A gloomy outlook of the housing market was forecast on June 10th, 2011 by Robert Shiller, known for his accurate predictions of the housing market crash before the real estate recession.  Schiller is the economist who co-founded the S&P/Case-Shiller index of U.S. home prices.  He said a further decline in property values of 10 percent to 25 percent in the next five years “wouldn’t surprise me at all.”

Housing Market Prediction for Sequim

How will this forecast or negative outlook on the national housing market play out in the Sequim real estate market on the Olympic Peninsula?  What is the real estate market going to do in the Sequim area in the next 12 months to 36 months?

First, the Sequim housing market must be differentiated from the national housing market.  I think we could all agree that the real estate market is dramatically different in major cities around the U.S.  The Las Vegas market is completely different than the Anchorage market, as the Houston market is different than the Denver market, as the Miami market is different than the San Bernadino market.  And Sequim is different than any of those markets.  National statistics are useful for some purposes, but not in accurately predicting what will happen in some specific markets like the Sequim housing market.

Second, we have a small inventory of homes for sale (800+), and retirees continue to buy homes here every single month of the year and have every month during this entire recession. There is much more stability in this small market with the attraction that Sequim has become for retirees around the country.  Even in this recession, people are retiring and moving to Sequim as they have been planning for many years.  (more…)

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Buyers ask me about real estate prices and the question is, “What is a fair price in this market?”  As I show homes to retirees from outside the Sequim area, the concern they have when they find the ideal home is how much to offer.  They don’t want to pay more than they have to, but they also don’t want to write an unreasonably low ball offer that is a waste of time and seriously offends the seller.

Real Estate Prices – Order Out of Chaos

The first point of reference when making an offer is the current listing price.  You may have heard someone regurgitate  a rule, such as, “Homes are selling for 90% of their listed prices, so you never offer the full listing price.”  Oh really!  Suppose a listing price started at a reasonable listing price and was reduced to far below true fair market value for a quick sale?  Or suppose the listing was on the market for two years, and it is now a short sale and being offered at far below FMV?  Suppose it has been reduced to such a steal of a price that there is no doubt several other buyers are going to snap it up?

When it comes to real estate prices, some homes are listed well above a fair market value price (FMV), but others are listed right on target in this current market, and still others have been listed at a garage sale price for the quickest possible sale.  This points out that general rules on offering prices are not applicable for a specific home.  What you need is the full history on a particular home, how long it has been on the market, and an accurate understanding of the true comps in this market.  And watch out for listings that are priced with no differentiation for location.  For example, a home right on the busy freeway should never be listed at the same price as a similar home in a private gorgeous area far from the highway and noise.  If you were going to make an offer on the freeway home, you might offer 80% of the listing price, but the home in the quiet area might deserve a 98% offering price.  There are many variables, and you’ll need to look at all of them to arrive at a fair offering price.  Only then will you be able to place a particular home in the context of current real estate prices.

Real Estate Prices and Reality

I just had a client call me this morning, a client I referred to another Realtor in the Puyallup area.  She asked if his advice to write a full price offer on a home was good, because she isn’t sure about real estate prices right now.  I know this Realtor.  He is one of the most knowledgeable, professional and honest Realtors I have known in 30 years in this business.  He knows the market and he knows how to work for his buyer.  If he says the current listing price is so good the buyer should write a full price offer, there is no doubt in my mind he is right.  In following up on this, I learned this house is a steal at the current reduced listing price, and two other buyers are in the process of drafting offers.

Of course, generally in this market and in light of the chaos in real estate prices, we would expect to write an offer that is significantly less than the listing price, but be careful you don’t get bad advise on how to write your offer.  Rely on a professional who knows the market and has a lifetime of negotiating prices.  Be careful about taking advice from friends.  Remember, while friends mean well, when you are sick, everyone is suddenly a doctor, and when you have a legal issue, everyone is suddenly a lawyer.  We know better.  Right?

