The latest economic numbers are out and the second quarter produced a strong 4.1% annualized expansion rate. This is going to increase consumer and commercial confidence as well as job expansion. These kinds of economic conditions almost always benefit the real estate market.
Although interest rates have been creeping up all year long it cannot be overstated that rates remain well below the established 50 year average. Long term mortgages continue to offer excellent investment opportunity in both residential and commercial real estate with a cheap cost of money value proposition.
In our local market we still have a shortage of apartments and that shortage is being addressed with massive numbers of units under construction right now. More locally, Vancouver USA has a variety of apartments from luxury units to affordable units coming online to alleviate tremendous pressure on the rental market. That may make some of the owners of older complexes tear up as they may actually have to return to more market rates as these newer units come online.
In the resale homes market I am continuing to see more new listings than new pending sales and that indicates a trend towards more inventory. These things take time to develop especially when considering that the Portland - Vancouver Metro area has had one of the tightest inventories of rentals and resale properties in the whole country over the last few years.
If the trend plays out to the end of the year buyers will have the upper hand across all price segments except the ultra tight sub $300k range. As long as the economy continues to produce strong gains and employment remains at or near full levels, the real estate market will enjoy success. I do hope we can continue with this trend of 3% or better growth quarter in and quarter out. It all bodes well for real estate and life in general.
Friday, July 27, 2018
Friday, July 20, 2018
Market Trends Continue to Favor Buyers
Complied by Rod Sager using data from RMLS |
The chart shows both the last 24 months and the last 6 months of data. Charted are sold listings and new listings and the percentage of new listings relative to sold listings over the period.
Over 100% indicates that sales exceeded new inventory and less than 100% indicated inventory levels grew.
The chart separates price ranges Under $300k, $300-400k, $400-500k, $500-750k, and above $750k. A low percentage is not good and you can see that the upper price ranges had very slow inventory turn.
This is not unusual as the market for higher end homes is much smaller than the market for mainstream and entry level properties. But even the ultra tight sub $300,000 market is now adding inventory. It has been so tight that it will take several months of this trend to flip to a buyer's market. The shocker for many, but not me, is the $300-400k band that flipped to plus inventory in April of 2016! It was so tight in 2014-15 that it is just now settling in to neutral conditions. If the surge of inventory continues, the segment could flip to a buyers market before the end of summer. Above 400k buyers are already in control but some buyers don't realize it, and many seller's agents are scratching their heads. They shouldn't be, the data has been showing the trend for several months and you can't keep adding surplus inventory without buyers catching on.
At $400,000 in Clark County buyer's have lots of choices. Sure there are pockets where $400k remains hot and tight on inventory, and these hyper-localized sub-markets are just one reason buyers should use a quality and experienced LOCAL agent.
The economy remains strong, jobs are plentiful and incomes should start increasing. Rising rates has put a soft brake to the market, but the economy will keep us in strong real estate sales. I wrote about rates and purchasing power a few weeks ago, here.
Although I have tried to point out that the market is NOT the raging bull some still think it is, it is not on a bubble either. The economy is pushing forward with a heavy head of steam and that bodes well for real estate. I see a soft landing from the crazy run up 2014-16. Now we should see modest growth in inventory and a softer rate of appreciation. In fact 2018 could end up flat, the first six months here in Clark county have been pretty flat.
I am hoping this slowdown will move to a nice steady market and let this excellent economy push new buyers into the market with better wages.
I still have the same warning for buyers however, rising rates will kill you faster than rising prices, so take advantage of the pause and lock in your sweet new home soon.
Friday, July 13, 2018
Market Producing a Surge of Inventory
I have been helping several buyers in the $350-$400k price range which in our market is about 95% to 115% of median price for a detached home. I have seen a massive swelling in the listed units that is outpacing the pending units by a significant amount in this price area. This will lead to a flip in the market that should start favoring buyers as the summer closes.
Under 300k will likely remain RED-HOT for some time to come locally however, as there is no shortage of buyers at the entry level and inventory remains tight. But rising rates has put the squeeze on buyers in the above median price ranges. And sellers seem to be jumping in.
The median price has been dead flat all year long. The chart above shows the county wide median for all single family detached units this year. Many agents and sellers are living in a fantasy where they think prices are still skyrocketing. They are not. This market is healthy, just not out of control like it was from 2014-2017. The sky is not falling here friends, the economy is strong, employment is strong, the housing market remains stable. But it is NOT the red-hot craze that media types following trailing data suggest. Many agents fall into the trap as well. We are headed to a healthy neutral market.
The local market is absolutely prime for a seller sitting on a small house in the sub $300,000 range. They can get top dollar for that house while enjoying some choice and a neutral market in the above median price range such as a house in the $350-$400k range.
