Interest Rates Improve

The last couple weeks has seen a nice measurable improvement in rates. Hopefully this will stabilize and allow home buyers that extra bit of breathing room. I doubt rate will improve a whole lot more but maybe the Fed will settle down a bit and just let these current rates percolate a bit before jumping to any conclusions about inflation.

Right now excellent borrowers are seeing rates in the range if 7.25% to 7.75% and borrowers with some financial and credit challenges are getting approved in the 7.75%-8.25% range. Although this seems high relative to recent rates just a couple years ago, this is only a little higher than the 50 year average. It would be nice to see some more relief maybe getting the "A" borrowers back under 7% but I am not holding my breath. This upcoming year is an election year so the politicians in power right now will want to hang on to that power so they may pass legislation or use other political maneuvering to try and ease the "pain" so as to stay in power. Perhaps the Fed will hold tight for now.

Prices on homes continue to be flat and stable. The median price in most local sub markets remains about what it was a year ago maybe a tad less or a tad more depending on the specific area.   

Happy Thanksgiving and Black Friday

Well it's Black Friday today and that means all the stores will be extra crowded today, oh goodie ;) I do hope you all enjoyed your Thanksgiving. Those of you thinking about buying or selling from this point forward to the end of the year, remember that it can actually be a good time to be either a buyer or seller in  during the holidays. I know, I know, I harp on this every year. But look-loo buyers tend to go away during the holidays, people have too much going on to waste time poking around at houses they are not going to buy. So seller's can capitalize on a smaller group of serious buyers. Meanwhile fewer sellers are in the market because let's face it, it's already a pain in the backside to have your home on the market and during the holidays that pain is much worse. Many sellers choose to wait till after the holidays to list their home or they pull it off the market until January.

All the rules still apply, keep the driveway and front walk free of slippery leaves or snow and ice. Salt the walkway on cold days and keep the rain gutters clear. Minimize clutter and don't make it difficult for buyers to show the home. Buyers you can take advantage of the fact that sellers during this time period tend to be a bit more motivated.

All in all our local market still favors sellers but only modestly so, sellers cannot count on multiple offers any longer so if you write something reasonable on a listed home, there is a solid chance you will get the home. 

Happy Holidays!

Holidays and Winter Weather Lie Ahead.

Yes the holidays are upon us once again and so my annual advice for listing homes in the holidays and winter months is due. I have said many times that the Holidays can be a good time to sell because often competing properties are either delayed until January or withdrawn for mt eh Markey until after the holidays. Buyers tend to be serious during this period of time as do sellers, so it's a good time for both buyers and sellers.

During this period of mid-Fall sellers need to be sure to keep the leaves clear on the driveway and walkways leading to the house. Be sure to keep rain gutters clear as well to avoid clogged downspouts that back up water and leave a wet dripping mess for your would be buyers. Leaving the nice leaves with their Autumn hues on the lawn is fine, but make sure your clean them up when they start to turn brown or get mushy. That which is beautiful can quickly become an eye-sore. 

As the season progresses and we start seeing winter weather, be sure to keep the driveway and walkways clear of snow and other debris that accumulates after big storms. You want your listing to be enticing and you don't want to lose out on a potential buyer because they feel they can't traverse the slippery surfaces that can arise in Autumn and Winter.

Will this Winter Season, Bring a Return to Neutrality?

I have been writing about the strange market conditions over the last year now where we have a combination of low demand and low supply. This has led to a massive slowdown in the sales of homes, but not a massive slide in prices. The market correction many have suggested is eminent, is currently being stayed due to a lack of inventory. Inventory however, has been slowly creeping up. As of the close of October local inventory levels are at 2.8 months. This is still an indicator of a mild sellers market, but it doesn't feel like a sellers market, it feels neutral. The old school rule of thought is that six months of inventory is a neutral market, anything less favors sellers, anything more favors buyers. 

This market is starting to feel neutral. We are still well into sellers market inventory and that is what makes these conditions seem weird. The recent run up on interest rates seems to have the remaining qualified buyers much more cautious. I have noticed that Millennials in general have been a more cautious group of buyers than their predecessors in Gen X and Boomers. Those two previous generations had a tendency to borrow as much as the bank would allow whereas Millennials have shown a tendency to be more conservative and not rush to borrow every last cent. 

So I think that is playing a role in having sellers market inventory levels yet neutral feeling conditions. As a Realtor® I certainly would prefer buyers borrowing every last cent, right? But it is also very comforting to see younger people using money wisely. Price pressure right now is downward at a time it should still be rising. The local median has been close to flat over the last twelve months. Sellers need to price their home competitively and the notion of floating a higher price for the first few weeks is no longer a winning strategy. Sellers need to be competitive from day one.

Buyers meanwhile should understand that interest rates have averaged in the mid-6s over the last 50 years. We had all time high interest rates back in the late seventies and early eighties and then after the 2009 crash, rates plummeted to all time lows. It is always a difficult adjustment coming from super low rates into more average and now slightly higher than average rates. I am confident that we are unlikely to see rates reach the horrific levels of 45 years ago, but they could creep up a little more before they start coming down. I would not expect to see another long term period of sub five percent rates anytime soon. 

Buyers obtaining a mortgage loan in the upper 7s to low 8s will likely have a refinance option in the low 6s at some point over the next five years. Of course life offers no guarantees, it is not an unreasonable assumption that we will see a softening in interest rates in the next several years. 

Market Crash? Should I Buy or Wait?

Some doomsayers are predicting another serious market correction is eminent. Now this is certainly a possibilty. Many of the conditions that precipitate a market correction are in fact in place right now. 

• Slightly higher than average lending rates. 
• Tightening of consumer credit by large lending institutions.
• Below average pool of qualified buyers.
• Hyper inflated prices after long aggressive rise.
• Unstable economic conditions.

These are all indicators of an eminent market correction. However there are also several counter conditions that are keeping the market stable in spite of the above bullet points. This certainly applies to our local market if not the market nationally.

• Extremely tight inventory levels driven by owners married to a low interest rate.
• High positive growth rates as more people moving in than out (Local Clark County).
• Continued high demand for rentals with inflated rental rates.
• Unstable conditions in other markets can drive investors back to real estate.
• High interest rates attractive to institutional investors buying mortgage paper.
• High overall quality of existing mortgage debt. Minimal sub-prime paper.
• Strong local economy helps us locally.

So the real news is that there is no news. Other economic conditions need to change for a traditional "crash" type correction. What we are witnessing right now is a very soft landing with prices flat or ever so slightly declining.

For buyers the decision should really be based on how long they intend to live in the house they might buy. If someone buys a house today and then decides or must sell it a year later, that is not a favorable situation and renting would definitely be the better option. In an uncertain market with a high probability of at least a modest correction I would recommend a five year commitment to any house purchase din the current market. 

I do not think a major hard crash like we saw in 2009-2012 is eminent. That situation was much bigger than real estate. Banks had been making really sketchy loans for over a decade and that led to a near collapse of the banking system. Those aggressive types of loans have been almost non-existent since the federal revisions were made by Congress in 2011. 

