2020 is upon us...

I'm taking this week off but have this classic post to share:

Originally posted, February 17th, 2017 by Rod Sager

Median home price is a metric widely used in real estate as a bit of a benchmark for relative values in a particular area. Although many readers may already understand this unit of measure, for the benefit of those less familiar, I can provide a simple definition. Median is as basic as "middle". It defines the value at which half are higher and half are lower. This differs from average which takes the sum of all values and divides by the number of values. Average can be skewed more easily than median, especially in a localized setting where there are fewer than 1000 sales.

To show it in an ultra simplistic way take a look at the series below:

1. 189,000
2. 198,000
3. 201,000
4. 215,600
5. 225,000
6. 226,000
7. 228,000
8. 231,000
9. 297,000
10. 456,000
11. 908,000

The average of these eleven home sales is $337,460 but the median is $226,000. Half the homes on the list are lower than the median and half are more. Most real estate markets will have way more than eleven sales, but the grouping is usually similar with a whole bunch of sales in one general price range and a handful of extremes often in the high end. In an average these high end sales can skew the average north of reality because the bulk of homes sold are near the bottom of the price range and there is theoretically no maximum limit to the price of a house. The median is a better measure of what is typical in a market as the extremes do not carry more weight than their proportion to the overall list. That is to say a $5,000,000 home will only move the median one sale up on the list but it could move an average way off the mark. For example if I add a $5,000,000 dollar sale to the list the average jumps to $726,005 but the median only moves up to $227,000 precisely in the middle of the list of sales. 

But median price can also be skewed by local demographics and local zoning, neighborhoods and other fixed issues. Generally real estate becomes more valuable in close to the city center and or center of jobs. People will pay more to avoid a long commute. But there are also limitations based on the existing conditions. For example, Vancouver, Washington has a lower median home price than the whole of Clark County. In theory it should be higher as Vancouver is by far the largest city in Clark County and the overwhelming center of jobs for Clark County and it is immediately adjacent to the core city for the metro area, Portland, OR. Yet its median is lower. Why is this?

Simple, Vancouver has a great mass of neighborhoods that are very old and contain thousands of older and smaller homes. These homes are very popular as they are affordable to first time home buyers. As one radiates away from Vancouver the homes are either new and larger or on acreage in the rural areas. These homes are often very expensive. But if one were to compare a 3000 square foot home on a 1/2 acre in Vancouver to the identical house in Ridgefield, the Vancouver house would be more expensive if all else is equal. Yet Ridgefield has a higher median home price than Vancouver. Ridgefield does not have a very large quantity of older and smaller homes. It also has a disproportionately high number of large country estate properties. 

Someone looking in at Clark County, Washington from the outside, might think Vancouver was a local value proposition based on its overall lower  median home price. But if that hypothetical outsider were looking for a large 3000 square foot home on a 12,000 foot lot in upper middle class neighborhood, they may find that Ridgefield or La Center have lower prices on those homes than Vancouver, despite the fact they have a higher local median. They will also find that there is a substantially longer drive into downtown Vancouver or Portland, OR. 

There are often trade offs when deciding to live "in close" versus a bit further out. Most often these neighborhoods in close to the city are more heavily populated with more traffic and other city type issues. They also have the upside to the city in the form of amenities like shopping, restaurants, etc. A simple median price comparison is rarely enough to determine whether a neighborhood is suitable for any one buyer. A local real estate professional can offer sound advice regarding the best home for each individual buyer's needs.

Median values can also change due entirely to trends in the market. For example the real estate market could be flat with only a slight year over year appreciation say 2% in actual values yet one local neighborhood could have a median moving way up to the tune of 10%. This could be trend in sales of larger homes. It could also signal a change in local neighborhood dynamics. Maybe a new city park was completed and many people want to live near it. 

Just because a communities local median home price has risen, it does not always translate directly to a specific house. If the local median has risen 8% in the last 12 months an individual home in that market may have only increased in value by 4% or perhaps it rose 12%. The market is a dynamic phenomenon with many variables.

There is a plethora of information flooding our senses from the Internet, but it can be very difficult to see all that data come together cohesively without a local real estate pro shedding context and perspective specifically tailored to an individual buyer or seller's concerns and needs. This is why a local Realtor® is such a valuable asset for anyone participating in the real estate market.

Expect Little Till After New Year

This is that time of year where expectations for real estate activity are low, and should be. What the last two weeks of the year lack in volume they make up for in quality. I have said this over and over, people doing real estate activity during the holidays tend to be very serious and ready to act be they sellers or buyers. I am a firm believer in keeping properties listed through the holiday period.

Meanwhile the 2019 year in real estate should end up with excellent numbers. The supply and demand balance in 2019 for properties in the "meat" of the market was at near equilibrium. The core market locally is in that $350,000 - $550,000 price range roughly 95% of median to 140% of median saw good healthy conditions with demand and supply in near balance tipping slightly towards sellers at the bottom and slightly towards buyers at the top. Below this range it was a solid seller's market above the range favoring buyers.

Despite the feeling of things slowing down, the numbers tell a different tale. Year over year numbers for almost every month were better this year than last. But the energy seemed lower. I believe it is due to the balance between buyers and sellers. Up until the middle of last year sellers were in firm control of the vast majority of the market. Buyers were often frantic, bidding up houses in order to get them into contract. it felt crazy. In the last half of 2018 and all of 2019, that craziness subsided and the only time it appeared was when a lower than market value home appeared on the market.

I personally don't like the low price quick sale approach in general, but it does seem to be working at the moment. Sellers that do NOT need to sell quickly are well advised to price the home at market and be patient. Wait for the buyer that falls in love with the house rather than hoping to get the best price in a quick sale bid battle. Typically sellers often wonder if they got the best price after one of those quick sales. that said in the middle of the price range buyers are becoming a bit more choosy.

This is a healthy real estate market, prices are rising but the rate of appreciation has settled into a sustainable pattern. The prognosis for 2020 looks strong. I do wish all of you a happy holiday period and a prosperous New Year!

Holidays are Quiet, But Opportunity Lurks...

I have noticed the market has entered the holiday zone. Things are quiet... too quiet ;) Sellers should not fret the slower holiday period because buyers tend to be scarce but serious and the opportunity to sell can come in an instant.

I have a client that was thinking about writing an offer on a property that had been listed for a while and not sold yet. Just as the client was ready to pounce, I reached out to the listing agent only to be informed two other buyers made offers and the seller accepted one.

Even in the quiet times buyers are out there and during the holidays buyers tend to be very serious about buying. As I have said time and again, sellers are also serious when they decide to interrupt their holidays to allow showings.

The holidays also tend to knock people off the fence. It's as if a voice inside them is saying, "Let's get this wrapped up for Christmas." Buyers and sellers are often on the same page during this period and both can be a bit more malleable at this time.

December is actually a good month for Real Estate. It isn't a high volume month, but it is an excellent opportunity month.

Should You Buy New or Resale?

This is a question that comes up a fair bit with buyers looking to move into a 'new' house. "New" meaning new to them. But locally a fair number of new construction homes are being built and this is a viable option for home buyers and there are pros and cons.

Some may find the notion of a new house having cons as silly but there are definite disadvantages that can arise with new homes versus older homes. Most of the negatives can be overcome with money, but most home buyers have limited amounts of it. So what are these cons I'm talking about anyway? Well new houses tend to be built on small lots in neighborhoods with narrow streets and often have a lack of mature trees. Often is the case that a brand new house is built in a development and construction may continue on for months or even years after the new buyer moves in. New home subdivisions are also often filled with what ever styles are in vogue right now. Buyers may not like the current trends in home styles and floor plans.

Right now the industry is seeing a lot of attention in the modern style of home with sharp angled roofs that are flt to one side. Locally these homes also have generous use of wood finishes ont he exterior to give it a bit of Northwest flair. These modern northwest styles are like a blend of chic Malibu meets Paul Bunyan

On the up side a new home typically has a builder warranty. Everything is brand new so those expensive maintenance items are usually well off into the future. They tend to have the latest tech and the most efficient insulation and windows.

Older homes are quite often built on larger lots in neighborhoods with wider streets and mature trees. Sometimes these older neighborhoods are closer in to the city center or downtown areas as well. With the exception of the 1950's and 1960s, older houses tend to have a lot of "character." This is particularly true in pre-war homes where the attention to details in the mill-work were much greater than today's crummy composites.

