Real Estate Information

This is a good time of the year to check on new construction in the Tri-Cities.   Typically our inventory (homes for sale) is about 20% new construction.   If new construction starts to decrease, it’s an indicator of a softening real estate market.    If we research single family building permits through April 2012, we had 407 building permits issued.  This is 30% of last year’s total building permits issued.    Considering we are 1/3 through the current year, we are projecting a small decrease in total permits issued for the year.  See chart below.

The “New Platted Residential Lots” figure however indicates we may not achieve last year’s figure of 1,045 new lots for the Tri-Cities area (including Prosser).   Through April 2012, only 102 new lots have been developed.  This is an indication we have a surplus, it’s becoming more difficult to develop lots or developers are becoming more conservative.     It’s my opinion we do not have a lot surplus situation.   See chart below.

If additional lots are not brought on-line, we may be facing a shortage.

The graph below depicts the monthly absorption rates (months of inventory) for Tri-Cities WA for the last year.  It is interesting to note that a normal rate for the Tri-Cities is about six months of supply.  May 2010 through December 2010 hovered around the six month figure.

In January the rate climbed (indicating a softer market) and closed at 7.6 months during April 2012.  If the absorption data continues to remain at or above this figure, we will experience less demand and associated price declines.   Remember the Tri-Cities is complex market and some areas and price ranges are more popular than others.   As a general rule, newer  and lower priced homes continue to be in higher demand. 

A real estate topic frequently overlooked by many is the Home Buyers Warranty.  Warranties can be provided for new construction and previously owned homes.  When we represent Buyers, we frequently recommend older homes have a “Home Buyers Warranty” associated with the sale.   These warranties or insurance programs cover many appliances in the home.   One year nearly all 70’s era homes we sold had claims through warranty programs.  Claims covered faulty dishwashers, hot water heaters and cooling systems etc.    Warranty periods are normally for one from the closing date and can be extended by the homeowners.   The initial program can be paid by either the Seller or Buyer.

Builders may have their own warranties or one provided through insurance companies.  One popular Builders Home Warranty is the “2-10 Home Buyers Warranty”.   This program provides a one year warranty for workmanship e.g. masonry, waterproofing, drywall, concrete etc.   Two-year systems covered by the program include mechanical and electrical systems.  The structure is covered for 10 years for items including foundations, beams, load-bearing walls etc.   The builder pays for this program.

We recommend you consult with your real estate professionals reference the merits of providing a warranty if you are seller or having one included in your real estate contract if you are a buyer. 

As many of you know I watch the market statistics very closely.  This information is important to sellers and buyers as well.   For the last three months absorption rates have been increasing in the Tri-Cities.  If we experience a fourth month of similar activity, we may have a market correction.  The weekly news reference layoffs and reduced federal budgets contribute to the employment and associated housing uncertainty in the Tri-Cities.

When a seller prices his/her home, it is critical to understand the market and its impact upon one’s property.   Daily I see price reductions in the Tri-Cities multiple listing service and signage with price reduced riders.  

Some home sellers seemed to be listing their homes well above the true “market value”.  The graph below exemplifies this process. 

The graph shows that the market has a level line indicating a balanced market.   In many of our price ranges, the values are actually falling.   In a balanced market and especially in a declining market, correct pricing is critical.  Otherwise, listed properties may sit on the market for extended periods and become “market worn”.   Once a property is considered “market worn”, buyers generally prefer not to view the home because there  frequently  is a  perception that something must be wrong with the home or it would have been sold.  If offers are received, frequently they are less than the “market value”.

If you are buying or selling and have questions about our market, send me an email.  

With the unprecedented number of national foreclosures stemming from the subprime mortgage meltdown of 2007-2008 and the overall housing market collapse during that crisis lenders were left with significant real estate holdings. Many lenders were slow to put their inventory up for sale for fear of flooding the market and further driving down prices, which would in turn lower their potential ROI.  Essentially these are potential listings sitting on the sidelines waiting for markets to improve.
Shadow inventory does not play a significant role in the Tri-Cities, but we are affected.  

