Monday, September 21, 2009

August Real Estate Report

A tale of two real estate markets

You’ve probably noticed the recent spate of reports that the Seattle real estate market is finally heating up. A recent front page story in the Seattle Times, for example, was headlined “Home sales hot, especially in upscale areas.” Following up on a recent report by the Northwest Multiple Listing Service (MLS), the Times concluded that there was a “summer surge” in August not only in the overall Puget Sound residential market, but in such tonier neighborhoods as West Bellevue/Medina, where the August single-family home sales increase year over year was 169%, and Queen Anne/Magnolia, for which the MLS reported a 74% increase.

Nevertheless, it’s a fact that MLS numbers for both King County and Seattle only showed only a 5% increase in sales for August 2009 over August 2008. Even worse, our general area (Capitol Hill/Madison Park/Central District) showed an actual 8% decline in year-over-year sales. So taken on the whole, August house sales certainly don’t justify all the hype about a newly sizzling real estate environment in the region.

What’s getting everyone’s hopes up, however, is the fact that pending sales (listed houses that are still somewhere in the process of closing) were up sharply in August: 24% in Seattle, and 45% for the Capitol Hill/Madison Park/Central District area. Sounds good, but what about Madison Park?

First, let’s look at what actually happened here in August. Our five August home sales represented a 50% decline from the 10 sales recorded in the same month last year, according to the MLS; and this rate of sales is significantly below the level of prior years:

The year-to-date numbers for residential sales in Madison Park also show a clear cut downward trend:

Nevertheless, August sales were pretty much in line with what monthly sales have been since the spring and, at worst, probably represent a continuing slow acceleration of the market from the levels of the past winter. Here’s a quick overview, based on data from Redfin, of what the Madison Park real estate market looks like as summer ends (as always, I include Broadmoor and Washington Park in the Madison Park statistics):

Single Family Homes

Listings: 68
Median List Price: $1,950,000
Median Price of Houses Sold in August (4): $510,000
Average Sales Price Discount from List Price: 9%
Months of Inventory (Listings/Sales): 17

Condos and Townhouses

Listings: 29
Median List Price: $500,000
Price of Condos and Townhouses Sold in August (1): $585,000
Sales Price Discount from List Price: 10%
Months of Inventory (Listings/Sales): 29

The MLS reports that there were 15 pendings in Madison Park as of mid-September. If translated into actual sales in future months, these pendings might signal an upswing. But will they close? In past years it was assumed that if a home was pending it would almost certainly close, probably within 30 days. Real estate agents tell me that now, however, pendings are far from certain to close quickly; and some deals ultimately may fall through. Among the obstacles to closing are continuing problems with financing (especially at the jumbo-mortgage level) and new rules concerning appraisals.

But before we discuss the ways a sale might fall through, let’s look at what differentiates our real estate market here in Madison Park from what’s going on in the Puget Sound region as a whole. Why is the market still relatively stagnant here while it’s supposedly “hot” elsewhere? And are all of those other “upscale” neighborhoods really taking off while Madison Park is being left by the wayside?

Don’t believe it, says Dave Hale, Windermere Real Estate’s Managing Broker in Madison Park. Market conditions here in the Park are mirrored in every upper-end market in the Seattle area, he notes. Houses selling above $1 million dollars are always more difficult to move, since their “audience” consists of a pretty select group of buyers. What he sees happening right now is something of a disconnect between the “hot” market for low-to-moderately priced houses and the more rarified market for million-dollar-plus homes. The lower-priced market is benefiting from a lot of factors, including government aid for first-time home buyers, increased availability of conventional-mortgage financing, and plenty of interest on the part of many sellers to do deals (including banks that have taken back houses through foreclosure). At the high end of the market, conditions are still not as favorable, though Hale says he sees definite signs of improvement.

Looking at Madison Park, the division between the two kinds of real estate markets is pretty clear. Of 68 houses listed for sale here, only eight houses (12% of the total) are priced under $1 million. Yet it was houses in the under $1 million category that sold last month, according to the MLS. Four houses were closed with a median price of about $500,000, and one condo closed at $585,000. Only one property changed hands at over $1 million, and that was a $2.6 million house located in the Reed Estate on Lake Washington.

This is precisely the kind of market bifurcation that’s happening in other upper-end markets. In Medina/West Bellevue, for example, the median price of a house sold last month was a relatively high $915,000. But this actually represents a 45% decline in value from the $1,600,000 median price of homes sold in August 2008. Does this mean that home owners in Media/West Bellevue have lost almost half the value of their homes in just one year? Hardly. The numbers simply show that a disproportionate number of relatively lower-priced homes are selling in that market while the more expensive houses still sit awaiting buyers. The median price of a Medina listing this month is $2,495,000, according to Redfin. Just as in Madison Park, the MLS reports only five home sales in Medina during August. The median sales price of these homes was $1,375,000, just 55% of the median price of the houses still on the market in Medina.

