The Gardner Report, 2014

The Gardner Report, 2014

Now is the time of year when many prognosticators – like myself – start to gaze into the future and attempt to see what the year has in store.

As I look in the rear-view mirror, 2013 can be considered another year of recovery with all major asset classes performing well, admittedly with no little amount of assistance from the debt and equity markets, as well as overall improved confidence in the U.S. economy.

So what am I seeing for this year? Here are my thoughts.

Employment
It was certainly pleasing to see that in the Fall of 2013 – after five long and grueling years – employment in the Seattle metro area managed to return all of the jobs that were lost during the recession. The area shed over 124,000 positions during the recession, but has managed to not only claw all these back, but the current employment level is now 6,200 jobs higher than the prior peak. (Data as of November 2013.)

Although this is certainly positive for the market, I do have a word of caution. Somewhat counter-intuitively, employment growth in the metro area turned negative in the Fall of 2013 and, while this may be just an anomaly, it has certainly put a damper on my exuberance!

That said, I still see 2014 as a year when we will add to our total employment base, but the pace of growth will likely taper. I am looking at total employment rising by 2.5%, adding around 35,500 new payroll jobs to the Seattle metro area.

With this growth, the unemployment rate should contract from the current level of 5.6% to 4.8%.

Ownership Housing
Single family resale housing prices bottomed out at the end of 2011 at $340,000. By the end of 2013, the average sale price had risen by 28% to $436,000 which is encouraging; however, this is still 19% below the peak seen in the summer of 2007.

I anticipate that 2014 will continue to bring price growth with resale single family home prices growing by 5 percent – essentially matching the rise seen in 2013 for the combined metro area. Modestly greater price gains will be seen in King County than in Snohomish County, but will still be in the single digits. This slower growth model will be a result of rising interest rates as well as more tapered expectations from sellers. We saw list prices drop through the second half of last year – a necessary move as the relationship between average list price and average sale price was getting strained. As such, average sale price growth slowed and this will continue to be the case in 2014.

Listing activity, although 18 percent higher in 2013 than in 2012, is still not where I want it to be and I am hoping that this year will provide more choice for home buyers. There remains nagging concerns over the so called “shadow inventory”, but I maintain the position that this will not negatively impact aggregated values.

On the new construction front, I believe that we will see home builders support the market with the introduction of additional inventory; however, concerns over rising land values and construction costs will have many remaining wary. Finished lot values almost doubled in 2013 which has caused a somewhat bifurcated market with the national builders holding a significant advantage over the smaller local builders as they have the wherewithal to take down these expensive lots.

Additionally land constraints will continue to influence price and this will continue to be an issue in the new home industry.

Looking at the condominium market, we will continue to see a reemergence, but it is unlikely that we will see any additions to the inventory above the two projects currently under construction. Financing in this world remains tight even though demand for new condos appears to have returned.

Mortgage Interest Rates
Mortgage rates are already on the rise and we are sure to see this continue through 2014 as the Federal Reserve continues to taper its purchase of mortgage-backed securities and treasury bills. The increase in rates will not, however, be abrupt, but rather gradual through the year but I would not be surprised to see the average 30-year fixed mortgage rate hit 5.4% by years’ end.

Before we all start to gesticulate madly that this is the end of the world, let us not forget that interest rates were substantially higher in the past (9% in 1990 and close to 20% in 1982!)

This does, however, add further credence to my belief that home price growth will taper this year as affordability — especially for first-time buyers — gets tested.

he time of year when many prognosticators – like myself – start to gaze into the future and attempt to see what the year has in store.

As I look in the rear-view mirror, 2013 can be considered another year of recovery with all major asset classes performing well, admittedly with no little amount of assistance from the debt and equity markets, as well as overall improved confidence in the U.S. economy.

So what am I seeing for this year? Here are my thoughts.

Employment
It was certainly pleasing to see that in the Fall of 2013 – after five long and grueling years – employment in the Seattle metro area managed to return all of the jobs that were lost during the recession. The area shed over 124,000 positions during the recession, but has managed to not only claw all these back, but the current employment level is now 6,200 jobs higher than the prior peak. (Data as of November 2013.)

