Okay, this may be a stretch, or a bit polyanna of me, but I think the “Fall bounce” which we typically see heading into the post-Labor Day market, will be bouncier than normal. This means that we’ll see more sales, firmer pricing, and generally much more “velocity” in our local Seattle real estate market.
Why do I think this — other than as a broker and developer I’d REALLY REALLY like to see it happen?
A few reasons:
- The RPX Monthly Housing Market Report — May 2008 — was just released. Seattle ranks fourth in 23 listed MSA’s (metro areas) in price decline, with 4.7% year over year. This follows a 12.1% increase between May ’06 and May’07. The interesting thing is that between April and May 2008, there was a 3.7% uptick in value. No one should be deluded into thinking their house is worth anywhere near its peak price, but a 5-10% decline from that 2007 pricing still builds in a lot of equity/appreciation for anyone who bought before 2007. For five year annualized change, Seattle ranks at the top of the list, with 9.5% annual appreciation.
- Transaction counts were down 24% between May of ’06 and ’07, and down another 46% between May ’07 and ’08. A 30% increase in sales for September and October would bring a lot of strength into the market, while not coming anywhere near where our sales numbers (in terms of transaction volume) have been the last few years. It’s like having a car that can do 150 mpg — we were driving that fast in 2006, we slowed to 114 mph last year, and to 61 mpg this year. I just want do be doing 80 again. I think this old rig has it in her.
- The housing bill. Some summary info here. I don’t like all of this, but there are some great elements here to spur the market. Our car isn’t out of gas like it is in lots of markets, so a little nitro in our tank should help us get things moving again quite nicely. More stable mortgage markets and the first time buyer credit, while not solving all of our issues, sure won’t hurt things. The rates seem like they’re staying low and will for at least the near future.
- Rents vs. Prices. This has long been stated (Seattlebubble post on the topic) as a reason for the decline of civilization (or “too expensive housing”) — Housing prices get out of whack relative to market rents for those houses. That’s really turned around. Rents here are WAY up. RPA manages over 1000 rental units — most of them for individual owners for whom we manage single family homes, condos, or small multifamily buildings. Our portfolio’s rents are up, on average, over 8% for each of the last three years — 24% in total. This makes up for seven years of virtually no increases, of course. But to rent a $350,000 townhome for $1800, or an $800,000 house for $3500 — these are mortgage payment sized rents. Even the higher end homes ($1m-2m) are renting well, and for big numbers that we haven’t seen. I think people NOT buying has significantly increased demand for the rental product, which bails out lots of homeowners who don’t HAVE to sell right now. But it won’t take long for these renters to recognize that owning, at close to the same monthly payment, is an attractive option.
- The market right now, as it sits, just ain’t that bad. We’re moving product if it’s well-positioned and well-priced. That means priced a few points BELOW recent sales. In those hot markets, the mantra was “well, it’s been six months. We need to be priced 10% above that sale.” No more — trends work both ways. It’s a tough pill to swallow but for most owners that paid $200,000 for their homes in 1993, and could have sold for $900,000 at one point? $775,000 is still a healthy gain. I know that’s small consolation to those owners that actually paid $900,000, but that part of the market is a small minority. Hopefully they don’t have to sell this year. I say this because even if we just have stability, it’s just the “normal” market we had in the early 90’s.
- Year over Year statistics. Things started slowing dramatically last September, after August’s financial crisis began in earnest. So when we start reviewing year over year numbers, instead of seeing big declines, we’ll see flat or improving numbers for volume, and maybe for pricing. This sort of news seems to create more good news.
- And one last thing: For new construction, including townhomes, most builders are selling now at prices that give them little or no profit margin. Sometimes this is at the demand of their lenders, sometimes just to clear the deck for the builder and to get out from under the debt service. This can’t continue, and I don’t think the underlying land prices can fall enough to restore that margin in upcoming years. As a result, very little new product will come onto the market until prices come back to a point where it makes sense for a builder to build it.
We’ll see what the season brings, but with a good 1/3rd of the year to go, I’m more optimistic than I’ve been since I got back from Inman last July and quickly started battening down the hatches.