In Seattle, a Tight Housing Market

Stringent building restrictions, and the city's unique geography, prevented overbuilding during the boom.

Two big factors will help bolster Seattle housing prices in the next few years: stringent building restrictions and basic geography.

City officials kept a tight rein on development during the boom. Much of the new housing consists of "in-fill" projects that replace existing buildings or other properties. For example, South Lake Union, a multi-use development with 2,800 residential units so far and Amazon.com's (AMZN) new headquarters, was built on a former industrial site. "It's a difficult market to penetrate from a land acquisition perspective," says local builder Peter DelMissier, division president of Pageantry Homes. Not that there's much undeveloped land to buy. An isthmus, Seattle is hugged by the Puget Sound on the west and Lake Washington on the east.

With such constraints, Seattle doesn't have a significant supply of homes on the market. It would take just five months to work through the excess inventory, compared with roughly nine months for the U.S. as a whole, according to the National Association of Realtors. "Given sales, demographics, and job growth, we expect the inventory in Seattle to burn off faster than in other markets," says Richard M. Gollis, founder of The Concord Group, a consulting firm in Newport, Calif. Generally, cities with low inventory will bounce back sooner than the rest of the U.S. Tight supply in Seattle—much like in Dallas, Denver, and Portland—should set the stage for recovery in the next year or so.

Homeowners in Miami aren't as lucky. Builders in the coastal city slapped up condominiums and houses during the boom, figuring investors and retirees would jump on them. Today half-built condos mar the skyline, and newly constructed developments sit empty. The area has more than a 40-month supply on the market—among the highest in the country. Atlantic City and Las Vegas also are plagued by excessive inventory. The overhang in those markets will continue to weigh on prices for years, even as the rest of the country recovers.

Some areas of Seattle are on the mend already, with houses even sparking bidding wars. In April, Jen Hoff, 39, and her husband, Pete, 37, decided to upgrade to a bigger house to accommodate their expanding family. They put their Craftsman-style bungalow, typical of the homes in Seattle's oldest neighborhoods, on the market, and received five offers the next day. A few weeks later they sold their starter home for $406,500, roughly $7,500 above the listing price.

The family moved in May to a $569,500 four-bedroom brick home built in 1947. Their new place is only one street away from the old—so Pete Hoff, a statistics professor at the University of Washington, can still bike to work. "We love the character of the neighborhood and that it reflects a time when it was first built," says Jen Hoff, a stay-at-home mom with two sons, ages 2 and 11. "It's not a neighborhood in transition."

Building restrictions—and the city's unique geography—should help lift prices.

~ Courtesy of BusinessWeek, June 18, 2009

No Surprises From the Fed

Wednesday’s Fed Meeting concluded without much fanfare in the market. The Fed Funds rate was not changed and Prime Rate remains at 3.25%. The main details of the Fed policy statement suggested that the downturn in the economy is slowing and deflation is no longer a big threat. The Treasury and Mortgage Backed Security Purchase Program will remain the same as well. The Fed meeting was basically a non-event for the market as nothing really changed.

Thursday was an impressive day in the Bond Market, as yields were pushed higher on positive Treasury Auction results. It was just a few weeks ago that rates soared on an oversupply of Treasuries and poor investor participation in auctions. The auction results were a much needed sigh of relief for mortgage rates.

In Friday’s news, it was announced that the personal savings rate for Americans has soared to 6.9%. This is the highest level since December of 1993. A high savings rate can be a double edged sword for the economy. While it is good to see people saving, spending is the lifeblood of a strong economy.

We’ve seen a nice drop in mortgage rates since the peak a few weeks ago at 5.625% on the 30 year fixed. Currently, the 30 year fixed is 5.125%. We don’t know how long this dip in rates will last, so take action now on your purchase or refinance!

~ Courtesy of Wendy Charles, LoanCentral LLC, 425.468.9321, WendyC@LoanCentral.com

161 Days Left to Use the First Time Homebuyer Tax Credit!

The clock is ticking…there are only 161 days left to take advantage of the $8,000 first time homebuyer tax credit! In order to qualify for the tax credit, one must close on a home no later than November 30th, 2009.

While it remains an excellent time to purchase a new home, we are starting to see the first signals of the bottoming out process of the current recession. While we are not seeing many signs of economic growth, we are starting to see signs that the recession is slowing and the economy is starting to stabilize. We are also seeing sales of single family homes starting to increase.

The brightening economic news has led to and will continue to lead to increasing mortgage rates. The increases in rates have been slight and currently rates remain at historical lows. Long term economic recovery, however, will eventually be accompanied by higher interest rates.

