Market News • February 13, 2012

The Gardner Report (Fourth Quarter 2011, VOLUME X V I)

by Windermere Economics

Prepared exclusively for Windermere Real Estate

Windermere Real Estate is proud to partner with Gardner Economics on this analysis of the Western Washington real estate market. This report is designed to offer insight into the realities of the housing market. Numbers alone do not always give an accurate picture of local economic conditions; therefore our goal is to provide an explanation of what the statistics mean and how they impact the Western Washington housing economy. We hope that this information may assist you with making an informed real estate decision. For further information about the real estate market in your area, please contact your Windermere agent.

MACRO & REGIONAL ECONOMICS

As I look back on 2011, I do so with mixed emotions. On the positive side, Washington State’s job market made significant inroads into the job losses that were seen during the recession and, although the unemployment rate remains elevated, it is heading in the right direction.

In 2011 we saw some solid job gains with the region adding 24,350 positions, representing a 1.1 percent growth rate. As the charts to the right demonstrate, the increase was seen in six counties with contraction in the other ten. That said, when I look at changes from the third quarter, even those markets that lost jobs are contracting at a slower rate, which is encouraging. Layoffs in the government sector are still acting as an anchor to growth and I do not expect this to change in 2012—even with the private sector doing its best to pick up the slack.

Six counties experienced a net increase in employment which matched that seen in the third quarter. There were few surprises here, with the major employment centers seeing the greatest increase in growth. Snohomish (2.9%), King (1.6%), and Whatcom (1.3%) Counties led the way in year-over-year growth. Job losses were most profound in Grays Harbor County (-2.3%), followed by Jefferson County (-1.9%), San Juan County (-1.7%), Mason County (-1.1%) and Kitsap County (-1.0%).

From an unemployment rate perspective, there was modest improvement over the past quarter (and past year) with five counties showing improvement, two remaining static, and nine faring worse than a year ago. Not surprisingly, the greatest improvements were found in the areas of highest job concentrations with Snohomish and King Counties leading the way. Markets where the unemployment rate grew the most were Grays Harbor, Mason, Kitsap, Jefferson and Clallam Counties.

Considering that in 2010 our market created just 1,550 jobs and in 2011 this increased to 24,350, I am going to give the current employment situation a “C+” grade, up a notch from the last quarter. My expectations for 2012 remain positive, but the headwinds that are being generated both in Washington, D.C. and Europe may affect the speed of our recovery.

REGIONAL REAL ESTATE

Sales transactions in 2011 demonstrated remarkable growth of 9.7 percent over 2010. When compared to 2010, we note that all but four counties saw an increase in transactions with one essentially showing no change and three showing less sales in 2011 than the prior year. The largest increases in overall sales were seen in Snohomish (+20%), Lewis (+14%), and King Counties (+12%). Declines were seen in Clallam (-9%), Thurston (-4%), and Kitsap Counties (-3.3%).

As has been the case for all of 2011, an increase in sales does not mean an increase in prices. The value of transacted units in our market declined by 15.5 percent from a year ago, excluding the volatile San Juan County which saw a drop of 14.8 percent. Looking at the specific counties within our survey, there were two that exhibited price growth from December of 2010, these being Island (+7.1%) and Clallam (+4.5%). Counties that saw the greatest price declines included: Jefferson (-30.1%), Kittitas (-28%), Mason (-26.4%), Grays Harbor (-20.5%), and San Juan (-20%).

There are, I believe, two reasons why we have not yet seen the price stability that we are all looking for. The first of these is that the sale of distressed homes continues to make up a very large percentage of all transactions and these homes sell for substantially lower than market price. In King County, for example, distressed transactions made up 40 percent of all sales in 2011. Additionally, with such low levels of supply, we have seen a pronounced change in the make-up of sales with a disproportionate percentage of homes selling in very affordable price ranges. Both of these factors are having negative effects on home prices.

I am keeping the housing market at a “C-“ grade this quarter and am unlikely to change this until we start to see more housing choices become available and the percentage of foreclosures start to decline.

CONCLUSIONS

From an economic perspective, I will not budge from my contention that Washington State represents the best of all West Coast markets from the standpoint of economic potential. The diversification in our employment base and consistent growth in private companies puts us heads-and-shoulders above our counterparts.

In as much as I certainly do not expect the state to return to its prior peak employment soon—we are still shy by 154,000 jobs at a state level and 71,000 in the Seattle area—there are tangible signs of improvement that are encouraging.