Where older homes have older systems and designs that are less efficient, they tend to offer a larger lots and a lower price than a comparable new home. Many houses that are between 25 and 35 years old have already had much of the expensive maintenance done. Things that costs thousands of dollars like a new furnace, new roof, etc.

In the final analysts it should come down to what home makes the buyers feel most 'at home'. All too often I encounter a buyer that is closed to the idea of a resale home or vice verse closed to a new home and in either case I suggest they look at some of both! One never knows when and where home will call, but when it calls, one always knows.   

It's Black Friday!

Well if there was a real estate store the deals would be amazing right? There isn't a real estate store; well not in the traditional sense at least. But if there is a "Black Friday deal" in real estate it is probably going to be found between Thanksgiving and the New Year.

Sellers keeping their home open to buyer tours during the holidays are quite likely VERY ready to make a deal. And buyers that are trudging around in the rain and snow are probably pretty serious about making an OFFER on the right house.

Buyers should not get too excited about a crazy deal because the real estate market is not as malleable as brick and mortar retail stores or the Cyber Monday craziness we'll see next week. Not at all, really. Buyers and sellers are both reasonably well informed these days and most are represented by a professional. But the idea that both the seller and buyer are almost certainly motivated to act is a big bonus to both parties.

The real problem is simply the fact that fewer houses are available during the holidays and fewer buyers are looking as well. The actual impact on pricing during this five week period is usually not noticeable. What is noticeable is that willingness to ACT from both parties. That means sellers should pay attention to offer opportunities and buyers should be willing to write them. December is the month for deals because December is a month where people are ready to take action.

So get ready real estate peeps, December is about to arrive.

Seller Beware!

The so-called i-buyer programs are making their way across the USA with some markets seeing strong penetration by internet firms offering to buy homes. The companies offering these programs include some national giants like Zillow.

Sellers need to be aware that enough of these transactions have closed to provide a large pool of data and these plans often cost sellers dearly. Many sellers are attracted to the idea of NOT paying a real estate commission to a brokerage. What they seem to overlook is the "service fee" applied to these i-buyer programs that are often MORE than a typical real estate brokerage fee. On top of that they buy the house for a price that is usually about 10% UNDER the local market value.

Make no mistake these guys are going to resell the house. They are going to make a fat profit and it comes at seller's expense. Data shows that the typical seller nets about 10% LESS money using these methods. Sure they are fast, they can often close the deal in 10 days. They allow sellers to pack up and move and things are convenient for the seller. But that convenience comes at an awful price. A $350,000 house might take 4-6 weeks to sell in our market right now but I can't imagine someone living in a $350k house making $25,000 a month in income so why would they leave that much money on the table save a few weeks time?

I could imagine a handful of situations where these types of offers are a viable option for a seller. But the overwhelming majority of sellers will be far better off hiring a local real estate pro to help them sell. I sell a lot of houses and I make a pretty good living, I am NOT going to give an extra $25,000 of my hard earned cash to some corporate, Wall Street scumbag to profiteer off my stupidity. Seller's are well advised to do a lot of research into these i-buy offers. There has never been a free lunch, and there still isn't.

Seller beware!

Houses taking a little longer to sell

Our local resale home market remains strong but other than the sub median price market conditions are mostly neutral. In Clark County buyers seeking homes priced under $375,000 will find sellers at a slight advantage but as the price pushes north of the median price conditions quickly neutralize.

There are still plenty of buyers but resale homes are now competing with a fairly large inventory of new construction and that means buyers in the $375k plus price range have more options than they have seen in several years. Pricing seems to be holding steady at the moment but marketing times are increasing. A well priced home will sell quickly and that is an indicator that buyers are plentiful. When buyers have lots of choices however, they will be picky and that means the sellers have to be patient and wait for the buyer that falls in love with their house.

Sellers that find themselves in a contingent contract and have to sell cannot afford to try and get top dollar because top dollar will take 90 days or more to fetch unless your house is in that sub median price range that remains hot.

This is a symptom of success, the builders have rushed in to fill the demand and now we have reached a point where inventory levels are higher and in the top half of the market buyers can be a bit choosy. Builders can't afford the build a traditional detached house for much less than $350,000 these days so buyers in the entry level pricing are looking at attached housing or an older resale home. Inventory in that arena is much tighter so pricing favors sellers to some degree.

Overall our local real estate market is pretty darn healthy and that is a good thing!

Stock Market Rally Pushed Rates Up!

It is not uncommon at all, in fact it is quite normal to see mortgage rates move up when the stock market is strong. The last several days saw a tremendous run up on wall street with nearly every index blasting through all time records. Mortgages are competing with stocks for investor cash and equity has been moving to stocks all week. Investors are not looking for higher returns on mortgages and we saw a sharp adjustment yesterday.

Buyers don't need to panic, but this is an example of the potential for volatility in mortgages and thus the buying power of borrowers. This is a great time of year to buy a house. It tends to be a little more quiet and sellers are anxious about getting an offer before the holidays. Meanwhile sellers can rest assured that the people outside braving the chillier late autumn temps along with rain and snow are serious about buying a house.

Buyers can relax it is only a matter of time before investors start taking profits on all these stock gains and then that money will likely move back into the warm embrace of mortgage securities. This will release some pressure and lower rates again. These last couple of years have been wonderful for mortgages even with this latest uptick. This is not the normal state of mortgage affairs and a return to higher rates is inevitable at some point. Buyers are well advised to strike while the iron is hot and get the home of their dreams while it remains affordable.

Rates Continue to Drive Market

Interest rates have continued to stay stable and low. This is one of the biggest market forces in real estate and it is getting buyers off the fence and into homes. Despite the slowdown in the rate of appreciation, the volume continues to impress with the number of monthly closings now pushing up into the pre-crash figures.

Overall the local median price has stabilized and I believe this is more about the imbalance of market segments than a real pricing contraction. Most of the activity in the market is in the bottom half of the price range. This heavy weight towards lower priced units definitely effects the median price. That does not mean that an upper price range house has lost value, but rather that it will take longer to sell.

Sellers are well advised to be careful with price, the days of overpricing a house and expecting a swarm of hungry buyers is past. These days, well priced homes will move and overpriced homes will sit. We have a slight glut at the top right now and remain tight on sub-median inventory.

The Downtown urban condo scene is doing pretty well, I monitor Vancouver USA urban condos very closely on my site Urban Living in the 'Couv' and inventory is tighter now than it was over the summer. That bodes well for Vancouver's emerging urban scene.

Buyers should feel very good about the current interest rates and the slight softening on appreciation as they can feel confident that houses are generally well priced at the moment with fewer overpriced properties and the best rates we have seen in a long time.

Building Subcontractors in Scarce Supply

I have touched on this issue before and it continues as home builders continue developing both urban and suburban projects. There is a large amount of urban projects that feature mid rise buildings. Often these types of structures have a concrete and steel base with 4-5 floors of wood framed structure above. This type of construction takes framing subs away from other housing projects and that mean increased time to build and higher costs.

Higher building costs can have a negative effect on new homes, but generally a positive effect on resale properties as those simply become more attractive as new homes get more and more expensive.

The current economic cycle is getting long in the tooth and that means a slowdown is now more likely than not. I do not think we are headed for a major recession, but a slower rate of economic growth is likely, even a short and probably mild recession are coming sooner rather than later.

But for now we are still seeing a construction boom and even as the economy slows, real estate has always been a safe heaven for investors and that bodes well for our local market to ride out any slowdown with light effects.

Sellers on the fence waiting for prime market conditions are now at a crossroads. Did the market already peak? Is now a good time? Now is probably as good a time as any that will arrive in the next 6 months, near as I can see. The future is always a bit cloudy and skies over that future are never really clear. Sellers with a desire to upgrade or downsize are well advised to think sooner rather than later, especially if they are downsizing.

Don't Get Hung up on Price per Square Foot!

Originally posted on August 3rd, 2018 by Rod Sager

So often I hear clients talking about the price per square foot on a residential listing. I even hear real estate agents talking that up. Why is this house $200/sf and this other one is 180/sf? Sometimes people are adamant about not paying more than "x" per square foot. My friends, in residential real estate, the price per square foot rarely matters as a comparative value. There are way too many other variables that affect the value of a residential property. Any property actually, but in residential there is a broad range of variables. The only time that price per square foot can really be comparative is if all other variables are identical or near identical.