Right now is the best time in history to be a first time homebuyer. With today’s combination of low interest rates, low home prices and a tax credit of $8,000, there has never been a better
opportunity to enter the market. It could be a once in a lifetime opportunity, don’t miss out!

~ Courtesy of Wendy Charles, LoanCentral LLC, 425.468.9321, WendyC@LoanCentral.com

National foreclosure filings drop!

We got the news last week that May foreclosure filings were down 6% from April. This was the first month-on-month decline since January. On top of that, the drop would have been larger except for increases in just a few states.

It's important to note that the bulk of foreclosures are concentrated. If you take out the four states with the highest number of foreclosures, the remaining 46 states (including Washington) had only 1% of mortgages in foreclosure, according to the Mortgage Bankers Association.

Also remember that not all homes with foreclosure-related filings wind up owned by the lenders. Many homeowners are able to refinance their loans or negotiate a loan modification or short sale.

What a difference a week makes!

Home loan rates pushed up to 5.625% on Wednesday, a level not seen since the Federal Reserve announced its mortgage backed security purchase plan last November.

Rates have improved from Wednesday’s peak and are still phenomenal compared to historical interest rates. So much has happened in the credit markets over the last year it is hard to remember that in June of 2008, 30 year fixed mortgage rates hovered around 6.25%. That is nearly 1% higher than today!

The rise in mortgage rates continues to be attributed to fears of inflation and over-supply of bonds in the market. The improvement in rates is partially due to news that the Paulson & Co. hedge fund will begin purchasing distressed debt and mortgage backed securities. Additionally, there are no Treasury bill auctions scheduled for next week and this will give some relief to the oversupply in the market. In other news, consumer sentiment came in at its highest level in 9 months and retail sales met expectations. Since this met market expectations, it did not cause a reaction in bonds.

Where rates go from here is always open for speculation. What is certain are today’s rates. Current rates make it possible to get a historically low mortgage interest rate. It is still a great time to purchase a home or refinance your current mortgage.

~ Courtesy of Wendy Charles, LoanCentral LLC, 425.468.9321, WendyC@LoanCentral.com

Five Eastside high schools make Newsweek's top 100

For the third year in a row, five Bellevue high schools have been named to Newsweek magazine's list of top 1,500 public high schools in the country.

The schools are the International School, ranked 11th; Interlake High, 18th; Newport High, 34th; Sammamish High, 47th; and Bellevue High, 78th. All five schools moved up a notch or two in ranking from last year, except for the International School, which was 10th last year. Other Puget Sound-area schools that made the list are: Edmonds-Woodway High in Edmonds, 318th; Garfield High in Seattle, 497th; Redmond High in Redmond, 684th; Mercer Island High in Mercer Island, 890th; Ingraham High in Seattle, 940; Inglemoor High in Kenmore, 1,101st; Issaquah High in Issaquah, 1,106th; and Shorewood High in Shoreline, 1,362nd.

A substantial component of the listing is determined by counting how many students take Advanced Placement (AP) exams, which are administered in May, and dividing that number by the number of seniors graduating in May or June. AP classes use a rigorous standardized curriculum developed by the College Board, and students are encouraged to take the optional exams at the end of the class to earn college credit.

The listing also takes into account exams taken in the International Baccalaureate program, another rigorous college-level program.

To see Newsweek's list of top high schools, go to http://www.newsweek.com/id/201160.

Economic review of last week

There was a lot of encouraging housing news last week. Nationally, the April Pending Home Sales came in UP 6.7%, rising for the third straight month and a 3.2% improvement over a year ago! The National Association of Realtors housing affordability index is near a record high and mortgage rates, while creeping up, are still at historically low levels. In fact, applications for purchase loans were UP 4.3% last week, according to the Mortgage Banker's Association.

Additionally, two large homebuilders reported that losses in the quarter ending April 30 had shrunk from levels of a year ago. They cited lower prices as the big draw for buyers, and the pace of price declines seems to be slowing. IHS Global Insight, a research firm, reported home prices fell on average at a 2.2% annual rate in Q1 of this year, a big improvement over the 12.5% drop measured in Q4 of last year.

Some experts say the economy has bottomed and we're beginning a "v-shaped" recovery. The week gave them ample support. April Personal Income was UP, with wages and salaries increasing for the first time in eight months! Personal Spending was down –0.1%, indicating consumers are still cutting spending. ISM Manufacturing increased in May, with new orders showing expansion, posting its highest reading in 18 months. China's manufacturing grew for the third month in a row, so the global economy may be recovering. There were also better-than-expected manufacturing numbers from the UK and the Eurozone. ISM Non-Manufacturing increased to its highest level since October. Even autos helped out, with sales up 6.4% for the month, the fastest rate of climb this year.

