King County, Seattle, and Bellevue Real Estate Blog

- In regards to unemployment: The Labor Department reports that initial claims have dropped 3,000, the third straight month claims have dropped, to a seasonally adjusted 456,000. However, claims haven't moved below January's levels.

Additionally, the amount of laid off workers continuing to claim jobless benefits saw the largest decline in nearly a year. Unfortunately, the Labor Department said that state agencies didn't provide any explanation for the drop, meaning we aren't sure if the drop is the result of laid off workers hitting the end of their initial state benefits.

It's hard to get a good grip on progress with last month's numbers, but things seem to be pretty flat at surface level.

- In regards to U.S. exports and the global front: The Commerce Department said the U.S. trade deficit rose to the highest level in 16 months as exports fell for the second time in three months. The concern here is that weakening U.S. sales overseas could stymie job growth.

One bright spot is that China's exports jumped 48% in May. China's exports are heavily dependent upon the 27 nation European Union, and this jump in exports provides some relief to the fears that the EU's troubles will halt a global economic recovery.

- And in specific regards to real estate: The expired first time buyer tax credit, as expected, has slowed real estate activity as applications for mortgages fell last week to the lowest level in 13 years. On the flip side, 30 year fixed mortgage interest rates nearly hit a record low when they dropped again to 4.72 (the record is 4.71). In one of my previous posts I used a marathon runner analogy to describe the expiring tax credit, and so far it is holding true. After the end of the marathon, which was the lead up to and the end of the expiring tax credit, we have certainly taken a break from all the running. How hard the runner gets back to training (aka how strongly the real estate market continues to rebound) will be highly dependent upon job growth in the coming months. Traditionally speaking, real estate activity does pick up in the summer months, so that and low interest rates should help keep things moving along.

In related news, the foreclosure crisis seems to be leveling off nationally, though reports show it is still climbing in the Seattle area. Because of our unique market, it took a bit longer for Seattle to really feel the effects of the recession, so I'm not surprised to see we're lagging a bit. We are going to continue to see foreclosure activity burden real estate prices as the banks release inventory and the lag effect of layoffs on missed payments takes its toll. But, the fact that the number of homeowners just starting to show trouble is trending downwards is a very positive sign.

 - So what do I make of all of this? To me this is just more of the same... some good here, some worry there, some more good over here, but some lingering concerns over there. At the end of the day my stance is the same; the real estate recovery is going to be a longer, flatter recovery. There's going to be a little up here and a little down there, which is fine by me as long as the general trend is in a positive direction.

Ultimately, while it is a great time to buy thanks to low prices and low rates, it's a time where buying means you should plan to hold onto the asset for more than a couple years. That shouldn't be news or a surprise to anyone... accumulating and holding real estate is how the wealthy pad their retirement. Put it this way, how many other investing avenues do you know of that can put money in your pocket each month (positive rental cash flow) while yielding an ROI that can easily be ten times that of stocks and bonds (thanks to the power of leverage)?  Need an example?

    - Example A: Buy a $250,000 house with 20% down ($50,000). At worst breakeven each month on your rent compared to your mortgage payment. Sell the home in 7 years at around $350,000 (based on an average annual appreciation of 5%, which is a safe estimate). After closing costs net a profit of around $75,000... that's a return on your original $50,000 investment of 150%. I haven't even included the tax advantages in this highly simplified example.

    - Example B: Now compare that to a $50,000 investment in stocks, mutual funds, etc. Using a generous 7% annual return, that $50,000 will have only made you roughly $30,000 over seven years, or an ROI of 60%.

I went on the safe side with example A and went on what is probably the generous side with example B (depending on the individual's portfolio). Still, a $50,000 investment in real estate returned the investor $45,000 more than they would have gotten with the stock market (and that excludes any positive monthly cash flow the investor should get).

I'm a big fan of having a diverse investment portfolio and I'm not saying stocks, mutual funds, and bonds shouldn't be a part of your portfolio. What I am saying is real estate should be a part of your portfolio and retirment plans.

The Seattle Police Department has released a new interactive map website that shows where crime happened and what type of incident it was.

