Sunday Night Stats – Bottom’s UP

For those who are just tuning in, Sunday Night Stats is a continuing saga that I started back in early January of 2008.  Each week is a small piece of the whole, and often shows only those changes that were revealed in the week between posts.  For a longer perspective of the Seattle Real Estate market, click the category for “Sunday Night Stats” for other posts in the series.

Last week I did a brief Snapshot showing that home prices appeared to have increased by as much as 10% in a very short period of time. This week I was testing how sales were doing in comparison to the new 2009 Assessed Values.  Up until very recently, the mls was giving us the 2008 Assessed Values.  Most people know that I use these in conjunction with other valuation techniques to determine offer prices for my buyer clients. As soon as I noticed the change to 2009 values, I started studying the relationship of the most recent sales to these new valuations.

To my surprise, the same 10% increase in prices appeared!  I tested late 2008 and early 2009.  I then tested the period immediately preceeding the escrows that would have been entered into just prior to the $8,000 Homebuyer Credit being passed.  The 10% increase happened in a two week period AFTER the credit passed (allowing 30 days or more for those escrows to close).  Given the % increase is the same as last week, using a completely different method, it seems pretty certain that the stimulus is stimulating more than we expected…but it could of course be very temporary.  Time will tell.

Before you do this at home, see the end of the post after the charts.  I will give you a few tips on how to utilize this type of information around any home you are making an offer on.

(Note: During this same time period of “increase”, “bottom” prices are still available on many homes.  3 buyer clients of mine achieved prices of  86%, 83% and 77% Of 2009 Assessed Values, during this same timeframe showing the Average at 100%.  “bottom” is not a month or a day.  Every day homes sell at different prices and different values. You do not “miss” bottom.  You just have to be willing to find it OR make the choice that you don’t want it. Many people can afford to have their dream home and don’t want to deal with the tradeoffs of buying “at bottom”.

Bottom is not something you wait for, it’s something you put the extra effort into finding…or not.

2009-end-of-march-beginning-of-april

A few notes.  I entered dates at the end of March of 2009 and the beginning of April 2009, until I had about 10 homes.  I did not pick and choose the homes to conform to an answer I was looking for.  I simply closed the dates when the desired # of homes was obtained.  Of course I’m using a small geographic area and the same area is used for all charts, with different timeframes.  I did eliminate new construction, as Assessed Value information is not always available for those immediately after closing.

What you may find to be of particular interest is the Days on Market (DOM) and % of Asking Price, is not as good of an indicator of value, nor a reliable one.  Review all three charts for all three periods (one is in a link at the end) as I think you will get a lot of tips on how to price and how to make offers, by studying the results of many people’s attempts at different means of pricing .

2009-seattle-area-home-prices

The results are really pretty much irrefutable, but just to be sure, I did a third set of data for closings immediately prior to the 30 day period following the Stimulus Package being passed.  The values were slightly lower…the increase was ONLY in the very short period of time after the credit was passed.  Pretty amazing results.

To convert the data to your specific area, simply gather the same information for sold property in a radius around your home or the home you plan to make an offer on.  You might not be able to get OLP (Original List Price), but I think the results here show that using that as a basis is not all that helpful.  The rest you should be able to get from Zillow or the King County Parcel Viewer, or a combination of both.

If you want the detail chart for the period at the end of February and early March, closings that were entered into before the credit past, CLICK HERE. The Average % was slightly under the second chart in this post for late 2008/early 2009.

34 thoughts on “Sunday Night Stats – Bottom’s UP

  1. Hi Ardell,
    The market is clearly moving. Pending had been slowly rising, and then jumped significantly in the last two weeks.

    For the week, the metro areas 380,385,390,700,705,710,715,720 had 30 more pendings (161 vs. 131) than the same week in 2007 (a fast seller’s market — the market shifted dramatically in the 3rd quarter of 2007)

    Eastside pendings are also strong and all Eastside areas are absorbing inventory in the lower price ranges. Sales virtually stop at $700,000. High end home sales continue to be somewhat abysmal.

    It is clear that there has been a significant jump in buyer confidence and they are out buying homes.

    To see a detailed analysis: http://www.workingforyou.typepad.com//realestate/2009/04/king-county-incity-and-eastside-pending-real-estate-sales-rising.html

    I believe we’ll continue to have buyer confidence as long as we don’t go through another round of economic crisis talk like we faced in Sept 2008 and again in Jan/Feb.

    An interesting thing to watch is inventory price compression. As I mentioned, virtually everything being sold is under $700. As area and regional prices are the mid point between high and low, and we have anemic high end sales, area medians will continue to erode. However, with continued absorption, the low end WILL stabilize and start to rise in price, yet we’re seeing formerly $3mil homes drop to $2-2.5 mil. The eastside has over 1,000 homes priced over $1mil alone. So I believe we’ll see the most affordable homes start to rise in price and the high end to continue to erode.

