A fascinating New York Times article yesterday called up the age old question: is it better to rent or buy? Typically the people who ask that are first-time home buyers, but it may be that folks sitting on big mortgages are starting to ask that question, too.
Conventional real estate wisdom was always that it would take two to five years to break even if you bought and had to sell again. Until the 1970's, people bought for a number of reasons not tied to economics and with the hope of someday owning their home free and clear.
But then we started to see steady and sometimes huge appreciation, and for many people, their home's growing equity exceeded their income. Putting it another way, a lot of people's disposable "income" has been coming from spending the wealth their homes were generating. Now, not.
Hence the question, is it better to own or should we give renting another look? The Time's article mentions cities and regions that have had a huge real estate drop after a huge bubble--some as much as 50% decrease from the top in 2007. Where that has happened, or where housing prices have been relatively stable, and using a clever formula, it shows that now is the time to buy, buy buy.
Seattle is listed as one of the areas where it doesn’t make sense to own. I applied the formula to my own home to get a sense of how it would work, and clearly someone would do better financially to rent it than to buy it. On the other hand, my son in Houston is in contract to buy a home there. The formula says he’s really smart to buy. (Divide the price of the home by the annual cost of rent and use the rule of 20. If the number you get is below 20, it may be better to buy.)
Why does Bainbridge Island score poorly in this equation? I think two factors are at work here: our rents have stayed low for years—seems like they've always been about a buck a square foot. That could change if an increased demand by renters drives up rents. Time will tell. Furthermore, we have a very stable population with values that would lead to home ownership, and those values are intangibles, not measurable in a formula, but important nonetheless.
But, consider someone in a 3,000 sqft home paying a $5,000 a month on their mortgage, taxes, insurance, repairs, upkeep, etc. Assume they've watched their equity disappear as the market value has dropped. Unfortunately, this isn't a rare situation on our Island. In this circumstance, it's probably tempting for a homeowner to want to sell, get out from under the debt, rent a similar home for $3,000 and pocket $2,000 a month in the process.
The Broker/Owner of my office, Jim Laws had this to say on the subject:
"There is the whole physiological side of renting vs. owning. For some (many?), having a base of their own is important. A home represents different things to different people, and for some it is more than simple dollars and cents or potential returns. Indeed, I have always felt the potential return was a side benefit to home ownership, not the only reason to own. I would venture to say that even if renting was a better short term financial decision, most would prefer to own their own home. It is a crazy world and having a place you feel is yours (even though the bank is your ever-present partner) brings a feeling that transcends purely financial considerations."
I'd love to hear others' thoughts on this subject.
Wednesday, April 21, 2010
Friday, April 16, 2010
Bainbridge Island condominium market showing signs of life, too!~
I had a friend and former client ask me how the condominium market looks on Bainbridge these days. There's lots of good news there. Most significantly, we currently have only 65 condos currently listed--that's down from 117 listed last summer. They range from $130,000 to $1.350 million on Shannon Drive. (There's also a boat slip listed for $76,000 which counts in the numbers as a condo.)
Even better news, as of this morning, we have eleven condos in contract with buyers. That's about double what we've been seeing in the last couple of years, and is welcome, to say the least. It's not surprising that the list prices are dropping in order to find the price buyers will respond to. I like to track original list prices and compare them to where the properties are listed when they get an offer. Condos currently in a Pending Status started with an average price of $516,000, but their average list price when the offers came in is $408,000. Days on market is consistently several months. For a condominium to sell quickly, it will have to be priced realistically at the time of listing, perhaps priced a bit below market, be in great condition, and listed in top showing condition.
We've sold 58 condos in the last year. With 65 currently listed, that means we have over a twelve-month supply, which is still solidly a Buyer's Market. The condo properties that have sold are averaging a selling price around 95% of the last list price, which is consistent with the residential/house market. It's unrealistic in this market to expect a full-price offer.
I think the best news for condominium owners who are thinking of selling is that residential properties--houses--are also selling now. Since most condominiums on Bainbridge Islandare sell to folks downsizing from houses with yards or large lots, it's great news that those properties are selling. We're starting to see a pool of ready buyers who have equity, good credit, but who know the market values and who will negotiate hard.
Wednesday, April 14, 2010
Bainbridge Island first quarter 2010 real estate report is looking up~
It's time to take a look at the real estate trends on Bainbridge for the first quarter of 2010. We've all been looking forward to this marker, to see what way the winds seem to be blowing for this new decade. The stats are in and here's the first look.
