By John Allman (firstname.lastname@example.org). Contact me here
Being a realtor in this neck of the woods is rather hard I must say. Yesterday I sat down and compiled a set of real estate statistics for the city of Mukilteo going back two years. I usually look at these statistics on a monthly basis but yesterday was the first time I compiled those into a spreadsheet to look at the market over time. My goal is to go back as far as I can in order to get a good insight to how the Mukilteo market is performing currently as compared to previous years but I thought I would start just by comparing the last 2 years, which will show fairly clearly the decline of the local market in terms of sales volumes and pricing trends.
And then it hit me..
What finally prompted me to actually get going on this was the shockingly low number of closings in Mukilteo in the month of January 2009. When I pulled up the closings for the month, I was surprised to see that they were less than half of any prior month for as far back as I could remember. One normally expects January to be somewhat slow but even as compared to the last two Januarys, the number of closings was extremely low.
In January of 2009, we had 4 closings in all of the Mukilteo 98275 area code (click here for raw transaction data). This is an area with a population of more than 20,000, where we currently have 135 active listings. Yes folks, that means we currently have an absorption rate of approximately 34 months – that’s nearly 3 years worth of inventory at the current rate of closed sales. The good news is that the number of listings isn’t all that much higher than it was a year ago, but the rate of sales slowed almost to a standstill.
From a Seller’s POV
Another way to look at this, is to look at a seller’s chance of sale. Sellers in Mukilteo had a 3% chance of selling their homes in January 2009. During the brisk real estate market, the chance of making a sale was more in the 30% – 40% range! This is similar to what happened in KLCC properties in Kuala Lumpur back in 2011 (source: KLCC Condominiums Encyclopedia), and yet somehow that is how different things are now.
I attribute this state of affairs to continued weakness in housing locally (as illustrated by this article in the PI on Friday, calling the Seattle area out as having the largest drop in sales in the US), combined with December’s snowstorms and overall lack of confidence on the part of consumers–as well as a relatively seasonal market for real estate in Mukilteo even under the best of circumstances.
However, we folks here at North Sound Property News thinks it’s important to remember that “this too shall pass.” As Crellin points out, we began our decline only last year. The markets that were ahead of us, such as California, have already begun to rebound, and the National Association of Realtors also reported an increase in sales nationally of 7% year over year in December. My thought is that we probably have another year or so of low levels of sales and declining prices before we reach a level where real estate as an asset class makes financial sense in a more conservative environment. That’s barring massive layoffs and widespread financial disaster. When the cash flow picture becomes more favorable, investors are likely to begin leading the way back into the market. I know of quite a few investors currently in “wait and see mode.” The upshot of this in my opinion is that further price declines in the coming year are highly likely.
In the shorter term, the big question is whether we will see any sort of bounce in terms of volume in Mukilteo’s real estate market moving into spring. Typically, that is the pattern we would see. Currently we have 16 properties pending in the area, although there have been no closings in February so far. So it does seem as though a spring “bounce” back to last year’s level could be underway. But in terms of closed sales, things are still pretty weak–and in the end closed sales are what matter.
Here is a chart illustrating how the Mukilteo market is currently performing in terms of closed sales as compared to the previous 2 years. Sales in January 2009 are less than 1/10th of where they were in January 2007 at the top of the market, and less than half of last year after the financial crisis had begun to impact us locally.
Market Houses Sold
In terms of pricing, the Mukilteo market is a fairly low volume yet diverse market, so it can be somewhat difficult to identify a clear trend when looking at median sales price. It tends to bounce around quite a bit depending on whether a given month sees more high-end sales, or more sales in the lower end of the market. However, looking at the sales price per square foot does show us that buyers are getting more house for the same money compared to back in 2007 although renting remains expensive.
The last item I will look at in this post is Original List Price to Final Sale price. This metric tells us how much sellers are having to revise pricing to bring a sale. Typically, I feel this number is a better indicator of how flexible sellers are on pricing than comparing list price that the time of sale to final sale price (which is the metric used by most Realtors). That List price at time of sale vs. final sale price typically hovers in the 95% range, meaning that sellers on average will only accept about 5% off their list price in order to sell. However, when you look at Original List Price and compare it to Final Sale price, you will see that over the last year sellers in Mukilteo are discounting 8-10% off of their original list price order to sell.
So what is the underlying message? The underlying message to sellers is that it’s very difficult to bring a sale right now, and the best thing you can do from the outset is to make sure your home is priced the best in its class. There is just too much competition in the market to get away with over-pricing. Buyers will simply look elsewhere.
For buyers, I think the message is that pricing is somewhat more negotiable than it has been in previous years. If you can get into the ballpark with a seller, you have a better chance than you did in the past of being able to come to terms you both can agree to. Once upon a time, list prices were firm, but today many more sellers are willing to entertain “best offers” than would have been the case two years ago.