A Phenomenal Year for Real Estate is Underway!

The Market Recovery of 2012 was followed by Market Stabilization in 2013. Now it's time for Growth in 2014!
 

A look into what is driving our market in a moment, first here are the year over year numbers: 

Inventory – UP 11.5%

Closings – UP  5%

Months of Inventory – Even last year 3.6 this year 3.8

Median Price – UP 2.2%

For several years I've talked about a steady recovery and stabilization period for our Pierce County Market while somewhat equal but opposing forces have been pushing and pulling the market. For example, many homeowners have outgrown their home, or their home has become too large with family changes, and they have been unwilling or unable to accept the re-calibrated market price of their home, and therefore not willing to make the move. While they were waiting there has been a steady supply of distressed properties on the market creating drag on prices. This has created a substantial "pent-up" demand that has started to find it's way to market. In some cases move up buyers are recognizing that even if they take a loss on the house they are selling, the bigger house they are buying is also much less and the difference works in their favor.  We could all see that before, but few made the move, the difference now is "confidence". So 2014 promises to deliver one the most active, appreciating, and dynamic markets we have seen in years!  Here are some reasons why:

Transaction Velocity is at Normal Levels  This is an update from last month now that 2013 numbers are final.  For several years I have said that the market recovers in two ways – and one is always before the other.  First is Transaction Velocity.  The transaction volume (units sold) must come back into line with the traditional norm before we can have a full recovery and further appreciation of prices. Now that 2013 is in the books we know Pierce County transaction velocity was 11,737 units. That compares to a 12 year pre-bubble and post bubble average of 12,749.  The chart below illustrates the fluctuations, 2013 volume is 22% greater than 2012 and 92% of the 12 year average!  With this increased velocity the Days on Market that it takes a home to sell has gone from 86 days in 2012 to 71 days in 2013. 

Prices Will Go Up in 2014 Faster Than 2013  The baseline on transaction velocity makes an indisputable case that demand for Pierce County Real Estate is back, for the most part thanks to 1st time buyers and investors. In 2014 the young 1st time buyers will increase their interest in home ownership but there will be an additional demand from existing homeowners moving up – moving down – moving out and so on!   In 2013 the median closed price went up 7.9% from January to December. With every percentage point of appreciation a new group of homeowners are finding themselves "above water" on their mortgages and able to make the move they have been waiting for. As more of this positive equity is unlocked it will release a new contingent of buyers on the market. Pierce County is still 28% off of the peak median price we saw in August of 2007 but I think we are at a tipping point of demand and supply that will cause that gap to narrow more than any of the last 5 years. Markets seek equilibrium and chart below shows us Pierce County has been over-corrected and below the average appreciation line for a long time. 

But What About the Fed and Interest Rates? For the last few months I have discussed the Federal Reserve tapering their robust purchasing of mortgage backed securities and the effect that will have on interest rates. Increases in mortgage rates cause the cost of housing to increase because most home purchasers obtain a mortgage loan when they buy.  It has been predicted by some that as the Fed tapers (we know they will) and mortgage interest rates go up (we know they will) the increased cost will push prices back down. For my money, I wouldn't count on it.  The Fed has demonstrated in the last 6 months that they are Über sensitive to not wrecking the hard won economic gains we are experiencing and housing recovery is central to the process.  Further, if history is any lesson see the graphic below which demonstrates the last 4 economic cycles where we saw a rapid increase in interest rates, home prices actually went up! Part of the reason for this stems from the fact that the Fed raises interest rates as a balancing mechanism when the economy is good and people overall are doing well.  While it is true housing will cost more and home buyers purchasing power erodes when rates go up, it has not been true in the past that it causes prices to go back down.

Let me know if you have any questions or comments – It's always great to hear from you!

Month over Month Down + Year over Year Up = Just right!

What's ahead for 2014 and how long will distressed properties continue to play a part in Pierce County?

The Pierce County Housing Market took a breather in November when compared to the month before but the Year over Year stats continue to impress as we finish up 2013. 

Here are the year over year numbers:

Inventory – UP slightly at 2.2%

Closings – Even  up 0.5%

Months of Inventory – Even last year 4.1 this year 4.2

Median Price – UP 2.5%

All of the aforementioned numbers are Down from last month, notably the drop in Solds when compared to October was -18.3%.  As I reported in my last installment; October benefited from upward lift created by the ending of the government shutdown. We can conclude while 18.3% is a hefty drop, the sky is not falling and big picture numbers look good!
 