This is ideal conditions for sellers under 300k, yet they are not bringing inventory to market that fast. It is showing signs however of slight improvement on inventory. The chart above shows data for detached single family homes from $200k-$300k in Clark County. The sold units by month are in the big red bars. But the real data lies in the line chart above the red bars. This shows listed units and pending units. Look at January where there were substantially MORE pending units than new listings coming to market. Inventory was shrinking, the market was gobbling up new listings faster than they came online. In May things flipped a bit. Now you see a few more listings coming online and less pending units. This can likely be directly correlated with rising rates putting a bit of a damper on the buying pool. But if that chart continues to follow the trend line, inventory will still favor sellers to the end of the year and maybe into 2019. Under $300,000!
If you are a seller with a small house and want to make the move up to the next level, there is a window of opportunity to sell your current house quickly and for a great price, while having a little room to negotiate with the sellers above $350k. We had this same scenario when the market first emerged from the recession and we have it now that things are settling in. A 3 bed 1 bath starter house with 1100 SF in good shape can fetch $280k and that seller can upgrade to a similar quality two story 4 bed 2.5 bath home with 2000 SF for only 10-15% more money! This is GOLDEN!
Now look at this next chart above. This shows the same data from the price range of $350k-$400k. Many agents have not been paying attention! Look at the trend line. Listed units has outpaced pending units all year long and in May a massive spike in inventory began. Sellers trying to get King Midas prices for their homes in this range are seeing little success. Too many agents look at the sales bars which are TRAILING indicators, rather than the listed vs pending data which are LEADING indicators. Trailing data shows what already happened, leading data shows what is likely to happen. For example the pending units in the chart above shows a trend DOWN but sold data is UP. The pending line leads us to the conclusion that the next months closed sales will be either flat or down. If this data line trends out to the end of the year, we will see a complete change from this weak sellers market to a moderately strong BUYER's market in the above median price range. Again above 350k here, and it progressively softens the higher up you go in price range.
Sellers need to understand this. The ship full of overpriced listings sailed away. I showed several overpriced listings that even made my clients shrug their shoulders. They didn't even want to deal with the idiot trying to sell their house at that price. Nobody wants to enter a contract with an unreasonable person. In 2016-17 overpriced listings were fine in this price range because there was no inventory and prices were rising. But this year the market appreciation is flat. If a seller is waiting for the market to come to him, they are going to have to wait quite awhile.
Price the house right and it will sell. That is good advice in almost any market and it is absolutely gospel in this market. Sellers above the median could find themselves chasing the market down if they try to get greedy. Potential sellers sitting on a sub median starter house, you have a window right now! Interest rates will push that window of opportunity closed soon.
Under 300k will likely remain RED-HOT for some time to come locally however, as there is no shortage of buyers at the entry level and inventory remains tight. But rising rates has put the squeeze on buyers in the above median price ranges. And sellers seem to be jumping in.
The median price has been dead flat all year long. The chart above shows the county wide median for all single family detached units this year. Many agents and sellers are living in a fantasy where they think prices are still skyrocketing. They are not. This market is healthy, just not out of control like it was from 2014-2017. The sky is not falling here friends, the economy is strong, employment is strong, the housing market remains stable. But it is NOT the red-hot craze that media types following trailing data suggest. Many agents fall into the trap as well. We are headed to a healthy neutral market.
The local market is absolutely prime for a seller sitting on a small house in the sub $300,000 range. They can get top dollar for that house while enjoying some choice and a neutral market in the above median price range such as a house in the $350-$400k range.
This is ideal conditions for sellers under 300k, yet they are not bringing inventory to market that fast. It is showing signs however of slight improvement on inventory. The chart above shows data for detached single family homes from $200k-$300k in Clark County. The sold units by month are in the big red bars. But the real data lies in the line chart above the red bars. This shows listed units and pending units. Look at January where there were substantially MORE pending units than new listings coming to market. Inventory was shrinking, the market was gobbling up new listings faster than they came online. In May things flipped a bit. Now you see a few more listings coming online and less pending units. This can likely be directly correlated with rising rates putting a bit of a damper on the buying pool. But if that chart continues to follow the trend line, inventory will still favor sellers to the end of the year and maybe into 2019. Under $300,000!
If you are a seller with a small house and want to make the move up to the next level, there is a window of opportunity to sell your current house quickly and for a great price, while having a little room to negotiate with the sellers above $350k. We had this same scenario when the market first emerged from the recession and we have it now that things are settling in. A 3 bed 1 bath starter house with 1100 SF in good shape can fetch $280k and that seller can upgrade to a similar quality two story 4 bed 2.5 bath home with 2000 SF for only 10-15% more money! This is GOLDEN!
Now look at this next chart above. This shows the same data from the price range of $350k-$400k. Many agents have not been paying attention! Look at the trend line. Listed units has outpaced pending units all year long and in May a massive spike in inventory began. Sellers trying to get King Midas prices for their homes in this range are seeing little success. Too many agents look at the sales bars which are TRAILING indicators, rather than the listed vs pending data which are LEADING indicators. Trailing data shows what already happened, leading data shows what is likely to happen. For example the pending units in the chart above shows a trend DOWN but sold data is UP. The pending line leads us to the conclusion that the next months closed sales will be either flat or down. If this data line trends out to the end of the year, we will see a complete change from this weak sellers market to a moderately strong BUYER's market in the above median price range. Again above 350k here, and it progressively softens the higher up you go in price range.
