By Matt Woolsey, Forbes.com

Talk about being in the right place at the right time.

While speculators and flippers in places such as Boston and San Diego are running for cover, in other parts of the country they are basking in robust residential sales. Third-quarter median home prices last year climbed 14.6% from the third quarter 2005 in Seattle, 14.3% in El Paso and 12.3% in Portland, Ore.

They also increased by roughly 5% from the third quarter 2005 in Houston, Los Angeles, Austin, Jacksonville and Charlotte over the year before, according to the National Association of Realtors.

Prices also jumped along the Gulf Coast, a good sign for Post-Katrina economic recovery efforts. Third-quarter median home prices increased 15.5% from the third quarter 2005 in Gulfport-Biloxi, Miss.; 14.1% in Baton Rouge; and 7.6% in New Orleans.

Price figures are based on total metropolitan areas as defined by the United States Office of Management and Budget. So, while the New York City metro area grew at a solid, but not blockbuster, rate of 3.6%, officials from New York's Finance Department say the five boroughs grew at 19% in 2006 — twice the 2005 figure — with prices in Brooklyn and the Bronx swelling 27.6% from the previous year.

In the rest of the country, Third-quarter median home prices dropped 1.2%. The most affected area was the Northeast, where median home prices plunged 4.8% over the previous year.

Those homeowners would be better off heading west where Realtors expect prices to continue to rise.

"There are still plenty of people out there looking to buy homes, our local economy is holding strong and there are a lot of people moving into the city," says Kristine Losh, a broker with Ewing & Clark. "Geographically, Seattle is long and thin and surrounded by water. There's not much room, so you've got a lot of people trying to get the same small amount of land."

Behind the numbers
Cities showing gains exhibited high job growth and positive net migration figures. They were also areas in which home affordability remained close to national averages through the boom, making them less prone to the corrections and adjustments seen in overheated markets.

Cities most affected by the downturn were old-line industrial markets such as Detroit or Lansing, where local economies are suffering the effects of mass layoffs in the auto industry.

In the Northeast, the number of jobs created last year grew only 0.8%, according to the New England Economic Partnership (NEEP), vs. the 1.3% national growth rate. If that's not bad enough, NEEP's projections for increases in gross regional product and per capita income also lag significantly behind national averages.

As a result, people are leaving the area. The latest United States Census net migration figures indicate that 4.6% more people left the region than entered it last year. The regional real estate market also experienced a 4.8% drop in median prices. On the flipside, the South's economic conditions lead to the nation's best migration rate (3.4%) and subsequently, at -0.1%, the nation's best median home price growth figures.

Fools rush in
From 2004 to 2005, median homes prices in most of the cities that are now resisting downturn, such as Austin and Charlotte, grew at slower rates than the national average.

This made them less susceptible to the sudden swings of a high-flying, highly speculative market such as Miami. In this area, median home price exploded from $232,000 in 2003, to $391,000 at the end of 2005, driven by a market in which builders couldn't keep pace with demand. Miami's real estate market has since corrected, moving down 5.6% from the third quarter 2005.

"In the highest growth markets, there were a lot of folks who panicked when they saw prices going up by 8, 10 or 12% a year and rushed to buy in," says Kermit Baker, a senior research fellow at Harvard University's Joint Center for Housing Studies.

"Once prices started to fall [in high growth markets], speculators got an itchy trigger finger because prices went up so high that it was very difficult to buy; affordability had gotten out of hand and people worried that if they waited six to eight months to sell, they'd be left holding the bag. The result is a short-term adjustment."

Steadier, more tempered growth translates into a stable real estate conditions because affordability remains in line with local economic conditions.

"In markets with sharp transitions, there was a lot of speculative, short-run buying" says Lawrence Yun, a senior economist with the National Association of Realtors. "In places like Texas or North Carolina, home prices are affordable and there is a good job creating the environment. In Seattle, the job market is strong and while home prices are above the national average, they are affordable by West Coast standards."
What's more, when home values grow too quickly, builders rush to keep up and when the party is over, construction slows and there is excess inventory. For example, this week the nation's largest home builder, D.R. Horton (DHI), reported a 60% quarterly drop in earnings.