All of this is good news. Now is looking like a great time to buy a home before interest rates rise further and sellers start cutting incentives and standing firm in negotiations.

Snohomish County Statistics - May, 2009

Current Residential & Condo listings - 5,656 (down 24.30% from last year)
New listings taken this month - 1,759
Pending sales this month - 1,160 (up 31.37% from last year)
Percent of listings that sold this month - 20.51%
Median closed sales price - May ‘08, $329,950
Median closed sales price - May ‘09, $299,950
Rate of appreciation = -9.09%

~ Courtesy of NWMLS

King County Statistics - May, 2009

Current Residential & Condo listings - 13,537 (down 17.63% from last year)
New listings taken this month - 4,310
Pending sales this month - 2,801 (up 16.03% from last year)
Percent of listings that sold this month - 20.69%
Median closed sales price - May ‘08, $399,950
Median closed sales price - May ‘09, $351,500
Rate of appreciation = -12.11%

~ Courtesy of NWMLS

Eastside Statistics - May, 2009

Current Residential & Condo listings - 5,249 (down 9.83% from last year)
New listings taken this month - 1,466
Pending sales this month - 825 (up 12.55% from last year)
Percent of listings that sold this month - 15.72%
Median closed sales price - May ‘08, $505,000
Median closed sales price - May ‘09, $464,975
Rate of appreciation = -7.93%

~ Courtesy of NWMLS

Inventory shrinking, sales rising, prices stabilizing in some Northwest MLS areas

Waiting longer to buy a home is not likely to pay off, according to Northwest Multiple Listing Service director Kathy Estey after reviewing reports summarizing May activity. Estey pointed to shrinking inventory (about 20 percent fewer listings than a year ago), double-digit increases in the number of pending sales (up 17.7 percent from a year ago), solid open house activity, and signs of stabilizing prices (eight of the 19 counties in the report show price gains since January) as indicators of an improving market.

Northwest MLS brokers notched 7,160 pending sales during May. That total out-gained the year-ago tally by 1,075 transactions (up 17.7 percent) and improved on April’s total by 242 sales for a 3.5 percent increase. For the four-county Puget Sound area, pending sales jumped 21.5 percent from a year ago, rising from 4,526 to 5,498 transactions.

Buyers had fewer choices during May than at this time a year ago. At month-end, member-brokers reported 41,318 active listings throughout the NWMLS service area. A year ago, there were 51,817 active listings. Current inventory includes 11,278 single family homes and condos that brokers added during May. For the same month a year ago, brokers added 14,176 new listings to inventory.

Estey, the managing broker at the Bellevue Downtown office of John L. Scott Real Estate, said affordable homes inventory is down to the levels of a normal market and reaching for a sellers’ market. “Multiple offers are common in the under $400,000 range when the home is priced well, shows nicely and is marketed professionally,” she remarked. “Buyers who are waiting for prices to come down more have missed the bottom,” Estey believes.

Close in markets are the most active, with rural areas still lagging, but Estey says there is now some activity where little to none had existed in the first quarter. She believes prices have adjusted and completed new construction is still a very attractive purchase. “Builder inventory is being absorbed and there are fewer incentives. In January builders were giving away the farm, by March it was only half the farm and now they may just give away a chicken or two in order to make the deal.”

Prices are showing signs of stabilizing, according to NWMLS data. Prices area-wide are down around 10 percent from twelve months ago, but a comparison to January shows price gains in eight of the 19 counties in the NWMLS report. System-wide, prices for single family homes and condominiums that closed last month are up about 2.6 percent since January.

In King County, prices dipped about 12 percent from twelve months ago and have declined about 3.5 percent since January, but a closer look shows considerable variation within sub-areas. Prices in southeast King County fell 20 percent from a year ago, but since January are down only about 2.8 percent in north King County.

Condominium activity remains slow. Pending sales are down about 15 percent from a year ago. The median sales price of $240,000 is about 7.7 percent lower than a year ago. Condos in King County sold for a median price of $270,450 last month, which compares to the year-ago price of $287,925, a drop of about 6 percent).

Demand for high-priced homes is also tepid. According to Estey, there are “amazing opportunities for buyers with good credit scores and 25 percent down payment in the $900,000- plus marketplace.”

