Do the Math

There is a lot of talk about the ‘cooling market’ in Seattle Real Estate.  There have been some sensational articles in the paper alluding to another epoch crash like we saw 10 years ago.  Right before the crash my wife and I bought a modest condo in downtown.  On average over the last 10 years our value has increased about 13-15 thousand dollars a year to date.  We bought about 6 months before the crash at the very top of the market.  On average people will live in a home they own for 6-8 years.  So the average home in Seattle was bought at the very bottom of the market, after the famed bubble burst.  Surly those homes have increased in value much far more than ours.

The Seattle Times head line “Seattle home prices drop by $70,000 in three months as market continues to cool” surely caused many gasps of fear and cynicism.  But, is that an average?  Average means nothing in this context.  For several years people have been buying their properties for over market value, or, in other words, investing in future equity.  For example, a 5% drop on a home that sold (over value) for a million dollars would be $50,000, and perhaps was listed at fair market value for maybe $925,000.  What I would say is that the fair market value of a home is 20% higher than what it was 2-3 years ago, but 5% less than what they might have gotten 6 months ago.

Will there be another epoch crash?  No Real Estate agent, economist, or ‘yellow journalist’ has a crystal ball.  If there was another crash, of course that would be awful.  There are, however, many indicators that would show no such disaster is looming.  In fact there are many indicators that show this cooling as a necessary adjustment that could actually stimulate the market.  So there!

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