For example to use the cliché of apples and oranges why is this Apple priced at 1.48 per lb and this Orange is .99 per lb? Why is a Red Delicious $2.99 per lb. and a Granny Smith is $1.99 per lb. Apparently Red Delicious Apples are in higher demand!

Well friends the only time this price per foot stat really matters is when you have two houses in the same neighborhood, same floor plan, same condition, same upgrades, hell, right next to each other in fact. Then if one is priced at a higher amount, you have to ask, why?

I think price per square foot is the most abused statistic in residential real estate. Ranch homes are always going to have a higher price per square foot. Small homes in expensive gated communities will have a higher P/SF than a large spacious home in a run down neighborhood. A brand new home will cost more per foot than an old house. Homes on acreage will often cost more because the land value is higher.

One simply cannot make any prudent decision based on price per square foot unless all these other variables match. Since that almost never happens, then we have to look at those other variables. In the end what really matters for a person buying a home that they intend to live in, is this: Do you like the house? Does it do what you need it to do? Can you afford it? If you answer yes to these, then you're done, pull the trigger and write it up!

Don't get caught up in price per square foot. I sold a 720 sf house last year for $255k all cash. It was nicely remodeled but nothing over the top. That is $354/sf. I sold a 4200 sf mansion with a breathtaking view of the Columbia River for 750k around the same time. That was only $179/sf and the house was decked to the nines with top grade trim, marble, soaring ceilings, the whole bit. Why such a dramatic difference. Simple, lots of variables. There is a massive demand for smaller affordable homes. Far more buyers than sellers. In the high end the opposite is true. Furthermore, there is a bit of the economy of scale when building a large house. Neighborhood plays a role as well but when comparing a very large house to a very small house you cross one of the rare times that location is not the number one variable. Demand is the number one variable here. When comparing similar homes across neighborhoods, location resumes its role as the primary variable driving values.

A 2000 sf home on a 10k lot next to a railroad yard might fetch $150/sf and the exact same house a few miles away in a nice neighborhood with a view might fetch $225/sf. Do not let the price per foot trap keep you from getting the right house. Understand that smaller one level homes will almost always have high per foot costs and larger homes on a small lot will have lower per foot costs. Here is a simplified example of why this is the case. Let's take a lot in a neighborhood that is 8,000 sf and fully ready to build. The city says the builder can put any house between 1200-2400 square feet, one or two levels. The following is an oversimplified hypothetical scenario:

The lot is 100k and the development costs (underground infrastructure, city required appurtenances, fees, permits, etc) are 35k. The builder is into this deal 135k before the first nail is hammered. The physical structure cost will vary depending on size and design dynamics. The landscaping and other costs will be more or less the same regardless, lets say 10k. So the hard costs fixed are 145k. Lets say the 1200 foot ranch costs 100k to build. That puts the net cost before marketing and other post build expenses at $245k Let's say the builder budgets 15% for marketing and other costs of sale (real estate commissions, taxes, staff, ads, etc). That makes the total cost of goods about $282k. Let's say builder makes a 10% profit. That makes the 1200 foot ranch home $309k. Now the same scenario with a larger and slightly more expensive 2400 sf two story trimmed out the same might cost 165k to build. Now the builder has a total cost of goods at 360k and a sales price at $395k. The cost per square foot on the ranch is $258/sf where as the equally built and trimmed 2400 foot home is only $165/sf.

There are many costs that are more or less fixed regardless of what type of house is put on the lot so the larger house is less expensive to build on a per/foot basis. The builder however makes only $28k profit on the little house where as he makes $36k on the larger house. The builder has a finite amount of land with which to build so he wants to maximize profit and thus larger homes become more profitable despite having a lower cost per square foot. The lack of new small homes puts even more pressure on the resale market for small homes and that is why you might find a 1940s 720 sf house at $354/sf.

Rates Tumble Again

Interest rates continue to be quite favorable and buyers thinking about SW Washington would be wise to invest in local real estate. I wrote last week about Oregon's HB 2001 which bans the Single Family Zoning in all cities in Oregon with more than 10,000 residents.

With rates in the basement and a strong chance for a rush to SW Washington as Oregonians flee the destruction of suburbia, real estate is as good a prospect as it has ever been. Oregon Governor Kate Brown signed several pieces of real estate related bills including HB 2001 over the summer.

Clark County already has a slight real estate price advantage over Washington County and Multnomah County in Oregon. But a rush of new comers across the mighty Columbia could put enough price pressure on our market to move us ahead of our southern neighbors. Buying now before the reality sets in over there could prove rather fortuitous.

Even if we don't see a mad dash north, these low rates are a perfect opportunity to get into the housing market or make the move up to your dream house. Many people fail to realize the significance of these super low rates. Lets say a homeowner bought a 1500 SF 3 bed, 2 bath house in 2014 for $250,000. Lets say it's worth $350,000 today. If the homeowner borrowed 237,500 at 5.5% they have a payment of roughly $1790. They owe about $218k and sell at $350k. Minus closing expenses lets say they walk with a 100k. Now they buy a $500,000 house, much nicer and put down 20% which they just pulled out of the house they sold BTW. The new house won't have mortgage insurance but it will have higher taxes and a bit higher payment coming in at $2300.

But what about the people that bought in 2011? They probably got the same 1500 foot house for $200,000. Their payment is $1300 a month. They owe 155k and sell for the same 350k. After expenses they walk with a very tidy $165k. That shiny new half million dollar home will cost them $1900 which is pretty close to what their current house would rent for.   

Real estate is amazing and one of the best ways to grow wealth for average citizens.

Oregon Bans Single Family Homes Zoning

The Oregon Legislature has passed Oregon HB 2001 which effectively eliminates the Single Family Home zoning in any city with more than 10,000 people. As is typical with government, this legislation is short sighted, politicized, and destructive to the well being of the citizens of Oregon. As is typical the heavy hand of government is wielded like a Thor's hammer to crush the souls of the oppressed.

As is equally predictable the supporters of the bill played the race card. There was a time when single family home zoning was used as a tool for segregation. That is a despicable and horrible practice. In the modern era however it has been used as a more practical tool to allow Americans to enjoy a suburban lifestyle. ALL Americans of ALL ethnic backgrounds enjoy the benefits from the SFH zoning. The very people proponents of this legislation claim to be helping are in fact never going to be able to participate in that suburban dream as the government has just crushed it in Oregon.

State and local governments that want to make duplexes and triplexes more widely available can do so through an incentive process rather than wielding their power like a megalomaniac and demanding every neighborhood become a duplex and triplex neighborhood.

Neighborhoods that were designed for a low traffic, low density development will now be subject to increased densities and traffic. People that spent hundreds of thousands of dollars on homes in quiet SFH neighborhoods will likely see their property values decrease as multi-family conversions increase density and traffic.

Let's be clear what the zoning is designed to do. Zoning is designed primarily to keep neighborhoods conforming to a specific use. This applies to residential, commercial, industrial, and specialty uses. It is zoning that makes it difficult or impossible for a company to erect an oil refinery in your residential neighborhood. Single Family Home zoning is designed to keep high density projects out of the neighborhood. Oregon's HB 2001 will not have an effect on industrial, commercial or special use neighborhoods, but it will allow for higher densities in neighborhoods that were intended and built for low density use. In cities like Beaverton, Portland, and Gresham it is unlikely that the local governments will make the needed improvements to roadways and other infrastructure to support the coming density increases. I say this because I have observed a lack of infrastructure improvements in those areas under current zoning.

I hope I am wrong about this, I hope Oregon has a plan to make this work. My 55 years on this Earth has taught me many things, among them is that Government rarely gets it right the first time, and often never gets it right at all.

Hopefully the more moderate state legislature here in Washington will take a wait and see approach. I think we are well advised to let Oregon burn to ground before lighting ourselves on fire.

Clark County will likely see a mass influx of new residents as Oregonians now have yet another reason to leave Oregon, AKA California Norte.

I have no issue with duplexes and triplexes in neighborhoods. I believe that Vancouver Washington has been working diligently to make suburban multi-family projects viable. What might be a better approach would be a massive overhaul of the HOA system. Making European style flats available for sale would require a comprehensive overhaul of the HOA rules and authority. This would be much better than destroying the American dream for EVERYONE in the name of a few.

