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Home prices continue to rise
at double-digit rates
Local experts fear higher prices mean lower affordability by Jill FitzSimmons
When Peggy May and her fiancé found the home of their dreams, they didn’t waste any time.
Homes under $175,000 are snapped up quickly in the Skagit County market, where the median house price is more than $200,000. May had her eye on a home in Clearlake, a three-bedroom, one-bath house on a quarter acre. But it already had two bidders.
After submitting a bid, May’s broker sat down with two other brokers at the homeowner’s table. Each broker made a case for why their respective clients’ bids should be accepted. May included a personal letter, promising to take care of the home as the previous owners had. It was an anxious couple of hours, May said of the bidding battle that ensued.
In the end, May and her fiancé bought the home for $160,000. That was in September 2004. In only nine months, the home’s value already has risen at least 12 percent. These first-time homeowners jumped into a pricey market to take advantage of low interest rates. Today, they watch homes prices all around them increasing every month.
May said she’s lucky she bought when she did.
Buying a home in Whatcom, Skagit and Island counties can be nerve-racking, to say the least.
It’s a market where home prices have been climbing steadily for months now. Counties are experiencing record-breaking numbers of home sales. Good deals, many times, are snatched up in a matter of hours. First-time buyers may be up against several bidders. And real estate agents are often putting in three or four bids on homes before a client finally gets something to call home.
“It’s mind-boggling,” said George Churchill, president of Churchill and Associates in Oak Harbor. “You can’t close your eyes for 24 hours and still be able to predict the value of a piece of property the next day.”
There are a number of reasons why home prices in most of Western Washington are on the rise. Putting a finger on one reason is impossible, but the rising prices were sparked by low interest rates and then fueled by a growing population.
So are the prices coming down any time soon?
Not likely, say several area experts. These prices have been climbing at a rapid pace for two years, said Lylene Johnson, a managing broker for the Muljat Group in Bellingham. The last housing boom, which hit in the early 1990s, lasted only a couple of years, she said.
“This one seems to be gaining momentum,” Johnson said.
Record-breaking housing pricesAt his office at the Washington Center for Real Estate Research for Washington State University, Director Glenn Crellin gets numerous inquiries about house prices and their trends. It’s a popular topic right now, and not just in Washington, Crellin said.
“You can’t pick up the Wall Street Journal or USA Today without finding an article about the housing market,” he said.
House prices are rising across the nation. This spring, prices rose at a double-digit annual pace for the fourth straight quarter, according to the Office of Federal Housing Enterprise Oversight’s House Price Index. Over the past 12 months, prices have risen 12.5 percent. Over the last five years, they’ve risen 50.5 percent, the report shows.
The median sales price of a typical home hit a record $206,000 in April, according to the National Association of Realtors. That’s up 15 percent over the median price a year ago.
In Washington, the state’s median house price is ahead of national statistics. Statewide, the median home price for the first quarter was $238,900, Crellin said. That’s 13.4 percent higher than this past year, he added.
Much of Western Washington is also ahead of those national statistics. In Whatcom County, the median price in May was about $255,000, said Bob Gent, business development manager for Northwest Multiple Listing Service. In May Skagit County’s median priced home was $217,975. And in Island County, the median price was $227,900, according to the Northwest MLS.
Median home prices in the first quarter of 2005 were up 13.4 percent statewide compared to the first quarter this past year, Crellin said. In Skagit County, those first-quarter numbers were up 10.9 percent from the previous year. In Island County, those numbers were up 9.1 percent. And in Whatcom, the numbers were up 25.1 percent – the third highest increase in the state after San Juan and Columbia counties, according to information from the real estate research center.
But while rising home prices can be exciting, local experts also speak of being frustrated.
“I would describe it as frustrating in that if a house that’s well priced comes on the market, if it is under $400,000, there is likelihood there will be multiple offers,” said Bill Henshaw, chairman of the Whatcom County Real Estate Research Report and an associate broker for Windermere in Bellingham.
