Seattle/King County Market Report (March, 2013)

Why We Love Seattle

Intense doesn’t begin to describe the competition for homes in Seattle’s current real estate market. Home inspectors are making a darn good living these days as more and more buyers are doing pre-inspections in order to waive their inspection contingency when making an offer. Buyers who can are paying cash so that they can waive their financing contingency and the appraisal process which pleases sellers — especially with prices being bid WAY up.  How are prices getting so high? Those escalator clauses buyers are using that top other bids by tens of thousands of dollars above a property’s list price. I repeat, intense doesn’t begin to describe the frenzied housing market here. Decent homes are going into contract the day they hit market, unless the seller holds off to allow time for more offers, which is more often than not the case.

In February, Seattle had two months’ worth of homes for sale. That’s one-third of the inventory level generally considered balanced between buyers and sellers.  Last month, King County had 2-3 months of inventory, an increase over the previous two months.

Here’s the latest report from the Northwest Multiple Listing Service.

Western Washington housing indicators aligned “for SPRING MARKET TO REMEMBER”

KIRKLAND, Wash. (March 5, 2013) – Real estate brokers around Washington state agree today’s market is far different than two years ago, with one industry veteran summing it up by saying key indicators “are in perfect alignment for a spring market to remember.”
On the plus side, closed sales during February jumped more than 9 percent from a year ago and median sales prices are up 13 percent according to new figures from Northwest Multiple Listing Service.

Last month’s pending sales across the 21 counties served by Northwest MLS also increased, but only slightly (1.7 percent) due in part to depleted inventory.
“In my 37 years working in the real estate industry, I have never seen inventory this low,” remarked Diedre Haines, regional managing broker for Coldwell Bank Bain-Snohomish County and a member of the Northwest MLS board of directors.

The number of active listings system-wide is down 29 percent from a year ago, with three counties reporting even more contraction: Snohomish County (-47.7 percent); King County (-45.3 percent); and Clark County (-44.7 percent).

Compounding the shortage is the fact that about one-fourth of the MLS inventory is classified as “distressed,” meaning they are short sales or bank-owned. Such homes are sometimes in need of significant repairs or have prolonged transaction times, which may make them less desirable.

“The market is struggling to provide enough inventory for anxious buyers seeking to take advantage of low interest rates,” reported Dick Beeson, principal managing broker of RE/MAX Professionals in Tacoma. Also, he lamented, considering 25 percent of the selection is distressed, “It leaves some buyers with tough choices.”

Northwest MLS brokers added 7,497 new listings to inventory during February, for a slight increase from a year ago when they added 7,390 single family homes and condominiums to the database.
With the additions during February, the selection at month-end totaled 18,114 active listings. That compares to 25,510 offerings at the same time a year ago for a 29 percent decline.
“Low supply and high demand continue to drive our market,” stated Northwest MLS director John Deely. He said multiple offers are the “rule rather than the exception” for new listings in core urban areas that are priced well. Deely, the principal managing broker at Coldwell Banker Bain in Seattle, noted a new listing in North Seattle recently drew 12 offers and the property was bid almost 10 percent above its listing price.

OB Jacobi, president of Windermere Real Estate Company, noted the month’s supply of homes in King County has dipped to about 1.2 months, well below the six-month threshold that many in the industry consider to be “normal.” Jacobi, who is also on the MLS board of directors, noted supply is at its lowest level since May 2005 during the peak of the housing boom. “The impact of low inventory levels is stiff competition among buyers, often resulting in homes selling for well over asking price,” he remarked. Also, he added, the imbalance also leads to rising median prices.
J. Lennox Scott, chairman and CEO of John L. Scott, Inc., attributes surging sales and prices to several factors, including positive job growth, historically low interest rates and fewer homes being listed. “This restriction of homes for sale is prevalent in the price ranges where more than 90 percent of activity is taking place, causing prices to rise,” he stated.
Area-wide, the median sales price of single family homes and condominiums that sold last month was $247,500. That represents a 3.4 percent gain over the previous month (January) and a 13 percent increase from a year ago. Ten counties reported double-digit year-over-year increases.

For single family homes (excluding condos) the median price was $255,000, up about 11.4 percent from the year-ago figure of $229,000. Homes in King County commanded a median price of $365,000, rising from $308,125 for a year-over-year gain of about 18.5 percent.