I'll play Devil's advocate and suggest that we have a repeat of 2009. What would that look like? Well suppose buyer Jones bought a house in 2008 for $300,000. By the time the market hit bottom around 2012 the house was worth about $175,000. Not good, not good at all if you had to move. The house returned to $300,000 in value around mid to late 2014. For the sake of being conservative let's say it was 2015. That is a seven year period from top to bottom and back to par. That my friends was the worst real estate crash since 1929 and the Great Depression. There is no reason that couldn't happen again, but it is extremely unlikely. 

Buyers willing to commit to a five year stay can rest assured that barring a catastrophic economic failure, they would be in position to sell with enough proceeds to clear the note and exit the property at the end of that period with maybe the exception of putting less than 5% down. Low down borrowers should add a year or two to the commitment window just to be safe. But in a mild correction even low down and no down borrowers would be able to sell and clear the bank note after five years. 

In general I wouldn't let higher rates or the threat of a possible correction stop me from buying a home so long as I am prepared to stay in that home for a minimum of five years. When rates settle down, and they will settle down eventually, buyers will have an opportunity to refinance the loan into a lower rate and save money in the long run.

The Market is Really Slow, but Prices Remain Steady

This market is one I can't remember seeing before. There has literally been a slowdown in sales to about 50% of what they were just two years ago. Generally when the real estate market sees a slowdown that severe it results in a substantial correction in pricing. But that has not happened here. Why not?

Well I have touched on this before but it serves well to bring it up again. When rates rose from the low 5's to the mid 7's in the short span of a few weeks in the summer of 2021, we lost about half of all the buyers that were looking. Normally when demand drops in half prices follow. But this time was different because sellers were not selling either. 

We have a strong job market here in the Portland-Vancouver metro area and people are coming here in higher numbers than are leaving. Sellers have been staying put because they are sitting on a historically low interest rate and either can't financially afford to move or simply do not want to move. So just as the demand fell to half, so did the supply. 

What is left is the same 2000 agents selling half as many houses every month. So you will no doubt hear agents whining about how slow the market is, but in reality it is about the same as it was in late 2021. Prices have been mostly flat and things are just treading water, so to say.

You may see allot of these price reductions happening, but they are mostly from overzealous sellers that have their property overpriced and eventually realize that the market won't support the puffed up vision of their home value. I believe that this unusual dynamic is the only reason we have not seen a major price correction. I fear that the Fed wants a major price correction and will continue to raise rates until they get it.

The Fed is either not run by the smartest people or they are run by people with an agenda that is unfavorable to the middle class. That is brilliantly evident. But they do hold an enormous amount of monetary power. If their intent was to slow the economy on soften housing, they would have got their wish had they raised rates more slowly. Sellers would trade a 2.9% mortgage to buy a new house they like better at 3.5% but asking them to move from 2.9% to 6% or 7% is a tough ask. Baby Boomers and older Gen Xers are in the downsize mode but many of them can't justify exiting a sweet 2.9% rate to buy a smaller less expensive house and pay MORE on the mortgage payment. That doesn't make sense at all. So much of our transactions right now are either cash or super large down deals where the interest rate isn't really that much of a factor.

Let me cite an example. Ms. X bought a 2500 SF 5 bed house in 2002, she refinanced it in 2018 at 2.9% and paid off a home equity line in the process. So now she has a $310,000 loan on a home that was worth $500,000 at the time. Her payment is only $1750 PITI. Fast forward to the fall of 2023. She would like to downsize as she is a classic empty nester and would like to eliminate the stairs in the home. The house is now worth about $625,000 and she owes a little less than $300,000. 

Well she has a large equity position but she can't buy a comparable quality 1500 SF ranch for much less than $500,000. So she needs to put down $275,000 on a $500,000 purchase and has to borrow $225,000 at 7.5% to make the deal go. Her new PITI mortgage payment is $2100. Unless she is physically unable to use the stairs, it is unwise to make this move. Frankly installing a stairlift for $2000-$3000 makes more sense if she has trouble with stairs.

This is the state of the market right now. I must admit, my personal situation looks similar contextually to Ms. X situation. Why give up a nice large home for a smaller one at a higher monthly payment. Hey how about you trade your 2017 Cadillac in on a 2017 Chevy and pay us more 20% more money for it? Uh, no thank you.

Now one solution would be to rent the current house out. Ms. X is paying $1750 for a house she can rent for $3500 a month. That will provide some cash flow that is enough to more than make up the difference in payment on the downsized home, right? Of course now she is looking at a more modest down payment of 3.5% for an FHA loan on a $500,000 house. This payment is going to clock in at around $4000 a month minus the $1750 cash flow from the rental. Wait a minute... That's worse!

The Fed is NOT doing middle class America any favors here. It sure seems like they are in bed with the hyper wealthy and everything they are doing is specifically tailored to make the billionaire class richer. Keep that in mind when you vote each election. The rich and the ruling class have never liked it when the peasants own property :)

How has Buying Power Diminished in the Current Economic Climate?

The real estate market has undoubtedly softened up under the burden of higher interest rates. Locally interest rates for 30 year conventional mortgages are hovering in the low 8s. These are rates we haven't seen since the turn of the 21st Century. Of course old guys like me remember the late 70s and early 80s when mortgage rates were close to 20%! Let's hop the knuckleheads in Washington DC don't let that happen again.

Higher interest rates tend to rob buyers of purchasing power. This his typically the hardest pill to swallow. How much has a buyers purchasing power actually eroded since the October of 2020 when when most borrowers could get a loan in the low 5s. For the sake of easy math I'll compare 2020 prices and 5% mortgage rate to 2023 prices and 8% mortgage rates.

October 2020 the median priced home in Vancouver was about $372,000 and rates at 5% were possible although most people were a tad above that. With 20% down ($74,400) a buyer would borrow $297,600 @ 5% for a principle and interest payment of $1,598. Of course loan payments often include taxes and insurance so the real total payment would be higher but this is a comparison of the loan costs and housing prices. 

October 2023 the median price in Vancouver has been flat over the last year and remains at about $490,000 and rates a bit above 8%. So our buyer has to come up with 20% down ($98,000) and borrows $392,000 @ 8% for a principle and interest payment of $2,876.

That is a striking difference of nearly 90%. But a few other things have happened that at least slow the bleeding a bit. In 2020 the median family income in Clark County, WA was $77,184 today it is estimated at $91,000. Well the cost of buying a house has definitely outstripped the increase in income, but the real world difference is a little closer than just the payment suggests.

October 2020 median family earner buys median priced house and payment is 26% of gross income. October 2023 it is 38%. In order for parity where today's house only costs 26% of gross, current rates would need to be 4.5%. If housing prices remain steady and incomes continue to climb, then by 2027 we would be back where we were in 2020 as far as debt to income ratios are concerned.

I believe the Fed over reached by allowing rates to climb above 8%. A healthy number that would have slowed the economy enough to reduce inflation but not stagnate the real estate market, would have been 7%. Rod for Fed Chair ;) 

Quietly and Slowly Inventory Is Creeping Up

The September 2023 MLS report is out and it shows what we all feel. A shrinking market with stable pricing. Interest rates have chased away a large portion of buyers and they have also led to a large portion of potential sellers to stay put. We have a shrinking inventory and a shrinking pool of buyers. In the traditional economic terms of supply and demand both are shrinking and so we are basically treading water. But rates have pushed up high enough locally that now the ecumenic thumb is on the demand side of the scale.

