A History Lesson The one constant in our real estate market is change. Ten years ago (yes, it has been 10 years!), we were in a very competitive market. Inventory was tight and prices were going through the proverbial roof, setting new highs. Then, in September 2007, that came to an abrupt end and we began a downward trend toward the largest correction since the 1980s. It took until 2012 for the market to shift yet again and gradually pick up speed toward recovery. By 2015, we returned to familiar territory: an extremely competitive market with record low inventories and rapidly rising prices. On July 1, 2015, there were 58 active listings on the island. Now, just one year later, data suggests a potential market transition with inventories rising and price reductions becoming increasingly common.
We in the industry do not view this as a repeat of 2007. There are too many positive factors in our financing infrastructure and regional market that separate this climate from its predecessors. (Indeed, the financing environment is so much more conservative now that securing funding can actually be a hurdle in some transactions.) We are still in a very competitive market and the statistics bear this out. While we may be slowly moving towards a more “balanced” market, we are not there yet. Let’s look at some of the leading indicators that give a glimpse at where we are.
Inventory One year ago, there were 112 home listings, 54 of which were under contract. For a market the size of Bainbridge, 58 active listings in the middle of summer is a crazy small number. On July 15th of this year, inventory had ballooned to 162 listings, 64 of which were under contract (leaving 98 active). Yes, this was a substantial improvement from last year. But when compared to the absolute top of our last market peak in July 2007, the 162/64 stat still looks very tight compared to the 2007 numbers, which were 289 listings with 62 under contract. The percentage of pendings to listings is 40% today compared to 21% in 2007. This year’s second quarter median cumulative days on the market is still a brisk 11 days, equal to what it was for the same period in 2015. (In 2007, it was 52 days.) It is still a very competitive market. Our inventory is growing because our price levels are finally bringing in more people from the sidelines. When you look at the history of the sold listings, there are scant few people who are “flipping” or who have bought recently and rapidly selling for a profit. Instead, many of the homes that recently sold were last sold in 2001, 2004, or even 2007 and 2008. It’s also interesting to note that people who have held onto their homes for a more extended period of time (since before the boom years) are realizing very healthy increases over what they paid.
Prices We have finally drawn even with and are even beginning to pass our peak prices of 2006/2007. When we checked the history of all the homes sold in the second quarter, all those that sold in 2006/2007 did better this year. Our year-to-date median is $755,000, a 14.4% increase over last year. This number is exacerbated by the price ranges of the homes sold. Overall, sales were down almost 17% and almost all of the decrease came in homes below the $600K price point. This phenomenon can be partly explained by our old nemesis: lack of inventory. On July 15th, there were 13 homes available on the whole island for less than $600K. Not many choices …
However, we are now seeing more price reductions than even in the first quarter. This is another indication of a healthier market. Pricing still matters, as sellers can’t just ask for anything. As we mentioned in our last newsletter, this is one of many areas where professionals can really help. Overpriced homes usually end up selling for less than properly priced homes, a statistic that has been borne out in all types of markets. This becomes especially important when a market is going through a gradual shift. The bottom line is that prices are rising and healthy. True, the rate may change and is very neighborhood and property specific. But the competitive nature of our current market will help bolster prices.
Condos and Land Interestingly, the strength of the residential market has yet to show itself in the condominium and land markets. Condominium sales are down almost 21% from last year, even though inventory is greater. Prices are up 8% from 2015, but the median price is still 13.7% lower than in 2007. Condominiums have been struggling with inventory issues as well as financing challenges, but can that explain why 52.5% fewer condominiums sold this year compared to 2007? In the land segment, sales are down more than 30%! Median price for land is also off 6.5%, which is 47% of the 2007 median. This is perplexing as land sales improved quite a lot between 2014 and 2015.
Moving Forward So our changes are subtle at this time, but in process. On the residential side, the greater inventory gives buyers more choices and potentially more sales. Sellers are seeing price levels that entice people to return to the market place and support a competitive environment. The regional economy outlook continues to impress and our position in that marketplace remains strong. (What other community can still claim the same commute time to downtown as twenty years ago?) The outlook ahead is all very positive!
This summer, we opened our satellite office on Olympic Drive and Winslow Way. There we’ll be able to greet ferry passengers as they first arrive to the island. Our goal is to give our clients more exposure to pedestrian and vehicle ferry traffic and have agents on hand to answer questions. Our doors are open, so please stop by!
What a Long, Strange Trip it's Been:
It's About Time-
Even during the darkest hours of 2008, we knew one thing for sure: Bainbridge Island real estate would recover because our market is supported by fundamental strengths, including the fact that it’s a great place to live. Looking back at the first three quarters of this year, we can happily report that we were right. The market is strengthening. The
goal now is to analyze our recovery, discuss sustainability and plan our way forward.
A Solid Three Quarters-
First, let’s revel in the good news. In the first nine months of this year, 293 island homes sold. This is 36 more than sold all last year and more than twice the number of homes sold in the first three quarters of 2008. You have to go back to 2005 to find a more active
nine months, and all the way back to 2003 to find the record-setting 375 homes sold. So far this year, there have been 40 sales over $1 million – a number not seen since 2007 (when 59 homes broke the record for >$1M in the first nine months).
The Condo-Land Report-
Both condominiums (56) and land (24) had their best numbers since 2007. Land sales are up 33% from last year (and up over
140% from only 10 sales in 2008) but are still way off the pace set in 2004 (when there were 80 sales through September). Although we are pleased with the condominium improvement, there is lots of room for growth if we want to approach the record set in 2004 when there were 137 sales.
The Price is Right, Except When it's Not!
What about prices? Here, things get a bit muddier. We are showing strong gains in both average and median price
growth, but a lot of that can be explained by renewed strength in market segment versus individual homes experiencing
dramatic price gains. One of the important contributing factors to our price drop was the fact that the market over
$600,000 was very weak for a number of years. This year, the number of sales of $600K + homes was up 104% from last
year and up 46% from the average of 2008, 2009 and 2010. This re-shifting to a more balanced marketplace will have
the opposite effect that the unbalanced market had for the periods 2008 through 2011. Mathematically, it will bring the
average and median prices up. That being said, prices have definitely stabilized and are showing incremental upward
movement in certain market sectors. Still, we rarely see contracts being put together at the listing price or above, even
in multiple offer situations.
What's Inventory Got To Do With It-
We still struggle with available inventory, and low inventory is a two-edged sword. Yes, it can help push prices up. However,
there is an even higher probability it will slow the market down, which is what we seem to be experiencing. We
have not seen sub-200 available homes at this time of year since the heyday of multiple offers in 2006 (when there were
181 listings on the market). Here’s the problem with low inventory: it usually means that there is a higher percentage of
homes on the market that buyers have already viewed – and for whatever reason rejected. While interest rates stay low,
buyers pull back until new inventory comes on the market. The challenge with our current market is there are many sellers
also waiting to put their homes on the market until they can list at higher prices. Like a convergence zone, both parties
are waiting for an event that may or may not take place in the near future. The result is a slowdown. Judging by the
market activity so far in October, that’s exactly what we’re experiencing right now.
Bainbridge Island Single Family Homes Sold July 1 through September 30
So what will happen? We predict that the market will work itself out. We just have to be patient. Prices will go up a bit more, which
will prompt sellers who are tired of waiting to make some moves. We know this from analyzing statistical data as well as working and communicating every day with buyers and sellers. As Windermere professionals and residents of this terrific community, we know that things are headed back in the right direction. Bainbridge Island continues to be a great place for investing in real estate and in a wonderful quality of life.