Report: State has small under-supply of available homes

By Aubrey Cohen
SeattlePi.com Staff
June 23, 2009

While developers are unloading unsold homes at auction, slashing prices and offering incentives such as low interest rates and cash bonuses, Washington doesn't actually have an oversupply of vacant homes, according a new report.

Washington had approximately 31,900 vacant homes last year but would have been expected to have 1,100 more than that, based on vacancy rates from 1999 to 2001, according to the 2009 "State of the Nation's Housing" report by the Joint Center for Housing Studies of Harvard University.

This means the state had an under-supply of owner-occupied homes of 0.1 percent. Just five states had a larger under-supply -- North Dakota, Wyoming, Oregon, New Mexico and West Virginia.

"We haven't built as many units in the past 10 years as we probably needed," said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

Thank the state Growth Management Act, he said. "In a sense it protected our builders from our own excesses and, as a result, we don't have as large a supply of unsold new homes in the state of Washington as other booming markets had."

Those other boom states include Nevada, which had the largest oversupply (3 percent of owner-occupied homes) and Florida (second, with a 2.5 percent oversupply). Other states, such as Michigan, which tied with Florida, can pin their oversupply on a tanking economy.

So if Washington has an under-supply, what's with all the desperate sellers? The state's problem appears to be a lack of willingness and ability among potential buyers, not a lack of potential buyers, according to WSU's Crellin.

"I think at current sales rates we probably do have an oversupply, but I don't think it's going to take very much to bring our market back into balance," he said. "We've got folks doubling up a little bit, waiting for the conditions to turn around."

The Harvard report also added new perspective to how Seattle's boom and, so far, its bust have differed from those in many other areas.

The report shows that the area's median home price, as a multiple of median household income, shot up during the boom and has fallen back somewhat since peaking in 2007.

But Seattle's affordability ranking among U.S. metro areas actually improved during the boom, because affordability in other areas worsened faster, and has fallen since, because prices in other areas started falling earlier and have dropped further.

Crellin does not expect our price drops to catch up to those in harder-hit places.

"My expectation is that we're not going to see as significant a decline as some of the places like Las Vegas, Phoenix, parts of Southern California have to deal with, in large part because we didn't run up as much," he said. "We were not as far out of balance."

Looking nationwide, the report said rising mortgage interest rates and continued contraction in the economy would continue to hinder a housing recovery.

"Although there are some signs of improvement or at least steadiness in new construction and sales, housing starts stand near 60-plus-year lows, and any life in home sales is coming from distressed foreclosure sales, temporary first-time buyer tax credits and low interest rates," center Director Nicolas Retsinas said in a news release.

Inventories of vacant and for-sale homes are at near record levels, despite sharp decreases in housing production, center Executive Director Eric Belsky noted.

"The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery," he said. "For now, markets remain under considerable stress."

The report also noted that minorities have sharply higher unemployment rates, are more likely than others to spend more than half of their incomes on housing and are more likely to live in neighborhoods with higher foreclosure rates and bigger house price drops.

The number of households spending more than half their incomes on housing rose from 14 million in 2001 to 18 million in 2007 -- before the economy began to shed jobs, the report said. Among those in the bottom 25 percent of income earners nationwide, 51 percent of renters and 43 percent of owners spent more than half their income on housing. "As the report clearly articulates, for those who are already weighed down by unsustainable housing cost burdens -- that is, the lowest-income people -- the recession exacerbates the fragility of their housing," said Sheila Crowley, president of the National Low Income Housing Coalition. "We will see more homelessness as unemployment drags on."

The good news for the real estate industry is that demographics point to strong future demand, with the largest generation in American history reaching young adulthood in record numbers over the next decade. So, even if immigration falls 40 percent below the average of the first half of this decade (to just half of U.S. Census Bureau projections), household growth in the next decade should rival the solid increases between 1995 and 2005, the report said.

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