OK enough of my rant on the abuse of government. Clark County, Washington just got a massive bump in its stock value in housing. Over the next few years as Oregon's suburban neighborhoods collapse into chaos, Oregonians will seek refuge in nearby Clark County. This may have an effect on our housing that is positive for current homeowners but negative for future first time home buyers. Buyers should be aware that this Oregon Legislation that is expected to be signed into law by Oregon Governor Kate Brown, will in all likelihood lead to increased price pressure on our local market.

August Produced nearly 900 Local Home Closings

August was a solid month for residential real estate in Clark County. There were nearly 900 closings on single family and condo units. This does not include private sales or bare land. 890 units is a fair bit of volume that hearkens back to the pre-recession boom.

The market has been labeled by most analysts as warm yet the volume seems hot. That is only part of the story. When the market was really hot a couple of years ago the 'heat' was driven more by a lack of inventory than a straight rush of buyers. We were closing only 600-700 deals a month in an environment that was producing double digit year over year price growth. Right now inventory has risen faster than the pool of buyers but remains slightly in favor of sellers until you get well into luxury territory. The higher levels of inventory means more buyers can get a house and that has proven out in the sale numbers published by the MLS.

These market conditions are ideal actually for a sustainable level of growth. Year over year market price appreciation is settling in at near 50 year norms and middle single digits for the most part. This is a perfect scenario of price and value. Buyers can take a little extra time to get what the want and sellers can still count on a decent return on their investment. It is almost real estate nirvana.

Clark County did see a drop in the median price earlier in the summer for the first time in years, but that was as much about the rush of buyers at the entry price ranges as any real price softening. A house that sold last year for $400k is likely worth a little bit more this year. Overall the median price has been a bit flat but again that is driven by activity at the bottom of the range far exceeding activity at the top.

A bit part of the bottom price activity can be attributed to the recent dip in interest rates allowing buyers that were priced out of the local market last year to get a second chance this year. Judging by the numbers, they took advantage.

This is a fabulous real estate market that is very near neutral conditions with sellers holding a slight advantage at the median price point. Sub median prices are still a strong sellers market. At 150% of median it transitions to a buyers market.

Soggy September Need Not Dampen your Listing

This has been a bit of a wet month, hasn't it? If you have a fresh listing and are concerned about the soggy situation keeping buyers at bay, fear not. The rules of engagement for autumn simply need to be applied a little early this year.

I have written at length about prepping your listing for the market and it the same rules apply. You need to create and early positive reaction in the process. A big part of the marketing job has already been successful if the buyer is coming in for a showing. Keep in mind that crappy weather tends to scare off the looky-loos but the serious buyers are not deterred.

The same rule of quality professional images and a tidy and minimalist approach will get buyers and their agents attracted to the listing on the Multiple Listing Service as well as consumer sites such as Realtor®.com and Zillow.

Now that the buyer has shown up, the importance of starting off in the plus column is critical. Curb Appeal is a thing, friends and it matters. That front yard and / or entry way need to look as good as humanly possible. When the first arrive they need to get a warm a fuzzy feeling, like, "wow this is nice." If they pull up and immediately think, "this is dumpy," they will likely start looking for other negative features. If they arrive to a clean, tidy and nice property, they tend to focus on other nice things about the house.

This market is neutral right now, well priced listings will sell, overpriced listings will sit. But a well staged home will get a better price and will find a buyer quicker. When I say "staged" I do not necessarily mean profession staging, but rather personal staging which is often more than enough.

One thing that is often overlooked is clogged rain gutters. With this early rainfall, we do not want to walk under dripping or worse, overflowing rain gutters anywhere in the front of the house nor at the rear exit to the yard.

Here is a top ten tips for staging from moving.com

Stage where it counts

Not all rooms are considered equal when it comes to home staging. You want to focus your efforts on the rooms that have the biggest potential to influence buyers’ decisions, and spend less time on the rooms that won’t make much of a difference. Per the NAR report mentioned above, the rooms that hold the most importance for buyers are the living room, master bedroom, and kitchen. These are the rooms that you want to focus the most on when you’re staging a home. Don’t worry as much about the rooms that have less influence, such as guest bedrooms, children’s bedrooms, and bathrooms.

(Rod's comment, "the entryway both outside and inside are also critical)

De-personalize the space

One of the primary objectives of home staging is to help prospective buyers visualize the space as their own. The fastest way to accomplish this is to set as blank of a canvas as you can. You want the home to have style and charm, but it should be devoid of personal touches that suggest this home belongs to the seller, not the buyer.

Start by removing any personal photos, making sure to take down both framed photos on walls and surfaces and anything that’s hanging on your fridge. Keep clothes stored away and out of sight, and clear bathroom counters of personal items, like toothbrushes and contact solution. Remove anything overtly religious as well. While it’s true that de-personalizing your home makes it a little weird to live in, it is extremely useful for helping buyers better connect with the property.

(Rod's comment, "minimalism works")

Get rid of clutter

Clutter takes up space, and space is what sells. Make your home look bigger and more desirable by editing down to just the basics. You don’t have to get rid of things forever, but you should certainly be packing them up and getting them out of the house. This includes any un-seasonal clothes (no need to crowd your front hall closet with winter coats in the summer), most of your décor (you can keep a few select pieces if they’re subtle or minimalistic), papers, games, and pretty much anything else that you don’t need on a day to day basis. Buyers will be opening your closets to look at their storage potential, so take your time there removing as many miscellaneous and non-crucial items as you can. The less clutter you’ve got in the space, the bigger it will look and the more appealing it will be to buyers.

Clean like you’ve never cleaned before

Spring cleaning has nothing on the cleaning you should do when you’re putting your home on the market. You want every square inch to shine, from the baseboards to the corners of your ceilings and everywhere in between. A squeaky clean home suggests to buyers that the current tenants took good care of the property, a notion that extends beyond the kitchen counter tops to the entire house. If you’ve neglected certain tasks, like cleaning the inside of your refrigerator or regularly dusting your window blinds, now is the time to tackle them.

The cleaning you’ll do for staging purposes has similar steps to the deep clean you do when you move into a new home, so start with those and add on as you need to.

(Rod's comment, "people tend to be a bit judgmental, cleaning is a big deal, buyers are often emotional so do not under estimate the importance here.)

Patch and repair

Home staging is a good time to tackle the tiny nicks, scratches, holes, and other impurities that signal neglect to buyers. Start with a melamine foam eraser pad and go room to room removing any scuffs from walls. Keep an eye out for any areas that could use a little TLC, then spackle and caulk as necessary. You may need to do some paint touch ups too, if you notice areas where previously applied paint has chipped. Just like with cleaning, the purpose is as much about showing potential buyers that you’ve put effort into maintaining the property as it is about making the place look nice.

(Rod's comment, "sometimes a property may be a bit rough, maybe even a 'fixer' so this part may be skipped if a fixer upper is part of the strategy, however, even a fixer needs to follow the the rest of the 'rules')

Go neutral

This staging tip is a bit more time and cost intensive, but it can make a major difference when it comes to your sale price and time on the market. Bright colors on walls help people express their personality in their homes, but they can be a major turn-off for buyers. When you’re staging your home to sell, one of the very best things you can do is paint over any garish colors with neutrals, like gray, white, and taupe. Bold colors can distract from a room’s assets, and like photos and clothes, are bold signifiers not of the home’s future, but of its past. Buyers might want bright colors themselves, but a neutral home gives them the option to do that – or not.

(Rod's comment, "same as above")

Make a good first impression

The first thing a buyer is going to see when they walk up to your house is the front entrance, so you want it to make a strong positive impression. Remove any sort of seasonal decorations, which can date a house in both pictures and during viewings. If you have a front stoop, consider power washing it, or at least scrubbing off any dirt. Then add a touch of hominess with a simple doormat and perhaps a potted plant or two, provided they are in perfect condition (a dead or dying plant will do you no favors). Keep the space simple but welcoming to start buyers off on the right foot and suggest good things to come inside.

