Washington vs. the U.S., Why Our Area’s News May Not Match the Rest of the Nation’s

Positive news in the housing market is now consistently reported around the country. Sales are increasing, prices are inching up in some places and drops in values are easing in other areas.

In our blog we have even been reporting our area’s share of positive news. After a couple of years of consistently tough news, these positive signs are certainly welcomed. However, our local market overall is still in a correction mode – and we expect to trail the rest of the nation in the housing recovery. The reason is that our market was late to begin its correction.

While much of the rest of the country, including the hardest hit states, started to correct in late 2005 and early 2006, our market remained strong until the summer of 2007.

Several factors helped our market delay the correction – a strong job base and low unemployment, significant inbound migration to the state, and a lot less overbuilding than occurred in places like California, Nevada, Arizona, and Florida. In addition, our region’s property values did not jump as high as these other states. For example, from 2000 through 2006, California’s median home price jumped an astounding 124.5%. Washington’s median price increased 72.5% during the same period (Source: www.FHFA.gov).

While our price increases were nowhere near California’s, the appreciation was still far above our historical levels of growth. We would have expected just 41% average price appreciation from 2000 through 2006, based on our local area’s historic price appreciation prior to the 2003-2006 seller’s market (5.9% per year).

Ultimately, our level of price appreciation proved too much, pushing well above the level of sustainable demand. This triggered our market’s correction in the second half of 2007, a full 18 months after most of the rest of the nation.

Given that our market did not fly as close to the sun as places like California, we might not be a full 18 months behind that state when it comes to marking our bottom. However, we are certainly going to lag behind.

Chart 1 below shows the price history of a $200,000 home purchased in the year 2000. California’s trajectory is much more extreme than Washington’s. California prices have now corrected below its historic trend line of price appreciation. This significant drop reflects the serious oversupply of homes that persisted there over the past several years.

Click image to enlarge.

Now that prices and supply are down, home sales there are bouncing up. According to the California Association of Realtors, in 2008 California experienced a 26.8% increase in sales of existing homes. There is a 25% increase expected this year. That market is returning to more sustainable times.

For our part, Thurston County remains above its historic trend line for price appreciation despite two years of price declines. Chart 2 shows that our average price is still almost 6% above expected levels.

Click image to enlarge.

Still, more and more sellers are pricing their homes right to reflect today’s reality. We see everyday that even though the market overall is still correcting an individual home may already be at its market bottom. This is reflected in the 12.2% uptick in home sales during August. Buyers are clearly recognizing the value of these well-priced homes and they are acting quickly to buy them. See our July 30, 2009 post.

The key is getting back to relative affordability in all price segments. Many price segments, such as under $250,000, are at levels of affordability not seen in more than five years. Other market segments are still overpriced.

The Federal Housing Finance Agency’s quarterly report ranking 297 U.S. cities for price appreciation shows that we are behind the rest of the nation in price adjustments. The report ranks cities’ price gains over the past 5 years, one year, and latest quarter. Olympia ranks 11th best for price appreciation over the past 5 years. That number is simply unfathomable. We are a great area, but number 11 in the country?

Just nine months ago our ranking was 12th on the list, but don’t take that as a sign that things are improving. Rather it shows how much the rest of the country has fallen. Our 12th place ranking last year was the result of almost 61% price appreciation over the previous 5 years. Our 11th place ranking this year reflects just 39% price appreciation over the past 5 years. So in three quarters we’ve dropped 22% points of price gains.

Earlier this decade, we ranked closer to the bottom of the list, with a ranking in the bottom 15% of the nation. (See Chart 3 below). We should not expect to stay in the top 3% of the country. And, in fact, the change is already happening. Olympia’s ranking for price appreciation over the last year is 213th, and over the last quarter is 237th.

Click image to enlarge.

The data shows that our market’s correction was simply late in starting. We will continue to correct and settle out in more sustainable territory.

So as we continue to hear positive news coming from around the nation, you’ll know that our local market news will continue to lag until next year. Further proof, once again, that all real estate is local.

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

Mortgage Rates Down Again

Mortgage rates are at their lowest levels since late May, according to Freddie Mac’s latest Weekly Primary Mortgage Market Survey. For the week ending September 3, 2009, the average rate on a 30-year fixed-rate mortgage was 5.08% with 0.7% fees and points. A year ago, the average rate on the same mortgage was 6.04%.

Mortgage rates are one of the main reasons that housing sales are starting to improve. Combined with lower home prices, these rates have greatly increased affordability. Buyers have responded by moving sales of homes in Thurston County up 12.2% in August 2009 compared to year ago numbers.

Source: http://www.freddiemac.com/pmms/#Historical



Click image to enlarge.


Click image to enlarge.

