Talk about being in the right place at the right time. While property speculators and house flippers in places such as Philadelphia, Las Vegas, and San Diego are running for cover, in other parts of the country home owners are fairing a little better with residential sales. Third-quarter median home prices last year climbed 14.6 percent in Seattle, Wash.; 12.3 percent in Portland, Oregon; and the rest of the Northwest appears to be the hottest market in America.
Home prices also increased by roughly 5 percent in Houston, Texas; Los Angeles, Calif.; Austin, Texas; Jacksonville, Fla.; and Charlotte, N.C., over the year before, according to the National Association of Realtors.
Price figures are based on total metropolitan areas as defined by the United States Office of Management and Budget. So, while the New York City metro area grew at a solid, but not blockbuster, rate of 3.6 percent, officials from New York’s Finance Department say the five boroughs grew at 19 percent in 2006 — twice the 2005 figure — with prices in Brooklyn and the Bronx swelling 27.6 percent from the previous year.
For the rest of the country, median home prices dropped 1.2 percent, on average. The area strongest hit by the slow down was the Northeast, where median home prices plunged 4.8 percent over the last year.
Homeowners out west were much better off over the last year and half, where Realtors expect prices to continue to rise. The Seattle real estate market has stayed hot even while most areas of the country have slowed down. There are a lot of buyers relocating to our area and move up buyers are still active in the market. Our economy remains strong, interest rates are still relatively low and employment numbers have remained strong this past year. Seattle, Washington has long been a desirable area to live but the available amount of land to build on is in short supply. On one side of Seattle is the Puget Sound and to the east are the Cascade Mountains. So when this area grows we have to go north and south along the I-5 corridor. There’s not much room to grow, so you’ve got a lot of home buyers vying for smaller and smaller pieces of land.
In my own market up in Whatcom County, the Bellingham real estate market has experienced a slow down in the number of homes sold over the last eighteen months. We haven’t experienced any noticeable drops in overall prices but days on market is definitely up with so many properties on the market. I think once we start to see the over all number of properties on the market go down, we should start to bottom out and experience a leveling out of this market for several years.
The Northwest showed gains exhibited high job growth and positive net migration figures. They were also areas in which home affordability remained close to national averages through the boom, making them less prone to the corrections and adjustments seen in overheated markets.
Cities most affected by the downturn were old-line industrial markets such as Detroit or Lansing, where local economies are suffering the effects of mass layoffs in the auto industry.
In the Northeast, the number of jobs created last year grew by only 0.8 percent, according to the New England Economic Partnership (NEEP), versus the 1.3 percent national growth rate. If that’s not bad enough, NEEP’s projections for increases in gross regional product and per capita income also lag significantly behind national averages.
As a result, people are leaving the area. The latest United States Census net migration figures indicate that 4.6 percent more people left the region than entered it last year. The regional real estate market also experienced a 4.8 percent drop in median prices. On the flipside, the South’s economic conditions lead to the nation’s best migration rate (3.4 percent) and subsequently, at -.1 percent, the nation’s best median home price growth figures.
From 2004 to 2005, median homes prices in most of the cities that are now resisting downturn, such as Austin and Charlotte, grew at slower rates than the national average.
This made them less susceptible to the sudden swings of a high-flying, highly speculative market such as Miami. In this area, median home price exploded from $232,000 in 2003, to $391,000 at the end of 2005, driven by a market in which builders couldn’t keep pace with demand. Miami’s real estate market has since corrected, moving down 5.6 percent from its peak.
In the highest growth markets, there were a lot of home buyers who panicked when they saw prices going up by 8, 10 or 12 percent a year and rushed to buy in. Once prices started to fall in high growth markets, speculators got an itchy trigger finger because prices went up so high that it was very difficult to buy; affordability had gotten out of hand and people worried that if they waited six to eight months to sell, they’d be left holding the bag. The result is a short-term adjustment.” Steadier, more tempered growth translates into a stable real estate conditions because affordability remains in line with local economic conditions. Thats why areas like Seattle have been able to weather this market so well.
“In markets with sharp transitions, there was a lot of speculative, short-run buying” says Lawrence Yun, a senior economist with the National Association of Realtors. “In places like Texas or North Carolina, home prices are affordable and there is a good job creating the environment. In Seattle, the job market is strong and while home prices are above the national average, they are affordable by West Coast standards.”
What’s more, when home values grew too quickly, builders rushed to keep up and when the market peaked, construction slowed and there was excess inventory. For example, this week the nation’s largest home builder, D.R. Horton, reported a 60 percent quarterly drop in earnings. In my own market of Bellingham, WA; D.R Horton sales slowed way down and then an unrelated moratorium put a hold on new starts for about 4 months. D.R. Horton is building brand new homes in the Cordata area of Bellingham, WA and the moratorium was just lifted. Now that the Cordata moratorium was lifted there was about 60 permits waiting to get started on new homes, several with D.R. Horton.
Add to the mix speculators anxious to dump property and the result is a jump in residential vacancy rates. Since the end of 2005, when the housing bubble began to pop, nationwide vacancy rates have jumped to 2.5 percent, a nearly 50 percent increase from the 10-year average. Higher vacancy rates give buyers leverage in negotiating price because sellers have excess supply.
Despite the numbers, some in sluggish areas remain hopeful. In cities such as Boston, where median sales prices were beaten down 4.3 percent from the 2005 peak of $431,000, realtors say the market is still strong.
In the Bellingham real estate market the biggest difference from the peak markets of 2004 and 2005 is that sellers are willing to negotiate more on their prices and the bidding wars aren’t taking place very often any more. The bottom line is, if sellers price their home for sale correctly at the market price, it will move. Sellers need to be careful not to price their home above a market that could be adjusting down, that would be a disaster in a downward moving market. Sellers that hold out for higher prices could be chasing a downward market and actually get less for their home in the end, in most cases.
The buyers in our Whatcom County real estate market don’t seem to have urgency right now because they think if they wait six months, they might get a cheaper price on a home. Once this home market clearly bottoms out, the buyers will be back and purchasing homes again.
We probably won’t see that fast moving sellers market again for years, if the past is a good indication. Hot sellers markets usually only last a few years and the buyers market or normal markets are usually a lot longer in the 4 to 10 year range. There’s no question we will see a hot market again in the future…just not anytime soon. Partially via Forbes.com