Central Puget Sound Market Watch

*The Sound by P Donald Ray Purdy, used with permission

Central Puget Sound Market Watch First & Second Quarter 2012

F orward

SEATTLE METRO | DOWNTOWN SEATTLE | EASTSIDE | BAINBRIDGE ISLAND

W

hat a difference a year makes. Puget Sound real estate observed a positive shift during the first half of 2012 compared with the same period in 2011. Inventory levels are clearly dwindling and sales volumes are rising in virtually every neighborhood from sea to sky.

For the Greater Seattle / Bellevue / Bainbridge Island statistical area, new listings have dropped by an average of 18% while both pending and closed sales have increased by 15% accordingly. The number of homes for sale has declined a whopping 34% with the total months of supply now hovering around six months (at current supply and absorption rates). Our brokers report this balanced marketplace finds buyers and sellers on an equal footing in most markets albeit at reset prices. This is our “new normal”. But an imbalance of supply and demand tips in favor of sellers within the urban markets close to job centers, along key arterials and within transit-based developments. Median home prices in the city are finally beginning to rise and buyers are feeling a greater sense of urgency to own vs. rent. That combined with a dearth of new construction deliveries has sparked the next development cycle, most notably in downtown Seattle. This may be the anatomy of our housing recovery and the trend is expected to radiate outward as the Great Recession recedes.

Buyers and sellers simply learned how to find the market – together. Between 2008 and 2011 our industry was in part affected by emotionally “over-correcting” homebuyers sitting on the fence and “unrealistic” sellers creating a self-fulfilling prophecy about a declining housing market. By 2012 the divide over values narrowed and there was greater accord on the trajectory of the marketplace resulting in sales.

Offered at $7,900,000 MLS# 366750

“After four years of market turbulence we’re glad to see logic has finally replaced fear in most consumers.”

It helps too that the shellshock of distressed real estate has diminished considerably. Bank-owned real estate (REO) and short sales were once half of the sales volume in many neighborhoods. Nowadays this segment represents just 10-15% of the marketplace overall so with fewer supply surprises, the market is more logical and can heal. The consensus at Realogics Sotheby’s International Realty is that we’ve moved past the “must sell” phase of this recovery.

In fact, rising demand and the stabilization of home prices has many

S&P/Case-Shiller Home Price Index Metro Area Comparison (2003 - YTD 2012)

Dow Jones Average vs. Consumer Confidence Index

250

14,000

200

13,600

150

13,200

100

12,800

50

12,400

0

12,000

Seattle

Composite-10

Composite-20

Information Sources: S&P/Case-Shiller, NWMLS, Trendgraphix, Consumer Confidence Index, Realogics, Inc. While information is believed true, no guarantee is made for accuracy.

75 70 65 60 55

Dow Jones Average

Consumer Confidence Index

Central Puget Sound Market Watch Page 2

First & Second Quarter 2012

would-be sellers holding back inventory in anticipation of further price recovery. Other sellers simply price that expectation in and are increasingly finding success. To be sure, the S&P / Case-Shiller Home Price Index suggests median home prices of resale homes in the tri-county area reversed its downward trend (as of May 2012) rising for the second straight month after seven months of declines prior. And the Northwest Multiple Listing Service says that King County is experiencing “our best housing market in five years”.

In June, median home values increased 10.1% (the third straight month of improvement), according to their latest report.

Still the question lingers – is this a sustained rally in the making or just a Spring sales surge reacting to rather anemic inventory?

Seattle | Eastside | Bainbridge Island MSA Listing Activity 8000

7568

Much depends on the headlines given that consumer confidence has been so critical to our economic recovery. The Dow Jones Industrial Average and The Conference Board Consumer Confidence Index have been volatile in recent months (thankfully real estate is a local business). Washington State has regained more than half of the 205,000 jobs lost during the recession (in part due to local economic engines like Boeing and Amazon to name just a few expanding companies). And we’re enjoying one of the best natural advertisements found anywhere in the US – summertime in Puget Sound. The demand pool is also expanding – relocation buyers, property investors and second home ownership are all on the rise.

After four years of market turbulence we’re glad to see logic has finally replaced fear in most consumers. Timing the market now may have more to do with securing preferred selection and locking in record low interest rates than assuming home prices will continue to correct. That said a lack of inventory will most likely slow down sales ahead.

7000 6000 5000

4979

4000 3000

2272

With Best Regards,

2678

2000

1764

1533

1498

1302

1000 0 Avg. Total Listings / Mo.

