Why haven't Seattle Real Estate values depreciated??

According to a real estate trade group, pending home sales droped 3.5% in May, compared to the revious month. This places the National Association of Realtors' Index at its lowest point since September 2001 ( which was the start of the current real estate boom). But in Seattle, home values continue to rise. How can that be?

First, let's define a market. People look at the stock market and assume that when they want to sell, they can. This is true for large caps, but not for small stocks and microcaps. Even with large caps, the prices dymanically adjust as sellers MUST sell and buyers adjust their prices down in lots. (ok, I'll take 20k shares at this price, 10k at this lower price, etc.) Prices quickly adjust down to the market value.

In a real estate market, prices are not that dynamic. Few sellers MUST sell, so if they don't get the price they want they just pull their houses off of the market. Summer is typically when the people who MUST sell put their houses on the market. They use the comparables to price it and when they don't get the price they want, they slowly lower the price. Then some buyer comes in and "low-balls" them and they have to take it. Now, the home that the owner thought was worth $800k gets sold for $700k and that new comparable now becomes the market price for comparable homes.

Voila! NOW we have a down market.

Due to the population growth Seattle is an anomoly as far as real estate markets go. The population is growing and there is almost nowhere left to build, so almost everything sells. The area is also flush with cash, so rather than selling property in a land-locked area for less than the owners perceived value they just keep the house as an investment property until such time as the market improves. This creates artificial price support for the market.

It will be interesting to see the median sale values for Seattle at the end of the summer.