Wednesday, July 26, 2006

Neighborhood Report - Capitol Hill

Seattle’s real estate market continues to thrive in spite of the nay-sayers’ dire bubble predictions. Other markets around the country are cooling or are already flat, but that’s not the case with Seattle’s real estate market.

Seattle’s strong demand for mid-level and high-level employment and the geographic restrictions on our housing supply work together to create a shortage of housing. The recent easing of height restrictions on high-rise condominiums and increased density allowed in a number of Seattle’s urban neighborhoods will help ease the tension in our real estate market, but the full effects won’t be felt for a few more years. Even then, there will be only so much room between Lake Washington, Elliot Bay and the communities north and south of Seattle.

Our local economy doesn’t show signs of cooling any time soon. In an article for the Seattle Post-Intelligencer, John Cook explains that venture capital investment is higher in our state right now than its been in five years. Dan Richman recently wrote another article for the Post-Intelligencer where he talks about the stability of our labor market.

The continued strong demand for homes is evidenced by the high appreciation rates that homeowners and investors continue to enjoy. Multiple offers to purchase condominiums are still making many transactions look like sealed bid auctions, and the average time it takes to sell a house continues to be historically low.

Capitol Hill is a particularly strong market because of the innovative new condos being constructed there, and also because of its popularity among Seattle’s left-leaning urban professionals, hipsters and anyone else who wants to enjoy the central location, live music venues, clubs, bars, funky retail shops and pedestrian-friendly density.

From June 27 through today, three multifamily properties, 25 houses and 87 condominiums sold or were under contract. During the same period last year, five multifamily properties, 22 houses and 54 condominiums sold. This means that overall sales volume has increased on Capitol Hill by 42%.

The median price for Capitol Hill condos that sold this month was $313,450. Capitol Hill houses that sold this month had a median price of $729,000. The median price for Capitol Hill condos that sold during the same period last year was $262,500, and the median price for houses that sold during this month last year was $652,011. Over the last year, the median price of condos on Capitol Hill has increased by 19.4%! The median price of houses appreciated by a respectable 11.8%.

This is great news for anyone who already owns a home on Capitol Hill, but it’s not so great for renters who want to buy their own home instead of helping their landlord get rich. First-time homebuyers would do well to buy a home as quickly as possible so they don’t get priced out of Seattle’s housing market and so that they can start reaping the benefit of Seattle’s historically high appreciation rates.

Friday, July 21, 2006

The Long Tail

Hyperion published a book by Chris Anderson, the Editor-In-Chief of Wired Magazine, entitled The Long Tail. This book discusses a new theory that could replace the steadfast 80/20 Rule in business.

Simply stated, the 80/20 Rule dictates that 80% of the benefit one receives in life comes from 20% of the effort they put forth.

This rule is applied to business by explaining that 80% of your revenue will come from 20% of the products or services you sell. Real estate agents have also observed that 80% of the return on marketing efforts comes from 20% of the marketing we do. The goal of any motivated entrepreneur is to determine which 20% of the marketing or products or services bring 80% of the benefits, then spend 100% of your effort on what was once only 20% of your activities. Capisce?

Chris Anderson’s theory, The Long Tail, explains that 80% of a businesses revenue no longer comes from 20% of the products or services sold. If the 80/20 rule is described by a bell curve of the products a particular company sells, where the highest point of the curve represents the sales volume of the most popular product and the lowest point of the curve represents the sales volume of the least popular product, The Long Tail theory concerns the long tail on the end of the bell curve.

That long tail is new to business; it wasn’t there before. Or more accurately, it wasn't nearly as long before. The Long Tail is so long that there is more revenue generated by selling the products that appeal to more unique tastes, even if the quantity sold of each product is far less than the quantity sold of the most popular product.

The Long Tail supports niche marketing. In fact, it promotes the idea of marketing to a number of niches simultaneously. As Chris Anderson points out, Netflix and iTunes are two perfect models of The Long Tail. They both earn far more revenue from the relatively obscure titles in their inventories than they earn from Hollywood releases or songs from the Top 40.

A vast inventory is easy to maintain if it can be stored digitally, but can The Long Tail apply to service providers like real estate agents? If you’re RE/Max, Coldwell Banker, Windermere or John L. Scott, perhaps you could have a stable of agents who specialize in various niche markets. But what about individual agents? Should we aim our marketing activities at the greatest common denominator, or should we target a niche?

I believe that the best way we can serve our clients is to specialize in a geographic area and only a few types of properties. For me, it’s the residential houses and condos in Seattle’s urban neighborhoods. I’m a specialist here, and that means I can provide far better service for my clients in Seattle than an agent from Tacoma who is trying to cover the tri-county area.

The 80/20 Rule applies at every level. Does The Long Tail apply to small businesses and individual entrepreneurs, or does it only apply to larger companies?