Avg. New Listings / Mo.

2012 Jan. - Jun. Listing Activity

Avg. Pending Avg. Closed Sales Sales / Mo. / Mo.

Dean Jones, Owner & CEO Realogics Sotheby’s International Realty

2011 Jan. - Jun. Listing Activity

Browse all NWMLS listings and learn more about the market at RealogicsSothebysRealty.com

Central Puget Sound Market Watch Page 3

First & Second Quarter 2012

s eattle Metro

NORTH SEATTLE | DOWNTOWN | CENTRAL | WEST SEATTLE | SOUTH SEATTLE | VASHON ISLAND

T

he Greater Seattle housing market has rebounded notably with a 13% increase in sold listings, an 18% decline in new listings and a resulting 38% decline in the total housing stock for sale. Median home prices increased nearly 2% year-over-year for the Q1/Q2 period in 2012 and more recently this upward trajectory has been steepening. An increase in single-family home sales has added greater liquidity to the marketplace. Hopefully this encourages sellers to consider listing their home after years of patiently waiting for values to stabilize.

Perhaps the greatest consideration for buyers to choose a new community in the Seattle area is the impact of rising commute times. The city center is already home to nearly half of the office space in the Puget Sound region so with more than 225,000 jobs downtown the mounting traffic continues to challenge the transportation infrastructure. Analysis by Tom Tom Traffic Study reveals that Seattle has advanced from #12 to #4 for the worst traffic congestion in the nation. Since the tolling of SR-520 and the added congestion on I-90, more and more residents living on the Eastside that work in Seattle are choosing to relocate. There’s a price for convenience as neighborhoods closest to the city center (such as Greenlake, Ballard and Queen Anne) are experiencing the most competitive buyer environment and rising median home prices.

Q1-2 Averages Seattle Metro

2012

2011

Q1-2 Averages

YOY Change Q1-2 2012 vs. Q1-2 2011

Seattle Metro

2012

YOY Change

2011

Q1-2 2012 vs. Q1-2 2011

For Sale

2062.83

3359.83

-38.60%

Avg. Active Price

635.50

554.50

14.61%

New Listing

1068.17

1301.33

-17.92%

Avg. Sold Price

417.17

424.17

-1.65%

Sold

727.33

644.00

12.94%

Avg. Sq. Ft. Price

231.67

235.50

-1.63%

Pended

832.33

754.17

10.36%

Sold/List Diff. %

97.67

96.00

1.74%

3.12

5.57

-44.01%

Sold/Orig LP Diff. %

94.33

92.00

2.54%

2.62

4.52

-42.07%

Days on Market

61.33

69.67

-11.96%

35.40

19.02

86.15%

Avg CDOM

84.33

106.67

-20.94%

40.55

22.40

81.03%

Median

356.00

349.50

1.86%

Months of Inventory (Closed Sales) Months of Inventory (Pended Sales) Absorption Rate (Closed Sales) % Absorption Rate (Pended Sales) %

Browse all NWMLS listings and learn more about the market at RealogicsSothebysRealty.com

Central Puget Sound Market Watch Page 4

First & Second Quarter 2012

D owntown seattle

DENNY REGRADE | SOUTH LAKE UNION | BELLTOWN | CENTRAL BUSINESS DISTRICT | PIONEER SQUARE

T

he challenge with high-rise housing is demand can rise much quicker than supply. Such is the case in downtown Seattle where the recovering real estate market (both for condominiums and apartments) has met with a dearth of new construction since the development pipeline got pinched in 2007. Having experienced four years without any new for-sale housing being developed in the city center we now expect the same vacancy of new inventory until perhaps 2015 when just one new high-rise condominium is anticipated to arrive.

Apartment construction has been very robust with more than 3,000 new apartments in the pipeline as developers chase rising rental rates that can range between $2.50 to more than $3.00 per foot per month. Many renters are now opting to buy given the historically high affordability thanks to record low interest rates and corrected home prices.

The in-city condominium market, which had once experienced spectacular price corrections (from presale values) of up to 40% in new construction towers, high-profile auctions and a handful of foreclosures in past years, has clearly rebooted. The total inventory (including new and resale condominiums) has plummeted nearly 50% from a year ago and both sold and pending sales have trended at their highest levels in the past three years. Median home prices have demonstrated this stress on supply and several new construction towers that had dropped prices have begun to raise them again.

