Friday, December 2, 2022

Soft Talk From Fed, Leads to Some Easing on Rates

This week saw a little relief in the mortgage lending rates with the Fed softening their stance a little on rate hikes. I have one client that went from 7.125% to 6.625% which greatly improved his purchasing power. Buyers should be optimistic as sellers are now considering closing cost assistance which sometimes allows buyers to buy down their interest rates to make the payment manageable. Even if rates relax a little, buyers may still be able to push the rate down lower buying points to reduce the rate. Sellers can help with this in some situations. 

I would advise buyers find a trusted pro in the lending business who will take the time to explain the pros and cons on buy downs. Every buy down has a cost and there is a specific amount of payments that have to be made before you recapture that cost. For example I have a client that just found a condo they like and are preparing and offer. He wants to soften that payment up to allow for some wiggle room on qualifying for the loan. The rate was 7.125% at the time he could spend an extra $1,700 to buy the rate down to 6.875% which lowers the payment on his particular purchase by $80. This is not an expensive property he is buying. It will take 37 months of payments to recapture that $1700. Since this is a first time home purchase it is highly likely he will remain in the home for more than three years so the buy down makes financial sense. However if the buy down is needed to qualify then it may make sense even if the recapture time is longer. Furthermore, if the seller is helping with closing costs then the recapture almost becomes moot.

I am old enough to remember double digit mortgage rates and when I graduated high school 30 year fixed rates were 17-18% which made those loans nearly impossible. All kinds of specialty adjustable mortgages came to market to try make the entry point lower and they were largely successful. Rates over the last 50 years have averaged about 6-6.5% and where we sit now is about average, maybe just a tick higher. For young people under the age of 35 these rates may seem high since their entire adult lives saw rates lower than they are now. This is the highest they have ever seen, and that is a bit of a price shock for them. Even older buyers have to be reminded that this is really pretty normal rates, we just came off a ten year period where rates were riding the bottom of the historical curve making homes more affordable. That however led to higher demand for homes and thus we saw prices skyrocket. In the end if the Fed gets it right and doesn't overcorrect, we may just see a nice neutral real estate market for a few years. Unfortunately the Fed does have a tendency to overcorrect. Let's hope they get it right this time.



Friday, November 25, 2022

Happy Thanksgiving and Black Friday!

Well I do hope you all had a warm and pleasant Thanksgiving Day yesterday and I hope you score some killer deals Today on Black Friday! So this is a real estate site, any Black Friday deals on real estate? Not exactly.

Despite the perception, the Holidays can be a good time to buy and sell. I mention this every year and I'll do it again this year. There is a significant number of people that put off real estate decisions until after the Holidays. Sellers will suspend their listings or postpone until January and buyers will also wait until after and so in general December is a slow month for real estate.

However I've noticed that seller activity slows down quite a bit more than buyer activity in general. Sellers that suspend or postpone listing until after the Holidays are not in a hurry to sell. Sellers that remain tend to be ready to go or perhaps need to move quickly for a job change or something similar. Buyers can capitalize on the urgency of sellers that market during the hectic season and sellers can capitalize on serious buyers that are not just 'kicking tires' but are ready to purchase.

We all have plenty of things to do during December so we tend not to be looky-looing around in this month. The bottom line is that both buyers and sellers that continue their real estate activity during the Holidays tend to be very serious about getting into contract and that bodes well for all involved. For both buyers and sellers there is less competition and that can be a very good thing.

Have a great weekend, see you next week.




Friday, November 11, 2022

Market Sliding Gently into Oncoming Recession

The real estate market is sliding gently back into more neutral conditions. But is it really neutral? There are several ways to create balance and imbalance in the market. Balanced conditions happen when supply and demand are both about equal. You can have short supply with little demand, medium supply with medium demand, or high supply with high demand. In any of these conditions the market is neutral. A strong sellers market can happen when supply is short and demand is high, but it can also happen when demand is low if supply is extremely short. Our recent market transitioned from high demand and ultra low supply to medium demand and ultra low supply, to low demand with ultra low supply where we sit now. Yes demand has fallen off due largely to the increasing cost of money. But the number of listings remains fairly low as well so prices are softening, but only a little bit.   

If our market sees a sudden burst in listing activity we could see a harder crash, but for now, trends are showing a soft landing. Soft is good. Sellers worried about the declining market should consider that it can be an effective way to save a little money. If prices are falling the selling will lock in the price of the current house when they accept a buyers offer. The next house they buy will be a little cheaper as the market softens further. There can be an upside to slipping prices.

Mortgage rates right now remain in the 7s but most rates come at a cost in points. Par rates and rebate rates are not in the mix right now. Buyers will need to be ready to cough up some closing costs to get a loan and sellers should be ready for offers with buyers asking for help. This is the market we will have to deal with for the foreseeable future. It is totally manageable when you hire the right agent.


 

Friday, November 4, 2022

Chasing the Market Down

OK sellers,  there is a such a thing as chasing the market down. What does that mean? Well in a market where prices are falling, whether they are plummeting or just sliding gently down you absolutely cannot expect good results by overpricing your home or even pricing it based on recent comps. Because a typical home sale takes 30 days to complete so a house in your neighborhood that closed yesterday for $400,000 was actually negotiated 30 days ago or more. 

When you price at or above the current market and you factor in the increased marketing time of a stable market you will be overpriced by the time your buyer arrives. Buyers are not likely to make an offer on an overpriced home unless they absolutely love it. Meanwhile as the marketing time increases new competitive properties come on the market at even lower prices. So eventually you have to lower your price. If you lower it again to what the "current" comps suggest you fall into the same cycle and literally chase the market down until it starts to recover. In the end of this scenario sellers will lose thousands or perhaps tens or thousands of dollar. I have seen it before and I am seeing it now.

In a market will declining values a seller need to get ahead of the curve and that means pricing the home a little under the comps suggestion. Now the house looks competitive in the market place even 3-4 weeks into the listing cycle. It is better to sell it now than let the market fall further. This can be a hard pill to swallow, especially in the immediate aftermath of one of the hottest markets we have seen in decades. That market is over. Buy as of now the sky is not falling, homes are still selling and price reductions and valuation adjustments are still sliding south on a gentle trajectory. There is no guarantee that glide won't convert to a precipitous fall but it just as easily could be a minor bottom and return to growth depending on economic activity in the region and nationally over the next several months.

Don't chase the market down, you will lose way more money with six months of price reduction than just selling it quickly at a sharp looking price today.

Tuesday, November 1, 2022

Warmest October I have yet Recorded

This blog post was accidentally posted here instead of my Weather Blog... oops :)

You read that right friends. This October was a scorcher, well for October at least. I set more warm daily records than ever before in any month and this is my 21st October keeping temperature records at this location. 13 daily high records fell for this location and two warm morning low records as well. That is nuts. It gets nuttier because I also recorded my warmest temperature ever for October. Generally in October we get a couple of warm days in the upper seventies of maybe an 80º temp almost always in the first 10 days of the month. Then the rain train arrives and that's the end of that. Not this year, we had a proper Indian Summer with three weeks of warm weather mostly in the 70's and 80's. The end of the month was more like a regular October with rain and cool temps.

So what's all this fuss about? Here it is: October, 2022 featured the aforementioned 13 daily record highs, 2 warm low daily records, and the warmest October temperature on record at this location. All of this scattered among just 9 sunny days, 8 rainy days, and the rest were cloudy or foggy or partly cloudy. There were ten days in the 80s, and 12 in the 70s. The month was so warm we didn't get anywhere near freezing all month long with the coldest temp coming on the 12th at 38.7º and I had nary a frost. The the warmest temp of the month, my all time high for October was on the 2nd with 86.1º under brilliant sunshine nudging past the previous all time October high of 83.8º and 6º higher than the previous record for the day. The other daily records were as follows, 84.0º on the 1st which was an all-time October high for me for one day until broken on the 2nd, 81.0º on the third, 81.3º, 83.8º, 82.1º, and 75º on consecutive days the 7th through 10th, followed by 5 consecutive daily highs on the 12th through 16th with marks of 78.6º, 83.2º, 80.1º, 85.6º (8.8º above the previous daily record), and 81.2º. But we were not done yet breaking daily records, on the 20th a mark of 69.6º was enough to take the record. All in all this past October had four daily highs that were enough to tie or break the pre-2022 all time monthly record! We even added two daily records for warmest overnight low done on consecutive nights on the 5th and 6th with marks of 57.4º and 56.3º respectively the latter was the warmest morning low for the month and the only morning under 40º with a reading of 38.7º on the 12th. 