That means people sometimes have to bid $25,000 to $50,000 over the asking price, Henshaw said. Agents spend a significant amount of time prepping buyers about not waiting around to buy a home in this market, he said.
Johnson also expresses some frustration.
“I’m constantly looking at houses and saying, ‘You’ve got to be kidding me,’” she said.
What’s causing the increases?Really, what started the rising home prices were the low interest rates people have enjoyed for several years, Crellin said. This has caused a lack of inventory in the housing market, he said. (The Northwest MLS last month reported that inventory in May was down 30.1 percent in Island County compared to May 2004 and down 14 percent in Skagit County. Numbers for Whatcom County were unavailable.)
The low mortgage rates have attracted first-time homebuyers earlier in the life cycle than in the past, Crellin explains. About 40 percent of the market is first-time homebuyers, he suspects. Terry Reynolds, president of the North Puget Sound Association of Realtors, said as much as 75 percent of her clients are first-time homebuyers.
Along with the first-time homebuyers come the investors. More investors are buying up property to sell or rent and make a profit, Crellin said. The National Association of Realtors reports 25 percent of transactions being made are by investors. That number traditionally is closer to 10 to 15 percent, Crellin said.
Realtors also spoke of the Growth Management Act and how it has added to the lack of inventory. The GMA was adopted in 1990 because the State Legislature believed that uncoordinated, unplanned growth posed a threat to the environment, sustainable economic development and the quality of life in Washington. The GMA requires state and local governments to manage growth by identifying and protecting critical areas and natural resource lands and designating urban growth areas.
Much of the real estate industry was fearful of the GMA, Churchill said. It has proven to be another government insertion into the free market that takes more supply out of the land, he said.
Communities also haven’t provided sufficient land in the urban growth area to accommodate the growth, Henshaw said. And infill in existing neighborhoods has become a sore topic, he said.
“So, we are doing it to ourselves,” Henshaw said. “We like the quality of life we have around here, but as a tradeoff, we have to expect that we are going to be pricing ourselves out of the housing market, or at least a large segment of the population.”
The growing number of people coming to the area is also putting tremendous pressure on the available land supply, Johnson said. Whole companies are moving to the area, looking for a better quality of life, she said. Retirees and young families all want the same things – a safe community, good schools, a strong cultural life and outdoor opportunities, and, as in the case of Bellingham, a college town, she said.
The baby boom generation has especially hit the local markets hard, Churchill added. About 350,000 people a day will be retiring in the next 20 years, he said. The Pacific Northwest, often featured in the media as a great place to live in this nation, is attractive to this aging population, he said.
The Internet has also opened the world up to the Pacific Northwest housing market, adds Mary Arendse, broker and owner of A.R.E. Realty in Sedro-Wooley. Many people e-mail her office, looking for more information about local communities, she said. People will inquire about an area 15 to 25 times before they physically drive or fly to look at a site, she said.
Most of Johnson’s inquires are from potential, out-of-state buyers from California. She also sees many clients from Texas, Florida, Colorado, Wyoming, Virginia, Hawaii and Alaska.
Higher prices mean less affordabilityClearly, many buyers are coming from outside the area, said Julie Hansen, editor of the Whatcom County Real Estate Research Report and an economics professor at Western Washington University. There’s a growing concern that local people won’t be able to afford a home here, Hansen said.
“It’s really first-time buyers who are the big concern,” she said.
Whatcom County is ranked as Washington’s fourth-least affordable county to buy a home in, according to information from the Washington Center for Real Estate Research. Only San Juan, Jefferson and King counties (in that order) have less affordable housing markets, according to the research center.
The housing affordability index measures the ability of a middle-income family to afford to purchase a median priced home using a 30-year mortgage at prevailing interest rates. The first-time buyer affordability index assumes a less expensive home, lower down payment and lower income. When looking at this first-time buyer index, Whatcom, Island and Skagit counties are among the top 15 counties in the state that are least affordable to first-time home buyers, according to the research center.