Despite sellers general unwillingness to depart from their sub 4% interest rate, some still have to sell. Retirement, moving for job, estate sales, divorce, etc. Now these listings are starting to outpace sales and inventory in September reached the highest point in nearly five years. Don't get too excited, though it stands at two and a half months which is still comfortably in the sellers advantage when looking at traditional neutral markets with four to six months of inventory. 

The meat of our local market in Clark County remains the $400-$700k price range where nearly two thirds of last month's transactions fell. A little less than 10% of transactions were above $1 million. Overall closed sales are running at about half what they were 12-18 months ago and one would think that type of slowdown would lead to crashing prices. But those were the days of ten offers in ten minutes. Now we have a market that is settling in to a nice 15-30 day marketing time and less of those multiple offer scenarios. The market is healthier now. We still have fewer houses than buyers so sellers retain a small advantage in this market. But sellers that insist on listing at above market value are finding stiff resistance from buyers. I suspect we will slowly slip into neutral conditions and if the boneheads at the Fed stop raising rates, we may escape this without a severe market correction. 

It remains for now that our local market is slow and steady, but most importantly, stable.

Bankers Think Some Rate Relief is Coming

According to US News and World Report the trend for the next few months is a softening in rate pressure. Rates should start to ease a bit providing some relief for weary buyers that have been priced out of mortgages over the last couple years. Locally rates have been running at nearly 8% well above the national average. The chart below shows the national trend and the rates on the chart or prior to any fees or points that banks are in fact charging. Rates that borrowers are actually seeing or will see based on this chart would be 0.5% to 1% higher. Rates also vary based on the lending program, down payment amount, credit profile and other important financial details of the borrower. The good news is they seem to think it is starting to trend favorably for borrowers.

Well let's hope they are right. I do not expect a return to the ridiculously low rates of a few years ago. That was unprecedented. The 50 year average has been around 6.5% and I find that the market responds well to rates under 6%. If we can get rates back into the mid 6s the real estate market will come around. Right now we are in a stalemate as we have neither allot of buyers nor allot of sellers. Pricing is stable but softening and transactions are way down as a result of inactivity. Sellers are holding on to the low rate they have now and buyers can't afford the high rates currently available. 

This trend if it materializes could be good for current buyers. Sellers are getting motivated and that means a negotiating edge for buyers. Buyers may find themselves able to refinance their 8% purchase not in a year or so at a more comfortable rate in the 6s.  

If that chart holds up, things should perk up a bit next spring.

Vancouver's City Center Continues its Crazy Growth

Downtown Vancouver started on an epic journey of urban renewal some 25 years ago with the restoration of Esther Short Park and surrounding redevelopment of nearby blocks that were dilapidated. The plan was highly successful and Vancouver continued uninterrupted until about 2010 when the height of the recession slowed things to a crawl everywhere. After the recovery things picked up where they left off and began to accelerate to the frenzied pace we have seen over the last five years. Vancouver's skyline has had at least one tower crane up continuously since 2015. We have had as many as seven simultaneously during this nearly seven year stretch. Vancouver's built up skyline has tripled in size and there is no end in sight.

All of this development has brought a tremendous amount of revenue both public and private into the area. This has helped make Downtown Vancouver one of the most popular destinations in the metro area. For real estate it has opened up opportunities for urban living by making Vancouver's city center more electric and exciting as well as more walkable and bike able with increased services for residents and workers alike.

Condos in high rise and mid rise buildings remain strong in the market and neighborhoods in uptown that were previously struggling are now thriving. This economic revival has spread all over Vancouver and we have become the hot spot for the region. Below is a video showing the Downtown and Waterfront areas. Vancouver has plenty of room to grow Downtown as many blocks remain underdeveloped. With good leadership the boom can continue and even weather a recession well. That's up to the peeps we elect on the city council and the mayor.

What to do in a tightening market?

Our real estate market has been in this weird funk the last few years since we saw the interest rates pop up back in mid 2021. Prior to that we had a combination of low inventory and screaming demand for housing that had prices shooting up at near record pace in the double figures annually. 

Now we find ourselves two years post Fed meddling and rates are around 8% and most of the buyer demand is now gone because so many buyers are priced out. As is typical with the Fed, they tend to be behind the market and as such they often overcorrect. They have in fact over corrected. Markets will only rise to the point that consumers can afford or still desire the product. Had the Fed left rates where they were demand would eventually fall off when the prices got too high for the local economy to support. That however tends to lead to drastic market corrections and we don't those either. 

The only thing keeping our market from hitting a substantial correction is that sellers are parked in their homes sitting on 2.5-3.5% mortgages and they don't want to sell. We literally have a horse and carriage market right now. There is very little for sale and there is very little demand. That means flat prices and a fairly neutral market. If lots of sellers decide to list all of the sudden we will see prices fall. If sellers remain stubborn and rates drop back down to around the 50 year average say mid 6's we will see prices jump again. 

I believe the Fed has effectively achieved what they wanted to achieve, frankly they achieved it when rates hit 7% they were just too far behind the market to realize it. Those guys at the Federal Reserve are not the sharpest knives in the drawer.

So what do we do in this type of market. Well if you are a seller and you are planing on leaving the area for a job change, to retire somewhere, or whatever, you need to recognize neutral market requirements. You can't just post a sign and expect 10 offers, unless you are giving the place away for a stupid low price. Now why would you want to do that? You have to make the property presentable. Even in a hot market, curb appeal, a little cleaning and staging go a longs ways. But in the boom times you can get away with out those things. In this market they are mandatory. You need a good experienced agent that knows how to sell house in a flat or down market without you giving away the farm. 

Buyers need to be patient but when an opportunity arises they need to act quickly. opportunities will not go unnoticed by other buyers and other agents in the area. When you see it, buy it! Interest rates eventually will come back down and refinance will become an option, rates could rise more before that happens, so now is a good time. In a volatile interest rate market it is hard to make a bad decision because if rates go higher, you are ahead of the game, if they drop back down to 6% in two years you refi. Buyers have become afraid of the rates, and as I guy who has lived on this wet rock for nearly 60 years, people bought lots of houses back in the days of double digit mortgage rates. Owning your house is one of the easiest ways to build wealth over time. I purchased my personal residence in 2002 it has tripled in value since I bought it, I could rent it easily for double what my mortgage is. In fact I pay less for my large spacious house than most people pay for a basic two bedroom apartment. Buying a house hurts your wallet for several years and then if you avoid taking the equity out you quickly discover you're getting a bargain relative to renting and building equity and wealth along the way.

Don't let higher interest rates scare you off, if the bank says you're good to go, you are good to go. Just don't get yourself into finical trouble elsewhere. 

The market is fine a bit slowish for us Realtors® but it is still a good time to buy or sell. We have that classic neutral market. You need a good agent in these types of conditions.

