Source NWLS

Don Davis Ph:360-652-9994 email:dond@htlnw.com www.htlnw.com

Numbers don’t lie.  If fact these number tell the truth about home sales in the Puget Sound region.  You can see where the middle of the decade home sales went well above the average for the area.  The four county (Kitsap, Pierce, King and Snohomish) area has averaged 5667 home sold per month in the last ten years! 

Remember the dot Com era?  That just about busted the stock market at the end of the 90’s and we were in a major recession starting this last decade (2000 and 2001)  during that time the unemployment rate was about the same locally as it is now.

While many may claim that the “housing bubble” was blamed on the easy sub prime money, and yes that is a contributing factor, it is the employment rate that significantly drives a housing market.  It should be no surprise that the home sales in 2001 and 2009 virtually mirror each other. As the economy recovered through 2002 and 2003 the employment rate decreased and housing sale increased.  It wasn’t until early 2004 that the “exotic” mortgage emerged.  ’05 through July ’07 is where they were the most prevalent.  In August ’07 the s*&% hit the proverbial fan the market tanked.  It wasn’t only the sub prime money that went away.  Almost all lending stiffened and lenders immediately changed their credit guidelines.  The stock market crashed and huge Wall Street firms went out of business almost over night.

That is now behind us. As the economy rebounds and the unemployment drops, the demand for housing will once again increase and with that demand the home prices will also rise.  Experts estimate that the appreciation for the Puget Sound area will be around 5% through this year and 2011.  If you own a home, that will be good news.  If you wait to buy until next year it simply means that you’ll pay more.  Couple that with the expectation that interest rates will be in the 6% if not the 7% range and you might be priced out of the market for the home you really want.

The old saying stand true; “buy low and sell high”

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Don Davis Ph:360-652-9994 email:dond@htlnw.com

Home Buyers Tax Credit

The current tax of up to $8,000 for first time home buyers and up to $6,500 for repeat home buyers is scheduled to end the end of April 2010 and the loan must close before July.  It was debatable whether or not it was going to get extended last October when congress extended it six month. 

In all likelihood this will be the end of it.  The tax credit itself did very little to stimulate the housing market.  I dare say locally we probably would have sold just about as many homes without it as we did with it.  The government left the marketing of the tax credit to Realtors and most buyers did not understand how it worked or if they would qualify for it.  Personally I only had a handful of clients that even knew about the tax credit and only one person was buying a home because of the credit.  Everyone else was buying a home because they wanted to take advantage of the low prices and low interest rates; the tax credit was only a bonus and not the reason to buy.

It is quite doubtful that the credit will be extended again once it expires in April 2010.  When it’s gone, it’s gone.  And while $8,000 may not seem like a lot when you are buying a home for $250,000 for example, it could mean up to six months of mortgage payments could be put in to savings and used as a buffer should you need it.

I don’t believe that making a decision to buy a home because you get an $8,000 tax credit makes and sense.  The decision should be based on whether you want to own a home of your own and if you can comfortably afford the mortgage versus your rent.  If you are paying $1400 mo to rent a home, have a stable job with stable income and expect to live in the area for five years or more then buying a home with up to a $2,000 payment would probably make sense.  If you are renting for $800 mo and you employment prospects are uncertain, then the tax credit should not be a reason to buy a home.

However if you take all the current market elements, this is an outstanding time to buy a home.  Yes you could get up to $8,000.  Home prices are stable and very affordable.  Interest rates are currently at or very near historic lows, but won’t be for long.  All it takes is any or (gasp) all of these things to change and it could cost you a whole lot more to buy the same house.

If any of the above items change, it could have an impact on what it costs to buy a home, if several or all, which eventually will happen, change then the cost of buying a home later could be very substantial if not prohibitive. 

 We encourage you to contact us and see if this is the right time for you to consider buying a home of your own.

Don Davis Ph:360 652-9994 email: dond@htlnw.com

The Housing Market

Washington State has a Growth Management Act (GMA) that restricts the amount of new housing for any county depending of projected growth.  This is why we have never seen 600 or 800 home developments like in California or Las Vegas or Arizona.  The county will only issue permits to developers based on the projected growth in that area in a certain period.  This is why we were not overbuilt when the slowdown occurred.  Several years ago, in the height of the boom, developers did pay too much for land, but the demand existed at the time. 

