BELLEVUE / EVERETT,
For the Puget Sound/Seattle metro
area, the driving force behind the single family housing
market over the past 12 months has been interest rates. In a
year of downturn in most areas of the economy, the housing
market appears to be the bright spot.
The Northwest Multiple Listing Service reports that the
average closed sales price increased in each county provided
in their statistical area, i.e., King and Snohomish counties
increased 4% over the past year. In fact, gross sales volume,
number of closed sales, pending volume, and average price
increased as well. These stats make for good reading.
Many articles have been written to address the current state
of the single family housing market in the greater Puget Sound
region. Headlines quote blanket statistics that rarely give a
qualified account of a specific neighborhood or home and how
changes in economic condition can affect marketability and the
value of the real estate.
The truth is, not all markets experience economic conditions
the same. Prior to the high tech/dot-com revolution, Seattle
was predominantly driven by Boeing and a blue collar housing
market. The entry level and move-up buyers were motivated by
the employment swings of Boeing and the affordability of
housing driven by interest rates. Few sales were reported
As the high-tech, bio-tech, telecommunications and dot-com
industries grew in the 1990s, the new age of young wealth
increased dramatically. The regional economy and the demand
for high-end housing responded with rapidly appreciating home
With the rise and fall in economic wealth through growth and
correction of stock portfolios, there became fewer buyers
capable of acquiring high-end housing. The supply of inventory
was unable to keep up with demand in 1997 through the spring
2000. Conversely, today's residential housing market is
experiencing an over-supply at the upper end of the price
While 6% interest rates benefit all segments of the housing
market, their greatest impact is on first-time and move-up
buyers. High-end buyers are more sophisticated in their
approach to financing real estate. Although interest rates
benefit high-end home sales, personal wealth, the portfolio of
a high-end buyer, is the primary basis on which real estate
decisions are made.
Residential prices under $500,000 account for some 95% of the
home sales in the marketplace, 4% are in the $500,000 to
$1,000,000 range and 1% close at prices above $1,000,000.
In December 2002, the multiple listing service reported a
total of 13,293 listings in King and Snohomish counties at the
end of the month and 2,910 sales occurred during the month,
indicating absorption of 21.9% of the available inventory.
They also reported 713 listings above $1,000,000, of which 37
pendings were reported, indicating absorption of 5% of the
The absorption rate is a relationship of listing inventory to
sales activity. When placed in the context of supply and
demand, the market may appear healthy at one price point but
weak at another.
During the height of the real estate market in 1997 through
the spring of 2000, the market experienced low inventory
levels below 12,000 units and an absorption rate consistently
above 25%, and as high as 47% in March 1998. Listing inventory
rose to over 17,000 units in September 2002 followed by
absorption rates for the fourth quarter of the year that
consistently fell below 25%.
While inventory has increased significantly since the height
of the regional housing market in the spring 2000, net pending
sales have remained relatively stable, fluctuating in the
2,000 to 4,350 range over the course of any year throughout
the past decade. See the 10-year cycle graphs included on the
It is not the demand for housing that is affecting housing
prices, it is the supply of inventory.
How do I handle the changing market? I use the most current
sales, listings and pending data, as well as historical
information in the neighborhood and conclude at a price point
that is representative as of a specific point in time (the
date of valuation).
As an integral part of each appraisal report, our office
completes a competitive market analysis that reports the
number of listings, pending offers and closed sales. The
relationship indicates how many months inventory is available.
The number of months inventory will determine the strength or
weakness in the market: under-supply, stable or over-supply.
Some neighborhoods have fewer than 3 months inventory, while
others may have upwards of two years.
Home values at the lowest end of the range remain upbeat due
to affordable interest rates. However, as property values in
any specific neighborhood rise above what can be
termed the low to mid-portion of the value range for the
community, they are generally experiencing flat market
conditions and, in some instances, a decline in home values.
In a declining market, buyers are unwilling to accept negative
influences, and the deterring influences are magnified.
Accordingly, the property with an adverse location or
improvements with physical or functional problems may see a
more dramatic correction through longer marketing times and
greater price reductions when compared to a home that has all
the physical attributes necessary to appeal to a broad pool of
The mid-to-upper end suburban market is having a similar
affect due to the volume of builder competition. Builders
drive this market. They are reducing their inventory by
accepting below asking price offers or negotiating other forms
of concessions, something unheard of in the appreciating
market during the latter part of the 1990s.
All communities in the region have been affected by the
changing economic climate. If history repeats itself, the
market will see a re-adjustment period over the next 2-4 years
moving from a buyer's market to stability, gradually building
during the mid-years of the decade, and a bullish real estate
market will prevail during the latter part of the 10-year
The key to marketing real estate during eras when there are
more sellers than buyers never changes. Sellers need to first
stage their homes for resale, then price their housing based
on current listing competition, not what sold last month or
The seller or his agent looking to the past will chase
property values attempting to achieve what was, rather than
what is. The seller or agent who has vision will catch the
market, selling their listing in a reasonable time frame.
Today is a great time to buy housing: interest rates are low;
sellers are motivated, and; housing prices have generally
declined meaning that today's buyers get more for their money
at a lower monthly cost.