A Promising Start to the New Year

Familiar Themes

With regard to the Bainbridge Island real estate market and its year-end numbers, the similarities between 2016 and 2015 are striking. In both years, the market struggled with a lack of inventory and strong demand, while the market trends (that actually began in 2013) continued to respond to this condition. What makes 2016 special is we surpassed most (if not all) of the records set in our last ascending market of 2004-2007. While it makes some people nervous to be in this rarefied air, with the uncertainty that can accompany it, we don’t foresee any specific event that will change our market trajectory in 2017 (with one possible exception, which we will discuss later).

Record-Setting Prices

The median price of a home sold on Bainbridge has never been higher than in 2016. Even more impressive is the growth in the median, which has risen steadily since bottoming out in 2011 following the difficulties that began in 2007. In only five years, our median has grown from $493K to the current $740K – an increase of 150%. In that time, we officially drew even with and then surpassed the 2007 peak median of $680K. This is welcome news to all those sellers who have been hanging in there, whether they wanted to or not, waiting for prices to climb back up.

Our upper end has been the last market segment to enjoy our market’s resurgence, and finally joined the party in 2016. Sales over $1M were up 32.4% from 2015 and up 88% from 2014. Not only did we set a new “highest price sold” of $5.97M but we had five sales over $3M. Previously, the highest price for a home sold was $3.497 in 2007. Also for comparison, in the ten years between 2005 and 2015, there were only eight homes sold for more than $3M (an average of less than one, compared to the five sold in 2016).

Condos, Land and New Construction

Our condominium market also experienced a resurgence. In 2008, there were only 42 condominium sales on the island; in 2016, we had 104 sales distributed over all price ranges – the largest number since 2007. The condominium valley floor was in 2012 with a median price of $297K. In 2016, by contrast, we raised that by 35%, reaching a median of $400,750.

Although land sales were down last year (for reasons that are unclear, but we suspect a cyclical reaction from 2015’s exceptionally strong sales), new construction seems to be everywhere (especially in community centers). There is a plethora of multi-home projects underway across the island. Some are being developed by local owners, but we have also seen an influx of off-island larger development companies. New communities under construction: Ashbury – Off Wyatt – 18 residential homes (off-island developer); Landmark – Off Wing Point Way – 17 residential homes (off-island developer); Ferryview – Off Wing Point Way – 11 condominiums (off-island developer); Roost – Off Baker Hill – residential, commercial and townhomes (island developer); Pleasant Beach Village – 14 view condominiums (island developer). There are also many multi-home projects in the planning/permitting stage (Weaver, Finch and Torvanger to name a few).

The Density Trend

The development we’re seeing in places like Winslow and Rolling Bay addresses a sentiment we’ve been hearing from our clients for years: “We want to downsize and move into town.” As the higher end has become healthier, people have been able to achieve their goals of selling their larger homes (to enthusiastic new buyers!) and moving to smaller homes or condos in denser community centers. We anticipate Lynwood Center will also benefit from this trend as new homes come online (like The Roost and Pleasant Beach Village Townhomes and lots).

Moving Parts

We’re keeping a close eye on interest rates, which are slated to go up again sometime soon. The concern is they rise to a point where they materially affect mortgage payments (and therefore home prices). Loan rates are still exceedingly affordable, so let’s hope they stay that way.

Demand will probably not be a concern for 2017, and supply will still most likely lag demand. We have new projects coming on-line now and throughout the year, but we still see some clients waiting to sell their homes (adding to inventory woes) because there aren’t yet enough choices on the market to justify the risk of having nothing to move to once they sell. The new projects will help, especially because they provide what current potential sellers have been asking for, but we see overall demand still exceeding supply. As much as last year? That may depend on Washington DC …

The Crystal Ball

Will 2017 go down the same growth-oriented path as 2015 and 2016? Will the change in federal leadership have a negative impact on our market? Obviously, we can’t predict unforeseen events, but the economic outlook for our region is very positive. Professional and business services jobs are predicted to grow 3% in the Seattle Metro area next year. Computer and mathematical jobs up 3.5%. All that growth without any new transportation infrastructure only makes Bainbridge look increasingly appealing. People continue to look beyond King County, and many are excited to discover the beauty and quality of life found on Bainbridge Island.

Just The Facts

Reality Check

It’s election season, which means we hear assertions from candidates that sometimes warrant a bit of fact-checking. The same rules apply to real estate. At Windermere Bainbridge Island, we’ve heard a lot of misperceptions and embellishments about the state of our local market. “The bubble is bursting!” “Prices are being slashed!” “Prices are going up!” “Our market has peaked!” “Our market has gone crazy!” We’ve heard all this and more. So we’re here to set the record straight. Think of us as your real estate fact checkers.