“What we’re currently seeing is real estate’s version of Back to the Future,” said J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. He believes the combination of historically low interest rates, adjusted lower prices, and the $8,000 tax credit has created advantageous conditions for buyers that haven’t been seen in decades. He noted sales in the four-county area continue to see double digit increases. “The more affordable markets are seeing a major boost which is leading to higher sales in the mid-priced markets and causing some increases in activity in the upper end,” Scott remarked.

While cheered by the more vigorous activity, brokers note short sales and foreclosures continue to be a drag on the market. Such properties, often sold at deep discounts, may take extraordinary time to close once there has been mutual acceptance of an offer.

NWMLS director Meribeth Hutchings, broker/owner of Windermere Real Estate/Lake Stevens Inc., said her office represents the buyer of a short sale that has been pending since October. The buyers who hope to purchase the home in Mukilteo have been very patient, but are becoming less so and are ready to move from the small apartment where they have been living with two large dogs. “Every time we think we are getting close, the lender changes what they want,” Hutchings stated.

Another NWMLS director, Pat Grimm, reported similar experiences with a short sale. “We just closed one in Montlake on May 28 -- after the parties to the transaction reached mutual acceptance on Feb. 10, said Grimm, the owner/broker at Windermere Real Estate/Capitol Hill. (NWMLS defines a short sale as a transaction that does not produce sufficient funds to cover the existing monetary encumbrances against the property, closing costs, real estate commissions, and other financial requirements of closing.)

Tacoma broker Dick Beeson of Windermere/Commencement Associates said he has several agents deeply involved in handling short sales since Pierce County is so hard hit. He estimates around 25 percent of all properties for sale are either bank owned or short sale, and one of every three pending sales is one or the other.

“Short sales play a big role in what many buyers are looking for,” according to Beeson, who also noted these buyers often fail to realize the extraordinary length of time it takes to close a sale – generally twice as long as a conventional sale. “Many get discouraged after 60 or 90 days and withdraw from a sale, never having received notice form the underlying lender what they are willing to take for the property. Many properties end up going to foreclosure because of the inefficiency of the banks in providing answers to offers,” Beeson commented.

The recent uptick in pending sales, both locally and nationally, is a hopeful sign that we’re putting the worst of the market behind us, suggests Ron Sparks, managing vice president at Coldwell Banker Bain.

“As you would expect in a recovering market, not all neighborhoods are uniformly performing, and for home sellers particularly, there are plenty of challenges that remain.” However, he observed, “In many neighborhoods where just a few years ago broad affordability had all but vanished, lower prices, flexible terms and very low interest rates are pushing inventory absorption for single family homes to levels not seen since 2007.”

Sparks said multiple offers for the best listed properties are occurring everywhere, including Pierce and Snohomish counties. “Improving sales in one neighborhood helps dwindle inventory, and can push motivated buyers to search for homes in other neighborhoods. This process typically occurs before prices start to stabilize,” he explained.

Has that stabilization begun? “As my old Magic 8-Ball used to tell me: signs point to yes,” according to Sparks, who noted eight counties served by the NWMLS have seen price increases since January. “The sales volume in my Bellevue office is now roughly 10 times what it was in February, with expanded sales in almost every price category. Overall inventory levels have dropped substantially as well. Does this mean the optimal time for home buyers to take full advantage of favorable market conditions has passed? I’d probably defer that to the Magic 8 ball also…“Ask again later.”

Recent fluctuations in mortgage rates have brokers and buyers alike wondering if rates will escalate as inflation worries return.

“While rates now are wonderfully low, waiting has cost buyers. Loans recently available for 4.75% are now 5.25%,” according to broker Kathy Estey. On a $400,000 loan, that means the monthly payment rises from around $2,128 to about $2,253 – and increase of nearly $125. She believes it would be wise to act now for the best selection in the affordable homes. “Who knows if we will see rates of 5% or below again anytime soon,” she wonders.

Commenting on a recent report from the National Association of Realtors showing a third consecutive month of improving pending sales, Lawrence Yun, NAR chief economist, said buyers are responding to very favorable market conditions. “Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” he said. “Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

~ Courtesy of NWMLS

Volatile Interest Rates Continue

Interest rate volatility has continued to prevail this week. Mortgage bond prices (the driving force behind mortgage interest rates) have been up and down like a rollercoaster! Unfortunately, bonds spent more time on the downside which drives interest rates up. The biggest factors sending mortgage rates up are economic reports showing an improving economy and fears over future inflation.

The jobs report came in much better than anticipated, with only 345,000 jobs lost in May, far better than expectations of 520,000 jobs lost. Furthermore, the prior two months jobs reports were revised and reflected 82,000 fewer jobs lost than previously reported. The unemployment report was also released today showing unemployment now at 9.4%...up from 8.9% last month. The markets are giving much more weight to the jobs report over the unemployment report as the experts feel it is a better indication of what is to come in the future.

