|
Whidbey
Island
I N
V E S T O R
Life
isn't so much about where you've been, but
where you're going.
Maybe
we can help you get
there?
Spring
2003
A RECORD YEAR
FOR RESIDENTIAL REAL ESTATE.
This issue
reviews and summarizes changes in the
Whidbey Island real estate market for the
year 2002. We document the more dramatic
changes that followed the events of
“911”, now over a year ago, make
some predictions for real estate
performance in the year 2003, and close
with our usual near-term economic
predictions.
THE
EXTRAORDINARY YEAR OF
2002.
Notwithstanding the rather slow recovery
from a business recession (or maybe it was
a near recession) island residential real
estate dollar flows during 2002 rose an
impressive 27.6%; driven in part by
interest rates hovering around forty-year
lows. Total sales dollars rose $24.6 mil.,
to a record $199,646,080. There were,
north and south, approximately 1,014
single-family residential housing unit
sales - 881 were single-family detached
homes, 73 were "manufactured" homes and 60
were condominium units. Additionally there
were 66 multifamily units, in 14 sales
closed during the year.
Land sales
rose in sale numbers for the first time in
four years, however dollar volume remained
similar to last year. As our smaller land
parcels; those created before our 5-acre
zoning regulations, are absorbed by the
marketplace, they cannot be duplicated.
Therefore increasingly our land sales
represent higher-priced acreage properties
rather than lots. Residential sales are,
of course, by far the more important
segment of our real estate in numbers and
dollar flows.
Standard
Single-Family Detached Home Sales, Except
Manufactured Homes (2002)
Previously
Built
Homes
|
|
No.
|
Sales$
|
Aver$
|
DOM
|
%
SHR
|
|
Northend
(O.H./Cpvl)
|
558
|
$98,131,950
|
$178,305
|
80
|
41.9
|
|
Southend
(Grnbnk & South)
|
323
|
$94,655,622
|
$293,051
|
114
|
40.4
|
New
Construction
Homes
|
Northend
(O.H./Cpvl)
|
88
|
$17,053,080
|
$193,785
|
114
|
7.3
|
|
Southend
(Grnbnk & South)
|
19
|
$5,013,625
|
$263,875
|
187
|
2.6
|
OTHER
THAN STANDARD SINGLE FAMILY
DETACHED(SFD)
RESIDENTIAL SALES(North & South
Whidbey 2002)
|
Manufactured
|
73
|
$8,459,097
|
$116,289
|
85
|
3.6
|
|
Condominiums
|
60
|
$6,858,508
|
$114,308
|
107
|
2.9
|
|
Multifamily
66/un
|
14#
|
$4,160,870
|
$56,998
|
147
|
1.8
|
|
Residential
|
1,187
|
$234,332,752
|
$215,578
|
99
|
100
|
* There are probably more "manufactured"
sales that are being counted SFD
#Units and price/unit
In the above
Table, DOM refers to the number of "days
on market", while "percent share" means
the percentage of all residential sales.
North Whidbey includes the Zip codes for
Oak Harbor and Coupeville; South Whidbey
is everything south of Coupeville -
Langley, Greenbank, Freeland and Clinton.
What's going on with home sales? Other
than the impressive rise in all
residential sales last year, trends are a
continuation of events we have discussed
over the past four years. First, North
Whidbey is "booming". Absent dramatic
personnel changes at NAS Whidbey (highly
unlikely), the greater Oak Harbor area is
coming into it's own as a retirement
community. Within the past three years the
availability and quality of retail goods
has increased impressively. Significant
mission changes at NAS have many more
officers and senior enlisted personnel per
squadron than was the case with previous
fighter-bomber basing. Salary increases,
those following rising education standards
and outside competitive forces in the
private sector, along with rising housing
allowances (BAH) have stimulated local new
construction to record levels (and record
prices). Although rental rates are high,
many are unwilling to rent older
apartments or the tiny condo units that
were built in the past decade. Adding to
this Navy impact are the increasing number
of retirees who "discover" Whidbey Island,
but prefer the small town sense of
community in Oak Harbor. Another factor
affecting home buying patterns and new
construction is the accumulating impact of
the State's Growth Management Act (GMA).
