6/15/99

Puget Sound Edition

Dear Clients & Friends,

Welcome to another update on Puget Sound's residential real estate market and the first of the Internet series. This issue will cover price changes in the Greater Seattle housing market over the two-year period between late May of '97, prior to the recent market volatility, and late May of 1999. Some information on comparative costs for new home construction will be provided, as well.

Mortgage rates have fluctuated slightly in recent weeks, but at 7.25% reported for a 30 year, fixed rate loan with no points, financing costs are still sufficiently low to support continued demand* for home sale and re-finance activity. The need for skilled technical labor remains unabated and the diversification of our region's economy both point to a healthy business climate.

*Seattle is reported to exhibit home ownership rates that are 20% lower than the national average. Restrictive pressure from the state's Growth Management Act and anti-development, political action groups will likely exacerbate this dilemma. With diminishing development land and an increasing population base, home prices will likely continue to rise. These dynamics will hopefully prompt prudent management of the remaining land resources available for residential development.

Reportedly, since the 1950's, our area has shown patterns of price volatility during the last several years of each decade. Typically, following this period of volatility comes a sudden drop in market pressure, then five to six years of relative price stability. I expect this cycle to repeat itself, again. More details of long and short term housing market cycles will be discussed in subsequent letters.

Research data: The first table below lists current median sale prices for much of the Puget Sound region by geographic area, as well as the rate of gain in price compared to this same point in 1997. The data is sorted in ascending order by the rate of appreciation.

The data sample includes 90 days of closed transactions ending in the last week of May, for detached single family dwellings or, where specified, condominiums. Data sources for these research letters typically include the Northwest Multiple Listing Service computer database and public records obtained through TransAmerica-Intellitech, as well as interviews with local brokers, agents, builders and developers.

Among the geographic areas covered above, the average gain in value is calculated at 23%. Although all market segments experienced appreciation over the two year time period examined, it is evident by the 39 point range that our market does not move as a monolith. Buyers and sellers should be educated to expect wide variances of performance within each geographic sub-market, as well.

The next table is derived from sales of new houses that closed between the beginning of January and the end of May of this year. Divided geographically, the table shows median sale price, average house size and price per square foot of house, including the lot. Land to value ratios tend to vary between 20% and 40% of the total price. Properties with water frontage or access to the water were excluded from this data.

The general tenor of activity in the housing market shows the benefits of sustained strength in the local economy. In particular, the technology sector appears to be contributing to market pressure by producing new buyers whose financial capacity lies at inverse proportions to their age. So long as the market for technology stocks remains robust, this trend is likely to continue.

Housing market dynamics vary significantly depending upon proximity to transportation and employment centers, zoning, available inventory etc. Accordingly, it makes sense to enlist the services of qualified professionals when faced with valuation or land use issues. With real estate, the stakes are always high. Make sure you're getting or providing the information that will allow your clients to make decisions that are in their best interest.

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Your comments are welcome, too. Thanks for visiting HousingUpdate.com.

Regards,

Robert E. Rothstein
© 1999