Buyers Acting Quickly When They Find Value

Perceptions are a very powerful thing. In good times, perceptions run to the extreme on the high side, and in more challenging times they run to the low side.

Among the current perceptions about the housing market is the idea that “everything” is selling slowly and well below asking price. A few years back, we had an equally strong perception that “everything” was selling lightning fast, and well above asking price.

As in all things, the reality is different than the perception. Three important measurements of market success expose the misperceptions that have abounded. The average days on market, the number of homes sold, and the sale to list price ratio, all reveal the truth in the marketplace.

In sum, the truth is that houses must be well-priced to sell in any market and there are buyers in any market as long as price matches the existing supply and demand picture.

A great example is found at the peak of our unprecedented seller’s market, in late summer of 2006. We commonly hear that “everything” sold in just a couple of days and for well above asking price. The reality is not so.

In August/September of 2006, well-priced homes were in fact selling quickly, averaging just 45 days on market. That is fast compared to 90 day averages seen in a balanced market, but still far longer than just a few days on market.

Also, not all homes were “well-priced”. We define well-priced as those homes that did not require a price reduction before selling. Only 59% of homes at the time were well priced. The other 41% that required price reductions sold at just 93.9% of asking price and sat on the market an average of 102 days.


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So even in the midst of a market that was hyperactively escalating, it was still possible to over-price a home. Buyers ignored 4 out of 10 homes until those sellers brought prices down.

Equally telling is the fact that well-priced homes still averaged just 99.2% of asking price. That is close to full price, but it certainly does not support the idea that every home was “bid-up.” To be sure, many homes were, but most were limited to homes that were listed just below market value. Buyers themselves then exposed the true value by bidding the home price up.

In today’s market, perceptions are equally misaligned with the market’s actual performance.

The most common perception is that homes are taking a very long time to sell. In fact, well-priced homes today (based on May 2009 sales) are selling in an average of just 24 days – three weeks faster than the peak of our hot seller’s market.

On the opposite end of the spectrum, homes that required at least one price reduction before selling sat on the market for an average of 189 days, and required an average price reduction of 18.4% before selling.

The biggest reason that our market is moving faster for well-priced homes has to do with a couple of general market conditions. The first is that interest rates are very low and buyers want to act while they are down. Secondly, the $8,000 first-time homebuyer tax credit, which expires later this year, is propelling those buyers more than ever. Buyers know these are fleeting conditions, so they are acting now.

However, the growing disparity in days on market between well-priced homes and those that require at least one price reduction tells us that buyers are being ever more critical about the market. They are ignoring those homes that do not present value, but they are jumping quickly on those that do. And as we saw during the peak, these well-priced homes are selling at close to full asking price - 97.7%.


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

Downtown Olympia Housing News

Last night’s decision by the Port of Olympia sets in motion one of the most important opportunities our community has for realizing the goal of more market rate housing in downtown Olympia.

The Port selected Tarragon as the developer for the land surrounding the new Hands On Children’s Museum on East Bay. The vision is to create an area of mixed uses, including office, retail, a hotel and conference center, and residential space. The residential component will help start the city on a path toward meeting its goal of 2,500 units of market rate housing in downtown. Establishing a greater diversity of housing in downtown will help our community in so many ways.

Concentrating more of our growth in downtown will reduce sprawl that occurs even with the Growth Management Act restrictions that exist. Over the next 20 years our population is expected to grow by 128,000 residents. We must get serious about creating greater densities in the urban core if we are to find places for people to live and maintain some of our rural communities.

Another benefit is job retention and creation. A healthy downtown will support existing business, and attract new businesses and tourism, which has the effect of importing dollars to support jobs. Most downtown business owners know that increasing housing and adding a conference center are both vital components to creating a financially sustainable downtown core.

Finally, creating greater densities adds to the diversity of our core, which in turn enriches our community. An excerpt from the book Rebuilt Green¸ the story of the Ecotrust’s efforts in building its headquarters in the Pearl District in Portland, Oregon, captures this sentiment perfectly.

In the preface to the book, the head of Ecotrust, Spencer Beebe, recounts words from one of his board members, Jane Jacobs. She states that “Good things come from evolution, not revolution; from building up new things, not tearing old things down.” Spencer continues that Jane reminded him that “civilizations need farms, forests, and rivers to support dense populations in the cities, and that cities repay the favor by getting lots of heads together to innovate and invent. Whether one’s concern is natural ecosystems or economic systems, density propels evolution.”

With great leadership, our community is on the verge of propelling itself to new heights. Every urban renewal project that occurs around the world starts with a catalyst. Several current projects, LOTT Administration, a public plaza, and the Hands On Children’s Museum, underway at East Bay are the best catalyst for city wide renewal that this community has ever seen. We must make the absolute best of this opportunity.


