A real estate broker said at last week’s Chamber of Commerce luncheon that the messenger (the media) was spreading fear that caused potential buyers to become immobilized. Headlines, she said, were a particular culprit since “frequently, the facts (in the story) aren’t as harsh…” No doubt, the media’s ability to influence readers is tremendous, which means we have an important responsibility to get it right.
The realtor also said loans are becoming more difficult because most now require a down payment of 20 percent, more income documentation and credit scores of at least 720. To put a positive spin on the situation, she emphasized that Bainbridge homes are selling at a higher price per square foot this year than in 2006 and the economic forecast for the Seattle area calls for “stabilizing trends” for the rest of 2008 and “moderate rise in sales and prices in 2009.” And, she said, the sky is not falling on Bainbridge Island.
She was followed at the dais by Eric Fredericks, owner of Fredericks Fine Homes, who had a different message. His company is a small builder of spec and custom homes, and remodels. Basically, he said, the building industry on Bainbridge is dead in the water right now because there has been a sharp decrease in recent months in the amount of money available to potential buyers in the price range typical of the island.
It’s true, as the realtor said, that houses in the low- and high-range of the market are selling on Bainbridge, but houses in the middle ($400,000 to $800,000), which are the bread and butter of the market, aren’t being sold. The buyers of expensive homes often pay cash and loans are easier to get for the low-range homes.
The problem is that Federal Housing Administration has bumped up the category of a conforming 30-year fixed jumbo loan from $417,000 to $475,000, which carries with it an interest increase from 6.5 percent to 6.75 percent. Unfortunately, the median price of houses sold on Bainbridge is more than $700,000.
Fredericks points out that a large number of the Bainbridge market involves people who are downsizing from a larger home to smaller homes or condominiums as the kids leave the nest. They have found of late that because their home values have dropped, the amount of money found between what they want to sell (now decreasing because of a lack of buyers) and what they to buy (still increasing) has shrunk and they can no longer afford to downsize.
The proof of the pudding is in what the housing industry calls the absorption rate, which is the ratio between the number of houses on the market compared to the number sold. Fredericks, who said he is now doing mostly remodels because few houses are selling, said the absorption rate on the island is down to about 10 percent. Also interesting are the listed versus vacant numbers on the island: At the end of June, there were 338 residential properties list, 129 of which sat vacant; 90 of the 124 condos listed were vacant.
Assuredly, the real estate market is trying to stay nimble by doing such things turning vacant homes and condos into rentals, and is pushing sellers to list houses at a price that will sell in today’s market.
As far as builders and subcontractors are concerned, they are definitely hurting. On Bainbridge, as well as regionally, it’s been decades since the numbers of housing starts have dipped as low at it did in June.
It’s a difficult time because our economy has become dominated by the housing and real estate industries. Fredricks believes that unless the government guarantees FHA housing loans, the recession will continue for a couple more years. He may be right.