The fact is we are in the midst of a very healthy (not crazy) market that is moving in a manner we have been predicting for some time. Let’s explore the specifics.

ASSERTION: “Sales are down compared to last year and we are moving downward!”

FACT: We have said for some time that the lack of inventory was holding our sales in check. When we started the 2016 business year (on January 4^th to be exact), there were 53 houses available on all of Bainbridge Island. The first quarter ended with only 47 homes available. This lack of choices crippled sales and reflected a 21% drop from first quarter 2015 sales. But this lack of inventory also helped push prices up, bringing more sellers into the market. Consequently, our inventory began to grow, which meant sales did too. By the end of the second quarter, inventory had grown to 92 homes. (Still low compared to Q2 2008 when we had 291 homes available, or to 2012 when the recovery had set in and we had 189 homes available.) Our year-to-date sales number also dropped from 21% down to 15% by the end of the second quarter. Now, with the third quarter wrapped up, our available inventory is 98 homes (compared to 77 last year at this time) and the number of third-quarter sales rose by almost 5%. Hardly a sign of a decreasing market.

ASSERTION: “Prices are being slashed!”

FACT: It’s true we are experiencing price reductions. This is a normal phenomenon created by sellers being unrealistically optimistic and buyers being informed and disciplined. The demographics of our marketplace bring more experienced buyers than many other markets. They are informed, know the risks of overpaying, seek professional advice and are careful. It’s like the old expression, “It’s the seller’s job to ask and the buyer’s job to say no.” Here also, sellers who seek (and listen to) competent professional advice in pricing will often experience less disappointment, along with a quicker and often more profitable experience. (There are reams of data showing that properly priced homes net more than overpriced homes that adjust downward.) Prices are still rising. The median price is up 17% from last year. The median price of homes sold during the third quarter this year was $765K, compared to $648K last year. This strength is reflected in the shift of sales in specific price ranges. There were 47 sales below $600K in the third quarter last year, but only 35 this year. Conversely, sales over $600K grew from 61 in 2015 to 78 this year! This indicates a shift upward in the prices of all homes. Hardly a sign of falling prices.

ASSERTION: “Prospects for new inventory are stagnant!”

FACT: Developers are eagerly investing in our market, which is also a signal of strength. Two new home projects are currently being marketed on Wing Point and Wyatt is under construction. The “Roost,” Grow Village Phase 3 and Torvanger are coming out of the ground. Pleasant Beach will start next month and Weaver and Finch are in the planning/design phase. These projects will continue to bolster inventory and provide our healthy buyer pool even more choices. Hardly a sign of stagnation

ASSERTION: “The condo segment is too limited to grow!”

FACT: Our condominium market is experiencing similar strong activity. At the end of the third quarter last year there were 5 active condominium listings; this year there were 26 available. Last year, 25 condos sold during the third quarter; this year 42. And prices are up over 8%.  As home prices continue to rise, condos provide attractive alternatives. Pleasant Beach and Grow Phase 3 are both great examples of home alternatives in areas where services and amenities are concentrated. They are both examples of our comprehensive plan to enable growth while maintaining our rural feel. Hardly a sign of a weak market segment.

We are very happy with our current conditions and don’t see anything on the horizon that would likely disrupt the trend in the near future. Crystal balls are dangerous (we certainly learned that in 2007/2008) but our region shows every indication of continued strength. Seattle is strong and more and more people are trying to escape from the challenges of its growth. Kitsap is also strong, with sales up and growing. Barring some big surprise, we see strength continuing at least through next year. The Bainbridge real estate market is looking good, and that’s a fact!

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 15^th 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 15^th, 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.

Condominiums and Land

Interestingly, the increase in inventory has not yet been felt in the residential condominium market.  Due to low inventory the volume of condominium sales are down almost 21% from last year.  Prices are up 8% from 2015, but the median price is still 13.7% lower than in 2007.  In addition to the shortage of available condominiums buyers face potential financing challenges specific to that type of property.  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 marketplace 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 are opening a satellite office on Olympic Drive and Winslow Way. There, in space shared with Pleasant Beach Village leasing agents, 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. We hope to have our doors open by the end of July, so please stop by!

AN INVENTORY-DRIVEN MARKET

The Same Old Tune

Even as the birds of springtime sing their new songs of the season, we must hit repeat as we report – once again – on our local market’s low inventory.  A lack of available homes continues to dictate what’s happening in Bainbridge Island real estate.

