Here’s a graph that pretty much says it all, from the FEDERAL HOUSING FINANCE AGENCY. You can see the normal steady rise in average home value, the Bubble, the collapse, the temporary uptick due to Obama’s Homebuyer Tax Credit followed by further declines, and now the trend returning to normal. The implication is obvious:
We’re looking at a return to a normal rate of home value appreciation – steady but not spectacular – but it could be a while before many properties are worth what they were 5 years ago [ Home Prices May Not Return to Peak Until 2023 ] .
So what does that mean here on Whidbey Island? Well, that’s tricky part. First of all, the graph is a bit deceptive – I’ll explain that in a bit – and second, national trends matter, but local conditions matter a lot more. You need to drill down, do your homework, and learn what’s driving the market in your area. [ I can help with that. CALL ME at 360-672-1512 ]
I think the graph is misleading because although the market is returning to normal, there are a couple of unusual factors driving the recovery. First of all, unlike in the past, this recovery hasn’t been driven by families returning to the market to buy homes for themselves; prices have been driven up by investors buying properties, often in bulk [ Wall Street Buyers ] . That explains why, even though prices are increasing overall, buyers are still scarce.
Remember, the smart money got in 4-5 years ago (I told you at the time it was a good time to buy!). Warren Buffett “Gobbl[ed] up brokerages left and right” and invested in “other housing investments, such as Benjamin Moore paints, Shaw Carpet, and Acme Brick" [ Warren Buffett Shows His Faith in Housing ]. John Paulson, another legendary investor, who “netted $15 billion in 2007 in betting against complicated subprime mortgage securities,” bet big on mortgage insurers and a real estate fund after the crash [ Paulson Bets on Housing ]. And “large investment firms have spent billions of dollars over the last year buying homes in some of the nation’s most depressed markets.” [ Meet The New Landlord ] That’s what happened to the million-home “shadow inventory” of foreclosures that was supposedly going to get dumped onto the market at some point and cause another price collapse. It’s pretty much gone, snapped up by Wall Street investors and large financial institutions at fire sale prices.
The other factor is, of course, the effect of unusually low mortgage interest rates. Here’s some historical perspective:
Rates are coming back up – a bit over 1% in 2013 – and that’s actually helping in the short term, because many buyers believe that both housing prices and mortgage rates have bottomed out and that buying a house will only get more expensive in the future. Hopefully, over the long term, the dampening effect of increasing mortgage rates will be offset by an improving national economic climate. [ If you need help finding a good mortgage broker, I can help. CALL ME at 360-672-1512 ]
So what about the national economy? Well, as Ben Bernanke recently noted, the recovery is “incomplete,” and although the Fed is tapering its bond-buying, it will do so very slowly, so we can expect low interest rates to continue for a while. But overall, we’re looking at a steady, albeit slow, recovery with minimal inflation. What does that mean for the housing market? Probably the same: A continuing slow recovery, but now it’s going to depend on individual buyers and families.
Now let’s talk about Whidbey Island. Here are the numbers: Real Estate Inventory increased 16.35% Y/Y in 2013 (compared to 8.4% in the MLS Northwest Region), Closed Sales were up 30.9%, and the Median Price was up 2% [ Island County home prices see small jump in 2013 ] . Remember, I always emphasize that national trends aren’t always reflected in the local market. Unlike some of the major urban markets (think Phoenix and Las Vegas), we didn’t have as high a spike during the Bubble, we didn’t crash as hard during the collapse, and we never had the large blocs of bank short sales and foreclosures to attract institutional investors. Things just slowed down for a while, but real estate sales in Oak Harbor, Coupeville, Greenbank, Freeland, Langley and Clinton have all picked up and we’re anticipating a busy Spring (We typically lag 6-9 months behind whatever’s happening in Seattle).
The Island's major employers – Whidbey Island Naval Air Station, Walmart, Boeing, Whidbey General Hospital (which just got a big grant) and Nichols Brothers' shipyard - are all doing well. The Navy is planning to spend more than $127 million on construction projects at NAS Whidbey, including $85 million for a P-8A hangar/training facility, which should create a lot of jobs at the North end; Boeing's plans to ramp up 787 production should spur demand at the South end. Nichols is building tugs and ferries, and the City of Langley is upgrading its marina and improving 2nd Street. And I’m once again starting to sell vacation and retirement homes to folks from out of town.
When it comes to real estate, you need to ignore the static, stick to the basics, and concentrate on what you know, on what's real. If you do that, I believe that there are some potentially life changing opportunities out there for the folks brave enough to make a move while everyone else is still frozen with indecision - as long as you have a realtor with an in-depth knowledge of the market who’s willing to take the time to thoroughly understand your particular situation and help you do your homework. But hey, that’s what I do. Call me. Let’s talk.
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