AUTUMN TEMPERATURES

Checking the Thermometer

No, Chicken Little, the sky is not falling. It has just shifted from clouds skittering past to a more mellow and peaceful sky. Every day, we hear news about the cooling real estate market but it’s important to consider all the factors that go into those reports. Yes, our market has chilled slightly from its previously overheated state (although we never reached the same sizzle as the Seattle market) and has settled into what might be described as a strong normal market. The business section also contains reports of ongoing job growth in the Seattle area, especially in the well-paid tech industries. Concurrently, when Seattle’s transportation woes and other urban issues are taken into consideration, the demand for Bainbridge homes, especially for families, will likely continue for the foreseeable future.

Crunching the Numbers 

On the whole, most indexes show data that support a steady market in the coming months. If we isolate the third quarter and look at sales, the number of homes sold only dropped 4.4% from 2017 (137 in 2017 and 131 in 2018). In that same period of time, the median price of homes sold actually went up from $875K to $912K – a 4.2% increase. If we compare the median price of homes sold during the third quarter, they are up a whopping 8.8% from the beginning of the year! Additionally, the Cumulative Days on Market (the average time it takes to sell a home) dropped in the third quarter of this year compared to 2017 (44 in 2018 vs. 47 in 2017). The inventory and pending numbers are where elements of the cooldown show themselves. Inventory is actually down in both total inventory and active (total less pending sales), which is contrary to what people are hearing. Pending sales (homes under contract) are weaker at 40 compared to 57 at the same time last year. Of all the numbers we examine, this 29.8% drop is the one that most directly supports the slowdown assessment. That being said, when we look at all the data at once, we can conclude that the market is pretty darn healthy and strong. Maybe not as feverish as last year, but it’s still a great time to be selling or buying on Bainbridge Island.

Condominiums and Land

The condominium market has softened compared to 2017, with 73 units sold compared to last year’s 89. There seem to be two parts to the condo market: the affordable (less than $500K) and the higher end, which usually includes a good view. The affordable is actually up from last year, with 64 sold versus 45 in 2017. The drop in this segment’s higher end appears attributable to a lack of supply rather than a softness in the market. Land is also lagging a bit behind 2017. We’ve had 24 sales so far this year compared to 29 in 2017. Buying land with the intention of building is not for the faint of heart these days. Good builders are busy and in short supply and construction prices are still rising. The new zoning rules have also added an element of uncertainty.

Taking Everything into Consideration

It is true that we’re not seeing as many multiple offers as we did last year. Prices have risen but not at the frenzied pace of last year (over 18% from the beginning of 2017 to the end of the 2018 third quarter!). Our rental market has also calmed down. Business in our Kitsap County neighbors, Kingston and Poulsbo, is also feeling healthy and strong and they are also benefiting from Seattle’s growth. Buyers do not seem to be particularly concerned with rising interest rates (which, after all, are still quite low), which helps boost their confidence. As we enter the fourth quarter, there are many opportunities for both buyers and sellers. Sellers benefit from the lower inventory (which means less competition) and the typically slower pace of the end-of-the-year market makes sellers view serious buyers with more attention because there simply aren’t as many buyers shopping this time of year.

 Staying Nimble

Whenever the market shifts, it’s wise to ensure your strategies have adapted to it. As we tilt toward normalcy, there will be more competition for buyers that sellers need to accommodate. Presentation, realistic pricing and sound advice when offers do arrive are as important as ever. Skillful real estate brokers prove their value in helping both buyers and sellers match their approaches to the existing market. Your Windermere team is here for you, wherever you are in your real estate journey.

All in all, life and real estate are good on the island we call home. We wish you health and happiness as we head into the holiday season.

Bainbridge Island Single Family Homes | Sold January 1 through September 30

A WARM REAL ESTATE CLIMATE

FLAG-WAVING SEASON

Summer has come to Bainbridge, and with it our traditional celebratory activities. We had an energetic Third of July street dance, a festive Fourth of July parade, and a successful Rotary Auction that grossed more than $600,000.

When we move our attention to local real estate statistics, everything appears to be equally sunny. Our median price is up 12.5%, home sales over $1,000,000 are up almost 28%, and condominium sales are up 36%! Still, if you talk to the experienced agents, they are detecting a shift. Let’s explore all the reasons why.

BUYERS BEHIND THE WHEEL 

We talk all the time about buyers’ markets and sellers’ markets. But it’s really the buyers who drive any market. Even in an ascending sellers’ market, buyers (or lack of) create the excess demand over supply.

