What’s Hot? What’s Not?
ARDELL on 06 7, 2007
Michael Tenore’s comments in today’s article in the Seattle Times Titled “Local Home Sales Cool Off; why Are Prices Still Hot?” caught my attention this morning.
“Michael Tenore, Puget Sound-area director and broker for ZipRealty, cautioned that buyers can’t expect excess inventory, and thus a deal, everywhere…”It’s by pockets, by neighborhoods,” Tenore said. “When you’re working with a client, you have to educate them that depending on where they’re looking there will be one area with a lot of inventory, and the buyer may have a little more control. And in another area there is very little to look at, and the seller is more in control.”
From where I sit, these pockets and neighborhoods of high activity and high appreciation rate are controlled more by the price factor, than location. I say that because when you concentrate on specific locations, you see buyer’s choices greatly impacted by price range.
[photopress:graph_1__1.jpg,full,alignright]
As usual, I am using Eastside for stats. I do this because age of property and land value affect Seattle markets to a larger degree in Seattle (and also in parts of Kirkland) than the markets I choose for stats, that are less impacted by the builders’ desire for land and tear downs. In this case, I used 98008 and 98052. By using these two zip codes, I can accommodate Sandy’s request for stats in these areas, and point out how price affects supply and demand at the same time.
Referring to the graph, you can see that the highest appreciation would be expected in the under $250,000 market, where there are only 3 available and 20 in escrow. Pretty much an “if you list it; it will sell” price range, giving sellers more opportunity to increase prices, the limiting factor being appraisal for finance purposes. The demand outpaces inventory by so much that the sky is the limit, within reasonable appraisal standards (which I see getting a bit tighter). Clearly a seller’s market under $250,000.
The $250,000 to $350,000 market is not as strong. I attribute this to the fact that buyers tend to go under or over that price segment. There are 25 for sale vs. only 70 sold in the last 6 months and 31 in escrow. Compared to the next price tier, a bit weak. Those priced at $259,000 for longer than 25 days (avg DOM for this price range) should consider getting under or onto that $250,000 price mark where average days on market drops to 14 days. This price range could be an opportunity for buyers more so than higher or lower, with a little more bargaining power.
When you get to $350,000 to $450,000 you see only 21 for sale, 119 sold in the last six months and 41 in escrow. Given the number in escrow is almost double the amount currently for sale, here we see the seller is back in control. Mainly because the product itself is more desirable for the most part, than property in the previous price tier.
$450,000 to $550,000 is pretty much in the same boat as $350,000 to $450,000 except you have more for sale. Not really worth noting as that could simply be the fact that there are more single family homes than condos up here, and their market is opening up more as the condo market closes up more. Just a difference in their market cycle and not a supply and demand consideration overall.
The $550,000 to $650,000 market is where we start seeing market weakness and the first price tier so far where supply exceeds the number currently in escrow. I would expect that to be different if I separated up to $600,000 from over $625,000, as many cap their housing price at $600,000 and then stretch a tad over and up to $625,000. So I’d say $550,000 to $600,000 would be more in the seller’s favor and $600,000 to $650,000 to be a little more in the buyer’s favor. Too early into single family home sales time to test that theory. We’ll wrap that up in September. For now, those trying to stay under $625,000 might look at some up to $650,000 that have been on market awhile and test for negotiable prices.
I expect to see the over $650,000 market changing a lot in the next 30 to 45 days, so other than showing you were it is, which is a mixed bag of inventory vs. sales, I have no comment yet. That market is more heavily impacted from 6/15 to 7/15 than the others. I will mention that the weird stats at the end there, that all come together in the $650,000 to $750,000 price range and the $850,000 to $950,000 market, but spread apart with more of an oversupply in the $750,000 to $850,000 range, has more to do with new vs. old. Old likes to sell better in the $650,000 to $750,000 range for the most part, and loses momentum in the $750,000 to $850,000 range. Over $850,000 you see more new than old, and so that market starts favoring the seller again, or is at least balanced. Buyers looking from $750,000 to $850,000 consequently gain the advantage vs. just under or over that price tier.
As for Sandy, who I believe is looking at new construction and waiting for me to tell her that the price is surely going to go up, sorry. No can do. I’ve already explained why that is. Builders never value the same as the resale market. So the best house on the best lot will gain the most, and the worst floorplan on the worst lot may lose out. That’s just how new construction is and will always be. The only way to match your purchase to appreciation expectations is to buy resale OR buy the BEST lot and not the worst one. Since I can only evaluate the specific lot or new construction project on a client specific basis…that’s the best advice I can give. Buy it because you will be happy living in it. If you want to be more convinced that it will appreciate, then use an agent to help pick the house, the finishes and the lot with resale in mind at time of purchase. The builder really can’t help you there. He just wants to sell them all. And he will.
That’s my $.02 as of today. Off to show property in Seattle, where life isn’t quite as simple. I will have a new listing in Phinney and one in Edmonds coming up soon. So maybe I’ll do those two specific markets in about 30 days or so. The Phinney/Green Lake one will be first. On the Eastside I’m more involved with buyers than sellers. So looking for weakness is my objective at present.
Hope that gives everyone something to chew on, and as required by MLS Rules, please note that NWMLS is the “source” of the data, but the data was compiled BY me and not them, and published BY me and not them.
About the Author: Ardell DellaLoggia
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17 Responses to “What’s Hot? What’s Not?”