Although this is certainly positive for the market, I do have a word of caution. Somewhat counter-intuitively, employment growth in the metro area turned negative in the Fall of 2013 and, while this may be just an anomaly, it has certainly put a damper on my exuberance!

That said, I still see 2014 as a year when we will add to our total employment base, but the pace of growth will likely taper. I am looking at total employment rising by 2.5%, adding around 35,500 new payroll jobs to the Seattle metro area.

With this growth, the unemployment rate should contract from the current level of 5.6% to 4.8%.

 

Number of houses on market in 3-county area edging back up

The number of homes for sale in the first half of 2014 will likely be higher, following one of the worst years in recent history

Here’s the good news: The number of homes for sale in the first half of 2014 will likely be higher, following one of the worst years in recent memory for inventory.

Real-estate analysts track the months’ supply of homes for sale by comparing the number of active listings with the number of pending sales — homes under contracts that have not yet closed. A balanced market is generally one with a four- to six-month supply of homes for sale.

This past March, the supply in all three counties hit its lowest level in at least a decade: one month in King, less than a month in Snohomish and 1.7 months in Pierce, according to data from the Northwest Multiple Listing Service.

Veteran real-estate agents said they’ve never seen anything like it.

“The first four months of this year were the best time to be a seller over the past decade,” said Ann Pierson, a John L. Scott broker in Bellevue. “Literally if anything was on the market it was going to sell.”

In Bellevue’s Somerset neighborhood, one of the region’s most sought-after for the local schools, Pierson said last March she’d have about 200 buyers come through on the first weekend she showed a house, with as many as eight bidders.

Early 2013 was the exact opposite of late 2008, which was a buyers’ market: The supply of homes and condominiums peaked at 10 months in King County and 11.3 months in Snohomish County, according to the MLS. Pierce County had an 11-month supply.

Since March’s record low, the supply of homes for sale in the Seattle metro area has steadily climbed.

Not coincidentally, the rate of bidding wars has plunged, according to data from Seattle-based Redfin, an online real-estate brokerage.

In November, about 43 percent of offers submitted by Redfin agents for home shoppers faced competition, down from 75 percent in April.

For the next five years, inventory should gradually grow, Pierson said.

The rebound in home prices has lifted thousands of homeowners out of negative equity, freeing them to sell their houses and wipe out mortgage debt. In King County, one of out six homes with a mortgage was in negative equity at the end of September, down from a peak of one in three in March 2012, according to Seattle-based Zillow, the online real-estate marketplace.

Also, new-home construction is edging back up. Through October, there were 7,560 permits for new single-family homes in the Seattle metro area. That’s up 9 percent from last year, though still well below the roughly 16,000 single-family units added annually before the housing bubble burst.

~by Sanjay Bhatt, Seattle Time

How 2014 Will be Different

Trulia’s Housing Predictions: How 2014 Will be Different

Next year looks to be the year of the repeat home buyer, as worsening affordability discourages first timers and investors; also, the buying process will be less frenzied. Hot markets to watch are primarily in the South, Plains, and Mountain states. Rental activity will swing back toward urban apartments, away from single-family homes.

The housing market continued its uneven recovery in 2013 and will enter 2014 closer to normal than it was a year earlier. Consumer optimism is climbing back: in Trulia’s latest survey, 74% of Americans said that homeownership was part of achieving their personal American Dream – the highest level since January 2010. Even among young adults (18-34 year olds), many of whom struggled through the recession and are still living with their parents, 73% said homeownership was part of achieving their personal American Dream, up from 65% in August 2011. Rising prices over the past two years have been great news for homeowners, especially for those who had been underwater, and the real estate industry has benefited from both higher prices and more sales volume.

At the same time, the effects of the recession and housing bust still sting: the barriers to homeownership remain high, and a few markets – mostly in Florida – still have a foreclosure overhang. Plus, the housing recovery itself brings its own challenges, including declining affordability and localized bubble worries, especially in southern California.