Are Prices Falling in Clark County?

The data suggests that home prices are pretty stable. All of the negative data about sales volume are really based on our lack of inventory. You can't sell allot of houses when you have no inventory to sell. This lack of sales volume has led to doomsayers in the media claiming that the market is in decline. The market is neither hot nor cold right now. We are truly in a middle market that would be dead neutral if we had more people willing to sell their homes.

If we were to see a rapid rise in new listings, then perhaps a market downturn could happen but I suspect that new home construction would suffer more than resales in that scenario. New homes have been taking up the slack in the resale market lately. New homes also represent a ceiling in the resale market. Generally a buyer is willing to pay 5-10% more for a brand new house versus a resale all else being equal. 

There has also been chatter in the media about price reductions that are occurring in the marketplace right now. Yes sellers are reducing their prices when they start out too high. In a neutral market buyers tend not to overpay for homes. Overly ambitious sellers will find themselves without offers if they keep the price above market. One only needs to look at the results when sellers are properly priced in the market to see that there is plenty of demand. We still see many homes selling in a matter of a few days when priced right.

Overall this is a good time to sell and for buyers it is a challenge. Rising interest rates are slowly squeezing buying power and sellers remain reluctant to exit their low interest loans by selling and buying another house. It is a bit of an economic stalemate right now but to answer the title query, no prices are not falling.

Mortgage Rates Hit 20 Year High

That sounds like an ominous thing. It really isn't as bad as it sounds however. The last 20 year cycle saw the lowest 30 year mortgage rates in the history or 30 year mortgages. We spent most of the last 15 years with rates under 5.5% So the headline sounds terrible, which is why every news outlet is running this very headline. They however do not take the time to cover the context, so I'll do that for you here.

According to Bankrate.com over the last 50 years the average mortgage rate has been 7.81% Yes 7.81%. During that 50 year period we had both the highest and lowest 5 year stretches ever recorded. From 1980-1985 the average rate was 14.32% From 2017-2022 rates average 4.17%. Here we sit today with a national average mortgage rate at 7.09% well under that 50 year average but painfully higher than the recent lows of just a couple years ago.

The rates had a rather rapid climb and that creates a psychological shock which tends to makes things seem worse that they really are. Sure many homeowners have decided to stay put and enjoy their 2.9% 30 year mortgage they got back in 2021. This has created a scenario whereby there is a lack of homes for sale at a time when we should see lots of activity. Generally the period immediately after a rapid rise in home values leads to a bit of an equity grab as people sell their homes and move up or downsize. We are not seeing that nearly as much as we should. This may actually be staving off a market correction that should have happened right about now.

So the good news is home values are holding up well, the bad news is, it is tougher to buy in to this market right now. don't let a 7% mortgage scare you away from buying a home. It may limited your buying power but rates will come back down and an opportunity to refinance into a lower rate will arise in the future.

Why so many mid-rise buildings?

You may have noticed a trend in mid-rise development from small cities to large cities all across the fruited plains. Even larger cities with extremely built up city centers featuring 30-50 story towers are seeing a lot of developments with mid-rise structures. Builders are often choosing these shorter towers even when local zoning allows for high-rises. So what gives?

As buildings get taller, they require more and more engineering to ensure the tower is stable and can support its own weight. This is why skyscrapers are so expensive to build. But high-rise buildings in the 10-15 story range are low hanging fruit for engineers and architects. We have been building these for 150 years. Why would a developer choose to build a mid-rise project on an expensive property when zoning allows for 10-15 stories? Well, it often comes down to cost and construction time. Current building code allows for residential wood framed structures of up to 5 stories so long as the height is 85 feet or less off the street. There is some minor wiggle room but that is the general idea. Mid-rise structures of 6-8 floors can typically fit into an 85 foot height envelope. Anything taller than that generally requires more traditional concrete and or steel framed structures. 

The Aria on West 6th, June 2020.
2 level type one podium under 
5 levels of wood frame

So the trend has been to build a podium of concrete and or steel to a height of 1-3 stories above ground and then add 5 stories of wood frame up top to stay under that 85 foot envelope and squeeze as much as possible onto the land. This modern mid-rise formula is much less expensive to build for a few reasons. The engineering and design required to support the structure is far less complex and the wood frame portion can be built with a more readily available labor force. Wood framing also goes up faster in general than concrete. To build a 10 story building versus an 8 story is much more expensive and time consuming and thus may not be a financially rewarding for the developer. This is largely why you are seeing high-rise residential buildings going a bit taller to the 12-16 story range to maximize the land use and balance the greater expense of type one concrete construction.

You can see this decision making in a recent development proposal here in Vancouver on Block 11 of the Waterfront. The FAA height limit for the block is more than 140 feet which would easily accommodate a 12-14 story residential tower. Holland Partner Group, a Vancouver based developer of urban residential proposed both a 12 story and 8 story tower with the latter being a wood frame over podium design. After running the numbers they decided to pursue the mid-rise option with 100 fewer units. There is some formula these developers use to determine how long it takes to recover the extra costs of type one construction with the extra units gained and in this case Holland felt the numbers don't add up for the high-rise. Of course another developer might think it pencils fine for the taller structure. Short game, long game, high risk, low risk it all goes into the mix and many developers these days are liking the mid-rise option. 

Other advantages to mid-rise designs include a less intrusive build that in smaller cities might be easier to sell to citizens wary of a large built up landscape. Daylight can filter down to the street easier with shorter towers even if the building rises straight up off the sidewalk. This lends itself to creating a more walkable neighborhood. 

I believe we will continue to see more mid-rise wood frame over podium projects in cities of all sizes all across the country as we attempt to increase our housing stock which is pretty low in some areas, including Vancouver, WA.

New mid-rise condos proposed for the East side.

Graphic from Cascadia Development Partners.

A recent article in the Columbian outlined plans by developers to build hundreds of new housing units at the Columbia Palisades area at 192nd and Brady Road. Although the entire area is in the City of Vancouver, it is immediately adjacent to Camas and feature Camas' zip code. The new residential buildings will rise up 5-7 stories each and two of them will be condominium towers available for purchase. 

The plan is to have an urban campus type layout with a little bit of a waterfront style vibe. The density will not be as high as the waterfront, but the general vibe will be urban. Getting in and out of the area should be easier and more convenient as the 192nd corridor at SR 14 has plenty of capacity.

There is no word on pricing as this is in the early development stages. I would imagine these will be mid to upper priced condos. Columbia Palisades and its neighboring HQ development on the west side of 192nd will feature a city center style layout offing a little city style in the suburbs. Vancouver is also pursuing this theme with the Heights District that is also going to provide an urban oasis in the suburbs there as well.

We are still several years out from having a vibrant and busy area here, but things are moving and structures are rising up. Its exciting to watch the former rock quarry be put to good use.

Fed Nudging Rates Up Again

The federal reserve seems to want a recession. It is clear that they managed to slow the rampaging economy down and inflation is still around but not out of control like it was. So why is the Fed hitting the brakes again? The short answer is: who the hell knows? 