So what are the positive signs for our market? Hale sees several. He reports that his office, with its 45 agents, has been averaging five sales a month in the over $1 million category for the last five months. In just the first half of September, however, Windermere Madison Park already had six pendings at that price level. Indeed, looking just at Madison Park, all of the pendings are in the over $1 million category. The median price (again, that’s the price halfway between the highest and the lowest listing) for the currently pending single-family residences in the Park is $1,595,000, while the median price for the two pending condos is $1,420,000.

Another hopeful sign that Hale points to is an apparent easing of the jumbo-loan market, both in terms of pricing and availability. Trevor Bennett, a mortgage loan officer with Bank of America, agrees with this assessment. “We’re starting to see a lot more activity in the upper market,” he says, noting that the confidence level of upper-income buyers seems to be a lot higher than it has been. Helping the situation, he reports, is the fact that underwriting guidelines for non-conforming loans are a lot better today than they have been. Another positive factor he cites is that the rate differential between the jumbo (non-conforming) loan market and the conventional market has converged in recent months. Historically, the rates for jumbo loans had been only 0.2% higher than the rates for conventional loans, according to But for well over a year the difference between the two rates had been as much as 3%. Last week that differential declined to about 1.1%, on average, nationally. Jumbo rates currently range from 5.75% to 7% for jumbo loans versus 4.85% for conventional mortgages in the Seattle area.

Generally, conventional mortgages have been limited to loan amounts of $417,000 or less. Recently, however, there has also been a “high-balance” conforming loan category for mortgages of up to $567,500 in the Puget Sound area. But financing above these levels had been difficult since the real estate market collapse in the summer of 2007. That’s not quite as true today. Bennett says that B of A now has a jumbo loan program that will finance 80% of a house’s value up to a loan amount of $1.5 million. Above that level loans are still available, but the amount of equity required might be increased to 25 or 30 percent, he says.

Priscilla Crutcher, Vice President and Manager at Golf Savings Bank, says “home buyers are being scared into thinking that there are no jumbo loans available, but there actually are some really aggressive deals out there for people with liquid assets.” She notes that there are mortgage providers in the market now who are willing to take a home buyer’s portfolio into consideration as part of the underwriting process. She says her goal is to not require a buyer to liquidate his investment portfolio in a down market just to increase the equity portion of a home purchase. Crutcher, who works prmarily with jumbo mortgage loans, reports she is currently very busy dong creative loan structuring of this kind.

Julia Eaton, a senior loan originator at Landover Mortgage’s Lake Union office, agrees that lending in the upper market is now easier than it has been. She notes that while credit standards are still “pretty tight,” she can lend up to $5 million to people with high credit scores (750 or better) and a significant level of liquid assets. “This is encouraging,” she notes, since up until recently there just hasn’t been a mortgage product in the market at that loan level. She, too, has noticed a recent change in the upper market. “I feel like the borrower with a portfolio that took a hit is now coming back into the housing market,” she says. “I really believe we’ve already hit the bottom.”

Subtle changes in the market are also being noticed by real estate agents who cater to upper-end buyers. Windermere agent Jeff Stanley says he thinks “potential buyers are becoming convinced that the bottom is either behind us or we’re in it.” Either way, he believes, many people are now thinking it’s time to make the move: “Previously there was a lot of low-balling going on out there. People were reading the papers with stories about a buyers’ market.” It’s not that way now, he says. But even though he believes “the market has definitely gotten a lot hotter,” he acknowledges that it’s got a long way to go to equal what’s now happening down market, where he recently witnessed multiple-offer situations on several houses priced under $700,000.

While there are still plenty of danger signs on the road, most real estate people I talked to have the palpable sense that the worst is behind us. “Historically,” says Windermere’s Hale, “our market has been very stable and has shown decent appreciation. Then we got into a situation where we were seeing 10 or even 15 percent appreciation each year.” The market simply couldn’t be sustained at that level, he adds. While he acknowledges that we’re still in a buyers’ market, he believes that simply means there’s still an opportunity to get in before a turnaround is obvious to everyone. “The market is going to come back,” he says “it always does.”


Thanks to Wendy Skerritt of Windermere and to the NWMLS for their assistance in providing data utilized in this report.


[Photo: This $1,575,000 Craftsman-style house located at 1624 39th Avenue E. is a listing of Windermere agent Darcy Breene. The 3,560 sq. ft. house is one of the less expensive listings in Madison Park.]

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