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caption: Townhomes in Seattle's Wallingford neighborhood
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Townhomes in Seattle's Wallingford neighborhood

Seattle home prices are dropping. The last time this happened was during the recession

Kim Malcolm talks with Seattle Times reporter Mike Rosenberg about why the Seattle area is leading the nation in home price decreases.

Over the last three months, the price of a home in the Seattle area dropped by 3.3 percent, the largest decrease in the U.S. The median price of a house in Seattle is now $750,000. On the Eastside, it's $890,000.

Malcolm: How often do we see a drop in house prices?

Rosenberg: The numbers don’t look that big. It’s only been about 3 percent over the last three months, but that’s a huge change from where we’ve been. Just earlier this year, prices were rising 8 percent over a three-month span.

So it’s been quite the turnaround and it’s been pretty sudden as well. Typically, you’ll see maybe sometimes in the winter, even during hot markets, that prices will kind of flat line. That’s what’s happening with rents right now.

But for prices to go down, it’s pretty rare. So last time this has really happened was during the recession.

It was just a few months ago when Seattle was leading the nation in home price increases. So what happened?

It’s been a few things. The biggest is interest rates – they’ve gone up. It doesn’t look like a big increase, but for somebody who was buying home at $700,000 last year, all of a sudden maybe you can only afford $600,000 this year, just because interest rates have gone up so much. That’s a national trend.

But one of the things that’s really happening here locally is rents have really stopped rising. Really it’s been for the last year, as we open a record number of new apartments, rents have completely stopped rising, and in some places, gone down.

So there’s just not that pressure to get into the market anymore when you know you’re going to have to deal with rent increases every year, now you can sort of sit tight and wait things out.

Do you think this trend is likely to continue?

I think there’s a consensus that it’ll continue over the next three to four months at least just because the winter is usually a slow time. The big question everyone is waiting for is the spring because that’s almost always when the market booms back up again. So if that does happen again in March, April, May – then maybe we’ll look back at this as a blip. But if this continues next spring, then I think that’ll be the last sign to say that this is a long-term trend and sort of the new normal.

Prices may be falling, but they’re falling from quite a height. Should middle-class folks expect to be able to buy a home any time soon?

No, it’s really too late for most people. All of these price increases as we’ve seen for month after month after month for the last six years have already taken their toll.

If you’re looking at prices going down 3 percent, that sounds nice for somebody priced out of the market. But if they went up 75 percent for the previous six years, that’s a drop in the bucket.

If you can’t afford a house at $750,000 you’re probably not going to be able to afford it at $725,000. You’re really just moving from really unaffordable to slightly less unaffordable.

For a lot of buyers, it really doesn’t matter at this point whether prices tick down a little bit. They’re going to have to really plummet for them to be able to get back in the market.

So is Seattle now a city where the dream of home ownership for a middle class family is pretty much just not going to happen?

Sadly, yeah. I think so. There’s very few times in history really – the recession was the only time – when prices dropped significantly. Unless you’re expecting that to happen again, and be even more significant than it was during the bubble a decade ago, I mean we’re kind of here to stay.

We’ve seen other cities – San Francisco, Vancouver, New York – once you sort of get up into that high-priced stratosphere, you don’t go back down. I think that’s the future that Seattle is facing.

This transcript has been edited for clarity.