Transaction Velocity For several years I have said that the market recovers in two ways – and one is always before the other.  First is transaction velocity.  The transaction velocity, or volume, is the total number of units sold. This velocity must come back into line with the traditional norm before we can have a full recovery and further price appreciation. Now that 2013 is nearly in the books we can project Pierce County transaction velocity will come in just under 11,000 units.  That compares to a 12 year pre and post bubble average of 12,749 . The chart below illustrates the fluctuations. Velocity for 2013 will be 12% greater than 2012 and that was accomplished with a relative short supply of inventory during the Spring and early Summer season. In 2014 Pierce County transaction velocity is expected to increase at least another 12% over 2013. That will bring the transaction velocity completely in line with the 12 year average.

Prices and Distressed Properties We are in a solid place for continued appreciation with transaction velocity approaching pre-bubble levels.  Pierce County has also recorded 6 straight Quarters of Year over Year median price increases. Using the November median price of $205,000 Pierce County prices have increased 8% year to date, which is interesting because in August we were up 18.4%. One of the culprits preventing more robust increases in our area might be the quantity of distressed properties.  As I discussed in October's report, distressed properties are either short sale or bank owned properties.  In Pierce County 25% of the listings are distressed and nearly 1 out of every 3 real estate sales (32%) are distressed. As a percentage of volume, Pierce County has roughly twice the amount of distressed sales when compared to King County where 17% of the listings and 15.8% of the closings are distressed. 
 

King County's distressed properties for sale equals a 2.5 months supply. Pierce County has 3.2 months which isn't that much worse. I don't want to over complicate but most of my stats come from the NWMLS….Pierce County has experienced heavy buying activity from numerous hedge funds snapping up hundreds of units that would otherwise be visible and counted here as additional distressed units  Since those acquisitions don't hit the MLS we don't see them. According to CoreLogic the Washington State average of distressed inventory is between 6-8 months and you can see on the chart below how that compares nationally.  As we work through 2014 we will be watching for the flow of distressed properties to eventually slow and this will signal even greater appreciation ahead.

We are wrapping up this year in a much different place than we were a year ago.  Instead of hopeful optimism of a full recovery in the housing market we have many solid statistics to assure the trending is real, the bottom is well behind us, and real estate is showing itself once again to be one of the best long term investments available to all of us. 

As real estate professionals we recognize there are still many Pierce County households who remain in recovery mode, for those, 2014 should bring relief with further price increases. For investors, the flow of distressed properties is an opportunity we may not see again for a long time. For those who would like to move up to a larger home, a waterfront, or a view home, ponder these elements:

– Mortgage rates remain at an all time low
– Pierce County prices have not yet fully recovered
– The market fundamentals strongly indicate "this recovery has a future".

Add it up and your next home can be bought with the confidence that it will be a rewarding investment. 

An upward POP in Pending Home Sales as Prices settle!!

The Pierce County Housing Market saw an uptick in Pending sales last month setting the stage for a strong finish to a year that has been a big relief to many homeowners and brokers throughout the area.  Let's look at the key "Year over Year" numbers:

1. Inventory – Basically Even up 0.5%

2. Closings – UP modest 3.1%

3. Months of Inventory – Even at 3.9 – Was 4.0 one year ago.

4. Median Price – UP 10%

5. New Pending Contracts – UP 11.9%

The jump in Pending Contracts is encouraging because it comes at a time typically regarded as the beginning of a seasonal drop in activity.  At 1,164 Pending Contracts, it was most activity we have seen in a single month since May earlier this year!  It's likely some of the extra activity was a bounce from the government shutdown ending, but a nearly 12% pop is welcome and shows us this market still has a foundation with solid demand.

Pricing has Calmed Down. This is a positive trend for maintaining housing demand and keeps affordability from eroding. At $220,000 median closed price, we are down month over month for the 3rd month in a row and we are 5% below the 2013 peak seen in July and August. The moderation helps Pierce County buyers and sellers feel more comfortable with their decisions to buy and sell. A balanced market puts both camps at ease; it allows the participants to make decisions while "breathing through their nose" and not feeling frantic. 

Interest Rates Bouncing of 4% Floor. Last month we observed how just the hint of Federal Reserve tapering bond purchases had pushed rates up a full point earlier in the year.  When they announced "not yet" in September, we saw rates fall back to 1st quarter levels as the chart below demonstrates.  Few economists, traders, mortgage brokers or cab drivers believe this phenomenon can go on too much longer.  Nobody knows for sure, but all agree at some point in the (possibly near) future rates move higher. Most people include a mortgage in their home buying, so when rates go up the "cost" of housing goes up.  The thought here of course is that if there is a mortgage involved in the next move, "sooner is probably better than later".

