Friday, March 25, 2016

Should I stay or should I go?

originally posted by Rod Sager right here on August 25th, 2015

Ah the 80s... Yes that title invokes the lyrics of a song by The Clash that had absolutely nothing to do with real estate.

"Should I stay or should I go now?

If I go, there will be trouble
And if I stay it will be double
So come on and let me know"

But those words do relate indirectly to the mindset of many homeowners as they ponder the equity they have gained or gained back as the case may be, since the crash of the market in 2009. If they stay, they continue to gain equity and get closer to paying off the house. but the "trouble" is that they may lose out on an opportunity to move up to a more spacious home with very low interest rates that honestly can't last forever.

There are even people nearing retirement that might be thinking about downsizing to the last house they'll ever own. "Should I stay or should I go..." dances in their mind. In the case of downsizing, the low interest rates could be the catalyst for the decision. If in fact it is the long term proposition then the low rates will be far more advantageous than waiting for additional equity to build up. The low rates are very real and right now. Gaining more equity is likely, but still not guaranteed. No one knows the future after all. What we know is what we have at the moment and that is very low interest rates and a rising home market. 

Sometimes my friends, a bird in the hand IS worth two in the bush.These super low interest rates have been hanging around for several years but there is no guarantee they will stick around. In fact many economists feel that it will just take a little nudge in the general economy to get the Feds to back off their aggressive loan guarantees and that could easily return the interest rates to a truly market range likely around 1-2% higher than they are now. 

This current market is healthy but not too robust. Many sellers are throwing homes on the market with a puffed up price and the market isn't biting. Buyers will snatch up well priced homes that are clean and sharp but they won't bid up a dump or nibble on the line of a puff piece. This is a good time to sell, bit also a good time to buy. Buyers that move into a new house today have a reasonable expectation of market appreciation but do not have to worry about bidding up on a house that is overpriced. During the 2005-2007 craze, that is exactly what was happening. People were bidding up overpriced homes and paying way too much for them. This market is much more subtle than that and buyers still can get a fair deal. The only exception is the very entry level portion of the market where inventory is so tight that buyers are feeling the squeeze. All the more reason for sellers in the entry level homes to list now while to price is upwardly pressed but the move up hose is not as tight.Sellers can squeeze a few thousand extra dollars out of the 3 bedroom ranch and move up to the four bedroom deluxe house with a low interest rate that will serve them for years to come.

Should I stay or should I go now..

Friday, March 18, 2016

Entry Level is Getting Tight

Our local market has become quite tight for entry level detached housing. The pressure is overwhelming in the sub $230k market. With a median household income of 50k annually, a healthy market supports a median home price of about $200k. Our median is much higher than that. In fact the Clark County median is rapidly approaching $300k. We stand at roughly $275k with a year over year appreciation at 11%. If 2016 matches that growth rate $300k will be the mark by this time next year. I do not think we will, but the point is already made. A median earner cannot buy the median priced home or even anything remotely close.

Rents are also very high right now. A renter will pay $1500 for a 3 bed 2 bath 1500 foot ranch house in this area. That same renter can own a similar house with a mortgage payment very near the rent. Unless that renter is planning on leaving the area, why would he not want to own the home? The payment is fixed, it is harder to get evicted when you own, and the landlord won't throw him out because he IS the landlord!

The primary difference is that a landlord will rent a $1500 house to a 50k earner. A bank may not. This is what creates market pressure on the entry level. Buyers get locked into a $220-$230k price range and there is less and less available. Slightly higher earners bid the properties up in a desperate attempt to get as much house as they can before the market passes them by.

The middle and top of the market are starting to feel some of the pressure as well. Sellers of these $250ish homes are moving up to bigger and better things. They are starting to bid up homes a bit. The pressure will never be as bad at the top as it is at the bottom because there are ALWAYS buyers at the bottom but the top is a more exclusive market with far fewer qualified buyers. Inventory is the primary driver of the high end market where as demand pushes the bottom. Demand for upper end real estate tends to remain relatively flat but the entry level sees wild fluctuations based on economic conditions. Add a tight inventory in the entry to mid level market and things get dicey for buyers. We are dicey right now to be sure.

Many buyers qualified to buy a home a few years ago, but they allowed market fear to get in the way and they hesitated. Now the market has passed them by. When considering an owner occupied property, the time to buy is nearly always now. Yes exceptions are true, buying in late 2007 was not ideal, but one always needs a place to live and even those who bought at the peak before the great crash, still had a home to live in and those folks are now seeing all their equity return. While the home was financially "underwater" it still served its purpose as a shelter. In the grand scheme of things the only bad thing about the value decline was that it limited the ability to sell.

Too many people put too much into the "investment angle" of the home they buy to live in. Yes, we always want to make a sound investment. But unless you are renting out every extra inch of that house, you are not maximizing your investment. I did not buy the house I live in as an investment, I bought it to provide shelter for my family and to use it for my own needs. Its value is not important until I decide to sell it or leverage it. As a real estate professional I do tend to look at the investment side of buying a house even when I intend to live in it, but I never let the investment potential or lack there of, be the overriding factor in the purchase. The primary concern is its use value. Investment potential is supplemental at best. When I look at property for investment, then investment potential is the overriding factor and it dominates the decision to buy or not to buy. Everyone that sat on the fence while the market was down has now lost all the investment opportunity as prices have risen. They all should have bought at the bottom and failed to act out of fear. Now many of them have to rent instead of own. My clients that bought in 2010-2012 have seen the value of their homes increase 50-75%. Again it really doesn't matter unless they want to sell and move into a bigger house or leave the area. But they are enjoying a mortgage payment that is 30-50% LESS than current rents. That DOES matter. Right now rent vs own is about par on payment for a basic 3 bed 2 bath home. Why again are qualified buyers not buying?    

Friday, March 4, 2016

Resale Homes Remain Strong, Despite New Construction

Clark County, WA is alive with the sound of hammers. Builders are pulling permits for homes faster than the local carpenters can put them together. In fact the average build time has swelled to a sluggish 6-7 months because there simply is not enough tradesman to keep up with the flurry of buyers.

Often when new construction is booming it comes at the expense of resale homes. The new homes tend to fetch higher prices and can create an artificial ceiling on the values of similar sized resales. But for the most part, that is just not happening right now.

There are several things helping to push new construction homes up in value, including increased regulatory requirements on development, rising land values, and materials and labor costs. Newer homes tend to be built on smaller lots in more compact neighborhoods. The advantage of new construction aside from the oblivious, 'newness' lies in the fact that neighborhoods developed since the 1990s follow better planning guidelines and are more uniform and offer superior infrastructure. These new homes have the latest floor plans and design elements.

For the buyer the trade off is new and modern versus older, possibly dated but with a larger lot and wider streets. Lately another trade off is the 6 month wait for construction. So as long as construction times remain out in the half-year range, resale homes will continue to challenge the values of similar brand new homes. For sellers this means now is a great time to list your home. At some point demand for sub-contractors will begin to lure people to the industry. When the construction time returns to a more tradition 2-3 months, new homes will begin to pull away in value or resales will start to lag. It all depends on other economic conditions of course.

The time to sell is quite likely, right now.