Barring any economic crises, the housing market should continue to normalize. Here are 5 ways that the 2014 housing market will be different from 2013:

1. Housing Affordability Worsens. Buying a home will be more expensive in 2014 than in 2013. Although home-price increases should slow from this year’s unsustainably fast pace (see #4, below), prices will still rise faster than both incomes and rents. Also, mortgage rates will be higher in 2014 than in 2013, thanks both to the strengthening economy (rates tend to rise in recoveries) and to Fed tapering, whenever it comes. The rising cost of homeownership will add insult to injury in America’s least affordable markets: in October 2013, for instance, 25% or less of the homes listed for sale in San Francisco, Orange County, Los Angeles, and New York were affordable to middle class households. Nonetheless, buying will remain cheaper than renting. As of September 2013, buying was 35% cheaper than renting nationally, and buying beat renting in all of the 100 largest metros. However, prices and mortgage rates might rise enough to tip the math in favor of renting in a couple of housing markets – starting with San Jose.
2. The Home-Buying Process Gets Less Frenzied. Home buyers in 2014 might kick themselves for not buying in 2013 or 2012, when mortgage rates and prices were lower, but they’ll take some comfort in the fact that the process won’t be as frenzied. There will be more inventory on the market next year, partly due to new construction, but primarily because higher prices will encourage more homeowners to sell – including those who are no longer underwater.  Also, buyers looking for a home for themselves will face less competition from investors who are scaling back their home purchases (see #3, below). Finally, mortgages should be easier to get because higher rates have slashed refinancing activity and pushed some banks to ramp up their purchase lending. Moreover, the new mortgage rules coming into effect in 2014 will give banks better clarity about the legal and financial risks they face with different types of mortgages, hopefully making them more willing to lend. All in all, more inventory, less competition from investors, and more mortgage credit should all make the buying process less frenzied than in 2013 – for those who can afford to buy.
3. Repeat Buyers Take Center Stage. 2013 was the year of the investor, but 2014 will be the year of the repeat home buyer. Investors buy less as prices rise: higher prices mean that the return on investment falls, and there’s less room for future price appreciation. Who will fill the gap? Not first-time buyers: saving for a down payment and having a stable job remain significant burdens, and declining affordability is also a big hurdle for first-timers. Who’s left? Repeat buyers: they’re less discouraged by rising prices than either investors or first-time buyers because the home they already own has also risen in value. Also, the down payment is less of a challenge for repeat buyers if they have equity in their current home
4. How Much Prices Slow Matters Less Than Why And Where. Prices won’t rise as much in 2014 as in 2013. The latest Trulia Price Monitor showed us that asking home prices rose year-over-year 12.1% nationally and more than 20% in 10 of the 100 largest metros. But it also revealed that these price gains are already slowing sharply in the hottest metros. How much prices slow matters less than why. If prices are slowing for the right reasons, great: growing inventory, fading investor activity, and rising mortgage rates are all natural price-slowing changes to expect at this stage of the recovery. But prices could slow for unhealthy reasons, too: if we have another government shutdown or more debt-ceiling brinksmanship, a drop in consumer confidence could hurt housing demand and home prices. Where prices change matters, too. Slowing prices are welcome news in overvalued or unaffordable markets, but markets where prices are significantly undervalued and borrowers are still underwater would be better off with a year or two of unsustainably fast price gains.
5. Rental Action Swings Back Toward Urban Apartments. Throughout the recession and recovery, investors bought homes and rented them out, sometimes to people who lost another (or the same!) home to foreclosure. In fact, the number of rented single-family homes leapt by 32% during this period. Going into 2014, though, investors are buying fewer single-family homes; loosening credit standards might allow more single-family renters to become owners again; and fewer owners are losing homes to foreclosures to begin with – all of which mean that the single-family rental market should cool. At the same time, multifamily accounts for an unusually high share of new construction, which means more urban apartment rentals should come onto the market in 2014. Urban apartments will be the first stop for many of the young adults who find jobs and move out of their parents’ homes. In short, 2014 should mean more supply and demand for urban apartment rentals, but slowing supply and demand for single-family rentals. Ironically, economic recovery means that the overall homeownership rate will probably decline, as some young adults form their own households as renters. Still, the shift in rental activity from suburban single-family to urban apartments would be yet another sign of housing recovery.

