Sunday, July 19, 2009

June Real Estate Report

Home sales up, pending sales strong

There appears to be solid ground for optimism that the worst may be over for the real estate market in Madison Park. Home sales accelerated significantly in June, with the King County Assessor reporting ten homes sold in Madison Park during the month, an increase of 67% over the rather dismal six sales recorded in May. For the first five months of 2009 there was an average of only seven sales per month, so June’s sales figure represents a dramatic improvement.

But is this an aberration or do June’s results appear to be part of a new positive trend? Looking at average monthly home sales by quarter for the past 15 months certainly makes it appear that the market has bottomed out and may be on the rebound (click graph to enlarge):

Fueling an optimistic outlook is the fact that as of last week there were already nine Madison Park homes listed by the Northwest Multiple Listing Service as somewhere in the closing process (known in the industry as “pended” or “pending”). And the outlook appears even better if you are super inclusive and count the Madison Lofts (2914 E. Madison Street) as being within Madison Park and not over the line in Madison Valley. Six Madison Lofts condo units are pending sale, which if counted would raise the total pendings to 15. I am told that historically, 90% of pendings normally close.

Most of the real estate agents I talked to are cautiously optimistic, but few of them are willing to be quoted on the record that they believe the tide has turned. One of the big issues facing buyers is obtaining financing. This is especially true at the $1 million sales price and above, according to Ron Sparks, Marketing Vice President at Coldwell Banker Bain. He notes that banks appear to be reluctant to lend, and when they do lend the standards for approval are substantially higher than they were at the height of the market. He says he has personally seen at lot of arbitrary decision making by banks, and some buyers have been forced to find their financing from non-traditional lenders or even to go out of state to find a willing bank. “People who are highly qualified and should be allowed to buy are being kept from doing so,” he says. “It’s stalling the recovery, frankly.”

Nevertheless, deals are evidently getting done. Based on June’s sales, Madison Park’s absorption rate (the number of months it will take to sell the available inventory of houses on the market) has declined from 17 months in May to 12 months now. There are currently 119 properties on the market in Madison Park (including Broadmoor and Washington Park). And as was true last month, the homes for sale are substantially larger and more expensive, in general, than the typical Madison Park home.

Here’s a graphic showing the progression of home values, starting with Zillow’s estimate $1,010,000 for the median value of all homes in Madison Park (single family and otherwise) and concluding with the $1,606,000 median listing price for the homes currently on the market (click graph to enlarge):

Zillow estimates that the median Madison Park home has 2,049 sq. ft. (this figure includes condos and townhouses). Believe it or not, seventy percent of the houses listed for sale in the Park boast 3,000 sq. ft. or more, and almost all of them are located in Broadmoor or Washington Park.

Here’s a snapshot of the current listings in the Park (based on data from Redfin):


Listings: 88
Median Asking Price: $1,990,000
Median Square Footage: 3,680
Median Price per Square Foot: $541
Average Days on Market: 102
Percentage with Price Reductions: 39%


Listings: 26
Median Asking Price: $525,000
Median Square Footage: 1,131
Median Price per Square Foot: $464
Average Days on Market: 122
Percentage with Price Reductions: 50%


Listings: 5
Median Asking Price: $449,950
Median Square Footage: 1,200
Median Price per Square Foot: $375
Average Days on Market: 50
Percentage with Price Reductions: 40%

(As we cautioned last month, take with a grain of salt the figures for days on market and the percentage with price reductions. Many of these units have been on the market in the past, were withdrawn and later put back on the market. They thus get treated as new listings.)

Shown below is a 1939 five-bedroom view house in Washington Park (610 Hillside Drive E.) which represents a prototypical house currently on the market in the Madison Park area. Its $1,695,000 asking price is just slightly higher than the $1,606,000 median price of all homes currently listed for sale, including condos and townhouses. This listing of Kathryn Hinds, Windermere Real Estate, was recently reduced by $200,000. Its original list price, over a year ago, was $2,795,000.