The most notable trend is the “flight to quality� as a recent run on penthouses and west-facing (view protected) condominiums have nearly sold out. Since March 2012 there have been eleven such penthouse sales resulting in more than $26 million in real estate transactions.

Overall downtown Seattle has experienced population growth of 77% since 1990 compared with just 19% citywide for the same period.

1200 1000

Q1-2 Averages Downtown Seattle

YOY Change

2012

2011

Q1-2 2012 vs. Q1-2 2011

For Sale

148.50

264.17

-43.79%

New Listing

64.67

83.83

-22.86%

Sold

42.33

37.83

11.89%

Pended

46.33

44.00

5.30%

4.23

7.20

-41.20%

3.60

6.07

-40.66%

29.08

14.22

104.57%

31.60

16.65

89.79%

Months of Inventory (Closed Sales) Months of Inventory (Pended Sales) Absorption Rate (Closed Sales) % Absorption Rate (Pended Sales) % Avg. Active Price

1056.50

884.33

19.47%

Avg. Sold Price

552.50

519.33

6.39%

Avg. Sq. Ft. Price

494.33

490.83

0.71%

Sold/List Diff. %

95.33

94.17

1.24%

Sold/Orig LP Diff. %

92.50

91.50

1.09%

Days on Market

83.17

84.00

-0.99%

Avg CDOM

138.00

125.00

10.40%

Median

405.83

389.67

4.15%

New Construction Condominium Pipeline (Supply & Demand) Only 134 New Condominiums Remain Available In Downtown Seattle

800 600 400 200 0 2000

2001

Closed Sales

2002

2003

2004

Pending Sales

2005

2006

2007

Unsold Inventory

2008

2009

2010

2011

Conversion to Apartment

2012

2013

2014

Project Foreclosure

2015 Planned

Central Puget Sound Market Watch Page 5

First & Second Quarter 2012

E astside

BELLEVUE | KIRKLAND | MEDINA | NEWCASTLE | SAMMAMISH | REDMOND | WOODINVILLE | ISSAQUAH

A

shortage of inventory is again noted on the Eastside, especially for attractive family homes in West Bellevue and Mercer Island priced below $1 million. Overall, the total housing stock of for-sale properties has declined 32% in the broader region. New listings have been added at a rate 13% below the same period in 2011 while sold and pending activity has increased 17% and 19%, respectively. While the Q1/Q2-2012 statistics reveal a median home price correction of 4% a spot check of more recent sales activity in June 2012 suggests median home prices have begun trending upwards through the spring and are effectively flat compared with June 2011. Meanwhile condominium sales in downtown Bellevue have been playing catch up with the considerable supply developed during the past development cycle. The new construction towers are approximately 65% sold and have stabilized in terms of home prices, which has encouraged dramatic absorption since the New Year. Average price per sq. ft. of condominiums in downtown Bellevue is $363 as compared with $467 in downtown Seattle and total sales volumes for Q1/Q2-2012 total 113 and 257, accordingly.

As with all broader regions, individual neighborhoods can tell a very different story. By example in the heated market of Clyde Hill, the median home prices have swelled 12% in a year from an average of $1,289,000 to $1,438,000. And despite the rising home values the absorption rate of properties actually increased by 16%. The story is the same on Mercer Island where the average active listing price has now climbed by 39% and in recent months the absorption rate has increased 31%.

The recent tolling of SR-520, the potential tolling of I-405 and a likely light rail line across I-90 has many Eastside brokers encouraging their clients to consider their commuting habits and their ideal home location. Fortunately, any seller interested in making a move will likely find success. As the volume of buyers are exceeding the number of new listings.

Q1-2 Averages Eastside

2012

2011

Q1-2 Averages

YOY Change Q1-2 2012 vs. Q1-2 2011

Eastside

2012

YOY Change

2011

Q1-2 2012 vs. Q1-2 2011

For Sale

2678.83

3949.50

-32.17%

Avg. Active Price

768.33

694.83

10.58%

New Listing

1139.33

1312.33

-13.18%

Avg. Sold Price

489.17

514.67

-4.95%

Sold

736.33

631.50

16.60%

Avg. Sq. Ft. Price

215.17

219.33

-1.90%

Pended

888.33

749.83

18.47%

Sold / List Diff. %

96.67

95.33

1.40%

3.88

6.57

-40.86%

Sold / Orig. LP Diff. %

93.33

91.50

2.00%

3.15

5.32

-40.75%

Days on Market

80.67

85.00

-5.10%

27.57

15.83

74.11%

Avg. CDOM

103.67

120.50

-13.97%

33.30

18.95

75.73%

Median

410.00

426.50

-3.87%

Months of Inventory (Closed Sales) Months of Inventory (Pended Sales) Absorption Rate (Closed Sales) % Absorption Rate (Pended Sales) %