On April 1st, there were only 47 homes and 5 condominiums available for sale on the island. Within the overall market, certain price points have been more pinched than others (which is a snapshot in time and will change as the year goes on). For example, if you were looking for a home in the $600K to $800K range, you had only 5 houses to choose from and zero condominiums.

How Inventory Affects Sales and Prices

This extremely limited inventory helped drive home sales down more than 20% from last year. There are plenty of buyers out there; there are just not enough properties on the market to sell.  The scarcity increased competition and bumped median prices up more than 9% (and the average, which is more a function of the price ranges where homes closed, was up more than 18%!).  The median cumulative days on the market (CDOM) dropped from 26 in 2015 to 20 in 2016.  To put this in perspective, the CDOM in 2012, which was a good year, was 146 days.

The Story on Condominiums and Land

The condominium market is also suffering from lack of inventory. Last year at the beginning of April, there were 16 condominiums available compared to this year’s 5 (both of which lie in sharp contrast to 2012, when there were 45 available). Consequently, sales dropped from 19 to 16, but the median price rose 23% to $430K. Land, on the other hand, experienced a 30% increase in sales to 13 parcels this quarter with a 26.8% increase in the median price to $225K.

The View From Inside 

One might assume that a market like this, with rising prices and inventory competition, makes our jobs easier. The reality is that there are some basic principles, goals and strategies that any good real estate professional seeks to embrace, all of which must adapt to an ever-changing market.  Regardless of the climate, we want our clients to achieve the best possible outcomes – both at closing and in the future.  This is sometimes easier said than done, especially when competition is fierce and time is of the essence.  Given the complexities of the Bainbridge market, where most homes and locations are unlike any others, things can get even more challenging. It is not like buying or selling in a large subdivision where a product like Zillow has some merit. Here, each house has strengths and weaknesses and the success of a sale can pivot on those subtle nuances.

If You’re a Buyer

For buyers in this market, supply is tight and prices are rising. You almost have to assume you will be competing with others when you find the house you would like to make your home. Is the price fair? How high should you go? The specter of 2006 and 2007 should be in the back of your mind, as the concept of paying “whatever it takes” came back to bite many homebuyers. An agent brings knowledge of the current market, the choices it offers, what might be coming and how an individual house fits into the bigger picture – including the history of the neighborhood and often of the house itself. An agent will know whether a price is in line or whether the seller is being aggressive. (And, when there are limited comparable properties, this expertise becomes extremely important.)  No one wants to hear, “You paid how much for your house?!”

In multiple offer situations, there are strategies to employ. You need to line up your resources to be “the best you can be.” Multiple offers often require that decisions be made quickly, so being prepared makes you a stronger buyer and one less likely to be disappointed later. If you are not a cash buyer, there are things you can do to compete with those who are. Get comfortable with the stack of forms you’ll be asked to sign. Understand what it means to omit certain forms. What about inspections? Title reports? Learn how to spot red flags that make certain houses less expensive. Being a buyer in this market can be difficult, frustrating and even scary. A good agent can help you navigate the winding road to achieve the best results and avoid mistakes.

If You’re a Seller

Sellers may think they have it easier, but the reality is that a seller’s quest is the same in an ascending market as in a descending one. The two primary goals for sellers are to get the home sold in the time frame desired and to maximize net proceeds. Buyers will be more attracted to, and will ultimately pay more for, a house that is optimized to appeal to a buyer and priced in a manner that a buyer feels is reasonable in the current market. Here again, knowing the current market, as well as past and future markets and how a particular home fits into all of them, is essential in achieving the seller’s ultimate goals. But the work is just beginning when buyers first express interest.  You have to know which of them will have the greatest possibility of actually achieving a closed transaction. (It is surprising how many deals fall apart in this market.) Negotiating inspections? Appraisals? Seller’s liability? What do all those forms mean and what are your responsibilities? There are many steps between pondering selling and achieving your goals, and the reality is that sellers don’t always get everything they hope to get out of a sale – even in a sellers’ market.  But an experienced agent will help you prepare, present and respond so you can get the most out of any market.

The Constant

Real estate markets fluctuate all the time, sometimes favoring buyers and sometimes favoring sellers. This is simply the nature of the business.  But in the midst of all those ups and downs, one thing remains consistent:  the beauty and livability of Bainbridge Island.  At Windermere Bainbridge, we celebrate our island community and all it has to offer.

