Matthew Gardner’s Take on the 2013 House Market

Posted on January 10, 2013 by Lisa Lewis

Windermere Real Estate is very fortunate to have a wonderful working relationship with Gardner Economics. Matthew Gardner, principal at Gardner Economics, shares his valuable real estate knowledge on Windermere Blog throughout the year. Below is his latest post on Windermere Blog, 2013: Another Good Year for Housing, where he discusses what he sees as probable developments in the housing market during 2013. Enjoy!

Well, the time has come again to polish up the old crystal ball, gaze into it, and see what’s in store for the housing market in 2013.

Having spent long hours staring into the mists, it appears as if this year will be about as easy to predict as last year. Not because of any fundamental change in the housing market itself – although I so see plenty of adjustments afoot – rather the future is clouded because of the prevailing fractured political environment.

That said, here is what I am looking for this year.

1. Interest rates are likely to stay at close to historic lows at least through the middle of this year. Inasmuch as there are some mumblings from members of the Federal Reserve relative to a slowing down in Qualitative Easing (which is basically the printing of money which is then added to the economy in order to stimulate growth) before the end of the year, I do not see this as putting rapid upward pressure on interest rates in the near-term. That said, I do think that they will start to come off their current lows, so now may well be a good time to lock in.

2. Housing prices have bottomed out and we will continue to see appreciation in values across the board in 2013. The caveat here is that we are unlikely to see the kind of upward pressure in values that was seen in 2012. Unless we see a rapid increase in inventory levels, look for more modest price increases – but increases we will certainly see.

3. In 2012, many were heralding the veritable tsunami of foreclosed homes that were certain to come to market and cause a rapid reversal in price gains. This, of course, did not happen. Many may remember the huge numbers that were being bandied around as to the number of foreclosed homes that were supposedly heading our way. I personally heard numbers as high as five million units. Now that the smoke has cleared somewhat, the numbers are becoming a little clearer.

With a shadow inventory of around 2.3 million units of pending supply, I am actually not too worried at all. We need to get these homes to market and sold, and we will. It’s just a matter of how long it will take. With over half of these homes delinquent, but not yet subject to foreclosure proceedings, I believe there will continue to be a shadow well into 2014.

That said, demand from the investment community, as well as from buyers who are not finding sufficient choice in the non-distressed market, should continue to reduce the number of distressed properties.

4. Household formations should start to increase but this will not be enough to get the homebuilding industry back into full swing. Many builders are still uncertain, and while they see a supply/demand imbalance in the market, they have not yet pulled the trigger and gotten back to full production. This is likely to remain the case in 2013.

5. There are several buyer groups that are expected to make an entry into the market in 2013.

Entry level buyers – First-time homebuyers have been sitting on the sidelines waiting for a sign that we’re at the bottom. As they hear about price increases in their desired neighborhood(s) they are likely to rush to become homeowners.

Move-up buyers – The price appreciation that has occurred in the last year has already lifted over one million underwater homeowners above water, with future price appreciation to lift them even more. Look to see many of them considering trading up.

Move-down buyers – Empty nesters and retirees, who still have equity in their existing home, will think about buying a home that is more suitable to their current lifestyle. This may, or may not, include adult children as well as their aging parents.

Investors – Investors and, yes, even flippers, will continue to grow in numbers as they realize housing is the best risk-adjusted return on their money.

The recovery in the housing market has been a very long time coming, but I believe that it is here to stay, and all things being equal, I expect 2013 to be another good year.

Have a fantastic year!

Mr. Gardner posts regularly on his own blog, Gardner Economics I A Discussion on the Seattle Economy & Real Estate Market. He is also on Twitter (@SeattleEcon) and Facebook.

The Gardner Report for Western Washington’s 1st Quarter 2012– Both Positive and Realistic

Posted on May 31, 2012 by Lisa Lewis

Windermere Real Estate is proud to partner with Gardner Economics to create an analysis of the Western Washington real estate market for the first quarter of 2012.