God didn't;t turn on the water spigot till the last week of the month and we got all of the month's rain in a 9 day period from the 22nd to the 31st with a sum total of 3.78 inches which is almost a normal October month of rain. All in the last 9 days. 1.1 inches on Halloween capped it off. 5 days over a 1/4 inch and 3 days over a 1/2 inch or rain. 

The temperature average for the month was L 49.73º and H 69.83º more than +4º overnight and nearly +8º by day. Crazy.

This week has a very seasonable forecast with snow levels dropping down to the lower foothills later in the week then rebounding back above pass levels but not a single warm day in the outlook. We will likely get out first frost of the year this week and highs will remain in the 40s most of the week. Now that's November :) 

Soak it up my friends, soak it up.

  

Friday, October 28, 2022

Market Sliding Down Gentle Slope, Is there a Cliff Ahead?

The real estate market locally is slipping with prices falling gently for now. Like any other industry, housing has a supply and demand scale that directly affects pricing. For the last several years our market has had extremely tight inventory. For a couple of those years we saw super low interest rates that created an intense demand for real estate which drove prices up at a feverish pace. Low mortgage rates create demand by offering access to loans for people with less income. During this time however few people wanted to sell their homes. Washington State has been the top rated place to live by several surveys since 2018. Look no further than Downtown Vancouver which has five new tower cranes operating on large scale urban development. Money is pouring into the local economy, so that is good.

But alas, the economic conditions began deteriorating last year, and interest rates have risen dramatically. This has eliminated a large portion of the demand for housing. People have been 'priced out' of the market due to the higher cost of borrowing. However the market has only slid a little bit. Often during economic turmoil people sell the house adding inventory and further reducing price pressure. That isn't happening right now. Homeowners are for the most part staying put. So even though demand has fallen due to the  expensive cost of money, inventory which was super tight remains fairly low although it is softening up.

The real killer is inflation. If inflationary pressures continue to outpace earnings, some people will be compelled to sell and as inventory builds and demand fades, prices can plummet. We have the advantage locally of being one of the best places to live in the metro area, we have external demand coming from other states seeking the jobs, lifestyle, etc offered here. We also have additional external sales pressure coming from Seattle area residents fleeing high living costs in that area. These factors are helping to stabilize prices that otherwise may have fallen much more than we have seen thus far.

Governments at state, local, and federal levels have policies that can have serious effects on real estate markets for better or worse. Government spending the federal level creates inflationary pressures, state and local legislation can cause ripples in the industry as well.

I have noticed that election turnout for the Presidential elections is almost always higher than the midterm elections and off year elections in odd years is even lower yet. Furthering the evidence is special elections not held on the official Election Day of first Tuesday in November have the lowest turnout of all. What this means is that crafty politicians tend to slip sneaky legislation through during elections with lower turnout. Washington state has imposed a huge increase in the gasoline tax and that will eventually come before the voters. But the timing means it will likely appear on the ballot during next year's off year election. This gives the state a free year of this tax before the voters have the opportunity to vote it out. Fewer voters will vote not he issue at all in an odd year. Voters whether right or left or straight down the center, should vote in every election. 

Elections for your local leaders are also often on the odd years like the Vancouver City Council and Mayor which are elected in odd numbered years when turnout tends to be lower. We the people should vote in every election every November. Regardless of how you feel about politics and what your personal ideology is, you get to exercise your will once a year, and it does matter. Some of these off year elections literally come down to a handful of votes.

What does all this election talk have to do with real estate? Everything; politicians create policy and legislation that has tremendous effects on our markets in general, our lifestyle, and so on. The decisions made by these elected officials have both benefits and consequences to our daily lives and the real estate market is included. 

Portland was once the darling city of America, and in just a few short years it has digressed into a third world cess-pool. This was mostly due to policies and legislation passed by elected officials there. The sensitive issues on homelessness, crime, traffic, taxes, jobs, and other local issues translates into how desirable it is to live somewhere. Undesirable locations tend to suffer in real estate values. Desirable places tends to be expensive.

So, are prices headed for the cliff? Maybe. The federal government needs to reign in spending and focus on economic development. Local officials need to work on cleaning up crime, homelessness, fix traffic issues, and bring good high paying jobs to the area. I do not know what will happen next year on inflation and economy front. That will largely depend on how things turn out in the next election. If this economy turns into a prolonged inflationary period like we saw from 1977-1983 we could be in for a serious crisis, and if Vancouver starts making the same mistakes as Portland, we could suffer their fate as well. Let's not do that, OK?


   

Friday, October 21, 2022

Classic Rules Still Apply

Here is a classic, it's even got "classic" in the title.

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.

Friday, October 14, 2022

Local MLS Shows Softening Conditions

The Regional Multiple Listing Service is the primary MLS for the Portland-Vancouver Metro Area. The September data is complete and the MLS released is compilation report for members a few days ago. The report shows a strong decline in both new listings and closed sales versus the same month last year. 

The numbers can be a bit deceiving as it makes it look like the market had a crash. It did not. New listings were down 25.3% over last year and pending sales in the same period were off by 36.6%. Marketing time remains a very healthy 35 days and the median price is stable for the moment. The report stated that current inventory levels are still below two months and that indicates a seller's market remains, for now. 

Looking at the prior month shows two things. One is the normal season slow down entering the fall and the other shows that inventory levels are high enough that buyers are less likely to fight over listings like they were a few months ago. I believe that appraisers are also tightening up as well and that can lead to reduced prices at close. The median sales price dipped from August to September by 1.1% and if that becomes a trend we may see a slide in overall pricing. It should be noted that the interest rates rose substantially right as September approached and that likely played a role in slowing down the pending sales. Many buyers were eliminated from qualifying as mortgage rates jumped from 5% to 8% in the span of a week or two. So long as new listings decline at similar rates to pending sales the pricing in the area should remain stable. If we suddenly get a surge of new sellers and buyers remain flat, then of course that places downward pressure on pricing. 

Six months ago I was bullish on the notion of a flat or soft landing with mild pricing drops. Today I am more split. This report shows that both supply and demand are falling but demand is falling a little bit faster. The rates are probably the biggest culprit on the demand side. Although I still feel like a soft landing is possible, it seems that we have a higher chance now of a medium to hard landing than we did earlier this year. I still remain optimistically cautious about the market over the next twelve months. Seller's thinking about moving, and who need to protect their equity might want to list now. 




Friday, October 7, 2022

Should I sell or should I stay?

Sounds like a song from the Clash in the 1980s... it is however a valid question for would be sellers in this current real estate market we find ourselves in. It genuinely depends on what your current situation is and what your new purchase would be when you move. In general local markets move closely together. Sometimes there can be certain sectors of real estate that take a bigger hit than others or out perform the broader market. Key neighborhoods can also over or under perform relative to the regional trends, but broad trends tend to effect to region equally. 

Sellers that have a large equity position should be motivated to sell prior to a negative value adjustment as lower prices erode their equity. This is especially important if the home has a mortgage balance. As home values decline they tend to drop faster than the mortgage balance and that create inequity for the seller when they go to repurchase. If the seller is downsizing locally or moving to a more affordable area, then selling now is prudent. 

Sellers thinking about moving up may want to rethink that position in this market. This runs counter to my own best interests, but it is sound advice. Most homeowners sitting on a house with a mortgage are at a much lower rate. Many refinanced including myself, when rates were in the 2's and 3's. With rates now in the 7's and 8s the cost to move up will be substantial. That being said, if prices start falling the opportunity to make that move up could collapse and then the seller is likely stuck for a few years.

A seller that is free and clear or has a very small mortgage balance (less than 30% LTV) looking to move laterally or downsize is in a good position either way. Selling now allows them to capture maximum equity and they could benefit from softening prices when they close and repurchase 30 to 45 days later. If they wait and the market erodes, the price they get is lower but the price they pay on the next smaller house will also be proportionately more reasonable. 

Sellers that should be wary in these current market trends are those with a higher LTV in excess of 80% as they could lose their equity position if they wait too long. Every seller is unique and potential sellers are wise to contact their trusted agent and loan officer to get the facts of their specific situation before deciding on a course of action.



