Friday, December 26, 2014

2015 Could be the Last Chance for Deals

That headline should have got your attention. We have seen modest to robust appreciation across the USA over the last two years in the real estate market. The mortgage rates have been ranging from really low to ridiculously low and the economy has been slowly moving towards full recovery.

This has kept real estate as a value. Prices have run from the basement in 2010-11 rising to the point now that they are about where they were in 2007-08. Rates are the real story however. They unprecedented long run of sub 6% rates has kept housing active despite and overall economy that has run from dismal to fair.

2015 could represent a turning point however. If this economy gets into full swing, we very well could see the Fed back off the loan guarantees and rates could end up where they really should be in the 6% range. Coupled with the last two years of appreciation that would move the home affordability index much higher and lock out many buyers that can buy today but couldn't with 6% mortgage rate.

As an FYI 6% is still a very good rate and well below the 50 year historical average of 6.8%

Buyers should take care of their finances and get ready to buy in 2015 if they want to secure a housing "deal". The deal may not be so much a price deal but a rate deal. I have said it many times before and I will say it again here, rates kill buyers much more than price.

2014 has shown us that the entry level clean house was king. These little 1400 square foot 3 bedroom 2 bath homes have pushed up towards the $200,000 in the local market while just 10-15% percent more money buys a house nearly twice as large. These low rates have brought out the entry level buyers in force. Any upward movement in rates will "thin the herd" at the bottom and that could mean a serious appreciation slowdown at the entry level. I have seen the starter houses already showing signs that the economic ceiling has been reached. The middle however should continue to move up in appreciation with a modest but healthy rate of growth.

The real estate market doesn't just move in broad based motions. There are subtle differences for neighborhoods, price ranges, style, etc. Prices can be moving up in mid size house while remaining flat at entry level. That is my prediction for 2015 if we see interest rates move up into the 6% range. The market a few years ago allowed two minimum wage earners to buy the median priced home in our local market (Washington minimum wage at $9.32/hour). That is off the table now and that means a lot of buyers can no longer afford a house. This is why the bottom of the market has seen a leveling on appreciation. As the economy ramps up, middle income earners are getting back on the job, better wages, etc. that will help push the gap between entry level and mid-level back into proper proportion.

I believe the value proposition for 2015 will be in the upper middle and lower high end homes. Locally that means $350-500k. That is probably where the "deals" will be found. I am no Nostradamus, but that is where things appear to be headed. 2015, it's time to jump in. 

Friday, December 19, 2014

A New Year with New Opportunities is Near

As I look back at 2014, I have to smile. This past year was very solid in just about every way one can measure a real estate business. Sales up, volume up, income up. All good stuff. There are many analysts that are quite bullish on real estate for 2015. Some are reserved but many are making like a rodeo star and riding the bull.

One of the trends among those in the "know" is the idea that interest rates will be creeping up in 2015. The economy is beginning to show some promise and the feds are starting to get serious about easing their "manipulation" of mortgage rates.I don't see a spike coming, no that would end the bull ride rather quickly. I don't want the rodeo clowns cleaning up a mortgage disaster. But a gentle upswing in rates could prove to be just what the market needs. Investors could loosen their grip a little on underwriting guidelines if there is more profit in the form of interest earnings. Buyers that are still dangling their feet over the edge of the "I might buy a house soon" fence should start jumping in when they see a rising trend in rates. As they jump in the sales pressure of new buyers entering the market might be partially offset by the tendency for rising interest rates to slow real estates. The result could be another year of very healthy and smooth 6-8% appreciation. Rapid appreciation is great when you on the gravy train of equity, but it tends to lead to harder crashes. A nice gentle slow and steady rise is sustainable and definitely safer for the overall economy. I have attached and article along with a link to it directly online that talks about potential trends for 2015.

This article was published in U.S. News and World Report

By Susan Johnson, December 9th, 2014
As housing recovers, prices in many markets across the U.S. have shot up. In fact, RealtyTrac reported that the median sale price of U.S. single-family homes and condos in October had reached its highest level since September 2008. Price appreciation and the lure of foreclosures created a feeding frenzy for real estate investors willing to pay cash and made it harder for traditional buyers to compete.

But experts say that 2015 will be marked by a return to normalcy and balance for real estate marketsacross the country. Stan Humphries, chief economist for, predicts that home value growth will slow to around 3 percent per year instead of the 6 percent seen recently, and that will make real estate less attractive to many investors. “It's been a tough market for buyers," he says. "I think it's going to get easier in 2015. Negotiating power will move back to buyers and away from sellers. It will be a much more balanced market." (Too many buyers and too little inventory, or the opposite, contribute to an unbalanced market.)'s chief economist Nela Richardson agrees. "It's been a clear pattern that the investor activity has been shrinking over time," she says. "Investors like to go in where they can buy low and sell high. Price growth is starting to slow dramatically, so they can't sell much higher than what they buy. Investment property is less compelling in 2014 going into 2015."

More inventory and less competition from investors means even traditional buyers are becoming “more picky, and they're willing to let a home go if they don't think it's a good fit for them," Richardson adds. "Buyers are less worried that they'll miss out on something. Houses are more like buses now. If you miss one, another one will come along." Whereas buyers might waive contingencies in the recent past to make their offer more attractive to sellers, they're now more likely to insist on contingencies for financing and inspections.

That said, foreign investors may still find high-end American real estate appealing because of economic turbulence in their home countries. For instance, the U.K. is toying with a so-called "mansion tax" that would apply to those who own properties worth more than 2 million British pounds (or over $3 million), and China has placed restrictions on homebuying in large cities. Some foreign investors also worry about currency fluctuations devaluing money they hold in their home countries. "That section of the market is still all cash – people buying up these huge places because it's safer here than in their own countries," says Herman Chan, real estate broker with Bay Sotheby's International Realty in San Francisco.

Buyers from outside the U.S. may use their properties as a rental, a pied-à-terre (a secondary residence used for travel) or a residence for children studying at American colleges. But for buyers looking for more moderately priced homes, 2015 could offer a respite from bidding wars and all-cash offers. "People who've been on the fence about selling are finally going to pull the trigger, which is great for buyers [because it creates more inventory]," Chan says. "Now people with regular jobs and 20 percent down finally have a chance to get into the market."

For years, many millennials have postponed homeownership in favor of renting, but that may also change next year as a growing number of Gen Yers start families and seek more stability. "By the end of 2015, millennial buyers will represent the largest group of homebuyers, taking over from Generation X," Humphries says. "They prefer smaller units closer to the urban core, so it will be interesting to see whether they follow the time-honored path towards the periphery of the metro."

Baby boomers are also likely to make a move in 2015. Chan says he's "gotten so many calls from baby boomers recently saying, 'We’re downsizing, and we're moving to be closer to our grandkids or our son or daughter.'" With fewer homes underwater, they're finally in a position to sell.

While mortgage rates may not remain at the historic lows seen recently, more people may qualify for home loans as issues like foreclosures or short sales age out of their credit reports and Freddy Mac and Fannie Mae ease mortgage eligibility. Freddy and Fannie recently announced a new mortgage program for buyers with a down payment as low as 3 percent. "Freddy and Fannie have always been the industry leaders, and they're saying, 'It's OK to lend to people who don't have 5 percent down. It's OK to extend credit in a reasonable and safe manner," Richardson says.

