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Seattle Times business reporter Elizabeth Rhodes posts the answers to your real estate questions as they pop up during the week. Join this ongoing discussion, which also features reader reaction to real-estate articles appearing throughout The Times.
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October 15, 2008 8:00 AM
Posted by Elizabeth Rhodes
Q: In April 2006 you quoted a local appraiser who predicted home prices here would rise substantially in 2006 and 2007. How could an experienced appraiser not have seen how the impending mortgage crisis would affect our housing prices?
A: It wasn't just one appraiser saying housing here would remain robust through 2007. Local economists said the same thing and cited the same reasons, including not enough homes being built to meet the demand created by increased local hiring.
First, let's see if they were wrong about '06 and '07. None of the four central Puget Sound counties -- King, Snohomish, Pierce, Kitsap -- posted less than 10 percent annual home appreciation in 2006. That's roughly twice the annual average of the past two decades.
In 2007, King and Snohomish counties each registered just over 7 percent appreciation, Kitsap County had 5.6 percent and Pierce County 4.2 percent.
King County has the bulk of home sales. Its actual home prices -- not to be confused with the appreciation rate -- didn't decline year over year until this May, when the median price dipped 2.9 percent. By that time surrounding counties were reporting at least five months of falling prices.
Meanwhile foreclosures here, which many link to subprime loans, have consistently lagged behind national averages. So have the number of subprime loans. They were much more prevalent in foreclosure-plagued Sunbelt states than here.
Economists say that accurately forecasting more than about 18 months out is extremely difficult. In 2006, no one foresaw the full scope of today's problem: How high numbers of toxic subprime loans, combined with obscure Wall Street machinations and lax regulation, would create the financial tsunami that overwhelmed the world's financial systems.
Indeed Princeton University economist Paul Krugman, winner the Nobel Prize for economics, said this past week that he never thought he'd see economic conditions similar to the Great Depression. If Krugman didn't, what hope was there for the rest of us?
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