Our county is especially impacted. GMA
basically inhibits all development in
counties, except within or around "urban"
areas. On Whidbey there is only one
literal "urban" area - Oak Harbor. GMA
virtually prohibits development everywhere
else. Politics have created a vacuum. Oak
Harbor has responded.
New affordable
development land is now so valuable that
successful builders are developing for
their own account and selling, at their
pleasure, some lots to the many eager
builders needing ready-to-build parcels.
Expect this trend to continue. While
"spec" home sales in Oak Harbor rose quite
dramatically in both numbers and prices,
such sales continue to decline on South
Whidbey. Only 19 new "spec" homes were
sold on South Whidbey, but some of these
were larger, rather expensive homes. The
appearance of new homes selling for more
than $350,000 is a new phenomenon on the
island. Expensive "spec" homes (those
above $300,0000) sell very slowly,
however, they are selling. Custom home
construction increased in numbers and
average values, even though these do not
appear as sales data. Condominium sales
continue to decline, as a percentage of
the market and manufactured home sales
have also declined. Interestingly, average
sale values continue to rise, quite
independently of changes in transaction
activity. Homes under $100,000 have
virtually disappeared (even condo sales
average almost $115,000 - but most are on
North Whidbey). The number of expensive
homes sold rises each year. In 2001, 118
homes sold for more than $300,000; and 35
of these sold for more than $450,000.
These "upper-tier" sales continue to be
intriquing as they document the direction
of change as Whidbey Island becomes a
"preserve" for the well-to-do and the
truly wealthy. Sales over $300,000
increased almost 30 percent during
2002.
The above
Table is very abbreviated, because of some
limitations with HTML. Contact us to send
you a printed or faxed page, together with
the published Table documenting 12 years
of South Whidbey and North Whidbey sales,
by residential category.
Those readers
interested in previous discussions of
these trends, or past articles on real
estate and American culture should visit
our main real estate
"Website":www.whidbey-realestate.com/whidinv.htm.
*** UNIMPROVED
LAND TRANSACTIONS: ANOTHER DOWN YEAR.
During
2001 there were 249 land sales; 107 on
South Whidbey totaling $14.3 mil., and 142
on North Whidbey totaling $12.0 mil. Those
land parcels sold, were, in the aggregate,
$26.3 mil. This is the third successive
year that land sales numbers have
declined. However, while they declined 11
percent in sale numbers, sales rose 17
percent in dollar volume, driven by still
rising average prices. On North Whidbey
the average transaction price, including
both lots and acreages, rose impressively
to $84,832 from last year's $76,807 even
as total sales fell. Forty-six percent of
these were lot sales. Lot sales averaged
$54,918, while 54% of sales were acreages
that averaged $110,809 per parcel. Both
were all time average price records. On
South Whidbey the "unintended consequence"
of GMA is to push the south end further
toward becoming a "rich enclave of the
privileged"; the average land sale was
$133,453; and 46% of the transactions were
acreages. The very high average price is
skewed because of three acreage land sales
that aggregated to more than $6.3 mil.
(one appears in the database as a home
sale, but was a "value in land"
transaction). In all, 59 lots were sold,
at an average price of $59,259. One reason
for the decline in lot sales is the
complete collapse of sales at the once
vigorous Holmes Harbor Golf
Course.
"Ecotopia"
Unraveled...Once Upon A Time there was
this beautiful place; green, lush, giant
trees, crashing surf. People struggled in
farm, field and forest to stay in this
magical land. Those who were well paid had
dangerous jobs, fishing, logging or
lumbering. There were challenges and there
was isolation but people worked and life
was good.
Ernest
Callenbach, in his 1975 novel of the same
name, introduced us to the word
"ecotopia", meaning a place where people
lived in consort with their natural world
in a kind of "spiritual" coexistence.