Friday, December 5, 2014

The Holidays are a 'Serious' Time for Real Estate.

image from
I have said it before and I'll say it again; the holidays are a serious time for real estate. Anybody that is buying or selling during this time of year is very serious about real estate.

Buyers that are out in the weather during a time they could be at office parties, visiting with family, shopping for the elusive perfect gift, etc. is very committed to finding a house in a timely fashion. Otherwise why wouldn't they just put it off until the New Year?

Likewise for sellers. They would probably rather not have people tromping through their home during the holidays, when guests are over, the decorations are up, etc. Yet there they are doing just that. Maybe they just really want to sell their house?

This is a great time to buy or sell. All of the classic "looky-loos" are on hiatus while the serious contenders are still in the game. I will likely close four transactions this month and that is as many as I closed in the summer months. Don't take the holidays off, you might just get everything you want in the month of December!

As always, seller's should be mindful of the basics of presented their home to prospective buyers. This might be the year to keep half of your holiday decorations in the attic. Too much clutter can be a negative. Keep baking all those yummy holiday goodies because buyers love the smell of fresh baked cookies. Keep the walkways clear of tripping or slipping  hazards. Keep snow off the driveway and walkway.

Buyers are well advised to keep shopping during the holidays. Sellers are usually easier to negotiate with when they are busy with other aspects of their lives. At the point they have chosen to keep their home open during this month, they are motivated, whether they say so or not.

December is a win-win month for buyers and sellers so neither should shy away from the golden opportunity that December brings to real estate.

Friday, November 28, 2014

Thanksgiving Holiday Hiatus

image source here.
I will be taking a family Thanksgiving Holiday Hiatus this week. I'll be back next Friday :)

Friday, November 21, 2014

Higher Prices Push Houses Out of Reach

Home affordability is a big issue in many markets around the country, including ours here in the Portland/Vancouver Metro Area. I have posted an interesting article I found. Our local market is well above average in price and one of the less affordable when compared to the nation at large. We sit ranked at 192nd of 225 in affordability with 53% of homes within reach of the median income. But compared to cities like San Francisco, Los Angeles, New York and even Seattle; we are a relative bargain. Please enjoy the article and check out the link to visit their website.

This article has been excerpted from CNN/Money in its entirety

By Les Christie @CNNMoney November 14, 2014: 3:42 PM ET

Affording a home is getting more difficult these days.

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI), nearly 62% of all homes sold nationwide last quarter could be afforded by a family earning the national median income. Two years ago -- when affordability peaked -- 78% of people could afford homes.

Of course, where you buy makes all the difference.While mortgage rates are near record lows, home prices are on the rise -- and incomes aren't keeping up.

Related: Best cities for Millennial home buyers

Short on cash? Steer clear of California, especially the Bay Area where tech money has sent home prices skyrocketing.

In San Francisco, the median home price is $875,000, making it the least affordable major U.S. city. Only 11.4% of homes sold in San Francisco during the third quarter were reasonably priced enough for the average family to buy, the index found.

Other major cities where home prices were out of reach included Los Angeles, Santa Ana, Calif., San Jose and New York.

Where home prices were most affordable was predominantly in cities that were hard hit during the recession.

Related: Mansions for under a million

In Youngstown, Ohio, for example, nearly 90% of all homes sold last quarter could be comfortably purchased by families earning the local median wage.

Syracuse, N.Y., Indianapolis, Ind., Harrisburg, Pa., and Dayton, Ohio, all recorded affordability rates of 84.9% or higher.

Despite the growing affordability gap, most buyers are still in a favorable position, said David Crowe, NAHB's chief economist. "Even with nationwide home prices reaching their highest level since the end of 2007, affordability still remains fairly high by historical standards," he said.

Related: Most Stressed Out Cities

Rose Quint, a vice president for survey research with NAHB, said conditions should remain favorable through at least next year. She believes home prices growth should slow while an improving economy should help people find jobs and boost their incomes.

One headwind could be rising mortgage rates, which could climb in the next year or so, said Tom Wind, executive vice president of home lending for EverBank.

Friday, November 14, 2014

Real Estate Trends Well in Clark County

I have been perusing through the copious sums of real estate data provided by our local MLS. Overall the market trends are looking solid. I took a look at the last three months, August through October in Clark County. The median price for a home sold excluding bank owned and short sales, was $254,000. This 3 month period produced 1875 sales. This compares to 1475 sales with a median price of $240,000 over the same period last year.

I took short sales and bank owned out because these properties can skew the figures. Often bank owned properties are trashed and snatched up by investors with all cash at prices well below market for a move-in ready home. Short sales dramatically skew the marketing time because they take months to complete. Both bank owned and short sale categories are decidedly shrinking as a percentage of the market.

Investors are finding it increasingly difficult to find homes they can either fix up and resell or purchase for rental. That market is very tight right now.

The data shows a few hidden gems. First the average price is 290k which is roughly 15% higher than the median. This indicates that the activity below the median is closer to the median, clumped up tight against the middle. The activity above the median stretches well beyond the middle into the upper end. Median means half cost more, half cost less. The idea is to eliminate skewed results from a large number of sales at the extremes. But the average is still important because it shows us where the market trend is; high, low or middle. If the average is higher than the median, like it is here; the activity in the half of sales above the median tended to be well above and/or the sales under the median were close to the median. If the average is lower than the median (this is unusual in large markets), that indicates that sales below the median often fell well below and the homes in the top half were likely clumped close to the median. When the median and average are very close it means that the bulk of sales were very clustered around the median with few extremes or there was a very even disbursement across the full range of values.

The trend now, is in the high side of the median. The bottom of the market has become so tight that most of those properties are selling in the $200-250k range. The top of the median is showing broad activity well above $500,000. This is driving the average up. This can mean many things economically. Perhaps this is indicating a vote of confidence in the local economy or real estate market as people return to upgrading their property. It could also indicate an urgency at the top of the market as loan rates remain low but prices are heading north.

Sellers with homes that are above median have an opportunity to list and get solid activity and a good offer. There is strong movement towards the middle upper price range and that was absent just a couple of years ago. 2015 has strong potential to be a great year in real estate.

Friday, November 7, 2014

Veterans Should Take Advantage of GI Benefits

I posted this last year on this blog. It has been slightly updated this time. The author is not affiliated with any government agency and is providing general information about available products in the real estate marketplace. 

Vets can check the VA website here
Are you a veteran? If you served honorably in the armed forces there is a good chance you qualify for a VA loan. The VA loan is probably the best mortgage loan product available. And it is for our veterans only.

What makes the VA loan so good? It is not any one thing but rather the whole package. The VA loan is a ZERO down program. The veteran does not need to save up a down payment for the house. VA loans are typically priced with the some of the lowest interest rates in the market. The VA loan does not have monthly mortgage insurance. These are strong features that make a VA loan hard to beat.

The VA loan does have a few minor drawbacks. It has a "funding fee" that runs around 2.25%. (funding fee may be waived for qualifying disabled vets) The veteran may finance that fee so the loan remains a truly no down product. The Veterans Administration requires that the property pass not just a standard appraisal, but a special VA appraisal that looks more closely at the quality of the property being financed. This can lead to the veteran having to be a little more selective with offers.

