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Whidbey Real Estate: Island bubble may not burst
This is my inaugural piece for the new Whidbey News-Times real estate column. It seems appropriate that I should introduce myself to the readers. I am a real estate appraiser who moved to Oak Harbor in July 1986. I began my real estate appraisal career in San Jose, Calif., in 1971. I only appraise property here on Whidbey Island and am principally involved with commercial property.
There is much discussion these days about rapidly escalating home prices and the possibility of a housing bubble. This brings back memories of the high tech bubble in the stock market of the late 1990s, which ended badly for many investors. The National Association of Realtors (NAR) recently announced that the median price of an existing single-family residential home, nationally, in April, was $206,000, which is an increase of 15.1 percent when compared to this time last year. This was the greatest annual price change in the past 25 years.
To some extent, local conditions are mirroring national housing trends. In the North Whidbey market area, as of May 20, the Northwest Multiple Listing Service (MLS) reports 81 single-family homes listed for sale, 8 manufactured homes (with land) for sale, and only 1 condominium for sale. It appears that first time home buyers are still a very significant portion of the home sale market, although the average selling price on North Whidbey has risen to $229,822, which is an increase of 31 percent over the last 3 years.
All of the statistics coming out of the local real estate market are indicating that this is a strong sellers market wherein there is substantially more demand for homes than there is available supply. As a result of these conditions, prices tend to rise fairly rapidly and sellers are in control to the extent that they set prices and terms of sale.
From the data that I see, the most significant factor contributing to the current sellers market is a lack of inventory. For all of Whidbey Island there are only 234 current active listings for residential homes and condominiums. This is 70 percent lower than the average number of sales and active listings for the same time period over the last 3 years. Thanks to Joanna Frye of ReMax Acorn Properties for the recent MLS data.
Reaching for loans
Another indicator of the hot national housing market is how far people are reaching to buy a home. The Mortgage Brokers Association (MBA) recently announced that two-thirds of all mortgages in the second half of 2004 were adjustable rate or interest only mortgages. These loans tend to help stimulate the housing market as they have lower monthly payments compared to fixed rate loans, at least in the initial period, which in turn allows buyers to purchase a more expensive home.
A worry is that such loans could cause problems in the housing market and consumer spending if home prices do not continue to rise at their present clip. I recently discussed this trend with Dave McCool of Countrywide Home Loans, asking him if he sees similar trends in our local market. Mr. McCool said that local buyers are still quite conservative and the great majority of buyers prefer a 30 year fixed rate mortgage. Such mortgages continue to be favorably priced, with the current quote at 5.75 percent interest rate and no loan origination points.
Affordability at issue
These conditions inevitably lead to the questions of affordability and how long can such market conditions prevail. To help answer the question of affordability I contacted the Washington Center for Real Estate Research (WCRER) at Washington State University. WCRER monitors recent housing trends throughout Washington State and produces a report each quarter detailing home resales, building permits, median price, and an affordability index that is developed by the center.
A score of 100 on the affordability index indicates that a typical family earns enough money to buy the median home price in that particular market area. Scores below 100 in the index indicate that homebuyers face difficulties in affording such a home.
Island County, in the first quarter of 2005, had an affordability index of 115.4 versus the statewide index indicator of 111.8. The good news is that Island County is still relatively affordable and is considerably more affordable than Washington State areas that have higher prices, such as San Juan County where the median home price is $407,500 and an affordability index of 58.2.
The bad news for the local housing market is that the first-time affordability index continues to slip, with the current index being of 70.7. This problem is compounded by the fact that family incomes are not rising as fast as home prices. This and more data can be obtained from WCRERs web site at www.cbe.wsu.edu/~wcrer.
My answer to the question about a housing bubble is that I believe there is such a situation in some areas of the country but not here on Whidbey Island. At least, not yet.
Development is on an up-trend in downtown Oak Harbor. There are rumors of a proposed mixed-use project on the large waterfront parcel owned by Copeland Lumber. There is also an exciting new project at the corner of Dock and Fidalgo Streets. Scott and Josee Fraser purchased this vacant parcel earlier this year with the help of Nora Balda and Neil Ingram of ReMax Acorn Properties. A three-story building is being designed by Terry LeDesky, AIA. There will be 1,500 square feet of retail shops at the daylight basement level, accessible from Dock Street. The second floor will have the Frasers new restaurant, Gourmet Hideaway, and at the top floor will be two luxury view condominiums.
The Frasers are working with adjoining property owners to eventually create a pedestrian friendly shopping area with cobblestone walkways that connect adjoining properties. This is the first new commercial project downtown since the Island Transit Center in 1995 and the first private construction since the Chris Saxman designed the New Leaf office building 20 years ago.
I welcome your comments or questions on real estate. You may e-mail me at firstname.lastname@example.org. This column is scheduled to appear the first Saturday of each month.