Sellers need to understand this. The ship full of overpriced listings sailed away. I showed several overpriced listings that even made my clients shrug their shoulders. They didn't even want to deal with the idiot trying to sell their house at that price. Nobody wants to enter a contract with an unreasonable person. In 2016-17 overpriced listings were fine in this price range because there was no inventory and prices were rising. But this year the market appreciation is flat. If a seller is waiting for the market to come to him, they are going to have to wait quite awhile.
Price the house right and it will sell. That is good advice in almost any market and it is absolutely gospel in this market. Sellers above the median could find themselves chasing the market down if they try to get greedy. Potential sellers sitting on a sub median starter house, you have a window right now! Interest rates will push that window of opportunity closed soon.
Friday, July 6, 2018
Rates and Purchasing Power
I have spared no lines of text on the issue of higher interest. Rising interest rates will severely effect buyers ability to purchase a home if they are not using cash. Buyers will enjoy a a flattening price market, but they will not enjoy having their dollars stretched thin by rising rates. 6 of one half-dozen of the other?
Let's say we offer $350,000 on a house now with rates at 4.5% FHA. Buyer will need $12,250 cash down. The PI payment (principle and interest) is $1,711 per month for 30 years. Now the property taxes and mortgage insurance will be added to the payment as well, but interest rates do not directly effect those values. If a buyer waits a couple of months to offer they may find a similar home priced at $355,000. Now if rates remained the same the down payment is now $12,425 and the new estimated PI payment is $1,736 per month for 30 years. That's not so bad, right just $25 a month more. Well, sort of, over thirty years that's $9,000! But this year rates have been slowly climbing so it is far more likely rates will have risen over the next couple of months and probably that 4.5% now will cost 4.75%. With the higher rate, the payment moves up to $1,787 per month. That's $76 per month MORE for 30 years which adds up to $27,360.
Most importantly is that the rising rates was more damaging than the rising prices. The amount of additional monthly income required to qualify for an extra $76 a month payment is going to be $160-$230 depending on the loan type and credit profile. Many buyers get priced out on rates rather than actual home appreciation values.
It is important to remember that loan officers will give an approval based on the price of the house, but the underwriter is actually approving a monthly payment not a purchase price. The loan officer converts the payment into a price to make shopping a little easier for the buyer.
It is very important to understand that the average mortgage rate has been very low for nearly 10 years. In fact The 46 year average Freddie Mac 30 year fixed rate dating back to 1972 is over 8% So even as rates rise into the fives they are still historically low.
The chart below shows the loss of purchasing power as rates rise. Please note the chart is only looking at Principle and Interest and not the combined payment including taxes and insurance. Rising or falling rates won't directly effect the taxes and insurance. The chart shows an FHA loan with a maximum approved PI payment of $1,500. The actual payment on this loan with taxes and insurance would be closer to $2000. The moral of this story is buyers should take advantage of these low rates while they can.
Let's say we offer $350,000 on a house now with rates at 4.5% FHA. Buyer will need $12,250 cash down. The PI payment (principle and interest) is $1,711 per month for 30 years. Now the property taxes and mortgage insurance will be added to the payment as well, but interest rates do not directly effect those values. If a buyer waits a couple of months to offer they may find a similar home priced at $355,000. Now if rates remained the same the down payment is now $12,425 and the new estimated PI payment is $1,736 per month for 30 years. That's not so bad, right just $25 a month more. Well, sort of, over thirty years that's $9,000! But this year rates have been slowly climbing so it is far more likely rates will have risen over the next couple of months and probably that 4.5% now will cost 4.75%. With the higher rate, the payment moves up to $1,787 per month. That's $76 per month MORE for 30 years which adds up to $27,360.
Most importantly is that the rising rates was more damaging than the rising prices. The amount of additional monthly income required to qualify for an extra $76 a month payment is going to be $160-$230 depending on the loan type and credit profile. Many buyers get priced out on rates rather than actual home appreciation values.
It is important to remember that loan officers will give an approval based on the price of the house, but the underwriter is actually approving a monthly payment not a purchase price. The loan officer converts the payment into a price to make shopping a little easier for the buyer.
It is very important to understand that the average mortgage rate has been very low for nearly 10 years. In fact The 46 year average Freddie Mac 30 year fixed rate dating back to 1972 is over 8% So even as rates rise into the fives they are still historically low.
The chart below shows the loss of purchasing power as rates rise. Please note the chart is only looking at Principle and Interest and not the combined payment including taxes and insurance. Rising or falling rates won't directly effect the taxes and insurance. The chart shows an FHA loan with a maximum approved PI payment of $1,500. The actual payment on this loan with taxes and insurance would be closer to $2000. The moral of this story is buyers should take advantage of these low rates while they can.
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