Matthew Gardner, principal at Gardner Economics, stated that “location” is the most appropriate theme for this first quarter analysis. Depending on the location in Western Washington, the signs of recovery for both the job market and real estate market varied. However, to quote Gardner, “…we have come out of the free fall and are starting up the long road to recovery on both the job front as well as in our real estate markets.” Between March 2011 and March 2012, 54,230 jobs were added in the counties examined for the report. That is a 2.58% growth rate, exceeding the growth rate of Washington State as a whole and the United States average.

While not all the counties experienced job growth — 9 of the counties examined did, while 7 experienced a decline to their employment base — compared to this time last year the statistics show definite improvement. The 3 counties which saw the most employment growth were Snohomish, King and Whatcom. The growth rate we’re seeing in our regional employment base right now is not a rate that Gardner sees as sustainable, so he chose to give the current employment situation in Western Washington a “B-” grade. This is up some from his last assessment, and is at a grade level Gardner sees as maintainable with our current economic trends.

The sales of existing homes in Western Washington saw a growth of 13.7 percent when compared to the first quarter of 2011. The counties which experienced the biggest gain were Mason, San Juan, Snohomish , Pierce, and King. When examining sale price numbers for the region, it appears that there was a 4.5% decline in price over the 1st quarter of 2011. However, the mercurial stats from San Juan County greatly skewed the data. Remove those numbers from the aggregate and home prices in Western Washington actually rose by 2.9% year-over-year.

Short sales and foreclosures are still a formidable force in the market, and their presence has been keeping home prices lower. While it’s difficult to continue to deal with these distressed properties, Gardner discusses how it’s part and parcel of the process of recovery.

“Getting through this inventory is a process, and it can be a painful one. That said, it is an important part of any recovery. We know that the percentage of “all cash” sales are far higher than we have ever seen, which indicates to me that investors are now buying, and this will likely help in depleting this inventory.” ~Matthew Gardner

Gardner again stresses location when discussing recovery. Depending on how close the county is to economic centers, and how much growth home sales saw in yesteryear, will impact how quickly counties will see more of an increase in home prices. And while recovery signs are positive in so many local markets, Gardner rates Western Washington’s real estate market at a “C” grade this quarter. The low inventory, in his opinion, greatly affects the health of the market and he does not see an improvement of his assessment until there is a larger inventory of homes available for sale.

The take away from Gardner’s 1st quarter report of Western Washington is we have come a long way to climb out of the hole the recession left in our job and real estate markets, however we still have work to be done. Gardner states “We are not out of the woods yet, but the forecast is a positive one.” Please take some time to read the full report on Neighborly News. It’s well worth your time– his analysis is insightful and he shares several graphs to illustrate his points.

“Overall, I am still looking to 2012 as the year that we emerge from the recession and, in our own inimitable Washingtonian manner, stride forward in the belief that the way ahead is a good one. (After all, who else wears shorts when it’s 50 degrees outside?)” ~Matthew Gardner

December 2011 Stats Are Out

Posted on January 11, 2012 by Julie

The most notable aspect of the December 2011 stats is the continued trend toward high pending sales volume despite the softening of sales prices. Listing inventory is down markedly compared to inventory levels for the past three years in the month of December. With interest rates below 4% buyer interest has remained very strong and multiple offers are not unheard of–albeit at much more modest prices than in years past. Having been burned once, buyers are cautious of overpaying and are negotiating for a fail-safe price.

2011-12 Summary

2011-12 Mercer Island

2011-12 Eastside

2011-12 Seattle Metro

2011-12 King County

October is Mixed Bag for the Island

Posted on November 14, 2011 by Julie

October’s stats contain the good, the bad and the ugly!

The good: inventory is down 58% from the same time last year, the Average Sale Price is higher, $/sq ft is higher, and the absorption rate is holding steady.

The bad: Pending sales are down 20% from a year ago, the gap between original list price and sale price is larger (83% as compared to 88%) and the # of months inventory on the market has grown to 10.3 months.

The ugly; Closed sales totaled out at a meager 11 as compared to 26 in October 2010.

September Real Estate Statistics

Posted on October 14, 2011 by Julie

September turned out to be another solid month for real estate on Mercer Island and in the surrounding communities–continuing the trend for 2011.