Positive sales indicators. I'm quite encouraged by the numbers from the first quarter of 2010. The month of March was the seventh in a row in which the number of closed sales surpassed the previous year’s. We ended the month with a whopping 57% more closed residential transactions (houses) than in March, 2009, (22 vs. 14.) This is an important market improvement that was seen island-wide across all types of real estate: condominium unit sales were up 50% (9 vs. 6,) and even land sales were encouraging (5 vs. 3.) Conventional wisdom would indicate that the number of sales must show stability and improvement before we can begin to claim any recovery. These latest stats are certainly pointing in that direction.
On the horizon. We get more good news when we look at homes under contract (pending sales.) We currently have forty pendings compared to 33 at this time last year. This signals that we'll have continued strength in closed sales, since we rightfully assume that most pendings will close. The inventory has grown some, but there is a nice balance between supply and demand. This greater inventory offers buyers more choices – essential in a weakened market – but not so many as to create a level of competition that results in severe downward price pressure. Most telling to me is the level of energy among the island's agents and brokers--we're busy, there's a positive buzz and we're excited to be able to help people again!
The money behind the market. We continue to see most of our activity in the upper and lower price points of our market--below $600,000 and above one million. Below $600k, buyers are often able to obtain a conforming loan (under $417,000,) which gives them a lower interest rate and less restrictive loan requirements. Also, we are seeing FHA loans being used, which have a ceiling of around $475,000 with a current 5.5% interest rate. We're also seeing some activity from the $8,000 tax-credit for first-time home buyers, although mostly from sellers who are seeking a "move-up" market. For high-end real estate transactions that exceed $1 million, we often see buyers offering all cash or large amounts of cash, requiring them to finance very little of the purchase. There's talk of interest rates continuing to rise, which could dampen the real estate recovery. The days of 4% loans may be over, but we've had years of a healthy real estate marketplace when rates are in the 6% range, and could do so again.
The low-down on prices. It's a hard pill to swallow, but we seem to have lost all the appreciation we built in the last several years. Our median price for homes right now is essentially at 2005 levels. From a seller’s perspective, that may be all right if they bought before then, and haven't refinanced. Folks who bought at the top of the market--between mid-year 2006 to 2007--are not able to recover what they paid, losing equity, and facing the risk of being "under water," owing more than they can sell their house for in today's market. We're still in a buyer's market, but prices are beginning to encourage people to buy. People who have been priced out of Bainbridge are seeing that now is a good time to make the move here. Folks who want one of our gorgeous waterfront or premier homes are deciding this is their opportunity.
Looking ahead. So where is all of this pointing us? Buyers are taking advantage of these favorable conditions and buying. Sellers have had enough time to adjust to the current economy, and are bringing their homes on the market at realistic prices. Our long-term regional economic and jobs forecast is positive. Bainbridge will always be one of the premier locales in the region, with one of the strongest housing markets. Time will tell how quickly our local recovery will take, but our current foundation is undeniably stronger than it’s been in recent years.
If you or someone you know is thinking of buying or selling, I would welcome the opportunity to chat and see how I can be of service. Also, I'm happy to simply draw up a current market price opinion for your home, with no obligation on your part, so that you can have a good sense of how the changes in our market have impacted your overall real estate portfolio. Just give me a call 206.713.7134. Cheers!
Positive sales indicators. I'm quite encouraged by the numbers from the first quarter of 2010. The month of March was the seventh in a row in which the number of closed sales surpassed the previous year’s. We ended the month with a whopping 57% more closed residential transactions (houses) than in March, 2009, (22 vs. 14.) This is an important market improvement that was seen island-wide across all types of real estate: condominium unit sales were up 50% (9 vs. 6,) and even land sales were encouraging (5 vs. 3.) Conventional wisdom would indicate that the number of sales must show stability and improvement before we can begin to claim any recovery. These latest stats are certainly pointing in that direction.
On the horizon. We get more good news when we look at homes under contract (pending sales.) We currently have forty pendings compared to 33 at this time last year. This signals that we'll have continued strength in closed sales, since we rightfully assume that most pendings will close. The inventory has grown some, but there is a nice balance between supply and demand. This greater inventory offers buyers more choices – essential in a weakened market – but not so many as to create a level of competition that results in severe downward price pressure. Most telling to me is the level of energy among the island's agents and brokers--we're busy, there's a positive buzz and we're excited to be able to help people again!
