It’s spring! With our boys’ baseball season just starting and the hints of summer around the corner, it’s an exciting time of year. It’s also time to reflect on the first quarter of our local real estate market. We’re thankful to have closed six sales since the beginning of the year, so we’ve gotten an up-close experience with what’s happening on the front-lines. Here’s our view of the year so far.
Looking at the big picture, we continue to have a strong sellers’ market on Mercer Island. We’re seeing strong double-digit appreciation year-over-year, though with this appreciation, our market becomes less affordable to entry-level buyers. But savvy house hunters who watch activities carefully will also notice that there are still some opportunities out there. And sellers who market and price their homes right will be thrilled with the response that allows them to successfully sell their home and take their next steps.
Here’s a closer look at the numbers.
Inventory still on the low side
There were 37 residential sales in Quarter 1 2016 compared to 45 sales in Quarter 1 2015 and 66 sales in Quarter 1 2014. Low inventory continues to be a challenge for buyers, but as past years have shown, most listings come on the market in the spring (or second quarter). As of today, 34 new listings have come on the market on Mercer Island since the beginning of the second quarter (April 1st).
Not all market segments are experiencing cut-throat competition. Buyers will find that there is less competition for homes prices at around $1.6 million and above. If you can afford a new construction home, which currently start at about $1.8 million, you can take advantage of a pre-sale opportunity. With Trellis Townhomes and Summerwell Homes developments in the works, the inventory of new construction homes has significantly increased on Mercer Island.
Double Digit Appreciation in Average Sale Price and Average Cost Per Square Foot
Our average sale price on Mercer Island was up an incredible 27.3% over last year’s first quarter. However, this appreciation doesn’t tell the full story since homes sold in this year’s quarter were 9% larger than homes sold in last year’s quarter. Our average cost per square foot increased by 16.7%. Nevertheless, this double digit appreciation is still pretty impressive.
Every sale has a story
Average sale price and average cost per square foot are very general statistics, and every sale on Mercer Island has a unique story that isn’t captured in these big picture numbers. A home sold in the Lakes on Mercer Island will have a different story than a home sold mid-island or on First Hill. Neighborhood trends vary as well as demonstrated in the chart below.
As you’ll notice, the percentage of list price to sold price for two homes sold in the first quarter in the Lakes was 116%. This means that competition among buyers drove the price even higher than the asking price. Buyers do this by using an escalation addendum, which will escalate their offer price higher than a competing buyer’s offer by a specific increment, i.e. $10,000, thus pushing sold prices higher and higher.
The average list price to sold price percentage for the island in the first quarter was around 104%.
The big question
We’re hearing these questions a lot recently – “It is a bubble?” or “How long will this last?” Matthew Gardner, the Chief Economist for Windermere Real Estate, does not think this is a bubble or that we will see a collapse in home prices. Others say, of course, it’s a bubble – that double digit appreciation is unsustainable and increases in job wages can’t keep up.
None of us has a crystal ball, and we can only look to past trends and current market phenomenon. The state of Washington added nearly 100,000 jobs in the last year, while our unemployment rate remained the same at 5.8%, indicating an influx of people to our region to take advantage of these opportunities.
The Seattle Times recently reported an “exodus” of San Francisco tech firms to more affordable Seattle. The home prices may seem crazy to us, but they are a bargain to others coming from California and other pricier markets.
Even so, buyers are increasingly stretching themselves to get into the market. According to a recent Wall Street Journal article, “In Silicon Seattle, High Home Prices,” banks are seeing an up to 20% increase in buyers getting jumbo loans.
So in response to the “bubble” question, we tell our clients, barring any major catastrophe, this will last as long as we have low inventory and a huge demand from buyers with strong incomes. However, we wouldn’t be surprised to see prices level off in the next few years. If interest rates go up on loans, as predicted, buyers will feel the impact, as every 1% increase in rates will mean an approximate 10% decrease in buying power.
Our latest
Our year has been off to a great start with six closings so far, and we’ve had the opportunity to evenly represent both buyers and sellers, on and off Mercer Island.
In our experience working with buyers, we consistently help our clients get under contract within the first or second offer. We’ve also leveraged the market to bring multiple offers and offers over asking price to our sellers who have listed their homes.
We look forward to another exciting quarter ahead.
Considering buying or selling a home on Mercer Island? We’d love to help. Erin is a local neighborhood expert and a residential real estate broker with Windermere Mercer Island. She is co-founder of the Sirianni Group, in partnership with her husband, Charlie Sirianni. Charlie is a Mercer Island native, Managing Broker with Windermere Mercer Island, and former real estate attorney of 10+ years. Get in touch with Erin (email / phone) or Charlie (email / phone) today.