The local real estate market remains unsettled, with distressed transactions accounting for a disproportionate percentage of overall sales. It continues to be important to get these cleared before we will start to see noticeable improvement. That said, the percentage price difference between foreclosure/short sales and market rate sales is shrinking; a sure sign that value is being found in many markets.

I remain a “glass half full” analyst and believe that we will continue to see improvement in all indices in 2012.

ABOUT MATTHEW GARDNER

Mr. Gardner is a land use economist and principal with Gardner Economics and is considered by many to be one of the foremost real estate analysts in the Pacific Northwest.

In addition to managing his consulting practice, Mr. Gardner is a member of the Pacific Real Estate Institute; chairs the Board of Trustees for the Washington State Center for Real Estate Research; the Urban Land Institutes Technical Assistance Panel; and represents the Master Builders Association as an in-house economist.

He has appeared on CNN, NBC and NPR news services to discuss real estate issues, and is regularly cited in the Wall Street Journal and all local media. Mr. Gardner is also available for speaking engagements. Please call 206.442.9200 or email ge.admin@gardnereconomics.com for more information.

Selling • February 10, 2012

3.8% Medicare Real Estate Tax: Fact or Fiction?

by Edward Krigsman

You may have heard rumors about a 3.8% seller real estate tax to begin in 2013 and wondered if there was any truth to it.

Simply put, these rumors are a mixture of fact and fiction: When people refer to the “Medicare Tax”, they are talking about the tax provision of the Patient Protection Affordable Care Act (PPACA), a piece of health care legislation. This provision of the legislation is an investment income tax, not a sales tax on the sale of real estate. It may mean that a small percentage of home sellers who fit very narrow parameters might pay additional taxes on the profits of home sales that exceed a designated threshold amount.

Who exactly will be affected by this tax? Only those taxpayers BOTH designated by the provision as "high earners," AND who sell their homes at a substantial profit. "High earners”, according to the new law, are those who earn $250,000 (for married couples filing jointly) or $125,000 (for couples filing separately), or $200,000 (for all others).

The tax affects only those “high earners” who will see a substantial profit from the sale of their property, but this situation is uncommon. Why is this? Profit, according to this statue, will be calculated not on the basis of sales price. Rather, it will be adjusted to reflect existing capital gains exclusions for primary residences. The existing home sale capital gains exclusion on a principal residence is $250,000 for individuals and $500,000 for couples. No “Medicare Tax” will apply to gains within these limits.

If you feel that you may be among the few who must pay this new investment tax, you may want to consider selling before the law goes into effect in 2013. It is always best to consult with an accountant and/or tax attorney before making any decisions.

More • February 2, 2012

Celebrating 40 Years, Together

by Windermere Staff

Last week was a special week here at Windermere Real Estate. Close to 2,000 agents, franchise owners, and company leadership met up at the Paramount Theatre in Seattle to celebrate our company’s 40^th anniversary. While we were all together, we talked a lot about milestones; where we’ve been during the past 40 years, where we are today, and where we want to be going forward. One thing that remains unchanged is the privilege we all feel to get to do the work we do – helping people find a place to call “home” is something pretty special. We also premiered a fun commemorative anniversary video which captures the pride we all feel in having reached this exciting milestone together.

Something that has been a significant part of the Windermere culture for the past 40 years is community involvement. This involvement takes many forms, but the one constant is our commitment to improving the communities where we work and live. In honor of our 40^th anniversary, this year we challenged our offices to create videos that highlight the work they do in their local communities through the Windermere Foundation. We want to congratulate our three winners from Camano Island/Stanwood, Tacoma, and Walla Walla, each of whom received a $2,000 donation to their community organization of choice. These three are stellar examples of the amazing work all our agents and offices do throughout the Western U.S. You can find each complete video on our YouTube page at www.youtube.com/windermererealestate.

Thank you for allowing us to indulge for a moment in this celebration. It is because of all of you that this anniversary is possible – thank you!

Buying • Market News • Selling • January 18, 2012

An Optimistic Outlook: 2012 Market Insights

by Windermere Economics

This is the time of year when the most frequent question that I am asked is about home prices and which direction I expect them to move during the upcoming year.

Over the past three years, I have not made many friends, as my opinion on home prices has been quite negative. But this year, I am pleased to say that I am finding myself to be rather optimistic (well, optimistic relative to the past few years, at least).

The real estate data that I have reviewed suggests some markets are likely to exhibit positive price growth in 2012. Markets that are seeing sustained employment growth and price stability in the second half of last year are the ones most likely to see some very modest price growth this year.

