Kenmore, WA

One of my favorite on-line real estate publications is www.marketwatch.com. Quite often I find that the authors provide honest and sober analysis of the marketplace. Today Marketwatch published two interesting articles: Five Reasons to Buy a Home This Year and Five Reasons Not to Buy a Home This Year. I’m going to list the reasons for and against and I’m also going to comment briefly on each. I’m curious if any of you have your own thoughts about this subject.

First, lets summarize the 5 reasons to buy:

1. Affordability is better than ever
2. You have a large inventory to choose from
3. Builders are offering big discounts
4. Mortgage rates are historically low
5. You can get a Federal Tax Credit

All five of these factors are, indeed, the case in our local market. Many homes have dropped to 2005 values. The inventory is still historically high. Builders have been quite willing to work with buyers on both price and concessions. Yes, mortgage rates hovering around 5% are downright wonderful. And, as far as tax credits go, we may see some very generous tax benefits once the new stimulus package passes.

Now, 5 reasons not to buy:

1. Prices are still dropping
2. This sale will be on for a while
3. You may not stay put
4. Your job could be the next to go
5. Your cash reserves will be eaten up

There are fears that there will be a huge number of bank-owned homes entering the market in the next several months. If this is the case, it is likely that property values will drop even lower. And, yes, many economists believe we will not see the end of this decline well into 2010. Because there has been a decline in property values, buyers need to consider how long they will stay in their home. The old rule of thumb was that Americans move every 7 years. Now it appears that home owners will have to stay put for 10 years to realize any financial benefits. Regarding jobs locally: it’s clear that we are not immune to the current recession. It’s really important to watch this trend. Finally, you better have at least six months of cash reserves in the bank because this market may be difficult for a long time.

So, what do you think? Are you ready to take the plunge?

Two articles caught my eye today. The SeattlePI reported a drop in King County home prices to 2005 levels. Of particular note in the article were the following comments:

• Pending home sales were higher in January than a year earlier in eight of the 19 counties the listing service covers. But sales in Seattle and King County dropped 10.8 percent and 17 percent, respectively, from January 2008
• The median price, $382,500, was down more than 12 percent from a year earlier, 5 percent from December and 20 percent from its all-time high of $481,000 in July 2007, according to the Northwest Multiple Listing Service
• But the current state of the economy complicates any predictions about what could happen to the housing market, said Gina Ard, an agent with Windermere Real Estate, on Sunday. “We’re being hit from all sides right now, so I think it’s foolish to act like you know,” she said.

The Multiple Listing Service press release was interesting as well:

• “It’s pretty clear that the real estate train came to a complete stop over the past few months,” acknowledges NWMLS Pat Grimm, owner/broker of Windermere Real Estate/Capitol Hill, Inc. “The good news is that the train was moving pretty fast before and now people have an opportunity to get aboard.”
• Members reported fewer closed sales in January compared to a year ago, reflecting the slower pace of sales during the last few months of 2008. Prices area-wide slipped about 13.7 percent from a year ago.
• Officials from the National Association of Realtors® say “significant uncertainty” still clouds the housing market despite improved affordability conditions. “For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus and mortgage availability for qualified borrowers,” stated Lawrence Yun, NAR chief economist.

That last comment truly amazes me. Finally, after 18 months of woefully inaccurate and misleading statements by the National Association of Realtors, their economist finally admitted that there is “significant uncertainty” in the market! You think?

I would encourage you to read through the two articles. The fact is, no one knows what’s going to happen in the next year. The new stimulus package may help certain sectors of the market; however, there are many who believe that as the year matures, a huge number of bank-owned properties (REO’s) may hit the market with the potential of driving inventories up and prices down.

I found myself getting into an argument the other day. I was having lunch with a couple of friends and was introduced to a gentleman who seemed to be a little angry about the economy. When he found out that I was a Realtor, he could hardly hide his disdain for the profession. He felt that the problems were helped along by unscrupulous real estate agents. I bet you haven’t heard that before!

Now, here’s the punch-line: He was glad so many real estate agents are leaving the business. “So what if a few agents loose their jobs?” Indeed, I feel his pain. In fact, I have no argument with the fact that during the last decade, becoming a real estate agent and making a descent living was what economists call “easy entry.” This is a fancy way of saying that one didn’t have to pay their dues to get in the club. And, yes, many of the non-professionals are leaving the industry. But, there’s a deeper story here. It’s not just the agents who are affected by our grim real estate market.

As in many industries, if an agent is working, there is a job “multiplier factor.” For example, here in the Seattle area every Boeing job creates seven ancillary jobs to support it (e.g. grocery store workers, restaurants, auto dealerships, etc.). When you are purchasing a home (arguably the most costly and important financial decision for most people) you need to understand that this is truly a complex process. Your decision to buy a house sets in motion a very complex mechanism that employees a lot of people…..not just your agent:

The illustration above shows the basic players in most transactions. There are actually many more. The Title Company, Escrow Company and the Lender all employee staff. The real estate agents may utilize/recommend the services of sign companies, printers, professional photographers, stagers and landscapers. A new phenomena is the inclusion of a seller’s inspector as well as the inspector used by the buyers. In the state of Washington, attorneys have become more common due to the number of distressed properties presently on the market.