We still have a long road to economic recovery. Low mortgage rates are a key to recovery in the housing sector and the overall economic recovery process. Now is a great time to buy before rates go up!

Chinese Students' Laughter signals Bad News for Mortgage Interest Rates

US Treasury Sectretary Tim Geithner recently addressed a group of students at Peking University and stated that Chinese investment in US Treasury bonds was "very safe". His remarks were met with a round of laughter from the crowd. See the news article at http://www.reuters.com/article/companyNewsAndPR/idUSPEK14475620090601

The laughter was felt around the world, as investors were reminded that China's huge appetite for US bonds could be waning. Why does China's opinion affect interest rates? Interest rates are low when there is high demand for US bonds (government issued debt). If China, the US's biggest investor (at least $768 billion and counting) quits buying our bonds, demand will drop and rates will rise.

In addition to China's sentiment, the US government has issued of a huge amount of new treasury bonds in recent weeks to pay for the stimulus package, which has already caused lower demand and rising interest rates. Rates are above the historically low levels seen over the past few months and are expected to head higher as the US tries to finance its way out of recession.

So what should you do? If you are a homeowner and have an adjustable loan, or your interest rate is above 5.75%, you should lock into a low 30 year fixed mortgage to protect yourself from the possible rampant rate increases over coming years. If you do not yet own a home, you should get pre-qualified and find a home quickly, as rising interest rates could price you out of the market. Please call me with any questions.

Is Now the Right Time to Buy?

Do Your Homework. Start preparing today to buy a home tomorrow.

Is now the right time to buy? Many new homebuyers think so. They point to diminishing housing starts, more accessible pricing and mortgage rates at all-time lows as reasons to purchase today. Add to that an $8,000 tax credit through November of this year and many experts are pointing to the 2009 second quarter housing market as the right time to purchase a new home. In fact, the National Association of Realtors just reported that due to historic rates and adjusted home prices, we are now facing one of the most affordable home markets since the 1970s.

Today's new homeowners prepared themselves for their right time to buy and as a result they've been able to purchase in prime locations for a greater investment. Before buying a new home, they did their "homework." Whether you're planning on buying today or waiting until the time is right for you, you should start preparing now:

Make A List

Prioritize what your needs are for a new community. Schools? Nearby conveniences? Recreational opportunities? Commute times?

Pre-sale or move-in ready?

Determine whether you want to purchase presale, which allows for some personalization, or move-in ready for a quick closing. If you buy new, depending on where you purchase in the construction schedule, you may be able to choose from countertops, flooring, technology packages, even, in some cases, floor plan customizations.

Take a "test drive"

Walk the neighborhood. Carefully review the floor plan. Imagine how you'll lay out your own furniture. Will your grandmother's antique dining room set fit in the formal dining room? Is there room for your cousins who visit each summer? Can the home "grow" with you or change as your lifestyle evolves?

Washington State ahead of the curve for recovery!

A new forecast created by Moody's Economy.com, courtesy of MSNBC.com, predicts job growth happening in Washington State in the 4th quarter of 2009. This is ahead of the nation in terms of potential job growth and overall economic recovery. The forecast model takes into account employment, production, housing starts, and home prices. Washington State is strong in regards to our tech industry and consumer credit scores.

First-Time Home Buyer Tax Credit for Closing Will Move the Market

Consumers across the country can now take advantage of a Federal Housing Administration program to allow qualified home buyers to apply the $8,000 tax credit when purchasing a home. FHA will now permit its lenders to provide a short-term bridge loan that will let qualified home buyers use the tax credit to either make a larger downpayment above the FHA required 3.5 percent, cover closing costs, or buy down their interest rate.

“A true housing recovery depends on buyers returning to the market and reducing inventory,” said National Association of Realtors® President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Since many of the homes available are lower priced starter homes, the ability for individuals to use the tax credit at closing should have a meaningful impact on home sales and values and will allow thousands of families to achieve the dream of homeownership.”

Shaun Donovan, secretary of the Department of Housing and Urban Development, announced the change today. In an address to several thousand Realtors® gathered two weeks ago at NAR’s Real Estate Summit: Advancing the U.S. Economy, Donovan announced HUD’s plan to offer the tax credit as downpayment assistance. Donovan detailed the modifications to that original proposal and announcement.

“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans,” Donovan said. According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans allowing eligible home buyers to access the funds immediately at the closing table.