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.