A vibrant community has diversity, Henshaw said. And, up until now, Bellingham has been accessible to everyone, he added. Henshaw points to national statistics that show 67 percent of people are homeowners. In Whatcom County however, home ownership is 48 percent, he said.
At some point, the community must decide if all of the “green stuff” around us is worth the cost of increasing housing for a significant number of the population, Henshaw said.
“(Or) we’ll have an upper class ghetto, with no opportunity for the average person to own his own home,” he said.
Crellin doesn’t expect to see any out migration of people looking for more affordable places to live. If someone already owns a home in these markets, there’s little incentive to leave. And, besides, where will people go, he asked. Any coastal community in the west is typically more expensive than Whatcom County, he said. Some people living along the California coast have median home prices of more than $500,000, making the $330,000 median price in Seattle seem low, he said.
“I still say first-time homebuyers have never had it better,” said Arendse, who admits this population is losing ground as prices continue to rise. So, they need to jump in and take advantage of the low interest rates and other options available, she said.
“It’s kind of like jumping rope,” Arendse said. “You’ve got to jump in and skip.”
Housing market is cyclicalWith talk of a housing market boom also comes talk of when that bubble is going to burst. National news stories in the past month have warned that this may be on the horizon.
This analogy of a bubble bursting is not something Crellin believes in. For example, overnight, people lost 40 percent to 80 percent of their investments when the dot-com era went bust.
“That’s not the way real estate markets operate,” Crellin said. “They are cyclical.”
So, after prices go up rapidly, they are likely to flatten at some point; prices rarely go down 20 percent over two to three years, Crellin said.
“It’s a very slow leak in the balloon rather than it is a bubble bursting,” he said.
And, that leak hasn’t been seen yet, he added. When we start to see some of that leakage, we’ll see it in places such as California or Washington, D.C., where prices are substantially higher than the Pacific Northwest, Crellin said. We’ll have some advanced warning before the market softens, he said.
Many people forget about the last boom, which happened in the late 1980s and early 1990s, Hansen said. While the median price in Whatcom County went up 22 percent in 2004 over 2003, in 1990, that median price went up 28 percent over the previous year, Hansen said. The market slowly flattened out until 1996 and then grew between 2 percent and nearly 6 percent a year until 2001, according to statistics from Hansen. Prices never declined during that period.
Hansen is not expecting to see 22 percent growth again this year. There’s some evidence, in fact, that the market may be slowing down a bit, she said.
“I believe that in some areas, there is a possibility of a bubble, but I don’t believe it in Bellingham, although there are signs that disturb me,” Henshaw said. He points to more investors buying homes and selling them quickly when the market goes up in six months.
Henshaw added that his own industry may be supporting more professionals than it can handle. There are about 1,000 licensed real estate agents and about 820 Realtors in Whatcom County, he said. In April however, there were only 748 home sales in the county, he said.
“There are significantly more (agents and Realtors) than probably the industry can support over the long term,” Henshaw said.
Real estate agents agree prices will level off once interest rates begin to rise. However, it isn’t going to happen anytime soon, Reynolds said.
Arendse believes the booming housing market has been good to more than just her industry.
“Our real estate industry, as a whole, has held up the economy from going into a recession,” Arendse said.
She points to exciting times ahead.
“It’s a great time for the industry,” Arendse said. “We see positive growth for our area. We are definitely experiencing growing pains, however, a lot of times good growth doesn’t come without growing pains.”
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Low interest rates have spurred many first-time homebuyers to jump into the market earlier than predicted, which has caused a sellers’ market and rising median home prices. This house is for sale in downtown Burlington.
This is one of many homes for sale in the Birch Bay area.
Lylene Johnson is hard at work as the managing broker for the Muljat Group in Bellingham.
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