What other reasons will cause 2014 be different? New local markets will take the spotlight. Our top 10 markets to watch are entering 2014 with strong fundamentals, including recent job growth and longer-term economic success, as well as recent construction activity typical of vibrant markets. They are, in alphabetical order:

• Bethesda-Rockville-Frederick, MD
• Charlotte, NC-SC
• Denver, CO
• Fort Worth, TX
• Nashville, TN
• Oklahoma City, OK
• Raleigh, NC
• Salt Lake City, UT
• Seattle, WA
• Tulsa, OK

Why are so many of the high-profile markets of 2013 missing from our list? We ruled out markets that were more than a little overvalued according to our latest Bubble Watch, which eliminated most metros in Texas and coastal California. We also struck markets with a large foreclosure inventory (thanks for the data, RealtyTrac), like most of Florida. Our 10 markets to watch, therefore, should have strong activity in 2014 with few headwinds.

~ Jed Kolko, Chief Economist, Trulia

King Co median price up 15% over year ago

The pattern was repeated in Snohomish and Pierce counties: Median prices were $286,250 in  Snohomish and $222,000 in Pierce, with double-digit appreciation over the year, according to the  Multiple Listing Service.

The median price of single-family homes sold in King County last month rose to $426,000, a 15 percent increase over the year.

After a remarkable frenzy of home buying in early summer sent the median price to $434,000 in July, the highest level in five years, October’s activity showed a more balanced market, with more inventory for sale.

Buyers closed on 2,187 homes, 10 percent more than in the previous October, the Northwest Multiple Listing Service (MLS) reported Tuesday.

While extremely tight inventory drove bidding wars in spring, October was the first time this year that inventory of single family homes was higher than a year earlier. In King County, there were 4,575 single family homes listed, 6 percent more than a year earlier. In the condominium market, there were 1,133 units listed, 8 percent more than a year ago.

The Eastside, as usual, had the highest median price in King County: It was $575,377, up 14 percent from a year ago. Southwest King County had the lowest median price at $240,000, about 7 percent higher over the year.

The median price was $286,250 in Snohomish County and $222,000 in Pierce County, with double-digit appreciation over the year, according to the MLS.

Pending sales slipped to 2,579, down almost 4 percent from a year earlier, perhaps related to the federal government’s partial shutdown from Oct. 1-16. Pending sales are where the shutdown’s impact would have shown up, but it’s hard to tease that out from other possible causes, said Glenn Crellin, associate director of research at the Runstad Center for Real Estate Studies at the University of Washington.

“I’m very encouraged by the fact that listings are increasing gradually,” he said. Regionally, inventory remains tight: King, Snohomish and Pierce counties all have less than three months’ supply, the MLS reported.

A balanced market generally has enough supply for four to six months. “It still looks like a potential housing shortage in Puget Sound come 2015 if building doesn’t increase,” Dick Beeson, principal managing broker for RE/MAX Professionals in Tacoma, said in a statement. Mike Gain, president and CEO of Prudential Northwest Realty Associates, said the shutdown “definitely hurt consumer  confidence” and caused would-be buyers to pause.

~Sanjay Bhatt, Seattle Times

Sept. sales down, but prices up

After hitting the highest level in nearly four years, existing-home sales declined in September, but limited inventory conditions continued to pressure home prices in much of the country, according to the National Association of REALTORS®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.9 percent to a seasonally adjusted annual rate of 5.29 million in September from a downwardly revised 5.39 million in August, but are 10.7 percent above the 4.78 million-unit pace in September 2012. Sales have remained above year-ago levels for the past 27 months.

Lawrence Yun, NAR chief economist, said a decline was expected. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.49 percent in September from 4.46 percent in August, and is the highest since July 2011 when it was 4.55 percent; the rate was 3.47 percent in September 2012. The national median existing-home price for all housing types was $199,200 in September, up 11.7 percent from September 2012. This is the 10th consecutive month of double-digit year-over-year increases.

Distressed homes – foreclosures and short sales – accounted for 14 percent of September sales, up from 12 percent in August, which was the lowest share since monthly tracking began in October 2008; they were 24 percent in September 2012. Lower levels in the share of distressed sales account for some of the growth in median price. Nine percent of September sales were foreclosures, and 5 percent were short sales. Foreclosures sold for an average discount of 16 percent below market value in September, while short sales were discounted 12 percent. Data from realtor.com®, NAR’s listing site, show some of the strongest increases in listing price from a year ago are in the Detroit area, up 44.6 percent; Las Vegas, up 30.7 percent; and Sacramento, up 28.9 percent.