Add to the mix speculators anxious to dump property and the result is a jump in residential vacancy rates. Since the end of 2005, when the housing bubble began to deflate, nationwide vacancy rates have jumped to 2.5%, a nearly 50% increase from the 10-year average. Higher vacancy rates give buyers leverage in negotiating price because sellers have excess supply.

Cautious optimism
Despite the numbers, some in sluggish areas remain hopeful.
In cities such as Boston, where median sales prices were beaten down 4.3% from the 2005 peak of $431,000, realtors say the market is still strong.

"The biggest difference from 2004 and 2005 is that sellers are willing to negotiate on their prices — bidding wars aren't taking place," says David Green, a broker at Otis & Ahearn. "The bottom line is, if you price your home right, it will move; you would not see that happening in a downward market."

Economists are similarly optimistic for the coming year.

"There's no urgency right now because people think that if they wait six months, they can get a cheaper price," says Baker. "When they think the market has bottomed out, they'll buy back in."

© 2007 Forbes.com LLC.™ All Rights Reserved.

Labels: market, real estate market, seattle

New study shows which words sell, and which don't
By Ann Brenoff
Los Angeles Times

Heather McKinnon / The Seattle Times

Words matter. Wars have started over them. Civilizations have collapsed because of them. And it appears the speed with which a house sells might be determined by them.

As listings grow old on the vine in this flush-with-inventory market and frustrated sellers reach for the slightest edge, the findings of several academics might offer guidance.

For example, a Canadian professor, as part of a broader study on real-estate sales patterns, found that homes where the seller was "motivated" took 15 percent longer to sell, while houses listed as "handyman specials" flew off the market in half the average time. "It surprised even me," said researcher Paul Anglin, who teaches real-estate and housing trends at the University of Guelph in Ontario, Canada. The study dissected the wording of more than 20,000 Canadian home listings from 1997 to 2000.

What surprised him most was how the buying public put style over substance. Words that denoted "curb appeal" or general attractiveness helped a property sell faster than those that spoke of "value" and "price."
Homes described as "beautiful" moved 15 percent faster and for 5 percent more in price than the benchmark. "Good-value" homes sold for 5 percent less than average.

Another finding in Anglin's study was that the plea of "must see!" was received about as enthusiastically as a dinner-time telemarketing call. Using "must see" had a statistically insignificant effect on the number of days homes took to sell.

Words that help sell a home:
Handyman special
Curb appeal
Move-in condition
Landscaping
Granite
Gourmet
Golf

Words that hurt:
Motivated seller
Good value
As-is
Clean
Quiet
New paint

Listings where "landscaping" was heralded sold 20 percent faster, and homes in "move-in condition" took 12 percent less time to sell than the benchmark, although the study showed that "move-in condition" had an insignificant effect on the sales price.

Owners use listing language to convey how serious they are about selling. Some words work better than others, Anglin's study found. Listings in which the seller said he or she was "moving" sold for 1 percent less compared with 8 percent less when the seller was "motivated."

Real-estate listings, not unlike personal ads, are crafted to minimize blemishes and maximize perceived selling points. So if "enjoys moonlight walks on the beach and cooking together" means "I'm unemployed and am looking for someone who won't always expect to eat out," then "needs TLC" might mean "this house will have you on a first-name basis with the clerks at the local hardware store."

Anglin's study isn't alone in its attempt to determine what language moves the market.

Last year, the effect of listing language was covered in a National Bureau of Economic Research study that looked at whether real-estate agents selling their own homes hold out for a higher price. (They do; the study found they take longer to sell but fetch a higher price.)

Descriptions of houses that indicated an obvious problem — such as "foreclosure," "as-is" and "handyman special" — drew substantially lower sale prices.

Words that suggested desirable attributes — "granite," "maple," "gourmet" — translated into a higher sale price, the study found.
One problem discovered was that "superficially positive" words that, in effect, damn with faint praise — such as "clean" or "quiet" — had zero or even a negative correlation with prices.

