Real Estate Outlook 2009: Thawing the Frozen Market

When Amy Bohutinsky bought her Greenlake home exactly two years ago, she and her husband chose a small house in which to start their family. "At the time, we said this is a great small-family home, and if we expand our family, we'll need something bigger," recalls Bohutinsky, who gave birth to her first child in November 2007.

Today, Bohutinsky is considering having more children, but her housing plans have changed. "It's no longer a question of trading up but how we can make the current house work for five years," she says. "We do not want to lose money on the home."

The question homeowners in her situation have to ask themselves, she adds, is, "Do I have to sell now?" It's a question with no definitive answer.

Bohutinsky, vice president of communications at the Seattle-based Zillow online real-estate service, is part of an unfortunate sliver of the real estate market: people who purchased a house in the past three years. For many in this segment, their home values are now worth less than what they paid.

The most recent real-estate figures available at press time were not very encouraging. According to Zillow, homeowners in the Seattle-Tacoma-Bellevue metropolitan statistical area (MSA) saw their home prices drop by 9.3 percent, year over year, during the third fiscal quarter of 2008. This decrease has left more than one in five purchasers in 2006, 2007 and 2008 owing more on their house than it is currently worth.Overall, home prices in the King, Pierce and Snohomish county area have dropped 11.2 percent from the real-estate market's peak, which experts say was the second quarter of 2007.

The Northwest Multiple Listing Service also reported that the October 2008 median price of a home in King County dropped to $358,000. It was the first time since early 2006 that the median price had dropped below $400,000. Local real estate experts and economists say housing values will recover some of the pricing power lost in the last half of 2008, but most agree that it won't happen in 2009 due to the national recession and uncertain economic climate.

Historically, national recessions have averaged 10 and a half months in duration; the last two downturns were a bit shorter, lasting eight months. Any other predictions as to the degree or duration of the expected economic recovery, however, are hard to come by these days.

Given the last few months of

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