Total housing inventory at the end of September was unchanged at 2.21 million existing homes available for sale, which represents a 5.0-month supply at the current sales pace, compared with a 4.9-month supply in August. Unsold inventory is 1.8 percent above a year ago, when there was a 5.4-month supply.

NAR President Gary Thomas said there are far-ranging consequences from the repeating stalemates in Washington. “Just one impact of the recent government shutdown – delays in tax transcripts needed for approval of mortgage loans – put a monkey wrench in the transaction process and could negatively impact sales closings in next month’s report,” he said.

Thomas said flood insurance also is a concern. “Realtors® report that approximately 10 percent of transactions in September were located in flood zones, and that nearly one out of 10 of those transactions were delayed or canceled due to concerns over rising insurance rates.” Notably higher flood insurance rates went into effect on October 1, and could impact future sales in flood zones.

The median time on market for all homes was 50 days in September, up from 43 days in August, but much faster than the 70 days on market in September 2012. Short sales were on the market for a median of 93 days, while foreclosures typically sold in 43 days, and non-distressed homes took 49 days. Thirty-nine percent of homes sold in September were on the market for less than a month.

First-time buyers accounted for 28 percent of purchases in September, unchanged from August, but down from 32 percent in September 2012. All-cash sales comprised 33 percent of transactions in September, up from 32 percent in August, and 28 percent in September 2012. Individual investors, who account for many cash sales, purchased 19 percent of homes in September, up from 17 percent in August, and 18 percent in September 2012. Last month, 74 percent of investors paid cash.

Single-family home sales slipped 1.5 percent to a seasonally adjusted annual rate of 4.68 million in September from 4.75 million in August, but are 10.9 percent above the 4.22 million-unit pace in September 2012. The median existing single-family home price was $199,300 in September, which is 11.4 percent higher than a year ago. Existing condominium and co-op sales fell 4.7 percent to an annual rate of 610,000 units in September from 640,000 in August, but are 8.9 percent above the 560,000-unit level a year ago. The median existing condo price was $198,600 in September, up 14.2 percent from September 2012.

Regionally, existing-home sales in the Northeast declined 2.8 percent to an annual rate of 690,000 in September, but are 15.0 percent above September 2012. The median price in the Northeast was $240,900, up 2.3 percent from a year ago.

Existing-home sales in the Midwest fell 5.3 percent in September to a pace of 1.25 million, but are 12.6 percent higher than a year ago. The median price in the Midwest was $158,400, which is 9.0 percent above September 2012.

In the South, existing-home sales declined 1.4 percent to an annual level of 2.10 million in September, but are 9.9 percent above September 2012. The median price in the South was $171,600, up 13.9 percent from a year ago.

Existing-home sales in the West rose 1.6 percent to a pace of 1.25 million in September, and are 7.8 percent higher than a year ago. With ongoing inventory restrictions, the median price in the West rose to $286,300, which is 16.8 percent above September 2012.

~RIS Media

Demand for Puget Sound area homes “still incredibly strong,” but brokers report frenzy is easing in some neighborhoods

NWMLS, Kirkland, WA – . Northwest Multiple Listing Service figures for August show brisk sales, escalating prices and some improvement in inventory, prompting one MLS director to declare, “What these numbers tell us loud and clear is that buyer demand in the Puget Sound region is still incredibly strong.”

In making that comment, OB Jacobi, president of Windermere Real Estate, noted the housing market tends to experience some slowing during August, but rising inventory levels and sustained buyer demand fueled “higher than expected home sales and another month of strong appreciation.”

The latest figures from Northwest MLS show pending sales (mutually accepted offers) during August increased 8.7 percent from a year ago. Brokers in the 21 counties served by the MLS reported 9,065 pending sales system-wide. That’s a drop of 500 units from July, but an increase of 727 transactions compared to a year ago (August 2012). In the four-county Puget Sound region (King, Kitsap, Pierce, and Snohomish), the total of 6,916 pending sales was the highest volume for August since 2006 when members notched 7,692 sales.

Prices also reflected an upward trajectory. The area-wide median price for last month’s completed sales of single family homes and condominiums was $283,000, which compares to the year ago figure of $250,000 for a gain of 13.2 percent. Only two other months this year have had higher year-over-year increases: March (14.9 percent) and May (13.4 percent). Since January, prices have jumped 18.3 percent.