Home buyers should talk to their loan officers and see if this latest round of rate hikes is going to impact any mortgages in process. If you are locked you are good to go, but if not this could pose a problem. Talk to your loan pro and find out.

The real estate market seems busy if you're a buyer but honestly sales are way down. These rates have created the problem I have discussed ad nauseam on this site. Fewer buyers and even fewer sellers. Meanwhile in out local market some 2000 agents are competing for half as many sales. We should see a large exodus of under performing agents over the next couple of months.

Meanwhile buyers should take a deep breath and start throwing offers out there because they could be priced out of the market if rates rise too much higher. Sellers are likely going to double down on staying put with their super low mortgages they took out a few years ago in the threes and some in the twos. For agents it's time to buckle up buttercup, we are in for a tight ride to close out 2023.

Inventory Reported as Lowest in Months, Prices Steady

The local MLS reported tighter inventory levels and usually that means rising prices.  But prices are not rising, at least not much. Why is that? Keeping with classic economics of supply and demand we continue to have a short supply of homes but also a short supply of buyers. So supply is tight but demand is low. Yes folks demand is low, but we all know that demand isn't really low, right? of course we do, so what gives? Demand is being suppressed with higher interest rates that have eliminated many buyers from making moves after an extended period of ridiculously low rates. Homeowners that are sitting on mortgages with the lowest rates in the history of 30 year loans are hesitant to sell. Remember that a very large percentage of real estate demand comes from people selling their current home and moving into another home. 

What's really driving the demand side now is almost exclusively entry level first time buyers and relocations. We are not seeing a lot of move-up demand. Move-up is when a homeowner wants to sell their home and buy a larger or superior home. That market has been reduced to a crawl because those potential move-up buyers are sitting on a 2.5-3% mortgage and if they move-up their new mortgage will be 6.5-7%. It makes it less affordable and it's psychologically hard to swallow. 

So we have a compressed market with fewer sales but it's acting like a roaring market with multiple offers on well priced homes. It's a bit of a mirage actually. The good news is that instead of crashing the market, these higher rates have managed to simply slow it down a bit and after a period of adjustment we should return to more normal demand levels. 

Here's to a great second half of 2023.

Can Clark County Continue to Expand?

Clark County is the only county in the Portland-Vancouver Metro Area that is seeing strong growth in both population and jobs. I mentioned that Clark County is dominating the region in a recent article and that remains true. But can it continue if the greater region is not also expanding? 

We are getting our growth from multiple sources. There is some Portland flight right now and I think we all know why. There is also pressure coming from the Puget Sound region as the cost of living and cost of doing business has gotten extreme up there. Vancouver in particular is seeing a lot of people and businesses move in from greater Seattle. We are also still drawing people and businesses from outside the Pacific Northwest as well. We have a diverse source of growth and that may be the very reason we can continue moving in a positive direction even if things are slowing down in the Oregon counties of the Metro Area.

Vancouver's continued growth will drive the rest of the county as that city is getting huge infusions of cash into he local economy with giant mid-rise and high-rise projects. The city government needs to keep a careful eye on the local crime rate and homeless situation as we look good contrasted with Portland now. If we start looking like Portland then all bets are off and the money will melt away like ice cream on the 4th of July.

Our local real estate market benefits from all this growth as more people are moving here, and more businesses are coming in. As long as that positive economic pressure continues we should remain healthy in real estate. Clark County can and likely will continue to see strong economic growth soloing as our local elected officials continue to look at Portland and then, NOT DO THAT.

 

Clark County Dominating the Region

Parts of this article are excerpted from Urban Living in the Couv. The Columbian reported last week what commercial real estate professionals have been well aware of this year; Vancouver office space is actually in high demand, with vacancy in the mid-single digits compared to Portland’s double digit vacancy. It's more than 25% in Downtown Portland. But more interesting is the overall demographic shift since the 2020 census. Multnomah County has seen a drop in population of more than 20,000 residents as of the end of 2022 following several decades of strong growth. That’s a 2.5% drop in population in just 2.5 years. The interesting thing is that Clackamas and Washington counties have had flat growth. Washington County (Beaverton-Hillsboro-Tigard) lost a statistically insignificant 300 residents over the last 2.5 years according the Oregon State estimates and Clackamas saw a very modest gain of 0.4% over that time period. Clark County meanwhile according the Washington State estimates has seen a robust 2.7% increase in population since the 2020 census. Demand for commercial office space is high in Vancouver despite the national trends to contrary. Regionally all the residential energy is here as well from single family homes to high rise apartments and condos.

High demand for commercial space almost always has a positive impact on residential real estate in the area. Commercial activity tends to generate jobs and office jobs tend to pay well. With all the commercial construction going on in Vancouver jobs are also booming for contractors and trades people. Overall the local residential real estate market should remain solid. They days of 20 offers in ten minutes may have passed, but good healthy conditions should continue for the next 12-18 months or more if our economy can continue to grow.

Top Performing Real Estate Markets

 According to Zillow the hottest residential real estate markets in 2023 are expected to be as follows:

1. Charlotte, NC
2. Cleveland, OH
3. Pittsburgh, PA
4. Dallas, TX
5. Nashville, TN
6. Jacksonville, FL
7. Kansas City, MO
8. Miami, FL
9. Atlanta, GA
10. Philadephia, PA

That's interesting, but several other real estate prognosticators have their own top ten predictions and some of them have completely different cities. Hmm, that's interesting. Well different measurement metric I suppose. Locally Vancouver USA is looking solid for 2023 but not overheated like it was a couple years ago. At the entry level we continue to see sellers dominate but as you move up the price range sellers quickly shed their advantage and buyers enjoy the upper hand but he time you approach the $800,000 mark. It's purely a lack of inventory keeping the housing marketing on its toes. Should sellers suddenly get happy feet the market could succumb to downward price pressure and buyers could grab control of the market at large.

As I have reported time and time again, the Median Home price is not the definitive measure of market valuation changes. It is often an indicator of market movement away from high end transitioning to low end and vice versa. Trends right now are showing entry level home appreciating in the local market, mid range homes are somewhat flat, and high end home in excess of $1,000,000 are seeing downward pricing pressure.

Things look good here in America's Vancouver and if rate can stay stable at around 6-6.5% we should have a nice healthy and fair market for both buyers and sellers.

Assumable Loans and Pricing

I haven't heard this much chatter on assumable loans in my whole 24 year career :) But people sitting on an FHA or VA loan under 4% have an opportunity to sell their home at a bit of a premium. A $300,000 mortgage at 7.5% is about $2100 a month whereas the same loan at 4% is about $1500. That's a $600 savings per month. A buyer can overpay $10-$20,000 and still qualify if they are assuming a low interest note where they may not qualify at the higher rate.

I have a listing right now with a nice low interest FHA assumable loan on it. The problem however for assuming the loan is that it has a very low balance, well under $100k so most buyers will not have enough downpayment to make up the difference. But people sitting on a home they bought more recently say two years ago when rates were low, have a golden opportunity to cash in big now.