In the current low interest climate, the VA loan has another great feature. VA loans are assumable. A veteran buying a home now will likely have a great low interest rate. In the future when the vet wishes to sell, rates may not be so low. The veteran's ability to allow another veteran to "assume" his loan may make his property more marketable in the future.

Loan products have many variables. If you are a veteran of the US Armed forces I would strongly encourage you to talk to a lender and find out what is available for you. A qualified loan officer can give you all the details about what is required and how the program works. Our veterans have served this country with honor and they deserve an opportunity to own a home without excessive burden. The VA loan is a big step to making that a reality.

Disabled veterans often qualify for additional benefits. I run in to many people some veterans and some not who don't think they can buy a home. All to often they in fact can and many times for a savings over comparable rent.

If you are veteran look into the VA benefits and the VA Home Loan today. It may be the best thing you ever do.

Friday, October 31, 2014

Boo! Don't Let Scary Looking Houses Fool You.

The current local real estate market is clamoring for clean, move-in ready homes. These tidy houses are being snatched up quickly while the properties with a few rough edges sit on the market for a while. The general rule for listing a home is to shine it up as best you can before presenting it to the market. But in the past, there was always a strong light fixer market as well with prices hovering just below the values for the perfectionist's pad.

This market seems a little less forgiving. This market is providing a great opportunity for big value in the form of a less "pretty" house. I am not talking about rough fixers here. I am talking about a dated home, with a few bumps and scrapes. I am not referring to properties that need a roof or furnace. Just a bit of updating or cleaning up.

Recently I had the pleasure of helping a great family buy their first home. They have four children. They wanted a house with a nice sized yard and as much space as the budget would allow. $200k was the mark. I showed them many super clean and tidy three bedroom homes but they were hoping for a four bedroom home.

Four beds with a big yard for 200 large is a tall order. I discussed with them the idea of an FHA financeable light fixer. After some counsel they started looking at some of the properties I sent that they had previously rejected. Most of the homes in the $190-$200 thousand range had been clean small 1100-1200 SF on decent lots.

Lo and behold we found a 1979 4 bedroom ranch with 1500 square feet listed at $205,000. The house was no supermodel, but the bones were good and the owner was willing to fix a few things to get it into FHA qualifications. Patience and a willingness to look at homes that don't glitter in the pictures can be a ticket to value. This four bed house had no updates and it just didn't have that shiny polish like all those little three bed homes that sold in a week for the same price did.

Once they apply the "polish" to their new four bedroom house they will quickly have a $225,000 home. But more important than that, they have the space they really wanted for their four children! There are deals out there, they just might not be packaged exactly the way buyers want them. But make no mistake, they are out there.    

Friday, October 24, 2014

Gorge-ous Views in White Salmon

Previously published on "Enjoy the View" by Rod Sager

The Columbia River Gorge National Scenic Area is quite spectacular. The area is governed by a commission that makes building homes in the region challenging. The commission must approve all buildings and has a very strict set of guidelines for new construction. This is all intended to protect the integrity of America's second largest gorge behind the Grand Canyon.

All of that gorge commission red tape aside, the views from some of the homes are stunning. This 1.39 acre lot in White Salmon, Washington is listed at $500,000. It is in one of the few urban exemption zones and thus requires no gorge commission review to build. The views are quite amazing both urban and natural. This lot looks across the Columbia into Hood River, Oregon.

Prices are steep for these exempt parcels but the home will have an obstruction free view of one of the worlds most spectacular natural features and the glimmering lights of Hood River on the other shore.

The gorge-ous home shown here is listed at 1.1 million and is on the same bluff as the land listing. This is a spacious three bedroom home with 2600 squares and a three acre lot. The home has equally dramatic vistas. Looking West peers into the temperate rain forest portion of the Gorge. Looking East shows the dramatic transition to arid grass lands.

The Columbia River Gorge is a truly remarkable scenic area and to live up on a bluff overlooking this magnificent natural wonder is absolutely heavenly.
White Salmon is a city of roughly 2,300 people in Klickitat County. It is connected to Hood River, OR by the Hood River-White Salmon Interstate Bridge across the Columbia River. This long cantilever bridge spans nearly a mile across the river and features a lift section to accommodate commercial river traffic. White Salmon is 68 miles East of Downtown Vancouver via Washington State Hwy 14.

Hood River, Oregon has roughly 7,900 people and a nice historic downtown area. The city is 65 miles East of Portland, OR via Interstate 84.

This is a great area to retire and soak up the bounty of nature. The Washington side offers some advantages to retirees which you can read about on my Retire to Washington Blog.

I highly recommend you take a lovely drive into the Gorge and please, enjoy the view.

Friday, October 17, 2014

FHA 90 Day Flip Rule

Many people are using FHA loans these days. The FHA offers low government backed rates but has the problem of high mortgage insurance payments. FHA however offers guidelines that help people who have tighter budgets because they allow otherwise well qualified borrowers to exceed the standard debt to income ratios if other compensating factors exist.

This market has brought many home flippers into the fold.The large quantity of foreclosures that followed the market crash led to an abundance of investors flipping homes. The FHA has a rule loosely called the "Flip Rule" that requires at least 90 days of ownership before the sales contract is written. I think this is a stupid rule. Most of the homes that investors buy are houses that are too rough to be financed. They buy them for all cash and then make the improvements and repairs to bring the home up to market value. The FHA doesn't like to see a rapid price increase out of character with the rest of the market.

Many of these home flippers are professional companies that do a great job. There are probably some hacks out there as well, but for the most part, these companies provide a service to the community by rehabilitating otherwise dilapidated houses. My experience has been mostly positive when confronting these sellers with repairs after a home inspection. They tend to fix all the reasonable problems on an inspection report. Traditional sellers are often obstinate regarding repairs.

I think the FHA needs to re-visit this rule. The FHA is a loan program specifically designed to help entry level buyers and families get into homes and these "flipper" properties are often ideally suited for them.

Buyers intending to use an FHA loan may find a flipped property. Be sure to have your Real Estate professional check the closing date and write the offer after 90 days has passed. Your local agent should be aware of the better home flipping companies that operate and offer some guidance in this area. There is a procedure for purchasing a house before the 90 days. The FHA requires two appraisals and some paperwork from the seller regarding the repairs/upgrades. Banks may have their own overlay requirements as well. Be sure to consult your trusted mortgage professional before making an offer on a home with a seller that has less than 90 days of ownership.

Friday, October 10, 2014

Resales suffer a little hit from new construction boom

The resale market for homes is still appreciating but the rapid rise of 2013 has slowed to a modest rise thus far in 2014. I believe that the sudden expansion of new construction all over the area has had a strong impact on resale listings.

That said the combined two year growth rate is at 18% and that spells good news for formally upside down homeowners looking to move.

The modest rate of growth will help homeowners but may start stinging that entry level buyer. Buyers earning less than $30,000 a year are starting to find it difficult to get into a single family detached house.

I have been blowing the warning siren for a couple of years now and it seems the the reality has caught up with the alarm.

First time home buyers sitting on the fence need to call their favorite Realtor and jump in now.

The news media may indicate a "slow down" but it is a slow down in the rate of growth, not a decline in values. Prices continue the march upward and this mean purchasing power is shrinking.

Happy hunting :)

Friday, October 3, 2014

Blast from the Past...

