Western Washington Real Estate Market Update

Posted July 28 2016, 11:00 AM PDT by Matthew Gardner, Chief Economist, Windermere Real Estate

Posted in Market News and Western Washington Real Estate Market Update by Matthew Gardner, Chief Economist, Windermere Real Estate

 

ECONOMIC OVERVIEW

Washington State continues to see strong employment growth, outpacing national numbers with an annual rate of more than 3%. Interestingly enough, despite these substantial job gains, the unemployment rate remains stubbornly high at 5.8%. However, I’m not overly concerned about this because it’s largely due to a growing labor force rather than a declining job market. This means that those who are unemployed who had previously stopped looking for work are now resurrecting their job searches because they have confidence in the economy.

I expect to see a modest drop in the unemployment rate through the balance of the year, and believe we will continue to outperform the nation as a whole with above-average job gains.

 

HOME SALES ACTIVITY

  • There were 22,721 home sales during the second quarter of 2016, up by 4.4% from the same period in 2015. We finally saw a much-needed increase in listings, which rose by 30.1% between first and second quarter. This increase in the number of homes for sale led to an increase in sales, which rose by 4.4% when compared to the same period in 2015.
  • Island County saw sales grow at the fastest rate over the past 12 months, with sales up by 22.1%. This is a small county which is subject to wild swings, so I take the data at face value. That said, the larger Thurston County saw sales up by an equally impressive 19.7%. Most interesting is that King County saw sales fall modestly compared to the same time period in 2015. Price—and supply—are clearly an issue in the most populous county in our state.
  • Overall listing activity was down by 21.8% compared to the second quarter of 2015, but the good news is that the supply side deficit is actually getting a little less than we have seen over the past few years. The total number of homes for sale was 30.1% higher than seen at the end of the first quarter. While much of this can be attributed to seasonality, it is still nice to see!
  • The region is experiencing positive job growth, and with it, migration to Washington State is running at a very brisk pace. Given these factors—in addition to our lack of new home construction—it is not surprising to see demand substantially usurping supply. As I look forward, I believe inventory levels will continue to rise modestly, but it will remain a solidly seller’s market for the rest of the year.

 

 

HOME PRICES

  • With demand still exceeding supply, we should not be surprised to see average sale prices continuing to rise, as is certainly the case in our region. Home prices rose by 8.1% between the second quarter of 2015 and the second quarter of this year. This is down from the annual rate of 10.1% that we showed in our last report, but the rate is still far higher than the historic average of 4%.
  • Regular readers of this report will remember that there were several counties where average sale prices in the first quarter were actually lower than seen a year before. I suggested that seasonality was to blame and that was indeed the case, with all counties in this report now showing annualized price gains.
  • When compared to the second quarter of 2015, price growth was most pronounced in San Juan County and, in total, there were nine counties where annual price growth exceeded 10%.

 

  • The prevailing supply/demand imbalance continues to push prices higher, and persistently low interest rates are just adding fuel to the flames. If rates stay at current levels, it is unlikely that we will see much in the way of slowing appreciation for the rest of the year.

 

 

DAYS ON MARKET

  • The average number of days it took to sell a home dropped by 17 days when compared to the second quarter of 2015.
  • It took an average of 67 days to sell a home in the second quarter of this year—down from both the 86 days it took to sell a home in the first quarter of this year, and from the 84 days that it took to sell a home in the second quarter of 2015.
  • The only market where the length of time it took to sell a home rose was in the notoriously fickle San Juan County, where it rose by 30 days to 196 days. In the rest of the region, the average decrease in the time it took to sell a home between the second quarter of 2015 and the second quarter of 2016 was 20 days.

 

  • Snohomish County has joined King County as a market that takes less than a month to sell a home. At 18 days, King County is unarguably the hottest market in the region, but sales are slowing due to the lack of inventory. This imbalance is unsustainable over the long term.

 

 

CONCLUSIONS

This speedometer reflects the state of the region’s housing market using housing inventory, price gains, sales velocities, interest rates, and larger economics factors. For the second quarter of 2016, I am leaving the needle in the same position as last quarter. Inventory levels have improved, albeit modestly, and price growth has slowed very slightly. However, this is offset by a jump in pending sales, a slightly higher number of closed sales, and a drop in interest rates. As such, the region remains staunchly a seller’s market.

 

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.

 

King County Had Almost Half of 2015’s 30 Most Competitive Neighborhoods in America

We probably don’t need to tell you that 2015 was a crazy year in real estate, especially in our city. Bidding wars and listings lasting mere days on the market is something we’ve all grown accustomed to. But it turns out we’re not alone. Redfin recently came out with a list of the 30 most competitive neighborhoods from all across the U.S.. What’s the most mind blowing thing about this list? Of the 30 neighborhoods listed, 13 of them are in King County.

