Friday, February 23, 2018

Finding Value in a Tight Market

1425 SF $329,900
Locally were are having a bit of late winter snow and that is putting the brakes on some showings. Those of you reading this from frigid climate zones are probably snickering, but a few flakes flying in the wind and people round these parts freak out. It's not the light snowfall that does it, it is the not knowing if this is the "Big One". So people prep for worst and cancel any unnecessary travel.

It's hard to say but the number of active listings is as tight as it has ever been. This makes for tense shoppers as too many buyers are vying for way too few properties. I am hoping for a bit of an uptick in listings this spring to help alleviate the pressure. Potential sellers should be wary of higher rates. This is soften the buying power of buyers. This means fewer buyers will qualify to buy the potential seller's listing and what ever home they decide to buy after selling, will be harder to qualify for. Sellers are in a prime spot right now as the market slowly begins to shift into neutral conditions. Waiting too long to sell could lead to losing the seller's advantage we have right now.

A more neutral condition is good for the market at large so I welcome more sellers coming online and the frustrated buyers will like it too. I am feeling confident in the spring outlook so buyers hang in there, the sellers will come.

One part of the market is already feeling the neutrality and that is the 600k plus range. Here buyers will find more choices and less competition. The higher up the range buyers look the less competition they have. This is typical as incomes required to purchase more expensive houses tend to be well above average. But this market goes a little beyond just the demographics of income. The is just a slight surplus of homes in the upper ranges.

Where the market needs help is in the 120% of median and below. Inventory gets ridiculously tight down in the sub $350k range. One level homes are even more scarce. We have double demand for one level homes as they often are targeted by young people just starting out as well as the large retiring Baby Boomers and 'empty nest' Gen Xers, downsizing.

2028 SF $309,900
There is good news however. I am seeing a piece of the market where buyers can get a much larger house for LESS money. Right now the Baby Boomers are driving the prices of small one level homes through the roof. Older people often prefer a home without stairs. I am seeing 1400 SF ranch style house selling for more money than a comparable age and condition 2000 SF two story home. This means that buyers looking in that low to mid 300k range might want to look at 20 year old two story homes with 1800-2100 SF as that is a bit of a sweet spot in the market right now.

I have a pair of listings right now in the same culdesac in NE Vancouver, one is pending sale and was listed at $309,900. 4 beds, 2.5 baths and 2048 SF. It needed a touch of work but the seller got the house to FHA qualifying levels. Two doors down on a near identical lot, I have a listing that is a 3 bed 2 bath ranch with 1425 SF listed at $329,900. It is in a little better condition, but look at that price difference. Were the two story in identical condition then it may have pulled $329,900 but again way more footage for a comparable price.The little house will sell, because of huge demand for one level homes. A similar scenario played out near the end of last year in the same neighborhood; a 1600 SF ranch sold for $325k and a 2100 SF two story a block away sold for $315k both were in very similar condition, in fact the two story was a little nicer.

So there is the silver lining for median price range buyers, if you are not worried about navigating stairs then you are well advised to look in that 1800-2100 SF two story range.

Friday, February 16, 2018

What will March Bring Us?

March may be a pivotal month for local real estate. Inventory has remained fairly tight at all but the very top of the market. All price ranges except the lowest ranges have seen pressure go from hot to warm over the last 6-9 months. With interest rates creeping higher and inventory tight it seems we are in for a period of closer to neutral conditions in the price ranges above 120% of median.

Buyers are not as willing to take property as is as they were last year and sellers are showing a little bit of a willingness to soften prices in that upper half of the market. March can be a launchpad for the spring listing season if the weather is decent. Locally weather does seem to play a role in the listing count. If we have a typical March the question begging for an answer is this: How many new listings will come online, and how will they match up with new buyers?

If we see a large increase in inventory and buyers remain at the same levels I believe we will encounter a flattening in the price appreciation curve. Buyers will start to get rate hiked out of the market putting a little more pressure on sellers that have been enjoying a robust advantage over the last three years.

No one really knows exactly how much inventory will enter the market this spring, but March is a solid indicator of how the spring season will play out as the year rolls on. I am hoping for a bit more inventory than we had last year. Preferably not too much more as rising rates will thin the herd of buyers a little and we don't need prices to fall, just to ease off the throttle a bit. I get the feeling that is what we just might get.

Friday, February 9, 2018

Bottom Remains Hot!

The entry level of the real estate market here in the Clark County area remains hot with a surplus of buyers bidding on a tight inventory of homes priced below the median. There has been a softening in the buyer pool and that may be due to a combination of higher rates and inflated value pricing people out of the market. However, inventory remains very tight in the bottom half of the market.