(Rod's comment, "This should be number one. Remember, we want them looking for pros, not cons")

Focus on fresh

While too many extraneous items in a home can detract from its perceived value, a few healthy, well-placed plants and flowers can add life and freshness into the space. Space them out so as not to clutter any one particular area, but try to have a couple fresh items in areas that matter. Place a vase full of big, bright flowers in the center of your kitchen table, a small potted plant or some succulents in the living room, and perhaps a larger potted plant in the corner of the living room as well. Don’t have the time or green thumb to maintain fresh plants? Fake plants will set the same atmosphere with less work.

Another aspect of freshness is making sure there are no odors. A deep clean should take care of any lingering smells, but also be sure to always clear out your trash bin before showings so buyers aren’t hit with any offensive scents. You may want to install a small scented plug-in in a couple of rooms too (or just one may be okay, depending on the size and layout of your home). If you do that, keep it on a low setting – you want the smell to be pleasant, but subtle.

(Rod's comment, "fresh, fresh, fresh, pet odors and other lingering odors can lead people to conclusions that are likely unfavorable to purchase or pricing attitude.")

Let there be light

Dark rooms are sad rooms. Brighten up by letting as much light shine in the house as possible. Open the blinds on all of the windows, which in addition to letting in more light will also make rooms seem bigger. (If your yard needs a bit of work, keep blinds down but open the slats to get a similar effect without showcasing any problem areas.) Turn on all the lights in your house for showings, including lamps and closet lights. This well help make your home more welcoming, and also saves buyers from having to stumble around figuring out which switches turn on which lights.

(Rod's comment, "This is critical, although some people like dark spaces, most do nit, those who do will make the space dark when they move in. It is nearly impossible to make your listing too bright. This rings especially true in the notoriously cloudy, Pacific Northwest)

Rearrange your furniture

You want there to be as much open, walk-able space as possible. This helps buyers navigate the space, and also helps them better visualize their own furniture in each room. Put extraneous furniture in storage to get it out of the way, focusing on getting rid of any over-sized pieces, damaged pieces, and those that that don’t match the rest of the room. With the furniture that’s left, rearrange it to make the room look and feel as spacious as possible.

Staging a home to sell doesn’t require spending a lot of money – just making smart decisions. Your agent should be able to help you make specific changes that will add value to your home and entice the buyers who come for viewings. Once you know you’ve done everything you can to show your home in the best light possible, you can sit back and wait for the right buyer to stop by.

(Rod's comment, "This is cheap and easy, if you don't have the money for an external storage area, the garage is fine. The garage is an important part of the home but is also the most generic part as well. If there is one area that has to be cluttered the garage is it, ideally you get an external storage location.")

Some of these tips are low cost to no cost options and could lead to better offers. Spend a few hours prepping your home so you can reap the reward of thousands of dollars on the offer(s).

Some agents get in their own way

Every now and again I run across an agent that negotiates his way right out of a deal. Only to find out later, his clients wanted to buy that property. Buyers have to be clear with their agent about their feelings on a particular property. The agent should also take great care in giving advice. If a property is well priced, it will sell. If it is a little overpriced it will still sell, it just takes the right buyer that REALLY wants it.

I have had listings that were priced up near the top of the comp range. Not way overpriced by any stretch but not a screaming deal either. Occasionally an agent will show the property, his clients love it and they write it up. The offer comes in really soft but not necessarily insulting or anything. The property has been on the market for just a few days and the seller isn't ready to go low yet. So we counter. Agent advises client to move on.

Here's where things can get messy for that buyers agent. If the agent is aware of the market conditions she knows the property is a bit high on price. She may advise the client to look elsewhere for a better deal or let her negotiate a "fair" price for the house. She needs to really find out how much they like that house and the buyers need to be very honest with the agent about how they feel as well.

So the scenario ends up playing out as the buyer comes back around after viewing a few other properties and decides to offer the full price because they REALLY want that house. But someone else already did that and it is in contract. The buyer is likely somewhere between disappointed and heartbroken. The agent and/or buyer could have avoided this by being clear about the property, it's relative value to the buyer and the nature of the market.

Relative value is a BIG part of a buyer's motivation. If a house in a neighborhood is priced in the middle of the value range say $300,000 - $330,000 the lower number sells it in a day that latter takes longer than average marketing time a buyer that really wants it probably ought to offer full price. If it is priced at the top of the range then the buyer has to consider "relative value." Relative value is the value the buyer places on the home irregardless of the actual market value. If the house is perfect for the buyer, and it checks all their boxes, reminds them of their favorite grandmas house, yada, yada, yada... it's probably worth the asking price. Of course if they are using a loan  it still has to appraise.

Likewise it can go the other way as well. A house priced at the bottom of the value range may be the hottest listing in town, but if the buyer doesn't like it, it has an even LOWER relative value. That person shouldn't be pushed to put in a puffed up offer on a house they don't like.

Agents often forget that their buyer may not like the same houses as they do or may have a completely different "relative value" they place on any given listing. Buyers need to let the agent know exactly how they feel about a property, negative or positive. The buyer's agent is working for the BUYER and needs to know these things. Some buyers act like their agent is on the other side and withhold information. DON'T do that! If you don't trust your agent, fire them and find another that you do. Your agent can't help you if you are not forthright with her. Likewise some agents forget what their client wants and/or needs and tries to impress with their knowledge about the market only to lead their client into losing the house they really wanted.

Agents: listen to your buyers, find out how THEY feel.
Buyers: tell your agent how you feel about a property you are considering

Simple really it's called communication and it really works.

Rates Have Tumbled!

Turmoil in markets and a flow of cash to the US have created an opportunity for home buyers. Rates fell last week to near all time lows, although not quite as low as a few years ago. That said this will be a temporary lull in rates as things settle out in the markets, rates will normalize again. Buyers should consider taking advantage of the low rates as even a 1/4 point reduction in loan rate can add thousands of dollars in purchasing power.

I have written ad nauseum about the virtues of rate over price. Price is fleeting but rates are forever. Well, 30 years of forever at least. Saving a few thousand on price is nowhere near as important as capitalizing on a rate savings of 1/4 to 1/2 percent. Do not underestimate the power of low rates.

This article I wrote back a few years ago and it still holds true today. I even dedicated an entire chapter to mortgage rates and home prices in my 2010 book, Don't Panic.

originally published July 6th, 2018 by Rod Sager

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.

Market is Primed for Mid Level Move Up!

Right now our market is still very hot in the under $400,000 price range. There is very little available in this range and what comes to market is quickly swallowed by the throngs of first time home buyers trying to get a piece of the action.

Things are by no means as crazy as they were a few years ago, but the market remains very healthy and rather robust in the entry level. Things at the top look a bit murkier. Many sellers have listed property, some at puffed up prices and there simply is not enough high end buyers to grab them. I am seeing price reductions on many listings in the $500,000 and up range.

Our market is transitioning into neutral conditions and this does tend to start at the top. But those who bought a three bed two bath ranch home back before 2015 could be in a very strong position to get top dollar for the current house and then beat up a seller on that move-up house at $500,000. Perhaps a buyer spent $250,000 in 2014 on a 1500 foot ranch house and now can sell it for $330,000. Once the search for a $500,000 replacement home starts it may not take long to see the pricing is soft up there, very soft in some cases.

New construction is driving resale prices down in the $450k-$550k range. A nice step up home that could command $600,000 a year ago has likely softened up to $500,000. Prices are actually falling in the tradition sense of the median values. That has continued to inch up, it is just a supply and demand issue that has created this move-up opportunity. There is a still much more demand than supply at the bottom range of price, but the middle and top have seen a spike in inventory that is giving buyers an opportunity to be picky and even beat up sellers a little on price.

Locally we are still selling large numbers of houses and things are strong, but there is always a little opportunity in the winds, and people sitting on a mortgage more than five years old, in a small house could take advantage of this mixed market.

Gentrification Revisited

original published 11/30/2018, by Rod Sager

Gentrification has become a 'dirty' word in some circles. For those unaware of this term, it is used to describe the redevelopment of older run-down areas into more vibrant and affluent neighborhoods. There are always going to be growing pains when this type of real estate turnover happens.

The funny thing about it is this: when neighborhoods are run down they tend to produce less income and thus less taxes for local governments. They also typically have a higher drain on local services funded by those taxes. People are often complaining about all the issues associated with these types of neighborhoods, increased crime, vagrancy, drugs, etc.

After the neighborhoods start to get redeveloped the local area often becomes more expensive and sometimes people that live there can no longer afford the rents / prices. This creates a whole new layer of complaints from constituents.