 The cost of the land is the biggest variable in the price of a house.  If it costs $100 per square foot to build a house, it doesn’t matter where it is located.  A 2000 sq ft home would cost $200,000 to build regardless if that house is in Edmonds or Arlington.  The difference is the price of the lot that house sits on.  If the lot cost $150,000 then that house would be a $350,000 home if the lot cost $50,000 then it would be a $250,000 home for the same house.  This is also why a housing market would bottom out.  The cost to replace or build a new home can only go so low.  If existing homes sell for substantially less than it would cost to build a new one, no on would ever build another new home. One of the biggest reasons that few new homes are not being built right now is the fact that most of the banks the builders would get their financing from are under cease and desist orders from the FDIC.  If the builder can’t get funding to build, then nothing gets built.  Once the inventory of homes decreases and the prices once again appreciate, the banks will free up capital and the builders will get back to work.

What makes the Puget Sound region so unique is that we can really only go north, south and up (high-rises) to build new homes (east is mountains and west is water).  There is virtually no buildable land left in most of King, North Pierce and South Snohomish Counties.  Essentially if any new homes are going to be built the developers need to go to south Pierce or North Snohomish County.

 Unfortunately the news media doesn’t report any detail about our own housing market.  This seems really stupid to me.  We have local newspapers, TV and radio stations and they seem to cite the worst statistics available for the housing market.  They will report on national statistics and default rates.  I defy you to send me a detailed report from the news sources that cite our own local market statistics.  It is not newsworthy.  They aren’t going to be able to sensationalize this market because there is nothing to sensationalize.  While we have seen a modest decline in home prices from the unrealistic highs in late 2007, we have plugged along this year selling down the inventory from an almost nine months supply to almost a four month supply.  At this rate by this time next year we should be under two months supply with few new homes being constructed.  What does 2011 hold in store?  We just might be out of home to sell.  If you own a home you will be very happy, if you are trying to buy a home then you might be kicking yourself that you didn’t buy when the availability and the prices were within your reach.

 If you have ever though about buying a home, you might look hard at doing it soon.  Home prices are low and inventories are high, meaning you have a great selection to choose from.  Interest rates are currently at historic lows.  There is up to $8,000 tax credit.  When any of these things change it could cost you substantially more to buy a home.

Below is a TEN year history of home sales for Snohomish, King Pierce and Kitsap County collectively

While all the news medias would want you to believe that all is doom and gloom, we have outsold last year and are about average for the decade.

source: NWMLS

Don Davis Ph:360-652-9994 email:dond@htlnw.com

Is it the right time to buy? If I had a nickel for every time I’ve heard that in the last six months! Here is the reality of today’s market. While there may still be some volatility in certain local segments, it is very much a supply and demand. As long as the supply (inventory of homes on the market) remains high the prices will remain soft. That is the reality of today. However, once the inventory decreases to below a 3 month supply the prices will firm considerably. Even more important is when the inventory of existing homes falls below a 30 day supply. How long will that take? Well the short answer is; in a while. What drives a real estate market is employment. Employment affects population increases or decreases and thus controls the need for housing. If employment opportunities exist and continue to bring people in from outside this market then the need for housing will continue to grow. With that said, we are in a very stable employment climate here in the Puget Sound region with some areas stronger than others. This is what creates a housing market. If no one wants to live in a particular area, usually because of lack of employment opportunities, then the property values are low to very low. Conversely if there is a high demand for real estate then the values escalate. A local comparison would be comparing Everett to Omak. Compare the employment opportunities and you’ll see the correlation to housing costs. Once the market is deemed “desirable” then one needs to consider the value of the property itself, the dirt without a home. The value of the lot is the basis cost of what the property with the home will be valued at. An identical home built in Bellevue or Snohomish or Mount Vernon will essentially be the same, it is the cost of the lot that will affect the ultimate cost of the home. This is why a home in North Snohomish County is less than the exact same home in South Snohomish County. When appraised, every appraisal will compare like homes in a relatively close area. Also on every appraisal is a “cost approach”. This is where the appraiser will determine the value of the land and dwelling and approach the total value using a price per square foot to determine what the home would be worth as if it needed to be built. So in this example let’s say that a 2300sf home would cost $75 per square foot to build. The dwelling itself would cost about $172,500. That includes materials and labor. Add to that the value of the land that it would sit on; let’s say $125,000 and you would have a value of $297,500. Of course the cost of the dwelling would be adjusted up or down depending on what type of materials we used to construct the home. In this example all we used was just an average. In addition to that there could also be “site improvements” this is where landscaping and outbuilding and such would be considered. If a home costs $75 per square foot to build, it doesn’t matter where that house is located, it will still cost $172,500 to build that house. The ultimate cost would be determined by how much the land cost to build the home. Using the above example and the fact that Washington State has a Growth Management act (GMA) where no county can overbuild based on population growth projections; it should be clear as to why this market has remained somewhat stable. Yes homes did appreciate too rapidly a few years ago. But if you bought a home prior to 2005 your home should be worth no less than it was in ’05 or ’06 even though it might have been worth more in ’07 and early’08. There is a finite amount of land available. King County is essentially out of buildable land. Most of South Snohomish County is used up. Add to that the fact that most building has come to a complete stop with very few permits issued in the last year and only a handful of new homes being built and you can see that once the inventory decreases what kind of impact that will have on the values. It comes back to supply and demand. Now, once again using the above example on what it costs to build or value a home, the cost to build the dwelling won’t go down by much even in these tougher economic times. Only the value of the land will adjust. The price of existing homes will always be slightly less than that of a brand new home that is why appraisers use similar age homes with similar floor plans to do their comparables. What has decreased essentially with the price of a home is the value of the land it sits on and even in this market some homes actually still appreciate because of the value of the land (try getting a bargain on water front property on Mercer Island) if it can’t be duplicated and they aren’t making more land, then the value will remain as long as there is the stable population to support it. Bottom line; there is a pent up demand for homes in our local market. We have had over 1% population increase every year this decade and projections show that it will continue through 2025 (just look at the Snohomish County comprehensive plan) If builders are not currently applying for permits and most of the new construction is actually remaining inventory from last year, how long will it take to deplete the inventory of existing homes to where we are under a 3 month supply or less? It will take a while, but once reached the demand will do what demand does and start driving the home values back up. That is why now is a great time to buy a home. The market has remained stable for most of this year and we are actually approaching a four month inventory. It won’t take much to drop the inventory even lower. The builder’s banks aren’t lending money for new construction, and won’t be for at least the next couple of years. The interest rates for mortgages are still at or near record lows. So if you are looking to buy and live in a home for at least the next five years draw your own conclusion as to when you think the best time to buy is.