Those findings echo those made in a 2000 paper, "Real Estate Agent Remarks: Help or Hype?", researched by University of Texas finance and real-estate professor Ronald Rutherford.

Rutherford found, among other things, that buyers read between the lines. If you can't find anything better to say than "new paint," perhaps it's best to say nothing at all.

Positive and factually verifiable comments such as "golf" or "lake" drew increased sales prices. Other presumably positive comments regarding new paint or new carpet brought lower ones.

"What you say needs to be extravagant, or the signal that is received by buyers is that it's not worth talking about," Rutherford said.

But what do sellers know? "New paint" appeared on 15 percent of the listings and was the most commonly listed comment.

Rutherford said sellers would be best-served by a listing with "just the facts, ma'am."

"In today's market, if it's a good deal, you need to convey it with factually verifiable language," Rutherford said.

An example: "Needs repairs."

Of the information from his study, conducted between 1994 and 1997 of almost 60,000 closed residential transactions in Tarrant County, Texas, what surprised him most?

That homes with "motivated" sellers stayed on the market 15 percent longer than average and sold for 4 percent less.

His theory: "They overpriced the house to start with and eventually had to lower it. That explains the length of time on the market and the lower sales price."

Does he have any advice for today's sellers?

"Yes," he said. "Avoid the word 'motivated.' "

Copyright © 2007 The Seattle Times Company

Labels: market, real estate, selling

By Elizabeth Rhodes
Seattle Times business reporter

One of this year's biggest residential real-estate topics was the anticipated slowdown in sales and appreciation.

Would the Puget Sound market tank?

Would prices deflate?

Neither of those things occurred locally, although other parts of the country have seen moderate-to-severe downturns this year.

What happened here was a gentler transition in housing activity, from its record 2005 levels to a slower pace by this year's end.

What will 2007 bring? Here's what Seattle real-estate experts are saying.

Last December, The Times noted Seattle real-estate economist Matthew Gardner's prediction that houses would appreciate about 7 percent this year.

But through November, median house prices were up almost 11 percent in the tri-county region (King, Snohomish and Pierce counties), according to the Northwest Multiple Listing Service.
So much for any bubble bursting this year.

Gardner doesn't see that happening next year, either.

"This bubble lunacy is still prevalent, but not in Seattle, and I'll keep saying that," said Gardner, of the land-use economics firm Gardner Johnson. "All the fundamentals are in place for good job growth and in-migration. That, and our limited land availability, means we're protected and will continue to appreciate in value."

Appreciation in 2007 "will vary dramatically" by location, which is normal, he said.

The closer homes are to the major job hubs of Seattle and Bellevue, "the higher appreciation you'll get," Gardner said. "That's because there's intrinsically a value to our time."

He expects closer-in areas to appreciate about 10 percent over the coming year; farther out, 7 percent appreciation will be more the norm for single-family homes and for condominiums.
But forecasting, Gardner stresses, is an inexact science based on the best information at the time — which is why his prediction for this year didn't match the market's performance.

The wild card was interest rates. This time last year, Gardner was among many economists who predicted that mortgage interest rates would climb and put the brakes on housing activity. Rates didn't climb.

His list of possible wild cards that could affect appreciation next year: a sustained jump in inflation, a terrorist incident, a quick increase in oil prices.

We've come off two incredible years — 2004 and 2005 — so what did we have in 2006?

"A more balanced market," said Bill Riss, CEO of Coldwell Banker Bain. That's giving buyers "a little more time to think, plan and write good offers."

Indeed, compared with the fall of 2005, this fall's sales were down and inventory was up — two indicators of a cooling market.

Riss thinks 2007 will probably be a copycat of 2006 in terms of inventory and the number of sales "unless there's something in the condo market that causes oversupply."

There's been some talk of that among local real-estate experts but no consensus that a condo glut is ahead.

Fueling the replay will be wage and job growth, which spur demand, he said.

"[That has] continued to provide an imbalance — more buyers than sellers — even though inventory is up," Riss said.

