Windermere Woodinville Blog

Washington State economics resist the downturn in the American housing market.  We have continued job growth, less drop in home value, pockets of continued market vitality and, generally, a significant pent up demand for homes in first-time-home buyers.  Yet, we cannot divorce ourselves from the national scene so we must appreciate its movements.

For those willing to yield to optimism, there are positive signs.

An over-supply of homes will drive prices down and keep buyers on the sidelines as they wait for prices to “stabilize,” read cease to sink. Optimistic analysis of the national housing pictures indicates supply and demand are moving toward balance.  The sink slows to a stop.

According The Economist (August 16th, 2008) sales of new homes,  which had plunged nearly 60% from their average level of 2005, have been stable since March.  Sales of existing homes stopped falling last autumn.   The inventory of unsold homes, though still near recent highs relative to monthly sales has fallen sharply in absolute terms.

By the standards of previous cycles, residential construction should be nearing the bottom.

The Economist suggests that Since home prices have dropped about 18% from their mid-2006 peak (based on S&P/Case-Shiller composite of 20 cities) and incomes have steadily grown, homes are returning to a more typical level of affordability in some regions.

For many buyers in apartments the term home price “stability” is synonymous with “affordability.”  They wait for Washington State home prices to cool to meet their budget capabilities.

What about home foreclosures won’t they pull prices down further?  Maybe not.  Some experts argue that foreclosure sales will impact prices less than commonly thought. They examined state-level data from 1981 to 2007 and found that even large increases in foreclosures have only a small marginal impact on prices, perhaps because they occur late in the cycle when supply of newly built homes is shrinking.

Last month’s housing rescue law offers a tax credit to first-time home buyers a feature that the National Association of Home Builders has been heavily promoting.  The law also made the government’s implicit backing of Fannie and Freddie explicit, if necessary by injecting capital into them.

There are positive signs on the national scene that the housing market is coming back into balance, inventories are coming down, prices are returning to “affordability.”  It is a process that had to follow the superheated markets of 2005-6.

Thanks for reading this blog.  Much appreciated. And thanks to The Economist.

Who is Eligible
 The tax credit of up to $7,500 is available for first-time home buyers only.
 The law defines a first-time home buyer as a buyer who has not owned a home during the past three years.
 All U.S. citizens who file taxes are eligible to participate in the program.

Income Limits
 Home buyers who file as single or head-of-household taxpayers can claim the full $7,500 credit if their adjusted gross income (AGI) is less than $75,000.
 For married couples filing a joint return, the income limit doubles to $150,000.
 Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
 Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
 The credit is not available for single taxpayers whose AGI is greater than $95,000 and married couples with an AGI that exceeds $170,000.

Effective Dates for the Tax Credit
 First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 (retroactive) and before July 1, 2009. To qualify, you must actually close on the sale of the home during this period.

Tax Credit is Refundable
 A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will write you a check for the difference.
 For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $2,500 payment from the government.
 If you are due to receive a $1,000 tax refund from the government, your refund would grow to $8,500 ($1,000 plus $7,500 from the home buyer tax credit).
 Buyers can take the tax credit in their 2008 or 2009 tax return.
 If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.

Types of Homes that Qualify for the Tax Credit
 All homes, whether single-family, town homes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years. This also includes newly-constructed homes.

Payback Provisions
 The tax credit essentially serves as an interest-free loan to be repaid over 15 years.
 For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. If the home owner sold the home, then the remaining credit would be due from the profit of the home sale.
 If there was insufficient profit, then the remaining credit payback would be forgiven.

Full credit to Windermere’s Marketing Department for this Fact Sheet. The art work, however, is ours.

• In 2007, Woodinville  had its lowest crime rate in a decade.  Overall, there were 9.7% fewer reported crimes in 2007 than in 2006.
• The downward trend in crime in Woodinville appears to be continuing over the first quarter of 2008. 
• For the first quarter of 2008, the total crime rate dropped 14% compared with the same three month period in 2007.
• For more information about how you can prevent crime in the Woodinville area please call 425-877-2285.
• You can also visit the City of Woodinville website at  www.ci.woodinville.wa.us

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The State’s job employment picture indicates the underlying vitality of the real estate industry present and future.  If more people come into the state to work, real estate benefits.  There are good reflections for home sales, particularly for those selling on Seattle’s East Side.  

Employment growth is still positive in service industries centered on the Seattle’s East Side.

What State of Washington industries are up from June 2007 to June 2008?  Aerospace, information technology/software publishers lead.  Which are down? Financial activities, wood products and construction lag.

Goods producing industries - e.g. construction and manufacturing -  carry the burden of an economic slow down.  On the other hand, service industries like information technology tend to retain their labor as long as feasible in slow times because specialized, skilled labor is in short supply.  Out put in these industries remains even in both up and down economies.

Realtors who sell to software engineers can take heart in these economic facts.  Seattle, Bellevue and Everett are up 23.2% over June 2007 in adding service producing jobs.  Personal income in the State is up 6.1% (Q1 2007 to Q2 2008). 

There are still people with home buying money moving into the State thanks to people like Microsoft, Amazon, Pacific Northwest National Laboratory, and Philips Health Care.

The urban service industries are sustaining the State’s over-all employment growth.  The Seattle area is providing two-thirds of the service industry growth in the State.  The Seattle area also had the only remaining source of growth in goods-producing industries (+4.5%).  Read this as expansion of the Boeing workforce last year.

The pattern of service-intensive growth in urban areas is likely to continue unless the national economy goes completely in the tank. 

The take way here?  Encouragement for realtors selling to the service-technology clients inclined to upscale East Side homes and condominiums.

We thank Washington CEO magazine (September 2008) for inspiring this analysis.