Friday, September 30, 2022

Rates Spike Again, Buyer Pool Will Shrink Again

For the last decade I have been telling people not to fret much over the occasional rate hike here and there as rates spent the last 10 years well below the 50 year average. But this week saw one of the biggest spikes I have seen. Mortgage rates have settled in at nearly 8% which is well above the 50 year average of about 6.25%. In fact, according to Freddie Mac, rates haven't been this high in more than 20 years.

This however will eliminate many buyers from the market. The loan payment on $400,000 at 5% which is a rate readily available earlier this year is $2147 a month PI (principle and interest). At 8% the payment looks like this: $2935 PI. That's nearly $800 a month more and that will require at the very least an extra $1600 of income to qualify.

As long as the economy remains relatively strong, real estate should still land softly, but can our red-hot market survive a loss of 20-30% of the available buyer pool? I do not think so, inventory remains under two months supply but it is a safe bet that sales numbers will crash a bit if these 7.5-8% rates remain in place. We could quickly see inventory at 6-8 months supply which would move us into a buyer's market. Sellers should brace for serious pricing pressure. 

Now there are some government programs that can help buyers get rates in the low 5s with some restrictions. Income has to be below $110k annually and price is limited to around $500k. But that should provide some buyer relief. 

Contact Rod for more information about our local market and these new programs that could help keep buyers in the market.



Friday, September 16, 2022

Real Estate is Precariously Perched

Interest rates continue to rise and as they do buyers begin to fall out of the market. This ultimately reduces demand for housing and as such housing prices and sales are softening. Prices haven't started to collapse or for that matter even drop much. But inventory levels are steadily increasing and at some point in the not too distant future we will transition out of the "sellers" market and into a "buyers" market. 

Federal government spending and runaway inflation will not go away anytime soon so it stands to reason that rate hikes will continue. Governments tend to overcorrect and I see that happening yet again, right now. We need to prepare for rates that exceed the 50 year average. 

The biggest issue is that housing has been artificially boosted by low interest rates largely 'funded' by federal mortgage backing. We have now removed the artificial 'bonus' of federal backing of mortgages. Now we are settling into a more 'normal' mortgage market. This however has eliminated the ability of thousands of people to buy a house. As rates rise and buyers disappear it is inevitable that prices will suffer.

I have tweaked my bubbly and enthusiastic outlook for 2023 to a more cautiously optimistic approach. I see a general downturn in pricing and a buyers market by Q2 2023 at least locally. As for a crash, I do not see that yet. Banks have been making better quality loans over the last decade and can't see the kind of nightmare we saw in 2009-2011. That said sellers sitting on a pile of equity should consider selling SOONER rather than later if a move is in the near future. 

So take a look at your near term future say the next 3 years, if a move is in that picture, now may be the time.

Friday, September 9, 2022

Market feels Neutral, Inventory Suggests Otherwise

A neutral market is one in which conditions neither favor the seller nor the buyer. I am definitely picking up a feeling of neutrality in the market but it just isn't really there. So what do I mean by this? Buyers are kicking more tires, offering less than asking on reasonably priced properties, and sellers of overpriced homes are reducing their price. All of these things are a sign of market neutrality. Yet inventory levels are still well into seller's market territory with the MLS showing most of Clark County at less than two months supply. What gives?

Well a few things, first we just came out of a cycle which locally saw the lowest inventory levels since records have been kept. Early this year inventory levels were so low they were measured not in months, not even weeks, but DAYS! During these first few months of 2022, interest rates began to move higher in response to runaway inflation the likes of which hadn't been seen in 40 years. I believe that nearly every 'fence sitting' buyer panicked and made offers, largely out of a fear of being priced out of the market all together by rising rates. Despite more and more listings coming to market, the buyers came to market just as quickly until just a few months ago when listings began to outpace pending sales. Inventory was so tight for so long, that perhaps this uptick in inventory levels has given buyers a false sense of security. A neutral market has long been considered about six months with lower levels favoring sellers and higher levels favoring buyers. We are less than two months right now so why are we seeing such bravado among buyers?

In a rising rate market both buyers and sellers get really nervous. This anxiety can make a seller impatient and lead to a lower price to secure a buyer. Buyers however are also feeling a pinch to secure a home fast and not have to pay higher interest rates that translates into less house for a larger payment. For younger people under the age of 35, they have never seen 6% interest rates in their adult life. From their perspective rates are high. But historically rates are still lower than the 50 year average. Older people can remember rates in the 7s, 8s, and 9s and people my age remember double digit rates at times approaching 18%. 

Buyers should ask their agent to evaluate the market and determine if the seller is inline with recent sales. Prices are rising at a very modest rate right now some a similar home that sold last month in the neighborhood should be a fair representation of value and an agent should be able to help make the comparison. If the the price of a home a buyer is interested in falls at or below that mark, then make a full price offer and be done with it. Don't try and beat up a seller who already has a good price. This is still a seller's market and the listing agent likely knows she is priced right. Buyers should remember that rate pressure is intense right now and they really do not have the time to monkey around trying to steal a house in a sellers market. 

If inventory climbs to more than six months supply we will be having an entirely different conversation. Again at the risk of being repetitive, we currently have less than TWO months supply. Buyers need to focus on their goal and not get greedy. A feeling of market neutrality is a mirage. Things are slowing down, but the range top is still really hot, touch it and you will likely get burned.


Friday, September 2, 2022

Housing on the Brakes?

Well the housing market is definitely not as hot as it was at the start of this year. A combination of rising rates, the worst inflation in 40 years, and a falling consumer confidence has lead to an apparent slow down in real estate. There is however, a fly in the ointment of the doomsayers in real estate. The economy in general, at least locally remains hot. Jobs are plentiful and employers are paying more money than ever for the same jobs. Furthermore there is external positive pressure on our local market from out of state as well as from the price bloated Seattle Metro area.

For the last three to four years Washington State has been at the top of nearly every "best place to live" list in the country. Clark County is benefitting from this as is other parts of the state but we have a secret weapon; it's called Portland. The only people left defending Portland are the die hard Rip-City 'fanboys' and the elected officials responsible for taking Portland from America's Sweetheart city, to the laughing stock of the country. Even my relatives in Europe are wondering, "What the heck? are you OK? What's happening there" The only positive press coming out about Portland is from local sources, nationally the once amazing city is viewed as a train wreck. Portland is the poster child of what NOT to do when running a major city.

Portland is on the verge of joining several California cities in the 'losing population' category. People are leaving and our immediate border location to the city is benefitting us on the real estate side. Unfortunately the influx of Portlanders could bite us in the hindquarters later if they start voting for the same types of candidates as they did when they lived in the Rose City.

So I am definitely seeing a less aggressive seller's market. Houses that once sold in 2-4 days with multiple offers well above asking are now quietly sitting for a more normal 2-3 weeks with offers coming it at or just a tad below asking. Buyers that were scared off by the multiple offer fiasco of just six months ago can come back to a much more civilized real estate market. But there are no bargains, the demand is still there. More listings have appeared and that has taken some of that pressure off the buyers. We are still sitting on less than 2 months inventory. It will be interested to see the updated stats in a week or so when the MLS publishes the September report. Even if we added another month of inventory, the market still slightly favors sellers and that suggests the sky is not falling.

Some markets have seen legitimate drops in median prices even for specific categories. We have not. Yes there are price reductions happening in our market but those are almost exclusively on overpriced homes. Homes priced at or very near comparative market pricing are selling in less than month without price adjustments. Many sellers are jumping in to the market and are pricing their homes, often against the advice of their agent, too high. As the market starts to cool, appraisers will be keen to the conditions and they will not be so generous with overpriced listings.

So sellers it's time to be realistic with home values, the market is stable but you are not going to get that unicorn price for your house. Buyers, worry not, the market is not going to kick you in the face every time you write and offer. This is a healthy market right now.

Friday, August 26, 2022

Top of the Market? What now?

It seems we are at or near the top of the local real estate market. The big question is whether we have a soft landing or a strong correction. I see strong demand in place and we remain tight on inventory although not nearly as tight as it was in the first quarter of this year. I still feel like we are in for a soft and gentle landing with prices remaining flat or maybe just dipping a bit. Of course, a major economic shift for better or worse could change that dramatically.