When old industrial areas are converted to residential, this is less of a problem since no one "lived" in the abandoned industrial areas. One might think of Portland's South Waterfront or Vancouver's new waterfront. But ultimately these areas create a sphere of affluence around them putting upward pressure on rents and property values in nearby neighborhoods.

It can become the classic scenario of pleasing one group by pissing off another. For local governments chasing tax revenue the choice is easy, gentrification benefits the community at large so long as the local elected officials use the new found tax wealth to benefit the community at large. Sometimes that happens other times not so much.

In general Vancouver USA will benefit from the gentrification of Downtown and surrounding areas. What is most important for those who feel they may be on the pricing bubble is to buy while you can. As values push upward, those who bought will benefit greatly where as those who continue to rent will find themselves on increasingly thin ice. Soon they who choose to rent will become the voices against gentrification. Yet often they were the voices against the run down, crime infested neighborhoods that are being fixed.

The moral of this tale is that if you want to be able to stay in an area that is rising up, you better buy while you can. In these rising value scenarios, renters have to move, owners choose to move. That is a big difference.

Inverted Yield Curve Aids in Market Panic

Earlier this week the Stock Market shed some 2-3% of its value on one trading day. The DJIA dropped 800 points on Wednesday after the markets showed an inverted yield curve with short term interest rates higher than long term rates. This is sometimes a precursor to a recession and that has investors spooked.

Now the reality is that inverted yield curves do often appear before an economic slowdown, but it is by no means a definitive harbinger. In fact there are many reasons that investors might pour assets into long term bonds and some of that action may of actually been from turbulence in Hong Kong. The US economy is not quite as robust as the White House likes to tout, but it is pretty far from recessionary as well. Employment is maxed, wages continue to climb, and consumer confidence remains high.

The inverted curve is likely to be short lived and the market scare may have provided a convenient opportunity for investors to take profits after record high stock values earlier this summer.

All economics aside, the interest rates on 15 and 30 year mortgage notes will benefit from an inverted curve as long term rates dropped allowing more people to qualify for home loans and pushing the qualifying values higher.

Our local real estate market is a tale of two markets really. Homes priced up above 150% of median are in a bit of an inventory glut and sellers are reducing prices while buyers take their time. Meanwhile in the entry level market at 120% of median and below buyers continue to face stubborn sellers and multiple offers on well priced properties.

Things are actually healthy in the local market with strong sales activity and excellent economic indicators for the next several months, possibly into next year.

Interest Rates a bit Lower to start the Month

While I was away in the UK it seems that the mortgage rates decided to drop a bit. This is always welcome in the real estate business. After all it is challenging enough to buy a house, getting a bonus reduction in monthly payment is going help bring some buyers back to the game.

With rates still readily available in the 4's and some area and situations may even land a buyer into the upper threes on interest rates, this could be the time to start looking again for that dream house you got priced out of earlier this year.

While I was away in the UK I found that they have popularized a 25 year mortgage loan and the rates there are under 2%! Holy moly, that's a low rate. I wonder if the government is subsidizing that? Well anyhow, back here in the states, we are enjoying a booming economy and some pretty low rates as well.

With rents still pushing up higher than a comparable mortgage payment, why not fire the landlord and buy your own place?

Just to keep it all in perspective, mortgage rates dropped over the last two weeks by about a 1/4 point. That 1/4 point rate drop saves a typical borrower about 50 bucks a month for the next 30 years on a $300,000 mortgage! That's about $18,000 over the life of the loan. The cost to buy down a mortgage by a 1/4 percent is usually around 1 point although it is entirely market dependent. But that same $300,000 loan would cost about $3,000 up front to buy the rate down two weeks ago to what it is today.

Hello $300k buyers the world just gave you three grand :)

Classic Rules, still Classic!

I'm away on vacation but this past article still rings true!

Originally posted November 9th, 2018, by Rod Sager

Yes the classic rules of location, location, location, and 'curb appeal' are back. Those rules never really went away, but when the inventory was so tight that buyers had to take what they could get, those rules were temporarily ignored.

Inventory levels are starting to return to a more healthy level and that means buyers have choices again. Classic issues like, facing a busy street, outdated, functionally obsolescent design, or bad location are now affecting the price in a more traditional fashion. Some sellers and even some agents, have yet to realize this.

Getting top dollar for a house requires several things to happen. The house must have broad appeal in the market. Great location, quiet street, well maintained, excellent curb appeal, fresh and updated feel, clean and tidy appearance, etc. This brings the most possible buyers to look at the house and then of those one will like it the most and reach a little deeper to buy it. When some of these appeal factors are missing, fewer buyers will look at it, of those that do many will pass on it, leaving a small demand left. That leads to a lower price.

The items I mentioned above are not the only factors, but most of those are controllable. The home owner can't control the location, nor the street, but the others are well within the sellers reach. This market will not tolerate a sloppy house, buyers have choices and they will either pick the nicer house or low-ball the ugly one. Sellers are well advised to spend some effort making their property look as warm and inviting, positive curb appeal, and as fresh as possible.

We are in the transition to a neutral market and neutrality is healthy and sustainable.

Renting your Vacation Home?

I am delighted to be spending a few weeks in Scotland, the home country of my wife with whom I am celebrating 25 years of marriage. So here is some info on renting out your vacation home!

Do you own a vacation rental? Maybe a cabin up at Mount Hood or a Beach House at the Coast? Are you thinking about owning one? Maybe renting it out when you are not using it via Air B&B or a similar service? Well this can be an effective way to lower the cost of ownership but it can also have some legitimate legal risk. I would consult and attorney be renting out such a house, that said the article below has some good insight into prepping for a dual purpose vacation home.

By Michele Lerner, Special To The Washington Post
Published: June 17, 2019, 6:04 AM


If you’re one of the lucky ones who own a vacation home — and you plan to rent it this summer or next year — you may want to follow up on a few suggestions from Marnie Oursler, owner of Marnie Custom Homes in Bethany Beach, Del., and host of DIY Network’s “Big Beach Builds” and HGTV’s “2018 Dream Home.” Here are her ideas to make your vacation home more appealing to renters and to increase your peace of mind while renters are in residence: 1. Lock up personal items. We often build owners’ closets that can only be accessed with a key so owners can lock up anything they want to keep for their own personal use, such as linens, supplies, etc. 2. Remove sentimental items. Stow away photos, artwork, anything sentimental you do not want to get damaged. It keeps the house neutral for renters, and owners can easily add the items back when they are staying at the house. 3. Install a safe. By adding a fireproof and waterproof safe that fits between studs, either in the owner’s or master closet or in another area of the home that has limited access, you can ensure treasured items are safe, adding a little more peace of mind when renting. 4. Slipcover sofas. Often with renters, there are multiple families or guests in the same house, especially when getting together for cookouts or beach days. Wet bathing suits and sand easily find their way onto sofas and chairs, so by using slipcovers on the furniture, you can remove the covers and wash them as needed. Consider a white canvas/Sunbrella material that will look beachy and be easy to clean. 5. Add games. Having a pingpong table and/or corn hole in the garage or carport is another great way to utilize space and provide activities for rainy days, evenings or to get a break from the sun. The games are also a bonus amenity for renters.

Urban condos see a spike in listings, will the sales follow?

I published this article on Urban Living in the 'Couv' Monday. Urban condos are a big part of my real estate marketing efforts and as such I take a special notice to market 'wind shifts'. I figured I be well to inform the readers here of what's happening Downtown.

Originally published in Urban Living in the 'Couv', July 8th, 2019, by Rod Sager 

There is no shortage of units in Vancouver's urban condo market. New ones come active each week but nearly as many go pending or close as well. This is good activity. The days on market is dragging just a bit, but it seems sellers are starting out high on price and coming back to the market over a few months. Sellers pricing the units well from the start are seeing a quick sale.

You can see a spike in listings for June that outpaced the spike in closings. I'll be watching to see if the local market can absorb these new units in a reasonable time period. I think the listing spike likely came after sellers on the fence saw good activity in the spring and decided now is the time to sell. Summertime in Downtown is a lot more exciting than winter as the festivals, concerts and other fun stuff like the Farmer's Market is a big draw. The figures above are for condos in Downtown only so this does not include areas like Columbia Shores, Tidewater, or Shorewood.