Bainbridge is blessed with a sophisticated and knowledgeable buyer pool. They are well educated and disciplined. These days, they’re also beginning to be more cautious. Maybe that’s due to world economics, a possible interest rate hike, or a general assumption that we’ve been on this run for more than a couple of years and we must be close to the top. You might ask, then, why are our statistics are so positive? There are several factors at work; signs that the market is not as heated as last year and is stabilizing. Here are a few specifics:

• Inventory, something we’ve lacked for a while, is creeping up.
• More price reductions and fewer multiple offers, with more buyers saying, “Let’s just wait and see what happens.”
• The number of homes under contract is down 17.3% from last year and hasn’t bounced back in the first part of July.

THE BIGGER PICTURE 

We are hearing of a cooling in other markets, both to the east and the west. This is not a cause for great concern, as our market is dynamic, and this sort of shift requires adjustments in strategy rather than extreme actions. Knowledgeable advice will help both buyers and sellers negotiate the changes and still achieve realistic goals.

Speaking of the vitality of the market, statistical charts show vivid changes. In the first half of 2012, 48 homes sold in the 0-$400K price range. By 2014, that number was halved to 24 and has plunged all the way to 4 this year. These homes didn’t disappear; they just moved up into another price range. Right now, there is only one home for sale for less than $400,000 on Bainbridge. In 2014, 78 homes sold for less than $600K, while this year that number is only 19. Here is what’s happening at the other end of the pricing spectrum: In 2014, only 31 homes sold in the $800K-$1.5M range and this year there were 101 sales in the same price range. So as our market stabilizes, we must acknowledge that it has appreciated dramatically.

 A BUSY CONDO SEGMENT 

With 62 sales in the first half of this year, you’d have to go back to 2007 to find a more active January-June period. The median was up 13.6% to $468K; matching the all-time median condominium price set in 2007. The condominium market has lagged the single-family residence market in price recovery from the peaks set in 2007, but the market has shown steady strength in the past year and a half. The condominium market benefits by offering residence on Bainbridge for less than most homes. It’s also shown an active upper end as people have downsized; which has been driven by success in the upper end of the house market. This success has happened despite low inventory.

ON LAND 

The median price of land sales for the first six months also finally matched this segment’s 2007 peak. In 2007, the median was $406K and in 2018 it was $400K. As with condominiums, it has been a long road back to our previous highs, but they have arrived. The volume of 22 sales exceeded 2007’s 18 sales in the first six months but fell shy of 2015’s peak of 33 sales through June.

A POSITIVE TILT 

All in all, we are giving our first six months of 2018 a very high grade.  We detect some stabilization and cooling off in the home market, but Windermere is prepared to employ our strategies to guide both buyers and sellers toward their goals – regardless of shifts taking place.

Bainbridge Island Single Family Homes | Sold January 1 through June 30

THE SPRING BOARD

Things We Know Are True

In the real estate business, we know never to count our proverbial chickens. Offers aren’t made until directed by a client, offers aren’t successful until they are accepted, inspections aren’t completed until everyone is satisfied, and we never take a transaction closing for granted. Every step forward is a cause for celebration. We view the market in the same way, especially after 2008. When we say that the first quarter of 2018 had many similar challenges as the first quarters of the past few years, we mean that there was strong demand, some supply, affordable interest rates, and a solid outlook.

Beautiful Imperfections

This is particularly true of inventory, which experienced new lows. At the beginning of April, there were only 40 available (active) single family home listings on the island. This includes all prices, pre-sale homes (which haven’t even been finished yet), and your typical cadre of homes that are woefully overpriced or in a condition or location the typical buyers shy away from. (Bainbridge is different from Seattle, where these types of things tend not to deter buyers.) Nevertheless, 66 homes sold in the first quarter, which surpassed our sales from the past two years! Those additional sales also confuse the lower inventory numbers because homes were essentially selling faster (some might call it “velocity” or “higher turn”) so there would have been more homes left on the market if we sold homes at last year’s rate. (The average cumulative days on market fell from 85 in 2017 to 70 this year – a 17.6% drop!) Combined with a 20% increase in both average and median prices (for the first time, our average price for a quarter is over $1 million), you would have to conclude that our market is very strong. Granted, buyers are paying more with fewer choices, but we are still seeing buyers looking west from Seattle and finding a far saner market with much better values. This surge is not limited to single family. Condominium sales matched last year (technically, up by one) with the median price growing 12%, from $515K to $575K. Land sales, unimpressive last year, burst out of the blocks in 2018 with a 50% increase in lots sold and a 100% increase in median price ($217,500 to $435,000)!