Generally FHA, USDA, and VA loans are assumable. Typically conventional loans are not. So a potential seller sitting on an assumable mortgage with a low rate under 4% might want to make a move up but is offset by the higher rates we have now. But if the loan they have is at 90% LTV or higher there is a good chance they can get an extra 10-20k over the value by finding a buyer interested in assuming their loan. That extra cash can be used to buy down the rate on their new loan for the next house. This is a good strategy but it should be noted that there is a limit to how much investors will let a borrower "buy down" on the rate. If they are a strong borrower with solid reserves and a high credit score maybe they get a rate at 6.50% and buy it down to 5.875%. 

Potential sellers should reach out to their favorite mortgage professional and discuss options like this to see if their scenario fits the model. It could be a great opportunity for both eh seller and the future buyer of their property.

Portland's Ritz-Carlton is nearing completion

The Ritz Carlton, Portland

I had the pleasure of attending a special broker event at the Ritz-Carlton construction site on Wednesday. The tower is nearly complete with the hotel portion expected to open this summer and the first units for the residential portion shortly thereafter. This is Portland's 2nd tallest residential tower with 35 floors and standing 460' tall, technically behind the 502' Park West Tower, but the two buildings have the exact same roof height of 460'. It is the 5th tallest building in the city. For comparative size Smith Tower is the tallest residential tower in Vancouver it has 15 floors and stands 158' tall and Kirkland Tower has 13 floors above ground and stands 146' tall. Needless to say the Ritz-Carlton in Portland is very tall. 

Although I do focus on urban condos, I tend to stay north of the Columbia River. But this project is offering new condos and as a licensed broker and can participate in sales. I have been very interested in this project as I feel it will be good not only for Portland but also Vancouver as well. Portland needs a shot in the arm to help boost its sagging reputation. It was not that long ago our southern neighbor was the national favorite for coolest city. But my things have changed haven't they? 

Vancouver has definitely done the opposite lately, with our previous reputation for a dingy Downtown, we have come screaming back with a vengeance and are actually the cool kid in the metro area right now. Although Portland's recent woes have translated into positive growth in Vancouver, its woes still affect all of us in negative ways and we all benefit from a better Portland. The Ritz-Carlton could ignite a new wave of positive change in Portland and that will radiate out to other areas in the region including us. This is an extremely high end real estate development with an estimated build cost of more than $600 million. The 138 condominiums will be priced well above the reach of even some affluent buyers, with prices starting at $1.6m and making their way towards $10m. The hotel however, will draw affluent guests to the region and some of the amenities in the tower, like the bar and restaurants will be open to the public. This is the second lifestyle condominium tower in the region, after the first, our own Kirkland Tower. 

Comparisons to Kirkland are inevitable but the two are as different as they are similar. The Ritz-Carlton hotel is about as good as it gets for luxury lodging. The Indigo Hotel attached to Kirkland is quite nice and the open atrium interior design is spectacular, but the Ritz-Carlton is top drawer. I'd give the hotel portion edge to the Ritz-Carlton. The overall owners amenities at the Ritz-Carlton are impressive edging out Kirkland but only just so. Kirkland's rooftop community penthouse, and patio area sits on the defacto 13th floor and is higher than the 8th floor "owners lounge" and patio at the Ritz Carlton.

The developer doing the Ritz-Carlton had one fully complete and furnished unit to show us along with several others in varying states of completion. The completed model was a two bed 1600 SF unit on the 21st floor. The unit was very nice and frankly I felt it was on par with Kirkland in terms of decor and quality, but not better. Quality of build is a tie between the two. One note however in favor of the Ritz Carlton is that the penthouses on the upper two floors are owner customizable. That is pretty cool.

View looking north towards Vancouver from 34th floor at Ritz Carlton, 5/31/23

An advantage to the Ritz Carlton is that all of the residential condo units are up top. Floors 21-35 are condominiums. The hotel occupies floors 8-20 including the flagship restaurant on floor 20. The lower floors are parking and commercial office space as well as restaurants on the ground level. Every single unit at the Ritz Carlton is high enough to see over the local buildings around it. So everyone gets a view. 

The higher floors at the Ritz Carlton soar above the city. Comparatively, Kirkland's units are effectively on floors 3-12. Now officially it's 2-11 but the first floor is a double height floor with a full mezzanine. Semantics, right? Kirkland units on the top four floors all sit high enough to see over neighboring buildings. It should be noted that Block 5 is not built out yet and a future tower there could potentially be as tall as Kirkland. All of the units facing the Columbia River regardless of floor have a view since the building sits on the Waterfront. But north facing units on the lower floors will have a classic urban view of the building(s) across the street. 

Kirkland in my opinion has the better location. This isn't a Vancouver vs. Portland thing, but just the fact the Kirkland sits on the Waterfront right in the middle of the hottest neighborhood in the metro area. Although the Ritz-Carlton is in a nice location in the West End neighborhood, it is not on the waterfront. Advantage Kirkland. Both locations offer connectivity to exciting attractions and things to do. Portland holds an advantage on music venues, sports franchises and such, but Vancouver's Waterfront is more walkable and park-like.

View from Kirkland Tower roof north towards Downtown Vancouver, 2021

I mentioned above that essentially all of the units in the Ritz Carlton "soar" above the city and that is true. The Ritz Carlton is the 5th tallest building in Portland and Kirkland is the 4th tallest in Downtown Vancouver. Relativistically they are in a similar position. But Vancouver's Downtown including the Waterfront is filled with mid-rise structures of 6-8 floors. Even on the rooftop at Kirkland you are not exactly "soaring" over the city but more like peeking out over the city. In fact I find that east facing units at Viewpoint have more of a soaring over the city feels since there are no tall structures on the Main Street corridor. That being mentioned, the airplane like view is more detached from the city. Sometimes its a bit more exciting being just a few floors above the fray and more connected to the urban space. It's a matter of preference really. 

Studies on the subject have shown that the best floors to live on are between 5-10. Why? Well the higher you go the less noise you have to deal with. The less pests (rodents, insects) and the more security and privacy. Let's not forget those views also. But above the 10th floor you are typically out of reach of local hook and ladder trucks so emergencies like fire, earthquake etc will require a manual descent. Also some people are height adverse so above the tenth floor can be uncomfortable for them.

So overall the metro area now has two premier lifestyle high-rise condominium developments to choose from. Kirkland has fewer than a dozen units remaining and I have little doubt the the Ritz Carlton will be successful as well. If I had to choose, I would of course stay here in Vancouver and go with the Kirkland Tower, but for the Portland fans, the Ritz Carlton is your new flagship residential high-rise tower.

Inslee signs legislation effectively ending SFR zoning

This post has large portion excerpted from a May 23 post on Retiring to Washington State by Rod Sager.

Washington is not the first state to effectively end the Single Family Residence (SFR) zoning but they are the latest. As a real estate professional I have mixed feelings about this legislation. Although it is designed to help increase available housing and decrease suburban sprawl, it could have negative consequences for the very people it claim to help. Only time will tell of course. This new law could have serious side effect on propriety values and how the law is applied and what the courts say about its authority over existing CCRs will be paramount to its success or failure.

The idea is that SFR neighborhoods consume allot of space and tends to be more expensive housing that excludes allot lower income people from affording. Allowing multifamily projects in these neighborhoods helps to increase housing that is traditionally more affordable. 

