Friday, April 16, 2021

Is the Market Reaching a Ceiling?

Real estate markets locally can reach a ceiling on pricing that doesn't necessarily mean a change in the supply or demand but rather a cileing based on local incomes. Rising prices in our market and in most markets across the U.S. have been driven largely by a low supply of available properties combined with low interest rates. 

But at some point the entry level homes become so expensive that entry level buyers are priced out. During these times you might find a situation where a small 1200 SF house is fetching say $375,000 but just $50,000 more buys a home in the same neighborhood with wide the footage. As prices rise the bottom of the market gets very tight, and that can cause a disproportionate pricing pressure on that segment of the market. 

Furthering the problem is that small one level homes are in demand both by young people starting out and older people downsizing. Those that are downsizing often need the one level as stairs can become a problem for the elderly. This generally means that downsizing seniors will be willing to pay more for those types of homes. Downsizing usually leads to strong offers as the proceeds of a recent sale of a larger home give them a financial advantage over first time buyers as well.

To combat this first time buyers in the entry level market ought look at small two-story homes and townhouses as those are not coveted by the older buyers. There is less market pressure on a 1400 SF two-story house than a ranch style house of the same size.

As we roll into the peak spring listing period, the volume of new listings will be an important thing to monitor for buyers. So far in 2021 we are well under the typical number of listings, that continues to keep pricing pressure under a rapid boil. We may be near an income ceiling however as many buyers are being eliminated from qualifying. That may temper things a bit.

It remains a great time to sell.

Friday, April 9, 2021

Large Urban Construction Boom Starting Again

Vancouver USA is about to start another mini-boom after a slight slowdown in large scale urban projects due to COVID-19 and the associated economic slowdown, things are looking up locally. These larger projects tend to cost $25-100 million each and that brings a lot of jobs, economic growth, and general prosperity to the region. This is nothing new as Vancouver has been on a bit of a boom for a fair number of years now.

Downtown has a large project about to break ground at the Academy site. Phase one will be two buildings of 5 and 6 floors totaling 140 apartment units. Phase two will be a larger single building platform with 6 floors and about 200 units.

The Waterfront should see the Broadstone project get going as site prep is already underway on Block 17. Not sure when the Timberhouse will start on block 3 but it is in the same general time window as Broadstone.

Terminal One has signed a new 50 year ground lease with a development partnership that should bring rise to a full two block mixed use project with two buildings and substantial public space. the buildings should rise around 5-7 floors and that project could easily get into the $60-70 million range perhaps even $100 million.

Of course all these construction related jobs will bring higher demand for local residential real estate and that means it should continue to be a runaway success for sellers. You can follow all the latest on Vancouver's booming urban construction and the associated projects, services, amenities and more, visit

Friday, April 2, 2021

Don't get caught in the $/SF trap

I wrote this article a couple of years ago, and figured it is time to revisit this. The prices obviously are higher today than when this was written, but the mechanics of the article remain sound and relevant today.

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.

Friday, March 26, 2021

Sellers Nervous?

Sellers are a bit nervous. Not about the market but about their ability to acquire a new house once they sell their current house. This is more than just a local phenomenon. There is a serious shortage of resale housing nationwide. Seller however are likely overplaying this fear a bit.

Locally and in many markets across the country, sellers are FIRMLY in control of the market. Sellers can ask for a longer closing period of say 45-60 days (rather than a more traditional 30-45) and then ask for a 60 day rent back to get nearly four months to find and purchase their replacement home.

Sellers can also consider new construction which typically has a build out time and that give them time to prep and sell the current house before closing on the new house. Tactics like this can make a seller feel much more comfortable about the tension they may feel pondering the move and the process of finding and successfully entering contract on the next home.

Meanwhile for beleaguered buyers frustrated with multiple offers and a seemingly impossible uphill battle to buy there is hope. Buyers can offer sellers more time or other concessions to help seller make the transition. Buyers moving from a rental unit can simply stay month to month a little longer to accommodate a seller that needs extra time to finish the purchase of their next home.

These tight inventory markets can be stressful. Strategies for success can alleviate much of the pain of buying and selling in a hyper tight market.

Friday, March 19, 2021

Listings are in Short Supply

Here we are tickling the end of March and listings remain a rare commodity. I keep thinking our spring rush of new listings is just around the corner, but thus far no such rush. Every Realtor® in the area seems to have substantially fewer listings at the moment. This has placed significant price pressure on buyers that really have little bargaining room. 

Sellers are grinning all the way to the bank, but they should be advised that as prices creep ever higher buyers will fall out of the market and that can act as an equalizer. Now is a great time to sell, especially if you intend to move to a less expensive market. 