In fact, I am somewhat surprised that we have not seen some price increases already. From an economic standpoint, there is a very reasonable argument that suggests that real estate prices are actually below where they should be, as they remain below the long-term trend line.

Below you will see a chart that demonstrates this theory. The blue line represents the Case-Shiller 20-City average since its inception and the red line shows where we would likely be had we not seen the real estate bubble. As the chart shows, prices are now below the long-term trend, therefore suggesting that houses may well be cheaper today than they might have been if we had never experienced the market of the past few years.

If this is actually the case, then why aren’t prices higher? Well, there are still a number of anchors that are holding us back. The first of which is the shadow inventory in the shape of distressed homes. Many foreclosures have been trading at below market value and, in some cases, below replacement cost. This naturally holds down values.

Secondly, and equally as important, are the continued issues with obtaining financing for the purchase of a new home. It remains remarkably difficult to get a mortgage, which has led to an unusually high percentage of proposed purchases falling through.

As I gaze into the crystal ball for 2012, I am hopeful that we will start to work through the excess of supply that is currently in the market at a faster pace. I am also hopeful that lenders will become less pessimistic and allow more purchases to close at the agreed-to prices.

When combined with improving economic conditions, I would not be surprised to see several markets exhibit modest price growth in 2012. That said and, as we all know, real estate is all about location; therefore I do not expect that price recovery will be equal across all markets.

In all, I remain hopeful as we enter 2012 and believe that will see several real estate markets improve in the coming year.

More • January 10, 2012

Windermere’s 40th Anniversary

by Jill Jacobi Wood, OB Jacobi & Geoff Wood

Later this month, Windermere agents from throughout the Western U.S. will come together in Seattle for our annual Windermere Symposium. They’ll talk about important issues, share ideas, and learn about new products and services to help them better serve their clients. It’s a time for camaraderie, collaboration, and celebration. And this year, that celebration includes kicking off Windermere’s 40th anniversary.

In honor of this exciting milestone, we thought it would be fun to look back at how things have changed during the past 40 years. In 1972, real estate looked a lot different than it does today. Instead of websites there were Polaroids. Instead of email there were hand-written notes. Real estate deals were done on the back of cocktail napkins and sealed with a handshake. And when you wanted to look at homes, you did so while riding around in the back seat of your agent’s car. Here are some other things we found interesting when looking back at the last 40 years:

Much has changed since 1972, but one thing we’re proud to say has remained the same is our agents’ steadfast commitment to their clients and their communities. They carry on the tradition started by our dad in 1972 when he founded Windermere and built a business centered on community and mutual respect. For us, Windermere’s 40th anniversary is about honoring those humble beginnings, as well as our agents who are truly the ones who make this celebration possible.

OB Jacobi, Geoff Wood & Jill Jacobi Wood

Living • December 29, 2011

2011: A year in Review

by Windermere Staff

Saturday is New Year’s Eve, and the year in review articles, top ten lists of 2011, and 2012 predictions are showing up everywhere. This time of year always inspires reflection, which led us to think about some of the incredible milestones we’ve experienced over the past 12 months and what we have to look forward to in 2012.

- Windermere and the University of Washington celebrate a 25 year partnership! This year was the 25^th annual Windermere Cup; the international crew races that are held each year to kick off opening day on Lake Washington. The UW, Stanford University, Cambridge University, and Oklahoma University competed in this year’s regatta. The University of Washington was undefeated in both the men’s and women’s races.

- More than 300 Windermere offices and 7,000 agents took the day off to give back to their communities for the 27^th annual Community Service Day. Agents worked together to clean up community centers, collect and deliver baby clothing to shelters and food to food banks, and improve living spaces at domestic violence shelters.

- In 2011, we pledged to “Build Better Communities, One Home Sale at a Time” with a network-wide campaign to raise awareness about the Windermere Foundation, and kids in neighborhoods with limited recreational resources. Windermere offices from Washington to Hawaii and Oregon to Arizona made a huge difference by helping to renovate local parks and recreation centers in their communities.

- The Windermere Foundation raised more than one million dollars for local community organizations that provide support to low-income and homeless families. Over the last 23 years, the Foundation has raised more than 23 million dollars. A portion of every home sale or purchase made through Windermere is automatically donated to the Windermere Foundation and goes back to the communities from which the funds were raised. We’re incredibly grateful to the generosity of our agents and their support of the Windermere Foundation.

