Tom Callaghan remembers when Snohomish County developers couldn’t build houses fast enough.
And Callaghan, a real estate agent, couldn’t sell them fast enough.
But in the space of a year, he has watched a once sizzling market smolder. Subprime woes in other parts of the country have potential buyers waiting to see if the market will fall apart here, too. Those who are buying have more than 50 percent more homes and condominiums throughout the county to choose from than last year, according to the Northwest Multiple Listing Service, which keeps sales data.
It’s a boon for buyers and a burden for builders who are stuck with too many finished houses.
To get buyers’ attention, some builders are lowering prices and some are offering upgrades, cars and flat-screen televisions. The most common come-on is buyers’ bonuses that range from a few thousand dollars to $100,000 in at least one south Everett development.
“Builders are being beaten up so badly,” said Callaghan, an agent at Prudential MacPherson’s Real Estate in Lynnwood. “It’s like having a gun pointed to their head. They just need to get out of that standing inventory, step back and regroup.”
An example: Drive 35th Avenue SE from Everett to Mill Creek and see a glut of new developments, most offering enticements to potential buyers. For several miles, nearly every cross street and side road contains two or three signs plunked in the ground advertising new homes in the area.
In a healthy market there is usually about a year’s supply of vacant lots. Right now there are 22 months of inventory in the county, according to New Home Trends, a new construction data research and consulting firm. The inventory of homes under construction has doubled since last year to about a 61/2-month supply.
A healthy market is in the four to six month range, according to the firm.
The slowing market recently prompted agent Linda Tomulty and the builder she represents to drop the price on four-bedroom homes in a new development by $20,000 and to offer up to another $20,000 in incentives for buyers, mostly to pay closing costs or buy down the interest rate.
It’s a strategy Tomulty employed in the 1980s when interest rates hovered in the double digits.
“We feel like that monthly payment is more important than the price,” said Tomulty, an agent with Century 21 All Stars in Marysville. “If you can buy down the interest rate and get somebody in, it’s worth more than the bottom line price.”
While giveaways are still the exception, builders across the board are more willing to negotiate with buyers these days, she said.
“A year or two ago, they didn’t have to,” Tomulty said. “We have so much competition, they’re willing.”
Restrictions on growth and a limited supply of land are part of the reason builders are in a crunch, said Vern Holden, a Windermere broker in Mill Creek. Competition for buildable land had been stiff. Developers paid top dollar for vacant land, and in order to make a profit, they have to build and sell a house for a certain price.
“It got to the point property kept going so high it began shutting out a lot of people,” he said. “When an entry level home is $500,000 — come on, half a million for a newly married couple to buy a house? It could only go up so far and it did.”
Now buying has slowed, inventory has increased, and the builders who paid too much for the dirt are left holding the bag. This hiccup will be toughest on small to medium-sized builders, who may not have the resources to offer buyers incentives, Holden said.
Buyers, however, shouldn’t expect those deals to stick around much longer, said Todd Britsch, president of New Home Trends.
For buyers, now may be the best time, he said. Many of the incentives will likely disappear after the first of the year. Sales typically slump in the fall and pick up each spring.
“Right now it’s a buyer’s market and if I were sitting on the fence, today is when I would buy,” he said.
Today’s market is “a bump in the road,” and the market is stabilizing, not collapsing, he said. It’s unlikely the county will return to astronomical double-digit appreciation rates, but a strong economy will keep housing prices going up in this area during the next few years, albeit more slowly.
“Builders are very, very nervous,” he said. “Buyers are sitting on the fence waiting on the shoe to drop and the market to absolutely collapse. It’s not going to happen.”
Reporter Debra Smith: 425-339-3197 or firstname.lastname@example.org.