Buyers need to present the strongest offer they can. It's not just price, strong down, big earnest money, flexible closing terms to meet the sellers exit needs. It's a tough road to haul right now, but buyers that persevere will get a great house even in this tight market.      

Friday, March 12, 2021

Are Vancouver's High End Renters Going to Buy?

Vancouver has a significant community of high end renters. The Waterfront and other upscale Downtown apartment buildings seem to have no trouble renting small units well over $2,000 a month and some spacious units over $5000 a month. There is no shortage of high end renters. Incomes required to support these rents are plenty to support a rather nice condo or home purchase. So one might ask, why are these renters, renting? Will they soon become buyers?

I have spent a fair time contemplating this issue. Sometimes people rent because they can't buy. Perhaps they lack a downpayment, or the credit score to obtain a loan. But these people are not those that are renting the expensive luxury units on the waterfront of Downtown. Buildings like Holland's Coen and Columbia, the new Aria, Riverwest, and Rediviva all have strict income and credit requirements that likely match those of a mortgage lender, they might even be tighter. So these renters are clearly choosing to rent. 

Those that are capable of buying but choose to rent fall into a number of possible categories. 

  • Short term residents: Sometimes a highly paid person has a project they are overseeing in an area and want to live in a nice place while they finish the contracted project.
  • Leery of buying: There is a group of people that are old enough to remember the last hard crash in 2009-2011 but too young to remember the boom bust cycle of real estate and economics. real estate is nearly always a good long term investment, not so much short term.
  • Do not want the responsibility of ownership: There are people who simply do not want to invest the time and money into maintaining a home they own. Even condos have some interior maintenance issues, but honestly this one is tough to reconcile.
  • Mobility: This was an oft cited reason young professional millennials cited for not buying in a series of well reported studies over the last few years.
Short term residents will always be a piece of the equation.

The leery of buying crowd is an increasingly smaller group, but they are still out there. 

Responsibility of home ownership is curable. Many condos have HOA and building setups making the maintenance as low as renting or in some case lower.

The mobility crowd is still a thing, but I feel like that group is about to shrink substantially. The pandemic has created a new and potentially sizable group of remote workers. Some companies have embraced the idea of the remote worker. They have weighed the commercial real estate cost savings against any productivity losses and found the result favorable. Other companies have come to the opposite opinion and will likely return to traditional office work as soon as the pandemic is over. But those that have embraced will create a new group of buyers, some of which may find interest in high end real estate.

Kirkland Tower on the Waterfront will be the first test of this. Downtown Vancouver has a handful of very high end condos particularly those at Viewpoint in Vancouver Center. But most of the high end condo units are older now pushing twenty years. Kirkland will offer the first brand new modern luxury high rise condos in Vancouver since George W Bush was president. I feel like those 40 units are gonna go FAST!

Only time will tell and the time is coming soon. Kirkland will likely complete that project by summertime. You can follow all of the exciting activity in Vancouver's urban living seen here: 

Friday, March 5, 2021

Investment Value vs. Utility Value

I have written a fair bit about the utility value of your home and how that is more important for most people than the investment value. I dedicated a chapter of my 2010 book, "Don't Panic" to this idea. There are still a great number of people that tend to put too much emphasis on the investment value of a home they plan to live in. 

Part of the allure of home ownership versus renting is the investment potential. This should not be overlooked, however the primary purpose of your personal residence is utility. You own or rent a home primarily to provide shelter and safety for you and your family as well as a sense of personal place. This should supersede the investment potential of the property. 

I do recommend buyers consider the investment value as part of the equation, but not the primary driver. Nearly every home in any given region will have similar investment potential. There are some locations and or other external facts that can make one property a better investment potential as far as appreciation in concerned. But buyers of a personal residence rarely take advantage of the investment opportunity of their home. They tend to make the home their own to their personal taste rather than the neutral taste of the broad market. they tend not to rent out surplus space in the house. Yet investment value or potential is often something they stake a disproportionate level of concern over when buying the home.

Buyers should buy the house they can afford that offers the best living situation for those that will live in it. As a Realtor® I will take great care in checking the surrounding area for potential detrimental external problems, noise, crime, new development, proximity to essential services, etc. But in the end and short of a compelling external factor, the best home is the home one can afford that provides the best location, floor plan, proximity, and general utility for the buyer.

There are a few trends in real estate surrounding new homes. When buying a new home it is often sound advice to try and buy a house in an early phase preferably phase 1. The reason for this is that developers almost always raise prices in each new phase of development so buyers in the first phase have a quick uptick in value as comparable homes sold just a month or two later might be 5% or 10% more expensive. Barring a significant downtown in pricing, buying at the final phase of development is generally not a great idea. That said, if the house is right, the price makes sense and it's a good fit for you and your family, buy it!  

Friday, February 26, 2021

Is Tight Inventory a Product of the Pandemic?