So what does the law really do? Well it states that cities with 25,000 to 75,000 people can not zone SFR and must allow at least duplex style (2 units) MFR (Multi Family Residential). In cities with more than 75,000 people which in Clark County means Vancouver only, four flexes are the minimum threshold. So in effect neighbors living in SFR neighborhoods could apply to convert their single family home into a duplex or four-plex depending on the size of their city. Having a bunch of four-flex units would definitely change the character of a neighborhood; generally for the worse. Quiet neighborhoods could become crowded, and obviously filled with renters that often do not take pride in the upkeep and presentation of the home. The upside is that more affordable housing becomes available and that could take pressure off rental prices.

There is another downside that I am 99% certain our legislators and governor are not smart enough to see. Politicians are usually not the brightest bulbs on the tree. That is that the dream of living in a quiet single family home neighborhood will likely evaporate for the people at the lower end of the middle class. A piece of the American Dream will be taken away from the very people the law is designed to help. Why is that, you ask? Because neighborhoods lacking duplexes and four flexes will slowly become more rare and thus more expensive pushing pricing even higher. Neighborhoods with a mix of SFR and MFR will become more affordable, but the true single family home experience will be missing.

So what does this have to do with retirees? Ah that is the question and the answer could be rather favorable. If this law survives the inevitable legal challenges, retirees living in a large house will legally have an option previously unavailable. Rather than sell the house and downsize, they could convert the house to multi-family and stay put utilizing one of the units as their own and renting the other(s) out to subsidize their income at a time when extra income is most appreciated. 

This will not be the solution for everyone and I am not sure whether this legislation will supercede deed restrictions (CCRs). It is worth watching for retirees that would like to stay in their current home but either cannot justify the expense of a large home or is unwilling to keep the larger space clean and tidy. This could provide income from an asset that very well may be paid off already. Not a bad way to go. 

As I understand the law, and let's be really clear here: I am a Realtor® not a lawyer, The laws does NOT prevent developers from building single family homes, it simply strips local government of the right to zone exclusively for single family homes. 

Locally, Vancouver is the only city in Clark County and in fact all of Southwest Washington that will be subject to the four-flex requirement. Battle Ground and Camas are large enough to fall into the duplex category as is Longview in Cowlitz County. Everywhere else in Clark County and Southwest Washington will be exempt from the restrictions this law places on zoning. So people living in Vancouver's unincorporated areas, which is nearly half of Vancouver's residents, should also be exempt from this law. Again I am not a lawyer so if you have genuine concerns consult an attorney or your local governing agency for clarification.  

The bottom line is that CCRs authority against the authority of this legislation will be a critical factor in determining whether this law will have more negatives than positive or more positives than negatives. If deed restrictions prevail then the law should be mostly favorable. Property rights are a big part of out constitutional rights and I take them very seriously. If you own property you should too.

National Median Creeps up to $375k

Yes you read that right. According to recent reports from the NAR the national median sales price was at $375k and change. There are still many parts of the USA where the median home price is well under $200,000 in fact even one county in the notoriously expensive California is under $200k. Here in Clark County we sit well above that with a mark around $500k. Prices are holding steady in most markets but some are falling and others rising. 

As real estate prices climb higher the more expensive markets can sometimes experience a more dramatic correction. People start to look elsewhere for work and sometimes an exodus begins. Looking at you California. But good jobs are an important factor and Washington State tends to have a great job market. Employers for the most part are staying in Washington rather than relocating and that bodes well for the local economy and real estate market. 

Washington State remains a fast growing state. Last census it was tied for 5th nationwide for growth with Florida at 1.37% year over year population growth. So long as demand remains high in the Evergreen State, real estate values should hold steady and strong.

For people retiring some are looking to the sun belt, others looking for tax breaks and cheaper houses. Washington is actually decent on taxes for retirees but obviously housing costs are high. But it seems that national median may be growing at a faster clip than the median here in Washington State. As that happens our affordability handicap is reduced. The lack of a state income tax tends to be a real draw for retirees. Washington has a strong economy with good jobs attracting the younger crowd, and good senior tax setups attract the older folks.

Will the lovely mid-spring weather bring out new listings?

I do hope so, inventory has been real tight for over a year now. Pleasant weather tends to stir up real estate. Buyers start thinking about looking in good weather as it is always nice to be out in fine conditions. Sellers often start thinking about moving in the nice weather which is definitely preferred over bad weather. There has always been a bit of a perk in the market place during the mid to late spring.

I have mentioned a lot about our local market and the conditions we face. Very tight inventory is keeping prices steady and a lack of buyers is keeping prices from skyrocketing. Overall I would bet that we see a seasonal uptick in both buyers and sellers but not likely a change in the balance. It should remain a sellers market though the summer and fall seasons. 

Homeowners will continue to cling to their 2.5-3% mortgages until such time that they are compelled to move for a job change or new family members, etc. One thing I am seeing for the first time in decades frankly is the use of the assumption clause in VA and FHA loans. There is an advantage in that a qualified borrower can assume the loan at the original low rate. However if the house has seen sizable equity gain over the last few years, which it almost certainly has, the borrower has to come up with a large downpayment to take advantage of the assumption. 

I will write an article about assuming loans in the next week or so as I feel this is going to pick up steam in the marketplace over the next few years.

Meanwhile the market remains a bit rough for buyers but not as hectic and crazy as a few years ago. Many listings are seeing multiple offers but some are staying on the market over a month before seeing an offer. So buyers can at least take a breath for now.

Market Update for Q2, 2023

The local MLS, Regional Multiple Listing Service has improved their reporting this year with an excellent display of data. I have been mentioning for quite some time that our market is red hot in the 110% of median and lower, and has cooled off considerably in the upper price ranges. There are some notable exceptions with Downtown Vancouver high end condos which seem to be doing just fine.

Year over year the median price is down 2.9% but based on the full set of data the MLS provides, the upper end market is lacking sales and thus the median is coming down. Remember that the median is simply the "middle" so when fewer expensive homes are sold the middle becomes a lower number. The actual asking price of a standard 3 bed 2 bath house is about the same as it was last year but this year the house is getting 1-2 offers whereas last year it was getting 3-6 offers and way over asking. That is also leading to the median drop. 

This data does not suggest the market is dropping as much as it suggests its rate of growth is slowing. There is a difference and it matters. People become nervous about buying a home if they think its value is a bout to drop. So far indicators support mild real estate appreciation over the next 12 months. Of course anything can happen in the economic cycle and projections are just that. But there is no alarm bells going off here. The slowdown is two-fold: first the abrupt rise in interest rates eliminated at least half of the buyers in the local market. Under different circumstances that would have crashed our local market. But the market was so tight on inventory that it just took some needed pressure off and it was actually a healthy adjustment. The second factor which is keeping inventory lower than it would normally be is that fact the homeowners are reluctant to give up their low interest loan to buy another home elsewhere. Many homeowners that might be ready to move up to a bigger home, or a place with some land, etc, are sitting on a 30 year note with 25 to go at 3% sometimes less. The move up will put them in a new loan at 6.5% or more. This is stifling inventory. Unfortunately the government acted too quickly and created a scenario where rates rose almost instantly rather than a gradual rise over the course of several months. A gradual rise would have been a much smoother transition from hot market to normal market. The quick rise basically slammed on the brakes.