The incident image, for example, is a set of handcuffs if someone was arrested, a vehicle if it was a car prowl, or a fist if it was an assault.

Users can create an account with Seattle.gov to download additional information, but my playing around with it hasn't gotten me as much info as I would like.

Overall, this is a neat tool for homeowners who are curious what's going on in their neighborhood, and also for home buyers who want to get an idea of the crime activity around a home they are interested in.

Check it out for yourself at http://web5.seattle.gov/mnm/policereports.aspx

Posted By: Robert Wasser - Bellevue, Seattle, and King County Real Estate Blog

I just read a couple articles saying that new homes sales dropped 33% from April to May to the lowest sales pace since 1963. So I'm thinking to myself, yeah, the tax credit expired so this shouldn't come as a big surprise. This obviously isn't good, but the drop was expected. Really, I am more interested in how the next 2-4 months go in terms of price stabilization, and more importantly how the job market fares during that time span.

What the article didn't stipulate was whether it was closed sales or pending sales. Surely they are talking about pending sales which did indeed dip significantly in our area, but did you know that closed sales for King County were up in May compared to April? Yep. Both the median and average prices of homes rose as well.

So anyways, we take this news on the chin but keep our head up. Time will tell what it all means... maybe a portion of the drop can be attributed to less short sale contracts that have a much lower likelihood of ever closing? I won't be surprised if we find out next month that closed sales didn't drop as significantly as pending sales did the month earlier.

I've said it before and I'll say it again, the speed and success of the real estate market turning around is highly dependent on getting Americans back to work. The first time buyer tax credit simply helped try to smooth real estate's inevitable drop back to reality while encouraging consumer confidence. It's done that, but at the end of the day employment is about the biggest factor in whether we pull completely out of the recession.

So to me, today is not that different from yesterday in that the coming months will be very telling of whether real estate prices stay relatively flat as they've been for months now, or whether we see a bit of a double dip. We all expected home sales to dip following the tax credit, what we have to hope is for employment figures to get better.

It sounds like my marathon runner analogy is rounding into form... mortgage applications jumped almost 18% from last week, a sign that the real estate market might be stabilizing after last months drop after the expiration of the first time buyer tax credit.

Mortgage applications include applications for refinancing, and that made up almost 75 percent of all the applications. Interest rates are near all time lows on 30 year fixed mortgages, so not much of a surprise that homeowners are taking advantage of it.

The best news in the report is that remaining applications for new home purchases jumped 7% from last week, the first rise in 6 weeks (the end of the tax credit)! We all expected a bit of a dropoff after the tax credit expired, but market experts pointed to great interest rates and low priced homes as reason to think we would avoid a double dip in the real estate market.

We'll monitor where we go from here, but this is along the lines of what I expected and a great start towards sustaining the real estate recovery.

- Robert E. Wasser, Prospera's Seattle Real Estate Blog

After three straight declines, the number of people filing for jobless benefits rose by 12,000 last week to a seasonally adjusted 472,000.  Obviously, no one was happy to see this but I'm not going to commit to anything beyond speculative fear for now.

I've been saying for some time now that the health of the real estate market will depend highly on getting the jobless ship turned around (not to mention the recovery of the economy as a whole). But, you've also likely taken notice that I talk about our real estate recovery as a generally flat to positive trend, and this for now is no different.

Check out this chart and you can see the trend plain as day (this chart ends in April which is about where we stand today):

The bottom line is that no one wants to hear jobless claims rose, but the fact of the matter is that it rose after 3 weeks of declines. I'll take a 75% clip because that forms a positive trend... give me anything below 50% and I'll worry more. Needless to say, I'm interested to see how the coming weeks and months go to make sure we avoid a double dip.

After falling considerably over the second half of 2009, first time jobless claims have hovered near 450,000 since the beginning of the year. Economists say not to expect sustained job creation until we get below 425,000 each week, so keep that number in the back of your head.

The state Employment Security Department, in its monthly report, said that Washington State's unemployment rate dropped from 9.3% to 9.1% in the month of May. This marks the fourth month out of the last five months that Washington has added more jobs than lost.

