Friday, May 31, 2013

Are Interest Rates on the Rise?

Real estate continues to roll along at a nice and breezy clip.  Some areas are seeing quick rising prices while others are still a little flat.  Every indication I see is that the bottom is behind us and depending on your location, prices are well on their way to recovery .  

As this return to stabilty begins to take hold, the federal government will very likely reduce its aggressive mortgage backing.  This is something I have been preaching for several years and many economic and political factors are pointing to 2013-2014 marking either the end or a severe curtailing of that mortgage manipulation by the government.

After hitting a bedrock bottom low on rates in late April and early May, rates have rocketed upwards all month long where they now sit precariously perched on the four percent threshold.  To answer the title question; YES, rates are on the rise.  I don't think buyers need to panic about four percent, after all, the forty year average sits at around 6.5%.  

But as the rate climbs, buyers lose purchasing power in the form higher monthly payments and reduced bank approval values.  With prices on the rise this works doubly against buyers entering the market. Higher prices and lower bank approval means much less house is available.  Suddenly that four bedroom beauty with 2200 square feet and stone patio that was 220k with a monthly payment of $1600 is no longer in reach and a $180k 1950s three bedroom rambler with 1200 square feet has the same monthly payment.  

Here in the Portland OR / Vancouver, WA market we are seeing multiple offers on entry and mid level housing.  Builders are starting to come back into the picture, but inventory remains tight.  That puts upward pressure on prices.  In general we have seen values move between 8-12% over the last twelve months.

If you are a buyer, it is time to pull the trigger and maximize your purchasing power as it is already past its peak.  For sellers you may want to contact your favorite Realtor® and have a market analysis done on your home.  What was unsellable last year is quite possibly very doable today.  Perhaps you have gained back that equity you need to sell.

The bottom line is this; real estate is back.  Rents are up and prices although climbing are still low.  Buyers should make their move now or resign themselves to a long period of renting.  Sellers can enjoy a short marketing time and an opportunity to move up to a house that may have been out of reach in 2006-07 but is affordable now because of market conditions.  

The proverb of the day is; Don't let the grass grow under your feet.

Here are some excerpts from a CBS Money Watch article I recently read, click here to see the full article.

By ILYCE GLINK / MONEYWATCH/ May 30, 2013, 11:32 AM

"Fixed mortgage interest rates are at their highest point in more than a year, and aren't showing any signs of changing course."
"The thrust behind climbing rates is actually the positive economic news coming out of the housing market this month, and most analysts seem to feel pretty solid in saying that the recovery is here to stay."

"A number of home price indices, from Case-Schiller to Freddie Mac to the National Association of Realtors all show home prices are continuing to increase. Homes sales are also up, despite reports of low inventory."

"While the Federal Reserve has helped keep interest rates low to encourage home buying, the time is coming soon when that kind of artificial manipulation of the market won't be necessary. People are already rushing to buy homes while prices and interest rates remain low. It's only a matter of time before they creep back to the normal six or seven percent."

Friday, May 24, 2013

Home Prices on the Rise

The NAR has released reporting data for all fifty states and D.C. and 42 of 51 are reporting gains in real estate values.  Out here in the West we are enjoying the strongest appreciation as inventory remains quite tight.  

This remains a golden opportunity to buy real estate.  Although we are not at the bottom of the market anymore, we are still enjoying low overall prices.  The movement upwards helps build confidence in the market and increases the chances of short and long term appreciation for current home buyers.  Rates remain low but have been edging up steadily over the last several weeks.  it is critical to remember that interest rates historically hover around 6-7 percent and any rate under 6% is considered a good rate.  The current average here in Washington State is running in the upper 3's.  

I am very excited about the trends in the market right now.   
This in from the National Association of Realtors

  • Price gains were largest in the West. Nevada, Arizona, California, and Idaho each saw gains exceeding 15 percent from one year ago. The map above shows the breakout of annual gains for each state.
  • Nationally, prices rose 1.9 percent from the fourth quarter. Note that this is seasonally adjusted, but not annualized, meaning that if prices continue to gain at this pace, it would imply an 8 percent gain for home prices nationally in the course of a year.
  • FHFA uses a weighted repeat sales index that compares the prices of properties that involve a conforming conventional mortgage purchased or securitized by Fannie Mae or Freddie Mac. Thus, the FHFA index is based on a broad geographical sample of home transactions, though it misses out on transactions involving cash, jumbo or FHA/VA loans. In spite of this limitation, its price trend is usually similar to that of other price measures.

Friday, May 17, 2013

Homeowners Staying Put Longer, Maybe

The National Association of Realtors released information recently that shows the average tenure of a homeowner has increased to roughly nine years.  The chart shows a long, steady period of average tenure between six and seven years before the rise to nine.

I believe this data needs to be taken in the context of our recent prolonged flat and declining price period we just came out of.  Many home owners were unable to make that move they wanted to make because of one or more economic factors.  They may have lost their job, their home value could have been "underwater", they might have been nervous about the economy, etc.