It's hard to say why homeowners are choosing largely to stay put, but with interest rates still very low, the traditional case study suggest they would capitalize on substantial equity gains and move up. They are not doing it this time and the only real difference is the pandemic. 

Are homeowners nervous about the future economy, the persistent potential for lockdowns, or is it some other cultural shift in the mentality of homeowners. Are millennials taking a different approach to homeownership than their parents who on average bought a new one every seven years. Perhaps they will be more like their great grandparents? Are millennials going to be a generation that stays in their first house through retirement?

I hope not, as that would not be good for us Realtors® ;) A lack of resale homes leads to a tight market and higher prices for entry level buyers. If millennials end up a buy and hold generation, the market for Gen Z will be really tough.

Baby boomers were perhaps a little too 'loose' with their equity, but one can also be too tight with it as well. Using the equity to buy a larger home or a home in a better neighborhood, closer to work, or another life benefit is not a bad idea. As with all good things in life, just don't abuse them.

Friday, February 12, 2021

Listings Hard to Find

Listings are tight and that means the market will remain difficult for buyers and excellent for sellers. Our transition into the neutral market seems to be sliding back in favor of sellers. It seems that sellers are staying put. Vancouver and Clark County remain a hot destination as new people from Oregon and Seattle are flowing into the region. Meanwhile few Clark County people want to leave. A possible additional complication is that people in a position to move up may be uncertain about the economic future with COVID still raging and uncertainly in future governmental policy. If this is the case then that leaves even fewer new listings in a market filled with ready, able, and willing buyers.

I think the vaccine roll out and a slowdown in new cases later in the spring (hopefully) will ease the jitters of some local move-up sellers. This should help boost inventory in the traditional spring season.

If you are thinking about upgrading your home now could be the perfect time. You will get top dollar for your current home maximize its equity thus putting you in a stronger position ie. larger down payment, lower future payment, etc. when you offer on the next home. Interest rates remain extremely low, but that may not be the case in the future since the feds are printing massive amounts of dollars to combat COVID-19. Even if the housing market were to take a dip next year, the interest rates combined with he capture of a large equity pool would most likely carry you through any future downtown, grinning.

Reach out to me or your local trusted agent today to find out what your specific situation looks like.

Friday, January 29, 2021

Value Neighborhoods, in Vancouver

Vancouver has several neighborhoods that offer disproportionate value. When considering a home that is seemingly undervalued one must be cautious and rely at least in part on the counsel of a qualified local agent and their own good common sense. 

The standard price per foot model is unreliable. One must determine why the house is less. generally there is the actual property characteristics, condition, location, age, etc. But external conditions such as neighborhood crime, schools, accessibility to services and infrastructure can also be factors. Once these are evaluated and the property still seems like a deal, then it could be local perception. This is a very intangible thing that is as real at times as other more tactile facts. 

Perhaps a neighborhood was once very run down and filled with crime and other undesirable elements, but some improvements began in recent years that has transformed the area into a more moderate neighborhood. Things may even be continuing to improve. Many people will still hold on to past perceptions of the area and thus not offer higher values for otherwise excellent properties. This is once again where a true real estate professional can help. Many agents are guilty of holding on to past perceptions and the best among local pros are well studied and aware of these dynamics that can lead to a potential value opportunity for a buyer.

The opposite can be true as well. A neighborhood with a sterling reputation can be on the downward trend and fetch more for homes based again on local perceptions. It is not a bad idea to test your agent on general knowledge of neighborhoods and communities before writing offers. No agent knows every nook and cranny of a county like Clark with 625 square miles and 500,000 people. Good agents will know a great deal though. The best agents will help their clients see things they might not otherwise notice, either beneficial facts or derogatory items. In either case the buyer will make better decisions and quite possibly find a value property in this crazy tight market. 

Friday, January 22, 2021

New President, Same Market.

Joe Biden was inaugurated on Wednesday as the 46th President of the United States. Generally speaking changes in Presidential administrations has a nominal effect on local and regional real estate markets. Over time presidential policies can have a negative or positive impact on the economy and that can affect the real estate markets. 

Our local market continues to have a low level of resale inventory. Local builders are rather busy building brand new homes which are also having no problem selling. This makes the market very tight for buyers. One thing that buyers must understand is that budget and desire are more separated in this market than just about any other time. Picky buyers may get priced out of the market entirely if they try to find the "perfect house." At $400k the perfect house is probably non-existent and if it does exist it may be $450k before the buyer finds it.

Buyers may have to settle for something less than ideal, but a home is as much a utility device as it is an investment or luxury. Owning your own home comes with additional responsibility but in exchange offers you freedom and the opportunity to grow your net worth over time. The house you settle for will still give you the growth opportunity and utility and a few years down the road the buyer that settles today will have a much better position tomorrow to get much more house than they wanted this go round.

