Bubble Babble

Bubble Babble

“Bubble babble” is how Matthew Gardner refers to the increasing speculation that the Puget Sound housing market is heading for a drastic downturn. Gardner is a principal in Gardner Johnson, a Seattle-based land use economics firm that monitors Northwest real estate trends. “It’s a bit like Chicken Little,” he says. “You tell bad news to enough people and they may start believing it.” Gardner’s confidence in the strength of the Puget Sound market is fueled by a number of factors:

1) More people are calling the Puget Sound area home
For the past 20 years, the region has seen steady increases in population each year. Those increases have included years of local economic decline. The area has attracted a well-paid, well-educated workforce—a good foundation for economic growth and, therefore, demand for housing.

2) Local job growth is increasingLast year 47,000 new jobs were created in the area. 33,000 new jobs are projected for 2005 and similar numbers are forecast for 2006. It’s interesting to note that even with the negative employment numbers that accompanied the local dot-com bust era of 2000 to 2003, housing prices during those years still experienced significant appreciation.

3) A limited supply of land keeps demand for housing high
The geography of the Puget Sound area, framed by mountains and water, puts natural constraints on the amount of developable land. The Growth Management Act also limits which land can be developed. Both these factors also serve to restrict the speculative development that is flooding other hot markets. The result? A housing market where demand has continued to exceed supply.

4) For an area of its size, the Puget Sound region is still affordable
Home prices here appreciated 12 percent in 2004 and similar increases are expected for this year. While high, those numbers seem modest when compared to 2004 figures that saw home prices in San Diego shoot up 37 percent and Las Vegas prices soar 52 percent. The median price for a home in San Francisco is $630,000, nearly double what it is in Seattle. In fact, Seattle is actually more affordable than Portland. While the median price for a home is greater in Seattle than Portland ($321,000 vs. $223,000), larger average income levels in Seattle offset the difference in home prices.

5) Real estate is not a liquid asset
Unlike stocks, it takes more than a phone call or key stroke to sell a home. Consequently, the real estate market experiences fewer fluctuations than other types of investments.
If not a bubble, what does Gardner see on the horizon? Puget Sound real estate appreciation has outstripped income growth, so he doesn’t believe the current levels can be sustained. This year is on track to see an increase in home prices of about 12 percent. Gardner anticipates similar appreciation in 2006. After that he expects price escalation to slowly taper off and settle into growth of 4–6 percent per year, which he considers part of the natural flow of the real estate market cycle.
His advice? “If you find something you like and can afford, buy it. Whether it’s $200,000 or $2 million, a house is a major purchase. It should be considered a home first and an investment second.”

Though I didn’t write it….it’s still good stuff. This article was in our Windermere Weekly Publication.
Defining a Buyers Market or a Sellers Market

It has been said that 5 months or 20 weeks of inventory is neutral territory between the much discussed buyer or sellers market. Before entering into the housing market as either a buyer or a seller it is important to determine where your market is.

If you have less than 20 weeks of inventory, as Kitsap does, then it is a sellers market. If you have more than 20 weeks then it becomes more and more of a buyers market the higher the number becomes.

Kitsap County Washington currently has 11 weeks of inventory. In other words, we have an absorption rate of about 70 to 80 houses a week. We currently have about 782 listings on the market. We are clearly in a sellers market. What does this mean to buyers and sellers?

To Buyers:
1) Realize the market you are in and plan accordingly.
2) Plan to place a strong offer if you really intend to get the house.
3) A strong offer means:
a) You are pre-approved with a lender and have a letter to that affect.
b) Try to tender a conventional offer, FHA or VA unfortunately are viewed as weaker offers.
c) Provide for a respectable earnest money amount. This does not mean $500 or $1000 as
has been customary in our area. If you are putting 20% down on your conventional loan,
show some of that to the seller. Put 10% or more up as earnest money.
d) Put a significant amount down on the loan. 20% will eliminate PMI.
e) Trim down any additional requests you might have of the seller. This does not mean
however that you should not have an inspection. Inspections protect all parties involved.
f) Offer a closing date or other terms that may accommodate the seller. Your agent should be
able to glean these details from the listing agent.
g) Your real estate agent should present the offer to the seller and the listing agent. If the
seller is out of area your agent should at least meet with the listing agent face to face to
present your offer.
h) If you have to sell a home before you can buy this next home you are at a distinct
disadvantage....consider a bridge loan. Talk with your lender.
i) And last.....in a sellers market make your best offer right off as you may well not get
another chance to better your offer. There will probably be multiple offers.

To Sellers:
a) Strategize with your agent how to deal with multiple offers.
b) Don't get greedy, it is better to have an offer a few thousand dollars less that actually
closes then a larger offer that doesn't.
c) Don't be in a hurry....though time is of the essence. If an offer comes in that does not have a
response time until the next day...wait it out. If another offer materializes then you can bid
the two.
d) My opinion.....It is better to counter offer on the best of several offers then do a
simultaneous counter offer to several offers. Discuss this with your agent.
e) There is often talk or chatter about agents who are about to write up an offer. Stick with
what you have in front of you. The bird in the hand beats two in the bush.
f) Don't second guess yourself. Human nature leads us to wonder, "Wow, if we got an offer
this fast maybe we under priced and could get a boat load more for our house??" Do the
research, have your agent do the research (that’s what they do), figure out your expenses
and your needs. Pick a price that works for you and is logical in your current market. Stay
focused on the goal....why are you selling in the first place and what is your next step.

Last....Be Happy! Much of the world would love to have the option to buy or sell a home but they can not. Americans have the greatest home ownership opportunity in the world!!!!!!