Condo prices jumped 22.7 percent area wide (from $150,000 to $184,000) and more than 31 percent in King County, which accounted for nearly two-thirds of the transactions. Condos that sold last month in King County had a median selling price of $210,000; a year ago it was $159,950.

“We have plenty of buyers and desperately need more sellers,” proclaimed Mike Gain, CEO and president of Prudential Northwest Realty Associates. He said open houses are “packed with buyers,” with most of them being serious and ready to buy. Gain also reported inventory in the lowest price ranges is disappearing in all areas. “The recovery in housing is firmly under way,” he stated.
Echoing those comments was Mike Grady, president and COO of Coldwell Banker Bain. “The seller’s market remains strong as demand continues to outweigh supply at unprecedented levels,” he commented. He thinks homeowners may be staying on the sidelines because they are unaware of the potential equity they’re holding. “This trepidation is understandable,” Grady acknowledged, but stressed now is “a great time for homeowners to assess the current value of their homes,” adding “We’re in a far different market than 24 months ago.”

MLS director Deely reported sellers are prioritizing cash offers ahead of those with financing, while many buyers are trying to improve their position by eliminating or minimizing contingencies. For example, he said buyers are conducting pre-inspections “so they can remove their inspection contingencies with a modicum of due diligence.”

Haines, also of Coldwell Banker Bain, said there are fears of an “artificial bubble” being created. “Many of the sales that are occurring are cash buyers, tenants already living in the homes they are buying, investors and investor groups purchasing in bulk,” she explained. Also, she reported, “We are beginning to see an increase in for sale by owner transactions.” Consequently, she noted, many sales are not in the NWMLS database which can skew the numbers of actual sales, a situation that is occurring in other markets as well as here.

Another Northwest MLS director, George Moorhead, said buyers are being very cautious and price sensitive, noting, “We are not seeing the same energy level as we saw in 2012.” Like other MLS officials, Moorhead, the managing broker at Bentley Properties in Bothell, points to inventory (“it’s holding everyone back”) and other factors as restraints on activity.

Previous recessions were brought back with first-time buyers leading the way, Moorhead stated, noting today’s purchasers include move-up buyers who are keeping their homes as rentals. When combined with would-be sellers who are under water and can’t qualify for a short sale or lack savings to cover a loss at closing, inventory lags. According to Moorhead, these scenarios are contributing to “a void which we have not experienced in the past.”

Brokers are downplaying any immediate fallout from the federal government’s budget sequestration on the local housing market. “The cutback with FHA insured loans will have limited impact on buyers,” predicts Moorhead.  Mike Gain believes cuts at HUD may cause FHA loans to become more difficult but if that really comes to pass people will adjust. “They always do.” He expects other conventional mortgage products will surface. “We always find ways to satisfy our customers’ wants and needs. Closing times may be a bit longer but I expect FHA will continue to be a viable method of financing. The HUD cuts to staff working with distressed property will make that process more difficult. Really a shame since these are the folks who really need the most help and the process has never been easy for them,” he remarked. “I think it is too soon to say how the sequester will impact our Puget Sound markets,” said Haines. Beeson said “Sequester may hurt some markets nationally but I think the Northwest is somewhat insulated from the fray. The cuts in FHA employees would be the biggest problem and could cause issues for borrowers.”

Referring to sentiments in Warren Buffet’s annual letter to shareholders, broker Gary O’Leyar said he shares Buffet’s optimism for real estate. “We’ve had the gas crisis, we’ve had the fiscal cliff crisis, we’ve had the meltdown of banks and the resulting loss of confidence on Wall Street, yet look at the facts,” O’Leyar said. “The real estate market has not only survived, but it has shown marked improvement.” He believes if one source of lending such as HUD/FHA loses funding, another sector will rise up to pick up the slack. “I’m already seeing smaller regional savings & loans, community banks, and credit unions stepping up to aggressively offer home mortgages, which I see as a very positive trend. I’m siding with Warren Buffet whose actions have shown he is very bullish on real estate,” O’Leyar declared.

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership includes more than 21,000 real estate brokers. The organization, based in Kirkland, Wash., currently serves 21 counties in Washington state.

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