below is a chart of homes sold in the four county Puget Sound region for the last 9 years.  we are at or above the statistical average for amount of homes sold per month!

2000 to 2009 break down of sales per month

                 Jan    Feb   Mar    Apr   May   Jun    Jul     Aug    Sep   Oct    Nov    Dec

2000 3706 4778 5903 5116 5490 5079 4928 5432 4569 4675 4126 3166 2001 4334 5056 5722 5399 5631 5568 5434 5544 4040 4387 4155 3430 2002 4293 4735 5569 5436 6131 5212 5525 6215 5394 5777 4966 4153 2003 4746 5290 6889 6837 7148 7202 7673 7135 6698 6552 4904 4454 2004 4521 6284 8073 7910 7888 8186 7583 7464 6984 6761 6228 5195 2005 5426 6833 8801 8420 8610 8896 8207 8784 7561 7157 6188 4837 2006 5275 6032 8174 7651 8411 8094 7121 7692 6216 6403 5292 4346 2007 4869 6239 7192 6974 7311 6876 6371 5580 4153 4447 3896 2975 2008 3291 4167 4520 4624 4526 4765 4580 4584 4445 3346 2841 2432 2009 3250 3407 4262 5372 5498 5963 5551 5764 5825

bove is the statistics from Northwest Multiple Listing. If you look at home sales over the last nine years, remember we came out of he last recession the first part of the decade, you can see where we are at compared to previous years. The statistics are compelling and as people become more comfortable with the emerging economy and taking advantage of the affordable prices and interest rates, I think you’ll find this to be a very appealing market, if you’re a buyer! Questions? Comments? Feel free to contact me any time. Don

Don Davis Ph:360-652-9994 email:dond@htlnw.com

It is unclear at this point as to whether or not the Federal Government will extend the $8,000 first time buyer tax credit.  So as far as any of us are concerned we have to believe that it will come to an end on the 30^th of November 2009.

With that said, you should be mindful that if your home purchase is not completed by then you could be in jeopardy of not receiving it at all.  That really only leaves about a month and a half to find the home you want so it will close in time.  If you are purchasing FHA/VA or conventional it takes about 45 days to close a transaction from the time the Purchase/Sale agreement is mutually accepted.  If you are buying USDA/Rural add about another 30 days on top of that because the USDA/RD regional office is that backed up with applications.

The $8,000 tax credit is for first time buyers as defined by “if you have not owned a home in the last three (3) years.” It doesn’t matter how many you owned prior to that it is just the last three.

So, cowboy, if you ‘er a lookin to git that house ‘fore the deadline, git on yer horse and ride.  In other words you better “Git ‘er done.”

Feel free to contact me with any questions or comments.

Don