The most important thing to remember is that when you pick up the phone to hire a real estate agent, you’re hiring a myriad of relationships that the agent has cultivated over many years. We spend a lot of time working with our “team” in order to represent the best interests of our clients.

One last word: The current market has been really tough, and not just for real estate agents. There are a lot of other professionals who are not working. This is a client-centric business based on trust and strong professional realtionships. Let’s hope that it won’t take forever for the market to re-boot. We want to get back to work.

Property taxes are always irritating. Homeowners (myself included) hate to pay them. Doesn’t it always feel like we’re being picked-on by the school-yard bully? And yet, because of voter approved increases and the fact that schools, police, fire departments and other public services are funded through this tax, they are a necessary evil. Truly, I don’t mind being taxed when I know my schools are being funded (even though I have no children) or, if my neighbor’s house is on fire, the fire department will come to the rescue!

So, house values here in Kenmore, WA are down 9% since last year. So shouldn’t my property taxes go down? Not this year I’m afraid:

Here’s what Rich Medved, chief deputy to the King County assessor had to say about the property tax assessments for 2009: “there’s still no correlation between property value and tax bills.”

In today’s Seattle Times article entitled “King County property taxes to rise 6.16 percent overall” the County explained why, in spite of falling home prices (values?), property taxes will be rising this year. Basically, property taxes are calculated from assessed home values from the previous January. Also, according to the article:

“In King County, the costs of state and local government determine how much property tax will be levied. These include operating costs of schools, city and county government and other taxing districts such as the Port of Seattle, library, hospital, fire and sewer districts.

A large chunk of each property-tax dollar goes to pay off bonds for such capital costs as school buildings and other public projects.”

This is just another shot of economic reality for home owners and residents of the Seattle/King County area. Times are, indeed, tough. For those of you who want more information regarding the county’s process or have questions for the Assessor’s office, you can go to: http://www.kingcounty.gov/Assessor.aspx

Until recently, the Seattle area has been considered more insulated from the doom and gloom experienced by many other parts of the country. I’d like to think so. You would like to think so. The Real Estate Gurus would like to think so. The author of The Secret would like to apply the Law of Attraction and make it so…………..You know where I’m going with this: The economics of the Northwest are not exempt from the huge macro-economic problems faced by the general economy. And, yes, I will use the new lay-offs at Microsoft as yet another indication that even the high tech sector is finally feeling the contraction in our market. Ultimately, it’s the real-life phenomena of what economists call “the multiplier effect” that’s accelerating the contraction of our local economy:

It’s the old rule-of-thumb: Every job at Boeing multiplies into seven other local jobs. The calculation for Microsoft is around three other local jobs. I’ve personally witnessed this as I’m sure you have. Almost all of the businesses here in Kenmore that I patronize have recently laid-off employees. The irony is these owners have business, but they simply cannot afford the overhead of employees. And here’s the sobering fact: most economists I’m listening-to say it’s going to get worse before it gets better. For example, according to a report published yesterday by the Northwest MLS:

“The industry is facing multiple disconnects,” said ULI Senior Resident Fellow for Real Estate Finance Stephen Blank. “Many property owners are drowning in debt, lenders are not lending, and for many (industry professionals), property income flows are declining. There is an unprecedented avoidance of risk. Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole.”

And here are a few snippets from the SeattlePI’s Aubrey Cohen, Lowest home sales of decade:

Total sales of houses and condominiums in King County were down more than 36 percent from 2007 and the lowest of any year this decade, according to a report Thursday from the Northwest Multiple Listing Service.

Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said the listing service numbers match what he expects to show in a year-end report he plans to release Feb. 12.

And the article goes on with Lennox Scott, self proclaimed industry spokesman, who as always is saying this is a great market for step-up and first time home buyers.

But Crellin took a different view, saying: “I think 2009 is going to be a very challenging year.”

Foreclosures probably will increase as payments reset upward for people who bought homes in 2006 using loans with artificially low payments for three years or charged interest only over that time, Crellin said. Microsoft’s Thursday announcement that it was laying off 1,400 people immediately as part of 5,000 job cuts over the next 18 months didn’t help, he said. “Many of the Microsoft jobs are folks that would otherwise be active in the ownership housing market.”

Here’s my sense of the market given all the information I’ve been reading: We haven’t reached the bottom yet. I believe we are not going to see a rise in real estate sales until the whole financial system stabilizes which is going to take many months to occur. In the mean time, the local market is going to be tough.

It’s not the greatest news especially if one is trying to sell a house. It is an opportunity for buyers to start doing research if they are interested in purchasing, but I have a sense that buyers are going to remain reluctant to buy until some semblance of confidence comes back into the market place.

Utterly Confused courtesy of inju