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Ardell, I know you’re off to Seattle right now…when you have a moment
what are the homes like that you can buy $250k and under on the eastside? Are they condos? Fixers?
I don’t separate condos from single family homes. There’s no reason to do that in the Seattle Area. Price does that for you. Besides, we have way too many people choosing condo at the same price as single family in the same price range. Condo here is a lifestyle choice, not an “affordability” factor except in the lowest price ranges.
But to answer your question, for the zip codes I used, 98008 and 98052, under $250,000 would ALL be condos. Over here vs. Seattle, townhomes are also condos. In Seattle, townhomes are single family. Some exceptions, but for the most part that’s how townhomes break out on either side of the bridges.
I think you forgot to close your <b> or <strong> tag. Everything below this post is bold.
Ardell: I was about to ask you to comment on the seattle times article myself. Great posting.
Rising rates will hurt all sectors especially over 650K$ more i am guessing. True new constructions are like new cars. The depreciate as soon as you move in I guess. My hope though is since its a house that saw multiple offers so more than one person liked it, can live there, enjoy living there for atleast 5+ years if all goes well.
In 5 years, what will happen no one can tell now. My hope is not to lose money when the time comes to sell
Till then the plan is to hang in there and weather the storm.
Thoughts, comments, welcome
Another question for you folks: In this rapidly changing market would you recommend you clients to pay as much % down as possible? Even over 20% if they can? What would you do if you were say buying a home now?
How much the client puts down has nothing to do with “the market”. Why would it?
Sandy,
Without severe location negatives, there will always be a demand for “newer” in that area. Best time to sell a newer property is usually at five years and before 8 years, depending on several factors. So as long as you are planning to hang in for five years, you should be fine.
I don’t usually link to Seattle Times, but that was a good one. My partner brings me one most every day and they just pile up on the desk. Not of interest to me. I think I especially liked this one because I am simpatico with Michael Tenore in many ways. He’s a good guy.
What is the answer to the quesiton in the times article: why arent home prices cooling off like the sales?
Here is why I think % downpayment is important in this market: Should the market crash, if you dont diversify then your downpayment is essentially partly gone. Right?
Also for folks who have zero down, and their house depreciates, they are in a mess arent they?
If you lose $20,000, you lose $20,000. Doesn’t matter if that is today’s money or tomorrow’s money. As a downpayment, you are sure to lose your own money. With zero down, it could be a short sale and possibly a loss to the owner, and possibly not.
I’d do zero down at my age. If I were younger and my kids were still young, I’d do the downpayment at the highest amount I could afford leaving a cushion in cash for emergencies and upkeep.
One more factor: Some price declines are not all bad news. I can tell you from looking the east side for a nice home (not a fancy one but a well maintained, good light sort of home) is not easy to find. Many homes 30 years old with very questionable upgrades, 2000sqft (again not very large since the bedrooms closets etc are cramped), are listed high because of proximity to Microsoft or a large yard. Now a both factors that are jacking up the price are valid – I hate the commute here in 405, 520 and 202. Large yard – non existant in new homes. But the house per se where you will spend max amount of your time given seattle’s gray skies is not that good, and so not worth the price. In my guess, and you guys can correct me if its educated guess or not, I feel homes that have bad layout, poor light, shabbily upgraded will suffer the most especially if they arent close to any of the major employers around here.
Regarding your 7, I think it’s an invalid premise.
Excess inventory includes houses not selling. Those selling are selling at higher prices. Those that might sell at lower prices and drag down the average price, aren’t selling at all.
Too early in the season to go that route. Re-cap should be October 15. Until then we don’t know if there is an oversupply or not. I’m sure there is an oversupply, but inventory will always be higher this time of year. School isn’t even out yet, is it? Heavy inventory is normal for this time of year. Let’s see if only the worst of the inventory is left come October 15th…same as usual. Prices will rise and more will not sell at all. That’s how I see it.
The days of wanting a high price and not wanting to do anything to the house to get a high price are long over. Some sellers aren’t getting that yet.
Sandy,
That’s what makes them the very best purchases from an appreciation standpoint. Undervalued, and lots more you can do to increase the value even if the market goes down. A much better hedge against prices deteriorating to buy one you can improve upon that is selling at below market rate.
Wow, Ardell! Are you saying your exit strategy may include handing the keys back to the bank?
Bill,
I think I said that when I die, it will be someone else’s problem to deal with
The older you get, the less you worry about stuff.
I was just noticing that emailed flyers are increasing. To match the comments in the article, properties further out are offering 4% commissions. Bellevue offered a cupcake and a cup of coffee to come see a listing priced at almost $5 Million
Oh, that was a NY cupcake…whatever that means. I’ve had NY cheesecake…but what’s a NY cupcake? May have to go to that Broker’s Open just to see what the big deal is with is NY cupcake.
Ardell,
How will you compare these two houses in the same new construction neighbourhood based on the best lots, best floor plan theory…
1. Custom Home – Unique floor Plan with a huge kitchen , great room, formal living/dining and den with 4 Bedrooms on a sloped lot where the garage is sunken and the main flooor is about 5-6 feet above garage floor level. This Means the pathway to the home from the drive way has about 9 steps.
2. Less popular floor plan – smaller great room and kitchen on a more level lot. This one also has 4 bed rooms .Garage and Main floor at almost same level.
I am just curious
Tom