Then, in 1981, Joel Garreau wrote a
wonderful geographic analysis of American
cultural "lifestyles", called, The Nine
Nations of North America. One of
Garreau’s "nations" was Ecotopia,
that narrow band of forest land and sea
lying west of the coastal mountains,
stretching from northern California to
southern Alaska. To remain in Ecotopia
north of Marin County, its residents
willingly sacrifice crass economics for
natural splendor.
Your intrepid
editor recently visited Arcata and Eureka,
California, and came away with the
following observations on Humboldt County,
the nexus of Ecotopia. Through the
1950’s and '60's logging, lumbering
and fishing, plus a nascent service
industry in support of tourism, sustained
a vibrant County economy with incomes
higher than those average for California;
indeed higher than national averages. In
the late '60's a more radical
"environmental ethic" evolved that finally
culminated in "eco-terrorism" against the
timber industry in the '70's and '80's.
Millions and millions of dollars of
vandalism to logging equipment and the
"spiking" of trees designed solely to ruin
sawmills, became a legacy tacitly accepted
by many locals who should have known
better. In combination with a worldwide
recession for forest products, more
restrictive environmental regulations
(some frankly long overdue) and a dramatic
decrease in salmon and other fisheries
resources, economic hardship hit Humboldt
County families. "Tourism" was seen as the
way out, and the mantra became, "clean
green", for visitors who spend money but
do not stay.
To see
Humboldt County today is to see Ecotopia
unraveled. Not the consequence of some
grand strategy to maintain an
"eco-friendly" corner of the world, but
consequences that while fully predictable,
have been largely unintended. Fishermen
sold their boats and gear, large timber
companies withdrew to friendlier climes,
and smaller ones simply went through the
personal and family agony of bankrupcy.
During the '60's almost 70% of all
employment was logging, lumbering or
fishing. As the 1980's ended, the
county’s economy collapsed; hundreds
of homes were repossessed by their lenders
as thousands of workers lost their jobs.
All this in a population barely increased
in twenty years, just over 128,000, at the
very low population density of some 35
persons per square mile. Today’s
Arcata, the county’s intellectual
center, boasts a prominent State
University (formerly a teacher’s
college) and prides itself on a City
Council once with a majority of Green
Party members, as a reflection of its
philosophical commitment to
environmentalism. There are few but
low-paying service jobs, most of the
buildings are boarded up, and
second-generation "hippies" panhandle on
the streets; every Friday’s
"happening", in a town square watched over
by a statue of the inimitable Teddy
Roosevelt, is a rolling "anti-war rally"
– honest!
Eureka, the
County’s once vibrant economic
center, is trying to re-align the region's
economy into services for tourism, and a
hospitality industry in quest of a "clean"
economy. Half the buildings are empty;
many of the exceptions are dozens and
dozens of every conceivable kind of
governmental and quasi-governmental agency
or organization. County income has dropped
dramatically. The entire labor force is a
mere 45,300. Unemployment is officially 10
percent countywide, actually twice that.
Today only 4,200 work in the forestry and
lumbering industries. In dollar flows,
timber and forestry have declined 67
percent. Timber industry employment has
fallen by 20,000 to 3,900 since 1959;
fishing has fallen from 15,000 to 100!
Annual incomes have fallen to $23,000 per
capita, 79% of the current national
average. In 1970 it was 109 percent of the
national average. Today owners live in
only half of the County’s occupied
housing - almost 50% of residents are
renters. Twenty-percent of Humboldt County
lives in poverty, 26% of its children.
California Department of Finance records
document that 13,000 persons are employed
in government, accounting for almost one
in three jobs in the entire County!
Statistically, on a per capita basis,
Humboldt leads or is close to leading
California in poverty, mental illness,
substance abuse, domestic violence and
child abuse. We American’s should be
very careful what we wish for; we might
just get that…and more!
ECONOMIC
PREDICTIONS FOR FIRST-HALF OF 2003.