For buyers and sellers of real estate the top of the market is a blessing and a curse. For first time buyers it can be a little scary especially for those that recall the last major correction back in 2009-2012. First time buyers that used low down loans for homes in 2007 and 2008 found themselves upside down for several years during the 'Great Recession' that began at the end of 2008. This market is a little better than that largely due to strong regulatory changes that were made in response to the crash of '09. Loan portfolios are in much stronger shape today than they were leading up to the '08 banking crisis. First time home buyers using low down loans should always plan on staying put in their new house for at least three years anyway, regardless of market conditions. If there is a dip in property values three years is usually enough time to recover the loss except in the most extreme circumstances such as those we faced a dozen years ago.

For those selling a house and buying another this can be a great opportunity. Take the empty nester with the larger home that is either free and clear or nearly paid off: If there is a price correction they will benefit by selling their current home at the top of the market and paying cash or mostly cash for the new home. If the market corrects negatively, they are still in fine shape. For those looking to move up or down that are in a house with a substantial mortgage, the top is the perfect time to sell. Here's why: Say a homeowner, I'll call her Jill, has a home currently valued at $700,000 with a $400,000 mortgage. She has $300,000 in equity and upon sale will walk away with roughly $250,000 in cold hard cash. Now Jill is in a strong bidding position to purchase her next home, whether it is a move up home or a downsizing home. She will be coming in with 30-50% cash down on a conventional loan. Say Jill is downsizing into a smaller home priced at $500,000. She will be able to get into her new home with a much smaller mortgage and likely have payments that are substantially lower. With 50% cash down, she is strong even in multiple offer scenarios, which are becoming less common these days. Now, what if Jill waits. Let's say there is a major correction in the market. She then either gets stuck where she is at, or decides to sell at a reduced price, let's say $500,000. So now Jill only nets about 80,000 in cash to put down. Of course the new property may only be $400,000. In this scenario Jill is moving from a step up house into an entry level house. The market tends to hit the upper price range homes harder than the lower price range homes, because demand for houses near the bottom of the price range is always higher even in contracting markets. Jill can still do a 20% conventional loan but now she has a $320,000 mortgage instead of a $250,000 mortgage she would have had selling now. If she had less equity then she might have to use a more expensive loan with mortgage insurance and that can make the move less desirable or maybe even kill the whole notion.

For the majority of sellers this is a great time to sell the market is not crazy like it was a few months ago, so the fear that sellers had before; "Where will I go, how will I find a new house if I sell..." is more or less gone. Sellers right now gain the advantage of a near top of the market price for their current home and maximum equity to use on the next house which will likely have flat or slightly declining values the latter placing them in an even stronger position.

Contact Rod Sager for an in home evaluation of your property.



Friday, August 19, 2022

Market Trends Update

The latest data form the MLS shows Clark County picking up inventory. Generally picking up inventory is a sign of a softening market, but earlier this year we set a record for the tightest inventory ever recorded when we were measuring inventory in days rather than months. That won't stop media types from predictions of doom and gloom.

In July 971 units were listed in Clark County and 669 units closed. Total inventory was 1262 units. So we had less than two months supply and that is still a seller's market. The trend is more expensive homes as the median sales price of $528,782 is eclipsed by the average sales price of $582,079

Median marketing time is sitting at a very comfortable 10 days with the average creeping up to 25 days both numbers are healthy. Interest rates definitely slowed things down as fewer people qualify at 5.5% than at 2.75%. Historically interest rates have averaged 6% over the last 50 plus years so we are still in a low interest rate cycle. Most of the apprehension is among younger people that have never seen home loan rates above 6% so this seems like high mortgage rates to them.

As things settle in and rate stabilize, hopefully in the less than 6% range housing should continue to grow and sales should remain consistent at 600-800 homes a month in Clark County. Barring a serious spike in rates we are looking solid for the next 12-18 months but growth in prices should not be nearly as aggressive. I would expect appreciation rates to settle into a more anemic 2-3% annualized. This is also healthy although a tad lower than the historical average. We just came off some record levels of appreciation though so a slight slow down makes sense. 

Locally we may continue to see a rise in pricing at this slower rate but neighboring Portland could see a slight pricing slowdown as they are seeing a bit of an exodus out of the city. Portland pricing will either be flat or maybe see slight rise in values. They are sitting on just a little bit more inventory than Clark County with 2.3 months to our 1.9 months. Portland is also seeing strong activity over the median with an average sales price of $630,211 versus a much lower median price of $558,500. This large disparity between average and median can sometimes mask softening markets. The median price will continue to move up if the bulk of sales are in the high end but entry level prices could be flat or even dipping when the median is rising. That does not seem to be the case right now in either Portland or Vancouver/Clark County but it is something I am keeping a keen eye on.

The middle of the market is usually driven by the bottom as entry level homeowners take equity from their first house and make a move to the middle. The classic scenario selling a small 1250 SF 3 bed 2 bath starter house that the seller paid $300,000 for three years ago and now sells for $450,000. They take that nice chunk of equity and move into a $600,000 4 bedroom home with twice the space and their payment is only a little higher than it was before. A sharp increase in interest rates has made that classic scenario a little more challenging, but the numbers show the market is currently overcoming that challenge. A similar scenario plays out when the middle takes equity and moves to the high end of the market. Move up activity can significantly raise the local media even when actual prices are going down. Again, the number are not showing a dip in overall values, but they are masking the real appreciation which is likely in the low single digits when annualized.

Friday, August 12, 2022

What does the Construction Boom, say about Real Estate?

Vancouver continues to enjoy a massive boom in construction. Much of the energy is focused on housing but there is significant commercial office and industrial activity as well. People are nervous about the state of the residential real estate market with rising rates and increasing inventory suggesting a slowdown is underway. So far what the market is doing is appreciating at a slower pace. There does not appear to be an actual reduction or recession in housing prices. The days of 20% annual growth appear to be gone with projections now at much more modest lower single digits. Housing demand in Clark County remains high and despite inventory levels starting to normalize we are still running tighter than average at around 1.5 to 2 months inventory.

Portland is in a bit of a flex spot right now as many people have decided enough is enough with the homelessness, filthy streets, and epic crime wave. But Portland still has a strong job market and that is attracting as many people as are leaving. Vancouver is the biggest beneficiary of Portland out-migration as our location immediately adjacent and our superior infrastructure is attractive. Vancouver Downtown is also the only real urban alternative to Portland for those wanting the walkable city lifestyle. The sheer number of major mid-rise and high-rise projects underway and in the pipeline are a testament to the strong desirability of a city style living opportunity outside of Portland. 

Urban Living in the Couv keeps a running list of major mid-rise and high-rise projects in the city in various stages of development from proposals to completion.

Projects nearing completion:

  • Kirkland Tower 12 stories, 40 condos. Waterfront
  • Indigo Hotel 8 Stories, 138 room Hotel. Waterfront
  • Aegis Phase One 6 & 5 stories each, 140 apartments. Downtown
  • Broadstone Claro 7 stories 180 apartments, Waterfront
Projects under construction:
  • Timberhouse 8 stories, 227 apartments. Waterfront
  • The Springs Living, 12 stories, 300 apartments. Waterfront
  • ZoomInfo Office towers, 10 & 9 stories. Terminal One
  • The Ledges, 6 & 7 stories 141 Condos and apartments, Columbia Palisades
  • Fourth Plain Commons, 6 stories, mixed use, Fourth Plain Village
  • Adera, 6 stories 180 apartments, Downtown
Projects in the pipeline:
  • Modera 14 stories, 285 apartments. Waterfront
  • Block 2 12 stories, 200 apartments. Waterfront
  • Block 1 10 Stories, office tower. Waterfront
  • 1500 Block, 7 stories, mixed use. Midtown
  • 13th & Broadway, 7 stories, apartments. Downtown
Most of the high density activity is focused Downtown and along the Waterfront. But there is substantial suburban development throughout the city and county as well. These urban projects represent at the very least $1 billion in local investment and that can float the economy through a mild recession. I remain mildly bullish on real estate in Clark County.

 

Friday, August 5, 2022

One Level Homes Still the Hottest

As more inventory creates a bit of maneuverability in the market buyers may find the single level homes are holding firm versus two story homes. Single level homes are common targets for two major buying demographics. The starter home buyer and the downsizing senior. This creates a little extra pressure on pricing for these homes versus a two story home that tends to be avoided by the latter group.

