Two sides to '07 housing market

Last year was, in many ways, two different years for the Seattle-area housing market.

Overall, home prices posted healthy gains -- 5.5 percent for houses and 10.3 percent for condominiums in Seattle and 7 percent for houses and 12 percent for condos in King County, according to data the Northwest Multiple Listing Service released Tuesday.

Look closer, and there's one market from January through July, when steady year-over-year increases in home inventory and declining sales didn't keep the median King County house price from posting double-digit increases.

Then came August, when skittish lenders tightened mortgage standards, making it harder to get a loan, and investors pulled out of the mortgage market, driving up rates on jumbo loans -- those above the $417,000 threshold for mortgage giants Fannie Mae and Freddie Mac. The Seattle area's high home prices make for a lot of jumbo loans.

"We had a very strong market in King County until August hit," said J. Lennox Scott, chairman and chief executive of John L. Scott Real Estate.

Pending sales, which are the best indicator of the most-recent activity, went from a yearly decline of just under 8 percent for King County houses in July to a drop of 26 percent in August.

King County had enough homes on the market in most of early 2007 to last less than three months, given the sales pace at the time. The supply topped six months in September through November and seven months in December. December's supply hit nearly nine months in Snohomish County, 11 months in Pierce County, 11.5 months in Kitsap County and 13 months in Skagit County.

King County's median August 2007 sales price was still up nearly 10 percent from a year earlier, but that largely reflected July sales agreements that closed in August.

The median was up 6 percent in September and 1 percent in October, was flat in November and dropped 1.1 percent in December.

The psychological effect of the credit crunch went beyond its actual effect, said Jill Jacobi Wood, president of Windermere Real Estate.

"I just think the buyers just kind of went 'snap,' " deciding to wait for the market to bottom out, she said.

Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, expected that slower sales eventually would affect prices. He theorized that the median prices earlier in 2007 were masking some softness because buyers were getting more for their money, rather than spending less.

"Finally, it got to the point where they were able to afford all they wanted and spend less money, too," he said.

Scott was optimistic about the current market, noting that interest rates have come down, while the area's economy remains strong and the apartment market has tightened. He and Wood said buyers are out again in good numbers since the start of the year.

"I think that the anxiety is starting to go away," Wood said.

But Crellin said the softness would continue if inventory surges this spring, and some other analysts were gloomier.

"I think it still has a bit of a way to go down," said Andrew Gledhill, an associate economist at Moody's Economy.com. Moody's expects Seattle prices to drop as much as 5 percent from last year's peak through early 2009.

Michael Simonsen, chief executive of Altos Research in Mountain View, Calif., said Seattle's relatively strong economy could help keep prices neutral, at best.

"I don't see any catalyst for notably rising prices for the next couple of years," he said.

That doesn't necessarily mean potential buyers should stay on the sidelines, Simonsen said.

"If you find a place that you like and you can afford it, are you really going to try to time the market?" he asked. "Because, when it really comes down to it, nobody knows."