Friday, April 27, 2018

Analyst Projections are Softening for 2018

The overall Portland Metro area has already seen a slowdown in the rate of price appreciation in the first 1/3 of 2018. There is near unanimous analyst agreements that market conditions will soften as the year progresses. For buyers that may not seem like the case especially resale buyers in places like Portland, where inventory remains critically tight.

A low inventory definitely tips the scales towards sellers int he supply and demand view of economics, but demand in real estate is a little different than demand in many other commodities. Demand for real estate is almost always high, but the problem isn't that there aren't ready and willing buyers, there are plenty; the problem is that there are many "able" buyers.

The greater Portland-Vancouver market has seen housing price growth so outstrip income growth that many ready and willing buyers are simply no longer able. Many sellers still believe they can list their home for a sky high price because they have a "rare" commodity. But having something rare still requires having more buyers than sellers. For example, if I have a rare and desirable item that I price so high no one can afford it, I will not sell it, even if it is the only one on Earth.

One real classic trap that I see seller's right now falling into is the chasing down the market. Last year a seller could float a high price above market and get away with it. Buyers outnumbered sellers so much that someone would always step up and make an offer close enough to close. But now I am seeing, and the analysts have confirmed, that strategy is leading to a series of price reductions from sellers.

A series of price reductions puts buyers in a position of strength against sellers. As interest rates rise the pool of eligible buyers shrinks. Sellers are well advised to price their home at market pricing because higher interest rates reduce the buying power of prospects for the home. Remember inventory IS in short supply, but recent conditions have also reduce the supply of "able" buyers. This local market is moving into a neutral status where it is neither a seller's or buyer's market. I still think current conditions tend to favor sellers, but another few upticks in interest rates could level the field.

For younger buyers that have never seen a mortgage rate above 6 percent, I'll tell you this. The 50 year average rate on a home loan is still above 6%. Young people have seen these historic low rates as the "norm" when in fact this has been an abnormal decade for interest rates which are now beginning to normalize. Paying 6% on a mortgage loan is still reasonable when compared to the long term averages.

That however does not mean the buyers shouldn't try to score a house while rates remain lower than 6%. Interest rate is a much bigger impediment to buying a house than price. Interest rates will likely rise faster than prices this year, so buyers should focus on their ability to pay, not trying to grind out the lowest price on a house.

So overall Clark County, Washington saw roughly 10% growth in the median home price from 2017 to 2018, most analysts are projecting 2018-19 growth to be about 1/3 that in the 3% range. So prices are still rising, but not at the rate they were last year. Incomes are the limiting factor. For buyers, the price slowdown may feel like a reprieve, but combined with the up creep in rates the purchasing power will make the market "feel" like it's rising just as fast as last year.

Sellers need to be cautious, analysts are not the end all be all. Market conditions can be fragile, and they are in my opinion fragile right now. If national and local economic indicators remain strong most of the analyst projections will likely pan out, but any negative economic factors could lead us back to a buyers market. Sellers: A bird in the hand is better than two in bush, in 2018.

Friday, April 20, 2018

Banks Seem to Be Working Faster

I have noticed over the last few months that mortgage lenders seem to have streamlined some of the processes in funding home loans. This is more than a welcome anecdote. The loan is the most complex and time consuming aspect of a home purchase. There are just so many little fingers are dipping into the sauce that makes up a home loan. I have noticed a bit of streamlining this year in that process. More and more lenders are getting back into a pre Frank-Dodd timeline. Perhaps it just took them a few years to figure out how to implement the thousands of pages of new Fed regs into a process that is smooth.

The good news for home buyers is that the idea of having to ask for a 60 day close for an 'ordinary' loan seems to be fading into the annals of history. There will be no complaints from this Realtor®. A speedy lender working with a buyer that follows directions and is prompt will lead to the classic 30 day close. 45 days for government loans and or otherwise unusual properties is advised.

The comment above about buyers following directions and in a prompt fashion should not be overlooked. Buyers can be their own worst enemy. There are times when mortgage loan officers will ask for documents or other pertinent information that seems trivial or even redundant. Buyers need to set that aside and follow the directions promptly. When an underwriter asks a loan officer for documents or other information, that loan officer has a short window of time to get that info back while that file remains in front of the underwriter. Delays will lead to the underwriter moving the file back into the "stack" and working on another file. Thus causing delays in the process.

No matter how frustrated buyers get at the seemingly endless list of documents in some files they must remember the 'golden rule of finance'; he who has the money, makes the rules. Unless a buyer has a few hundred grand sitting in the bank, they need the lender's cash to buy a house. You have to follow their rules.

A good loan officer / mortgage company and a responsive buyer can get a conventional loan deal closed in 30 days and a government loan (FHA/VA) in less than 6 weeks.  Sometimes even faster if the stars align.

Buyers: follow directions and do it fast.

Friday, April 13, 2018

It's mid-April again...Did you Buy a House Last Year?

Yes friends the dreaded tax arrives yet again. Now if you bought a house for the first time, last year you very well may be able to itemize deductions and save money. If you bout the house in the second half of the year, you may not have paid enough interest of offset the Federal standard deduction. But it is always wise to consult a tax pro before prepping your taxes.

This year a new tax system is in play and it may remove the need to itemize for some home buyers. The $24,000 standard deduction for a married couple is enough to wipe out all the interest paid in the first year of a $425,000 mortgage at 4.5% with about $5,500. So one would need to have an additional $5,600 in deductions beyond the mortgage for itemization to really help.

In my opinion one rarely should buy a house strictly for tax purposes unless the house is a investment property. To real value in home ownership is gaining equity value over time by reducing principle and market appreciation. This helps people build wealth over time and is a cornerstone to the American way of life.

So with all that taxes and building wealth set, how about the market?

The local MLS just released it's data for March and it looks like inventory is just about as tight as it was last year this time. Rising interest rates could initially get some fence sitters to jump in while rates are still low, but eventually it will lead to fewer buyers. This is primarily why many analysts feel 2018 real estate prices are likely to rise more slowly than last year. Buyers will be helped by a little less competition.

I will be diving deeper into the data to look for opportunities for buyers and sellers over the next week. 

Friday, April 6, 2018

Spring has Sprung... Real Estate should follow...

Yes it is spring and the real estate market generally likes the springtime! People start thinking about moving. Buyers want to get out and look at the homes on a nice spring day. Sellers want to get their house on the market before everyone else does. The cycle repeats in some form or another every single year.

The market tend to warm up in the spring. This spring seems to have the added braking effect of interest rate creep. Yes those pesky rates have been inching higher and that can take a bite out of the buyer's wallet. But I don't think that will stop the market from doing its fresh spring dance. Inventory should increase a bit and buyers may jump in as well.

I still feel strongly that 2018 will be a much more modest market in terms of price appreciation. The tug of higher rates will likely keep things under a sustainable growth pattern. Vancouver is bringing hundreds and hundreds of new apartment units to market over the next couple of years and that will ease some pressure on housing in general.

The real factor in whether this local market can continue to sustain solid growth will be int he job arena. Will the area continue to add good paying jobs across a diverse sector of business? If so we will continue to see a great and healthy real estate market. If not, then things will slow down abruptly.

The market is showing signs of a slight softening, not a pull back mind just a slowing in the rate of price appreciation. Buyers with tight budgets need to make their move now as the double jeopardy of rising prices and rising rates in in play.

Things are looking healthy and bright for 2018.