The most expensive home sale last month was of a 4,020 sq. ft. 1939 four-bedroom house in Broadmoor (2110 Waverly Way. E.) which sold for $2,675,000. As a side note, the $3 million rambler located in the Reed Estate, which I mentioned on this blog last month as the “gracious and elegant” other home for sale there (“A glimpse beyond the gates”) is one of the nine homes on the list of currently pending sales.

It appears there have been no foreclosures in our market, although I have learned anecdotally that there may be one short sale in the works. Short sales are situations where a home owner sells at a price less than the amount owing on the mortgage. This kind of transaction obviously involves approval by the lender and takes much more time to close. I understand that a speculative developer with an unsold condo in our market may now be having that kind of discussion with his lender.

To put the Madison Park market into perspective, Coldwell Banker Bain did some absorption-rate comparisons for me based on pending sales. The numbers seem to show that the overall Seattle market is definitely heating up at a faster rate than ours:

Seattle Listings: 1,902
Seattle Pendings: 801
Absorption Rate: 2.37 (Months of For-Sale Inventory)

Madison Park Listings: 119
Madison Park Pendings: 9
Absorption Rate: 13.22 (Months of For-Sale Inventory)

If the pending Madison Lofts sales are included, Madison Park’s absorption rate is 7.93. It’s also worth noting that within Madison Park there is a huge disparity between Broadmoor’s 31 months of inventory and the inventory level for the rest of the market. The case of Broadmoor provides an easy way to understand the concept of absorption rate: there are 31 houses for sale, with only one sale pending. At that rate it will take 31 months to clear existing inventory, an absorption rate of 31.

Putting the Seattle and Madison Park numbers into context, CBBain’s Sparks notes that at the height of the market the Seattle absorption rate was on the order of 2.0. For 2008, he estimates the rate had risen to 5.0. So while Madison Park has certainly not fully recovered, at a current rate of 2.37 the Seattle market has actually made a remarkable comeback. The Eastside’s current 3.54 absorption rate is also a pretty good indicator of a market turn, he believes.
Kathryn Lister, also of CBBain, believes that for the market to return to normal at the upper end, some things still have to change. “There is definitely a disconnect between people’s desire to make a purchase and their ability to get it done,” she said. There is also buyer nervousness based on market perceptions, she says, and some pretty serious problems in getting appraisals done and accepted by lenders. In the past she notes, most upper-market sales involved bridge loans, which are just not available in the market today. Speculative buying, which once drove a part of the market, is certainly no longer accepted. Many sophisticated buyers are taking a wait-and-see approach, still sitting on the sidelines, she believes.

Sparks sums the situation up this way: “The sellers had been driving the market up artificially, and now the buyers are driving it down artificially.” Ann Henderson, a realtor with Windermere, adds that there’s another factor also at work: seller misperception of where the market is. “I think that about 50% of sellers just don’t get it,” she says. “They think their house is still worth what is was, or is even appreciating!” So it’s not only a problem with buyers, it’s a problem with sellers—and, of course, mortgage bankers.

The bottom line of this report is that Madison Park’s level of housing inventory remains high; and while the situation does seem to be improving, it will probably take a few more months for us to be able to say whether what now appears to be an upward trajectory is not just a momentary summer blip.

[The photo at the top of the page shows a new listing this week of 1443 McGilvra Boulevard E., an extensively remodeled three-bedroom 1927 cottage, a listing of Windermere’s Mary Snyder. Priced at $1,250,000, it is one of the more inexpensive houses currently on the market in Madison Park.]
A note on methodology:
The real estate market analyzed in this report covers Sub Areas 6 (Broadmoor) and 7 (Madison Park and Washington Park) of Area 14, as designated by the Office of the King County Assessor. This is essentially the geographic territory defined in the description at right of the “Madison Park Blogger Coverage Area.” Differences between the median figures used above and those of Zillow, as shown on its site, result from the combining of the two Sub Areas, which are separately analyzed by Zillow but are not broken out for purposes of this report. Broadmoor represents 18% of the total residential units within Madison Park and is weighted accordingly. Also note that the term “homes” generally refers to single-family houses, condos and townhouses, whereas “houses” refers only to single-family houses.

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