For first-time home buyers Vince Matthews and his wife, the time to purchase their dream home in Seattle’s inner city was ripe, but as they soon realized, the process was no mean feat.
Their first offer was turned down, as other buyers outbid them. They then made an offer on another house, but backed out later after discovering the foundation needed work. The couple finally got their hands on another property and quickly sealed the deal by offering a 5 percent premium over the list price.
Such activity by first-time home buyers is becoming commonplace in the home of Amazon, Boeing and Microsoft.
Thanks to rock-bottom prices, historically low interest rates, brighter job prospects and pent-up demand, the Northwest real estate market has seen a promising pickup in 2012.
Pending home sales in the Seattle area were up 21.9 percent in February 2012from a year ago, while closed sales were up 10.2 percent, according to the Northwest Multiple Listing Service.
There are more people buying houses this year compared to last year, says broker Steve Kennedy of RE/MAX Metro Realty, referring to Seattle’s inner city, especially for houses priced around $500,000 and below.
“That price range, and under, is on fire. Everything’s selling,” he adds.
Bidding Wars Keep Seattle Prices Afloat
An uptick in demand for inner-city homes and low inventory have driven many deals above their asking prices. The median price in the Seattle-area rose for the first time since October 2010 to $365,000 in February, representing a 2.8 percent increase from a year ago, as inventory levels skidded to a five-year low, the multiple listing servicereport showed.
“I’ve seen a lot of multiple offers. They may start low but multiple offers are driving prices up,” said Maggie Mallett, an agent with Windermere Real Estate in Seattle.
Fellow Windermere broker Gloria Jackson said she had seen more than a dozen offers for houses that were priced well and were in great condition.
“I’m shopping for a young couple in the $500,000-600,000 range and everything I’ve looked [at] in the last month was sold within three to six days,” Jackson says. “That tells me if it goes from active to pending with multiple offers, it probably went over the asking price.”
This marks an improvement from the recently released Case-Shiller Index, which showed a broader 0.7 percent dip in state-wide prices in January. Though it was the sixth-straight monthly decline, it was about half the size of the fourth-quarter drop. The scope of the index includes a wider geography and accounts for more bank-owned properties and short sales, which in turn, depresses aggregate prices.
Home buyers are now competing for good, quality houses that have either been remodeled to move-in condition, or are newly built.
“No one wants a fixer anymore. They want it done and they’re willing to pay a premium for it because they can get low financing,” says Dan Duffus, co-founder and CEO of construction lender Blueprint Capital.
The Seattle-area has seen surprise price stability in the last quarter, if not a marginal amount of price growth, observed Matthew Gardner, principal of Gardner Economics.
“Do I think that we’re forming a bottom now? Yes I do,” he says.
Gardner, who is also the in-house economist for the Master Builders Association of King and Snohomish counties, is forecasting a 1.6 percent increase in home prices in Seattle this year.
Flat Outlook for Portland Prices
As for Portland, Gardner is slightly less upbeat as he expects home prices to be flat this year, even if activity is up.
The median sale price in Portland dipped 1.3 percent to $211,000 in February 2012, though, the average price edged up 4.3 percent, according to a report by Portland's Regional Multiple Listing Service.
Also notable was a drop in inventory levels to 6.5 months in February from 7.0 the month before, the lowest February inventory since 2007.
Pending home sales were 26.3 percent higher thana year ago, while closed sales were up 17.9 percent.
Despite softer home prices, the city whereInteland Nikehave major operationshas not seen as many first-time home buyers enter the market place.
“What we’re seeing is the return of the investor,” says Charles Turner, principal broker of the Turner Team for Atlantic & Pacific Real Estate. Houses used to take 160 days to sell, but that has now improved to 136 days, Turner says.
The beginnings of new construction can be seen in some city neighborhoods, Turner notes. “Things are breaking ground.”
Seattle Job Growth Attracts Developers
Investor interest is also apparent in Seattle, where leading developers such as Toll Brothers have set up shop in the Northwest through acquisitions of local builders.
“Almost a third of all purchases last year were in cash,” says Gardner. “That tells me a lot of investors are getting into the market place.”
Rising investor interest signifies a notable change in confidence about the real estate market in the Northwest. The early signs of economic stability have become more pronounced in Seattle as job security improves, thanks to increased hiring by the big employers.
In February, Amazon announced plans to purchase three office towers near downtown Seattle, which could add 3.3-million-square-feet worth of office space and possibly bring in tens of thousands of jobs to the city.
“Job growth in Seattle appears to be coming back, and the expectations are higher here for increased jobs as we go forward,” Gardner adds. “Investors look at the longer term.”
The state of Washington added 62,500 net jobs in the 12 months through January 2012, lowering the unemployment rate to 8.3 percent from 8.6 percent in December 2011.
While the unemployment rate in Portland has also declined, Gardner believes the city will see fairly anemic job growth.
“Employment expectations in Seattle are higher than in Portland,” he says. “That’s going to hamper any demand for new single-family housing.”
Shrinking Inventory Spurs New Construction
The biggest issue facing the Northwest continues to be the overhang of inventory, as the number of houses that have yet to be foreclosed still has not been released to the market. In addition, sellers are playing the waiting game as many now perceive things are turning around and are willing to wait for better prices.
“There’s not enough supply to meet demand right now,” says Mark Knoll, Blueprint’s co-founder and CFO.
As Seattle developers crank out new homes in an attempt to meet that demand, Blueprint has seen the dollar volume of its construction loans double in 2011.
According to Knoll, 87 percent of their loans represent new construction, out of which 70 percent are focused on single-family residences and 25 percent on multi-family homes.
Potential home buyers can expect to see more multi-family projects going forward, notes Duffus, as the glut of legacy projects left behind by builders that went bust have dried up in the last four-to-five years.
“There’s not a lot of inventory [in the town-home market]. Everything is getting snapped up pretty fast,” says Knoll.
With Seattle’s population projected to grow nearly 3 percent next year and inner-city prices starting to creep up, the Northwest real estate market is in for a positive change in 2012.