The Supply Chain

e know that demand is strong this year, but what about supply? The construction behind Harbor Square (between Cave and Ferncliff) called Bainbridge Landing will consist of about 107 rentals and 25 residential condominiums.  The DR Horton project on Sunrise and Torvanger (11 homes) is about 50% complete. Quadrant is building 19 homes on Weaver (the model is under construction).  The Reserve at Winslow on Finch Road features 12 homes, Madison Grove off Duane Lane includes 8 homes, and Madison Landing will feature 24 condominiums. The Roost has begun their second phase of live-work structures and The Residences at Pleasant Beach is going in for permit on their second tier of 12 homes.

These projects are being built within the geographic boundaries of our current comprehensive plan, which has pushed density into specific neighborhoods on the island, leaving a majority of our landmass with its much lower density zoning.

Beyond these projects, it becomes a bit muddy with the city’s moratorium and impending changes to design rules. It is still unclear what the result of the moratorium and new restrictions will be, but it appears building will be more difficult and expensive; likely having an impact on the affordability of housing on Bainbridge.

Looking Around

How about our neighbors to the west and north? The North Kitsap market (Hansville to Poulsbo) is also active and fast-moving. There, 167 homes sold in the first quarter, with an average of 46 days on market, and at a selling pace 34% faster than ours! Since 2015, the median price (currently $385K) has risen 23%, almost 17% of which was this year over last.  Things are popping across the Agate Pass Bridge!

The Value of Local Knowledge

If the first quarter is an indicator of the rest of the year, it appears we are in for an active year in Bainbridge Island real estate. To keep things moving in the right direction, our local experienced real estate agents bring a lot to the table. In an environment when buyers need to make decisions on sometimes short pressurized timeframes, a good agent will have sellers’ listings prepared in a fashion where the potential buyers feel more comfortable stretching their budgets. When representing buyers, it’s as much about preparing them to be able to act as it is about advising on locations, limits and putting things in the proper perspective. This guidance to both sides may sound “simple” but often makes many thousands of dollars’ worth of difference in transactions (to say nothing of the peace of mind it provides all parties).

Overall, the outlook good – occasionally stressful, but good. We need to celebrate this current strength and not take it for granted. While we do, we’ll enjoy the beautiful flowers and the sun’s warmth as temperatures and optimism rise together!

Bainbridge Island Single Family Homes  |  Sold January 1 through March 31

CELEBRATING THE NEW YEAR

As we welcome a new year, let’s explore some dynamics that played out while we marched through the 2017 calendar. Our market saw a decline in the total number of residential sales for each year between 2013 and the start of 2017. Despite healthy buyer demand, the lack of inventory caused buyers to become wary of over-paying. Buyers weren’t confident that they wouldn’t get caught in another correction. As the new year progressed, we saw a shift in buyer confidence and people were willing to spend more to get what they wanted. The result was an 18% increase in the number of homes sold last year. There were 435 residential home sales in 2017; the first time we’ve seen more than 430 sold on the island in any year since 2005’s record 442 sales. (The low was 187 in 2008.)

Even with an uptick in sales, we are not experiencing the same craziness as our Seattle neighbors. Our average cumulative days on market was 52, more than double Seattle Metro’s 20-day average. Our average price increased by a healthy, but not record-breaking, 10.7%, compared to Seattle’s 17%. (The record was set at 26.74% in 1990, followed by 21.5% in 2005.) There were many homes that experienced substantial price reductions and others that failed to sell at the sellers’ desired numbers. But when homes were properly priced and presented, buyers were willing to act – even if it meant spending more than they originally anticipated. This willingness can only come from a place of confidence of good value and a sound investment. We were assisted by strong buyers from Seattle and California, a rising stock market, smooth financing and appraising with rates that have remained “comfortable,” even with a rising prime rate.

Luxury Homes

A prime beneficiary of this strong market were luxury homes. There was a 44.6% increase in sales of homes over a million dollars and sales doubled for homes over $1.5M (133 total with 52 over $1.5M). Home sales increased 49% in the $800-$1M range. On the flip side, affordable homes were scarce, and sales of homes priced less than $600K decreased 34.7% from last year. This overall shift in the market pushed our median price up more than the average (>13%) and our condominium market was affected by these market forces as well. This certainly illustrates our trend away from affordability; which Bainbridge struggled with in the early- to mid-2000s until the 2007-2011 correction.