- Windermere Real Estate was selected as the most respected real estate brand in the Puget Sound Business Journal survey of Washington State businesses. We were humbled by this recognition and flattered by the companies we competed with in the online “Battle of the Brands” competition. We successfully made it through four rounds, and came in a close second to Chateau Ste. Michelle.

- We launched a new and improved version of Windermere.com with some great new features:
  - - New look and feel throughout the site
  - - Fewer clicks to valuable information and listings
  - - More advanced-search options
  - - myWindermere tools including saved searches, find an agent, track and share favorite listings
  - - Listing detail pages with in-depth MLS data and research tools, such as listing history, days on market, and community details
  - - Discover Your Neighborhood features to find information on local schools, amenities and home sales
  - - Share listings and content via email, Facebook, and Twitter
  - - Expanded home buyer and seller tips with integrated blog

- After three challenging years, the real estate market is finally starting to see a light at the end of the tunnel with year-over-year home sales increases in most markets. While home values have continued to struggle, the lower prices combined with low interest rates have resulted in historic affordability levels.

Looking forward to 2012:

- Next year marks Windermere’s 40^th anniversary. To kick-off this noteworthy milestone, we are hosting a huge celebration and symposium for our agents in January. Throughout the coming year, we will also provide highlights, historical facts, and other 40^th anniversary details on the Windermere Facebook page.

- We are expanding our “Building Better Communities, One Home Sale at a Time” campaign so that we can have a greater impact on children and families in need throughout the Western U.S. You can learn more or donate at www.windermereandyou.org.

What were some of your favorite memories from 2011? What are you looking forward to most in 2012?

Buying • Selling • December 19, 2011

December Perspectives

by Guest Author

The year is nearly over, the holidays are in full swing, and reflection and resolution are top of mind. As we look back at the past year, it’s clear that in many ways 2011 was a time of transition and renewal for the residential real estate market. While recovery has been slow, the Seattle housing market has finally turned a corner, albeit a soft one with some bumps along the way. In general, sales are up, which means houses are selling, yet foreclosures and short sales continue to cause downward pressure on prices.

In 2012 we will likely see foreclosures rise, but not for the reasons you might think. Banks are beginning to focus more heavily on the backlog of foreclosures and are therefore expected to take on a higher volume of filings in the coming months. As they work through this backlog, it will appear on the surface that foreclosures are on the rise, when in reality, mortgage defaults are actually on the decline. In other words, foreclosures will continue to be prevalent in 2012, but they probably shouldn't be looked at as an indicator of the overall health of the housing market.

Amidst the ups and downs of the real estate market, one thing that kept our spirits up in 2011 was historically low interest rates. Low interest rates have the power to make homes more affordable, mortgage payments cheaper, and loan terms shorter. And because of this, home buyers and owners alike saw stellar opportunities to lower their payments or refinance during the past year. Interest rates are expected to remain low in the coming months, so as we head into 2012, there’s still time to do the math to see if it makes sense to act.

There are a lot of opinions out there about what the housing market will do in 2012, but in the absence of a crystal ball, it’s impossible to know exactly how it will fare. What we do know is that it feels like real estate is returning to its roots – where buying a home is less about red hot deals and more about long-term benefits. We’re encouraged by this shift and hope to see more of it as we usher out the old and ring in the new with a sense of reverence and optimism for what’s to come in the New Year.

From our family to yours, wishing you all things merry and bright this holiday season.

More • December 15, 2011

Greater Seattle Offices Give $122,000 to Local Organizations

by Windermere Staff

When we work together, we truly can make a huge difference in the lives of our neighbors!

Ten of our offices in the greater Seattle area team up every year for fundraising and giving. This year they exceeded everyone’s expectations, giving $122,000 to organizations and programs that benefit low-income and homeless families in their local communities. Here are some of the organizations they supported this year:

Kirkland Interfaith Transitions in Housing

Royal Family Kids Camp

Eastside Baby Corner

Housing at the Crossroads

Assistance League of Eastside

Eastside Domestic Violence Program

A special congratulations to the Bellevue West, Bellevue, Bellevue Commons, Bellevue South, Issaquah, Kirkland Central, Kirkland NE, Redmond, Woodinville and Yarrow Bay Windermere offices for the great work you did this year!

If you have purchased or sold your home through Windermere, you are a part of the Windermere Foundation. Each of our offices raises funds through transaction donations, fundraising efforts, and personal contributions. The funds they raise go back to their communities, to benefit local nonprofit organizations and programs that support low-income and homeless families. We are starting a new series to highlight the organizations and programs that benefit from the Windermere Foundation. If you have a story you would like to share, email foundation@windermere.com. Or you can donate at www.windermereandyou.org.