    Also, I think we’ll have to maintain a fairly high rate of pendings before we significantly absorb the pent up SELLER SUPPLY DEMAND (those sellers who really want to sell but feel stuck renting their property or staying put). For this reason, prices in the most affordable houses should experience a period of time in stability before they start to rise significantly, but they will rise once inventory truly absorbs.

    The rate of short sales and bank foreclosures will slow down as the government and banks will be aggressive pushing loan mods. We will also experience new construction sell through. The thousands of small builders are gone. The big boys will need time to get the next wave ready for market. At the current rate of sale, we’ll be running out of NC homes in 9-12 months. I believe the rate of NC sales will increase as buyers are out AND the banks and builders are pushing unbelievable loan interest rate buy downs.

    Medians are generally considered a good market indicator. Focusing too much on regional and area general median prices could be a big mistake in this market. This is the most polarized market we have seen in recent years. I do not foresee anything changing anemic rate of sale in the high end anytime soon.

    The first time buyers will lead the recovery. They are starting to come out with confidence.

  2. I often use Redmond 98052 when doing data, as less than 10% of their total sales in 2006 were in the over $700,000 price range.

    I do see “compression” factors in that area, but not high end to low end so much. The compression factor is single family to condo/townhome. I made a comment last week that “I’m not touching condo data with a 10-foot pole these days.” What I do see compressing are the townhome prices, due to more affordable single family homes.

    During the up years I saw a shift to condos and townhomes, as single family home prices rose. I am now seeing the reverse and think there is more compression to come unless single family home prices shift out of range again, and I don’t expect that to happen post “Spring Bounce”.

    Given the reduced number of buyers, I think those who want a single family home vs. a townhouse will continue to have that opportunity, further compressing the townhome prices.

    It was nice seeing the Dow hanging just over 8,000 for an extra day this weekend 🙂 The talk on the street is much happier these days, even with regard to the stock market, as people bought in at the low point to help balance out their losses with newly achieved gains from bottom to present.

    I pretty much eliminated new construction numbers from my stats, because the builders are doing a lot of rate buy downs, which is skewing the numbers significantly. Prices look higher than they really are with huge seller credits built into many of the closed prices. I find that informtion unreliable for that reason.

    The end result in new construction may be as high as a 6% variance between closed price and actual purchase price, if you value in the interest rate buydowns and other builder and builder’s lender incentives.

  3. Thanks both of you for informative discussion. There’s lots of townhouses in N. Seattle, new and used, and from a buyer’s viewpoint they’re a generic fallback option: soulless, but recent construction with mod cons that would do what you need. For sub-$350 standalone houses, the nice ones go quick, but there seems like a lot of less-than-nice inventory piling up. Possibly the townhouses also compress the lesser-quality houses.

    PS Greg, what is making pendings fall out? Is it borrowing difficulties on the buyer’s side, inspection problems, other things?

  4. Greg,

    I wish we had an ABOM – Active Back on Market, for properties that come back after they have been pending, and strict enforcement of that status. It would be easier to track.

    I do think pendings are “sticking” better, and falling apart less on inspection issues. Mostly due to sellers understanding that “low price” does not mean “as-is” in most cases. Also people buying short sales and bank-owned properties are better informed about what they will encounter, and are more likely to hang in when those things happen.

    I am hearing of sellers being the cause of pending sales not closing, due to their renewed interest in a work out plan under the “making home affordable” options. So not all failed pendings are about buyers backing out, as they once were.

  5. Colin,

    I see more compression SFH to townhome on the Eastside, because in Seattle townhomes are not condos, by and large. When the townhome is a condo, the way it is on most Eastside townhomes, you have a high monthly HOA fee, Resale Certificate and reserve issues, special assessment issues and a recently added cost for condos on the lending side. Lots more obstacles to overcome causing the spread between Condo-townhome price and SFH price to be a bigger obstacle than in Seattle.

    If you can buy a 2 bedroom townhome for $250,000 with a $460 a month condo fee, that $460 a month = $85,000 of buying power compared to a single family home. So a 3 bedroom home at $315,000 or so, becomes equivalent to that $250,000 condo-townhome.

    Not the same scenario in Seattle, so compression factors are not as dramatic. I have a N. Seattle townhome in escrow in the low $300,000 range built in 2005. You can’t readily buy a single family home in the same area at that price and there are no monthly dues on the townhome, so compression is not happening from SFH influence. The townhomes are moving more as a market townhome to townhome, except in the higher price ranges of townhomes that were selling in the $450,000 plus range.