Our
national economy struggles following the
loss of investor confidence in new
business investment, together with fairly
large-scale employment layoffs. However,
modest positive growth continues -
probably about 4% when the data are
assembled by March. Given the scale of our
huge economy even this represents almost
$350 bil. in growth. Consumer confidence
has declined but actual consumption
remains strong. The housing market is
especially strong, hovering near an
all-time record of 6.6 mil, housing units.
Forty-year low interest rates have
provided a major stimulus to housing and
to automobile sales; also near record
perfomance. Unfortunately, beyond another
year, very low interest rates will not
continue to work as the marketplace for
houses and automobiles becomes saturated.
Federal tax cuts will provide some further
stimulus, but the large federal government
expenditures for defense and anti-terror
activities while a short-term stimulus,
tends to create longer term complications.
On the weak side, unemployemnt will
continue to rise and the travel and
hospitality industries (and their affected
cohorts) will remain weak for the
foreseeable future. On the strong side,
productivity is improving impressively,
agriculture is strong, and corporate
profits appear to have "turned around" and
are rising. Stocks will continue to be
volatile although companies with real
earnings will see significant recovery in
their stock prices in the months ahead
Others without earnings will continue to
have their prices manipulated by the
securities industry and speculators - as
they have for the past five years. We live
now and probably for many years to come in
great uncertainty. Our nation continues to
be vulnerable to events over which we have
limited control. It will be an interesting
"ride". Stay tuned!
Copyright 2003. All rights reserved
Autumn
2002
A RECORD YEAR
FOR RESIDENTIAL REAL
ESTATE?
This issue reviews and summarizes changes
in the Whidbey Island real estate market
during the first-half of 2002. Real estate
sales for the first six months suggest a
full-year of record sales. We’ll
discuss what’s going on, then we will
examine the “second home
phenomenon”, review important changes
in Whidbey real estate and make some
predictions for the rest of the year. We
close with comments about a world
increasingly under our control, some
on-going foolishness, Enron, and our usual
near-term economic
predictions.
THE SECOND
HOME
PHENONMENON.
The most important phenomenon in
contemporary real estate is the
“explosion” in the purchase and
ownership of second homes. Such homes are
the status symbol of wealth as we enter
the new millennium. During the entire
decade of the 1980’s American’s
owned an estimated 320,000 second homes.
In the intervening decade, by January
2000, U. S. government estimates suggest
there were 7.7 million such
ownership’s. One in ten families own
a “second home” (including time
shares). Six in ten families want to own
one, or more. About half of these
ownership’s are within 300 miles of
the principal residence; and 70 percent
are at river, lake, beach, or “ocean
view” locations.
A National
Association of Realtors study indicates
that second home purchases have increased
dramatically and that the equity increase
of such purchases has risen 27 percent
from 1999 to 2001, from an average of
$127,000 to $162,000 (including
timeshares!). This price rise is more than
twice what “family homes” have
appreciated. Eighty percent have been
vacation homes, the remainder
“investment 148; homes, stimulated by
the tax law changes of 1997. Second homes
may be simply defined as those where the
owners reside elsewhere. Such homes could
be weekend getaways close to home,
seasonal houses (often to escape snow or
heat), homes purchased based on retirement
planning, or sometimes
“investment” homes purchased in
anticipation of retirement and rented
until then or until plans change. In many
cases these “homes” are
condominiums, even timeshares. Here on
Whidbey Island, there are relatively few
investment homes, no timeshares and
virtually no condominiums; all are
single-family homes (SFD). To create a
foil for comparison, we’ll call other
SFD homes, “family
homes”.
It might
surprise many to discover that just how
large a segment of the marketplace second
homes are on Whidbey Island. When compared
with “family homes”, they are
more expensive on average and tend to cost
more per square foot, primarily because
they occupy more valuable land (view and
waterfront). The largest numbers of second
homes owned are located, in order, in
Florida, California, Texas and Michigan.