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LOTT is already underway with its new administrative and educational center downtown. Construction will be complete next year on this new world-class interpretive center that will showcase reclaimed water. This new facility also will house a state of the art cogeneration plant, turning methane gas into power. When complete the new LOTT facility will be a beacon of environmental stewardship and a draw for business and tourism.

LOTT’s neighbor to the east will be the new Hands On Children’s Museum, which does so much to help children and families in our community. Other cities that have achieved successful urban renewal projects did so by locating children’s museums in their downtowns. The new 25,000 square foot facility is the anchor of the East Bay renewal. It will be a draw from more than a quarter of a million visitors to downtown each year.

Along with these two great projects, an outdoor one-acre public plaza will be constructed. This space will give the community another great gathering space on a beautiful peace of property.

The selection of a developer for the remaining property on East Bay is just the first of many steps in the renewal project. The process of filling out the vision for the area starts today. Take the time to get involved and voice your opinion about this vital area.

Acknowledging a Community Leader

After 27 years of service to the Providence System of Hospitals, Scott Bond retires today as CEO of Providence SW Washington.

Under Scott's leadership, Providence has continued to grow in service to our community. St. Peter Hospital has received numerous awards and recognition for its outstanding work. The hospital ranks in the top four in the state in charity care, and has a collection of some of the best medical doctors, nurses, and staff in the nation. A community our size is fortunate to have a care facility that offers so much.

As real estate professionals, we know that quality of life is one of the biggest drivers of the value of real estate in any area. The presence of Providence in our community adds tremendously to not just the health of our community but to the vitality of the entire region.

So we take a moment to acknowledge Scott and thank him for his service.

Housing Sales and Mortgage Interest Rates

After three weeks of increases, mortgage interest rates took a dip this past week. Freddie Mac reports that 30 year, fixed-rate mortgages averaged 5.38%, during the week of June 18th. This is down from 5.59% the week prior.

The current rates are much lower than at this point last year when they reached 6.32%. And while the rates are higher than the low point seen in April, housing sales continue to climb. The return of home prices to sustainable levels has defused the up-tick in interest rates.

Perhaps the best example of the interplay between home prices and mortgage rates is the failure rate of mortgage loan modifications. Over the past 18 months, many loan providers have reworked borrowers adjustable rate mortgages to bring interest rates down to better levels.

Despite the significant decreases in interest rates through the modification process, a huge percentage of these borrowers still end up in default. See our blog posting on 12/23/2008. The reason is that the mortgage is still tied to a home price that was simply too high to sustain. This means that price becomes the most important factor to buyers.

Interest rates will rise and fall. Rates are not in the control of the buyer or seller. Setting price to match the market forces, however, is. Many factors influence a homes market value, including location, condition, economic landscape, supply of homes, and mortgage rates. As interest rates rise, fewer buyers will qualify for mortgages, which means that sellers will adjust price to match that lower level of demand.

In the end, if mortgages are based on a sustainable purchase prices buyers will be able to afford the home purchase regardless of the mortgage rates prevailing at the time. In our local market, the prices on many homes continue to provide that opportunity to home buyers and sellers.

Olympia Ranks as in Top 10 places to Live in the U.S.

South Sound locals have long known about the quality of living in our neck of the woods. Thanks to Kiplinger Personal Finance Magazine the world now knows too.

In its annual ranking of the nation's Best Cities, published in the July 2009 issue of the magazine, Olympia came in as the 6th best place to live, work and play. The report, which labels Olympia as the "Northwest Jewel", highlights the city's cultural attractions, work force and jobs, and educational opportunities.

Come join the celebration of this recognition at 11:00 a.m. on Friday June 12th at Olympia's Farmers Market.

To view the video report on Kiplinger.com visit:
http://www.kiplinger.com/video/index.html?bcpid=572031303&bclid=1571610693&bctid=23940572001&kipad_id=47

To read the printed report visit:
http://www.kiplinger.com/magazine/archives/2009/07/2009-best-city-olympia.html

Positive News in the Housing Market

The housing market stats for May 2009 released today by the Northwest Multiple Listing Service (NWMLS) reveal some positive trends. Chief among those are an escalating number of sales and price stabilization in many of the 19 counties covered by the NWMLS.

Across the NWMLS Pending sales in May were up 17.7% from May 2008. While overall median prices are down 10% from year ago numbers, eight of 19 counties show price gains since January (Thurston County is one of those counties).

