Friday, December 27, 2013

2014 Housing Outlook

Another year is perilously close to its end. The older you get, the faster they fly by. It's a cruel irony. When you are 7 years old it seems like an eternity from Thanksgiving to Christmas. Children can't wait, it takes soooooo long to arrive. Now it's like don't blink, Christmas is here; again. Slow down already!

2013 is essentially in the books. It was a strong year for real estate in our local market and in many markets across the fruited plain. The sales volume is up significantly over 2012 and the local median price is up nearly 14%. Final numbers will arrive from the MLS in the middle of January and I will be certain to post them when they arrive.

So in regards to the upcoming year; what might we expect? As much as I hate to try my hand as Nostradamus, I will endeavor to give an idea of where I think current trends in the real estate marketplace will take us in the new year.

There are many variables that effect the real estate market. Residential real estate or the "housing" market is affected mostly by the general economy and employment, as well as mortgage interest rates and the availability of lendable assets. There are dozens of other market indicators but those are the two big ones.

The economy and jobs market seems to be flat right now. We have a very soft economic growth and questionable job growth. This "soft" economy could be an inhibitor in 2014. 2013 already showed a market shift locally from the bottom/entry level to the lower to middle move up market. Pricing has been the biggest driver in the move up market as we hit bottom on pricing somewhere in 2011 and then saw the movement up as demand increased. In general I am quite bearish on the economy. I think we will continue to see a slow growth rate and that could pose problems for the housing market locally and in many of America's more expensive markets.

The real driver behind the robust numbers in 2013 has been interest rates. I believe that has been the largest contributor to this latest round of upward pricing over the last two years. Rates have been below 5% for quite a while and through the first half of 2013 they hit rock bottom as 30 year fixed rates were in the mid 3% range. The Fed has been backing these low mortgage rates and has shown every indication of slowly moving away from that position. So far I think the Fed has done a pretty good job of helping the housing market by keeping loan rates affordable. I feel that they will need to slow it down due mostly to legitimate budget concerns. As they back off, rates should creep up. As long as they stay below 6% the real estate market should remain healthy and strong. But the higher they go the fewer people qualify for loans. This could lead to more relaxed appreciation in 2014.

Looking at the data; my biggest concern is the middle section of the market. Many homeowners have been sitting in homes that are "under water". That is they owe more than the house is worth. This latest uptick in pricing is starting to free many of these people to sell as their home value climbs up above the debt they owe. I would like to see that upward trend continue. Although I don't expect to see 14% appreciation in the middle this year, I certainly am hoping to see 6-7%. This would help many people sell their middle market homes in the $250k to $300k range and either downsize or upgrade depending on where they are in their lives.

The entry level market right now is poised to continue upward pricing trends because there are two demand pressures on it. First is the traditional new family and first time home buyers looking to take advantage of favorable pricing and interest rates. Secondly is the retiring Baby Boomers looking to bail out of the big house they raised the kids in and move into to something smaller and more manageable. The Boomer generation is large enough that it is making a significant impact in pricing pressure in what is traditionally an entry level housing market.

I am seeing an interesting development as a result of these issues. There is a huge difference between 225k and 250k in terms of what one can buy. Anything under $225,000 is seeing high demand and strong appreciation. Conditions quickly begin to relax as the price moves up above $225k. We are seeing those garden variety three bedroom two bath homes nudging up against that $225,000 barrier but at a cool quarter million it's a spacious 2200 square foot four bedroom home.

That is really where the general economic conditions start to play a factor. With interest rates as low as they are, two $10-12 per hour workers can afford an entry level house in the $175-195k range. As we move up in price better jobs are required and that is what seems to be in short supply. If this economic trend continues and we see an increase in interest rates that will lead to a middle market pricing plateau. If the middle stagnates then the bottom will also feel negative pressure. This is why I feel like we will have less appreciation next year than in 2013.