Top30Competitive-Neighborhoods-Table2

Seattle neighborhoods that made it onto this list are Roosevelt (4th), Phinney Ridge (9th), Stevens (11th), Greenwood (12th), Victory Heights (16th),Green Lake (17th), Madrona (20th), West Woodland (22nd). I mean, we all knew it was stormy out there, but this felt like a snow storm in Waikiki. It’s hard to say exactly what 2016 has in store, but our very own Chief Economist, Matthew Gardner, has a few ideas (such as expecting that housing in Seattle will continue to appreciate in value, but at a slightly lower rate than 2015).

Read more on Seattle Curbed.

2016 Home Sales Will Be Best in a Decade, With Surprising Hot Spots, Realtor.com Predicts

CNBC

December 2, 2015

Total homes sales next year are expected to reach the highest levels since 2006 on the back of new construction and the existing housing market, Realtor.com reported Wednesday.

The report contains several surprises. Among them, Providence, Rhode Island, ranked as the hottest market for 2016, and millennials are expected to make up the biggest demographic of homebuyers next year.

Sales of existing and new home sales are expected to reach 6 million for the first time since 2006. The pace of growth of existing home sales and prices is expected to slow to 3 percent but remain strong overall. Meanwhile, new home sales are seen increasing 16 percent.

Realtor.com anticipates new home starts will increase by 12 percent.

And those new homes are becoming more affordable, Realtor.com Chief Economist Jonathan Smoke said Wednesday.

“What you’ve seen in the last couple of years is that builders have been avoiding that more affordable entry-level price point,” he told CNBC’s “Squawk Box.”

“We’re already seeing movement. Last week’s report on new home sales showed that the median new home price is finally coming down, and that’s a good sign that builders are positioning communities and product for a more affordable price.”

That is helping to draw in millennials, who are often viewed as absent from the housing market.

Americans ages 24 to 35 accounted for 30 percent of the existing home sales market in 2015, according to National Association of Realtors data cited by Smoke.

“That’s higher than it has been the last couple of years and trending towards normal, which is more around 36, 37 percent,” he said.

Smoke noted that Realtor.com’s top 10 hottest housing markets for 2016 contained other surprises, in addition to top-ranked Providence: St. Louis; New Orleans; and Virginia Beach, Virginia.

While all the areas on the list have strong economies or improving prospects, those four areas are about four years behind other markets in the recovery, and their economic outlook for 2016 is particularly strong, Smoke said.

It Pays to List in Winter

Spring may still be peak home-shopping season, since most families want to move when school is out. Yet it actually pays to list in the winter, when buyers tend to have more urgency. A study by online brokerage Redfin found that average sellers net more above asking price during the months of December, January, February, and March than they do from June through November, even in cold-weather cities like Boston and Chicago. And homes listed in winter sold faster than those posted in spring.

For a seller listing a home now, these ideas from money.com can help make a great cold-weather impression:

Price It Right

The quieter winter market brings special pricing considerations. Unlike in spring, when there are more shoppers, you’re less likely to receive multiple offers during the winter months. The best advice is to take a conservative approach and price at market value.

Schedule a Tune-Up

Winter buyers are particularly attuned to issues related to heating and maintenance. Get the furnace, HVAC, and roof inspected, and make any necessary repairs. Also on the to-do list: clean the gutters, change air filters, and weather-strip the windows.

Many cold-weather house hunters will also be thinking about heating costs. Consider low-cost upgrades like insulating the attic or installing energy-efficient windows, which can cut utility bills.

Brighten Your Home

Snow and gray skies make for a gloomy first impression. Warm up curb appeal with basic landscaping, and add inexpensive cool-weather plants like holly to invigorate outdoor space. Fix chipped paint, caulk windows, and repair cracked window seals, which can cause condensation that freezes over and looks bad.

Compensate for the season’s poor natural light by painting the house off-white throughout. It will set a consistent color palette and makes the space feel larger.

And create a sense of warmth throughout the home, starting with the living room, where staging can have the greatest impact, according to a NAR report. Items such as a throw blanket can set the tone of warmth and coziness. To stay neutral during the holidays, use seasonal touches like stacked wood by the fireplace rather than holiday decorations.

As always, de-clutter and depersonalize. It’s a good idea to put away family photographs so that buyers can see themselves living in the home; instead display pictures that show what the property looks like when the temperature is warmer, like the garden in full bloom or the backyard in the summertime. Just because it’s winter doesn’t mean buyers can’t appreciate what the home has to offer year ’round.

Thanks to Tammy Pollard for sending this to us.

Selling Your Home? Price It Right From the Start!

Selling Your House? Price It Right From the Start | Keeping Current Matters

In today’s market, where demand is outpacing supply in many regions of the country, pricing a house is one of the biggest challenges real estate professionals face. Sellers often want to price their home higher than recommended, and many agents go along with the idea to keep their clients happy. However, the best agents realize that telling the homeowner the truth is more important than getting the seller to like them.