Of the 8,600 jobs added last month, 8,100 were temporary census workers, so it was a net gain of only 500 discluding census workers. Still, it was a gain and I'm happy to see what is shaping up to be a trend that is in the flat to positive range as opposed to a negative trend.

In regards to the particular fields... construction added 800 jobs, retail added 600, and professional and business services added 800. On the opposite side, financial services cut 1,100 jobs, accommodation and food services cut 600, aerospace manufacturing cut 500, and transportation and warehousing cut 400.

Overall unemployment figures across the state are very mixed county to county. The Seattle Metro area dropped from 8.5% to 8.4%. Both Clark and Ferry counties had the highest jobless rates at 13%. San Juan and Whitman counties had the lowest rate at 6%.

Overall, I'm happy to see the trend working in the correct direction. Getting unemployment turned around will play heavily on the rate at which the real estate market recovers.

Just thought this was useful info for a lot of us...

After years of having a WiFi pay service through AT&T, Starbucks is finally set to provide free WiFi at all of its company operated U.S. locations (about 6,700 locations).

Starbucks continues to rebound from some trouble years as it reported its first quarterly increase in customers in 13 quarters. A good friend of mine, who previously worked on local McDonalds marketing campaigns, always kept me well aware of what McDonald's revamped coffee offerings were doing to Starbucks. So, it comes as no surprise to me that Starbucks is now offering free WiFi just six months after McDonalds began offering free WiFi at 11,500 locations.

Komo News ran a story this morning about it.

Consumer confidence jumps to a nearly two and a half year high in June, rising to 75.5 and beating expectations.

I really like to see news like this. As we continue the arduous process of rebounding from the worst recession since the 1930's, the media hits us with different polls about this, or different news about that. I've certainly taken notice to the up and down swing of the news, and anyone who watches the stock market knows exactly what I'm talking about.

But, in the end, there is no better news to my ears than hearing people think things are getting better (well, good job growth would be better). Beyond what the news tells me, I have personally been taking notice to what seems like a growing trend of consumer confidence and thus spending... strip malls and shopping centers I routinely drive by have more and more cars parked in them as each month passes.

Additionally and correspondingly, the barometer of current economic conditions rose to 82.9 in early June, the highest it's been since March, 2008. The barometer of current expectations also edged higher to 70.7, the highest it's been since September, 2009.

There was an interesting Seattle Times article the other day about a new website Microsoft is launching called Microsoft Hohm.  The website is supposed to help people monitor their energy use and find ways to cut costs.

On the site, users can enter information about their home (heating system, type of thermostat, etc) to make it specific to their home.

The site has been around for about a year now and Microsoft has been slowly ramping it up... it hit the Seattle Time's real estate section last week because they have just added real estate data to it. Now, Joe Anybody can pop in their street address and get a general feel for how they stack up against other homes in the area and potential savings they can get by being more efficient.

Anyways, just something I found interesting.  Check it out yourself at www.microsoft-hohm.com

The amount of sales in May hit the highest level we've seen since August 2007 (right when the bubble went "pop") as a large chunk of first time buyers closed on purchases they got under contract in April.  Not surprisingly, pending sales for the Month of may saw a sharp decline dropping 39% from April and 20% from May of last year.

The good news is that the first time buyer tax credit did it's job by stimulating the housing market and thus stimulating the economy. Moreover, both the average and median value of King County homes sold in January is nearly identical to May. Going back even further to May of 2009, the same holds true. The news reports all these different stats for this month or that month, but what's seemingly been missed is that home values have essentially bottomed out in King County for over a year now.  There's been a little up here and a little down here, but the overall trend has been flat. 

Don't believe me? Check out this chart I created for sold, King County single family homes...

Again, this is King County as a whole. Meaning, some neighborhood values have gone up while others have continued to weigh on the overall numbers.

In regards to the dropoff in pending sales, I liken that to a marathon runner who just crossed the finish line... you better believe that marathon runner isn't moving anywhere fast after the long stretch. They'll probably rest a bit, but soon enough that runner is going to get back to jogging.