The $500,000 to $750,000 price range is the only range that seems under-represented in terms of available inventory. Recent units in Viewpoint and Frontier in that range sold relatively fast and new inventory has not filled the void. Above $750,000 has ample inventory as does the entry level units like those found at the Academy Square and Parkview projects.

The waterfront project continues to build new developments, but the only condo project actually under construction is Kirkland Tower and those will be very high-end units mostly well above $1 million. Another proposed condo building is slated for Block 16, that is also right along the water so I am presuming those will be upper end units as well. That building however is proposed to have double the number of units as Kirkland so they may be priced in a lower range, yet likely still in the $750,000 plus market. That is just my best guess there is no real published data on the Block 16 project. The other residential projects going in are all apartments thus far.

The lack of actual condos on the waterfront could certainly be helping the condo market downtown as the area continues to see economic expansion and significant improvements to enhance the living experience. The success of the various apartment buildings such as Rediviva and Riverwest, both complete and available now, could spark developers to roll the dice on condo projects along the new waterfront. These two apartment projects feature units with rents from $1,800 to $4,000 per month and there are a total of 280 units. Income required to support $3,000-$4,000 in rent is good enough to support a condo well above $500,000.

I believe the condo projects proposed and planned for the waterfront are taking a wait and see stance to monitor the success at Rediviva and Riverwest before committing to expensive condo projects.
The City of Vancouver and Gramor need to focus on bringing some high paying employers into the downtown, waterfront, and Port of Vancouver to help support more residential development, while the economy is still strong. Jobs are very important and there are plenty of companies looking to expand in and/or into our region. The waterfront project will be easy to fill with people should we add another 5,000 good paying jobs close in. Nobody save for the occasional traffic masochist, likes crossing the bridges to work.

Things are solid on the Vancouver Urban Living scene.

Instant Buyers?

The latest in real estate are these so-called "instant buyer" programs from companies like 'Open Door'. I find it fascinating how this concept is tracking beyond the 'I have to sell fast' crowd. It is important for a home owner to understand that an investor takes on a great deal of risk when they buy a house with the intent to resell at a profit. This will come at the seller's expense.

I am genuinely shocked to see a rise in this kind of business. again, they serve a purpose for someone that has to sell quickly for whatever reason, new job far away, death in the family, etc. Sellers that are simply motivated by the ease and convenience of not having people look at their home are giving up a large sum of money for that convenience. Some may feel like they are getting a better deal through the "instant buyer" programs, that is highly unlikely especially in Washington State.

When a house is sold the State of Washington collects an excise tax of 1.78% from the seller. If the buyer is planning to resell the home in the near future, which is the intent of most operators of the instant buyer concept, they assume all the market risk and will have to pay that 1.78% excise tax again. Many of these programs have a 30 day closing and during that time they often attempt to sell the contract to purchase to a third party, thus gaining a fee and no exposure to market risk or costs to resell. All of this comes at the expense of the seller.

In order for the instant buyer to work for the buyer they need to acquire the home at a price at the very least 5% under market. They typically levee a fee of 5% to the seller and then the extra 5% would cover selling expenses should they be unable to sell the original contract to a third party. Few people with the resources to pay cash for any quantity of homes would be willing to do so with such a tiny profit margin.

My experience is that they acquire the rights to buy at more like 15% under market. Why on Earth would a seller not under any duress to sell, want to do that? A traditional real estate arrangement will be much better for the seller. These instant buyer or sell guarantee offers are geared to protect the buyer, NOT the seller. The fall back guarantee price will likely be well under actual market value.

Sellers can negotiate with listing agents in Washington State. If money is tight then negotiate a lower fee. Sometimes if the property is desirable, realtors® will compete for listing and the seller could easily make $10-20 thousand MORE than these "easy" instant buyer deals. Yes, the seller will have to clean the house and allow agents to bring buyers in for a tour. Seriously though, if you own a $300,000 house it is unlikely you make enough money to turn your nose up at $20 grand for what amounts to a little bit of inconvenience!

Seller beware, these "guaranteed deals" often do not pass the sniff test.

Interest rates favorable!

Recent market conditions have managed to push rates back down again to two year lows. Buyers should be cautious when looking at online rates as they often reflect a national average and regional rates vary considerably. The Pacific Northwest region is generally higher than the national average by as much as a quarter point. That said, rates are at two year lows right now and that means buyers have just gained some purchasing power.

With rates nearly a full point lower than this time last year, a buyer that qualified for $300,000 last year can probably get closer to $340,000 this year! Housing prices have NOT gone up that much over the last year so this is a huge positive for buyers.

Just to be clear, if a buyer was quoted a 5% rate last year and qualified to buy a $300,000 house. That same buyer will qualify for a $337,000 house at 4%. Year over year that $300,000 house last year would sell for maybe $310,000 today in our local market. Home affordability is better this year than last year due to the rate value exceeding the appreciation value.

All buyers that were frustrated with conditions in the last couple of years ought to get back in the game before the market reacts to the lower rates and prices start heading up again. For now, prices are stable, inventory is decent and rates are low. This is a window of opportunity that may close soon.

Top of Housing Range is still on the Brakes

Locally the real estate market continue to apply the brakes on properties listed at 120% of median or more. Below that threshold there is not much available in the new construction so those median and under price points still see a lot of activity. Up higher in the price ranges things are crawling with price reductions and a strong move towards a buyer's advantage. This is one of those moments in the market place where a seller of the median or lower price point home can sell high and then go beat up the seller of a more expensive home. These market opportunities to move up and save are rare coming around every few years during transition phases like we have right now.

If the Washington DC is successful in keeping the Federal Reserve on a low interest track we may see this opportunity vanish. I cannot overstate that a seller with a house fairly priced under $350k will probably get multiple offers and/or sell quickly for full price and then can take that equity and apply it towards a high priced home in the $500,000 range and find far less seller resistance to discounts. The market can do several things among them the most likely path is a continuance of the seller's market strength at the entry level and neutral to buyer's market conditions the higher up the price range you go. But the gap could close and new buyers riding low rates could put pressure back on the higher ranges tightening the top of the range back to neutral or even mild buyer's favor. Or the market could slide further and start eroding the entry level should interest rates start moving up again. In either case the incentive for an entry level homeowner to sell and move up to a larger more expensive house is very strong. Sellers in the upper end are in a less obvious situation and will have to make a call on what the market may or may not do.

Sellers of larger homes are in a tough spot right now. Builders are producing large family style two story houses that compete directly with older resales. Those looking to downsize are in a tough spot as buyers are in control on the upper end large house market and sellers rule the bottom. Pricing in the upper end does not appear to be contracting, but rather just riding the brakes with nominal appreciation and that has led buyers to lose that sense of urgency.

Buyers at the entry level however must remain vigilant because there is far less inventory under $400k than there is buyers and that means a well priced small ranch house in the low $300's is gone before the ink is dry on the listing forms.

The real estate market is rarely in sync at all levels and neighborhoods, so staying in contact with your preferred professional Realtor® is always wise advice.

Market is Just Minding its Own Business

The real estate market locally in the Portland-Vancouver Metro Area is rolling along fine, just going about its daily business. It is neither crazy nor slow but just in a word, healthy. Listing agents are starting to whine a bit about things as buyers are less likely to bust down the doors with a fists full of offers. Buyer's agents are sighing with relief as now they can relax and let their clients take more than a few seconds to decide whether to write up a house or not.

Friends, this is a healthy market. Sellers actually have to "sell" their homes, and buyers can be a little more discretionary with their purchase choices. That doesn't mean the market won't go nuts if a well priced home that checks all the boxes, so to speak, pops on the system. No good deal goes unpunished ;) Some sellers are still testing the conditions with their overpriced listing and most of the time for the last several months they have been met with a long and rather convincing 'silence' from consumers.

The media loves bad news and this relative slowdown has them frothing at the mouth like rabid animals. They want to say "the party is over" but our local economy continues to churn out new jobs, better pay, and perky consumers. This bodes well for real estate as these are conditions that support a healthy real estate market. Crazy periods of rapid run up in pricing is not sustainable long term and this is playing out now as many buyers are slowly getting priced out of our area. Thousands of new apartments have been built in Portland and Vancouver and that has led to a little less tension in the purchase market.

So is it a good time to buy or sell a house, once again in a word; YES. In fact these neutral market conditions are well suited to both buyers and sellers. This is a time that neither side needs to feel excess pressure and that is a good thing.