The highest ratio of second homes to
population are, in order, Maine, Vermont,
New Hampshire, Alaska, Delaware, Florida,
Arizona, Wisconsin, Montana and Hawaii,
with Washington estimated to displace
Montana during 2002.
CURRENT
WHIDBEY ISLAND REAL ESTATE
ACTIVITY.
Real estate activity on Whidbey Island is
stronger than last year and may be
expected to accelerate through year-end.
As last year was our record year, we
predict that 2002 will finish with a new
sales record. Most of our residential
properties (more than 85%) are
Single-Family Detached (SFD) homes. Land
sales, after declining for the past four
years, also show increased activity this
year. Increases have been stimulated by
low interest rates (now at 40-year lows),
and the continuing "flight to sanity"; an
escape for many from both urban and
suburban problems.
Through June,
we have had 466 SFD sales, averaging
$179,270. These sales are for all Whidbey
Island, north and south. They were on the
market for an average 102 days. Last year
(2001), through the half-year, we had 413
such sales, averaging $182,078. These were
on the market 105 days on average. Thus
far this year the SFD sales aggregate to
$80.7 mil., versus last year's $77.2 mil.
Thus sales are running about 4% higher in
dollar volume and over 12% in sales
numbers.
MARKETPLACE.
Second homes here range from weekend
"getaways" close to home, to seasonal
homes (to escape heat or snow), to planned
retirement homes. While there are no firm
data on which specific sale by sale
determinations can be made, we estimate
that so far in 2002, 39% of SFD sales are
"second homes". The sales averaged
$302,903. These homes sold for $148 per
square foot of finished living space, and
averaged 2,031 SF in size. Last year 38%
of sales appear to have been "second
homes", averaging $281,000 per home, 1,987
SF, and selling for $132/SF. In contrast,
"family homes" sold this year average
1,867 SF, selling for $112/SF ($210,487
per transaction). These buyers are almost
always well to do; some evidently very
wealthy. Because so many of these sales
represent "upper-tier" prices (either
expensive parcels that are large,
waterfront, or very "up-spec"
construction, consideration of
"upper-tier" sales is
instructive.<p>
During the
first half of 2001, we had on Whidbey
Island, 31 sales of SFD homes that sold
above $300,000. Of these, seven sold above
$450,000. The great majority of these
occur on South Whidbey (24), with three in
Coupeville, and four in Oak Harbor. Such
sales have increased dramatically in the
first half of 2002. This year, there have
been 39 such sales over $300,000 and 15
over $450,000; 28 were on South Whidbey,
one in Coupeville, and 10 in Oak Harbor.
Sixteen sales were waterfront property and
20 (some of the same) were acreage
properties; three were "trophy"
properties. These aggregated to $18.7
mil., versus $14.1 mil. last year. Average
"on market" times were 159
days.
UNLOVED IN A
WORLD OF
SCARCITY.
We American's are so delightfully naive!
Why do we have so much trouble accepting
that most of the world "hates" us? Here's
why. We now live in a world with 6.1
<i>billion</i> people alive at
one time. If, for the sake of convenience,
we shrank this huge population to 100
persons, for handy calculation, here is
what the population of "man" would look
like. Six of the 100 would possess 59
percent of the entire world's wealth, and
statistically
all
six
would
live in the U.S. About 80 would live in
what we would call sub-standard housing,
73 would be illiterate, almost 50 would
suffer chronic malnutrition, one would be
near death, and one of the 52 who are
women would be near giving birth. Only one
would have spent as much as a single day
in college, and only one would own a
computer. If you have a refrigerator you
are statistically likely to be richer than
75 percent of the rest of the world. If
you have even $1.00 in a bank or security
account, you are among the most wealthy
nine percent of the world's people. Fifty
of this population do not have a right to
assemble, and are under religious or
personal persecution. Finally, one in six
have been imprisoned, tortured or starved
by their own governments. Now does anyone
doubt why we are not universally
loved?
ENRON
ENDNOTE.