The middle and upper price ranges are seeing a serious slowdown in the rate of price growth. I am not seeing negative appreciation, but sellers are reducing their prices that they had up too high as the market has settled in a bit. The rush at the bottom produced a large swath of move-up buyers over the last couple of years, and that helped keep the pressure on at the top in 2015-2016 and part of '17. That wave seems to have subsided a bit and the battle in the upper price ranges has become neutral between sellers and buyers.

Interest rates will be the big story this year. It may be hard to believe for younger buyers that can't remember a time when interest rates were at 6% or more, but historically the average rate in fact hovers in the low 6% range. The treasury yields are a strong indicator for mortgage rates and treasuries are marching higher. This will ultimately result in higher mortgage rates that may reach 6% over the next years or so.

Higher rates tend to dampen the housing market. Our market however is so hot right now that a little cold water might do us some good. Just a little though ;) Buyers that have been sitting on the fence should absolutely get triggered on this interest rate issue. Rates will kill the ability to buy faster than rising prices. A little interest rate heat will also cool the "bubble" and that should help everyone rest easier. Most analysts are predicting much more modest price growth in real estate over the next year or two. This in between period where prices are a bit more stable and rates have yet to get traction to climb could be a great buying opportunity. It is a narrow window and rates will squeeze the buying strength. It's time to get on-board or stay home. The affordable house train is leaving the station.

Friday, February 2, 2018

Undermining the Underwriting is Never a Good Idea

Most real estate sales transactions will involve a lender. Mortgage loans are very complicated and involve a number of individuals in the process. The loan is the longest process in nearly every transaction.

It is important that all parties, including their agents understand the basic process and principles in a mortgage loan. First, there are two primary groups involved in a mortgage loan. Origination and Underwriting. This is a bit of oversimplification on purpose. Origination is the interface with the public and ultimately the individual borrower. Origination includes a loan officer or broker, loan processing staff, and marketing personnel. This can be a large group of people or even just one person. Underwriting is generally done elsewhere and is the entity that protects the interests of the lending institution and the future investors that will ultimately carry the paper to term.

Origination is the capitalist portion of the deal. They want to originate as many loans as possible and often the origination team is working on at least a partial commission basis. Origination spends time, money, and effort to acquire new clients. They retain those clients for future business and referrals by providing a quality and professional level of service to the borrowers. They collect all of the required documentation and guide the borrower through the process. They start by offering counsel on the various types of loan products available to the borrower so the borrower can make the best decision possible. This is where the proverbial rubber meets the road. Not all loan officers and origination teams are created equal. 

A good originator understands the delicate interaction between underwriting and origination. There is a bit of an opposition in the two groups. Originators want to help their client achieve their goal and underwriters are there to protect the bank from a bad deal. So the originator is trying to push his clients loan through to the finish and the underwriter is stopping the process at every way point investigating and sniffing around to ensure everyone is playing within the rules.

Underwriters by nature have to be a bit cynical and pessimistic about every deal. They are the gatekeepers. They are the last line of defense against fraud, abuse, and bad loans. They will absolutely freak out when something odd enters into the equation. They tend to assume guilt until innocence is proven. This is a not intended to a bash on underwriters, but rather to help buyers understand why underwriters seem to be questioning their every document and digging deep into their financials. Make no mistake, the bank is about to loan a large sum of money to an individual whose annual income may only be 1/15th of the loan amount.

Buyers need to follow the instructions of the loan officer to the letter. Buyers need to avoid any significant financial maneuvering during the process. This means do not transfer thousands of dollars into or out of the bank account from which the down payment is coming. Do not go out and buy a new car, or appliances and such. All of this activity will either be suspicious to the underwriter or it may simply change the qualifications of the buyer. It can delay and or kill your deal.

Realtors should avoid last minute addendums to the contract if possible. Underwriters will stop the works and investigate the change leading to delays and possible deal crashing results. Clients that are under the advisement of an attorney should also make sure they keep the Realtors informed of any planned changes to status implemented by the attorney. Few things freak out an underwriter more than the presence of an attorney in their deal.

This is mostly common sense stuff, yet I see all too often real estate transactions suffering a bunch of unnecessary drama at the finish line; it is often due to one person or group puffing up their chest and not keeping all participants in the "loop". Although we cannot "control" our clients, we professionals can control our own conduct and that should always involve open communication and cooperation to result in a happy end for all parties to the transaction.

Buyers and sellers need to follow the advice of all the professionals working on their deal and if a conflict arises in that advice from say the loan officer to the realtor, get the two on the same page before acting. Underwriters may be warm and genuine soft souls outside of work, but inside the office they are calculating and condemning. They don't like surprise parties, and they don't like cloudy gray areas. Most importantly, buyers should carefully choose their Realtor and their loan officer and vet them on character, quality of work, and experience. Lowest price or rate is not always the best deal.