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.