Homeowners who’ve been keeping up on the real estate market over the past few weeks can be forgiven if they appear a bit shell-shocked by what they’ve seen or heard. For example, one prominent economist, Robert Schiller (best known as co-originator of the widely-quoted Case-Schiller Index of home prices), recently went on record stating there’s a risk of an additional 15% to 25% decline in real estate values nationally. At the same time, there’s been commentary, led by FDIC chief Sheila Bair, of a possible “double dip” in residential property values, resulting from the alleged failure of the mortgage industry to properly handle foreclosures, resulting in a potential new wave of foreclosure actions this year.
Foreclosures, indeed, are being blamed locally as an ongoing factor in declining house values. The Seattle Times headlined a recent story with this: “Median home price in King County drops in February, dragged down by repos.” And a recent press release by the Northwest Multiple Listing Service (MLS) notes that “distressed properties” (bank-owned homes and short-sale situations) are having a downward impact on the local market, at least in the opinion of many local brokers. Windermere Real Estate president O.B. Jacobi is quoted as saying that he thinks that many sellers are reluctant to compete with the prices of distressed properties and are therefore withholding their homes from the market, driving down inventory. Whether as a result of foreclosures or otherwise, it’s a fact that for King County as a whole, the median value of single-family homes sold in February was down 6.8% from a year earlier, according to the MLS. Since the Puget Sound market high in July 2007, the median price of sold houses has fallen by a horrific 30%.
But are foreclosures influencing the behavior of the Madison Park market? We decided to find out. Information, admittedly, is a bit sketchy on the subject. Real estate website Redfin reports that there were no foreclosures in Madison Park during 2008 and 2009. In 2010, however, it appears there were three. Redfin currently lists only one Madison Park home that was foreclosed upon and is still bank owned: a 2,000 sq. ft. house, built in 1981 and located near McGilvra School. The owner had purchased the property for $1,350,000 at the very height of the neighborhood’s real estate market, summer 2007. The home was auctioned in October last year for $1.1 million.
The King County Assessor, meanwhile, lists two homes in our market as having changed hands in 2010 as a result of a “financial institution resale.” While this kind of transaction can result from a foreclosure, it can also occur when a bank takes a home back from a homeowner through a voluntary repossession (the infamous repo). One of the two bank repos last year was of a 1,660 sq. ft. home on 41st Ave E. Built in 1926 and extensively remodeled in 1975, the house sold for $774,000 in November. It had been listed at $998,000 when originally offered for sale in May 2009.
The other local home offloaded by a bank in 2010 was an unsold spec house, built in 2007 and located in Washington Park on the border with Madison Valley. That home (shown above), totaling 4,800 sq. ft., was sold in September for $1,180,000, having originally been offered for $2,750,000 when placed on the market in early 2008. It was still being listed at $1,300,000 last summer.
First American CoreLogic, a real estate data service, reports there are two bank-owned properties in Madison Park, neither of which is listed for sale. No fewer than ten Madison Park properties, however, are the subject of upcoming Trustee’s Sales. A Trustee Sale is part of the foreclosure process, and it generally results in the lender owning the property, unless someone else bids more than the amount of the mortgage at the time of the auction. An upcoming Trustee Sale in April will auction “the only vacant lot in Broadmoor,” a piece of land that was listed for sale at $2,750,000 in early 2009 but was most recently listed at only $1,295,000. Still, no takers. The original mortgage amount was $1,968,000. Among the other properties soon facing auction in the neighborhood are an unsold spec house in Washington Park, a condo in Canterbury Shores, and two side-by-side houses above McGilvra Boulevard E., overlooking Lake Washington. Virtually all of these properties, once the Trustee’s Sales have taken place, will become additions to the list of bank-owned properties in the market.
|These two properties, located on McGilvra Boulevard E. near the Seattle Tennis Club, are scheduled to be auctioned in Trustee's Sales later this spring, according to First American CoreLogic.|
Another category impacting house values is short sales (sales that must be approved by the lender because the sale prices are less than the mortgage amounts). Redfin currently identifies five such situations in Madison Park. Two of these are small condos in Canterbury Shores, each priced at under $300,000; but the other three are houses listed at over $1 million apiece. The largest of these is a classic 6,580 sq. ft. 1929 brick mansion, located strategically on the ninth fairway of the Broadmoor Golf Course. Originally listed last year at $2,665,000, it is now priced at $2,350,000.
In the context of the overall Madison Park real estate market, these short-sale properties, along with the properties which are bank-owned or soon-to-be-foreclosed, appear to be a relatively small factor. There are currently 81 properties listed for sale in Madison Park, of which five are potential short sales and none is bank owned. These distressed properties, therefore, represent only 6.3% of the total real estate inventory in Madison Park, though the possible addition of ten new bank-owned properties in the next few months may push the number of listed distressed situations a bit higher.
This is now the level of distressed properties in Madison Park compares to the bigger real estate environment in which our inventory competes:
So, comparatively, Madison Park is at the moment in pretty good shape. Nevertheless, the bottom line is that whenever there are motivated sellers, such as banks, there is downward pressure on prices. The greater the number of bank-owned properties for sale, the greater the potential impact on the market. Foreclosures are certainly increasing in Madison Park, as in the rest of the region. SeattleBubble.com, a real estate blog, reports that in King County foreclosures were up 27% in February, compared to the same month a year ago. Clearly the trend is yet to play out.
[Thanks to Redfin for providing statistical information used in this report. Madison Park statistics include Washington Park and Broadmoor.]