First time Buyers trying to get a bargain should look at smallish two level homes rather than similar sized one levels as it eliminates competition from the senior down-sizers. Although these smaller two level homes can sometimes feel a tad cramped on the main level they often offer a good utilization of space and leave a smaller foot print on the lot that either creates more yard space or allows for a smaller and thus less expensive lot. 

Seniors downsizing often have a large downpayment or are all cash and that gives them a bit of a bargaining edge with sellers. First timers should try to avoid directly competing for the same homes as downsizing seniors. 

Vancouver and Clark County has a large selection of smallish 1500-2000 SF two story homes that are seeing a softening in price right now. You can get a lot of house for less looking at split entry homes that are scattered all over the area.

That's the tip of the week.

Friday, July 29, 2022

Brakes are on, Slowdown or Downturn?

The market has definitely slowed down a bit, is this fender bender rubbernecking or are we in for something more severe like an overturned big rig blocking three lanes? It is hard to say but right now, but there is a guy on the side of the road with a dented fender. I'm not sure what that big rig ahead is up to ;)

All traffic metaphors aside the market is definitely flattening out and most of the major analysts are suggesting Washington State is likely to weather any storms far better than most of the USA. Washington manages to appear on just about every positive top ten list there is aside from affordability for which we are certainly lacking. High housing costs have always been the price for local success and desirability.

I am more concerned with California. Now California still has some of the most expensive real estate prices in the nation but the state has fallen to mediocre or worse on all those same lists that rate lifestyle, jobs, quality of life, crime, schools, etc. At some point and it seems that point is right now, people will get fed up and leave. Middle class Americans are leaving California in droves and for the most part only rich and poor people are moving in. You might wonder why poor people would move to an expensive state, but that could be due to a few factors. California has a huge migrant worker job base and a solid welfare safety net. California is starting to look like a third world country with homeless people everywhere, dilapidated neighborhoods and a huge wealth gap, perhaps the largest in the nation. There appears to be no end in site for the decline of the Golden State.

Why should we care up here in the Evergreen State? Well because California has long been a trend indicator for real estate on the West Coast. If prices take a big dump down there it will have some ripple effect here and could take us from a flat market to a declining market. I think California is in for a major correction, think 2009-2012. But I still think Washington will be relatively unscathed with a minor slowdown and slight decline in values. Of course this all presumes that the national economy only suffers a mild recession here rather than something bigger. 

California Governor, Gavin Newsom is trying to push through legislation that will attempt to tax California residents AFTER they leave the state. I am pretty sure the courts will strike that down, but the mere fact that he is trying it leads me to believe I am spot on with my diagnosis. They are losing the meat and potatoes of their tax base, the middle class and small businesses and are left only with poor people who pay less in taxes than they receive in services and wealthy people who will eventually leave if the tax burden gets too high for them to bear.

At this junction, we are still importing residents with more arriving than leaving but we have fallen from near the top of the list down a bit to #15 in growth of 50 states still in the top third. California was dead last at #50 with a population loss according to a widely quoted moving poll from U-Haul. Washingtons high real estate costs have no doubt slowed the migration as Californians and East Coasters seek more affordable areas like Texas and Florida where the economies are just as solid as ours but the prices for homes are half what they are here.

The bottom line is that what ever comes of this economic cycle, we should come out smelling rosy compared to most other places in the country and that should ease concerns among both buyers and sellers that Washington State including Vancouver and Clark County should weather the upcoming storm well.

Friday, July 15, 2022

Real Estate Still Humming, but not Roaring

The theme over the last several weeks has been the improving inventory levels that are providing some relief for buyers. Very few buyers are giving up tradition contingencies like they were just a couple of months ago. Sellers possibly feeling the 'top' are starting to list and that give's buyers a chance to sniff around, and check things out. Listings priced at market or a tad higher are sitting around a bit and receiving offers near list but not necessarily above asking. Well priced listings are even seeing the marketing time approach 30 days and that is healthy, by any account.

Buyers still have to be wary of changing conditions in the lending market. An aggressive Fed could push rates even higher. The rates right now are very near the 50 year average, so they are not "high" just higher than the record lows we have enjoyed for nearly three years. Things could get worse so buyers should consider whether they want to wait and be priced out for a few years or get something now while rates are still manageable.

What ever the choice, buyers will find more reasonable sellers and an easier offer environment than we have seen in the last two years.

Friday, July 1, 2022

Market Softening is Healthy

I can't say enough about how a slightly softer market is healthy. The last two years have been so heavily weighted towards sellers that buyers often just left the market in frustration. Now as inventory builds back and buyers can actually make a fair offer with a reasonable expectation of acceptance the market should have a nice soft landing. If the fed can keep rates below the historical 6.5% average, the market should stay relatively flat as demand continues for real estate in Clark County, WA.

The reality is that this inflation could be eased a little by reopening the Keystone pipeline and easing restrictions on North American petroleum. That does not mean we stop using or investing in clean renewables, but it would soften the impact of high transportation costs which are at least 30% if not closer to half of the inflation problem. That and a little bit of care from the Fed and we can have a nice comfortable neutral real estate market with opportunity for the largest possible segment of population.

Here's to the second half of 2022 may we glide gently into neutrality for 2023.

Friday, June 24, 2022

Economic Conditions are Reducing Seller Expectations

Our current condition of uncertainty in the economy is seemingly making sellers a bit less confident in pricing and marketing time. Buyers have been in short supply for quite a few months but low inventory levels made the market seem more robust than it was. As more and more sellers sense the top of the market more listings are pouring into the system. It will take a fair while for inventory levels to return to a more "normal" level of 3-5 months supply, but in the mean time, buyers may feel some of that market pressure ease a bit as we move through the summer months. Hopefully the Fed will let the latest rate hikes percolate in the economy for at least 3-6 months before pulling the panic lever and raising them more.

I suspect we will have a decent summer of sales and as the autumn approaches later this year, we may see a genuine softening in prices as inventory levels likely continue to rise. I am finding more and more of my clients are calling me for listing appointments. If that admittedly anecdotal evidence is is true across the board and several of my colleagues are feeling it too, then market neutrality is nearby.

Keep in mind that historically a deathly real estate Markey is a neutral market and in our Clark County market, 700-800 monthly home sales is solid business we are well above that right now.

Friday, June 17, 2022

Inventory continues its gradual rise

Here in Clark County, inventory is still creeping up. We are a long way from a buyers market but we have more than month's work now and a traditional healthy inventory is 4-5 months. Things remain tight but buyers are starting to pass on overpriced listings and properly priced listings are getting a few offers hovering in the vicinity of asking. 

Overall we seem to be heading in a more healthy direction. Buyers are struggling with rising rates and sellers seem to be sensing the top of the market. Economic conditions still seem favorable for housing but a recession is almost inevitable at this point and that may slow the market a bit more, possibly leading to a modest dip in prices or at least a flat market for a few months to a year.

The median home price in Clark County is hovering around $560k with median household income at $78,000. The median household can purchase the median home but they will have to have strong credit and few or no other debts to pull it off. With a recession on the horizon, wages may flatten out and that alone will tug back on this crazy bull run in local real estate.

I would advise buyers to be prepared to stay in their home for at least a few years just in case we have to ride out a market downturn. Owning a home remains an excellent way to build wealth but there are times when patience is required to make that dream a reality. 

Friday, June 10, 2022

Inventory is now back to 1 Month

After a the tightest inventory levels in Clark County history earlier this year inventory has been increasing the last several; weeks and now stands at a still tight, one month. But we were at 12 days a few months ago. Although the market is showing signs of a mild slowdown, one month of inventory still puts us securely in a seller's market.

This is particularly true in the single level detached home market. Small homes with one level are getting hit by two large demographics, the starter home buyer and the aging step down buyer. The pressure in this segment is still red hot. other categories such as condos and large two story homes are softening up a bit. Young first time home buyers are well advised to consider two story homes rather than single level as the older buyers tend to shy away from stairs.

With inflation continuing to pressure interest rates, buyers in the entry level price range need to act soon. Even if prices start to level out or even dip a little the effects of higher interest rates will make the home more expensive. Once priced out of the market it can be very challenging to get back in.

Here is some more data from the latest market action report on our local MLS.