I am out of town today but this post from a year ago still holds true...

originally posted on 9/9/2013

Many banks are starting to use online auctions for the sales of REO (Real Estate Owned) This is the term commonly used to describe real estate that is owned by a bank, obtained in foreclosure. HUD has been doing auctions for years on its FHA inventory but their auctions are not run live. HUD auctions use sealed bids. REO managers have a different idea. They want to market the house in a classic Ebay style environment. They want to drive the price up as high as possible with a bidding frenzy. This can be a great way for REO sellers to sell, but can have pitfalls for buyers which I will discuss a bit later.

One of the real areas of concern I have is short sales. I see this movement towards online auctions with short sales. Many banks are having their debtors sign an auction agreement along with the other short sale documents. The house is then placed up for auction terms and often the auctioneer does not even notify the listing agent. It seems that banks are going to continue to push ethical boundaries on short sales and in some cases take advantage of the American people while cashing in on federal programs like HAFA (Home Affordable Foreclosure Alternatives).

I have had some positive experiences with one loan short sales under auction terms. It seems the first lien holder often pre-negotiates the deal with the auction house and the short sale can move ahead with efficiency. The problem is that there is sometimes a second lien and the auction house either fails to disclose to the buyer or discloses in a fashion that is difficult to find. This can cause allot of grief for the buyer and the home owner.

People that are bidding on these auction homes should have a real estate professional aid them in the process. Typically the homes are listed on the local MLS and your real estate agent will get paid by the listing broker under the terms of the listing agreement. By all means a buyer should always have representation in a transaction involving large amounts of money.

In general the auction houses appear to be decent business operators. The problem is that another party to the transaction is now involved. The more parties in a real estate transaction the more likely it is to fail. Buyers and sellers can be taken for a long and uncomfortable ride when there is two banks and auction house involved in the deal.

If a buyer decides to bid on an online real estate auction, they should consult their trusted local real estate professional. That agent can do some quick research to help the buyer decide whether or not the home is viable. The agent can also help determine a good bidding range. It is paramount to remember that auction terms are designed to get an emotional response by the bidders. The emotion that screams, "I want to win" so as to drive up the price. Some auctions even have disclosures that suggest overbidding will result in mandated payment even if the property does not appraise. This could be a problem for a buyer using a loan to purchase.

In my experience dealing with the short sale departments at most banks is akin to getting a root canal without Novocaine. So adding the auction element on these sales is surfing in dangerous seas. Caution is heavily advised.

Finally, there are some banks now taking their REO inventory directly to auction without listing on the local MLS. They hire a local licensed agent to make the sale legal under state law, but offer no representation for the buyer. I believe that American banks are already about as ethical as your average mugger, now they are trying to engage the direct home buying public in a "dark alley deal" that will almost certainly take advantage of the buyer. If the auction house is listing a property that is not listed on the local MLS, I would tell most buyers to run away. Seasoned investors may feel compelled to bid, but inexperienced buyers really should not take the risk of engaging in a transaction without a buyers agent involved.

Friday, September 26, 2014

Economic Indicators are Trending Up; "Op Window" is Closing

Many market analysts are mildly bullish on the numbers coming out of the marketplace as we enter the final quarter of 2014. For me personally as a Realtor®, this was my strongest year ever. I enjoyed sales that were even better than the pre-crash heyday of the mid-2000s. Low interest rates and improving consumer confidence has made conditions for real estate ripe over the last two years. In 2011 through the middle of 2013 the first time home buyer segment was roaring. Prices were still a little depressed and rates were low so people that had been long priced out of the market saw a rare opportunity to own real estate. Economic recovery and confidence has led to a spill over into the middle and upper end markets.

Looking forward; the strong potential for the economy to swing into a more robust growth could lead to rising interest rates. If the rates get too high, they can have a negative effect on real estate sales and appreciation can slow. The "op window" for many buyers may be closing. Prices have swollen over the last two years by nearly 20%. If rates were to get closer to the 30 year average and settle in at 6%-6.5%, many entry level buyers will find themselves priced out. A strong economy is a good thing and even higher interest rates are worth having when strong job growth and higher incomes are part of the equation. Right now, buyers are in the open window of opportunity. They can lock in a low interest rate that can save them tens of thousands of dollars over the life of the loan before the improving economy drives prices and rates up.

Fear and uncertainty are what keep people from buying real estate. But no matter what, people need a place to live and buying right now for many people is just as affordable as renting. As the economic conditions improve the cost to own will rise faster than the cost of rent and that window will close as well. It is a good time to buy and a good time to sell.  

This was published by Kiplinger this month:

By David Payne

The economy looks better than was previously thought: Look for about 3.5% growth at an annual rate in the third quarter, driven by motor vehicle sales, business equipment, exports and nonresidential construction. A likely upward revision of second-quarter growth to near 5.0% after a dismal first quarter (a -2.1% growth rate) is also likely. In the fourth quarter and into 2015, growth should settle down to a 3.0% rate. That would mean average GDP this year would be about 2.2% over the average for 2013.

Setting the stage for more sustained growth in coming months: After wringing out inflation, disposable income grew at a strong 4.0% annualized rate from December 2013 through July 2014. Consumer confidence is at its highest level since before the recession. Motor vehicle sales in July hit their highest level in over eight years. An index of manufacturing activity points to strongly expanding output. New orders for business equipment have climbed 13 percent at an annual rate since May, indicating strength in business investment spending. Plus, hiring is on the rise, layoffs are scarce (indicated by a very low rate of initial unemployment claims since May), and retail sales have rebounded.

And growth may accelerate more dramatically through 2015. Improving business confidence could push investment growth back up. Consumer spending and confidence remain below what would be considered normal levels by the standards of past economic expansions. As job growth returns and consumers feel more secure, more robust income and spending increases may well be triggered, pushing second-half growth over the expected 3% pace. While that happening in what remains of this year is an outside chance, it’s a good bet that in 2015 such a virtuous cycle will kick in.

There is a slight possibility that rising interest rates next year could have a mild depressive effect, knocking growth down from an above-average (better than a 3%) rate to a simply average (2.5%) pace. For now, however, we expect that the likely small increase of a quarter- or half-percentage point in rates won’t have much impact on GDP growth.

Friday, September 19, 2014

Columbia Gorge-ous

Originally posted on "Enjoy the View" by Rod Sager

The Columbia River Gorge National Scenic Area is quite spectacular. The area is governed by a commission that makes building homes in the region challenging. The commission must approve all buildings and has a very strict set of guidelines for new construction. This is all intended to protect the integrity of America's second largest gorge behind the Grand Canyon.

All of that gorge commission red tape aside, the views from some of the homes are stunning. This 1.39 acre lot in White Salmon, Washington is listed at $500,000. It is in one of the few urban exemption zones and thus requires no gorge commission review to build. The views are quite amazing both urban and natural. This lot looks across the Columbia into Hood River, Oregon.

Prices are steep for these exempt parcels but the home will have an obstruction free view of one of the worlds most spectacular natural features and the glimmering lights of Hood River on the other shore.
The gorge-ous home shown here is listed at 1.1 million and is on the same bluff as the land listing. This is a spacious three bedroom home with 2600 squares and a three acre lot. The home has equally dramatic vistas. Looking West peers into the temperate rain forest portion of the Gorge. Looking East shows the dramatic transition to arid grass lands.
The Columbia River Gorge is a truly remarkable scenic area and to live up on a bluff overlooking this magnificent natural wonder is absolutely heavenly.
White Salmon is a city of roughly 2,300 people in Klickitat County. It is connected to Hood River, OR by the Hood River-White Salmon Interstate Bridge across the Columbia River. This long cantilever bridge spans nearly a mile across the river and features a lift section to accommodate commercial river traffic. White Salmon is 68 miles East of Downtown Vancouver via Washington State Hwy 14.
Hood River, Oregon has roughly 7,900 people and a nice historic downtown area. The city is 65 miles East of Portland, OR via Interstate 84.