Overall my outlook for 2014 is very sunny. Maybe not quite as sunny as 2013 in terms of activity and sales volume, but I do believe the middle market will perk up at least a little bit, this spring. As much as people love to see a roaring real estate market; it really is better to be the tortoise and not the hare. A nice and steady continuously northward march is healthy and secure. I think that is the trend for 2014.

So there it is; I am dangling out on the end of the wobbly limb of prognostication. In a nutshell, I am cautiously optimistic. There are too many variables to the housing market to really know with any certainty what will happen. All I can do is look at the data, make a few presumptions based on experience and hope for the best.

I wish you all a very happy new year!

Friday, December 20, 2013

Did you buy a House this Year?

Well, did you? If so, you really ought to consider talking to a CPA or a trusted tax professional. This is especially true if you bought your very first home. Our federal tax system is complicated and has both positive loopholes and negative traps. Buying a home is often beneficial to your bottom line on taxes. A tax professional can help you organize your deductions and clarify what you can and cannot "write off".

Prior to owning a home most people do not have enough deductions to justify using the 1040 long form. But once mortgage interest is added to the mix it is quite common to have every reason to itemize deductions. Now all those legitimate deductions you have always had can actually be utilized to save money on taxes. This is why it is so important to see a professional tax advisor.

Trying to itemize deductions on your own can be a very daunting task. Not only is it time consuming, but it is very easy to take a deduction that is not a legal deduction. In an audit, you may get into the proverbial hot water. It may cost anywhere from a hundred to a few hundred dollars to have a professional prepare your taxes, but it is well worth it in my opinion. Even if you are good at accounting and feel comfortable preparing your own taxes, I still think it is sound advice to at least have your taxes prepared occasionally by a seasoned tax professional. A significant change in tax, income or deductions status is a great time to utilize a tax preparer.

The federal government is going to waste your money anyway, so you might as well pay them ONLY what you really owe, right? OK, I know that the government has many viable and necessary expenditures, my tongue was inserted in the cheek on that last comment. But none the less, why pay more than you are required? If you want to give away money, give it to a local charity and help someone who is down and out. Or send me a check...tongue in cheek but less firmly on that one.

I hope everyone has had a spectacular year, I know I did and I am looking forward to an even better 2014. Happy Holidays to all of you. They will be a little merrier if you save money on your taxes this year.

Friday, December 13, 2013

Ho Ho Ho, Real Estate is in the Holiday Spirit

The real estate market is healthy right now. We are enjoying modest growth in pricing and strong sales volume. This is the kind of sustainable growth that is better than the rampaging growth of the 2004-2006 period.

The Regional Multiple Listing Service here in Clark County has posted sales summary data through first nine months of this year. 4728 real estate transactions have closed in those first nine months and that compares quite favorably with the 3805 through the first nine months of last year. This reflects a 24% increase in closed transactions. There is no shortage of buyers out there. The median price for 2012 was $194,500 and through the first nine months of 2013 the median is up 14% at $223,600.

Numbers tell many tales and a healthy pinch of the proverbial salt is in order with statistics. Has the actual value of any given home in Clark County appreciated by 14% this year? Not necessarily. Last year the market was still being driven by sustained growth with first time home buyers and the entry level market as well as a lot of REO (bank owned) and Short Sale transactions with typically lower closed prices. This year has seen a nice progression into the mid level price range as homeowners can finally sell that formerly upside down home. So as more transactions occur in the mid level, the median price rises. Even if the actual appreciation was very modest the median can rise much steeper if there is a market transition to more expensive homes.

All of that said, there has clearly been appreciation in the marketplace this year. Those three bedroom two bath 1200 square foot 1950s move in ready homes that were readily available for sale in the $130-140k range a couple of years ago are now easily $160-170k this year. But homes in the middle to higher price range have had much more modest appreciation.

I decided to dive in a little deeper. I took two county wide but very narrow market segments and will show actual growth in volume and appreciation between 2012 and through yesterday's closings this year. The first is a batch of typical entry level family homes and the second a typical first move up house. These are fairly small segments but this helps to keep them all truly comparable with as little variance as possible but still providing a large enough pool of data to be statistically sound. These all have very similar lots, in town and very similar sized homes, etc.

