Friday, August 30, 2019

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.

Friday, August 23, 2019

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.

Friday, August 16, 2019

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.

Friday, August 9, 2019

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 :)

Friday, August 2, 2019

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.