This is a great area to retire and soak up the bounty of nature. The Washington side offers some advantages to retirees which you can read about on my Retire to Washington Blog.

I highly recommend you take a lovely drive into the Gorge and please, enjoy the view.

Saturday, September 13, 2014

Some Sellers are Reaching for the Heavens

2013 saw a robust increase in housing prices. In fact the median price rose 12-15% over that year. 2014 has seen a dramatic slow down in the rate of increase however. It is likely that this year will end up somewhere in the 3-5% appreciation range. This is by no means a negative. Appreciation is one of the core values to owning real estate. I believe we still have the same seller's market conditions as we did last year but prices are being held back by an overall sluggish economy. Sustained double digit growth requires a roaring economy. We haven't heard an economic 'roar' in quite a while. We are seeing a bit of a 'purr' however.

Some sellers in the market place are beginning to price their listed property 3-5% above the market. That tactic worked last year but is not a winner in 2014. Buyers are plentiful but they are limited to their financial ability to borrow money. Sellers that overprice their homes in this current situation will likely do nothing more than delay the sale of their house. The trick in this market is to have the home between 98-102% of market value. Above market should be for a truly move-in ready, updated or modern home. Bear in mind that some sellers are overpriced out of necessity. Many homeowners that bought near the top of the market found themselves horribly upside down and are just now closing in on positive loan to value. Sometimes overpriced listings are driven by greed and sometimes by financial necessity.

Buyers need to recognize that these move-in ready modern or updated properties will fetch high prices and if they are under market they will likely get over asking offers. A good buyer's agent is critical in these kinds of modest growth markets. An experienced agent can help buyers determine where to come in on offers to get the best deal possible and still acquire the home.

The most important thing to keep in mind is the mainstream media. These guys love to take subtle changes and turn them into a catastrophe or a rampaging bull depending on the conditions. In most cases things are much more modest than the big circus media makes them out to be.

Despite the current "seller's market" it is still a good time to buy a home. Low interest rates and modest appreciation still favor buyers. This current real estate market is very healthy and favors both buyers and sellers. Get out there and find your dream home.      

Friday, September 5, 2014

How are the trends from 2014 looking now?

2014 for the most part has gone about as most analysts had figured. Sure their were a few minor deviances, but overall we continue to trudge along. This article regarding trends for 2014 was written late last year and as we approach the 4th quarter of 2014 it is interesting to see what the trends were and how they are trending now. The Portland metro area is mentioned several times in this article and Clark County is included in Portland. The Suburban to Urban trend is alive and well here in the Portland Metro area including Vancouver and Clark County.

By ILYCE GLINKMONEYWATCH November 9, 2013, 6:50 AM

If the real estate recovery is a baseball game, we're in the fourth or fifth inning.

So what will the rest of the game look like?

Experts from the Urban Land Institute unveiled their view of how the rest of the recovery will play out in their Emerging Trends in Real Estate report, released this week at the land use and planning nonprofit's annual conference in Chicago.

The group highlighted a number of housing trends we can expect to see playing out over the next few years, based on surveys and interviews with real estate developers, investors, lenders, servicers and builders.

Millennials are moving the market, but not as homeowners

Though the so-called Millennial generation has been much-maligned in the media, real estate movers and shakers are increasingly interested in where this generation is headed -- quite literally. A number of the cities have seen increased economic activity in the real estate sector led by this generation, particularly Austin, Seattle, Portland and the Twin Cities in Minneapolis.

Minneapolis' place as number nine on a list of the top 10 cities for developers came as a surprise to Andrew Warren, director of PwC, a research and advising firm that co-authored the report with ULI.
"This is a city that's attractive to younger generations," he said, adding that its diverse economic base is helping to bring in a lot of college grads that don't want to leave the Midwest. However, this same group isn't forming new households, and they're not buying as many homes as their parents' generation were at their age.

Second-tier cities will lead the recovery next year. Investors, developers and builders are losing some interest in the so-called 24-hour gateway cities -- San Francisco and New York City -- and have developed more interested in cities like Dallas and Portland, where there are more housing deals to be had.

For example, in 2011 only New York City and Washington, D.C. had good prospects for real estate investors and developers, according to the ULI report, but now Austin, Boston, Dallas, Houston, Miami, Orange County, Portland, San Francisco, San Jose and Seattle make that list -- and D.C. actually dropped out.

Real estate recovery still hinges on job growth. The slow pace of job growth as well as income and wage growth is still holding back the real estate recovery and that's not likely to change quickly.

Many cities in the Bay Area and in Texas have seen strong housing recoveries based on the strength of their economy, said Stephen Blank, ULI senior resident fellow for finance, so places with low unemployment can expect better recoveries next year, while places still haunted by economic issues won't.

The "smile investing" philosophy is back. Real estate developers are interested once again in a so-called smile investment philosophy, Warren said. According to the philosophy, developers and investors start looking at cities in the Northeast and moving south to cities along the Sun Belt -- Florida, Texas, Arizona -- and then coming back up to the Northwest -- Northern California, Oregon and Washington state. So expect to see more activity in those areas than in the Midwest.

Multi-family apartment building will wane. With rapidly rising demand for apartments during the recession -- boosted by increased demand from homeowners-turned-renters -- multi-family building surged. But that's likely to quiet down in 2014, as supply and demand have swapped places -- and there may actually have been too much multi-family building in 2013, Blank said.

Condo development is still on the back-burner. The recovery in the condo market hasn't matched that of the single-family market, and developers aren't willing to take the risk on putting up new condo buildings.

Instead, builders and developers are taking a dual-track option: They build a rental apartment building with an eye on switching it to condos in 12 to 16 months, depending on market conditions, Warren said. High-end apartment buildings are also proving problematic for developers, as the interest from well-heeled potential renters simply hasn't been consistently strong.

Inventory is coming back. The experts at ULI are predicting that 2014 will be the last year that low inventory will aid property prices. Distressed inventory is drying up and sellers are looking at better profits than they have in years.

The buyer's market is long gone. Homes right now are priced to please sellers. "For buyers, they're priced to disappoint," Blank said. Sellers now know they can squeeze buyers eager to buy before interest rates and home prices shoot up even further.

Shadow banking is emerging. There's optimism among those surveyed by ULI that lending standards will loosen next year, but Blank isn't as sure. To fill the void, a concept called "shadow banking" has started to emerge and may take on a larger role in the lending market next year. Shadow banking is similar to traditional bank lending, but it's done outside banks and can therefore get around bank regulations.

Borrowers going this route will find a hodge-podge of private funds, wealthy individuals, family offices, and refugees from other lending markets, according to the report.

The suburban is going urban. There's not a lot of interest in developing suburban areas, Warren said. But where there is, it's surrounding more urban-minded projects located in spots where amenities and public transportation are easily accessible.