Negotiate your specific home based on the relevant data and history for that home and based on real comps, not distant comps.  Real estate prices are all over the map right now, but be sure your offer is the right offer.

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Are home values tumbling?  Fox news reported today that Zillow’s first quarter data suggested that home prices have dropped in the U.S. by 3% in the first three months of 2011.

As they say, “Statistics don’t like–statisticians do.”  In this case, there are many possible interpretations of this data.  But there are a few simple rules to consider when drawing ultimate conclusions from this scant information.

First, this is data collected by one private company, Zillow.  Does it include 100% of all sales across the entire U.S.?  I can guarantee that it does not.  But it may include sufficient data to validate the reduced values.  We don’t really know.

Second, a statistical study must be properly weighted to exclude or adjust data that would or can scew the data.  In this case, the U.S. real estate market is so dramatically different in various regions and states that it is a very general statement to apply one statistical template to all areas.  Perhaps home prices only declined by 1% in your area and 5% in Phoenix.  It’s also very possible that prices stayed the same in your area and dropped by 6% in the foreclosure disaster areas, like Vegas and Phoenix.  Averages on a national level are not very helpful, except to remind us that nationally the real estate market is not sending any signals of recovery yet.

Have home values in Sequim declined by 3% just in the first quarter of 2011?  Not likely.  That would mean that a home at $300,000 has declined by $9,000.  There’s literally  no way to measure that.  I haven’t seen it, and prices just don’t drop automatically here.  There’s also no way to know whether a price decline is the result of a falling market in the first quarter.  A listing price may have dropped by 3%, more or less, but that may be a response to declining prices over the past 24 months.

Statistics like this one published by Zillow can be very misleading.  What does this statistic mean for a buyer or seller in Sequim?  Nothing.  Absolutely nothing.

Every transaction I negotiate for my buyer clients as a buyer’s agent are individually negotiated–one buyer and one seller, each represented by an agent.  Each transaction stands on its own.  Each seller and each buyer have their own motivations and financial considerations.  Each transaction is negotiated on its own merits.  What is happening statistically as an average number around the country in all local markets is interesting but of little negotiating value.

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The Sequim Real Estate Market Report will show you active listings, homes sold (with a map showing the precise location with a link to the full data sheet), and as you will see, you can also look at useful charts and key Sequim real estate market data.

Sequim Real Estate Market Report

Sequim Real Estate Market

Click on the above image to open up the full Sequim Real Estate Market Report.  What you’ll find is active listings, sold listings, and a map showing the locations.  When you click on a home on the map, the full property detail sheet will open with the specs on the home as well as more photos. By the way, this is the only place and the only online Sequim real estate market report where you can get this detailed information free.  You can find other sites where you can look at the Sequim MLS listings, but those sites don’t show the sold properties or their location, nor how much they sold for.  My online market report does.  This is another way I serve my clients, by paying for services and programming sites to give you the information you want and need . . . at no cost to you.

Sequim Real Estate Market

If you open this site, you’ll have fun looking at the information available.  In addition to the information already mentioned, you’ll see the asking v. the selling price, the number of days on market, and high/low prices as well as average prices.  This is information that is normally only available to Realtors on their back office subscription sites, and even then it is not compiled and charted in such a nice way.  I think you will agree it’s helpful information.  Another useful report is a broad market report I recently wrote entitled Sequim Real Estate Market.

You can create your very own customized Sequim Real Estate Market Report (and this includes Port Angeles too), by completing the little MLS Market Snapshot form in the right column of either this site or the site above.  You can select precisely what parameters and price range you want a report on, and you can receive a weekly or monthly email with a link to the updated report.

Sequim Real Estate Market Reports brought to you by Chuck Marunde.

