Well-Priced Homes Still Selling Quickly

Affordability and interest rates are bringing buyers back to the market. They are acting quickly when they see value and steering clear of properties that arent quite there yet.

Every month we conduct an extensive study of every MLS home sale in Thurston County. Part of the study shows the pace of sales relative to how well-priced the homes were when they came on the market.

As with past studies, our most recent report for the first quarter of 2009 reveals that well priced homes (those that did not require a price reduction before selling) are selling near full price and in an average of just 49 days.

The homes that required at least one price reduction before selling required an average price reduction of 18.1% and were on market for an average of 209 days. These same homes are selling in just 29 days when they are reduced to their final asking price. This is a clear signal that buyers are still active but are just waiting to see value.


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This holds true for all price ranges, as well. Even with sales in the upper-end off considerably from a year ago, homes in that price range are finding buyers in just 20 days of reaching the final asking price.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.

Business Owners are asking "Rent or Own"

Many of those professional service business owners lease their office space. While that makes sense for some, a great many are starting to see the opportunities that ownership provides. With the amount of inventory available, property valuations make more sense today than at any time in the past 5-7 years. Capitalization rates (or expected rate of return on a property) have moved back up to sustainable levels, which means prices have come down.

We are seeing cap rates between 7 8.5%, depending on the quality of the building and its location. Just a couple of years back, cap rates were a couple of points lower.

In fact, prices are at a place where, in many cases, it is less expensive to own than lease. A business always pays for space, whether rent payments or loan and property tax payments. In almost any environment, payments on a loan offer the ability to build wealth that rent payments simply do not afford. In todays climate the opportunities are even more substantial.

We have many clients that sell their businesses at the end of a successful career. When a business owner sells his or her business, the value of the real estate, in most cases, greatly outweighs the going concern value.

And in the current banking environment, owner-occupants hold a particularly favorable position in the eyes of lenders. Much of the media attention on banks troubled assets refers to speculative land development loans. Many banks became overly concentrated in those loan types and are now steering clear of those deals. By contrast, the building owner who occupies his or her own space is seen as less risky. Therefore, most banks are looking to make loans to existing businesses that have a good track record.

It is not just the availability of loans that is attractive. The loan terms also help the business owner take advantage of todays climate. Interest rates are quite low and there are great loan programs to help reduce one of the biggest barriers to ownership down payment. Small Business Administration backed loans, for example, offer as little as 10% down.

Another reason so many business owners are jumping on buying their own spaces is the emergence of commercial condominiums. Until recently, a small business owner had fewer choices for purchasing his or her own 2,000 square feet, such as a dentist, doctor, attorney or engineer, often located in a larger professional building. The prospect of buying the entire building, only to occupy a fraction of the space, was too much for some to consider.
Now building developers are building new or converting existing buildings into condos so that smaller units within a larger building can be separately purchased. This has greatly expanded the availability of properties for buyers.

Tax Incentives to Make Commercial Real Estate More Affordable

Unless you are an accountant, or an existing building owner, you may not have heard of the term Cost Segregation. It is, however, one of the most important concepts for a prospective building owner to understand and put to work.

Cost segregation is a tax depreciation strategy that divides the building cost into various components. Some of these components can be depreciated over a period of as low as five years instead of the 39 years required to be used for buildings. Without tax segregation, a building owner would be paying more in taxes than necessary because the entire building is depreciated over 39 years.

The present value of the tax savings to the building owners can be substantial. By accel­erating tax deductions into earlier years, there is more value since the building owner has the use of the money from the tax savings years earlier than they would otherwise.

Consider this recent real world example. The building (net of land value because land cannot be depreciated) has a value of $1,098,310. Without cost segregation, the depreciation expense would be that amount divided by 39 years or $28,162 per year. At the 28% tax brack­et, that expense would save the client $7,885.

With cost segregation the buildings component parts are broken out into separate depreciable lives. Site improvements are depreciated over just 15 years, carpet over 5 years, signage over 7 years, just to name a few. Together, the cost segregation expanded the tax expense to $47,736, which meant a tax saving of $13,366, or $5,481 more than without the cost segregation.