Prices on single family homes (excluding condos) that sold during August increased from $263,495 to $294,000 for a gain of 11.6 percent.

An analysis by Lennox Scott, chairman and CEO of John L. Scott Real Estate, shows King County median prices for August ($392,500, including single family homes and condos) are at 92.4 percent of the peak price of $425,000, set in July 2007. He credits a surge in sales activity and a shortage of homes for sale as primary drivers of spiking prices during the past two years.

“We have seen 22 straight months of strong-surge sales activity,” Scott reported. “Job growth, pent up demand by local home buyers, residential investors, incoming transferees, a strong local economy and historically low interest rates have led the way during this recovery phase of the residential housing market,” Scott stated.

Inventory is showing signs of stabilizing in many Western Washington areas, with members adding nearly 1,800 more new listings to the MLS database during August compared to the same month a year ago. With that 21 percent increase in new listings, the total number of active listings at month end (26,433) was almost on par with a year ago when the selection encompassed 26,506 homes for sale.

Dick Beeson, the principal managing broker of RE/MAX Professionals in Tacoma, noted some key indicators are trending lower or slower as the market adjusts to a “new normal.” The former chair of Northwest MLS also said it would be hard to continue the near record-setting pace of the last few months.

“While the overall market remains vibrant and active, we don’t appear to have the frantic ‘must have this home because there may not be another’ mentality among buyers,” Beeson reported, adding, “The increase in both inventory — a near return to 2012 levels — and the sharp increase in interest rates have been the most influential factors in an end-of-the-summer market adjustment.”

Another past chairman of Northwest MLS, Mike Gain, said inventory shortages are still common in many parts of King County. MLS figures show of 22 of the 29 map areas it tracks in King County had fewer listings at the end of August than at the same time a year ago.

Measured by months of supply, King County, with only 1.7 months of supply, is well below the 4-to-6-month level that many analysts use as an indicator of healthy levels or a balanced market. The selection is also squeezed in Snohomish County, where there is 1.8 months of supply. System-wide, the figure is at 2.9 months.

Gain, the CEO and president of Prudential Northwest Realty Associates, said many industry-watchers predicted rising interest rates would slow down the market. “Well, it has not, because despite jumps in prices and interest rates, homes are still more affordable than they have been in decades.” He said buyers are on “heightened alert” because of the recent upward movement in interest rates. “We don’t expect interest rates to stay as low as they are today and prices in our area are expected to continue to rise. For anyone who is thinking of buying, now is the time,” he suggests.

Darin Stenvers, a director with Northwest MLS, called the current market “the strongest in four or five years,” with signs of stability that should continue into 2014. “If a buyer finds the home of their dreams, they should make their first offer their best offer or risk losing that home,” he stated.

The condominium market is rebounding in some areas, offering a good alternative for renters who are seeking good housing at affordable prices. Although the inventory is still below year-ago levels (down 4.8 percent), Stenvers said there is a good selection with great pricing options. Also, he pointed out buyers can purchase with a down payment that is in line with landlord demands for upfront rent and large deposits, and have a more affordable monthly payment.

Pending sales of condos area-wide rose about 6.3 percent during August. Closed sales jumped more than 17.4 percent, with prices surging 26.7 percent.

“We are definitely working our way nicely through this housing recovery, with all of the latest data showing strong year-over-year gains in prices and sales of both pending and closed transactions,” Gain commented. He also noted the National Association of Realtors® (NAR) reported the national median existing home price increased at an annual rate of 12.2 percent – the biggest yearly price increase since Q4 of 2005.

Seattle home prices up 11.8 percent over year

Thirteen of 20 cities nationally saw a slowdown in the pace of price increases.

Home prices in the Greater Seattle market increased in June 1.8 percent over the previous month and 11.8 percent over the past 12 months, according to the closely watched S&P/Case-Shiller 20-city home-price index.

As of June, average U.S. home prices have returned to their spring 2004 levels, although the pace of the increase appeared to be slowing, officials said. The 20-city index posted a 2.2 percent monthly gain in June and was up 12.1 percent over the past 12 months.

