Published April 2002

What’s the right price for a property? Depends on your view of the economy

At a recent economic forum in Everett sponsored by Frontier Bank, Michael Parks, the renowned editor of Marple’s Business Newsletter and self-described “amateur economist,” highlighted a soft recession with signs of recovery in late 2001.

He forecasts a rather anemic recovery this year on a national level. Locally, the Pacific Northwest and Puget Sound are likely to lag a bit behind. “Don’t expect meaningful recovery in our region until late this year” was Park’s punch line.

For real estate investors, sorting out the broad economic story and connecting that with employment outlooks and supply of new product locally is a difficult task. But that’s the type of thing investors must be able to measure to determine whether now is a good time to buy or sell.

A real example of how broad economic news does not always correlate well with income properties is the south Everett apartment market. One would have expected properties in that area to suffer considerably due to recent Boeing layoffs.

As it turns out, certain pockets within south Everett have held out quite well. A soft economic story, in other words, may have strengthened values with some properties as they prove they are not as Boeing-dependent as once thought.

The result of this mixed-signal market is that the gap between seller and buyer expectations on pricing is as wide as it has been in years.

Many sellers, it seems, expected the recession to be shallow and short lived last year. Others — particularly multi-family property owners — haven’t yet felt enough pain in the form of vacancies to feel compelled to move prices down.

Buyers, by contrast, have been trying to convince sellers of a less-than-rosy economic outlook to persuade them to move their way.

Both have factual data to support their positions. They’re both right, and they’re both wrong at the same time. The view depends on which side you’re on.

With neither side able to convince the other of their picture of the future, the wide gap will likely continue through the second quarter of this year.

Perhaps the only thing certain right now is that it will take a couple more quarters of economic news before things are clearer. At that point, the pricing gap may narrow as one side or the other makes a move.

Tom Hoban is CEO of Everett-based Coast Real Estate Services, a property management and real estate advisory company specializing in multi-family and commercial investment properties. He can be contacted by phone at 425-339-3638 or send e-mail to tomhoban@coastmgt.com.

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