Shelley Smith is an attorney and co-owner of Ballard Escrow (http://www.ballardescrow.com/), located in — you guessed it — the Ballard neighborhood of North Seattle. As the director of an escrow operation that closes hundreds of transactions each month, Shelley is in an excellent position to provide insight into Seattle’s real estate market. This is reprinted with her permission from her newsletter, which published today.
As we’ve watched the media fill our lives with stories of foreclosure and banking disasters, we hoped and truly believed that our Emerald City would be spared from the problems created by sub prime lending and Wall Street investment failures. We have seen splashy headlines drilled into our psyche 24 hours a day. These reports have, unfortunately, affected consumer confidence. What we should keep in mind, however, is that these negative reports fail to distinguish the Pacific Northwest region, in general, and Seattle, in particular, from the rest of the country. In truth, in areas such as California, Las Vegas, Arizona, Florida and parts of the Midwest, we have seen deep cuts into real estate values. This economic downturn is a result of over exaggerated real estate valuations and predatory lending practices. In the areas most affected, home values have risen to levels of 200% or even 400% over a very short period of time. By comparison, Seattle shares little in common with the most devastated market regions around the country. We have seen significant increases in real estate values, but the levels of escalation are closer to 100% to 150%. The Puget Sound region is not overvalued today and the foreclosure rates are low. It is true that real estate values have dropped some, but the levels of decline are minimal. Our market is suffering more as a result of the slippage in consumer confidence than from truly adverse market factors.
Buyers in Seattle have been waiting the better part of a decade for the market to shift away from a seller dominated market toward a buyer’s market. Buyers can finally achieve some level of concessions from sellers and it is safe to say, at least for now, that we are in a buyer’s market. The levels of inventory in the residential sector have risen sharply in the last few months. Homes are remaining on the market in excess of 60 days. Bidding wars are few and far between and pricing is softer. This is without a doubt a shift in our local real estate economy. But, this downturn may be short lived. The regions in our country most affected by this crisis have little to offer their home buying public in comparison to our Puget Sound region. As a result, those markets lack buyers. We enjoy unsurpassed natural beauty, a strong job market, a growing economy and a diverse cultural environment. These uniquely Seattle features make our region one of the most sought after regions for living in the country. All predictions indicate that the Northwest region will continue to grow over the next decade. When growth occurs, prices continue to climb. We may have slowed to take a breath, but we should not expect drastic downturns in pricing. With recent decline in the federal reserve interest rate, borrowers will again find low interest rate financing with rates expected to return to the high 5% to low 6% levels for owner occupied homes. 100% financing is now available on owner occupied properties, and 95% financing is available on investment properties so long as full loan documentation is provided.
The key to our resurgence is based on consumer confidence. Talk with your clients and your neighbors about the true facts causing the secondary market scandal. Differentiate our region from those regions around the country that are truly in trouble.
We need to educate and encourage our buyers to take advantage of the market and buy now while inventory is higher, bidding wars are few, and it is possible to obtain reasonable seller concessions. At the same time, counsel your sellers to expect values to steady and increases to diminish to single digit levels. Buyers who are undaunted and unafraid to look at our market with a longer term perspective will truly be rewarded by buying now.