Tag Archives: conditions

Lessons from the Foxhole: A Nevadan Takes a Stab at Seattle’s Real Estate Future

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joe salcedo[Editor’s Note: I get asked all the time if people from outside of Seattle can write for Rain City Guide and I always say no… I really like keeping RCG as a “Seattle” thing. However, recently Joe Salcedo of the Reno Real Estate Blog reached out to ask if he could publish a one-time post on RCG about his experiences with the Reno, Nevada market and the insights it might provide to the Seattle community… and I bit. I’ve published the article below. Enjoy! ~Dustin]

In August of 2005, our real estate market crashed.   It’s been five years and we’re slowly trying to get back on our feet.  I’m here to share some of the lessons I’ve learned along the way; the prodigal brother, if you will.

I started with a blank page.  One weekend after, baffled and fascinated and my curiosity violently piqued, here’s what I found out about your market:

  • If you waited until Seattle home prices went down in July 2007 (before you realized the market was having problems), you’re going to be at least one year behind.  Check for other signals. Home prices take too long to reveal itself profitably.

In Feb 2006, less than a year after the Reno real estate market crashed, I called an emergency meeting (coupled with other factors like plunging housing starts and declining home builder stocks) after being greeted by this chart:
Reno Home Resales
Yes, all markets are local but we all came from our mother’s womb.  Like a bearish stock market pulling down three out of four stocks with it – (both weak and strong companies) – majority of real estate markets fall with the general market.   Follow the home builder sector group in the stock market (Investor’s Business Daily tracks it every Monday). Check housing starts and building permitsto see a glimpse of the future:
Housing Starts Chart

  • For potential sellers: Consider cutting your losses short.  If you’re barely making it with house payments (perhaps using borrowed money just to make it) and hoping that the market would change soon, perhaps it’s time to think about making some tough decisions.  Distressed properties tend to pull home prices down further (see: notice of trustee sale graph below.)

If you’re comfortable with your mortgage payment (you bought a house on or before June 2005) and moving is too painful, it’s ok to stay; just know that based on present real estate conditions, it may take a few years before your house will appreciate from the price you bought it.

Percentage Home Price Change

Notice of Trustee Sale by Month Chart

(From SeattleBubble.com)

  • Short sales and foreclosures are like a mysterious disease that defies normal market cause and effect.  Inventory could be down, demand up, but price still down.  This has been happening in our market since 2007.

And like your resident queen, the author has made premature bottom calls by not taking into account the “black swan

Seattle Bubble Says Seattle Markets Going UP!

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As seen on Seattle Bubble:

“Seattle shows up on their forecast at #21 on their top performing markets list with an expected 3.8% increase.”

Seriously in 2005 when the housing market was positioned to go UP, Seattle Bubble started the Gloom and Doom Blog.

Now after it has DOUBLED in some places against their predictions of Bubbles Popping, and is showing signs of weakness…WHAT?  Going UP.  I couldn’t believe my eyes.  Not saying it isn’t, just couldn’t believe my eyes.  Talk about being at the wrong place at the wrong time…twice.

Sorry everyone, I just couldn’t help myself.  The Empire Strikes Back!  I knew that picture of a guy talking out his butt would come in handy one day.

The Longest Season Ever – Spring Forward

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 [photopress:season_1.jpg,full,alignright]

How much is the market influenced by the fact that it stays light longer on weekdays? 

We all know it’s true that people tend to look at property more on weekends, unless it gets dark later on weekdays.  We all know the second and third quarters of each year are stronger than the first and last quarters.  But how much does that have to do with it getting dark earlier and staying light later?

Well, this is a good year to test that, as tonight is the beginning of daylight savings time.  For the first time in, I guess my life, we will turn our clocks forward, one hour, tonight, March 11, 2007.

Compare that to April 6 in 2003, April 4, in 2004, April 3 in 2005 and April 2 in 2006, and we are adding about 36 days to the real estate high season.  Will be interesting to see how the March 2007 stats compare to previous years.  I think they will be stronger due to DST being pushed earlier.

Maybe that will transcend into April.  Maybe sellers who would have listed May 1, will be able to spruce up the home’s exterior earlier this year, with a few hours of daylight after work each night, and get their homes listed a couple of weeks earlier than expected.

I’m just happy that the daffodils are in bloom, I see pink trees everywhere, and starting tomorrow…it will get dark later.  One of Seattle’s main claims to fame, is our long, long spring and summer days.  And this year, we will have even more of it!  Enjoy!

ARDELL on "Where is the 2007 Market heading?"

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My prediction has been, that the 2007 Market will be similar to the market of 2006, that being strong and upwardly mobile.  Not necessarily as strong as 2005, when interest rates were lower, but on an even keel with, or better than, last year.

To determine momentum of the market, I look at absorption issues, and reduce the study to a somewhat predictable and mainstream market segment.  To keep apples to apples, I target that portion of the market with the highest number of sales in a year’s time.  The results are almost startling, with regard to upward momentum since the first of the year, and even better than I expected to see. 

Where “in escrow”, which is both STI and Pending, is much higher than “for sale” and/or closed in January 07, the forward momentum of the market is strongest.