When the melt-down started, we routinely had clients moving from California, Arizona and Nevada etc.  When the markets collapsed in those areas, future clients were no longer able to sell their homes and buy in the Tri-Cities.  At one time Michelle and I had over twenty couple-clients wanting to move here, but were anchored to their unsold homes in Arizona.    

Since the national shadow inventory indirectly affects our local market, it is a good idea to review its status.  As of January 2012, we had 1.6 million units (homes) in the shadow inventory.   The shadow inventory was down from January 2011 when 1.8 million units or 8-month supply was reported.  This is positive news.   Before the national housing market can fully recover, we will have to absorb (sell) this shadow inventory.

The chart below provides the shadow inventory history.

We seem to have many things to do in the Tri-Cities.   It a sign our community is growing.  Many wineries feature music and food.  You can find the Tri-City Americans for hockey and the Feaver for indoor football.  For theatre you can view performances by Columbia Basin College and the Richland Players.   TRAC always has something on its schedule.   It could be Monster Trucks or the Home and Garden Show.  To find something to do in the Tri-Cities go to   http://www.visittri-cities.com/events/

 Last week, I visited the Home and Garden show and produced the video below.  Hope you enjoy it. 

Absorption Rates (supply) for housing inventory can be calculated a number of different ways.  One method is to divide the total inventory (homes for sale) by the monthly sales.   For the chart below I used this method.    Absorption rates of less than four months of inventory are considered to be a Sellers’ market.  More than six months of inventory a Buyers’ market.   Therefore, more than four and less than six is considered to be a balanced market situation.

The chart below indicates that through the entire year of 2011, the Tri-Cities market was balanced.  While the surrounding Pacific Northwest cities were reporting Buyers’ markets, our market continued to be healthy and well balanced.

Previously I did an analysis of sales by cities.   I thought it might be interesting to evaluate major neighborhoods in the Tri-City area.  In Kennewick Highway 395 divides east from west.  Richland has Van Giesen as the dividing line.    West Pasco is west of Highway 395, central is east to Oregon Street and east Pasco is east of Oregon. 

In Kennewick West Kennewick is the major sales leader with 417 sales last year.  The most expensive area is SW Kennewick (Badger Canyon and the Reita area).     In Richland the most sales and most expensive neighborhood continues to be South Richland (south of the Yakima River). 

West Pasco had 744 sales, far more than any other neighborhood in the Tri-Cities. 

Most expensive neighborhoods were South Richland, SW Kennewick, North Pasco and North Richland respectively.

Most sales by units were in West Pasco, West Kennewick, South Richland  and West Richland respectively.  If I were buying a home in the Tri-City area, I would consider this data for re-sale purposes. 

Overall the year of 2011, was a good year especially for the lower end of the market in the Tri-Cities of Washington State. Sales below $175,000 were generally in a Seller’s Market situation. Homes priced above $475,000 were challenged to find buyers unless it was new construction. We experienced over two years of supply in this range. Pre-owned homes in this price range will have to be in exceptional condition and be the best value to attract home buyers in 2012. Our sales for 2011 were 12.7% less than the year prior. Considering we had no federal stimulus funding during 2011, this is a respectable sales level. For those homes selling, it took a little longer to find buyers. The days on the market increased from 60 days during December 2010 to 94 days during December 2011.

One of my favorite holiday activities is to view the Senske Lawn and Tree Care Office light show.  The show is set to music and can be located at the corner of Deschutes and Quay.  From Columbia Center Blvd proceed east on Deschutes until you see the lights.  You can’t miss them.   Recommend you park off the street so as not to interfere with the view of others.    I believe the radio frequency is FM 101.5.

Wishing you and your family a wonderful holiday season and Merry Christmas!    Don Havre