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Interest rates are about to start a long slow upward trend.  Will increasing interest rates effect sellers in this market?  Absolutely and much more than most home sellers realize.  I’ll explain why here and provide some solid evidence for your consideration if you hope to sell your home.  Obviously, this has great relevance to buyers, too.  Buyer’s know it’s a buyer’s market, but many sellers don’t realize how much money they could lose if they don’t sell now while interest rates are still at historical lows.  We all know that timing is everything, but that has never been more true than it is now for sellers.  Here is the main argument I make:  As interest rates increase, in order for a buyer to pay the same maximum monthly mortgage payment, the price of the home will have to decrease.  This is similar to the inverse relationship of bond prices and interest rates.

Interest Rates on an Upward Climb

Exactly when and how far mortgage interest rates will rise is unknown, but expert after reliable expert is predicting increasing interest rates.  The logic is beyond argument.  Federal, state, and municipal debts rage out of control.  Eleven states are on the verge of a financial crisis and possibly bankruptcy.  U.S. Bonds are at risk and major International buyers have registered their concerns in the markets.  The Feds are printing money with nothing to back up the dollar.  Spending is out of control but has reached epic proportions of irresponsibility.  So much for a rational fiscal policy.  The Federal Reserve arguably has lost its grip on monetary policy.  Banks and mortgage companies are on edge and have cut their loan portfolios to a fraction of what they were.  Buyers who are qualified have trouble satisfying ridiculous underwriter requirements.  Freddie Mac and Fannie Mae are disasters and part of the problem.  Politicians have handicapped appraisers with laws that actually do the opposite of what they claimed they would do to help buyers and sellers.   There is a large shadow inventory of foreclosures that will increase the total inventory of homes for sale.

In this chart above, the point is made this way.  Today a home with a loan of $450,000 at current interest rates of 4.75% would cost a buyer $2,347 a month.  If that is the maximum loan the buyer qualifies for, or if that is the buyer’s personal budget maximum, the price of the home must decrease as interest rates increase.  Of course, if the seller is unwilling to reduce the price, this buyer simply does not buy.  As you can see in this chart if interest rates increase from 4.75% to just 5%, the equivalent selling price drops from $450,000 to $445,000.  Carry that to an interest rate of 7% and the selling price drops to $352,000.  That’s a pretty big loss for the seller.

Interest Rates Are Key

This chart demonstrates the same concept for increasing interest rates, but the chart shows the actual loss in equity (or selling proceeds).  The numbers are in thousands.  All of this means the buyer’s market will become even more of a buyer’s market.  It also means homeowners who want or need to sell must pay close attention to the timing and strategy for the sale of their home.  The point of this article is that among the many variables to consider, interest rates are about to begin increasing, and that alone will steal equity from sellers, because to sell, they will have to reduce their prices.

Interest Rates Kill Equity

A seller has a couple of logical options in this market and given the high probability that interest rates will increase.  Number one, he can do everything possible to sell now at a very reasonable price before he loses money as interest rates increase.  Number two, he can chose not to sell and hold onto his house for five to seven years as the market recovers, assuming that he has that financial option.  Number three, he can conclude that I’m all wet and ignore all the data.  Maybe he’ll get lucky.  Or not.

I’ll add this small note from 30 years in the real estate school of hard knocks:  Home sellers need knowledgeable and experienced professional real estate agents now more than ever.  I hope if you are trying to sell your home, you will call me up and invite me over for a cup of coffee and an interview.

These are tough times, and tough times call for hard decisions.  I hope this article helps in some small way for home sellers who understand that interest rates are going to begin increasing soon.

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The Sequim Real Estate Market Report is available now to view active listings, sold properties, and some interesting chart comparisons and percentages.  You can view it by clicking on this image below, and you’ll be taken to Sequim Real Estate Market Reports.  As you can see when you open the report, the red diamonds on the map represent sold properties and the green diamonds represent active listings.  One of the red ones at 1763 Doe Run is a home I just sold, and one of the green ones at 1573 Doe Run is one I just listed.  You can view the details by opening those boxes and the detail information.

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