Financing Trends for Waterfront Single-Family Homes on Mercer Island

King County’s Mercer Island, located in the southern portion of Lake Washington, is a prime real estate location. Situated inside the Seattle metropolitan area, Mercer Island is easily accessed from both Seattle and Bellevue. The annual median income for Mercer Island residents is one of the highest in the country ($147,566), and the island’s stunning array of single-family waterfront homes reflects that.

Waterfront home inventory on Mercer Island has dramatically declined over the past five years — just as it has throughout Washington state. At the same time, median sold prices have risen impressively. From 2016 to 2020, median monthly inventory levels decreased by 45.5%. Across that same timeframe, Mercer Island waterfront home sales volume increased by 74.1%. In 2016, the median sold price for waterfront houses was $3.29M. In 2020, it was $4.55M.

Current Financing Trends: Mercer Island Waterfront Houses for Sale

Waterfront homes on Mercer Island have long attracted some of the highest listing and selling prices in the state, and that trend will likely continue. As mentioned above, the median selling price went from $3.29M to $4.55M from 2016 to 2020, an increase of 38.3%. In 2016, 57% of all waterfront homes sales were cash sales. In 2020, 53% of all Mercer Island waterfront home sales were cash. During the first quarter of 2021, when the median sold price of Mercer Island waterfront houses rose to $8.4M, 100% of waterfront home sales were cash sales.

Mercer Island Waterfront Inventory is Very Low

Low inventory levels are, perhaps, the most dominant story in the Washington State waterfront housing market. The table below compares Mercer Island’s annual monthly median inventory of waterfront property with other popular waterfront markets, including Seattle, Bellevue, Kirkland, and San Juan County.

2016 2018 2020 Q1, 2021
Mercer Island 22 15.5 12 2
Seattle 26.5 32.5 29 23.5
Bellevue 11 13.5 4 4
Kirkland 8.5 3 4 2
San Juan County 8.5 12 17 6

Low inventory levels, of course, affect almost every aspect of home buying and selling — especially in high-demand, high-end markets like Mercer Island. In addition to increasing competition among buyers, and the resulting increase in sold prices, low inventory levels almost inevitably shorten the length of time between when a house is listed and when offers are made and accepted. Low inventory levels also change buyers’ behaviors and strategies — especially in regards to financing. 

Waterfront home inventory in Washington will likely increase, but when and by how much is not yet known. For the remainder of 2021, then, and well into 2022, homeowners on Mercer Island will enjoy a nearly ideal climate in which to list and  sell their homes.

Cash is King on Mercer Island

High-end waterfront property in Washington state is often paid for with cash, but it’s particularly central to the market on Mercer Island. For comparison, here are the percentages of cash sales in some other areas in Washington state where the annual median sold prices of waterfront houses are well over $2M: Bellevue, Kirkland, and Lake Sammamish.

2016 2018 2020 Q1, 2021
Median Sold Price > $2M
Mercer Island 57% 66% 53% 100%
Bellevue 57% 47% 48% 100%
Kirkland 47% 45% 57% 80%
Lake Sammamish 45% 65% 56% 43%

Mercer Island Waterfront Homes Median Days On Market (DOM)

One way to assess the competitiveness of a particular real estate market is by looking at how long homes are listed before an offer (that is eventually accepted) is made. In 2016, Mercer Island waterfront homes were on the market before an offer was accepted for 60 days. In 2020, that number was just 10.5, indicating that buyers moved very aggressively and quickly to secure the home they wanted.

For buyers looking to purchase a home on the water on Mercer Island without the ability to pay cash, then, current financing trends — coupled with a significant inventory crunch and fast-moving buyers — present real challenges. However, we know some tried and true strategies for buyers with traditional financing to secure the house of their dreams. We’ll discuss those strategies below.

Price Per Square Foot for Mercer Island Waterfront Homes is on the Rise

As has already been shown, Mercer Island waterfront home prices are on the rise and have been for a while. Here’s a look at recent historical and current price per square foot ratios of homes sold, compared to other popular waterfront home locations, including Seattle, Bellevue, Kirkland, and Lake Sammamish.

2016 2018 2020 Q1, 2021
Median Price/Sq Ft
Mercer Island $981 $1,000 $1,086 $1,834
Seattle $739 $903 $978 $1,108
Bellevue $880 $923 $1,261 $1,770
Kirkland $848 $850 $1,583 $1,452
Mercer Island $744 $838 $1,180 $1,116

As you can see, price per square foot ratios have been high for a while and are, overall, still increasing. Low inventory levels are partly to blame for the rapid increase in price per square foot ratio over the past five years, but investing in a waterfront home on Mercer Island has long been a sound financial decision that results in value gained over time.

Financing Mercer Island Waterfront Homes — Important Takeaways

Without a doubt, cash has the upper hand in the Mercer Island waterfront home market. For homebuyers with traditional financing, then, some real talk is essential. 

  1. Sold prices for houses on Mercer Island have been on the rise for more than five years — a reality that’s most likely going to continue for the foreseeable future.

  2. Cash sales have historically outpaced conventional financing for Mercer Island waterfront home purchases. During the first quarter of 2021, cash sales obliterated any conventionally financed home purchases.

  3. Because inventory is at an all-time low, the market is incredibly competitive for all homebuyers but especially for those with traditional financing.

  4. Homebuyers without the cash to buy outright will need to act strategically and aggressively to purchase the waterfront home they desire on Mercer Island.

Yes, Home Sellers Prefer Cash, But There’s More to the Story 

Homesellers prefer cash. It’s true, and cash sales are dominant in the Mercer Island waterfront housing market. If you’re a buyer looking to purchase waterfront property on the island, a cash offer will improve your chances of getting the home, but buyers with conventional financing shouldn’t lose hope.

How Buyers With Traditional Financing Can Maximize Their Offers for Mercer Island Waterfront Homes

For buyers without the ability to make a cash offer on a Mercer Island waterfront home, here are some strategies we recommend our clients employ that can work wonders — even in a competitive environment like the one we’re currently in:

  1. Provide as hefty a down payment as you can.

  2. Obtain a pre-underwriting approval letter from a respected, local mortgage lender, so you can prove the amount of funding you’re working with. 

  3. Make an offer well above the listing price to shut out competing offers. Homesellers may love cash but they love selling their home to a higher offer more.

  4. Work with a licensed home inspector to obtain a pre-inspection prior to the offer review date. Doing so will allow you to waive the home inspection contingency provided there are no problems with the home’s condition that would need to be addressed.

  5. Include an appraisal gap guarantee along with your offer. Doing so reassures the homeseller that, even if your lender’s appraisal comes in below your offer, you have the funds to make up the difference.

  6. Work with a knowledgeable and experienced Washington waterfront real estate agent.

When to Buy or Sell a Mercer Island Waterfront Home

Competition for Mercer Island waterfront houses is incredibly high right now — as are listing prices. A true seller’s market, there’s never been a better time to list and sell your Mercer Island waterfront home.

If you’re looking to buy a home on Mercer Island, current conditions are tough, yes, but they don’t necessarily mean you should wait until market conditions cool off. Why?

  • Prices for waterfront homes on Mercer Island have been high for many years and will most likely stay at the top of the waterfront market.
  • Mortgage rates are still low. If you wait until prices drop, the odds are that mortgage rates will rise. The result? You’ll end up paying more in the long run due to higher interest rates.

If you’re interested in purchasing a home on the water on Mercer Island, we can help. Contact a Washington Waterfronts team member today



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