The Price Per Square Foot Trap - Revisited

I wrote this article last year and figured it is time to revisit this.

Originally posted August 3rd, 2018, by Rod Sager

So often I hear clients talking about the price per square foot on a residential listing. I even hear real estate agents talking that up. Why is this house $200/sf and this other one is 180/sf? Sometimes people are adamant about not paying more than "x" per square foot. My friends, in residential real estate, the price per square foot rarely matters as a comparative value. There are way too many other variables that affect the value of a residential property. Any property actually, but in residential there is a broad range of variables. The only time that price per square foot can really be comparative is if all other variables are identical or near identical.

For example to use the cliché of apples and oranges why is this Apple priced at 1.48 per lb and this Orange is .99 per lb? Why is a Red Delicious $2.99 per lb. and a Granny Smith is $1.99 per lb. Apparently Red Delicious Apples are in higher demand!

Well friends the only time this price per foot stat really matters is when you have two houses in the same neighborhood, same floor plan, same condition, same upgrades, hell, right next to each other in fact. Then if one is priced at a higher amount, you have to ask, why?

I think price per square foot is the most abused statistic in residential real estate. Ranch homes are always going to have a higher price per square foot. Small homes in expensive gated communities will have a higher P/SF than a large spacious home in a run down neighborhood. A brand new home will cost more per foot than an old house. Homes on acreage will often cost more because the land value is higher.

One simply cannot make any prudent decision based on price per square foot unless all these other variables match. Since that almost never happens, then we have to look at those other variables. In the end what really matters for a person buying a home that they intend to live in, is this: Do you like the house? Does it do what you need it to do? Can you afford it? If you answer yes to these, then you're done, pull the trigger and write it up!

Don't get caught up in price per square foot. I sold a 720 sf house last year for $255k all cash. It was nicely remodeled but nothing over the top. That is $354/sf. I sold a 4200 sf mansion with a breathtaking view of the Columbia River for 750k around the same time. That was only $179/sf and the house was decked to the nines with top grade trim, marble, soaring ceilings, the whole bit. Why such a dramatic difference. Simple, lots of variables. There is a massive demand for smaller affordable homes. Far more buyers than sellers. In the high end the opposite is true. Furthermore, there is a bit of the economy of scale when building a large house. Neighborhood plays a role as well but when comparing a very large house to a very small house you cross one of the rare times that location is not the number one variable. Demand is the number one variable here. When comparing similar homes across neighborhoods, location resumes its role as the primary variable driving values.

A 2000 sf home on a 10k lot next to a railroad yard might fetch $150/sf and the exact same house a few miles away in a nice neighborhood with a view might fetch $225/sf. Do not let the price per foot trap keep you from getting the right house. Understand that smaller one level homes will almost always have high per foot costs and larger homes on a small lot will have lower per foot costs. Here is a simplified example of why this is the case. Let's take a lot in a neighborhood that is 8,000 sf and fully ready to build. The city says the builder can put any house between 1200-2400 square feet, one or two levels. The following is an oversimplified hypothetical scenario:

The lot is 100k and the development costs (underground infrastructure, city required appurtenances, fees, permits, etc) are 35k. The builder is into this deal 135k before the first nail is hammered. The physical structure cost will vary depending on size and design dynamics. The landscaping and other costs will be more or less the same regardless, lets say 10k. So the hard costs fixed are 145k. Lets say the 1200 foot ranch costs 100k to build. That puts the net cost before marketing and other post build expenses at $245k Let's say the builder budgets 15% for marketing and other costs of sale (real estate commissions, taxes, staff, ads, etc). That makes the total cost of goods about $282k. Let's say builder makes a 10% profit. That makes the 1200 foot ranch home $309k. Now the same scenario with a larger and slightly more expensive 2400 sf two story trimmed out the same might cost 165k to build. Now the builder has a total cost of goods at 360k and a sales price at $395k. The cost per square foot on the ranch is $258/sf where as the equally built and trimmed 2400 foot home is only $165/sf.

There are many costs that are more or less fixed regardless of what type of house is put on the lot so the larger house is less expensive to build on a per/foot basis. The builder however makes only $28k profit on the little house where as he makes $36k on the larger house. The builder has a finite amount of land with which to build so he wants to maximize profit and thus larger homes become more profitable despite having a lower cost per square foot. The lack of new small homes puts even more pressure on the resale market for small homes and that is why you might find a 1940s 720 sf house at $354/sf. 

Landmark Condo Legislation Passed

The State of Washington recently passed a serious update to the 1989 Washington Condominium Act and subsequent law surrounding it. This new legislation takes effect on July 28 of this year. The new law or revisions to existing law depending on how you look at it, focuses on the broad legal language used in the past. It is designed to eliminate some of the frivolous suits brought against builders without destroying the basic safety net of law protecting condo owners when a project has serious flaws.

The language is the key. Prior to this new legislation, it was too easy to open suit for simple problems and now the state has used more clarifying language to identify serious issues rather than trivial ones. This new law should bode well for developers planning high-rise projects on Vancouver's amazing waterfront.

The real problem with all these stupid suits is the fact that they can take years to conclude and during that time units often become unfinancable leading to homeowners struggling to sell or refinance their units. Many condo owners over the years have been trapped during lengthy litigation. The revisions to Washington State law are intended to minimize these so that trivial suits are no longer filed against.

Let the construction begin...

Selling with Tenants Still In

Sometimes a landlord needs to sell off a rental property and sometimes they still have their tenants in when the decide to list. For some landlords that are carrying a loan on the property, they may need to have the rental income to maintain the operating costs on the property. Ideally have the tenant move out first and prepping the home for sale is going to yield the best price for the seller. But things are not always ideal.

For sellers keeping a tenant on through the listing there are many hurdles. First the tenant has a right to 24 hours notice before any showings (Washington State). The seller may want to make a written agreement with the tenant to cooperate with agents for showings and keep the property spiffy with a lower rent payment as the "carrot" of inducement during the listing period.

Tenants can also be notoriously unreliable when they know they're on the way out. This can lead to closing delays if they are unable to move out in time, difficulty in showing the property and other setbacks to selling.

I have found that a financial inducement to perform is usually pretty effective. Listing agents and buyer's agents should also council both parties to these potential side effects of a transaction for a property with existing tenants. Unless the new buyer wishes to take on the tenant, things may not flow as smoothly as a transaction without renters. In the end things tend to work out.

Sellers will almost certainly get a better price if they remove the tenants before listing and have a nice move-in ready property. Selling for $10-20k more could be worth eating a few $1500 monthly rent payments.

Stay Involved with your HOA

HOAs can be a great thing, but they can also digress into an ugly beast. Homeowners should never be apathetic about the HOA. Going to meetings and participating in HOA elections can be very important on those occasions where the association has to make tough decisions.

Sometimes homeowners will react in a knee-jerk fashion and call for a strict revision to rules that might be an overreaction that could lead to unnecessary turmoil. Homeowners that do not participate in the process can be left behind unwittingly.

Sometimes an elected HOA president might develop tendencies to overreach his or her authority. Homeowners are wise to vote out these unreasonable people. If things get really out of control there is legal action than can be brought against the HOA and if the problem centers around an individual, that person could find themselves in a great deal of legal trouble if they are found to have abused their power. The HOA is for the benefit of the community and each property owner should have an equal vote in any processes that HOA oversees.

Generally an HOA will be setup with a super-majority requirement for major rules changes such as banning rental properties or something severe like that. It all depends on the HOA's written bylaws. I have seen some require 75% approval and yet others with a simple majority.

When buying a home in a neighborhood with an HOA, always read through the HOA rules, guidelines, and bylaws to make sure you are comfortable with how things are controlled and how rules and regulations are both enforced and changed. 

When living in a single family detached neighborhood, the HOA should have modest regulatory authority. Of course condos have to be more strict since the individual owners of the units own only the space between the walls. The land and building structures are cooperatively owned by every one in the community.

I run into buyers that will not buy a home in an HOA and I feel that is a bit of an overreaction. A well written set of bylaws with limited control for the HOA can lead to higher property values and less of a decline in neighborhood conditions over time. Buyers just need to make the effort to read through the documents and maybe even have an attorney skim through if something looks out of sorts.

HOA's are great... until they're not ;) Due diligence is always the best course of action.