What are the lessons we can learn from
Enron? Some have begun to argue that Enron
represents a failure of the economic "free
market" system. Good lord, it's a "free
market" success. The ever-pandering people
of California don't want to pay high
electric costs. However, they are also
unwilling to permit new electric
production in the state. So, Sacramento
legislated electric rate cuts (illegal
price-fixing), bought Enron-created
peak-hour discounted electricity
(thoroughly stupid), "winked" while Enron
gouged businesses for off-peak power
useage (diseconomic); and when Enron
proved to itself that their model of
"non-market" economics would not produce
profits, they did what any "crook" would
do. First, they invented shady forms of
energy partnerships to disguise losses
(contract fraud), snookered stockholders
(stock fraud), contributed huge sums to
PAC's to influence legislators and
suborned their accountants into lying
about their finances (criminal
conspiracy), and finally did the first
right thing in their six years of glory -
went bankrupt.
Now Hawaii is
undertaking bold experiments in energy
lunacy. Sun every day is not enough for
them. Their governor wants inexpensive
gasoline. Is there an echo here? Shouldn't
the governor talk to Gray Davis who tried
to bring low peak-hour electric charges to
Californians, via Enron? Rather than
calling it "price-fixing", the words have
been carefully parsed to suggest it's
"profit limiting", to prevent gouging by
greedy oil companies. Hereforward,
permitted profits will be gauged by the
weighted average of gasoline sales profits
in California. That Hawaii is too far from
gasoline is going to be ignored. The
predictable outcome? First, a political
sigh of relief, followed by inconvenience
and shortages, then runaway prices,
finally, price fixing and profit-gouging
lawsuits, and government scandal. Hawaii
should just learn to live with its
sunshine.
ECONOMIC
PREDICTIONS FOR THE SECOND-HALF OF
2002.
Despite everything our national economy
continues to percolate impressively. The
recent collapse of stock prices may signal
that "sanity" is on its way back into the
market. In fact, statistically the stock
market remains higher than traditional
levels of earnings would support. We say
it again. Why do people think that
constantly rising stock values are their
due? Why, for instance, did anyone ever
buy Enron? What did portfolio managers
think they were buying - an energy company
that doesn't produce energy, doesn't "own"
things, has no history, and just occupies
a huge building filled with lots of
attorneys. Come on folks, what did you
expect? Here's our economic scenario. Six
months ago we had rapidly rising
unemployment, now that has slowed. Six
months ago consumer confidence was very
high, now that's declining because of the
"accounting" scandals. Next, the cost of
government operations is rising very fast,
but the economy is growing despite this
gloomy news. We're at war and the economic
costs of taming terrorism are going to be
very high. On the other hand, we continue
to have high durable goods sales (near
record auto sales), very high new home
sales and terrific existing home sales in
most areas of the country, high but
softening retail sales and near record
employment; all with interest rates at
40-year lows! What's going on is that
things are going pretty well economically,
we just listen too much to the news media.
It's not Enron, it's not "dot-coms", it's
not even General Motors. It is millions of
small businesses, together with a
significant number of "big" businesses,
those who happen to know who they are:
Johnson & Johnson, Hewlett Packard,
Procter & Gamble, etc. This working
"core" of business is what's really
important to our economic well being;
also, it is they and their employees who
pay most of the the tax base. Other
factors include: a world that is largely
in recession and unlikely to recover
quickly no matter what happens in the U.S.
Your intrepid editor just had the
experience of buying "Euros" in Amsterdam
for $1.03, eighteen months after that
currency was released at $1.60! How would
we Americans face a challenge like that?
The national economy will continue to
rise, but remain in the current trough.
Inflation is dead. Unemployment will
continue to rise. National homes sales in
2002 will continue well above the
5-million unit level. Not too bad
actually!
Copyright
2002. All rights reserved
Updated
2/10/03
Copyright
2003. All rights
reserved
Copies of the
Whidbey Island INVESTOR are available and
will be sent without charge to interested
persons. The current issue is maintained
on our "web" site:
www.whidbey-realestate.com.
We're Whidbey
Pacific Realty.
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