Vol. 15, No. 36, March 3, 2003

The Puget Sound Real Estate Bubble:
The Windermere Index

Conway, Pedersen
Dick Conway (L) & Doug Pedersen

With a past presidential introduction by Past President Don Deasy, a pair of economists set out to set the record straight regarding a “bubble” in the Puget Sound Real Estate business. Commissioned to develop the Windermere Index, Dick Conway and Doug Pedersen have produced a quarterly index first published in the first quarter of 2002. Its purpose is to chart trends in residential real estate.

Doug Pedersen opened by explaining how the index was devised. “Windermere had expressed an interest in a report that would measure residential real estate activity in the Puget Sound region. They needed a single report framed around market conditions, easy to understand, and updated regularly. The Index approach was the model chosen to account for measuring real estate activity. Seasonally adjusted data allows comparisons from one issue to another and from year to year. We chose a quarterly index to express this data.”

The Windermere Index consists of three major components: 1) the number of closed home sales (units); 2) time the property was on the market in days; and 3) average closed sales prices in dollars. This information is combined into single measurement. “Today, the real estate market is as healthy as it’s ever been,” Pedersen remarked. “Even though the last quarter report showed the average closed sale price dipping slightly and the average time to sell a house lengthened, it was not enough to offset the total sales, so the index went higher.”

The Windermere Index is supported by three other indexes familiar to realtors. Housing Demand, Housing Supply, and Housing Affordability. The Housing Demand Index and the Windermere Index, although largely different, seem to track together. The last couple of years, despite a steep drop in demand, each index has set records. Charts detailing the specifics of the Index are posted on Windermere’s website at

Dick Conway, principal in Dick Conway & Associates, shared the lectern, first reminiscing about the day two years ago when the earthquake struck Seattle. “I was just coming down the stairs of an office building in Pioneer Square when it hit. I thought the whole stairway was going to collapse. I made it out to the street with my car parked in front. Normally, when I made this stop, I pulled in around the corner. I dove for my car and pulled away, only to notice that three cars in the place where I normally parked had been crushed by falling bricks. It was a memorable experience!” Dick also connected with new member Cyril Faulkner by greeting him in the Sierra Leone language – “I taught in Sierra Leone in the 60’s,” said Dick.

“So, is there a bubble in the real estate market? The Windermere Index is an index of current conditions, but it does look to the future. The housing market is in amazingly good shape today because of the low mortgage rates. Home prices are still rising well above general inflation rate. So, is there a bubble?”

Seattle home prices have run higher since 1976 than inflation rate. Since 1997, Seattle and US indexes have gone in tandem. “Some of the measurements could be construed as a bubble. Personally, I don’t think there’s much to worry about, unless we were to go into a second recession. If mortgage rates were to rise, that would affect the index and could produce a bubble. People have been able to save a bucket load of money with falling interest rates.” In answer to a question, Conway said the Windermere Index accounts for sales of both single family units and condos.

Pedersen and Conway co-publish “The Puget Sound Economic Forecaster,” a quarterly newsletter on the regional economy. Since 1993, the two economists have published the newsletter which features a detailed economic forecast, an analysis of changing business conditions, an assessment of risks, a focus on retail sales, constructions and real estate, articles on special topics, and the Puget Sound Index of Leading Economic Indicators.

Don Deasy
Don Deasy makes the introduction.

Both Pedersen and Conway serve on the Governor’s Council of Economic Advisors.

For their presentation, Doug Pedersen and Dick Conway were each awarded certificates purchasing 240 doses of polio vaccine, to be distributed to children in areas around the world. Thanks, again to Don Deasy for his introduction.

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