Singing a Familiar Song

In 2015, we watched as a trend that began in 2012 continued. For the past several years, we’ve had a steady decrease in available homes accompanied by increased values.  In 2015 we saw more of the same – or less of the same, depending on one’s perspective.  We are living and working in an ongoing environment of real estate scarcity.  Still, we keep our eyes on the future rather than the past to see what the market will do next.

The Ebbs and Flows of an Island Market

As with all markets, we are subject to demand (buyers) and supply (sellers). The majority of our buyers come from two sources: island residents seeking to change their Bainbridge addresses (>40%) and people moving here from the Seattle environs (~30%). We are all aware of the craziness of the Seattle marketplace. Seattle is experiencing phenomenal economic and job growth, a lot of it right downtown. Seattle Metro real estate is also a fairly closed system, with little room for additional housing unless you want to live in an apartment tower or spend a lot of time on the freeways going east/south/north. The consequence of this growth has created some serious traffic issues and prices (for those who succeed in the multiple-offer frenzy) are a lot higher there than here. Once you factor in the great reputation of Bainbridge schools, it is little wonder families of downtown workers look to the island as a real estate alternative to Seattle.

Movement on the Rock

And then there are the Bainbridge buyers. Many island residents have been “trapped” in homes they purchased between 2006 and 2008, waiting for prices to come back up so they can move without taking an equity hit. In general, prices have gradually risen since 2012, which has brought home values closer to the peak prices of 2007. (Prices have grown >35% since the beginning of 2012 but certain areas/locations/amenities have outpaced appreciation relative to other island neighborhoods.) At the current rate, we should surpass the average price peak of 2007 at some point during 2016. (The average price in 2007 was $820,569; in 2015 it was $790,534.)  The “upper end” segment (>$800K), which has been the slowest to recover, had a strong 2015 with sales up 35.6% from 2014 (137 versus 101). It is interesting to note this segment accounted for 36% of all the sales in 2015.

The Challenge of Choices

The only apparent impediment to local people moving around the island is a lack of choice.  Bainbridge residents are reluctant to put their homes on the market because they cannot find alternatives that justify moving (and their current homes appreciate the longer they stay in them). The current demand is outstripping current supply, which creates price increases and buyer frustration. The demand comes from the fact that Bainbridge is a pretty great place to live so people want to move here. As long as Bainbridge Island is perceived to be a desirable community (and given the alternatives for anyone wanting to be as close as we are to the metropolitan Seattle area), there will be demand from people wanting to live here.

The Pros and Cons of High Demand

The effect of this demand will be continued buyer frustration, higher prices and a demand for more inventory (growth of the number of homes available, otherwise known as new construction and development). If our demand stays the same (and there is no reason to doubt that it will, at least in the mid-term), prices will rise more than if there is new inventory. For those of you who have been here for a while, you remember when prices kept rising we started to lose new families and diversity as our prices appreciated in the last decade (2002-2007). This does have consequences on the island’s character.

Developing Changes

The good news is that there are new construction projects being built and being planned. As home prices and demand have increased, builders have re-emerged. We had 68 land sales last year (with a median price increase of 27%, from $185K to $235K), the most in over a decade (and a long way from 2008’s 15 sales). Some of these are for single family; some are for developments. Grow Village, developments on Wing Point, Wyatt Way and Lovell, Weaver, Sunrise Bluff on the mid to north end are actively being pursued by builders. Pleasant Beach and “The Roost” on Point White in the south end want to move forward and will, just as soon as some issues with the local sewer infrastructure are answered. Some of these projects will come on line this year, and some in 2017. Last year, we recorded 21 new construction sales, a 31% increase over 2014 and a 420% increase over 2013.

The Word on Condos

Condominiums were dramatically affected by the lack of inventory. Active listings (listings not under contract to be sold) went from a peak of 16 in May down to only 4 in mid-December.  That’s right. In mid-December, there were only 4 condominiums available island-wide. With that in mind, it is surprising that sales were only down 11% (90 versus 101). The median price, however, grew 11.2% ($372,500 versus $335,000) which surpassed the single family median increase. This was due primarily to sales between $400K-$500K increasing from 19 to 25 in 2015. (In both years, 86% of all sales were less than $500K.)

A Fresh Take

We expect 2016 to be an interesting year. There is little evidence to a slowdown in demand so the challenges sellers and especially buyers experienced in 2015 will probably not abate. There is a “buzz” that more people are thinking about selling this year, which will help. However, there appears to be a resurgence of a “no growth” attitude, which will only drive prices higher, lessen diversity and change the flavor of our island, which could eventually lessen demand. The trick is enabling growth so it maintains the qualities we currently have and allows Bainbridge Island to retain its distinct personality and charm.