Riss wouldn't be surprised if spring sales roar to life, causing another feeding frenzy, albeit not at record levels of past years.

One serious factor that could affect it: affordability.

According to the Washington Center for Real Estate Research, median-income buyers are increasingly being priced out of Western Washington counties.

First-time buyers are particularly strapped. Only 40 percent of people in this category can afford a single-family starter home in King County, and only about half can in Pierce and Snohomish counties.

Last December the national average for 30-year, fixed-rate mortgages was 6.39 percent. Now it's 6.18 percent.

A rise in inflation could drive rates up, but that's not a concern now, Frank Nothaft, chief economist for mortgage-money provider Freddie Mac, recently told the Washington Association of Mortgage Brokers.

"Inflation will be tame, and interest rates will not change much in the next six months," Nothaft said. "They may drop after that. We don't see mortgage rates even getting up to 7 percent [by the end of 2007]."

Nothaft expects an 11 percent drop in the number of mortgages written next year. That's because refinances, which peaked in 2003, will continue to decline.

He also anticipates the number of nontraditional loans, such as negative amortization and interest-only, will drop as borrowers choose other mortgage products instead.

The same strong regional economics sustaining the local home-sales market are also fueling apartment demand, said analyst Mike Scott, of Seattle's Dupre + Scott Apartment Advisors.
Logically, strong demand should ramp up apartment construction, but it hasn't worked out that way, Scott said.

A year ago, he forecast 3,600 new units would be built in King, Pierce and Snohomish counties this year. Instead, just under 3,100 opened.

In 2007 Scott anticipates even fewer: just 2,600 new apartments.

"Developers have not been able to bring as many units to the market as they planned because of rising construction and land costs," he explained.

Meanwhile, apartment investors, bullish on the Seattle area's economy, are busy buying up buildings. On average they're paying 15 percent more for them this year than in 2005.

Many owners are planning to renovate their new purchases, Scott reported, and renters should "expect significant rent increases as a result."

Taken together, all these factors will cause apartment rents to jump about 8 percent next year, Scott predicted. Vacancies will fall from their current 4.7 percent to roughly 3.5 percent, he said.
The stealth factor is condominium conversions. While the conventional wisdom is that they take units out of the rental pool, Scott estimates that up to 25 percent of them are bought by investors for continued use as rentals.

"That's true of regular condos, too," Scott said. "All the condo construction in the last few years may have actually provided a hidden supply of rentals."

The national news has been full of stories about homebuilders cutting production and prices as the real-estate market cools. In November, for example, building permits nationwide fell to a nine-year low, according to a government report.

"But that's the national news, not the local news," said Suzanne Britsch, senior analyst for New Home Trends, a construction-analysis and consulting firm in Mill Creek. "We still have job growth and a shortage of lots here, so we have just not had a problem with standing inventory."
But part of that may be because builders cut back on supply, building 3,000 fewer single-family homes this year than they did in 2005 in King, Snohomish, Pierce, Thurston, Kitsap and Skagit counties combined. The total number built in those counties this year: 19,264.

Meanwhile, area-wide condo construction has been booming. In all of 2005, some 8,400 units were built. Through September of this year, 9,583 new units had been built.

"Most of those are in King County, and the majority are presold," Britsch said. "The jump is in high-rises in Seattle and Bellevue. It's a status thing now: Which building do you live in?"
Propelled by strong job growth, buyers will be plentiful next year for new houses and condos, she predicted.

But new construction doesn't come cheap.

In King County, the average price of a new house will be $750,000, she predicted. A big chunk of that expense is the land. The rock-bottom price for a lot in a new King County subdivision is now $250,000.

In Snohomish County, new single-family homes will start at $400,000. And they'll likely be on 3,500-square-foot lots, rather than 6,000 square feet, the norm there until recently.

New condominiums in King County, which is seeing the majority of new condo construction, will be priced at $350,000 or more regardless of their size, she said. Conversions often will be priced lower.

Elizabeth Rhodes: erhodes@seattletimes.com