If you paid attention to the news last week, you saw that US housing prices tumbled faster than expected in December—a sign that the national housing bubble is still in the process of deflating. And what a deflation it’s been: the Case-Shiller Home Price Index of major US metro areas had fallen 27 percent from its August 2006 peak.
For the Northwest, the news is perhaps a little less dire. Housing prices are down “only” 17 percent from their highs in Seattle, and 15 percent in Portland. That’s still significant, obviously, but a bit less gruesome than the overall US market for metro-area housing.
But if you take a closer look at the numbers, it’s not really accurate to say that Portland and Seattle homes are holding their value well. Instead, the Northwest housing market simply didn’t overheat the way it did in Florida, California, and in cities like Phoenix and Las Vegas.
In the chart to the right, the orange line is the Case-Shiller Composite-20 home price index, which tracks housing prices in 20 major cities by looking at the sale of identical houses. (Tracking same-house sales helps control for the effects of changes in the stock of housing.) As you can see, it took a while for the housing bubble to really get going in Seattle and Portland. And the Northwest bubble never quite reached the insane heights that it did in many parts of the country.
In a nutshell, then, housing prices in Northwest cities are deflating less because they inflated less. As major west coast cities go, Seattle and Portland got off pretty lightly during the housing bubble; we were bit players in a much bigger story.
Obviously, though, it didn’t seem that way at the time.
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While the bubble was raging, press accounts seemed to talk about the Northwest’s housing inflation as somehow unique, unprecedented in scale, and the result of very special local circumstances. In short, the housing bubble was covered first and foremost as a local story, not as a small piece of a national one.
And to make matters worse, everyone looking at the issue of rising home prices had a different, primarily local diagnosis for skyrocketing home prices: Some said it was too much regulation. Others blamed new, expensive condos for crowding out the middle class. And so on.
Now, I’m not suggesting that I know better than all of the self-proclaimed housing experts. But one thing is pretty clear: the housing bubble distorted everything. The bubble was national in scope, it was somewhat unpredictable, and it was irrational. Sure, housing prices were probably influenced a bit by local regulations, regional economic trends, and all sorts of other forces. But trying to read the tea leaves to understand why housing prices accelerated faster in Phoenix than in Portland, faster in Portland than in Dallas, and faster in 2005 than in 2004, is something approaching pointless.
To me, the people who were so sure they understood the dynamics of an irrational, hyperventilating housing market—and I’m particularly thinking of the condo-bashers and the anti-growth management types—were just fooling themselves.
Of course, I don’t really mind when people fool themselves. What I do mind is people who invent facts—and then present themselves as having facts on their side. And where affordable housing is concerned, there was an an awful lot of that going around.