Contrary to Headlines, Data Show Seattle Home Prices Are Not Lower, Just Slower Growing

In the wake of the latest S&P Case-Shiller Home Price Index, which reflects sales data from September 2018, Seattle Times and other local media outlets proclaimed that residential home prices in the Seattle Metropolitan Area are rapidly declining. We elect, however, to keep an eye on the trendlines rather than the headlines, and are delving deeply into how the Index is computed and comparing its results with data obtained from the Northwest Multiple Listing Service (NWMLS).

The short answer is that home prices in Seattle have not stalled out. They continue to increase on a year-over-year basis, just at a slower pace than they have in previous months. Below you’ll find a breakdown of why the Index results have garnered conflicting headlines, creating confusion among consumers.

As the Case Shiller press release notes, Seattle is still among the hottest markets in the nation: “Las Vegas, San Francisco and Seattle reported the highest year-over-year gains among the 20 cities. In September, Las Vegas led the way with a 13.5% year-over-year price increase, followed by San Francisco with a 9.9% increase and Seattle with an 8.4% increase.”

Yet as Mike Rosenberg with the Times writes, “prices here [in Seattle] are falling faster than anywhere,” adding that “prices haven’t fallen this fast since 2011, when the market was still bottoming out following the recession.” To be sure, the September Case Shiller report does in fact reveal a 1.34 percent monthly decline in the Seattle market (comprised of King, Snohomish and Pierce counties). Looking at the three consecutive months of lower Case Shiller Index results—in July, August and September—one can compare these to a short two-month downturn from last year (in September and October 2017) and a four-month decline that occurred between August and November in 2014. The deeper Index slump that Rosenberg references, started in August 2011 lasted a full six months, through February 2012.

When analyzing these data sets, a pattern emerges: each Index reversal began in the later summer months (July/August/September). This is because real estate is a seasonal industry. But it’s important to note that the Case Shiller results that are most frequently reported on by the media are not seasonally adjusted (though Case Shiller does provide seasonally adjusted monthly figures in Table 3 of their report).

As Standard & Poor’s, publishers of the Index, have explained to their readers in months past, during periods of market dislocation, “S&P urges the use of year-over-year comparisons of the Index or, if month-over-month comparisons are desired, using the non-seasonally adjusted index” found in Table 3.

Turning to the year-over-year Index comparisons, we can see that the in September 2018, the Index was still “comfortably positive” at 8.39 percent growth, which was nearly 3 percent greater than year-over-year gains in Los Angeles, 3.25 percent higher than Case Shiller’s 20-Year Composite Index, and more than double that of San Diego’s results.

“I view seasonality, and the recent market pause centered around Amazon’s HQ2, like a speed bump in our trajectory,” Dean Jones, president and chief executive officer of Realogics Sotheby’s International Realty, said in a statement. “While the overall trend in 2018 is still increasing over 2017, we climbed the first half of the bump this spring and are coming down the other side more recently. Whether Seattle will post year-over-year declines into 2019 remains to be seen, but I view these adjustments as healthy and balancing.”

Above: Price trends from 2015 to 2018 show seasonal patterns of sales prices, which have tended to peak from mid-spring to early summer. These data are for King, Snohomish and Pierce counties—those factored into the Case Shiller Seattle Home Price NSA Index.

To further demonstrate this point, consider the following residential sales data from the NWMLS for the areas that are covered by the Index in the indicated months. It’s key to note that while these data are not equivalent to those surveyed by Case Shiller, they provide an accurate representation of the single-family home prices that consumers have found in the local market. Note that far from falling, median sales prices are continuing to rise—albeit not as rapidly—among areas covered by the Index.*

*Sales numbers for “Lake Washington Eastside” include transactions from the following areas: Beaux Arts, Bellevue, Clyde Hill, Hunts Point, Issaquah, Kirkland, Medina, Mercer Island, Newcastle, Redmond, Sammamish, Woodinville, and Yarrow Point.

Moving to the seasonally-adjusted month-over-month results advised by S&P for monthly comparisons, Seattle declined 1 percent in August and 0.3 percent in September. A figure of +0.3 percent that had previously been reported for July 2018 was revised to -0.1 percent.

These results also report a very modest decline, which begs the question, What would case Case Shiller Index results to vary from NWMLS transaction data?

First, it should be noted that the Case Shiller Index uses what is called a “repeat sales methodology,” meaning they only factor in properties that have sold more than once. This means new construction homes are not included. It is also critical to understand that condominiums as a category (both resale and new construction) are excluded from transaction data. The NWMLS, on the other hand, includes all listed and sold homes, and arguably represents a more comprehensive pool of transactions when completing intraregional price analysis (but would not be practical in nationwide comparisons, as S&P is conducting). In addition, the Index, while helpful, encompasses data from King, Snohomish and Pierce counties, and we well know that individual sub-markets and property types can generate very different results.

“Real estate is hyper-local,” added Jones. “I’d encourage consumers to contact their local broker to help explain what’s happening in individual microclimates.”

For Seattle’s comparative performance on the Case-Shiller Index, see the chart of the Index trends below; and for more details, download the S&P Dow Jones Case-Shiller summary report. For details on the implications for homes in your neighborhood, contact me for a complimentary analysis.