Most of the gains in sales are being seen in the markets closest to Seattle. King County pending sales are up 27% from a year ago. Thurston County pending sales jumped nicely as well, with a 17.5% increase.



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The reason for the big difference between King and Thurston counties is price. King County's average sales price is down 16% from last year compared to a 10% reduction in Thurston County since May 2008. (It is also important to remember that King County's prices escalated at a much steeper rate than did Thurston County's during the run-up. This means that King County required a steeper correction to get back to sustainable prices.)

Those bigger price reductions in King County are bringing buyers back to its market at a faster pace. And while Thurston County's sales gains have been solid, our areas market average price will continue to see pressure as supply still outweighs demand.

While media attention tends to focus on market-wide numbers, like average and median prices, each individual house is unique in appeal and pricing. One house may be priced at market value while another is priced above it. Therefore, it is important for buyers to evaluate each house individually and not let overall market trends make the call.

If someone were to stay out of this market waiting for the market average price to bottom, that person may miss out on the perfect home that has already hit its bottom. We see examples of that everyday.

For more on this topic see our blog posting on 5/18/2009 entitled Well-Priced Homes Still Selling Quickly.

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

Tax Credit Helping Thousands of Buyers

Early results show that the first-time homebuyer tax credit is helping hundreds of thousands of homebuyers. The following report from Real Trends demonstrates this fact.

According to very preliminary figures from the IRS, some 567,685 taxpayers claimed more than $3.9 billion worth of first-time homebuyer credits on their 2008 tax returns, according to Steve Cook of realestateeconomywatch.com. Even though 38,158 may be disqualified because the IRS has found they had ownership in a personal residence within the past three years, the total will certainly exceed the $4.6 billion estimated by Congress last year. The preliminary figures were from returns received by March 6-five weeks before 2008 returns were due. These preliminary returns means the credit helped to make possible at least ten percent of the roughly 5 million new and existing home sales last year. No doubt it was a deal maker in many of those transactions. Source: Steve Cook, Real Estate Economy Watch

Locally, we are also seeing buyers take advantage of the credit. And this year Congress expanded the credit to $8,000 and eliminated the pay-back requirement. This means that even more people will take advantage of the program in 2009.

Remember that the credit exists only on purchases through November 30, 2009. Considering that it is likely that more money will be spent than Congress allocated, it is not a guarantee that the program will be extended. It is, however, having a positive influence on entry-level price segments, which is where every housing recovery begins. If the current housing trends continue, the tax credit will turn out to be money well spent.

Lower home prices still attracting buyers despite uptick in interest rates

The Mortgage Bankers Association (MBA) reported today that demand for home loans dropped this week as mortgage interest rates climbed over the past couple of weeks.

The stock market is likely to take this as bad news; however, a more detailed review the numbers actually tells a fairly positive story about the housing markets continued improvement.

The MBA report combines both purchase and refinance loans. All of the drop in mortgage activity is attributed to a drop in refinance activity. Purchase loans, on the other hand, actually rose during the past week.

This is an indication that the drops in home prices around the country are having a much stronger impact than mortgage rates when it comes to bringing buyers back into the market.

Buyers know that it takes a much steeper hike in mortgage rates than that seen over the last week to wipe out the benefits of buying when prices are down by double digit percentages. Because home prices across the country are moderating back down to sustainable levels, purchase mortgage demand remains strong.

Buyers simply look for value when purchasing a home. Recent surveys of home owners and buyers show that the vast majority believe buying a home is a good investment again. They believe that prices have come back to levels that should lead to sustainable appreciation in the years to come. This fact has a stronger impact on buyer sentiment than do relatively modest adjustments in interest rates.

As for refinances, they were bound to slow down. Even if interest rates remained flat, there is only so much refinancing that can occur - and a lot has occurred. Locally, most title companies report that fully 75-85% of their business has been as a result of refinance activity since the start of the year.

Yet the refinancing has been healthy for the housing market. By making payments more affordable, refinances have reduced the amount of distressed properties coming on the market. This has kept the supply-side of the equation in check.

Thurston Countys inventory of homes has remained stable since the start of the year, hovering around 1,550 homes for sale. Last year, inventory shot up 46% from January to May, which is a more typical pattern of inventory growth during that time of year.

Keeping the inventory from rising has been very important because our demand is still lower than our current levels of supply. To find better balance, the market will see prices continue to adjust downward. As they do, we will see purchase mortgage applications continue rise and our market return to better health for the long-haul.

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

Lower Prices Cause Pending Sales to Jump

Pending home sales across the country jumped 6.7% in April, which represents the largest increase since October 2001. The stock market responded postively to this news and closed up again today. Analysts were expecting only a modest increase in sales activity.