Friday, May 20, 2022

Is the market showing signs of slowdown?

Last week there were 171 new listings that came on the market in Clark County in a single day. This is great news for buyers as our market has had such a tight inventory for so long. If this trend continues we could see a bit of a softening int he tensions for buyers. I do not foresee prices tumbling at this point, but I do see prices flattening out and maybe even dropping just a tad. 

Sellers will not longer be able to expect multiple offers tens of thousands above asking if the inventory settles into a more healthy 3-6 months. A few months back inventory levels were measured in days! With our local median price hovering near $600,000 we could stand to see a a very modest slowing to help keep pace with incomes and the challenges with the high inflation currently infused into the economy.

It will also ease a little pressure in the "bubble" that can carry us through an minor recession that is likely to hit sometime in the next 18 months. Buyers using low downpayment products like VA and FHA should not be afraid to buy in this market, but always remember that low interest loans should be viewed as a longer term prospect. If the market softens you may have to stay in the house for 3-5 years to gain enough equity to get out. Of course if the recession does not come you may be able sell the very next year and come out ahead. It however is not wise to assume the recession will not come, but rather assume that it will.

Buying a house should be a long term investment and remember it is one of the few investments that provide a mandatory commodity of shelter, shelter that you otherwise have to pay rent and make someone else rich. 

Tuesday, April 26, 2022

Inflation is a wicked enemy for Retirees

The inflation problem is certainly not temporary as politicians and 'yes-men' economists suggested last year. For those retiring on fixed income benefits from savings or IRAs, this eats quickly into principal capital and can shorten the length at which funds will last. For pension earners the inflation is rising faster than COLA increases and that can feel even worse on the wallet.

Real estate remains a solid investment with double digit gains that will continue so long as the inflation does. But alas, the FED is trying to reign it in with rate increases. As this monetary squeeze developed over the next several months housing may finally slow down as buyers will struggle to qualify for loans.

Retirees selling a larger family home and downsizing still hold an advantage as often they are paying all cash or have an enormous downpayment which always makes sellers smile. 

Those nearing retirement should absolutely reach out to your CPA or Financial Planner to see if working and extra year or two can offset this horrendous inflation. It is wise to consider these things as once you retire it can be very difficult to un-retire.

Washington State has no income tax and that allows you to keep more of your money so bear that in mind before moving to some tax heavy state just because they have a little more sunshine ;)

 

Friday, April 22, 2022

Tight Inventory Remains, No Spring Surge Yet.

The usual April surge in listings has not happened and home builders are unable to build houses quickly due to supply chain and labor shortages. This is the tightest real estate market ever recorded in Clark County. This same scenario seems to be playing out all over the country, with little exception. 

In a normal healthy real estate market there would be about 4-6 months supply of houses. This simply means for example a 4 month inventory level: that if no new listings entered the market and the rate of closed sales remains the same, it would take 4 months to sell every listed home. Our current inventory levels are measured in DAYS right now!

Higher interest rates have eliminated many buyers from the market and that would typically slow the market down. But lack of inventory keeps the pressure on the market. If inventory doesn't start improving we may be in for yet another 15-20% price gain in housing.  

The best thing for the real estate market right now is a steady increase in inventory levels. This coupled with a lack of buyers due to higher loan costs would help us to a nice soft landing rather than something more abrupt. The bumpy landings are much harder economically and can lead to other sectors feeling the impacts.

People thinking about selling but worried about where they might go is probably the biggest inhibitor to fresh listings. People moving out of the area are fine as they have a 90% chance of moving to a less expensive market. Yes we are definitely in the top 10% of expensive markets.

As is true in any hyper inflated market, sellers can wait too long to sell. I do not see a huge correction like we had in 2008 but I do see a significant correction if inventory continues to be tight and prices continue to rise. Rate are now back in the 5s which is still a low rate, but after several years of 3's and 4s many buyers that were able to buy, simply cannot at the higher rate. As these buyer leave the market the pressure will start to wane and if inventory starts to rise too late the market could see a fast slide down perhaps in 2023.

Right now thousands of households in Clark County are sitting on a massive amount of home equity, but that can be eroded if prices start to fall. Owning a home for several years makes it easier to buy the next house because you have your downpayment and perhaps more in the current home equity. First time buyers have to scrounge for that downpayment. 

Hopefully sellers will slowly emerge this summer to take the edge of the market and help us ease into this inflationary cycle we are in right now.

Friday, April 8, 2022

Study Shows Washington Still an inbound move state

United Van Lines has the oft cited annual study of who's moving where and why. Washington spent a number of years near the top of the inbound list. Inbound meaning more people are moving in than out. Washington remains a destination but the margins are thinning. According to the study last year Washington had a tad over 51% of moves inbound against a touch under 49% leaving. The high cost of housing is likely a major barrier for those inbound residents. 20 years ago Washington was much cheaper for housing than California, but now many areas west of the Cascades are nearing parity with the Golden State. Speaking of California, they have a 59% leaving stat that is among the most moved out of states.

So Washington remains more popular to stay than leave and that is good. The housing market is surely a testament to the hot desire to live here. Pressure on housing can come from many areas, but it is not buyers driving the market it is sellers. Actually it's a lack of sellers. New home construction cannot keep up due mostly to supply and labor shortages and that makes homes seem more in demand than they actually are.   

Locally Clark County seems like a bargain when contrasted with King County in the Seattle area. Our local inbound residents seem to be coming from Portland and Greater Seattle. This coming from King County often are seeking a better house for the buck where as Portlanders seem to be fleeing all of Portlands recent self inflicted woes.

Vancouver seems poised for some solid gains in value as these external pressures continue in market severely short of listings. 


Friday, April 1, 2022

Rates are often more Important than Price

This post dates back more than 7 years, so the house prices are low but the sentiment is still as true as ever.

originally posted February 9th, 2015 by Rod Sager

So many buyers get wrapped up in the notion of securing the lowest price on a house. This is part of the natural buying process. We all want a great deal right? The funny thing is that we are generally selective with that desperately seeking deals mentality. Houses, gasoline, electronics, and cars are items that Americans will shop to death until they find the golden deal. Other things like groceries, clothing, and shoes not so much. I see people buying Campbell's soup at whole foods. $2 for the same exact product Winco sells for 99 cents. Whole Foods offers many top grade products that are not available at discount markets, like Winco. So Whole Foods has its place. Funny thing that is. Oddly purchase price on items we pay cash for is paramount. It is the only thing that matters so long as the product is the same. Houses have many variables. The largest of these is interest rate. I think it is very important to recognize what the difference is between even subtle rate changes.

Two scenarios interesting results:

200,000 home 30 years fixed FHA at 4.5% with 3.5% down.

  • Down payment is $7,000
  • PITI payment is $1,371
  • Total of payments over 5 years is $82,260
  • Total interest paid over 5 years is $41,609
  • Balance on loan after 5 years is $175,935
210,000 home 30 years fixed FHA at 4.0% with 3.5% down.
  • Down payment is $7,350
  • PITI payment is $1,368
  • Total of payments after 5 years is $82,080
  • Total interest paid after 5 years is $38,960
  • Balance on loan after 5 years is $183,291
Using a fixed annual appreciation of 4% (actually lower than we are seeing now) we can calculate a future value for both houses. The first house would be valued at $243,331 and have an equity position of $67,396. The second would be valued at $255,497 with an equity position of $72,206. The lower interest rate on the loan allows for a more rapid pay down in principle and places the buyer in a stronger position to sell later. We always want the best price but not at the expense of a higher rate of interest. Right now rates remain very low, lower even than I used in these scenarios. Buyers may miss a golden opportunity if they wait to long to buy. Many buyers continue the effort to barter down prices in a seller's market. With each house they fail to buy due either to being out bid or flat out rejected by the seller, they run the risk of an interest rate hike. Even if they get the "deal" they are seeking, in the long run they may very well still end up paying more and they probably "settled" on a less than prime home. 