Browse all NWMLS listings and learn more about the market at RealogicsSothebysRealty.com

Central Puget Sound Market Watch Page 6

First & Second Quarter 2012

b ainbridge ISLAND LIVING

Island

U

nlike the Seattle and the Eastside marketplace, the real estate trends on Bainbridge Island have been relatively static in terms of new listing volumes but is far more pronounced in terms of increased buyer activity. For the subject study period sold homes have increased 30% while pending activity shows signs of acceleration at 46% increases over the prior year. Median home prices for Q1/Q22012 are effectively flat over the prior year but clearly there’s been an increase in transactions with listing days on market dropping 23% compared with the first half of 2011.

A snapshot of the marketplace as of June 2012 suggests that the turnaround on Bainbridge is also gaining momentum. According to the NWMLS inventories of existing and new construction homes have declined by 30% while pending sales of resale and new homes are up 63% and 38%, respectively. Encouraging market fundamentals have spurred a new wave of new construction activity on the island.

Given robust job growth in downtown Seattle and the relatively efficient and inexpensive commute via Washington State Ferry (just 30 minutes to Colman Dock) many new residents are opting for Bainbridge Island over alternative neighborhoods in Seattle. Brokers also report a flurry of move-up buyers that have been eyeing larger, newer or perhaps waterfront properties but felt their efforts to sell an existing home would have been futile in the years past. Meanwhile an increase in demand from younger buyer demographics (including single tech workers that ride their bike on the ferry) and relocating families preferring Bainbridge Island’s nationally-ranked school systems are helping to shore up sales at the entry level and mid-level of the marketplace allowing longtime residents to finally make their move.

Q1-2 Averages Bainbridge Island

2012

2011

For Sale

237.50

New Listing

64.00

Q1-2 Averages

YOY Change

YOY Change

Q1-2 2012 vs. Q1-2 2011

Bainbridge Island

2012

2011

Q1-2 2012 vs. Q1-2 2011

258.17

-8.01%

Avg. Active Price

791.33

767.00

3.17%

64.50

-0.78%

Avg. Sold Price

619.17

539.83

14.70%

Sold

34.00

26.17

29.94%

Avg. Sq. Ft. Price

245.67

225.17

9.10%

Pended

42.83

29.33

46.02%

Sold / List Diff. %

94.17

94.50

-0.35%

8.18

10.10

-18.98%

Sold / Orig. LP Diff. %

87.83

87.00

0.96%

6.42

9.37

-31.49%

Days on Market

109.00

141.33

-22.88%

14.20

10.23

38.76%

Avg. CDOM

152.17

177.00

-14.03%

18.00

11.38

58.13%

Median

459.83

464.50

-1.00%

Months of Inventory (Closed Sales) Months of Inventory (Pended Sales) Absorption Rate (Closed Sales) % Absorption Rate (Pended Sales) %

Central Puget Sound Market Watch Page 7

First & Second Quarter 2012

W

aterfront Living ALL OF KING COUNTY

B

eyond seasonal sales spikes expected during the summer months, demand for waterfront property throughout King County has strengthened with the recovery in the economy. A survey of real estate activity for the first half of 2012 (compared with the same period in 2011) reveals inventory is down sharply (18%) and sales are up notably resulting in a 25% reduction of total months of supply (days on market are also down nearly 20%). Many brokers suggest that the tides are rising – especially on Lake Washington between I-90 and SR-520 (including all of Mercer Island). Robust sales encourage sellers to consider listing their properties and in some cases homes are going pending within days, especially for land as the custom home market rekindles.

Some buyers prefer multifamily developments in search of their waterfront, whether as a principal address or as a retreat from in the heat of the summer in Eastern Washington or the Southwestern states. Such as the case with The Lakeside Condominiums in Leschi and a new row house project called The Residences at Fairview on Lake Union. Buyers are attracted to the “lock and leave” lifestyle of a condominium with immediate access to the water.

The resilience of waterfront properties is tried and true. But it’s not just the investment quality that draws buyers to the water’s edge – it’s the lifestyle. The Department of Ecology says Puget Sound residents are among the most active users of our waterways per capita in the entire country – a compelling statement considering the year round climates of southern Florida and California. Perhaps it’s because our water is so accessible, safe and comparatively speaking – affordable.