Friday, August 29, 2014

New on Small or Old on Big?

The trends in home building for middle income buyers has been larger homes on small lots. Builders have been stuffing 2200 square foot homes onto 4000 square foot lots. There is a wow factor when a prospective buyer walks into a brand new house with 2200 square feet of space and all the nice modern features.

The trade-off has been in the "real estate" portion of the deal. These gorgeous big houses had nearly no yard and a tiny so called two car garage. For the very same money a buyer could look at a 20 year old home with 1800 square feet sitting on a large 10,000 square foot lot. Sure, that house was a more dated design, but often the seller had done updates to improve the feel of the home.

So buyers that find themselves in the local market with a $250,000-$300,000 budget will face the same dilemma. 'new on small' or 'old on big'? That trend of new on small even pushed it's way into the bottom of the upper income homes. There are a great many 3500 square foot homes stuffed onto 5000 foot lots here in Clark County as well. Some of these are top quality builders cramming luxury homes onto postage stamp lots up on Camas' Prune Hill.

Buyers should consider that land is valuable. It is a major part of the real estate equation. Having a large, safe yard for children or grandchildren to play in can be most valuable. Summer parties in a real backyard are hard to beat as well. Buyers are well advised to look at a range of homes from new on small to old on big before making that final decision. There are strong merits to both concepts. personally I am at a point in my life where a big house on a small lot would be just dandy! One should just make sure they are choosing the property that will serve them best rather then the property that offers more bling.

Friday, August 22, 2014

New Construction is Back...Bigtime

From Stonebridge Homes, Ridgefield, WA
The last twelve months has seen a boom in the new home construction market here in Clark County. Builders are erecting beautiful new homes and buyers are snatching them up. The pre-crash trend of bigger homes on smaller lots continues during this post-crash recovery.

Builders are able to offset the fixed expenses of infrastructure when they can squeeze more homes into less land. This allows buyers to get a really nice home for a reasonable price. Families looking for the rancheria spread on the jumbo 1/4 acre lot will likely need to did deep into their pockets or continue working the 1970s and 80s resale market.

There are several builders that have setup shop across the county. New Traditions, AHO, Manor, Osprey, Olin, and Pyramid have been here before but we also are seeing new faces from Lennar and Stonebridge as well.

I helped a client get into a new home last month and he got a lot of house for a great price.2700 squares with nice upgraded trim and a decent sized lot at 6,000 squares for a great price of $313k. Prices are moving up though. That same floor plan is now fetching $325k in the same subdivision.

Getting in early can sometimes be a huge advantage price wise. Builders tend to increase prices as the phases of development are added in. The advantage to a phase one purchase is price, the disadvantage is the uncertainty of how the development will "feel" when built out.

New construction can sometimes soften the resale market and I think that the slower resale appreciation this year could be directly linked to the increased builder activity. That is a short term dilemma. The long term benefits associated with new construction are usually worth any short term loss. New development increases the value of real estate in the area. It aids in infrastructure improvements and provides needed local government revenue. It also aids in resale value long term.

Here in Southwest Washington, most builders list their new homes in the MLS. You can have your trusted real estate professional help you find the best value in a new home. Buyers that are trying to find a newer modern home should consider a new construction. It could be just what the doctor ordered :)

Friday, August 15, 2014

Back to School Brings Opportunity

There is typically a nice little summer boost in the number of real estate transactions. June and July enjoy a robust seasonal perk up as many families prefer to move in the summer while kids are out of school, and while the weather is fair for moving. The summer month's totals are usually about 20% higher than the average month. Mid-August tends to see a slight slow down in activity that is most likely due to families with children in "back to school" mode.

This slight reduction in buyers, means a little less competition for the remaining listings. Buyers that have not found their ideal home or that have been outbid may find a reprieve from the craziness. Likewise, sellers that did not sell over the summer may be ready to take that slightly lower offer that would not have been accepted a month ago.

Sellers with homes that are not selling of course should consider evaluating the price but also other factors that might help sell. One problem that is all too common among sellers is the availability to show the home. Selling a house that is lived in is a difficult pain in the rear end. But the more easily an agent can show the house, the more buyers will be able to see it. More showings will directly translate into more or faster offers. The next 3-4 weeks will mark the end of our late summer sun and making listed properties available until 7 or 8 o'clock can be the difference between sold and sitting.

Buyers should revisit homes they passed over in June and July. If they are still on the market the price may now be reduced or the seller may be softened up and open to a lower price offer.

We continue to see appreciating prices but the rate of appreciation has slowed dramatically from the skyrocketing prices of 2013 to more modest upward trend in 2014. There is no guarantee that prices will continue to move up. The economy is fair and interest rates are a major factor in the recent real estate turn around. Sellers should not assume that they will get a better price next year. They might; in fact they probably will, but it is by no means set in stone. A good solid offer today that generates the cash needed to do what the seller wants to do should not be underestimated.

Don't worry if you missed out on the peak summer sales cycle, there is plenty of opportunity as the Autumn approaches.

Friday, August 8, 2014

Two Ways to Invest in Property When You Don't Have a Ton of $$ to Start Out With

I am on vacation this week but take a look at this article by my one of my colleagues

by Dan Jensen
Relocation Services Director - Equity Northwest Properties Group

Investing in Real Estate is a dream for some, a practical activity for others, and the path taken by so many people over years and years of our Country's history to amass significant financial holdings and net worth!

Okay, so RE is a sound path to building your financial empire, but what if you don't have a ton of dough to start with? Is it still possible to invest in real estate?

Short answer is 'Yes Indeed'.

Example/Tool Number One - Option

You see a house you like that's for sale or may be soon... someone you happened to be talking with who said they need to sell their house in the foreseeable future but aren't quite ready at this point. Maybe next year after the kids finish the school year. You express interest in the "possibility" of buying their house and ask if they might consider selling you an Option to Purchase the home - say $500 for the option right to buy the home at a price you both think is "fair".

The Option can be good for any length of time, but let's say this one is good for one year. As time moves along, the value of similar homes increases just a bit, 5% in this case, and the agreed upon price you and the owner set is now a few thousand dollars less than "Fair Mkt Value" for the home. You run an ad in Craigslist offering to sell your Option for $2500 and whoever buys your Option owns the lower price for the house that you negotiated. Whether they exercise the option and buy the house or not, you've made a little extra that allows you to do 2 or 3 similar options and roll up the totals over time to "bankroll" your other RE investment strategies that do require a bit a coin to complete.

Example/Tool Number Two - Lease Purchase

You do your research and find a couple of houses that haven't sold for several weeks. One of the owners just lowered the price on their house to try to attract a buyer, and the other one is running ads that have words like "Urgent", "Hurry", "Must Sell NOW", and the like, telling you they really need to get out from under their mortgage.

You make a couple of calls and ask if they will consider you taking over their payments IMMEDIATELY and put together a Lease Purchase for 3-6 years. The IMMEDIATE relief from their next mortgage payment is enough to persuade one of the owners to accept your Lease Purchase proposal, you write it up with a "Fair" price for their home stipulated, and run a different ad on CL this time...

You're looking for a buyer-tenant for the house. You've made the first mortgage payment ($1600 or so) to your home owner, which buys you a month to find a suitable and interested buyer/tenant for the home. Your Buyer/Tenant wants to own a home, but they can't get a mortgage for whatever reason, so your Lease Purchase offer makes home ownership possible for them as they repair their credit, season their time at their job, or whatever the case may be.