Last year there were 47 detached single family, three bedroom homes with 1200-1400 square feet of living space, sold in Clark County that were on a small to medium city lot and were not bank owned or short sale transactions. The median price was $163,900 and 98.19% of original list price with an average time on market of 27 days. So far this year the numbers for the exact same search yielded 83 sales with a median price of $185,000 and 97.55% of original list price with an average of 22 days on the market. Well that is 13% appreciation in that segment and a unit sales volume growth of 77%. What about the move up market?

This time I ran sales of homes again, traditional sales, not short or REO. 2000-2500 square feet of living space, four bedrooms on a small to medium size city lot. 2012 had 71 sales with a median price of $232,000 and 95.79% of original list price and average time on market at 42 days. The numbers so far this year look like this; 170 sales at a median price of $251,125 and 97.01% of original list price with an average 39 days on market. This represents appreciation of 8% and a huge sales growth of 139%.

The overall synopsis follows the traditional model for market recovery. The bottom grows first and feeds growth to the middle of the market. With a 139% sales growth this year in the move up market, I foresee an opportunity for double digit appreciation in that segment for 2014. This of course depends on all the crazy variables in the real estate market and the economy at large. Marketing time continues to shrink and well priced homes get multiple above asking price offers. There is a segment of sellers that will "test the waters" with a high price and then end up reducing the price to sell. But 97% of original asking price is quite good.

Short sales in both of these segments were flat year over year. 23 sales in both 2012 and 2013 in the 3 bed segment. The 4 bed segment 31 in 2012 against 27 in 2013. I left out REO because the condition of the home varies so widely, banks often use auction methods and such, it is difficult to gauge those against traditional sales. If you look at the combined segments here, 2012 had a roughly 2:1 traditional vs short sale ratio and this year short sales remained flat while traditional sales skyrocketed so the ratio is now slightly more than 5:1. If this ratio carries through to the overall market it bodes well for our local market.

2014 is shaping up nicely for real estate. As the middle of the market begins to feel a surge so then the upper levels will enjoy favorable price movement as well.

Friday, December 6, 2013

Chilly Weather Means Prep for Vacant Listings

We have some legitimate cold weather arriving this weekend that may include temps down into the single digits. Homeowners that have vacant property whether it is for sale or not need to be prepared for this outbreak of cold. If the home has the furnace and or power off then a full winterization by a professional is a good idea. If the power and heat are on then do it yourself is pretty simple. Wrapping exterior pipes, water supply to house off and faucets open, etc. The Seattle Times has some tips for do it yourself winter prep on a vacant house.

I have a very vivid memory of showing a very expensive home in Camas, Washington in December of 2009, the last time I had a temperature below 10 degrees. This gorgeous home had water flowing out of the walls and onto the walkway at the front door which had become an impassable ice skating rink. Thousands and thousands of dollars worth of damage was done and for a couple of hundred bucks in prep would have been avoided. Needless to say my client did not buy that house.

When selling a vacant house this time of year, be sure to do a little winter prep in the front yard to maintain good curb appeal and safety. These are good tips for occupied homes as well. Keep the snow cleared on the walkways and if needed throw some salt down to keep the ice at bay.

If you are out and about hunting for your next house please use caution out there. It is not likely that the temperature will rise above freezing over the next several days. The air is dry so it may feel warmer than it is. around any corner could be an icy spot. Caution is advised.

Bundle up and enjoy the winter wonderland.

Monday, December 2, 2013

Equity Northwest Properties: It's THAT Time Again...!!!

In the absence of my blog post on Black Friday, I offer up this great blog piece by my colleague, Dan Jensen...

Equity Northwest Properties: It's THAT Time Again...!!!: by Dan Jensen We're nearly to the end of November already, and yes, it's THAT time again! "Taxes just ahead", cries th...