Let's look at two more scenarios with a larger down and long term implications added:

$200,000 home 30 years fixed at 5.0% with 20% down

  • Down payment is $40,000
  • Amount borrowed is $160,000
  • PITI payment is $1,116
  • Total of payments after 30 years is $309,209
  • Total interest paid after 30 years is $149,209
  • Total of payments after 5 years is $66,960
  • Total interest paid after 5 years is $38,461
  • Balance on loan after 5 years is $146,925

$210,000 home 30 years fixed at 4.5% with 20% down  

  • Down payment is $42,000
  • Amount borrowed is $168,000
  • PITI payment is $1,108
  • Total of payments after 30 years is $306,443
  • Total interest paid after 30 years is $138,443
  • Total of payments after 5 years is $66,480
  • Total interest paid after 5 years is $36,219
  • Balance on loan after 5 years is $153,145
Here I used twenty percent down so the difference is less dramatic. The striking fact here is the house that cost $10,000 more has a slightly lower payment since the interest rate is a half point lower. The fact is the half point better rate buys 5% more house. Too many buyers hold out for the best price only to find that rates go up or that prices go up and the deal they are seeking never materializes. Notice how much less interest is paid in the first five years on the more expensive house. The buyer of the $200,000 home will pay $2,200 MORE in interest over the first five years with the higher rate. 

Let's assume again the real estate market appreciates at an annual rate of 4% over the first five years in each of these transactions. This time lets handicap the more expensive house by suggesting it was slightly over price and the "cheaper" house was slightly under priced. Let's say the target value of the scenario one house is is $202,500. Scenario one represented a $2,500 "deal" and scenario two was $2,500 above market so its base value is $207,500. In general the market doesn't allow for much fluctuation. And buying a fixer and fixing it up versus buying a move in ready home is an unfair comparison. After five years the market value of the houses is $246,372 and $252,455. All else being equal, scenario one (less expensive house) has $99,447 in equity and scenario two has $99,310. The more expensive house did have a higher down payment of $2000 and a higher loan amount by $8,000 and yet after five years the equity position is about the same. If the scenarios were not handicapped the equity position in the less expensive house would be $96,405 versus $102,353. In my experience they are rarely any "deals" in real estate. There are too many buyers competing for the same houses. Some buyers find "deals" by looking at houses that need a little TLC. They don't show as well and thus don't generate as high an offer. Once the TLC is done the buyer reaps the benefit of the now higher value.    

The moral of the story is that the lower price is nowhere near as important as most buyers think and interest rates determine how much house you can buy or more importantly how quickly you reduce principle on your loan balance. 


Friday, March 25, 2022

Housing is in undersupply, not over demand

Vancouver and Clark County are definitely experiencing a solid and reasonable level of demand for housing, but that demand is not high enough to warrant the highly accelerated pricing growth. It is definitely a supply issue and sellers that want to move are holding off in many cases because they are concerned about finding a place to move after they sell.

Most of the listings I take are people moving out of the area or people already in contract to buy a house and they don't need to sell the current house to buy the new one. There are just not that many people in those situations to provide enough listings for even a moderate number of buyers. As if that alone were not enough. the new home market is bottlenecked with the same supply chain issues other industries are facing and they are running nearly a year out on construction.

A large part of resale home pricing is either tempered or bolstered by new home pricing. In an inflationary cycle the price pressure on new homes can be intense and sellers often get a coattails boost in resale value. We are certainly seeing that scenario play out right here at home. 

We may see a softening in demand at least in the lower half of the market as interest rates rise and start eliminating buyers from qualifying. Right now the rising rates are effecting boosting demand a little as 'fence sitters' are jumping in to try and lock in a respectable rate. That will trail off dramatically over the next few months if rates continue the upward trend.

As I have mentioned over the years ad nauseam, rates are still low and any rate under 6% is a historically good rate. However the booming real estate market over the last five years has been largely boosted by historically low interest rates. People in lower middle income brackets that could not buy a home in the mid 2000's could buy one from 2011-2017 due largely to the after effects of the Great Recession. Home prices were super low and interest rates were in the basement as well. That combination produced record setting home sales for years. Now many of those who bought that $130,000 house in 2012 are sitting on a mountain of equity and that drives some to use it to upgrade.

I am mildly bullish on 2022 real estate but trending with the bear for 2023. We will see how it all plays out. Keep your eyes on the lending rates. I feel like the target rate for a slowdown in pricing is near 6% which will wipe out a lot of people with a household income under $100k.  

Friday, March 18, 2022

Housing Market Holding up Against Rising Rates

Rising interest rates continue to plague buyers, particularly those in the entry level price ranges. Higher rates erode buying power for those using a loan to purchase. As rates approach five percent I like to remind everyone that these are still quite a bit lower than the fifty year average so we are not into a "high interest" market just yet. It seems to show as prices on new listings are still strong and homes are still selling in a matter of days. Inventory levels locally are at all time lows. This means fewer properties are available and even as buyers are priced out in the rising rate economy, there are still too few listings to choose from.

Buyers still need to be ready to compete with other buyers in a multi-offer environment. At this point waiting for a market slowdown could end up costing buyers more money. I have written a great deal about the effects of interest versus the effects of price. Even if the local prices were to drop 5-10% over the next year, the people that bought last year at 3% are in better shape than those that buy at 10% less price a year later at 5.5%. More importantly is the timeframe of ownership. Most people will stay in that house for 5 years and if pricing does enter a decline then that might be extended longer. The higher interest rate chews away at your equity position faster than the lower rate.

Barring a total collapse in housing like we had back in 2009-2011 it is better to buy now with rates low then to wait until rates are actually high. A high interest rate market would have rates well above 6% but I don't think we should see the double digit rates we had back in the 1970s and early 80s. The Fed has adopted a much better model for managing inflation money squeezes than we had 40 years ago.

If you are on the financing bubble, find a house fast, write an offer, and get situated before you are locked into another decade of making your landlord rich.


Friday, March 11, 2022

Market Forces are Colliding

I have been on about the interest rates, inventory, prices, and economic factors all converging on our red hot real estate market here in Clark County and around the Metro Area. Generally real estate trends are not that hard to follow and short term predictions have been reasonably easy to make. But the last several years we have seen several wildly different flies in the ointment of the market.

We just came out of a serious pandemic that had millions of people out of work, we had a government infuse trillions of dollars into economic aid during the pandemic, and people have been slow to return to the workforce. On top of that we have pressures coming from inflation and the climbing interest rates associated with hyper-inflation.

What many see as a flood of buyers to the market is in reality a lack of sellers in the market. We are sitting on a great time to be a seller and yet sellers are not selling. So despite the fact that higher rates are eliminating buyers from the marketplace, prices are still rising as even fewer properties are listed for sale. This is one of the most bizarre real estate market scenarios I have seen in more than 20 years in the business.

Higher rates would typically price out buyers thus lowering demand and potentially lowering prices. But inventory levels are at historic lows right now and that is pulling harder on the market right now than the higher interest rates. Valuations may not have the same 18% year over year growth like 2021 but we are still on pace for double digit growth even as rising interest rates begin eliminating the buyer pool.

One of the issues in favor of higher home prices is the absolute shortage of labor in the workplace. Wages are rising as desperate employers seek employees to fill millions of open jobs nationwide. Skilled labor is commanding the highest wages we have seen in decades even when adjusted for inflation. It is rare to have wages keep up with inflation but so far it has been close enough to keep enough buyers in the pool to maintain a seller's market.

Market forces are colliding and this is not sustainable, something has to give. I think interest rates will be the levee breach the brings the flood. Interest rates under 6% are still historically lower than average, but after years of sub-4% rates even low rate sin the 5s will cause buyers to fall out of the market. I think 5% rates will be the point where we see a softening in demand to get prices back into to a healthy growth cycle. If rates pop up over 6% we may see actual prices come down a bit.

No one knows when a flattening or drop in valuations will come, but we are definitely getting close to the top of the market and sellers thinking about maximizing the value in their home ought to list now or very soon.

For buyers buying right now, you should be prepared to stay in the new home for several years. Unless you are paying cash or putting more than 20% down it is a good idea to plan on five years in a home you buy under these market conditions.  

Friday, March 4, 2022

Real Estate Market Still Ultra Tight

Despite the uptick in rates and turbulent economy, the market remains very tight on inventory. This extreme constriction of inventory is leading to upward price pressure that is out of whack with general economic conditions. Let's be clear, this market suffers from a lack of listings rather than an abundance of buyers. 

The chart below from the local MLS shows clearly that pending sales are only slightly higher than new listings last month. That is a very healthy ratio. Year over year median price was a robust 17.6%n and that one stat alone is why the severe price growth will be difficult to match again in 2022. Incomes are rising but at a lethargic 3-5% so tens of thousands of potential buyers have been priced out of our market. 