Condominiums

The condominium market benefited from these improved conditions in a couple of ways. The number of sales grew more than 21% (from 104 in 2016 to 126 in 2017) and the median price jumped 31% (from $400,750 to $525,000). Though sharply higher, the median price of $525K was substantially below the 2016 single home median of $838,000. Consequently, we saw more individuals and families coming to the condominium market. Condo sales were also helped by the strong upper-end residential market.

Many residents have been waiting on the sidelines for their homes to get to a price point where they felt comfortable selling and downsizing to smaller, more manageable and easy care, i.e. condominiums.  Complexes such as The Grow Community, Residences at Pleasant Beach and the Roost all experienced strong sales last year as they completed with condominiums for market share.

Many condominium buyers stress the desire to be closer to Winslow for the walkability, an interest in a complex that offers a sense of community, grandparents following their adult children to the great Northwest, and those who want the easy lifestyle and affordability of condominium living. Fortunately, we have had some good choices for our buyers this past year and experienced a total of 126 condominium sales in 2017. The only sector of our market that struggled last year was raw land. This category was hampered by a lack of choices, financing difficulties, hurdles with building permits, and escalating construction costs.

Looking Forward

It is hard to find any economist predicting a substantial slowdown in our area’s economy or real estate in the near term; not to say that there aren’t clouds. The new federal tax law is not beneficial to a higher-end market like ours; financing interest and property tax deductions now have limitations.  The prime interest rate will undoubtedly rise and even though mortgage rates have been incredibly low, rates will probably go up but stay below 4.5%.  In the midst of all this activity, one thing remains constant; Bainbridge Island is desirable and a great place to live.

Values are high, and our inventory is at an all-time low. If you are considering selling your home this year, now is the time to get started so you are not competing with the typical spring rush.

Bainbridge Island Single Family Homes  |  Sold 2017

Leaves Fall as the Bainbridge Island Real Estate Market Rises

The Big Picture

To paint an accurate portrait of the Bainbridge Island real estate market during this autumn season, it’s important to put it in the context of the broader regional economy. Through that lens, things are looking very good. Estimates for September 2016 through September 2017 indicate an employment increase of 76,100 in Washington. According to the U.S. Bureau of Labor Statistics, the private sector added 61,400 jobs while the public sector gained an estimated 14,700 jobs over the year. Windermere Chief Economist Matthew Gardner backs that up in his Third Quarter Report, writing, “I maintain my belief that the Washington State economy will continue to outperform that of the U.S. Given such a strong expansion, we should also expect solid income growth across Western Washington.”

The Seattle job market continues to be a huge draw for people moving here from across the country and around the world. As the number of residents in the Puget Sound area rises, Bainbridge Island has been and continues to be a viable and attractive residential option. The desirable amenities are obvious: from the rural feel to the vibrant community to the relative ease of a 35-minute commute by ferry versus an hour and a half by vehicle in the Seattle Metro area – just to name a few.

Another factor that affects our market is Buyer fatigue. We’re seeing an increase in Bainbridge Island buyers who are fed up after multiple failed attempts to purchase in Seattle, where real estate market is extremely competitive, and choosing to look in our direction for alternatives. This very real and frequent market dynamic contributes to the health of our local market.

A Positive Price Report

 The third quarter of 2017 saw continued upward pressure on prices. As the chart on page two shows, we saw near double-digit price gains in terms of average and median sales prices over the same period last year. This resulted in a dramatic increase in sales activity in the high-end market with a 34% increase in sales between $1 to $1.5 million and a whopping 85% increase in sales over $1.5 million. Having to list sales that exceed $1.5 million in a separate category is solid evidence of our changing market.

Our price growth has been consistent over the last several years. The strong population and employment numbers mentioned above help to move the market, but low inventory continues to limit Buyers’ choices. A nominal but consistent decrease from the third quarter of 2016 inventory of 98 homes on the market to the 2017 third quarter inventory of 92, suggests a continued upward price movement is inevitable.

Keeping Things in Check

In a transitioning market, we need to look at data from every angle. Given the positive signs summarized here, Sellers should not assume that they can sell their homes in a matter of days, without regard to condition and elevated prices. This is clearly a Sellers’ market, as 2.4 months of limited inventory would suggest but realistic expectations are critical. While there are multiple-offer scenarios, those have become less prevalent over the course of the year. Instead, we have experienced more price reductions as aggressively high pricing will not draw Buyers or even, perhaps, pass appraisals. It’s important to remember that every house, every neighborhood and every transaction has its own distinct characteristics. A Realtor is essential for navigating the latest market conditions and getting the highest and best price for your home.

