The Heart of the Issue
Writing about the last quarter, and indeed the year to date, presents an interesting conundrum.
So far, 2013 has been a strong year. The third quarter was great, outperforming expectations.
But even before our illustrious government began its farcical play, there were concerning elements
that cast clouds on our sunny outlook.

Single home sales have improved in almost all categories since mid-year. Overall sales are up
a healthy 15% for the year while September sales were up a whopping 59% from last year. In
past reports, we have commented on how the upper half of our market has lagged this year
from last, thereby dragging average and median prices down. This year, the true heart of our
marketplace, from $400K to $800K, saw a 37% increase from last year. We had 15 sales over
$1M in the third quarter, surpassing last year’s 11 sales. (However, two of last year’s third
quarter 11 were over $2M while we have had none that have sold above that mark so far this
year.) The result is that our average price decline for the year has gone from -13% at mid-year
to -6% for the three quarters, with the median now at par. This is solid improvement.

Strong Condo, Land and Development Segments
The condominium and land markets have experienced similar successes. Through the first three quarters, condominium sales
have risen 30% (from 56 to 73) with improvement in both average prices (from $306K to $324K, or a rise of 6%) and median
prices (from $310K to $318K, or a rise of 1.3%). Land, which is always a good indicator of confidence, rose from 24 sales in
2012 to 38 this year (a spike of 58%!), with an average price increase of 11% (from $179K to $199K). There are a number of
multiple home projects underway, with more on the boards. (We will be doing
a special “spotlight on new construction” soon.)

Predictions on Hold
Even with all this success, we are reluctant to predict a smashing fourth
quarter. The first obvious potential obstacle is the government shutdown.
The shutdown has had two primary effects: 1) it has hampered buyers’
ability to borrow, and 2) it has cast a pall of uncertainty on the market
(including questions about the debt ceiling). Our economy appears to be
chugging right along, but people are concerned about the amount of damage
our politicians can inflict, particularly when it comes to residential real
estate investments. There are also some issues in the lending marketplace
with certain services (including the IRS) temporarily closed, which can
stretch out timelines for loan approvals and funding. All the while, we have
little information about ultimate outcomes, which can make everybody feel
more than a little nervous.

The Problem with Inventory

There are also other bumps along the local real estate road these days. Even when the government gets its act together and
buyers feel more confident about proceeding forward, the inventory is at extremely low levels. You cannot find active inventory
numbers this low even going back to 2005. We believe there are plenty of buyers out there. Agents have clients looking and
open houses are well attended. However, it is not a “heated” market; buyers want to find an emotional attachment and/or real
value before getting serious enough to make an offer. Additionally, we are entering a period where many sellers feel they need
to wait until spring to list, which creates an additional seasonal inventory constriction. With fewer houses to choose from, fewer
sales are made and this could put a definite damper on fourth quarter sales.

Ready and Waiting

All of these pieces make for an interesting puzzle. We know that there are buyers waiting in the wings, so if the uncertainty
recedes as the inventory rises, it could make for a very active fourth quarter. Kenneth Harney, a nationally known real estate
columnist, recently wrote about a study that drew a direct correlation between good schools and higher property values. Although
it was not an exhaustive study, we in the local industry know many people include Bainbridge Island in their initial
search because of our schools’ high ratings. Granted, the island’s charm and our interesting variety of real estate choices contribute
to people’s decisions to move here. But our great schools give people the impetus to pay slightly more when push
comes to shove. (As citizens of this island, we need to help our schools maintain this high level of excellence. Remember that
when you open your red envelope.)