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.  

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