“With interest rates rising to almost 4.6 percent, home buyers may be discouraged and sharp increases may be dampened,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

The Case-Shiller index figure for June represents a three-month moving average and includes resales of foreclosed homes by lenders.

While all 20 cities in the index posted monthly gains, 13 saw a slowdown in average price growth. Atlanta’s average home price grew 3.4 percent, the highest among the 20 cities. Las Vegas and San Francisco notched annual gains of more than 20 percent.

“Over the next year, home value appreciation rates will slow as investors exit the market, mortgage interest rates rise, negative equity falls, builders ramp up and more homes come on the market,” said Stan Humphries, chief economist at Seattle-based Zillow, in a statement.

Steady job gains and low mortgage rates have encouraged more Americans to buy homes. And even as demand has risen, a limited number of homes have been available for sale. The combination has led to sharp prices gains.

But mortgage rates have climbed more than a full percentage point since May. The increase has already slowed sales of new homes in July. And economists expect it could drag re-sales lower in August.

A slowdown from the strong price gains in recent months isn’t necessarily a bad thing, economists said. It may keep home prices from becoming unaffordable.

~ By Sanjay Bhatt, Seattle Times

Western Washington housing indicators aligned “for spring market to remember”

Real estate brokers around Washington state agree today’s market is far different than two years ago, with one industry veteran summing it up by saying key indicators “are in perfect alignment for a spring market to remember.”

On the plus side, closed sales during February jumped more than 9 percent from a year ago and median sales prices are up 13 percent according to new figures from Northwest Multiple Listing Service.

Last month’s pending sales across the 21 counties served by Northwest MLS also increased, but only slightly (1.7 percent) due in part to depleted inventory.

“In my 37 years working in the real estate industry, I have never seen inventory this low,” remarked Diedre Haines, regional managing broker for Coldwell Bank Bain-Snohomish County and a member of the Northwest MLS board of directors.

The number of active listings system-wide is down 29 percent from a year ago, with three counties reporting even more contraction: Snohomish County (-47.7 percent); King County (-45.3 percent); and Clark County (-44.7 percent).

Compounding the shortage is the fact that about one-fourth of the MLS inventory is classified as “distressed,” meaning they are short sales or bank-owned. Such homes are sometimes in need of significant repairs or have prolonged transaction times, which may make them less desirable.

“The market is struggling to provide enough inventory for anxious buyers seeking to take advantage of low interest rates,” reported Dick Beeson, principal managing broker of RE/MAX Professionals in Tacoma. Also, he lamented, considering 25 percent of the selection is distressed, “It leaves some buyers with tough choices.”

Northwest MLS brokers added 7,497 new listings to inventory during February, for a slight increase from a year ago when they added 7,390 single family homes and condominiums to the database. With the additions during February, the selection at month-end totaled 18,114 active listings. That compares to 25,510 offerings at the same time a year ago for a 29 percent decline.

“Low supply and high demand continue to drive our market,” stated Northwest MLS director John Deely. He said multiple offers are the “rule rather than the exception” for new listings in core urban areas that are priced well. Deely, the principal managing broker at Coldwell Banker Bain in Seattle, noted a new listing in North Seattle recently drew 12 offers and the property was bid almost 10 percent above its listing price.

OB Jacobi, president of Windermere Real Estate Company, noted the month’s supply of homes in King County has dipped to about 1.2 months, well below the six-month threshold that many in the industry consider to be “normal.” Jacobi, who is also on the MLS board of directors, noted supply is at its lowest level since May 2005 during the peak of the housing boom. “The impact of low inventory levels is stiff competition among buyers, often resulting in homes selling for well over asking price,” he remarked. Also, he added, the imbalance also leads to rising median prices.

J. Lennox Scott, chairman and CEO of John L. Scott, Inc., attributes surging sales and prices to several factors, including positive job growth, historically low interest rates and fewer homes being listed. “This restriction of homes for sale is prevalent in the price ranges where more than 90 percent of activity is taking place, causing prices to rise,” he stated.
Area-wide, the median sales price of single family homes and condominiums that sold last month was $247,500. That represents a 3.4 percent gain over the previous month (January) and a 13 percent increase from a year ago. Ten counties reported double-digit year-over-year increases.

