Written by William Hillis, Research Editor & Publisher, RSIR
We rose Tuesday morning to another Seattle Times report hailing declines in residential home prices in the Seattle metropolitan region. Realogics Sotheby’s International Realty (RSIR) keeps a very close eye on the market, however, and will continue to follow trendlines, not headlines. As the authoritative Case Shiller Home Price Index is being used to bolster reports of lower prices, we have decided to delve more deeply into how that Index is computed, and compare its results with data from the Northwest Multiple Listing Service (NWMLS).
This may be our wonkiest report to date. For those who prefer to cut to the chase, no, home prices in Seattle have not stalled out. They are continuing to increase year over year, but at a slower pace than before. Read on as we explain the reasons for the confusion.
The Case Shiller press release for September’s results still names Seattle among the country’s hottest markets: “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 Tuesday’s Seattle Times report put a starkly different spin on the Index results. “Prices here are falling faster than anywhere,” Mike Rosenberg wrote, adding that “prices haven’t fallen this fast since 2011, when the market was still bottoming out following the recession.” The September Case Shiller report referenced in the Times story does indeed show a 1.34 percent monthly decline for the Seattle market, which comprises King, Snohomish, and Pierce county. The Times also correctly notes that this monthly decline in the Index follows a revised 1.59 percent monthly drop for August. A decline of 0.45 percent was indicated for July 2018.
These three consecutive months of lower Case Shiller Index results compare with a two-month downturn a year ago (September to October 2017), and a four-month price decline from August through November 2014. The last, deeper slump in the Index—that mentioned in the Times story—began in August 2011 and lasted through February 2012.
You may notice a pattern among these dates: that each of these Index reversals began later in the summer. Residential real estate sales are seasonal, and the Case Shiller results cited most frequently in newspaper reports are not seasonally adjusted. This means that seasonal variations in actual home prices are not reflected in the familiar Case Shiller reports. Helpfully, Case Shiller does publish seasonally adjusted monthly figures in Table 3 of the release notes to their monthly index reports.
This is an important caveat to the use of the Case Shiller Index, as Standard & Poor’s, publishers of the Index, have warned their readers during periods of market dislocation. At such inflection points, “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.
From the first of these recommendations, we can see that as described in the press release, the year-over-year change in the Seattle Index is still comfortably positive at 8.39 percent for September 2018—2.85 percent greater than the year-over-year increase for Los Angeles, 3.25 percent higher than that of Case Shiller’s 20-Year Composite Index, and more than twice as great as the results for San Diego.
“I view seasonality, and the recent market pause centered around Amazon’s HQ2, like a speed bump in our trajectory,” said Dean Jones, president and chief executive officer of RSIR. “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: Multi-year price trends show the seasonal pattern of selling prices, which have tended to peak between mid-spring and early summer. Note the resurgence in November 2016 following the imposition of the Vancouver foreign buyers transfer tax on home sales. These data are for King, Snohomish, and Pierce counties—those factored into the Case Shiller Seattle Home Price NSA Index.
To further illustrate this point, we have compiled residential sales data from the NWMLS for the areas covered by the Index in the indicated months. Although these data are not equivalent to those surveyed by Case Shiller, they accurately represent the prices that buyers and sellers of single-family homes have encountered in the market. These data show that far from falling, median selling prices continue to rise—just not as quickly—among the areas of this region covered by the Index.*
*Selling data for “Lake Washington Eastside” comprise transactions in the following communities: Beaux Arts, Bellevue, Clyde Hill, Hunts Point, Issaquah, Kirkland, Medina, Mercer Island, Newcastle, Redmond, Sammamish, Woodinville, and Yarrow Point.
As for the seasonally-adjusted columnar Index results advised by S&P for monthly comparisons, those for Seattle were -1.0 percent in August and -0.3 percent in September. The figure of -0.1 percent for July 2018 was revised from an initial result of +0.3 percent.
Yet these results still appear to report a (very modest) decline. What would cause the Case Shiller Index results to vary from NWMLS transaction data?
In order to better assess changes in value, the Case Shiller Index uses the “repeat sales methodology,” which only factors properties that have sold more than once, and includes qualitative adjustments. This means that newly-constructed home sales and condominiums as a product category (new or resale) are also excluded from the transaction sample. By contrast, NWMLS data include all transactions of homes listed and sold. This is arguably a more comprehensive pool of transactions for intraregional price analysis, but not one practical for nationwide comparisons. It’s also worth noting that the Case Shiller Index, while helpful, covers a very broad area including King, Snohomish, and Pierce counties, and so individual sub-markets, product types and price points will also generate differing results.
“Real estate is hyper-local,” Jones added. “I’d encourage consumers to contact one of our brokers—resident experts who live and work in the subject neighborhood—to help explain what’s happening in individual microclimates.”
For Seattle’s comparative performance on the Case-Shiller Index, see our 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 a local RSIR broker for their latest analysis.