In short, your are providing them with the opportunity to own a home, something they deeply want, and in doing so, they are not only fulfilling the terms of your Lease Purchase agreement with your seller, but your new Agreement with your Buyer/Tenant is sweetened a bit and will yield money down and a little monthly cash flow for you as well. Well constructed and negotiated, there's likely another bit of cash for you on the back end of the deal when your Buyer/Tenant buys the house!

Not a bad deal throughout!

The details are key here, and too many to try to summarize here, but this Tool allows you to create 1.) cash in hand on the front end, 2.) cash flow throughout the agreement term, and 3.) profit spread on the back end when your Buyer/Tenant executes the purchase of the home.

In both examples above, you have never "OWNED" either home, but you negotiated "CONTROL" OF both homes that results in PROFIT FOR YOU!

As small pieces of profit begin to add up, AND WITH SMALL amounts invested by you, it opens the door to additional Investment Tools that benefit from having more of a financial capability. We'll cover a couple of those ADDITIONAL TOOLS in our next post here.

Friday, August 1, 2014

Slow Down? Not Really

Some indicators are suggesting a slight slow down in resale activity and a slower rate of appreciation on homes. The latter has been true but not so much the former, at least in Clark County, Washington. Resales have softened a touch but that is as likely due to the robust new construction activity that has spawned in over the last 12 months. Yes, the builders are back.

Pricing on resale homes was quite brisk, year over year in 2013 and I certainly did not expect back to back double digit increases in the annual appreciation rate. The market is still quite healthy and for those competing in that under $220k range it is often a multiple offer over asking environment.

Check out this article from the Columbian newspaper about new housing, building permits.

The bottom line remains consistent that now is the time to act. prices have moderated a bit and that allows sellers to take advantage of last year's spike while not having to face a huge uphill spike this year for their new home to replace the one they sell.

Friday, July 25, 2014

Latest Market Trends

Data from RMLS
The real estate market continues to pluck along at a nice healthy pace. Although prices are not rising nearly as fast this year as they did last year conditions remain healthy. Part of the reason resale homes are seeing a big of a flat spot in the otherwise upward curve, is the influx of new home construction. Prices seem to be leveling off but slightly rising and that bodes well for the long term prognosis.

The chart at right shows the median and average sales price in the greater Portland-Vancouver metro area since 2012. the first half of 2013 saw a spike in pricing and then a flat spot and we seem to be nudging back on the upswing again. Pricing will be limited in its ability to surge based on a variety of other economic factors. Most notably is the fact that the economy in general is not exactly booming.

Data from RMLS
The chart to the left shows the year over year change in median price. This is a direct comparison to pricing exactly one year earlier. Overall the future looks promising for real estate values in general. Interest rates remain favorable and as the broad economic conditions improve the housing market will be able to open up a little more. This will be especially welcome in the mid to high end price ranges that are still just a little flat. Buyers looking to get into the entry level may find a highly competitive marketplace with multiple offers and above asking prices.

It is a very good time to be buying or selling real estate.

Friday, July 18, 2014

Understanding Contract Terms is Essential to a Smooth Transaction

It is imperative that both parties to any contract understand the terms and requirements to close. Most problems that arise in real estate transactions are misunderstandings between the parties. One person thought the seller would move out on this date or that time but the seller thought they had till such time, and so on.

Real estate agents are not attorneys! We fill in the blanks on standardized forms prepared by attorneys and approved by the state of Washington. This is designed to alleviate many problems that can happen during a real estate transaction. It is critical that all parties understand timing, dates and expectations. Many people make assumptions about how things are supposed to go. There are many standard timing issues that act as a default. For example, in Washington State, a buyer has the right of occupancy at 9pm on the day the county records the transaction. Unless specifically agreed in writing this is a contractual requirement. Many buyers think they can move in right after they sign documents or when the bank funds the loan. This can cause problems.

The moral of this tale is that both buyers and sellers need to be certain they understand the terms and conditions to the purchases and sale agreement. They should never feel afraid to ask their real estate agent questions about the details and procedures that are mandated and/or customary practices when closing a real estate transaction. Real estate agents should always be clear and concise about these terms and conditions and be certain that their client understands them. If language is a barrier then that agent needs to work harder to ensure that the clients understand.

When all parties understand the details and procedures to close, the transaction will go smoothly and everybody wins.

Friday, July 11, 2014

Cash Offers

There have been quite a few all cash transactions this year. It seems that many people are liquidating other assets and using the cash to buy real estate. This shows that there is a strong trust in the stability of the market. It bodes well for the confidence suggested in the strength of our local real estate market.

Cash is convenient in a real estate transaction because the buyer is not waiting on any bank approval, credit check, etc. Once the seller is ready to close the buyer simply signs documents and wires money to title. I love those. Sellers love them too because they tend to be stronger offers. Sometimes a seller will take a lower offer because it is a cash offer and they choose a fast and convenient lower price over a more cumbersome, slower path with a higher price. This can lead to problems if the buyer isn't careful about understanding what cash is.

Sometimes however people just do not understand what cash is. According to Black's Law Dictionary Cash is defined legally as follows :

"Ready money; whatever can be used as money without being converted into another form; that which circulates as money, including bank-bills. Hooper v. Flood, 54 Cal. 221; Dazet v. Landry, 21 Nev. 291, 30 Pac. 1004; Blair v. Wilson, 28 Grat. (Va.) 105; Haviland v. Chace, 39 Barb. (N. Y.) 284.
Law Dictionary: What is CASH? definition of CASH (Black's Law Dictionary)"

Sometimes offers are made on property as cash offers and in reality the cash is not truly liquid. Any buyer making an all cash offer needs to be aware that the funds must be in liquid cash. I have taken many offers with the proof of funds being in an investment account. Technically those funds are not truly liquid. Buyers need to be certain they have their money in liquid cash form, i.e. cash in the bank, well in advance of the closing date. As a listing agent I have learned a lesson that asking the buyer to prove the funds are liquid at least by the end of the inspection period, is a good idea.

I wrote this today because sometimes real estate deals far apart. There are a variety of reasons for this but when they do people can be a little upset. If a buyer presents a cash offer and then can't close because he can't "get" his cash, that buyer is in a tough spot and will very likely lose his earnest money deposit. If the buyer knowingly made a cash offer without having the cash on hand, that could be viewed under the law as fraud. Fraud is very bad.

The lesson here is that cash offers need to be backed up by real cash and real cash in a contract is cash as defined by the law. Black's Legal Dictionary shows that above. Of course as always my standard legal advice is to get legal advice from an attorney. Any legal questions should always be presented to a qualified attorney and decisions about these things should not be made unless one is well advised by proper legal counsel.

Friday, July 4, 2014

Happy Independence Day!

It's hot dogs and apple pie... ah the heck with it it's a thick juicy steak on the grill and fireworks booming across the sky. Enjoy the day off, I am ;)

Friday, June 27, 2014

The Investment Trap

Many buyers fall into a trap when looking at homes. This trap is especially common during a market that is robust and appreciating. This is what I call the "investment trap". I wrote about this in a chapter of my first book in 2010 (Don't Panic, Now is the Time to Supercharge Your Portfolio, America Star Books, 2010). What is the "investment trap"? Read on...