For single family homes (excluding condos) the median price was $255,000, up about 11.4 percent from the year-ago figure of $229,000. Homes in King County commanded a median price of $365,000, rising from $308,125 for a year-over-year gain of about 18.5 percent. Condo prices jumped 22.7 percent area wide (from $150,000 to $184,000) and more than 31 percent in King County, which accounted for nearly two-thirds of the transactions. Condos that sold last month in King County had a median selling price of $210,000; a year ago it was $159,950.

“We have plenty of buyers and desperately need more sellers,” proclaimed Mike Gain, CEO and president of Prudential Northwest Realty Associates. He said open houses are “packed with buyers,” with most of them being serious and ready to buy. Gain also reported inventory in the lowest price ranges is disappearing in all areas. “The recovery in housing is firmly under way,” he stated.

Echoing those comments was Mike Grady, president and COO of Coldwell Banker Bain. “The seller’s market remains strong as demand continues to outweigh supply at unprecedented levels,” he commented. He thinks homeowners may be staying on the sidelines because they are unaware of the potential equity they’re holding. “This trepidation is understandable,” Grady acknowledged, but stressed now is “a great time for homeowners to assess the current value of their homes,” adding “We’re in a far different market than 24 months ago.”

MLS director Deely reported sellers are prioritizing cash offers ahead of those with financing, while many buyers are trying to improve their position by eliminating or minimizing contingencies. For example, he said buyers are conducting pre-inspections “so they can remove their inspection contingencies with a modicum of due diligence.”

Haines, also of Coldwell Banker Bain, said there are fears of an “artificial bubble” being created. “Many of the sales that are occurring are cash buyers, tenants already living in the homes they are buying, investors and investor groups purchasing in bulk,” she explained. Also, she reported, “We are beginning to see an increase in for sale by owner transactions.” Consequently, she noted, many sales are not in the NWMLS database which can skew the numbers of actual sales, a situation that is occurring in other markets as well as here.

Another Northwest MLS director, George Moorhead, said buyers are being very cautious and price sensitive, noting, “We are not seeing the same energy level as we saw in 2012.” Like other MLS officials, Moorhead, the managing broker at Bentley Properties in Bothell, points to inventory (“it’s holding everyone back”) and other factors as restraints on activity.

Previous recessions were brought back with first-time buyers leading the way, Moorhead stated, noting today’s purchasers include move-up buyers who are keeping their homes as rentals. When combined with would-be sellers who are under water and can’t qualify for a short sale or lack savings to cover a loss at closing, inventory lags. According to Moorhead, these scenarios are contributing to “a void which we have not experienced in the past.”

Brokers are downplaying any immediate fallout from the federal government’s budget sequestration on the local housing market:

• “The cutback with FHA insured loans will have limited impact on buyers,” predicts Moorhead.
• Mike Gain believes cuts at HUD may cause FHA loans to become more difficult but if that really comes to pass people will adjust. “They always do.” He expects other conventional mortgage products will surface. “We always find ways to satisfy our customers’ wants and needs. Closing times may be a bit longer but I expect FHA will continue to be a viable method of financing. The HUD cuts to staff working with distressed property will make that process more difficult. Really a shame since these are the folks who really need the most help and the process has never been easy for them,” he remarked.
• “I think it is too soon to say how the sequester will impact our Puget Sound markets,” said Haines.
• Beeson said “Sequester may hurt some markets nationally but I think the Northwest is somewhat insulated from the fray. The cuts in FHA employees would be the biggest problem and could cause issues for borrowers.”
• Referring to sentiments in Warren Buffet’s annual letter to shareholders, broker Gary O’Leyar said he shares Buffet’s optimism for real estate.

“We’ve had the gas crisis, we’ve had the fiscal cliff crisis, we’ve had the meltdown of banks and the resulting loss of confidence on Wall Street, yet look at the facts,” O’Leyar said. “The real estate market has not only survived, but it has shown marked improvement.” He believes if one source of lending such as HUD/FHA loses funding, another sector will rise up to pick up the slack. “I’m already seeing smaller regional savings & loans, community banks, and credit unions stepping up to aggressively offer home mortgages, which I see as a very positive trend. I’m siding with Warren Buffet whose actions have shown he is very bullish on real estate,” O’Leyar declared.

~ NW MLS