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.