    As to pendings falling out, agents who have only been in the business during the hot market are not as well versed at working through inspection negotiations. That created huge fallout 6 months ago, but those same agents are getting up to speed…or out of the business. The art of home inspection negotiation is making a big comeback and creating more stickiness to pending sales recently. Less fear on the part of the buyers is also helping, as people are less likely to walk away over a minor issue these days vs. 6 months ago.

  6. In addition, a large number of the attempted short sales fell apart. Short sales actually seem sticking better now, as well. As Ardell pointed out, pending fallout is difficult to quantify with a hard number.

  7. Greg,

    I just did a bank owned and their addendums alone can cause pendings to fail, they are scary to read. But most lisiting agents on REOs don’t put them pending until these addendums are signed. Short Sales on the other hand require that the seller’s paperwork be successful, vs. the buyer’s offer, hence the significant fallout. Most agents refuse to “get” that about short sale approvals, so they will continue to fall apart.

    But smart listing agents of short sales are now doing written back up offers, So they are “falling apart” but into contract with a different buyer, and those stats aren’t necessarily showing. Often the agent leaves it in pending and shifts to a different buyer, without making any changes to the mls status.

  8. Thanks, Ardell. If condo dues cover certain basic utilities and expenses that a single-family home-owner would pay directly, isn’t that part a wash? No argument about the larger analysis, I’m just trying to get the comparisons straight.

    Definitely agreed re the first para, plus smaller condos lack staff resources to deal with these things, adding opacity and delays to the purchase — I conclude you either want a big well-established condo or no condo.

    There are little SFHs in N Seattle sliding toward 300, though clearly, for now, the nice ones find buyers well before they dip below.

  9. Colin,

    Often the buyer is making the decision based on qualifying for the loan as to income requirements. For condo it is Principal + Interest + RE Taxes + Condo Fee. For single family it is principle + interest + RE Taxes + Insurance.

    So the the $460 fee eliminates the Hazard Insurance for qualifying purposes, but there is no allowance for utilities or any other factors contained in the condo fee. You could say the $460 includes a new roof someday…but most buyers don’t see it that way and no lenders see it that way.

  10. Thanks for the explanation, Ardell, but that is a bad thing, no? (a) as a potential buyer I’m trying pretty hard to work out total ownership costs over the long haul (and noticing that the real estate industry is not, ahem, set up to help me do that), and (b) we got into the current financial crisis partly by pushing house buyers toward the outer limits of their borrowing capacity. Surely if there was ever a moment to rethink…

  11. Colin,

    If we were talking about setting aside monies for a new roof and exterior siding etc, I would totally agree with you.

    We are talking about market statistics and influences, and how one group presses on another as to sale prices and causes prices to compress. Whether how the market at large does things is “good” or “bad” is not for Greg or I to decide. What we do need to know is if townhomes are going to come up in price as Single Family Home prices rise, and if townhome prices are going to go down in price as they fall.

    Whether or not the public is “correct” in the manner they cause these things to happen, is a perfect conversation for an agent to have with a particular client. But not necessarily a conversation we can have when determining market influence on housing prices.

    Some people just don’t like monthly dues, regardless of how one might rationalize that expense compared to a single family home. When someone pays for their own roof only, it seems to bother them less than when they are paying for Mr. Smith down the way who had a roof leak 🙂

  12. Colin,

    Example. When you buy a single family home, you can choose to buy one that has few issues with moss growth on the roof. When you buy a townhome in a large complex, you have to pay your fair share of moss removal from someone’s roof, even if your roof never gets any moss.

  13. Thanks, yes, I take your point in #13 that this is about how prices do press on each other, not whether they should press like that. I do hope agents are having the right conversations! Re #14, yes indeed, OTOH there’s something to be said for regular preventive maintenance by a condo assn. (I’ve been surprised at some SFH open houses by how blase’ seller’s agents are about undulating mossy roofs, and I can’t believe some of the listings I see — buy this bungled renovation of a collapsing shack for only $350K! Awaits your imagination! But I realize buyer maintenance myopia is a subject for another thread.)

  14. Colin,

    Often I see either or. A home that has been impeccably maintained. Best new roof money can buy. Best new heater money can buy. 25 year old carpet that smells as old as it is, but no wear and tear 🙂 Wallpaper, gold appliances. Great home as to maintenance, repair and replacement issues, but aesthetically unappealing.

    Then you see the flip side. Owner only spent money on instant gratification. Granite, new kitchen cabinets, new hardwood floors, never changed the filter in the heater for five years, roof? Not leaking is it? LOL

    Hard to hit that right combination of good maintenance and upgraded aesthetics. That’s why new is so popular.

  15. Place I almost bought, the owners didn’t even know their furnace *had* a filter.

    Yup, assuming the builder is good and inspections are careful, there’s a lot to be said for new.

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