Friday, December 28, 2018

2019 Outlook

The stock market took a blow to the face this month and that may seem like trouble, but it is more than likely just a sell off to take profits off what has been a monumental rise in equity value since 2016. The red hot stock market has been a major factor in the Fed decision to tighten things up with interest rates and that has in turn led to some minor softening in the real estate market, particularly for the single family residential market.

The Wall Street blues could lead to a more robust interest in putting all that sell off cash into mortgages that are now bringing investors a decent 4.5% - 5.5% ROR. That bodes well for buyers as a stable lending market will settle in nicely to our near neutral market conditions.

Analysts continue to project that the next two years will see home prices outpace inflation but the media is painting a grim picture because the rate of growth is expected to slow substantially. But double digit housing inflation is not sustainable and the market is simply settling in to a more normal growth rate.

Buyers should understand that even though prices are not skyrocketing, they are still inching upwards and getting in sooner offers more opportunity for equity growth, equity growth is good. Don't be misled by media reports of a slowing market to mean that prices are reversing and getting lower, they are not. Some overpriced listings are being reduced to points they should have been at all along but the median continues to creep up.

It seems like interest rates are stabilizing and historically speaking a 5% mortgage is still a fabulous deal. Here's to 2019 and solid year for real estate! 

Friday, December 21, 2018

Happy Holidays!

Wow, 2018 is nearly done and it was a good year for real estate locally. Some say it was flat or 'softer' to which I say, "yes it was." But frankly, that is good. A crazy market that puts too much favor on one side of the transaction is great for the favored but terrible for the 'unfavored' side.

2018 brought us a transition into a near neutral market. Sellers are still favored a bit on the entry level price point and buyers tend to hold an edge at the high end. In the majority middle from 90% of median to 120% of median, we seem to have a solid neutral market and that keeps things fair, and dials back the intensity in a positive way.

Looking ahead to 2019 is a challenge as some variables for the coming year are unpredictable. Will mortgage rates remain flat? The stock market may play a role in that equation. The last six months has had a flat and volatile stock market and that tends to bring some money into the mortgage side. Should that continue then rates should remain relatively stable in 2019 and that bodes well for real estate.

The economy continues to move forward at a very healthy clip and that means that buyers feel good about making big financial decision like buying a house or upgrading their current home. One of the issues we are facing that may be playing a role in the move from seller's market to neutral is the segment of homeowners that bought a house around 2012 when rates were in the middle 3's. Home values were depressed and they are sitting on a sizable tank of equity. This is the point that historically they make the move up to the house they wanted back then but couldn't afford. But now rates are little higher averaging closer to 5%. Now let's be VERY CLEAR, 5% is still a remarkably low rate for a mortgage, but it is also remarkably higher than 3.75%. I wonder how many of those sitting on that 3.5% to 3.75% mortgage from 2012 are saying they will just stay put. It seems from an anecdotal viewpoint, that the pace of listings is steady but the pace of buyers has slightly softened. Data seems to suggest that is the case at the moment but it is not conclusive.

Will those 2012 homeowners make the move in 2019? That is the big question. 7 years has long been the standard average move rate for a homeowner. If they do, the entry level may get some much needed relief and the middle market might get a shot in the arm, so to speak. This is the scenario that I feel is best for the local market. If we keep pushing positive volume without exerting excessive pressure in any one segment, that is a sustainable situation.

Whatever the the economics deliver for 2019, it should be a good healthy market for real estate. Getting a 30 year loan at 5% is still a great deal for the buyer.

Friday, December 14, 2018

Minneapolis Eliminates Single Family Zoning

The New York Times reported that a serious proposal in Minneapolis to eliminate the single family housing zones in all or parts of the city has been passed. Apparently Minneapolis has a bit of a housing crisis and city leaders feel that allowing more multi-family in existing single family neighborhoods will resolve the problem.

This is dangerous and city leaders used the ugly history of racism and segregation to bring about the change. There is a sordid past time of cities using the power of zoning laws to keep specific ethic groups (among other groups) separated from others. By citing the racist history of zoning, are they admitting to having current racist policies in Minneapolis? I never would have pegged Minneapolis in that light in this modern age, who knows? I certainly hope not. Although zoning laws have a nefarious past, modern day zoning is designed to support all residents from all walks of life and to protect them from having a factory built next door, or a large apartment building being stuffed onto a lot that can't support the density. The dark past is just that, the past. Today, zoning is far more likely to aid citizens then harm them.

The real problem is multifaceted. First home owners of all ethic groups move into these single family neighborhoods for a variety of reasons, among which are quiet streets, large and private yards, lower crime, and a more suburban lifestyle. The trade off is that they often have a longer commute and find themselves needing to drive everywhere rather than walk or bike.

Often the homeowners have paid a bit of a premium for this quiet culdesac with the big back yard. Eliminating the single family designation allows home owners in the area to start packing in additional units on their land. This will eliminate the quiet and private aspects for some and likely reduce their property values. Furthermore the suburban infrastructure is almost certainly unable to support the increased density which will lead to traffic and heavy wear on streets. This further erodes the value of the property.