To understand what I mean by this we first must look at the core reason people choose to buy a home rather than rent. There are many advantages to home ownership but there are some disadvantages too. So buyers are making a choice between the two. Today I am skipping the reasons for and against and working under the presumption buyers have made the choice to buy. Most buyers however, and there are a great many surveys that validate this, buy over renting because of the "investment" opportunity in the house.

First of all understand that there is a legitimate investment opportunity in buying a home. The opportunity lies in the creation of equity through appreciation and reduction of principle over time. But many buyers spend way too much energy worrying about the investment angle rather than the suitability of the property for its intended use. All too many buyers treat the purchase process as if they are buying an investment property to rent out rather than a property for which they will live.

In the book I query the notion that if a buyer wants to treat a home as an investment then they should be renting out rooms to tenants to maximize the investment. This may seem extreme, but many buyers miss out on the perfect house because they low ball offer in a seller's market, looking for an investment deal. The real estate market is a commodity market like any other. It is cold and ruthless and does not care about the plight of those who ply its roads. There is nothing wrong with looking for a deal but at some point buyers need to take the counsel of their trusted real estate professional. If a buyer does not trust their agent, then perhaps they need a new agent.

If a buyer is seeking a house to live in, then that house is first and foremost their home. It is designed to provide safe and comfortable shelter for their family. That is the primary function of the home. It is secondarily an investment opportunity. Those that insist upon seeking a "deal" often miss out on the best value of all, which is the perfect home for their family and lifestyle. In an appreciating market the equity advantage is near parity across the whole of the market. Don't get me wrong here; a trusted professional should be looking out for buyers by helping them negotiate the best terms possible once the buyer has chosen a home. Buyers need to be aware that some houses are priced right.

Owner occupant buyers are well advised to look at homes that will provide them with the most comfort and convenience within their budget. Once that home is found they can work out the best terms possible in the marketplace. In my experience appreciating markets do occasionally produce overpriced listings from sellers trying to capitalize on the upswing in values. A professional agent that knows the market well, can help buyers identify an overpriced listing and advise them on a solid offer that gives them an opportunity to get the lowest price possible on that particular property. A well priced property in this market will likely get sold at full price and rather quickly. Under priced homes are often selling instantly with multiple over asking offers. There are some nuanced exceptions, but like I said before, the market is cold and ruthless.

Those buyers caught in the "investment trap" that place the investment value of a listing in front of the value it can provide as a "home" often miss the best opportunity of all. There is a secondary "trap" as well. In an appreciating market prices will likely get higher rather than lower. Every time a buyer misses out on a home the next one that comes on the market may be more expensive than the one they passed over or lost in the bidding exchange. They are also at risk of unfavorable interest rate changes that create greater expense and reduce the investment value. These buyers may end up "settling" for something less than ideal when the best option was missed.

The investment trap often keeps buyers from getting the very best house for them. Sometimes the ideal house is not the best "deal". In the end buyers will find that almost any home they choose over a long term will be a solid investment. I believe many a great opportunity is lost when buyers buy a house instead of a home because they put investment value first rather than second where it belongs.

Friday, June 20, 2014

Natural Beauty with few Natural Disasters

We got it pretty good here in Southwest Washington State. A recent CNN-Money report on natural disaster risk took data from 3000 US counties (Hawaii was conspicuous by its absence). It seems the places least likely to have a wildfire, hurricane, tornado or earthquake are the most likely to freeze you to death in the winter. North Dakota and Montana had large areas of minimal risk to home destroying disasters.

Here in fantastic Clark County we are nicely nestled in the low risk category. And it almost never gets below zero here either. Home owners should not downgrade their insurance just because we have good marks on the disaster front. A traditional fire in the home or other man made forces can still wipe out your home. Insurance companies rate ares based on the likelihood of a claim. Areas on the map below with high risk of natural disasters are rated up.

It is nice to know that we sit in an area that is relatively safe from these catastrophes, but keeping our homes well covered is always a sharp idea. I have run into people with free and clear homes that do not carry home owner's insurance. That amazes me. In order to reasonably consider self insuring you really need to be a millionaire. A standard home fire will do $40,000-$50,000 damage if not destroy the entire home and everything in it. Spending $400-$600 a year to provide coverage against that loss is wise, even if you are a multi-millionaire. An average home valued at $200,000 with $150,000 in contents would be a $350,000 loss in a major fire. Few people have the resources to recover from that financially. It is bad enough losing the irreplaceable momentos of ones life, let alone getting stuck with the bill.

Be sure to evaluate you homeowners policy every year or two to be certain your coverage is adequate.  

Friday, June 13, 2014

Ready, Set, Sell it!

The summer market is still looking warm and delicious for sellers. Turn key, move-in ready properties are still the habanero sauce in this real estate tamale. There is however a shortage of well-priced listings in the low to mid price ranges in general. Buyers are lurking about in every neighborhood, looking for an opportunity to capitalize on low interest rates. There are also many buyers still looking for a "deal". They likely won't find it in a clean ready to live in home, but they might find it in a less complete home that needs a little TLC. Many buyers are realizing that the 'screaming deal ship' left port a few years back. They still want a deal and a less than perfect listing could be mutauly beneficial for buyer and seller.

Generally speaking this market likes clean and tidy listings and any house that needs some love and attention falls into the rule that ten will get you twenty. If a seller has the cash it is usually well advised to spend it and take advantage a market full of thirsty buyers seeking refreshment in the form of a sharp looking home. If a seller is tight on cash then they still may have an opportunity to sell their home to one of those "desperately seeking a deal" buyers that are plying the real estate ads every day.

The only thing missing in the market is listings! Many homeowners may be unaware that their previously upside down house could very well be in a profitable position to sell. The median price in Clark County Washington is now roughly 90% of the 2007 median price. We are well on pace to return to the 2007 median values sometime early to mid next year. Numbers vary slightly from source to source but the bottom line is that many homeowners are in a position to sell. They also may not realize that their home has scores of potential buyers just waiting for an opportunity to buy it.

Sellers are advised to consider that as their current home escalates in value so does that home they will replace it with. Many sellers are upgrading to a more expensive home. A ten percent gain on their $200,000 home is $20,000 but they will have a $30,000 price increase on the $300,000 upgrade house. So those potential sellers are in that twenty will cost you thirty situation and waiting to list may or may not be the best course of action. Homeowners should sit down with a trusted real estate professional to determine whether or not now is the best time to sell. For some sellers waiting a bit longer may yield better results. The decison to wait however is always based on the uncertainty of the future. Caution is always advised when planning ahead based on current market trends. The market does not always do what people want it to do. For sellers looking to upgrade, selling now may yield a little less on the current home but could save thousands on the upgrade.

Sellers should also understand that this real estate market is very healthy but it is not the rabid, frothing at the mouth, anybody can get a loan, market of the mid 2000's. An overpriced listing in any condition will sit. Buyers will scrutinize price. Sellers should avoid the greed factor because today's cautious buyers want a house but they won't be taken for the proverbial "ride". Seller's also need to understand that appraisers are less liberal with overpriced homes than they were prior to the "crash".

It is mid-June and this is the time to jump into the market with a new listing. Buyers love to close in the summer, especially if they have children. They also don't like to move in the rain and snow, so summertime is not just hot on the thermometer, it is hot in the real estate market as well.