Friday, April 30, 2021

Spring Listing Bump is Coming... How Big is the Bump?

I am seeing the traditional listing bump that often comes around every spring. Not just my business or our office, but across the board. Our market is a bit desperate for new listings, so buyers might be able to catch a breath. Springtime tends to bring out buyers however as well, so the question is what the title suggests... How big is the bump?

The COVID 19 pandemic has definitely shaped the current market. I had a record year in 2020 for volume, so I can't say I saw a slowdown in local real estate. The Regional Multiple Listing Service has reported that sales have been robust. But COVID 19 has altered some of the patterns in real estate as well as created in my opinion, a smaller number of fresh new listings. It. may be that some people simply don't want to invite people into their homes during the pandemic out of perhaps safety concerns regarding the virus. This seems reasonable, but at this point possibly more emotional than logical. 

With the vaccines now widely available and many governments pulling back on the lockdowns, some of that concern may be starting to wane. I believe that demand will continue to outstrip supply for the next several months, but this market has given us inventory levels measured not in months, nor even weeks, but DAYS! I have been in real estate for more than twenty years, I can't remember ever having an inventory tighter than two weeks, but that just happened!

I think some of that inventory pressure will lighten but we should remain firmly planted in a seller's market through the summer months. Sellers that make their home available will do better than sellers that limit exposure. This is a general rule even in a seller's market.

I have two new listings this month and I do not expect either to last long at all. This is a great time to sell your home, seller's are firmly at an advantage.

Friday, April 23, 2021

What makes a neighborhood "good?"

Neighborhoods are often the most important factor in a decision to buy real estate. But what really makes one neighborhood better than another? There are many things that impact neighborhoods, some are fluid and changeable over time and others are more permanent and fixed. Fixed conditions are topographic, geographical, or otherwise permanent. Fluid conditions can change through redevelopment, zoning, economics and other variables. 

Buyers are often limited by a budget and that means that some neighborhoods may be out of financial reach. But irregardless of ones budget be it below the local median or well above, a good decision is going to be based largely on neighborhood. Fundamentally there are several key factors in determining the suitability of a neighborhood:

  • Location: This is mostly fixed and based on proximity to transportation, shopping, schools, etc.
  • Crime: this is a fluid feature based on how much criminal activity is occurring in a neighborhood, this can ebb and flow with normal neighborhood transitions through the various cycle of real estate as well as local government policy.
  • Uniformity: This is semi-fixed based on the building and zoning type. Going from an eclectic mix to a uniform neighborhood takes years or decades. But having a consistent neighborhood with similar styles and values is generally a positive neighborhood feature.
  • Public spaces: Parks and natural public areas tend to enhance the value of a neighborhood
  • Infrastructure: Quality public infrastructure and improvements tends to increase the value of a neighborhood.
  • Ownership: The percentage of rental units to owner occupied units affects value in neighborhoods. Generally more owners increases value, unless the rental units are extremely well managed. An HOA controlled neighborhood tends to keep rentals well managed.
  • Relative proximity value: Neighborhoods with lower priced homes than those immediately surrounding it, tend to have the values pushed slightly upward on the 'coat tails' of the nearby more expensive properties. Likewise expensive homes surround by more modest homes tend to be dragged down a bit. This is a fixed condition.
  • Noise: This is typically fixed and is of particular importance in suburban and rural neighborhoods. The expectation in urban areas like Downtown, is that noise levels will be high so it is a little less of an issue in high density areas.
  • Traffic: This is semi-fluid. It is tied to infrastructure and location. It can be improved with infrastructure but can get worse with growth of population or additional development that over extends the existing infrastructure.
  • Prestige: Some people want to live in a neighborhood that is prestigious. Usually prestige comes at a very high price. Sometimes however middle-income neighborhoods are also prestigious in that they just happen to be really nice areas of modest homes. That ties into location nd infrastructure. Generally a prestigious neighborhood leads to overpriced homes and are not necessarily better places to live than other similar neighborhoods. Use caution when getting caught up in prestige, it can be a good thing, but not always the best thing.
  • Natural Disasters: Some areas are prone to flooding, fires, landslides, etc. Clark County Washington doesn't have a lot of issues with proximity base natural disasters. But buyers should consider the possible dangers of certain locations. Things like earthquakes and tornadoes are going to strike random areas and that is too unpredictable to worry about. Weather and seismic issues are also more of a construction issue, how well made is the house rather than neighborhood location.
The bottom line is simply that buyers should but the most house they can afford in the best neighborhood they can find in their price range. Commute distance and proximity to the things buyers like to do as well as have to do are strong motivators and that can trump the basic rules of neighborhood selection as well.

The market is tough on buyers now regardless of price range as inventory levels are at historic LOWS. Buyers have to be careful not to be too picky. Fluid conditions that are undesirable may be trending in a positive direction, fixed conditions are unlikely to ever change. Buyers should keep that in mind.

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.