There is no “later.”

Sellers sometimes think, “If the home doesn’t sell for this price, I can always lower it later.” However, research proves that homes that experience a listing price reduction sit on the market longer, ultimately selling for less than similar homes.

John Knight, recipient of the University Distinguished Faculty Award from the Eberhardt School of Business at the University of the Pacific, actually did research on the cost (in both time and money) to a seller who priced high at the beginning and then lowered the their price. In his article, Listing Price, Time on Market and Ultimate Selling Price published in Real Estate Economics revealed:

“Homes that underwent a price revision sold for less, and the greater the revision, the lower the selling price. Also, the longer the home remains on the market, the lower its ultimate selling price.”

Additionally, the “I’ll lower the price later” approach can paint a negative image in buyers’ minds. Each time a price reduction occurs, buyers can naturally think, “Something must be wrong with that house.” Then when a buyer does make an offer, they low-ball the price because they see the seller as “highly motivated.” Pricing it right from the start eliminates these challenges.

Don’t build “negotiation room” into the price.

Many sellers say that they want to price their home high in order to have “negotiation room.” But, what this actually does is lower the number of potential buyers that see the house. And we know that limiting demand like this will negatively impact the sales price of the house.

Not sure about this? Think of it this way: when a buyer is looking for a home online (as they are doing more and more often), they put in their desired price range. If your seller is looking to sell their house for $400,000, but lists it at $425,000 to build in “negotiation room,” any potential buyers that search in the $350k-$400k range won’t even know your listing is available, let alone come see it!

One great way to see this is with the chart below. The higher you price your home over its market value, the less potential buyers will actually see your home when searching.

Price & Visibility | Keeping Current Matters

A better strategy would be to price it properly from the beginning and bring in multiple offers. This forces these buyers to compete against each other for the “right” to purchase your house.

Look at it this way: if you only receive one offer, you are set up in an adversarial position against the prospective buyer. If, however, you have multiple offers, you have two or more buyers fighting to please you. Which will result in a better selling situation?

The Price is Right

Great pricing comes down to truly understanding the real estate dynamics in your neighborhood. Look for an agent that will take the time to simply and effectively explain what is happening in the housing market and how it applies to your home.

You need an agent that will tell you what you need to know rather than what you want to hear. This will put you in the best possible position.

Now Just May Be The Right Time To Buy That Second Home

Tax Breaks For Second-Home Owners
By Jean Folger | Updated May 06, 2015 AAA |

Many homeowners look forward to purchasing a second home that can be used for vacations, rental income, investment purposes or as a primary residence during retirement. Current tax laws offer several tax breaks that can help make second-home ownership more affordable. If you already own, or are thinking about purchasing a second home, it will be in your best interest to understand the tax breaks and how they work. Different tax rules apply depending on how you use the property, for either personal or rental use, or a combination of the two.

Personal Use

As long as you use the property as a second home – and not as a rental – you can deduct mortgage interest the same way you would for your primary home. You can deduct up to 100% of the interest you pay on up to $1.1 million of debt that is secured by your first and second homes (that’s the total amount – it’s not $1.1 million for each home). You can also deduct property taxes on your second home and, for that matter, as many properties as you own. Like a primary residence, however, you generally can’t write off any of the costs associated with utilities, upkeep or insurance (there are exceptions to this; for example, you may be able to claim a home office deduction if part of your home is used for business purposes).

Rental Use – The 14-Day or 10% Rule

The tax rules are quite a bit more complicated if you rent out the property. Different rules apply, depending on how many days a year you use the home for personal versus rental use. There are three categories into which you may fall:

1. You rent out the property for 14 days or less.

Your second home can be rented to another party for up to two weeks (14 nights) each year without that income begin reported to the IRS. Even if you rent it out for $10,000 a night, you don’t have to report the rental income as long as the home was not rented out for more than 14 days. The house is still considered a personal residence, so you can deduct mortgage interest and property taxes under the standard second-home rules.

2. You rent out the property for 15 days or more, and use it for less than 14 days or 10% of days the home was rented.

This property is considered a rental property, and the rental activities are viewed as a business. If your second home is rented out for more than 14 days, all rental income must be reported to the IRS. You can deduct rental expenses (including mortgage interest, property taxes, insurance premiums, fees paid to property managers, utilities, and 50% of depreciation), but you have to factor in the amount of time the property is used for personal use versus rental use. And, as a rental property, up to $25,000 in losses might be deductible each year. Fix-up days don’t count as personal use, so you can spend more than 14 days at the property as long as it is for maintenance purposes. You should be able to document the maintenance activities, however, with receipts to prove you weren’t using the property for leisure purposes on those days.