The money behind the market. We continue to see most of our activity in the upper and lower price points of our market--below $600,000 and above one million. Below $600k, buyers are often able to obtain a conforming loan (under $417,000,) which gives them a lower interest rate and less restrictive loan requirements. Also, we are seeing FHA loans being used, which have a ceiling of around $475,000 with a current 5.5% interest rate. We're also seeing some activity from the $8,000 tax-credit for first-time home buyers, although mostly from sellers who are seeking a "move-up" market. For high-end real estate transactions that exceed $1 million, we often see buyers offering all cash or large amounts of cash, requiring them to finance very little of the purchase. There's talk of interest rates continuing to rise, which could dampen the real estate recovery. The days of 4% loans may be over, but we've had years of a healthy real estate marketplace when rates are in the 6% range, and could do so again.
The low-down on prices. It's a hard pill to swallow, but we seem to have lost all the appreciation we built in the last several years. Our median price for homes right now is essentially at 2005 levels. From a seller’s perspective, that may be all right if they bought before then, and haven't refinanced. Folks who bought at the top of the market--between mid-year 2006 to 2007--are not able to recover what they paid, losing equity, and facing the risk of being "under water," owing more than they can sell their house for in today's market. We're still in a buyer's market, but prices are beginning to encourage people to buy. People who have been priced out of Bainbridge are seeing that now is a good time to make the move here. Folks who want one of our gorgeous waterfront or premier homes are deciding this is their opportunity.
Looking ahead. So where is all of this pointing us? Buyers are taking advantage of these favorable conditions and buying. Sellers have had enough time to adjust to the current economy, and are bringing their homes on the market at realistic prices. Our long-term regional economic and jobs forecast is positive. Bainbridge will always be one of the premier locales in the region, with one of the strongest housing markets. Time will tell how quickly our local recovery will take, but our current foundation is undeniably stronger than it’s been in recent years.
If you or someone you know is thinking of buying or selling, I would welcome the opportunity to chat and see how I can be of service. Also, I'm happy to simply draw up a current market price opinion for your home, with no obligation on your part, so that you can have a good sense of how the changes in our market have impacted your overall real estate portfolio. Just give me a call 206.713.7134. Cheers!
Bainbridge Island's neighborhood shops are exemplary!~
We're fortunate to have a number of great organizations on Bainbridge Island run by our friends and neighbors who are invested in making our world a better place. One of the finest is YES! Magazine, co-founded by David Korton and Sarah Ruth van Gelder. As they say about themselves, YES! Magazine is "an award-winning, ad-free, nonprofit publication that supports people’s active engagement in building a just and sustainable world. The heart of our work is to spotlight practical possibilities for deep shifts in our society."
A recent YES! article on the effects of public policy on neighborhood businesses discusses what has been lost in most of America in the last century as small businesses have closed and big box stores and malls have taken their place. The article by Staci Mitchell makes the claim that neighborhood business slow the pace of life and encourage people to get to know each other.
She writes, "...spend some time watching people in a neighborhood business district or on a high street. What you see is lots of interaction. Business owners know their customers; people run into neighbors on the sidewalk or while waiting in line at the bakery. This is an environment that slows the pace of life and encourages people to loiter and converse."
I see that every day on Winslow Way, at the Lynwood Center shops and movie theater, Rolling Bay and other areas around the island. It's life as usual on Bainbridge to know a shop's history, the name of the owner and who is waiting on you at the counter--and who is waiting in line behind you. How many towns have a vintage 1930's movie theater where you know the name of the 60+ year-old man who painted the stars on the ceiling when he was a lad; where the movies are introduced with wit and a critical eye by the proprietor standing at the front of the house; where you know that she's showed amazing poise and courage when she introduced a movie about the war in Iraq while her own son was at the same time deployed there.
That's life on Bainbridge island. It's great.
A recent YES! article on the effects of public policy on neighborhood businesses discusses what has been lost in most of America in the last century as small businesses have closed and big box stores and malls have taken their place. The article by Staci Mitchell makes the claim that neighborhood business slow the pace of life and encourage people to get to know each other.
She writes, "...spend some time watching people in a neighborhood business district or on a high street. What you see is lots of interaction. Business owners know their customers; people run into neighbors on the sidewalk or while waiting in line at the bakery. This is an environment that slows the pace of life and encourages people to loiter and converse."
I see that every day on Winslow Way, at the Lynwood Center shops and movie theater, Rolling Bay and other areas around the island. It's life as usual on Bainbridge to know a shop's history, the name of the owner and who is waiting on you at the counter--and who is waiting in line behind you. How many towns have a vintage 1930's movie theater where you know the name of the 60+ year-old man who painted the stars on the ceiling when he was a lad; where the movies are introduced with wit and a critical eye by the proprietor standing at the front of the house; where you know that she's showed amazing poise and courage when she introduced a movie about the war in Iraq while her own son was at the same time deployed there.
That's life on Bainbridge island. It's great.
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