I do not believe it is coincidental that the rise to nine years abruptly started in 2009. This of course was the year following the great banking crisis and real estate market crash of October, 2008.  I would neither be at all surprised if the trend begins to return to that normal six to seven years as the real estate market has stabilized and consumer confidence is beginning to return. This is a trailing indicator and even as the market returns to modest growth this chart may continue to rise before it starts to show a decline.

The current market conditions at the entry level are tight inventory, modest demand and ridiculously low interest rates.  If this real estate market segment remains hot for another year or two the middle will begin to surge as well.  The move up market takes time to develop and is to a great extent reliant on the performance at the entry level.  Entry level sellers often become mid level buyers and to do so, they need equity in their current home.  Our modest gains in real estate values are helping them get that equity back.

Providing that our economy does not take a nosedive, we should begin to see a sigificant increase in the demand for mid level and high end housing over the next few years.  To keep the real estate market healthy and robust we need the economy to cooperate.  Interest rates ideally would remain at or below 6.5% (we are way below that right now), job growth should be improving at least slightly and rental rates need to remain aggressive.

I am quite bullish on real estate right now.  I do not see the market tearing a hole in the fabric of time and space like it did from 2002-2007, but I do see some modest, healthy growth for the next several years.

Monday, May 13, 2013

Home Inspections and the Market

There is nothing like a little, local, anecdotal evidence to shake up a real estate story.  Things are definitely perking up in real estate sales because inspectors are tight on schedule again.  For the last several years hiring a home inspector went something like this; buyer: "I need an inspection at 123 Maple, when can you be there"?  Inspector: "I have tomorrow at 1 or 4 available will that work"?  But lately it seems inspectors are booked out several days.  I have an inspection this afternoon that my client booked five days ago and this was the earliest available.

So the buyers are starting to pull the trigger.  We knew this already since multiple offers over asking have been happening all year.  But now we are getting just a little more inventory dribbling in and so a few more sales can happen.  It seems that it is just enough to keep those inspectors booked up.

Now that I started a line of thought on inspectors, this could be an opportunity to touch on the importance of these inspections and how a buyer should interpret the information.  Every state has its own method of regulating (or not) inspectors.  Here in Washington State, inspectors are required to take continuing education and to use a state mandated, uniform method of inspection.

Inspectors will look at just about everything in the house.  An inspector will provide a thick report detailing everything they found.  They will call out little things like a loose light switch cover right up to more severe items like the condition of the furnace, electrical issues, etc.  In most cases an inspector is well trained on a variety of disciplines but typically is not an expert in any of them.  They will refer you to a licensed professional in the line of work related to the item they are questioning.  An inspector will tend to err on the side of caution when reporting things.

It is most important for buyers to be very cautious about how they interpret and use the information they receive in an inspection report.  The inspector should be using a tiered severity system.  An item may be functioning, marginal, or defective, for example.  A marginal item is OK for now but will likely need servicing soon.

When interpreting the report, understand that the inspector is citing in great detail and with general caution the smallest of details.  Often an inspector will indicate a problem with an item that in fact may not turn out to be a problem. Remember, they err on the side of caution.  It is classic case of them covering their tail.  If the home is older you should be prepared for many items to be sub-standard relative to a new home.  But they were fine for the era of the house.  Not all inspectors do a good job of explaining that the home is older and the items that they are indicated are not to code, were in fact to code when the house was built.  Generally this is grandfathered in.  Too many buyers get unnecessarily scared off from a solid house at a good price because they misinterpret data in the inspection report.

The inspection should provide two basic functions.  First and foremost it is designed to inform the buyer of the condition of the house and its systems. This is a protection that helps to insure there are no catastrophic issues that would be dangerous, and/or very expensive to repair.  This can be a savior especially with older homes and homes that are exempt from seller's disclosure.

The second function is a "honey do" list for the home after purchase.  The inspectors will usually provide a summary list of all the marginal and defective items they find.  Some inspectors will even list them by importance.  The items that are not fixed prior to close by the seller can be handled at the buyer's discretion after closing.

Since we are moving into a seller's market, the buyer's should avoid demanding too much.  I like to categorize the inspection findings on defective and marginal items into three categories.

First, items that are genuinely dangerous and may keep the house from closing.  Some items that are found on an inspection are items that an appraiser may cite as needing repair.  This will likely cause the lender not to close until the items are remedied (especially with FHA or VA transactions).  These are items that a buyer should ask the seller to tend to prior to close.