Whether you are planning to purchase a building or already own one, make certain that you talk with your accountant about the incredible tax benefits of cost segregation.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.

Affordability Returning to Local Housing Market

Thurston County's housing market is starting to reveal some positive trends, chief among those is affordability. Through April 24th, sales of homes priced at $200,000 and under are up 16% compared to the same period last year.

During the unprecedented Sellers market from 2003-2006, home price gains were greatly outpacing gains in household income. That pattern was simply not sustainable. Now prices, mostly at the lower end of the market, are back in line with incomes.

According to the Thurston Regional Planning Councils 2008 Profile Thurston County's median household income was estimated at $50,562 in the year 2000. That number had climbed to $60,209 by 2007, for an increase of 19%.

By comparison the median sales price of a home in the county increased 85% from 2000 to 2007 ($143,900 in 2000 v. $265,925 in 2007).

The combination of these figures meant that a home buyer in 2000 was applying 23% of her gross wages to principal and interest payments on a median priced home. By 2007, that number climbed to 32%.

Since the peak in 2007 home prices have come down. Our median sales price now stands at $243,000, which translates to just 26% of 2007 wages.

Affordability and value, however, are both relative terms. The lower price ranges are seeing affordability, but the upper-end price range as a group has not returned to relative affordability. As a result, sales of properties over $450,000 are down 65% from a year ago. The disparity between the pace of sales in those categories has at least one explanation.

The lower end of our local market has been the most influenced by bank-owned foreclosure properties. During the first quarter of 2009, 45% of all sales at $200,000 and under were bank owned. In contrast, only 16% of sales over $200,000 were foreclosed properties.

These sales are an interesting case study in market value because the banks are motivated to sell today. Banks do not like being in the business of owning houses, but they also want to recover as high a price as they can. Locally, we are not seeing banks under pricing their homes. There are certainly a few examples of that, but we are not seeing that phenomenon in Thurston County like a few hard hit communities around the country have seen. Instead, we see banks setting the asking price at todays market value not some hoped-for value in the future.

The banks desire to price at market value has provided a lot of comparable sales activity that in turn guides other sellers to successful asking prices.

Homes in the upper price ranges, however, do not have as much activity to inform the pricing decision. These sellers should instead consider that lack of activity a signal that prices are too high. They will see positive activity once prices there reflect relative affordability. There are homes in those upper ranges that are offering that value, and those sellers are finding success in this market.

Also, this does not mean that sellers at the upper end are not making money. Our research shows that the vast majority are making returns right in line with our long-established historical performance. See our May 8, 2008 posting.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.

Price Gains Mostly in line with Historical Performance

Through the first quarter of 2009, average home prices are off nearly 8% from year ago numbers. Even with these price corrections, a great many sellers are still achieving healthy returns.

Every Month we complete a study of home price gains in our market. Because each home is unique, and therefore fetches a unique price at sale, we analyze each sale to determine what price appreciation each home achieved.

We then group the data based on the number of years that the sellers owned the homes. An average price appreciation is then calculated for each group. The results of our study show that homeowners in their homes longer than three years are making returns just below our markets long historical average of 5.9% per year.

By the same token, the majority of people in their homes 3 years or less are selling for less than they paid.

The following shows the average return the home sellers achieved based on the number of years they owned the home.


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Repeat Home Sales Report, Homes Sold in Thurston County during January - March of 2009. NWMLS re-sales only, analysis by Coldwell Banker Evergreen Olympic Realty. Statistics not compiled by NWMLS. For more details, contact one of our sales professionals.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.

Mortgage Rates Drop Again

The week ended April 29, 2009 saw the 30 year, fixed-rate mortgage rates hit the lowest levels on record, 4.78%, according to Freddie Macs weekly mortgage survey.

Whether you are in the market to buy or are simply looking to reduce monthly expenses, it is a great time to be talking with your lender.