© RMLS 2022

The only way this market can continue to see this kind of price appreciation is from external influence. New residents moving into the area from higher priced areas such as Washington County, OR, King County, WA or Coastal California. This is the scenario that results in some residents have bitterness that their children or grandchildren cannot afford to stay local.

It is one thing to be a victim of your own success, to an extent Clark County is in fact that very thing, but it is another to be flooded with 'refugees' from failed places like California, Portland, and Seattle. The supply chain problems and lack of willing workers has led to higher building costs and thus more expensive new homes. The high cost of a new construction home definitely opens up the resale market to upward price pressure. 

This of course will inevitably lead to concerns about a "bubble" in the market. The last several years have seen a conjunction of conditions rarely seen in real estate and that is: cheap money, high wages, and a solid economy. Now we are adding inflation and supply chain problems to the mix. The latter two need to be dealt with because if they are not, then we can count of a rapid rise in lending rates and that could pull the rug out from under the market. Cheap money has been driving the real estate market for nearly a decade now including single family, multi-family, and commercial real estate. When the interest rates rise the ability to continue the pace of development could dry up which then leads to loss of high paying jobs and an economic decline either locally or nationally.

Buying a home right now is still a solid investment because of the low interest rates, but buyers should be willing to sit tight in the home for several years in case a price decline arises in the next year or two. Use a fixed rate loan and you can ride out a market retraction pretty easily.  

Weichert Regional Awards Honors 2021 Top Performers

2021 was a very strong year for many local agents as homes remain in tight supply and prices soared. Here in Clark County, several agents were honored at the annual Pac NW Council event this year held at Snoqualamie Falls.

Local designated broker for Weichert Realtors® - Equity NW Gene Thompson was named as the Council President. Local brokers received many awards among them the following:

  • Rod Sager earned a spot in the Executive Club or higher for the 4th straight year.
  • Katie Hertenstein earned her first spot in the Ambassador Club 
  • Eric Pelky earned his first spot in the Ambassador Club
  • Michelle Coffing earned her first spot in the Ambassador Club
  • Rod Sager received the first Spirit Award for Weichert Realtors®-Equity NW
Congratulations to all the award winners and let's all work to help as many people find their dream homes in 2022 as possible.

Interest rates have been a bit on the rise lately and buyers are diving into the market at a fairly rapid pace. Sellers however remain a bit slow to the party and that makes things challenging for buyers. But have no fear the spring listing season is upon us and hopefully buyers will find some relief as the next several weeks unfold.



Friday, February 25, 2022

What difference does 1% higher interest make?

Rates are on the move again and they are not going in the direction we prefer. Rates were solidly in the mid threes for the better part of last year and now we are seeing rate in the low to mid 4s. Now rates can vary widely based on the specifics of the loan and the borrowers financials but these are pretty typical.

The median priced home in Clark County is just a bit above $500,000. Let's say you are planning to purchase a home at $500k. Three months ago you might have qualified for a 3.5% 30 year rate. With 20% down you would borrow $400,000. I am deliberately keeping it simple excluding things like points, buy downs, fees, etc. The payment without taxes or insurance just the principle and interest (PI) would be $1796 per month. Now the same house at 4.5% will have a PI payment of $2027 per month. That's $230 per month MORE for the same amount borrowed. 

Buyers need to act now. Not only are they facing interest rate risk but housing prices last year went up more than 18% year over year. This year has not yet shown a slowdown. At that pace the $500,000 dollar home goes up at a rate of $7500 per month! Keep in mind that any rate under 6% is still below the fifty year average rate. But interest rates can also lead to qualifying issues. Your lender approves a monthly payment for you. When the letter says you qualify for $500,000 it is based on the rates available at the time of the letter. Most good loan officers build in a little cushion for minor rate variances. 1% is not minor. If you qualified for a max purchase price of of $500,000 at 3.5% with 20% down, then 4.5% will lower the amount of house you qualify for. That means you now only qualify for $443,750 with 20% down. Or you can buy the $500,000 dollar house but have to put more more than 20% down. The loan amount difference is $45,000 so that's how much more you have to put down to compensate for the rate difference.

This can be brutal when both rates and prices are rising. But once a buyer makes the purchase, they have their payment locked in and they begin to enjoy the market appreciation for themselves. Sitting on the fence is rarely a good idea, sometimes but rarely. 

Friday, February 18, 2022

Buyers have new hurdle to leap.

Our real estate market has been ever so challenging for buyers with inventory levels at near all time lows. In fact the MLS reported the tightest levels ever in some local market areas in January. I am still amazed that buyers expect to kick sellers in the face with lowball offers, but they still do it. 

There is a time for that because sometimes a seller is is asking for the moon and stars with their pricing and buyers may be able to negotiate a lower price in those specific cases. If a seller however is priced close to market they don't need to even ponder a lower than asking price. We only have a 2 week supply of resale homes and the new home market is dogged by increasing materials cost and supply chain jam-ups. 

It is a seller's market for sure. But this has been an issue for quite some time. Now we have the added issue of a rising interest rate market. Buyers looking to borrow money from a bank are seeing rates move back up towards the normal range. It has to be noted here; interest rates have been heavily suppressed for several years. The fifty year average is still around 6%. So any rate under that is historically a good rate. But buyers have been spoiled with 2.5-3.5% rates for so long the payment shock at 4.5-5% will be tough to handle. 

Many buyers will simply be payment priced out of the market. Meanwhile pricing will continue to feel upward pressure until the inventory levels return to a more neutral 4-6 months. When inventory levels push beyond 6 months, price softening becomes likely. We are a long way away from that.

Buyers need to pay very close attention to interest rates. Rate pressure is intense right now with economic conditions producing 40 year high inflation levels. The last time we faced this kind of inflation mortgage rates were deep into double figures in fact in 1982 rates were around 18%.

This is not the time for buyers to sit on the fence. Any significant market correction is likely more than year away unless some other catastrophic event occurs like the 2008-11 super recession. I don't see that happening, but I do see inventory levels stabilizing by the end of this year or early next. Buyers that wait till then could be facing 30 year fixed mortgage rates in the 6-7% range. Low mortgage rates are much better than low prices if you intend to stay in the house for more than 5 years and frankly, if you buy a house you should stay in it for at least five years.

Buyers, it's time to make an offer.

Friday, February 4, 2022

Strange Market Conditions and Tight Inventory

Yes it seems that the inventory in Clark County is once again tightening. There was the usual squeeze at the holidays, but it seems January remains tight as well and not just seasonally. Sellers are still in command in this market but as rates stat to rise as they have been since the first of the year, buyers will be forced out of the market and seller's may not be in as strong a position as they think.

The rate uptick will get a lot of buyers off the proverbial fence, but it may also eliminate them completely from the local market. We have been walking that tight rope since the interest rates started moving south over the last six weeks.

2022 may end up seeing a return to neutral conditions. We had a slow down about two years ago that put us in near neutral conditions for about six months after several years of a strong seller advantage. Then supply chain issues and other economic factors put us right back into the seller's market. Inflation is the classic double edged sword. It puts upward pricing pressure on new homes and that can lead to upward pricing on resale homes. But the other edge can cut into the buyer pool as incomes can't keep up.

Clark County is nearing its capacity to produce incomes high enough to buy a typical house. This is what happens with rapid price appreciation. The oddity about our current situation is that employment remains tight and that is putting some pressure on employers to pay more money. Although incomes are not rising faster than inflation right now, they are rising to fill some 9 million vacant jobs nation-wide. If the economy stops producing jobs we have a bit of a cushion now, but eventually we could see job losses as employers give up and either automate or downsize. We are seeing that trend emerge now. This could have dire consequences on the broad economy and certainly the housing market.

Potential sellers should look at the now and decide whether or not to take the REAL risk of waiting. No one knows what the market will actually do, we only have past models and current trends to guide us, but these are unprecedented times with the lowest labor participation rates in 40 years. Analysts are struggling to wrap their heads around this bizarre scenario we find ourselves in. 

If you have grand plans and the current market allows you to capitalize on them, don't get greedy. Waiting might be better but it is possible and maybe even likely, it will be worse later, not better. This current market is tailor made for the old adage; "a bird in the hand is better than two in the bush."