|
The Central Puget Sound Real Estate Research Committee is a non-profit organization whose profits are donated to worth while real estate causes. Please continue to support the report with your subscriptions and you suggestion of how the report can be more useful to you in the future.The Central Puget Sound Real Estate Research Report is prepared semi-annually for King, Pierce and Snohomish Counties by the Washington Center for Real Estate Research, PO Box 644844, Pullman, WA 99164-4844. Telephone: 800-835-9683; Fax: 509-335-7863; e-mail wcrer@wsu.edu. One year subscriptions (including sales tax) are $163.20. Single current issues are available at a rate of $103.36 (including sales tax). [SUBSCRIPTION FORM] Now you can also order online! [click here] The Executive Summary provides highlights to the content of the current report. Spring 2008 Executive Summary Regardless as to whether we are in an economic recession or not, there can be no doubt that we are in the middle of a national real estate recession. As is to be expected from a country the size of ours, all markets are not created equal, and we still see some resilience to the overall upheaval in some markets including our own. As reported by New Home Trends, we are very pleased to note that there were vestiges of a Spring market as all four counties tracked saw increases in sales of detached and attached homes. It is worthy to note that Snohomish County saw an increase in sales of an astounding 90 percent over the previous quarter. What is of concern, however, is that all counties saw declines in the average sale price of detached product. Attached product faired marginally better with King County seeing an increase in prices. Pierce County remained essentially unchanged while Snohomish and Kitsap both fell. Considering single family sales by city we note that, pretty much across the board, cities have experienced a decline in price. This being said, there appear to be a few pockets of resistance. These are most pronounced in Snoqualmie and Bremerton, where data suggests that prices have increased by 32 percent and 23 percent respectively. Across the region though, average prices are down by 3% over the prior quarter. Unsurprisingly, we continue to see a substantial decline in permit activity for detached product in three out of the four counties reviewed. The exception is Kitsap County where there was a substantial increase to 1,871 new units applied for. It was a mixed bag for attached applications with increases in King and Snohomish counties, and decreases in Pierce and Kitsap counties. J. Lennox Scott discusses the theory that prices and absorption levels remain stronger the more proximate to job centers you are. As I mentioned at the start of this commentary, all areas appear not to be created equal. What is still of concern, however, are the overall inventory levels that are still well above historic averages. I personally believe that improved buyer confidence will be key to stabilizing house price levels. With increasing inventories and reluctant buyers, there is a growing mismatch between supply and demand that explains why we have seen price declines, albeit modest ones. The increase in properties for sale indicates that there are households looking to transact. The implication for prices in the short term largely depends on the split between those who have to sell within a certain period of time versus those looking to sell at the right price, which is unknown. I feel that the former group will need to be more realistic on achievable prices compared to the latter. Glenn Crellin continues this discussion with an interesting examination of real estate transactions and pricing movements. Specifically looking at housing affordability, it is not surprising to see that decreasing prices in concert with marginally increasing household incomes has moved all four counties to levels of greater affordability for all buyers, as well as those first time buyers who have found it very difficult to get traction in our own market. King County remains the least affordable market and Kitsap County the most affordable for all buyers. However, when we look specifically at first time buyers, we note that even with this improvement it is still very difficult for people to get onto the property ladder. The regions apartment market remains extremely tight with overall vacancy rates at 4.1 percent and rents still heading upward. Patty Dupre suggest that this might not continue for too much longer as new supply increases and job growth tapers. Looking at transactions of apartment complexes, it appears as if we are starting to see some cap rate decompression. It stands to reason that more cautious underwriting would have this effect. Tom Cain of Apartment Insights presents additional apartment data, but on a more micro basis. Across King and Snohomish Counties we see that, again, all markets are not created equal. Vacancy rates vary from as low as 3 percent in Edmonds and on Capitol Hill to as high as 7.4 percent in the King North sub-market. Jeff Scanlan of CBRE reports that we are bucking national trends in the office sector with the continuation of a “landlords’ market”. Strong absorption of product continues to push asking rents higher. With the high rates that are being commanded in the core areas, there is a ripple effect that is pushing businesses’ looking for space further from the more traditional office markets. This may function to tighten the traditional secondary and tertiary markets further. His outlook for 2008 calls for job growth to continue and drive demand for additional commercial space. This will be an important factor when one considers the fact that there are 5.5 million square feet of space currently under construction. The Kitsap County office market, as reported by Gary Gartin of Bradley Scott, is still highly dependent on the Navy and, with few new contracts, we are seeing downsizing that is pushing vacancy rates higher. Additionally, he states that the potential increase in interest due to the completion of the new Tacoma Narrows Bridge has not occurred, and this has dramatically increased the amount of vacant space in the South Kitsap submarket. Looking at the industrial market, it appears as if land constraints are starting to kick in that is driving developers further and further south to find suitable land. There is currently almost four million square feet underway and a remarkable seventeen million square feet of proposed development. Kelly Ross of Cushman & Wakefield suggests that irrespective of woes in the housing market the outlook for retail services is still extremely positive with demand usurping supply for the next several years. As long as we continue to see population and income growth, national retailers will continue to pursue development in our market. Brett Manning from the Federal Home Loan Bank has contributed a very interesting article on the sub-prime crisis that looks back into recent history and dissects a number of financial crises that have occurred over the past thirty or so years. From the S&L crisis of the 70’s and 80’s to the collapse of Bear Stearns, he writes with authority about common threads that weave in and out of all of these destabilizing situations. Doug Pederson opines that the nation is headed for a recession but we are likely to avoid this at a local level as long as the national downturn is relatively brief. We are going to be protected by continuing job creation and growth, although at a substantially slower pace, will remain positive. Richard Morrill from the University of Washington discusses the American Community Survey as a replacement to the traditional Long Form census that will not be used in 2010. His insights as to the demographic makeup of our area make for fascinating reading. Our regional decision makers should take heed of his comments pertinent to the decentralization that is occurring. This flies in the face of adopted public policy. Additionally, Richard has prepared a discussion on house values and relative affordability in our area that considers the economic principles behind our areas increasing values. In it, he attests to the theory that our own Growth Management policies have increased costs and, therefore, prices and perceieved values. In conclusion, this report shows the glass half full rather than half empty. The weakest sector continues to be the residential for sale market with uncertainty reigning for the time being; a crisis of confidence is upon us. Economic fundamentals remain in place, but the adage of Caveat Emptor will hold our market in abeyance into the summer months if not beyond. Should, however, we see some price stability return to our area, we will undoubtedly see a pickup in activity that will start to reduce our high levels of inventory. Matthew Gardner
|
|
© 2008 The Central Puget Sound
Real Estate Research Committee |