In the case of our real estate market, industry professionals are optimistic that we'll get back to jogging thanks to growing consumer confidence, low interest rates, good buys, etc.  I keep saying this is no surprise to me because no one expects our real estate market to just take off; we all think a slow sustained recovery is likely. To me, that will look a bit choppy in regards to reported statistics because along with the positive factors, we have some negative factors (i.e. shadow inventory from banks) that will likely keep us relatively flat for a while.  Some neighborhoods have seen home values climb for almost a year, while others are continuing to struggle due in large part to foreclosure activity. Point being, there's going to be a bit of a give and take as we continue our climb back to normal.

This doesn't bother me.  What will bother me is if companies do not start hiring as we move out of this recession.

Ultimately, the sustainability of our real estate turn around is highly dependent upon the job market.  Needless to say, I'll be keeping an eye on those numbers...

In the meantime, buyers should enjoy low prices and low rates while being realistic about home values.  As in, be prepared to own the home for at least a couple years. If you think there's a chance you might want to move out any earlier, then we need to have carefully considered a backup plan. For example, will the amount of your monthly payment allow you to rent the home out so you can keep your asset?

As always, I'm happy to talk more specifically about your housing goals and needs if you have questions...

Lloyd Hara, the King County Tax Assessor, has found no "sweeping error or oversight" in property assessments and will not collect back taxes even if he finds some property has been undervalued.

He goes on to say, "We all know King County is in a financial pinch, but this office, while I'm assessor, is not going to be nickel and diming every taxpayer in some crazy attempt to balance our budget. We can do better than that."

Let me be the first to say what a breath of fresh air that sentiment is. My last few posts have definitely held some undertone about our pockets being picked, so I am very appreciative of Lloyd Hara's response.

(More can be read on this Seattle Times Article)

The Seattle Times published an article today about King County Assessor Lloyd Hara studying whether thousands of properties have been significantly undervalued for tax purposes.  Moreover, the study stems from the idea that the county may be able to bill the homeowners for the difference to help offset next year's $60 million budget deficit. Awesome.

Apparently there are some things that could get in the way of it in the legal realm, not to mention the public outcry there would be from appalled homeowners already dealing with a significant drop in their property values.  Check out the Seattle Times article here for more info.

Upon reading this article I had to laugh... I think because being upset with the general trend has left me no other option than to resort to a healthier laughter.  But mostly, it just seems more and more apparent that elected officials don't think the actual budget is the problem, it's just that we're not paying enough.

The Seattle City Council is hurrying to establish a new rental inspection program before June 10th, 2010.

The issue at hand is that some tenants are living in bad conditions.  Currently, living conditions issues are handled through a tenant complaint based system, but proponents of this bill argue that they are afraid to complain because they fear landlord retaliation, have language or cultural barriers, or don't even know they can complain.

Ultimately, requiring mandatory inspections will cost landlords a pretty penny because someone will have to pay for layers upon layers of a city run agency.  Owning a rental property already has a tight margin for many landlords, so I won't be surprised if this leads to higher rental rates for tenants.

Seattle Mayor Mike McGinn has continued his pledge to "ask tough questions," and supports requiring landlords to be physically licensed with the city.  More information on McGinn and the city council's stance can be found in a letter titled "Why we support better rental housing inspections" on McGinn's website.

The truth in the matter is that there are very few tenant situations that merit something needing to be done.  I'm all for a landlord needing to provide good living conditions for tenants, but I'm just not convinced this is the best method of doing so.

There are always two sides to an argument, and I certainly understand that tenants not using the current "complaint based" system is a valid point. I also can't help but think this looks a lot like Seattle officials trying to find more income streams to help offset their budget deficit.  And if I know one thing, once they have you in their grips, they never let go.

Again, I'm not trying to ruffle any feathers here because I know there are landlords who are giving the rest of the bunch a bad name.  The complaint based system isn't perfect.  All I'm saying is watch out landlords and tenants, because someone will have to foot the bill if this gets passed...

(Those of you who want to read a little more can check out this recent Seattle Times article).