King County Waterfront

Q1-2 Averages

YOY Change

2012

2011

Q1-2 2012 vs. Q1-2 2011

For Sale

378.50

463.67

-18.37%

New Listing

105.17

122.17

-13.92%

Sold

41.17

38.67

6.47%

Pended

51.17

45.67

12.04%

9.93

13.22

7.70

Months of Inventory (Closed Sales) Months of Inventory (Pended Sales) Absorption Rate (Closed Sales) % Absorption Rate (Pended Sales) %

King County Waterfront

Q1-2 Averages

YOY Change

2012

2011

Q1-2 2012 vs. Q1-2 2011

1789.67

1723.83

3.82%

Avg. Sold Price

890.83

1145.50

-22.23%

Avg. Sq. Ft. Price

317.50

347.67

-8.68%

Sold / List Diff. %

93.00

89.50

3.91%

-24.84%

Sold / Orig. LP Diff. %

87.50

84.83

3.14%

10.52

-26.78%

Days on Market

104.50

110.17

-5.14%

10.67

8.17

30.61%

Avg. CDOM

148.00

183.67

-19.42%

13.37

9.82

36.16%

Median

520.00

692.50

-24.91%

Avg. Active Price

Browse all MLS listings and learn more about the market at RealogicsSothebysRealty.com

Central Puget Sound Market Watch Page 8

First & Second Quarter 2012

W

here We Are Headed CENTRAL PUGET SOUND

W

e’ve been reminded that consumer confidence lies at the very foundation of our real estate market. Further improvements with the S&P/ Case-Shiller Home Price Index, the Conference Board’s Consumer Confidence Index, job growth in King County and positive tends being heralded by the NWMLS will help to sustain the housing recovery in the central Puget Sound area. Good news headlines condition our psyche and nudges “wait-and-see” buyers off the fence after years of market turmoil and fear. But a lack of new construction supply (for sale) and dwindling resale listings will most likely curb the recent upward trend in total sales volumes. Also, greater competition among buyers, especially at price points below $500,000 near job centers, will lead to gradual increases in median home prices and should add urgency to the market.

The current development cycle, so far, is dominated by apartment construction in the center city as builders struggle with a lack of construction financing for speculative development and reconcile the most recent market correction. Meanwhile, smaller scale in-fill town homes, planned communities and transportation-based developments will continue to spring up well ahead of any new condominium towers. Distressed inventory appears to be winding down. Recently, RealtyTrac reported Seattle had the highest drop of the largest 20 cities with foreclosure notice filings down 24% from a year earlier. And as rents rise, we believe the preference to own will return – strengthening the resale marketplace while at the same time new construction inventory is absorbed.

Perhaps the largest influence on housing during the second half of 2012 will be the approaching Presidential elections. Political rhetoric tends to deflate our confidence in government before it inspires. And the stock market optimism that typically follows elections usually gives way to “electoral anxiety” as investors pull back shortly thereafter. We can count on the media opining on the direction our President is taking the country, for better or worse. But having taken its lumps the past four years, housing may well become the bright spot in the economy as investors seek a relative safe harbor and new construction continues to ramp up as a major employer (since peaking in 2008, Washington State has lost more than a third of its construction jobs, which are now rebounding). the housing market trajectory and measures how the in-city market Seattle (King, Snohomish and Pierce County) MSA and 20Home Price Index. Overall we find the market pendulum has towards a balanced marketplace (and even a seller’s

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The following graphic provides a generalized anatomy of compares with the broader areas as well as the Greater City Composite, according to the S&P/ Case-Shiller reversed its trajectory and gained momentum market) closer to the central job markets.

ASE–SHI

LL

AT

TLE MSA

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R

Greater Seattle Housing Market Pendulum Page 9

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Residential Showrooms 2715 First Avenue, Seattle 98121 Phone: 206 448 5752 271 Madison Avenue S, Ste. 102, Bainbridge Island 98110 Phone: 206 842 0842

About Realogics Sotheby’s International Realty Realogics Sotheby’s International Realty has emerged as a leading sales and marketing company in the Seattle Metro area. The company’s mission is to provide excellence into the resale marketplace including multi-family, single family and now resort residences throughout the state of Washington or Worldwide. Realogics Sotheby’s International Realty is independently owned and operated by Realogics, Inc.