Home Price Expectation Survey. A nationwide panel of over one hundred economists, real estate experts and investment & market strategists have issued their 2013 4Q report.  The aggregate of all projections expect cumulative appreciation to be 28% by year 2018.  The panel suggests 2014 will see appreciation of 4.3%, significantly slower than the 2013 pace, and returning to a balanced 3.4% – 3.6% in years 2015 – 2018.  These projections of course will differ for our more localized Pierce County Market but the data is worth noting because it is not just one economist or real estate professional but an average taken from a much larger group of experts.  As these appreciation numbers play out we will see real estate continues to be one of the best long term investments to participate in. The chart below shows the national return on real estate over the last 13 years.  Even with the run up and painful correction taken into consideration real estate proves to be one of best long term places to invest. 

Windermere Foundation has raised over $1,074,482 this year! It feels good to work for a company that makes community such a priority. You can see the full article at http://www.windermere.com/blogs/windermere-foundation/posts/windermere-foundation-quarterly-report–8

Three factors aligning for a great market opportunity!

The Pierce County Housing Market is continuing the "normalization" process (yawn) but as usual there's a few interesting stories within the numbers that are worth paying attention to.  First, here are the basic numbers I like to follow:

1. Inventory – UP 3%

2. Closings – UP 23%

3. Months of Inventory – DOWN at 4.2 – Was at 4.9 one year ago.

4. Median Price – UP 8.3%

5. New Pending Contracts – UP 8%

Here's what I find INTERESTING….Inventory is the highest it has been since Springtime 2012.  We actually had about the same number of closings last month as we did in February of this year, but at that time we had 33% LESS inventory!  This shows the calming of the market I've been talking about in last few reports.

ONE MORE PERSPECTIVE to consider about the Pierce County inventory. Fully 23% of homes for sale are DISTRESSED, meaning they are either BANK OWNED or SHORT SALES. With nearly a 1/4 of our inventory distressed we are significantly above the National Average of 12%.  Pierce County real estate is still working through some painful remnants of the big recession.  By the way, King County is about the same as the National Average at 12.7%, so we can keep that in mind when listening to local media.

As you can see above, the BIG STORY is the leveling of price increases, we are pretty much in line with National Averages.  With the increased level of inventory and stable demand for housing it is creating a moderation in the pace of home appreciation.  This will be good for the health of the market overall and in the long term. This graph of year over year prices both Nationally and here in Pierce County shows the market finding equilibrium.

The WINDOW OF OPPORTUNITY. Recently, when the Fed Chairman somewhat unexpectedly announced there was no immediate plans to stop the purchasing of treasury bonds and mortgage backed securities, interest rates moved down.  This reversal of the rising rates we have seen most of this year is not expected to last.  As the economy finds it's foundation and eventually the Fed does start its tapering we will certainly see higher rates and look back at this moment as a golden opportunity. This chart shows where 4 expert organizations forecast interest rates to be in one year from now.   

Add it up

1.) Calming Market 
2.) Distressed Inventory is 23% of the Pool and  
3.) An unexpected dip in rates! 

We live in a great area with a great future, and Pierce County Real Estate will be a rewarding place to be in the coming years.  It's not as easy as it was 6 or 8 months ago but there's still some great bargains out there and with a second look at some of the lowest interest rates in decades the window is open to secure that move up home, first home or investment property. 

5 Data Points You’ll Want to Know and What’s Ahead!

With last week’s storms it appears the weather is starting to turn a corner and it seems the Pierce County Housing Market may be doing the same!  Take a look;

1. Inventory – EVEN with last year.
2. Closings – UP 27%. 
3. Months of Inventory – DOWN at 3.0.  It was 3.9 a year ago.
4. Median Price – UP 5.7%. 
5. New Pending Contracts – UP 11%

Sounds good, right!?  Yes, it has been good, however as we dig deeper there’s more to the story.  Pierce County prices in August were actually down from July by 6.3% and inventory was up for the 5^th month in a row.  Hmmmmm….  It is worth pointing out here that the media is working from July numbers so they are trumpeting a somewhat different tune. In July our market, along with the rest of the country, experienced the 6th month in a row of increased median price. As I began to elude in my report last month I’m suggesting our market is tempering. 

With recent interest rate hikes along with the increased inventory levels buyers have shown behavior more consistent with a slower or normalized market. They are taking action, but only on properties that are priced and groomed with the market in front of us.  The price gains we’ve seen will not  continue to runaway.  Both rising mortgage rates and slowly growing inventory will effectively tap the brakes on that trend. The good news is those factors keep us away from any “2^nd Bubble” talk!

Real Estate is still a great place to be as we move ahead. The July Home Price Expectation Survey of 100 top housing economists predict the national housing market to appreciate each of the next 5 years at an annualized rate of 4.7%.  The “pre-bubble” annual average was 3.6%. This quarterly survey is important because it is not just one economist making a prediction but an aggregate of over 100 economists, real estate experts and investment & market strategists.