Buyer should be careful not to let the market pass them by. Many more people want to live in our area than want to leave. That is a strong indicator that absent an economic crisis, prices will continue their rapid ascension. 

Friday, January 15, 2021

2021 Trends

New consturction is playing a significant role in the real estate market for 2021. The shortage of resale homes is partially offset by a robust building boom led by 500 single family home building permits issued in 2020. Builders however are not really hitting that entry level price point much. about a 100 townhome permits were issued last year and those tend to tickle the bottom 300s but resale homes in the $300-350k range are definately super hot right now. With rates remaining very low and a likely COVID 19/New Administration economic slowdown, there is another potential opportunity for selelrs int he entry level market to sell at top dollar and perhaps buy a step up house at a less agressive price point as things settle in for the mid 2021 season. Generally the entry level has the longest lifespan of growth as there is nearly always demand at the low end. Mid level and high end homes tend to fall off first. This creates opportunity for the move up buyer. 2021 could be a banner year for the 3 bed 2 bath 1500 SF seller to exchange for a 5 bed 3 bath 2500 SF mid size move. Retiring baby boomers are bidding those smaller ranch homes up through the rood so younger people that are less sensitive to stairs can buy a 2 story hosue without competeing against the retirees and their big cash offers. I am looking forward to a solid real estate year but long term 2022 and beyond is a bit cloudy at the moment.

Friday, January 8, 2021

2021 Could Bring Mixed Bag

I think that we should see a strong real estate market for the first half of 2021 but likely a slowdown at least in the rate of price growth as economic conditions catch up and federal tax policies may change as well. Our market has had a deficiency in inventory for a couple of years now and that keeps prices on the rise, but the pandemic of 2020 and other contributing economic facotrs will likely catch up with us around summertime. At this point I am not suggesting a full correction but rather a bit of a slowdown in the rate of appreciation. There is still tremendous demand for real estate and new people are coming into the area from places like California and the East Coast but also from Portland just across the river. This should keep real estate values moving in the plus direction, but I do not see double digit growth year over year this time round. With interest rates remaining very low buyers are still in position to get a relative "value" in the market even if appreciation slows as rates in the 3s are a long term benefit that tends to outweight any short term pricing issues. Look for a robust spring followed by a seasonal typical summer and perhaps a near neutral market coming out of the autumn later this year.

Saturday, January 2, 2021

Happy New Year!

Well 2020 is toast; here's to a new year and hopefully an end to the COVID-19 pandemic. Although the Corona virus managed to cause a lot of mayhem and disruption in 2020, locally the real estate market just kept chugging along.  

Vancouver and Clark County saw nearly 10% appreciation in in 2020 and 2021 is forecast for low double digits! That is rather robust considering the pandemic led to the highest unemployment rate in decades. But despite our local stellar numbers there are some areas in the country that did even better!

Areas with lower median home values often have the most opportunity for dramatic growth. There are many lessons that corporate America learned from COVID and one of them is that some jobs can be as productive or more productive in a remote or work from home environment, others not so much. 

This potential shift in some economic zones could lead to some dynamic changes in commute patterns, living arrangements and employment. Vancouver USA has undergone an amazing transformation of the Downtown and Waterfront areas and now is attracting new jobs and people. Other cities in a similar demographic and geographic situation have also done so and often with brilliant results. The potential "new office universe" could lead to more people coming to Vancouver rather than staying ion Portland. The "commute" may have less impact if work at home model stays around after the pandemic.

You can see a similar dynamic occurring in other cities including some that have striking similarities to Vancouver-Portland. Covington, Kentucky is a small city on the south bank of the Ohio River and sits just opposite of Downtown Cincinnati, Ohio. Covington has only 1/5 the population of Vancouver but it is part of a group of cities on the Kentucky side of the river that are similar in size to us, collectively. Covington has the "downtown" and "waterfront" that attracts the locals for dining, urban living, and activities. There are three counties in Northern Kentucky that make up the Kentucky portion of the Cincinnati Metro area and they are combined about the same size as Clark County with roughly half a million people. Median home values there skyrocketed in 2020 nearly 15% and area expected to do so again in 2021. The renovations in Covington's downtown including high rise condos, restaurants, park space and events have made it an attractive alternative to the more expensive, neighboring Cincinnati. Hmm, sound familiar?

Covington is an example of a city on a similar path that Vancouver is on and with similar resulting improvements to quality of life, jobs, and incomes. Covington also enjoys a border economics and city symbiosis advantage with Cincinnati as does Vancouver with Portland. Covington was run down and pretty rough until the recent years when new development began to transform the city into a wonderful place that has a bright future.

City leaders here in America's Vancouver are wise to look at other successful cities as they ponder the pathway of our own city.