Finishing Strong

 Traditionally, real estate activity tends to slow down in the fourth quarter, but this year has been quite different. In October, our office has nearly doubled the number of sales compared to this time last year. Open house activity has been robust, indicating an energized pool of Buyers just waiting for that perfect home to come along. If these trends continue, we could be in for a very exciting close to an already strong year. Here’s to a healthy and hearty season in all corners of our wonderful Island community.

Bainbridge Island Single Family Homes | Sold January 1 through September 30

MID-WAY THROUGH A GOOD YEAR

A Bustling Springtime 

Even though the first quarter of 2017 didn’t start that slowly, it sure felt like it did. But the second quarter was a different story. We were flat-out busy between April and June. There were 141 home sales on Bainbridge during Q2, which was a 31.8% increase over last year and a 306.5% increase over 2009 (for those of you who remember those days). The only second quarter to get even close in the past decade was 2013, when 125 homes sold.

The Mechanics of Price 

Still, a curious piece of data accompanies all those sales: the median price of homes sold in the first half of 2017 increased only 3.6% over the comparable period last year. That is the slowest growth of prices since 2012-2013 (when it actually went down). Here’s why this is significant: even though there is healthy demand, buyers are showing restraint and patience. The basics of presentation, pricing and negotiating (which good agents bring to the table) still prevail. You cannot just take a house in any condition, throw a price at it and expect success. This is one of the factors that differentiate Bainbridge from the Seattle market. The flip side is that a major source of new buyers on Bainbridge are frustrated Seattle buyers who are tired of dealing with the city’s growth and market conditions. Our office was involved in 96 Bainbridge transactions during the first six months of this year, 30 of which (or 31.3%) involved Seattle and Eastside buyers. When we expand the circle, we see that out-of-state and Seattle buyers accounted for 51% of our transaction in the first six months.

Condominiums

Our condominium marketplace has had a booming first half of the year. Sales climbed from 38 in 2016 to 50 in 2017 (almost a 32% increase!) and the median price rose from $404,500 to $499,250 (up 23.4%), finally surpassing 2007’s previous record of $468,000. It took a decade for these numbers to return, and we’re happy to welcome them back.

Land

Land is now the only remaining soft spot in our market. Sales were down 39% from last year but median prices rose 14%. We attribute this mostly to no new large parcel sales and the possibility that people are intimidated by the new construction process. The planning and designing phases of any new project are exciting, but then come permitting, the search for contractors and all the costs. With quite a bit of new construction coming on line, people seem to be waiting to see what someone else has built.

A Construction Zone 

There is quite a bit of new construction on Bainbridge, which means the development topic is getting a lot of attention among locals. Bainbridge Island is such a great place to live that the pressure to grow comes naturally. History tells us that restricting growth will push up prices and eventually affect the market’s diversity. However, growth is a concern to existing residents who fear it will spoil what makes the community desirable in the first place. So the community stance has been to try to limit development to specific pockets of the island as a way of preserving rural character in general. When we map the major new construction projects, we see that this goal has largely been met:

• Winslow:  The Grow Community, Wyatt Way (D.R. Horton), Weaver, Bainbridge Landing, Finch, Freestone Landmark (Wing Point), Freestone Ferryview (Wing Point)
• Lynwood Center:  The Roost, Pleasant Beach
• Rolling Bay:  Sunrise Square

These projects are all within designated growth areas. Indeed, the only multi-home development out of the growth centers is the 10-home project going in at Torvanger/Sunrise Drive, and that’s being built on a 12-acre parcel.

Favorable Conditions 

How long will this pressurized market last? Anyone who experienced the 2007 market, which was also quite active just before it changed dramatically, is reluctant to make long-term predictions. However, there are some key differences between 2017 and 2007. Today, the lending and banking environments are far healthier. Also, job growth is the primary fuel of real estate growth. And our local economy is far stronger now than then. Windermere Chief Economist Matthew Gardner had this to say about regional job growth in his Q1 2017 report:

Washington State continues to add jobs at a steady rate. (We) continue to see unemployment fall and I anticipate that we will see this rate drop further as we move through the year. In all, the economy continues to perform at or above average levels and 2017 will be another growth year.

 Ever the Rock 

Yes we have growth and new construction, but there is diversity in the construction (family homes, homes ideal for downsizers, and homes close to services). When you drive around the island, you find most of it untouched by new developments. We also have the best parks, hikes, beaches, bays and communities in Puget Sound. Our region’s star is still rising as a great place to live and work and we are one of the premier neighborhoods in it. Growth pressure will continue; it’s up to all of us to work together to address it in ways that honor the past, present and future of this great place.