Thanks for taking the time to read our blog.

Yes, there’s some negative news for the Washington real estate market.  We can’t just put our hands over our ears. 

Not all statistics point to a balanced market or return to a strong seller’s market.  But there is some good news and some positive indicators that prices might stabilize.  We need to talk about both forms of real estate news, the good and the bad.

Repeating that this is a good time to buy rolls off the back of price conscious buyers looking for stable home prices.

Even buyers well-motivated, fully-funded and extra-willing hesitate because they think prices will go down.  They don’t want to buy high. They don’t know that this is a good time to purchase. 

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Good agents, still producing sales, walk around bravely whistling in the dark in the face of bad press, mortgage fraud, short sales, and just fewer sales.  They whistle, but they’re worried. Real estate brokerages fail.  Where should these productive agents go when their offices close?

If they stay in the business they should look for a company that will survive the current real estate market.  They should  look for a sure-footed company that offers:

• Stability:  Where the managers and brokers have years of unbroken experience.  We need to hang our license in a top-brand shop that has been in business for a long time under a steady and true helms-person.

• Accurate market analysis:  Where company generated economic reports provide a realistic view of what’s happening in the market. We need warts and all reports but we also need to see the positive trends.

• Positive influence:  Where you’re surrounded by agents who continue sell and prosper in today’s challenging market.  Some agents are having good years. We do better when surrounded by winners.

• Vision: Where the owners have a vision of where the market is going, when it will turn, and what innovations and new business models are necessary for success.  We want to be with people with creative, long-term views.

• Passion: Where there’s a passion for doing real estate right, profitably and professionally.  We like to be warmed by people on fire for the business.

• Treatment as a human being:  Where from the top down agents are treated as human beings and not just numbers and a production potential.  We want to work in a culture of caring.

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According to the NWREporter of August 19,2008, Seattle job growth ranks high nationally.  

From April 2007 to April 2008, the Seattle area ranked second in job growth of all metropolitan areas with population of three million or greater. With a growth rate of 2.1% in the last 12 months, Seattle’s job growth is 2.3 times as much as the average growth for cities of our size.

When cities have increases in the number of jobs; this means they need more apartments, condominiums and single family houses. Some of these jobs are taken by local residents, including recent college graduates; while some are taken by people moving into the area.

Thanks for reading our blog, much appreciated.

Summer time in Woodinville

July’s Pending Home Sales Dip Slightly From June, Prices Edge Up

Speaking to the State-wide market, the NWREporter August 19, 2008 supplies these quotations:

Inventory remained plentiful during July, pending sales nearly matched June’s volume, and last month’s selling prices edged up from June in more than half the counties served by Northwest Multiple Listing Service, according to a new report.

Despite persistent uncertainty among would-be buyers, Windermere Broker Dick Beeson said his Tacoma office had its best month for sales so far this year, spurred in part by brisk sales in the medium to lower price ranges, first-time buyers utilizing incentives, and shrinking inventory in Pierce County. (The number of active listings is down 6.6 percent from a year ago.)

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King County price appreciation two years out (3%) and five years out (46%) sounds a good note in Matthew Gardner’s economic report for 2nd quarter 2008.  As Gardner sums it up:  “… housing in our area remains a positive long-term asset.”

Please appraise the “home price escalation” in the above chart for Washington metropolitan areas.  Put your own value on it, but it comes from one of the region’s top economists.

For the first time, Gardner included the five-year appreciation rate of housing in addition to the traditional short-term view.  As the economist puts it:  “This is important as we tend to look at our world in the here-and-now, ignoring longer trends that, as often, paint a different picture.

A 46% appreciate rate for your home five years down the line sounds reasonable.  Historical precedent exceeds that robust climb in home values.   Consider that from June 2003 to June 2008 the average increase in home values was an astounding 60 percent in our market.

It is pleasing to see that the number of new listings is declining in almost all counties and “that the average list price is lower now than a year ago.”  This signals a reduced inventory and a path back to a balanced market.

At the same time, uncertainly in the national economy coupled with inflationary concerns driven by increasing prices are still keeping some buyers on the sidelines.  There are fears of further price reductions.

According to economist Matthew Gardner, buyers will return to the market  toward the end of this year (2008) when they see greater stability in sale prices.

Contrary to much of the U.S. our market continues grow its job base.  The rate has begun to slow, bur remains a blessing for the housing industry.  The sixteen-county region still added an impressive 32,500 new jobs between June of 2007 and June of 2008.

Gardner says that we will continue to see upward pressure on unemployment rates as we come to terms with high gas prices and low consumer sentiment.  Washington State should, however, continue to create new jobs through the balance of the year.  This is important as job creation is a basic requirement for housing demand.

In conclusion, Gardner believes that while market has some further attrition to face … housing is still a positive asset.  Buyers you may venture forth.

Mr. Gardner is a land use economist and principal with Gardner Johnson Land Use Economics and is considered by many to be one of the foremost real estate analysts in the Pacific Northwest.

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A single owner or a family owns today’s, typical real estate brokerage.  We speak of offices dedicated, primarily, to the sale of residential real estate.

The agents work as independent contractors, paying a desk fee or splitting their earnings with the owner for the privilege of hanging a license on the wall and partaking of office amenities, e.g. staff support, business machines and the company brand.

The agents don’t share in corporate profits or receive salaries.  The live and die by their commissions.

The owners make their money off agent splits or the desk fees or a combination of the same.  In slow times where sales falter and commissions evaporate in the desert of a barren season, owners feel the pinch.  Company dollar dries up. 

Thirsty for a pay check, agents leave the business or begin to hop around from brokerage-to-brokerage shopping for another office where their “luck” might be better.  Loyalty is no thicker than Texas top soil.

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