Housing prices defy logic, keep climbing

Economics 101 teaches that prices should drop when the supply increases dramatically, but the Seattle area's housing market keeps confounding that conventional wisdom.

Prices of King County houses and condominiums last month increased 9 percent compared to a year earlier -- even while the number of available properties grew 51 percent.

Likewise, the number of homes for sale was up 57 percent in neighboring Snohomish County and 47 percent in Pierce County, according to July numbers released Monday by the Northwest Multiple Listing Service.

This continues a trend that has persisted for several months.

Yet prices in all counties rose, also continuing a trend, though at a slower pace than the double-digit rates of a year ago.

Windermere Real Estate general manager Matt Deasy says that until recently he expected the significant increase in the number of homes for sale to halt the continuing rise in prices. "I would have said appreciation would stop," Deasy said.

But so far that hasn't happened.

Why rising inventory isn't having the anticipated effect is hard to pin down, but there are theories.

All revolve around the idea that an increase in the number of for-sale homes isn't necessarily a negative factor that would cause prices to fall.

• Theory 1: Last year the number of homes for sale was unusually low, so this year's increase isn't an overabundance that's flooding the market and driving down prices. That's true in close-in Seattle and Eastside neighborhoods where buyer demand is strong enough to handle increased inventory, particularly in the more affordable price ranges.

In the Ballard and Green Lake neighborhoods, for example, buyers last month bid up the median list price of $450,000 (for houses, condos and town homes combined) to a median sales price of $453,000. Homes priced below the median sell briskly.

• Theory 2: Move-up buyers, who were reluctant to put their homes on the market last year for fear they wouldn't be able to find a replacement, are doing so now, and that's increasing inventory. Mortgage rates below 7 percent are helping them make the move.

• Theory 3: Having heard that sales are slowing, many buyers feel they can take their time. They aren't snapping up houses as fast as they did in 2005 and 2006, so houses are sitting longer on the market.

Indeed, July pending sales -- deals agreed to last month but not yet finalized -- were down 6.5 percent in King County compared with the previous July. They dipped 14.2 percent in Snohomish County and 15.8 percent in Pierce County.

That gave buyers in some areas a distinct advantage.

"People are able to shop around for quality and value," said David Milot, broker-owner of RE/MAX Metro Realty. "Anything substandard is not being snapped up."

• Theory 4: Inventory is building because overpriced homes no longer can count on playing the "catch-up game."

"Two years ago, if a seller wanted to [insist on a maximum] price, it might sit on the market for a couple of months, then appreciation would catch up and it would sell," Deasy noted. Now they may wait awhile but will eventually drop their price to land a sale.

What role the national subprime-mortgage meltdown may be playing here is hard to gauge.

There's no way to know how many of the 12,902 houses and condos for sale last month in King County were on the market because their mortgages were resetting to unaffordably high payments.

As for foreclosures, King County had 335 foreclosure auctions last month, according to Foreclosures.com.

That's a per capita foreclosure rate of 0.31 percent, far below the national rate of 0.81.

Meanwhile, appreciation continues to grow, particularly in King County.

Single-family-home prices have crept up every month this year, rising from January's median $429,495 to July's median of $481,000.

Median house prices in Snohomish County have bobbled up and down, from a low of $356,000 in February to June's high of $381,000 before dipping to $370,165 last month. Temporary dips are common.

Pierce County has seen median house prices rise from $272,500 in January to $288,950 in July.

Elizabeth Rhodes: erhodes@seattletimes.com