With Prices Down, August Sales Jump Up

Thurston County August home sales posted the best year over year percentage gain in almost three years. Lower prices pushed the month’s homes sales up 12.2% over year ago figures (332 sales in 2009 vs. 296 sales in 2008).

This is only the fourth month out of the last 32 where a positive gain in sales has been posted. The other three months with sales gains were only slight percentage upticks. We have to look all the way back to December 2006 to find the last 12% gain in sales.

Price reductions have put affordability levels at the highest levels in decades. Add attractive interest rates and an $8,000 first-time buyer tax credit, and we have buyers coming back into the market.

Pending sales, which are an indicator of sales a month or two down the road, were up 5.9% year over year in August. That is a nice gain but off the big 14.7% jump experienced in July.

Our market will need a string of months like August if we are to get back to a truly balanced market. That is because inventory levels still place us squarely in a buyer’s market with just over a seven month supply of homes for sale.

Prices will continue to correct down until we are back in a balanced market, which has a four to six month supply of homes.

Thurston County’s year to date median price has fallen 6.5% from last year. It now stands at $243,000 compared to $259,900 last year.

Even with these price adjustments, the market as a whole is still above its historic trend line for price appreciation (see our July 28, 2009 post for more on prices). We expect prices will continue to moderate through the spring of next year and then start a slow recovery.

The big jump in home sales last month, however, is a clear reminder that each home has its own price bottom. Buyers are gobbling up the well-priced homes. The still overpriced homes are being ignored until prices are reduced (for more on this topic see our August 18, 2009 post).

More and more sellers understand the need to get the price right now. In July, 41% of sellers sold without needing a price reduction. Only 29% of sellers at the start of the year started with the right price. Buyers are starting to learn that if they wait for a “market” bottom they may just miss out on the home of their dreams that is already on its way back up.

Next week: Prices are starting to inch up around the country, why not here. Learn why our market will continue to lag behind the rest of the country as we come out of the housing slump.

U.S. Pending Home Sales Reach 2-year High

Pending home sales are at their highest level since June 2007, according to the July Pending Home Sales Index released this week by the National Association of Realtors.

The Index is 3.2% higher than the June reading, and it is 12% higher than July 2008. July was the sixth straight month with an increase in pending sales. In the eight year history of the Index, there has never been such a string of positive up ticks.

As we reported early last month, Thurston County pending sales continue to outperform 2008 levels. In July, pending sales increased 14.7% over July 2008.

For more on our local pending sales, see our August 6, 2009 posting. Later this week, we will have a report on August pending home sales.

Why a drop in Building Permits Bodes Well for our Market

Below is a link to a good article in yesterday's Olympian about the local housing market. Among other things, it provides some view to the future supply of new construction homes coming on the market.

Residential building permits are down across the country, and that is a good thing. The supply of homes on the market is already over 7 months (4-6 months supply indicates a balanced market).

Builders are clearly responding to the oversupply by moderating the pace of new construction. While we have a ways to go yet, this is helping to bring our market out of the doldrums and back to more sustainable times.

http://www.theolympian.com/southsound/story/954635.html

Coldwell Banker Ranked Highest in Seller Satisfaction

J.D. Power and Associates recently released results from its 2009 Home Seller Survey. Coldwell Banker was ranked highest among national real estate companies in satisfaction among home sellers.

The survey examines four factors among in the home-selling process: (1) agent, (2) marketing, (3) office, and (4) package of additional services. The results of the survey showed that Coldwell Banker performs “particularly well in all four categories.”

Sales of New Homes on the Rise

Last week we shared the news of the nationwide jump in sales of existing homes. This week the report on July new home sales was announced. Sales in that category are up 9.6% to an annual pace of 433,000.

This is the highest rate of sales since last September, and it is the largest percentage increase since early 2005, which was the peak of the nation’s housing boom.

The standing inventory of new homes fell to a 16-year low. That reflects both the increase in sales and the fact that builders have put the breaks on new starts.

At the current rate of sales, there is now a 7.5 month supply of new homes. This is down sharply from the beginning of the year when more than 12 month supply of homes sat on the market. A balance market is one that has between four and six month supply.

Locally, pace of new home sales is lagging behind the national trend. We are seeing a slight uptick in activity with July sales 4.4% up from a year ago. Most subdivisions are averaging a couple of sales each month, which reflects a more normal pace of sales for our market.

There is certainly a lot less new construction coming on the market. As of July 31, 2009, there were 416 new construction listings in Thurston County, down 28% from the 581 listings in July 2008.

Like the rest of the market, price is really dictating the pace of sales. Those new homes that are priced well compared to the competition, both new and existing homes, are selling well. Also, homes in the more affordable space under $300,000 continue to outperform the homes priced above that level.

The average list price of a Thurston County new construction listing is now $302,493, down $63,862 from the same time last year.

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