3. You use the property for more than 14 days or 10% of the total days the home was rented.

If you use the property for more than 14 days, or more than 10% of the number of days it is rented (whichever is greater), the property is considered a personal residence and the rental loss cannot be deducted. If a member of your family uses the property (including your spouse, siblings, parents, grandparents, children, and grandchildren), those days count as personal days unless you are collecting a fair rental price.

Selling Your Second Home

Tax laws allow you to take up to $500,000 profit ($250,000 if you are unmarried) tax free on the sale of your primary residence. This primary-home sale exclusion does not apply if you sell your second home: If you sell a house that is not your primary residence, you may have to pay the usual capital gains tax. If you make the second home your primary residence for at least two years before you sell it, however, you may be able to reap some tax benefits, but it’s not as easy as it used to be.

Prior to Jan. 1, 2009, you could move into your second home, make it your primary residence for two years, sell it, and take advantage of the primary-home sale exclusion. Now, as a result of new laws associated with the Housing and Economic Recovery Act of 2008, you can still make your second home a primary home before you sell it, but you’ll owe taxes for the period of time that the property was a second home after Jan. 1, 2009. The IRS now uses a ratio of the years you occupied the home as a primary residence versus the years the home was used as a rental (or other-than primary residence) to calculate the amount of capital gain that will be excluded from the sale.

For example, the Smiths purchased a second home in 2004. They continued to use it as a rental home during 2009 and 2010, and then used the home as a primary residence during 2011 and 2012. Only 50% of the capital gains from the sale of the home will be tax free (up to the $500,000 exclusion) since the home was a primary residence for only 50% of the time after Jan. 1 2009.

1031 Exchanges

A 1031 exchange, also known as a like-kind exchange or tax-deferred exchange, is a transaction where a seller swaps a rental or investment property for another rental or investment property of equal or greater value, on a tax-deferred basis. The advantage is that the seller may be able to avoid paying capital gains tax on the exchange. A property must be considered a rental property (and not a personal residence) to qualify for a 1031 exchange. This means that you must rent out the property for 15 days or more, and use it for less than 14 days or 10% of days the home was rented.

The Bottom Line

If it’s financially feasible, owning a second home can be an excellent investment for vacation or rental purposes, or to use as a primary home during retirement. Because owning any home carries a significant financial burden – from mortgage and taxes, to maintenance and repairs – it is in your best interest to understand the tax implications of second-home ownership. Since tax laws are complicated and do change, owners and potential buyers should consult with a qualified real-estate tax specialist to gain a full understanding of tax implications and laws, and to determine the most favorable ownership strategy.

Read more: http://www.investopedia.com/articles/personal-finance/013014/tax-breaks-secondhome-owners.asp#ixzz3ii6HQxeW
Follow us: @Investopedia on Twitter

Are we on the verge of another housing “Bubble” bursting?

Posted August 10 2015, 9:05 AM PDT by Matthew Gardner

August Perspectives

Posted in Perspective by Matthew Gardner

Every year there’s some aspect of the real estate market that becomes a focal point for the media. A few years ago it was whether or not housing would ever recover from the Great Recession. Then it was historically low interest rates and inventory levels. And more recently, it’s whether or not this hyper-paced, multiple-offer real estate market is heading towards another housing bubble. To explore this further, we’d like to introduce Windermere’s new Chief Economist, Matthew Gardner, who doesn’t believe there’s a cause for concern, for now.

I’m often asked if we are on the verge of another “bubble” bursting due to an overheated housing market. My response is no, and here are the reasons why:

Fewer flippers: Foreclosures are the preferred property type for home flippers because they offer significantly higher margins. But with the continued drop in foreclosures, we’ve seen a marked slowdown in flipping. Nationally, the percentage of flipped homes has decreased from 6.7% in 2014 to 4% today, and this share is expected to keep declining, signifying a more normalized market.

Lending standards remain stringent: Banks actually learned a lesson from the collapse of the housing market and have made qualifying for a mortgage quite difficult. Even low down payment programs like FHA, that have less stringent FICO requirements, have significantly tightened their standards, thus lowering the risk of lending to borrowers who cannot handle their mortgage obligations.

Home prices are up, but not to pre-bubble levels: Data provided by the S&P/CaseShiller Home Price Indices tells us that in the Seattle area, the bursting of the housing bubble led to a 33 percent drop in the index. The index has certainly recovered significantly, but is still 7% below the prior peak.

Interest rates will (eventually) rise: Some fear that rising rates will take some steam out of the market, but growth in employment, and the subsequent drop in the unemployment rate, will lead to wage growth and increasing incomes, which will take some of the sting out of any rate increase.

As you can see, the housing market and economic climate of today are very different from the conditions that led to the housing bubble in 2007. Nobody can predict what’s going to happen with 100% certainty, but given the current state of things, I don’t believe there is a risk of history repeating itself in the foreseeable future.

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.