Saturday, December 28, 2019

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.

Friday, December 20, 2019

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!

Friday, December 13, 2019

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.

Friday, December 6, 2019

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.