The second category are negotiable items.  The buyer may decide to ask the seller for a little help with say a defective or marginal air conditioning unit. This is an expensive item.  These negotiables however should take into consideration the price of the house.  Was this home listed at a very low price, is it a value in the market?  Was it priced at the top of the market and then bid up to a higher price?  If the former is the case then it may be best to leave most of the second category items alone and just fix them after closing.  If the latter rings true then sure, the buyer can hit the seller with some repair/replace requests.  It is usually a good idea in a negotiation to show that you are willing to share in the "pain"  Buyers should cite numerous items that are defective or marginal but only ask a for a few that are really important to them.  Buyers should give the seller a reason to stay in the transaction with them rather than moving on to the next buyer.  In this market there is probably a next buyer just around the corner.

The third category is for items that should simply be added to the aforementioned "honey do" list and the buyer should deal with those themselves. Don't irritate a seller by asking for trivial repairs.  This behavior may set a tone that the buyer is going to be troublesome and may scare the seller off and into a defensive stance or even to another buyer.  This is particularly important when dealing with a bank owned property or a short sale. In the former the bank is often unwilling to make repairs and in the latter the seller is often unable to make repairs due to financial concerns.  If a buyer is asking for nothing serious but only a few "trivial" items, tell the seller why they are asking for it.  Maybe the buyer is elderly and unable to make these seemingly simple repairs or some other reasonable issue is present.  Don't leave the seller to his own devices in determining the attitude or motives of the buyer because they will likely assume the worst and that may not be the case at all.

In conclusion buyers should take the inspection report with a healthy pinch of the proverbial salt.  They should protect themselves from serious issues by following up on them with an additional inspection or a request for a seller remedy and then use the rest of the report to identify things the buyer can remedy over time after closing.  Buyers should always have a professional inspection of a property before they commit to buy.  These are excellent tools especially when they are used properly.

Wednesday, May 8, 2013

Local Builders Coming out Strong for this Summer

Osprey Homes Subdivisions
Osprey Homes has several new subdivisions in the Greater Vancouver Area.  It is great to see builders back in the market.  Osprey is offering a variety of homes from the mid $100's up to $300k plus.  One of the designs they are using frequently is an attached but uncommon wall.  These units share no interior wall space with the attached unit but rather are attached at the garage and storage area.  Spacious units with 1500 or more square feet are selling brand new at around $170k.
Osprey Uncommon Wall Attached

I saw a nice 2500 foot home with granite in the kitchen and nicely trimmed out for $309k.  Our market is becoming hot again and builders will surge back in to fill the inventory holes.  This is looking like a strong summer for real estate.  Contact your Realtor today and take a look at what our local builders have to offer.

Friday, May 3, 2013

This in from the NAR


Home sales are “stuck” this spring due to the limited number of homes available to buy, says Lawrence Yun, chief economist for the National Association of REALTORS®.

The supply of homes for sale is 17 percent below year-ago levels, according to NAR data.

For-sale inventories are most constrained on the low-end of the housing market, where investors had moved in floods to purchase distressed homes and hold them as single-family rentals, housing experts note. About a four-month supply of homes is available under $100,000. As such, sales of low-end homes have dropped 16 percent from year ago because there just isn’t enough inventory, according to NAR.

Some home owners are still hesitant to sell, noticing the recent price increases and hoping for more, notes Richard Smith, CEO of Realogy Holdings. "If I am underwater in my equity and now suddenly I'm not, but I'm up 5 percent and the market around me is appreciating 6,7,8,9, 10 percent, why don't I wait and perhaps get a 10 percent return on my investment, not a 5 percent return?" Smith explains.

"The housing shortage is going to continue," Yun told CNBC. He says that home builders will need to ramp up their housing starts by 50 percent to help meet demand, but he says that is unlikely due to constraints such as land and labor shortages. 

Rod's Take

This spring really has taken its toll on the housing inventory. Buyers are everywhere but they have no homes to buy. I believe that many sellers are waiting, holding on to their homes in hopes of driving up the market price. This may work temporarily but could backfire if buyers get frustrated and stop looking or if interest rates were to rise. It is still a great time to buy a house but sellers are in control of the market as they control the inventory.

Wednesday, May 1, 2013

Hello real estate fans.  I will be converting my traditional dinosaur blog... (old school PDF and print version) to a more robust and modern format here on Google's Blogger site.  This is not my first dance in the blogosphere, I have the Clark County Weather Blog right here on Blogger as well as my Wordpress blog "The 'Couv' Life"  Please feel free to peek at those others as well.

My first post will mark the transition between the ancient PDF/Print and the fresh and new Blog style.  Here is the final copy of the monthly Newsletter from last month linked right here to remain in perpetuality for posterity's sake.  To the  final edition of the PDF version, I say this, "R.I.P."  

Rather than a formatted once a month production as it has been for years and years, the Real Estate News will now come in timely and lively snippets as the market evolves and pertinent facts and news items arise.

Thank you to all of you that have endured my endless stream of PDF newsletter links sent across 3500 emails, twitter and facebook.  Now you can subscribe here and need not use the antiquated portable document format any longer.  For those of you accustomed to visiting my website for this newsletter, worry not, this blog will be posted in real time to the website on the old newsletter page :)

The Final PDF Edition is HERE.