Home Price Growth In Seattle’s Satellite Metros Rockets Past That Of Jet City

By William Hillis |

By October, the market shocks of the spring and summer ended with seemingly no influence over residential price trajectories in the Puget Sound region. Seattle remained in second place for a ninth month on the Case Shiller Home Price Index, trailing only Phoenix, whose 12-month gain widened to 12.7 percent. At 11.6 percent, San Diego’s increase closed to within a rounding error of Seattle’s year-over-year price growth of 11.7 percent. Phoenix’s lead can be explained in that although prices there are generally lower than either of the two nearest competing metros, Case Shiller’s estimated ten-year return on a purchase in The Valley exceeded those of all West Coast cities at 7.71 percent. San Francisco’s 7.51 percent rate of return came closest; but Seattle led the rest with a 7.07 percent ten-year ROI.

Rather than tread again the well-worn paths of comparing the major metropolitan areas or revisiting current inventory levels, we will instead look at a different home price index: that of the Federal Home Loan Mortgage Corporation, or “Freddie Mac.” While the Case Shiller Index focuses on 20 major metropolitan areas, Freddie Mac’s index spans 367 metropolitan areas, including smaller satellite areas of the major cities. This allows us to extend our analysis to the regions surrounding Seattle and its competing metros to see what is happening outside the urban centers. In so doing, we find that Seattle’s home price growth is part of a larger story unfolding across Puget Sound and Washington State.

The CoreLogic Case-Shiller Home Price Index[1] results published by S&P Dow Jones on December 29 showed monthly residential price growth slowing to 1.06 percent for the Seattle MSA, outpaced by San Diego at 1.7 percent, by Los Angeles at 1.1 percent, and by the 20-city composite at 1.33 percent. The home price indices of competing cities advanced to 8.9 percent from 7.6 percent year-over-year at Portland, Oregon; to 8.4 percent from 7.6 percent at Los Angeles; and to 7.7 percent from 6.3 percent at San Francisco (Charts A and B).

As Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices observed,

The housing market’s strength was once again broadly-based: all 19 cities for which we have October data rose, and all 19 gained more in the 12 months ended in October than they had gained in the 12 months ended in September.

Phoenix’s 12.7 percent increase led all cities for the 17th consecutive month. Seattle (11.7 percent) and San Diego (11.6 percent) repeated in second and third place. Prices were strongest in the West and Southwest regions, but even the comparatively weak Midwest and Northeast (up 7.7 percent and 7.9 percent respectively) performed creditably well.[2]

The quiet flight

While acknowledging up front that residential prices in Phoenix remain substantially lower than those in Seattle—42.3 percent lower in November 2020[3]—we can perhaps learn something by using the Freddie Mac HPI to compare Phoenix with other MSAs in Arizona, and to do the same for Seattle, our West Coast competitors, and their own smaller satellite cities. (We begin by noting that Freddie Mac’s index does not directly compare with Case Shiller, as the HPI index only includes mortgaged homes within the conforming loan limits, and so does not factor sales with jumbo mortgages. This is why our regular analysis focuses on Case Shiller.)

In the charts that follow, the time series starts in January 2018, one month after Janet Yellen announced that the Federal Reserve Open Market Committee had agreed to raise the benchmark Federal Funds rate to more than 1¼ percent. To this month, we have indexed the monthly Freddie Mac HPI values through October 2020 for Phoenix, all of the major West Coast cities, and for each, five or six smaller statistical areas in their vicinities. To aid in comparison, we use the same index scale for all these charts.

In Chart C, we immediately see that over the past two years, Seattle has outperformed all other major cities on the West Coast. Only home prices in Phoenix have advanced more quickly. Among the remaining charts, a few general observations stand out (continued):

  • Chart D: The trend pattern in Southern California home prices is homogeneous, including not only San Diego and Los Angeles, but among their satellite areas. Home prices in all these areas appear to be slower-rising (although recall that as of the October Case Shiller report, San Diego has nearly caught up with Seattle on a 12-month basis).
  • Chart F: There is another trend pattern for home prices in areas distant from the coast that is evident in the price increases in Arizona generally, not just Phoenix. This pattern is generally higher or faster-rising.
  • Charts E, G, and H: There is a third home price trend pattern evident in Washington and Oregon, and to a lesser extent, the Bay Area. In this pattern, home prices in the cities are slower-rising, while in the satellite areas of those cities, prices are faster-rising.
  • Each of the charted trends antedates the COVID-19 lockdowns and the coincident urban unrest by more than two years. Although those events may appear to have accelerated them, these trends were already well-entrenched.

We do not aim here to interpret the reasons for the divergences. We do note that while the interest rate changes were generally felt, some buyers would inevitably be influenced more than others. For example, it is certainly possible that in areas with lower prices, a trend toward higher interest rates caused more buyers to accelerate their purchases, while in areas of already-high prices, it caused more buyers to fail qualification and turn instead to shopping for homes farther from employment centers.

The slower-rising trend in Southern California may be due to buyers’ political concerns, or it may simply be attributed to the quality of life in that region being fully factored into home prices there.

We observe that San Diego, Los Angeles, and Phoenix are in the upper range of trends in their corresponding regions. In Arizona, only the Lake Havasu/Kingman area appears to have offered a stronger return than Phoenix.

On the other hand, several areas in Washington and Oregon appear to have offered better prospects than Phoenix, including the Kitsap Peninsula; Longview/Kelso, Washington; and Albany, Oregon.

With one last look at Chart H, we note that the spillover of demand from Seattle into the exurbs is well-documented in our previous reports and evident from the depletion of inventories in those areas during this same period. What this chart shows is that while residential prices continue to rise in Seattle, plenty of headroom for return on investment may be found in the surrounding areas.

For more details on the October 2020 Case-Shiller Index results, download the S&P Dow Jones Case-Shiller summary report. For details on the market implications of our reports for homes in your neighborhood, contact a local RSIR broker.  

[1] Published by S&P Dow Jones, the Case Shiller Index surveys resales of residential homes in the Seattle MSA. The index notably does not account for condominium sales. “S&P CoreLogic Case-Shiller Index Shows Annual Home Price Gains Remained Strong in October,” S&P Dow Jones, New York, 29  December 2020.

[2] Ibid.

[3] Inventory and sales data according to Zillow Research, 30 December 2020.