Summer Bodes Well for Residential Real Estate

Posted on August 26, 2011 by Julie

Mercer Island, Seattle, the Eastside and King County all posted strong gains in number of units sold over those of the prior year. In fact, residential sales met, or in most cases, far exceeded the volume of any July over the last four years.

While unit sales have risen dramatically, sales prices continue to be badgered by local short sales, foreclosures and bank-owned properties, many of which are coming to market in reasonably good condition. We continue to see signs that our market is in the early stages of recovery and are reminded that we are faring much better than most markets across the country. We expect to enjoy a robust Fall market across the Northwest this year.

May a Robust Month for the Island

Posted on July 5, 2011 by Julie

Pending sales continue to be a driving force in the market with May sales on the island up 77.4% over those of a year ago. The market has become much more balanced with many more sellers coming to market and selling within a very reasonable market time. Buyers are seizing the opportunity to gain from both bottom of the market home prices and very low interest rates. Statistically speaking, prices have remained steady. However, some pockets of homes and neighborhoods have seen price increases due to demand.

March Sales Activity is Strong!

Posted on April 18, 2011 by Julie

The attached report should brighten your day just a little! I did a four year history this time to show just how much our market has changed. Nice to see that all market areas are on par with or better than 1 year ago on almost every level. That is quite a feat considering the percentage of sales spurred by the housing stimulus tax credit a year ago.

The Absorption Rate based on pending sales, one of the leading indicators of the overall health of our market, is up across all markets. This is real, non-stimulus created growth!!!

February Posts Nice Volume Gains!

Posted on March 11, 2011 by Julie

February shaped up to be a spectacular month for pending sales volume! High pending sales coupled with lower active inventory resulted in marked improvements of the Months of Inventory and the Absorption Rate ratios. With pending sales double that of February 2010, the numbers clearly reflect the buzz we have been feeling and seeing in the marketplace.

February’s numbers do show lower sales prices, however, when one factors out the bank owned and short sale properties, sales prices have remained very stable. As the activity we are seeing on non-distressed properties continues to increase we will likely see the average sales prices increase somewhat to more truly reflect the mainstream marketplace.

Solid Market Activity for January 2011

Posted on February 10, 2011 by Julie

January shaped up to be a decent month…even compared to pending sales from a year ago when we had the advantage of the home buyer stimulus tax credit! Overall, Mercer Island and the Eastside performed much better than either Seattle or King County—potentially reflecting a trend toward growing demand in the moderate and higher price ranges.

Here is a quick summary of the highlights:

ACTIVE LISTINGS: The number or homes for sale was lower on Mercer Island (-16.9%) and the Eastside (-10.2%) but up in Seattle (+7.4%) and King County (+1.5%).

PENDING SALES: Mercer Island’s pending sales were up 25%; the Eastside was up 5%; Seattle was down 5%; and King County was about the same as a year ago.

CLOSED SALES: Seasonally low and typically reflecting homes that went under contract in November and December, once again Mercer Island and the Eastside were up; and Seattle and King County were down.

AVERAGE $/SQ FT: All areas saw a decline in the Average $/Sq Ft reflecting lower closed average and median sales prices for the month.

SOLD/ORIGINAL LIST PRICE DIFFERECE (%): All areas saw a slight decline in the Sold/Original List Price ratio (Note: Mercer Island had too few sales closed in January to make this a meaningful #)

SALES PRICES: With the exception of Mercer Island, all areas saw lower average and median sales prices. Mercer Island’s # were skewed by a small handful of transactions.

MONTHS OF INVENTORY (Based on Closed Sales): Favorable movement with lower months of inventory Mercer Island was seen on Mercer Island and the Eastside. King County was near even and Seattle was up somewhat.

ABSORPTION RATE (Based on Pended Sales): Aside from firsthand knowledge from the trenches, this is the most accurate measure of the market. It reflects the ratio of pending sales to active listings. The higher the percentage the stronger the buyer market. Seattle showed the highest rate of absorption (24.2%); followed by Mercer Island (22.7%); King County (19.8%) and the Eastside (19.5%).