In 2019, Puget Sound Home Prices Couldn’t Stay Lower For Long

By William Hillis |

Last year’s home buying behavior shifted sales away from Seattle’s most expensive markets; but relief was temporary. The demand for more affordable homes further out exhausted the inventory in those areas, causing regional prices to rebound by autumn as demand returned to Seattle and the Eastside, These are the factors shaping the decline and subsequent recovery in Seattle’s S&P Dow Jones CoreLogic Case Shiller Home Price Index over the course of 2019.1 The index results released for December 2019 show year-over-year residential price growth in Central Puget Sound ending the year at 4.1 percent—just one percentage point lower than where it began in January, fully reversing its negative turn from May through July. Having earlier surpassed price growth in multiple cities nationwide, Seattle’s index growth for the year also exceeded the National Index increase of 3.8 percent (Chart A). Closer to home, the December index result for Seattle finally bested that of Portland, Oregon (+3.7 percent), the West Coast city whose residential prices had proven most resilient over the preceding year (Chart B).

Selling conditions had improved generally across the country. According to Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices,

At the national level, home prices are 59 percent above the trough reached in February 2012, and 15 percent above their pre-financial crisis peak. Results for 2019 were broad-based, with gains in every city in our 20-City Composite. … As was the case last month, after a long period of decelerating price increases, the National, 10-City, and 20-City Composites all rose at a faster rate in December than they had done in November; 12 of our 20 cities likewise saw accelerating prices. It is, of course, too soon to say whether this marks an end to the deceleration or is merely a pause in the longer-term trend.2


Chart A


Chart B
Chart B: Among West Coast cities, only year-over-year residential price growth in San Diego continues to exceed that of Seattle.

We have previously observed in this column the influence of surging inventories on residential prices in the region beginning in the spring of 2018, and continuing until the fall of this year. Year-end home selling data—obtained from the Northwest Multiple Listing Service (NWMLS), and compiled and analyzed by Realogics SIR—provide additional context in support of this conclusion. These data also hint at another crucial factor: the “drive to affordability.” Brokers and clients may have wondered why, as the Seattle Case Shiller price index rose through the end of the year, prices in the more affluent Seattle and Eastside markets remained stubbornly lower. The short answer is that prices in these areas were already at the high end of the price spectrum, while prices further below were rising with increased demand in the more remote corners of the Seattle MSA.

Regular readers may recognize Chart C below, which we have previously published to show the aforementioned swell of inventories. In Chart D that follows, those inventories are broken into listings by commute origin: Seattle and the Eastside, listings of homes within a commuting distance of one half-hour to an hour’s drive (“close-in”), both north and south, and listings of homes in more distant communities within reach of a “long commute” of one to two hours (but still inside the Seattle MSA).3 The pink and green trend lines, representing long commutes north and south, respectively, show durations of home selling inventory up to a month shorter than those at the heart of the region.


Chart C
Chart C above, and Chart D below: the seven-month inventory bubble responsible for this year’s lower prices comprised slow-moving inventories in Seattle and on the Eastside, and sparser inventories in the remote areas to which value-seeking home buyers fled.


Chart D


The impact of inventories on home prices explains the divergence between the index results and residential prices at the urban core. Home prices further out continued to rise through 2019, although at a slower pace than the year before. Meanwhile, prices among the most affluent Seattle and Eastside communities began the year already two or more times the median price for the Seattle MSA. Even so, selling prices at the 90th percentile in these areas scarcely moved year over year; it was the lower ranks of prices in these areas that ended the year in decline (Chart E). Yet those retracements left sellers of even the most affordable homes in these premium areas with higher returns than sellers in the northern and southern suburbs.

To illustrate, a prospective buyer of a residential home priced at the 25th percentile in Seattle in 2019 would have paid $589,000. Had that buyer been willing to commute for an hour or two to work, that same buyer might instead have invested an equivalent amount to purchase a home priced at the 75th percentile among residential homes in a northern suburb, or at the 90th-percentile price among residential homes in the south (Chart F).


Chart E



Chart F


For more details on the December 2019 Case-Shiller Index results, download the S&P Dow Jones Case-Shiller summary report. Check the RSIR web site for notice of upcoming publication of our 2019/2020 Market Report, due in April 2020. For details on the market implications of our reports for homes in your neighborhood, contact a local RSIR broker.

1Published by S&P Dow Jones, the Case Shiller Index surveys resales of residential homes in the Seattle metropolitan statistical area comprising King, Snohomish, and Pierce Counties (“Seattle MSA”). The index notably does not account for condominium sales.
2“S&P CoreLogic Case-Shiller Index Shows Growth in Annual Home Price Gains to End 2019,” S&P Dow Jones Indices, New York, 25 February 2020.
3The data charted comprise 2019 residential sales by city as follows, according to rough approximations of inbound morning commuting times from those cities:
All areas of the city
Bellevue, Kirkland, Mercer Island, Medina, Clyde Hill, Yarrow Point, Hunts Point, Beaux Arts, Renton, Newport Hills, Newcastle, Redmond, Sammamish, Issaquah, Fall City, and Preston.
“Close-in north” (30 minutes to one hour):
Shoreline, Lake Forest Park, Edmonds, Mountlake Terrace, Lynnwood, Brier, Kenmore, Bothell, Woodinville, and Woodway.
“Long commute north” (one to two hours):
Mukilteo, Mill Creek, Everett, Snohomish, Monroe, and Marysville.
“Close-in south” (30 minutes to one hour):
Burien, Normandy Park, Des Moines, Tukwila, Seatac, and Kent.
“Long commute south” (one to two hours):
Federal Way, Maple Valley, Covington, Auburn, Algona, Pacific, Milton, Edgewood, Fife, Tacoma, Puyallup, Sumner, and Lake Tapps.