The big jump in sales is largely attributable to the lower prices seen around the country. For example, the median price of an existing home in California decreased by over 36% from April 2008 to April 2009, according to the California Association of Realtors. That drop in price led California to a 49.2% increase in home sales.

Closer to home, a 14% reduction in average sales price sparked a 15% jump in pending sales across Western Washington. Thurston County prices, however, have not corrected as much. Our prices are off just 9.6% from a year ago. Consequently, our market experienced a 4% decrease in pending sales.

Our local market continues to have much greater supply than demand. We have 8 months supply at the current pace of sales, which is well above a balanced market with 4-6 months supply. Under those conditions, prices will continue to adjust downward to bring the market back into balance.

From 2003-2006, Thurston County home prices appreciated at an average of 13.4% per year, compared to just 5.9% average over the 20 years prior. Even with the price corrections we have seen since the peak of our market, our average sales price is still nearly 6% above where our historic trendline would place prices today.


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Our market is trending in the right direction, however. The gap between our actual average prices and a sustainable price based on our market's more modest historic growth rates is the smallest it has been in the past 5 years. (California did not start to see more sales until prices came back in line with its historic trendline. When prices got there, sales jumped up.)

This fact is helping a great many sellers find success in our market. Those who are setting asking prices to stay in front of the market trend are selling in near record time, at just 46 days on market. They are also selling for close to full asking price. When more sellers start to recognize the real market forces they too will find success. This in turn will lead to greater absorption of our excess supply, and that will bring our market back to more sustainable and healthy growth in the future.

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

Foreclosure Sales not impacting prices too much

In our May 11, 2009 posting, Affordability Returning to the Local Housing Market", we suggested that foreclosure sales were not placing downward pressure on prices. We are seeing bank-owned properties priced at market value.

Now a report from the Federal Housing Finance Agency (FHFA) lends additional support to our thinking about our local market. In its May 27, 2009 report, The Impact of Distressed Sales on Repeat-Transactions House Price Indexes, the FHFA takes on the task of quantifying the effect of distressed sales on average home prices. By analyzing the California housing market since it peaked in 2006, the report concludes that distressed sales magnified price corrections by only 5.4%.

California's housing crisis has been one of the worst in the country. The House Price Index (HPI) compiled by FHFA shows a 41.3% price decline since the peak in 2006, accounting for all sales including distressed sales. When the HPI is formed without distressed sales only a 36% drop is evidenced.

Our local market has not had near the impact of foreclosures that California has seen. The FHFA's report suggests to us that prices in our market are not being artificially impacted by foreclosures. Instead, the volume of foreclosures that we are seeing is simply an addition to our supply of homes. Any increase in supply without a commensurate increase in demand leads to lower prices. But unlike California's 41% reduction in prices, we have seen prices drop only 12% since their peak in 2007.


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To view the complete FHFA report visit: http://www.fhfa.gov/webfiles/2397/researchpaper_distress.pdf

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

$8,000 Tax Credit Update

For those of you who regularly visit our blog you know that we have been providing information about the federal tax credit program for first-time homebuyers. That $8,000 tax credit has certainly helped that segment of buyers, but it has not reached its full potential because buyers had to wait to get the cash until they filed their 2009 tax returns next year.

Now there is a program that will help some of those first-time buyers take advantage of the cash today. The following is the latest from CNNMoney.com about the tax credit.

"First-time homebuyers will now have access to quick cash to help them with their downpayments.

"Last week, the U.S. Department of Housing and Urban Development (HUD) announced that first-time homebuyers using FHA-approved lenders can now get an advance on the $8,000 tax credit created by the stimulus package and apply it toward their down payments or closing costs. As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping on-the-fence buyers to take the home-purchase plunge. But buyers couldn't collect the $8,000 credit until tax time, rather than at closing time-when it's needed.

"The delay created an obstacle to reigniting the housing market because most first-time buyers -- the ones who would buy much of the available inventory -- have only saved enough to cover 4% of the purchase price, according to the National Association of Realtors.

"The mechanics of the new program, according to NAHB Economist Robert Dietz, allow lenders to purchase tax credits from the buyers and then collect the rebate from the IRS. Homebuyers must still come up with FHA's mandatory downpayment of 3.5% on their own, but they can use the tax credit to lower their principal balance and save on monthly payments.

"The initiative also authorized downpayment help programs already offered in Colorado, Missouri, New Jersey, Pennsylvania, Tennessee, Washington and other states. To quickly infuse cash into their housing markets, the housing finance authorities in these states created bridge loans to allow buyers to borrow against the $8,000 credit and then repay it with their tax refunds."

Source: CNNMoney.com