Distressed home sales keep prices low
Market is better than 2010 as sales show steady improvement
Yet many real estate professionals are cautiously optimistic about the state of the local market for 2012. David Maider, owner of Windermere Real Estate in Everett, weighed in on the issue.
“I think it's better than last year,” he said. “I don't think it's a lot better and I don't think it's as good as we wanted it to be, but I do think it is better.”
While average sales prices for homes and condominiums across the county through November 2011 are down 9.8 percent over the same period last year, Maider noted a continuing increase in the number of sales. That growing sales activity has stabilized prices somewhat over the past six to seven months, he said.
Maider is somewhat discouraged by the fact that there is still a good deal of distressed property on the market from foreclosures and short sales in which homes sell for less than the value of the mortgage. That translates into a lot of former homeowners moving who probably didn't want to. Many have settled into rental units since tighter mortgage lending requirements and higher credit standards mean fewer prospective buyers can qualify for loans.
But there is a silver lining for some.
Distressed property sales have created an investment opportunity at the lower end of the housing market. Investors are taking advantage of this and their activities account for much of the market's movement. In fact, Northwest Multiple Listing Service data show that distressed property sales in Snohomish County reached 48 percent of the closed residential transactions this year, up from 36 percent at the same time last year.
Tom Hoban, CEO of Coast Group of Companies, an Everett-based property management, investment sales and leasing firm, has noticed that the increased demand for rental units and a still volatile stock market has also attracted many investors to apartment properties. In fact, Hoban said apartment property investment really stands out as 2011 draws to a close.
Overall, more people are renting countywide. From March 2010 to March 2011, the vacancy rate in Snohomish County apartments dropped from 5.7 percent to 4.4 percent. Average rental rates rose conversely with that vacancy drop.
“We're seeing more and more demand in the apartment buildings we own and manage even though employment is remaining relatively unchanged,” Hoban said. “That's a signal to us that the residential (housing) market is still not attracting many buyers and foreclosures are still forcing people into rental situations.”
The most attractive rental properties seem to be those with full amenities, according to Hoban. Also, many renters are looking for something long term, so they want spacious two- or three-bedroom units. Consequently, those are the features that prospective apartment property buyers want.
Whether a rental or single-family home, a property's location within the county can significantly affect value. Hoban anticipates a further three to five percent drop in property values in Everett and north Snohomish County, with the drop leveling off by next summer. South Snohomish County, he said, has probably bottomed out for housing priced at less than $550,000.
This leveling trend for south Snohomish County seems to echo recently released figures from Northwest Multiple Listing Service, the largest full-service listing service in the Northwest. Homes in south Snohomish County are more desirable for those who commute to King County for work, so they tend to fetch higher prices than homes located farther north whose homeowners face more expensive commutes thanks to the price of fuel.
Snohomish County's median residential home sales price in November 2011, the most recent figures available, stood at $244,000 — down 6.2 percent from a year ago. Condo sales prices over the same period have fallen 32 percent to $136,000.
Factors playing into this drop in home prices go beyond banks still selling low to get rid of distressed inventory through short sales.
Sellers are sometimes motivated to accept less than their asking price if they get an all-cash buyer. Investors looking to flip a home want the biggest discount possible. They only buy low because they know they will ultimately have to sell low.
Maider notes that the situation looks worse now compared to 2010, when the federal stimulus package offered first-time homebuyers generous tax credits. With the expiration of that program, tight credit and other financial uncertainties, many buyers are now more careful with their cash and demanding more for their dollar.
Many also are waiting for a clear indicator that declining home prices have finally reached rock bottom before they make their move.
The higher end of the real estate market is not moving as well as the lower end, Maider said. If a home is an exceptional value, he said, it will sell. But if it isn't priced aggressively, the house will sit on the market for quite a while.
One recent factor affecting higher-end homes was the recent loan limit reduction from $567,500 to $506,000 for conventional financing. Mortgages exceeding $506,000 must now qualify for a larger, more restrictive loan which comes at a higher cost than conventional financing. With fewer financing options available at the higher end, buyers may opt to go for a lower-cost home or put off purchases altogether.
Another factor to affect higher-end properties is that they often don't appeal to investors looking for a quick profit from a flip. Those buyers don't want the possibility of sitting on a home and tying up assets long term as they wait for a qualified buyer to appear, especially with volatility in the financial markets.
A bit of promising news for the local housing market is that foreclosure rates are starting to drop. Snohomish County foreclosure rates had hit a second all-time high in July 2011. But these rates are now dropping in the face of the new Washington State Foreclosure Fairness Act. Figures suggest that lenders are working with more with homeowners to keep them out of foreclosure.
As fewer distressed homes are on the market, inventories should drop, home prices should stabilize and may increase. But for the time being, it is still very much a buyers' market.
“As our employment picture gets healthier and our consumer confidence gains, I think you'll see housing pick up,” Maider said. “It's not going to happen overnight. It's going to take some time to bring it back, but I think it is moving in the right direction.”