Rather than eliminate single family zoning, why didn't Minneapolis just make it more difficult to zone new areas in single family and thus make multi-family zoning easier for developers. A lack of new single family zoning would lead to strong property values for existing homes and the increased multi-family zoning would support more affordable housing in the future. That sounds like a win-win, but apparently not as far as Minneapolis officials are concerned.

People often pour their life savings into owning a home, and zoning, when done right is designed to protect those homeowners from a neighbor building something on their property that ruins the rest of the neighborhood. It is one thing to lighten the restrictions on adding a unit or subdividing an over-sized parcel. But wiping out the single family zoning altogether sounds like a serious case of overkill.

It will be interesting to see the fallout in Minnesota as this new legislation is absorbed into existing developments and future developments. My guess is that Minneapolis has opened Pandora's Box and God only knows what's lurking within.

Friday, December 7, 2018

Clark County Real Estate is Diverse and Priced Right

Here in Clark County we have a very diverse residential real estate market. Probably as diverse as anywhere in the USA. By diverse I mean the broad range of neighborhoods, types of properties, price ranges, rural, urban, suburban, mountains, lakes, rivers, views, etc. Like our neighbor to the South, Multnomah County, OR we have a scenario by which the county is dominated by one large city. Two out of three Clark County residents have a Vancouver address. But Clark County also has a rapid transition between urban, suburban and rural. One need not travel far to get to that 5 acres of rural paradise.

The price range is also very broad. Clark County is noted for having a less expensive alternative to Portland or even Washington County. To a point it is true, there are still excellent homes to be had in Vancouver in the upper $200k and low $300k range. But Vancouver and the rest of Clark County is a virtual cornucopia of real estate. Some of the most expensive homes in the whole metro area are along the Columbia River in Vancouver. Nearly a 100 homes are currently listed at $1 million or more and just as many are listed at less than $250k. In fact the second most expensive residential listing in the whole Metro Area is right here in Clark County.

Of the four primary counties in the Portland-Vancouver Metro Area, Clark has the lowest median home price according to recent MLS data. In fact on the surface we are a bargain. But the gross numbers often fail to tell the whole tale. Data for October 2018 shows the following median price for the four primary metro counties:

  • Clackamas County, OR: 542 sales, median $408,700
  • Washington County, OR: 695 sales, median $399,200
  • Multnomah County, OR: 874 sales, median $395,000
  • Clark County, WA: 634 sales, median $354,950
1942 2 bed 1 bath listed for $280k Fruit Valley, Vancouver
Back in the 1940s shortly after the start of WWII, Kaiser had a large shipyard in Vancouver that employed 38,000 people. Housing was scarce as Vancouver's population more than doubled during WWII, so thousands of simple 2 bedroom 1 bath cottages were built in a very short time. There are literally thousands of these little 600-900 square foot houses scattered around Vancouver. These were built quickly to support not only Kaiser Shipyards, but other large industrial companies along the Columbia River that ramped up production to support the war effort. 

On the Oregon side the city of Vanport was also constructed to house Kaiser Shipyard employees for both the Vancouver and Portland shipyards. Vanport was destroyed in an epic flood in 1948 along with most of the little houses.

These small and very simple homes served a great purpose during the war, and afterwords they continue to serve as excellent value opportunities for homeowners on a budget. Vancouver has the largest collection of these WWII public housing homes in the metro area. There can be little doubt that the median home price is affected by the sheer volume of activity in this popular price range.

Well that clearly affects Vancouver's median home price, but county-wide Clark still represents a relative bargain. When looking at 3 bed 1200-1500 sf homes Clark is still the best value but the order changes to Washington, Multnomah, Clackamas, Clark. When looking at larger 3-4 bed 1900-2100 sf homes Clark again is the value leader and the order is the same as the 3 bed list.

What about income? That often plays a role in the value of real estate. Clark is comparable to both Washington and Clackamas county income but those two are about 6-7% higher. Multnomah however is more than 10% less than Clark. Clark County also has the lowest poverty rate of the four counties in the metro area but only a tad better than Washington County.

So what is the deal then? I have a theory. Vancouver is as close to jobs in Portland as Clackamas or Washington counties. Washington County has its own sizable job market with two juggernaut employers in Nike and Intel. Clackamas not so much. Vancouver is in a different state and is limited to just two crossing points into Portland. Vancouver and Clark County are a bit of a bastard step-child in the metro area and there is this false pretense that Clark County is "far away." It's odd that Vancouver and Portland actually share a border and still there is this 'far-away' vibe even from people that live in places like Troutdale, Hillsboro, Oregon City, etc, all much further away from Downtown Portland.

So buyers have an opportunity to buy in a clearly superior area for less money because as they say, perception is reality. Superior? Yes, better rated public schools, better highways, lower crime. Buck the perception trend and get a great house, in close if you desire, for less money.