of short sale and foreclosures to impact local market values is 5 years.

5. Per the NWMLS data, summer sales of homes have picked up in many areas.

6. Half of those NWMLS areas are still lower in terms of overall turnover of sales.

We have to keep in mind that up till about mid-2007 we had record sales levels due to the fact that loans were easy to come by, so it's not unusual that we'd be in lower sales numbers once the financing market slowed lending ability. Add to that the currently unemployment rates that have even well-employed folks in a holding pattern, it's not surprising. People tend to lock down and take cover when fear takes over.

May 2009 results from title company reviews of data showed all but 2 market areas (Juanita/Woodinville & the Ballard/Greenlake/Greenwood both at 1%) of the NWMLS had fewer closings than the year prior and 2008 was pretty bad for most. Every single market place had a lower average sale price than the year earlier, however, as an average price year to date review shows us 3 areas were up slightly (Skyway - 2%, Vashon - 11%, Lake Forest Park/Kenmore - 4%). Pending units for June are at their highest for the year at 8393 but the current average ($264,500) and median ($325,276) prices haven't moved much since January ($260,000 & $318,411 respectively). Highest volume of sales continues to be in the $200k-$350k ranges.

Even with the increase in activity 992 agents have dropped out of the business in the NWMLS areas since January. But, with the increase in summer business the tide of people failing out has slowed from 200-300 per month to around fewer than 100 each the past 2 months.

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David Gibbons

Zillow.com - Seattle, WA

Hi Reba,

The good news is that it does look like home values in some Seattle metro neighborhoods have bottom'd but as you can see in on our local market report for the City of Seattle, Zillow's Home Value Index for Seattle is still declining even though it looks like it wants to turn. What's fascinating (to me) is that we're seeing some of the largest recent value gains in some of the most expensive 'hoods (Broadmoor is up 1.5% for the month and the Denny/Blaine area almost 1%.) What's NOT surprising is that the condo-rich neighborhoods are still really hurting. Seattle added way too much condo inventory at exactly the wrong time. So home values in those inner-city neighborhoods with plenty of condos seem to still be taking a beating - see Cap Hill, Queen Ann etc.

We're gonna' have to get some condo's sold before Seattle turns the curve but it's looking promising and there are very encouraging signs in the high end neighborhoods that suggest that Seattle Real Estate could soon be declassified as a "declining market."

Jul 23, 2009 06:25 AM

Reba Haas

Team Reba of RE/MAX Metro Eastside www.TeamReba.com - Bellevue, WA

Team Reba, CDPE

I beg to differ on the issue of condo inventory, it's also impacted by the fact that financing condos has become quite difficult and that has slowed that group of product. We went from people being able to finance about 100% of a purchase to condos now having a required 10% down payment in most cases, and often more, depending on the building.

It's not only the inventory count that impacts us, but the ability to get financing. FHA has their own requirements that limits some of the buildings in town from getting financing for anything under a 40% down payment.

Jul 23, 2009 06:44 AM

Reba -

I don't disagree; access to financing is a MASSIVE driver of the RE market -- it was THE reason for the bubble. I doubt however that access to financing is the root cause for the problems with Seattle condo's -- rather, it's a symptom of a bigger issue. This is a chicken / egg scenario; lenders won't finance losing properties and that same inventory won't be depleted until they do -- but it didn't start out that way and you can still get great financing on Seattle homes; this condo problem started with developers going nuts. Lenders aren't randomly picking on Seattle Condo's -- they're a dicey investment because we have far too many of them at the precise time that demand for them slowed down. As you know, Seattle aggresively rezoned much of downtown and developers quickly followed suit with stacks of new buildings. We have our city planners and the folks developing South Lake Union to thank for the fact that we can't get financing on the condo's that are sitting empty in their buildings.

The fact that financing options vary on a building-by-building basis simply supports my argument -- if you talk to those lenders you'll learn that it's the building's occupancy rate that determines the loans available for buying there.

Jul 23, 2009 08:32 AM

I'm going to beg to differ a bit, David, just because there are varying options on a building has nothing to do with overbuilding. That's a function of risk that the bank looks at overall. FHA will only finance a maximum amount within a building to reduce their overall risk. Most lenders want to see lower rental units but FHA will finance up to 51% owner occupancy if other factors aren't there (such as last point) to increase risk.

Vulcan is only redeveloping part of what they were given the right to do after the Seattle Commons project was voted down - somewhat ridiculously - by Seattle voters. Paul Allen was going to gift that land to the city for our own version of Central Park and we blew it. We can't then dogpile on him for then taking those lands and having a new vision for it in terms of an area that is more of a tax revenue vehicle for the city than it was before.

Jul 27, 2009 03:42 PM

What's up with Zillow's valuation system in King County for July 2009?

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Reba Haas

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