More • December 15, 2011

The Risks, Rewards, and Benefits of Owning Rental Property

by Shelley Rossi

One area of the real estate market that is thriving right now is rental property. In the first quarter of this year, landlords and property managers across the country rented more apartments and homes than they have during the first quarters of the past ten years. And according to the Wall Street Journal, the amount that renters are willing to pay has also jumped to a nationwide average of $991 per month.

All indications suggest that the rental market will continue to improve because of the combination of low vacancy rates and rising rents. In fact, the demand for rentals is predicted to far exceed supply through 2015, with some 4.5 million new renters expected to enter the market in the next five years.

What to consider before buying a rental
Being a landlord has its challenges. The recession took a toll on rental prices for a few years and any future economic downturns could do the same. Once the job market returns to normal, there’s a strong possibility that more people will choose to move from rentals into homes of their own. And the demand for rental properties could become oversaturated at some point, resulting in an investment bubble of its own.

What’s more, while the income from a rental property can be significant, it can take at least five years before you’re making much more than what you need just to cover the mortgage and expenses. In other words, the return on your investment doesn’t happen overnight.

However, in the long run, if you select the right property, it could turn out to be one of your best investment decisions ever—especially since rental real estate provides more tax benefits than almost any other investment.

Tax deductions for the taking
One of the great things about owning rental properties is the fact that you’re able to deduct so many of the associated expenses—including a sizable portion of your monthly mortgage payment.

The commissions and fees paid to obtain your mortgage are not deductible, but the mortgage interest you pay each month is—including any money you pay into an escrow account to cover taxes and insurance. Whatever your mortgage company reports as interest on your 1098 form at the end of each year can likely be deducted.

For example, you may be eligible to deduct credit card interest “for goods and services used in a rental activity,” repairs made to the building, travel related to your rental, expenses related to a home office or workshop devoted to your rental, the wages of anyone you hire to work on the building, damages to your rental property, associated insurance premiums, and fees you pay for legal and professional services. However, as is the case with any transaction of this type, be sure to consult your attorney or accountant for detailed tax information.

What to look for
As with any real estate investment, the location of the property and its overall condition are both key. But with rental properties, there are some other factors you’ll also want to consider:

 Utilities: Look for a building with separate utilities (water, electric, and gas, etc.) for each rental unit. This will make it far easier to legally charge for the fair use of what can be a very costly monthly expense.

 Competition: If your property is one of the few rentals in the neighborhood, there will be less competition for interested renters.

 Transportation: Rentals that are near popular public transportation options and / or major freeways (without being so close that noise is an issue) are usually easier to rent—and demand more money.

 Landscaping: Properties with small yards and fewer plantings are far easier and less expensive to manage.

 Off-street parking: Not only is off-street parking a desirable feature (people with nice cars usually don’t like to park on the street), it’s also a requirement for rental properties in some communities.

How to start your search
Unlike homes, rental properties do not typically have a visible ‘for-sale’ sign standing out front (as landlords don’t want to irritate, bring attention to their current renters, or turn off any prospective renters). Therefore, if you are interested in a rental property, your best option is to schedule an appointment with your real estate agent/broker to discuss your investment goals and identify what opportunities currently exist in your market place.

Living • December 9, 2011

Make Your Home Safe for the Holidays

by Guest Author

With all the cheer and celebration at this time of year, it’s hard to believe anything bad could happen. However, statistics show there’s a significant increase in home-related accidents, fires, and burglaries around the holidays. To protect your family, friends and property, heed these six suggestions:

Keep walkways, driveways and decks free of slippery ice or moss.

Have your fireplace professionally cleaned, and only use one artificial log at a time.

Check the batteries in all smoke detectors and make sure a working fire extinguisher is located on every floor, as well as the kitchen and garage.

Snuff out any candles before leaving the room (even for a short while), and make sure to always keep them in short holders with wide bases so they don’t fall over.

For holiday lights: Only use outdoor lights / extension cords in the outdoors, and plug them into GFCI protected outlets; make sure all lights are UL-approved; know that the smaller bulbs are safer; never leave them on when you’re not home.

Plug a few lamps and the TV or stereo into timers to make it appear someone is home while you’re away. Also, ask a neighbor to park their car in your driveway, pick up any mail and keep an eye out for any suspicious activity.

Making the extra effort to keep your home safe will always be the best gift you could give family, friends and other visitors.