Seattle has too many new properties not reflected in the stats (i.e.”1 of 8 townhomes”), as does high end.  I am using the market segment I find is best for prediction purposes using the MLS, that being Redmond (98052 only), Bellevue, Kirkland and Bothell (98011 only).  I am also using “up to $650,000” as that is the segment with the most properties changing hands in a year’s time, based on the stats I did on a running basis last year.

I also use this market segment because I can readily visualise the properties involved, and so my conclusions are more valid than areas like Tacoma or Snohomish or even all of King County.  The segment I use, accounts for both strongest and weaker markets and “residential” vs. condo.

98052 – Redmond – 37 residential for sale, 40 in escrow and 18 closed in Jan. 07; 44 condos for sale, 69 in escrow and 19 closed in Jan. 07.

98011 – Bothell – 40 residential for sale, 37 in escrow and 18 closed in Jan. 07; 15 condos for sale, 28 in escrow and 15 closed in Jan. 07

98034 –  Kirkland – 35 residential for sale, 29 in escrow and 27 closed in Jan. 07; 32 condos for sale, 37 in escrow and 25 closed in Jan. 07

98033 – Kirkland “proper” – 23 residential for sale, 15 in escrow and 19 closed in Jan. 06; 50 condos for sale, 62 in escrow and 21 closed in Jan. 07

98004 – Bellevue – 4 residential for sale, 2 in escrow and 1 closed in Jan. 07; 27 condos for sale, 21 in escrow and 8 closed in Jan. 07

98005 – Bellevue – 5 residential for sale, 4 in escrow and 2 closed in Jan. 07; 14 residential for sale, 40 in escrow and 8 closed in Jan. 07.

98006 – Bellevue – 17 residential for sale, 13 in escrow and 9 closed in Jan. 07; 20 condos for sale, 14 in escrow and 6 closed in Jan. 07

98007 – Bellevue – 5 residential for sale, 9 in escrow and 5 closed in Jan. 07; 6 condos for sale, 12 in escrow and 16 closed in Jan. 07

98008 – Bellevue – 18 residential for sale, 20 in escrow and 11 closed in Jan. 07; 1 condo for sale, 4 in escrow and 4 closed in Jan. 07

98005 is a bit skewed, as Woodbridge and Oasis are long escrows, so 40 in escrow is not reflective of a less than 30 day market activity.  New construction in escrow will always throw off momentum stats.  That is why I don’t do the high end this way when I am looking for “people’s recent decision to purchase” forward momentum.  There is some of that in others, but not as much as in 98005.

I also break it down this way, so people can see where they might most likely find a single family home priced under $650,000, or where they might most likely find a condo at an entry level price.  The highest numbers will equal the highest ongoing availability, or whether you are looking “for a needle in a haystack” in that area.

2007?  If you list it, price it well, it looks good and is priced under $650,000…it WILL sell.

The Financing Contingency

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(This is a guest post by Craig Blackmon, an attorney in Seattle whose practice focuses on residential real estate — see www.lawofficeofcraigblackmon for more information. Please note that this post is not legal advice. You should consult an attorney for specific legal counsel.)

The financing contingency is one of the most common contingencies in a real estate purchase and sale agreement. In order to understand it, one must first understand contingencies in general. This past summer, the Washington Court of Appeals examined a financing contingency in Salvo v. Thatcher, 128 Wn. App. 579 (2005). The Court discussed the rights and obligations imposed by such a contingency, and the principles applied by the Court are summarized below.

A contingency is a condition that must be satisfied before the parties have a legal duty to perform under the contract. The parties must make a good faith effort to satisfy the condition. When all contingencies are satisfied (or waived), the contract becomes legally binding and each party must perform its obligations (i.e. the buyer must buy and the seller must sell) or face liability for not doing so. If a contingency is neither satisfied nor waived prior to the stated closing date, the contract expires and the parties are relieved of their contractual duties.

A financing contingency makes the contract contingent upon the buyer obtaining the financing necessary for the purchase. Generally, the buyer must apply for financing within a certain number of days of the contract’s creation (mutual acceptance). If the buyer is unable to obtain the financing despite a good faith effort to do so on or prior to the closing date, then the contract expires and the parties are relieved of their contractual obligations. Because the buyer had a valid reason for being unable to perform under the contract (i.e. purchase the property), the earnest money should be returned to the buyer.

In Salvo v. Thatcher, a nasty dispute arose between the buyer and the sellers when the buyer was unable to obtain financing in time to close as required by the contract. The sellers argued that the buyer failed to give notice of his inability to close; because he did not give notice, he was in default of the contract and thus the sellers were entitled to the earnest money. The Court ruled that the language concerning notice did not supersede the general terms of the contingency, and moreover the notice was optional per the terms of the contract. Accordingly, because buyer could not get financing after making a good faith effort to do so, the contract expired and the buyer was entitled to the earnest money, regardless of his failure to give notice.

Of note, the contractual language at issue in Salvo differs from the language generally used in purchase and sale agreements today. Under the current language, and unlike the language in Salvo, the buyer is specifically required to give notice of the status of the loan application. It is an open question as to whether this different language would lead to a different result under similar circumstances. Regardless, buyers (and sellers too) should fulfill their contractual obligations so that they are clearly not in default. If a buyer unequivocally satisfies its contractual obligations but a contingency remains unsatisfied, then the buyer is in the best position possible to demand a full return of the earnest money.