So when looking at the data you see that sales are down, but new listings are down about the same amount, marketing time is up a little and median price is down slightly. With just 1.5 months of inventory this is still a sellers market and we won't see a neutral market until inventory gets up around 3-5 months. Once the inventory moves to six months or longer the market transitions to a buyers market.

It's easy for doomsayers to persist with sales numbers so much lower than last year but the real truth is that the only people really feeling a big difference in the market this year over last year are the people at the very entry level from last year who no longer qualify and real estate agents who are all fighting for a slice of a shrinking pie. Some agents may sing the songs of doom, but the market is actually still doing well despite the governments best efforts to crash it.

Looking forward to Q3 I'd say the chances of an increase in buyers is slim, but the chances of increased listings is 50/50. An increase in listings with no change in buyers will soften the Markey up a bit and make things a little easier on buyers without too much downward price pressure. Buyers should keep in mind that interest rates are not high right now they are average, we just came off a 10 year period with below average rates. It may feel like they are high but we are finally back to "normal" and I believe the nation will adjust to mortgage rates in the 6s.

The weather is nice, are more listings on the way?

This spring took a fair while to develop locally as winter like weather persisted well into April. But now it is sunny and warm and with that turn of season often comes a bunch of fresh new listings. We could use a hit to inventory to help buyers out who still face multiple offers on homes in and around the local median price. That is running just under $500,000 right now. 

Buyers are facing pretty typical interest rates when compared to the 50 year average. That long run of years and years at below average rates has no doubt spoiled things a bit now that we have settled into a more "normal" mortgage market. 

Buyers can also take advantage of some new mortgage products aimed at helping first time buyers get into the market with low to zero downpayment and sometimes a little government assistance. These programs can really help buyers get an opportunity in this still tight market.

Despite losing a huge portion of eligible buyers the stingy inventory has kept things favoring sellers a bit. A rush of new spring listings will likely level the field offer buyers some negotiating room. Buyers haven't had that in quite a while.

Be sure to contact me if you are interested in these new programs.

Spring Outlook

Spring is here, at least by the calendar if perhaps not by the weather. Traditionally there is an uptick in new listings this time of year. The local MLS showed just that last month. The real question is whether an uptick in buyers will follow. That is also a typical scenario. But we just came out of a long red-hot period in real estate that was driven by artificially low interest rates. These crazy low rates made it possible for lower income people to buy a house. Many of them jumped at the opportunity. 

It also made it downright easy for people who purchased starter homes a few years earlier to sell and move up to a larger home, sometimes without having a higher mortgage payment. Bigger house lower payment? Where do I sign? 

As rates began to creep up two things happened and it is a good thing that they both happened. The higher rates eliminated a number of buyers at the lower end of the income spectrum. Where they qualified to buy at 3% they no longer qualified at 6%. This took buyers out of the marketplace, which normally would lead to flat or declining prices. There was however, an additional effect of stifling the move up market. People are sitting on huge equity reserves but they are reluctant to give up the sub 3% loans they have. So as the buyers dried up the inventory also flattened out and that was a bit of a stalemate. 

The worst thing that could happen now is a massive rush of new inventory. People feel like there is a lot of buyers because there is so few homes in inventory, in reality there are very few buyers right now, it just so happens there is even less inventory. I would compare the market in 2018 to today as follows. In 2018 there was 10,000 buyers vying for 1,000 houses. Today there is 1,000 buyers vying for 100 houses. From the buyers perspective it feels the same, but for the market at large there are very few homes actually being sold. 

Hopefully we will see a slight uptick in inventory to ease the pressure off buyers, but not too much so as to cause a drop in prices. Only time will tell but this extra cool spring is not helping to get sellers off the fence. Usually it is the warm spring days that get the market awake and eager. We haven't had any warm spring days yet. Stay tuned.

Do's and Don'ts for Mortgage Borrowers

As rates have crept up, buyers are finding themselves in a position to borrow very close to the maximum amount the bank will qualify them. When rates were in the 2's and 3's I found many buyers were borrowing substantially less than the bank offered them. Now, not so much. When the buyer is at or near the maximum borrowing limit the underwriters in charge of approving the loan can get really picky and tight on any discrepancies or variances from the guidelines. Borrowers should not assume they qualify, nor should they assume they do not. Loans are complicated instruments and it is always worth sitting with a professional loan officer to find out if you qualify and what to do the get qualified.

Generally the base guidelines for conventional mortgage borrowing are as follows:

• PITI (Principle, Interest, Taxes, Insurance) is <36% of gross income 
• Total debt service is <43% of total gross income
• Credit report is clean, no derogatory entries in 24 months
• Stable provable income for two years without gaps
• Minimum 6 months on the current job 

These are guidelines and routinely borrowers are granted exceptions based on superior credit, low LTV (Loan to Value), or excellent reserve cash in the bank. Exceptions are often made for job time as well. For example a college engineering grad that takes a brand new job as an engineer can get a waiver on the time on job due credit for time in college so long as employment is verifiable as permanent. 

It is important to check with you mortgage professional who will look at your specific financial situation and give you far better advice than I can. I have seen 50% debt to income ratios approved. I have seen 50% PITI as well. It happens but it almost always happens when the borrower has other strong financial attributes. A low credit score will always make it difficult to get any exception from these guidelines. Being right up against the wall on multiple guidelines will also make it difficult to get an exception even if your credit score is sky high.

Buyers should avoid the following activity when buying a house:

• Opening new lines of credit
• Allowing credit balances to get larger
• Applying for credit lines of any kind
• Moving money around in bank accounts
• Making large cash deposits into personal accounts
• Closing credits lines unless advised to do so by lender
• Changing banks during the process
• Taking unpaid leave from job

Buyers should do the following:

• Leave the down payment money in the account untouched
• Continue making all debt payments on time as scheduled
• Contact your loan officer before making any financial move
• Immediately get documents requested by loan officer

Remember the closer you are to the maximums the harder it is to get exceptions. You will find that a bank making a mortgage loan of $200,000 on a $500,000 home with a borrower that has an 800 credit score, and $800,000 in the bank will be much more lenient than a 620 credit score borrower putting 3% down with a debt to income ratio of 50% and no money left in the bank after the loan closes. 

Buyers need to follow the loan officer's lead. Do not make assumptions, always ask the loan officer before making financial decisions. I have watched buyers lose their buying opportunity because they failed to heed the advice of the loan officer or failed to ask before making a financial move.

The most important thing to remember is this simple rule: He who has the money, makes the rules. They may not seem fair, but they are what they are and banks don't care about your feelings.

Market lacks sellers so buyers still compete for homes

Last month in SW Washington which for the local MLS is all of Clark, Skamania, and the Woodland area in Cowlitz. Closed sales were again light in volume and the bulk of the activity remains at the entry level. Median is holding firm around $500,000 just nudging up a tad this year so far. 

Inventory is the real story. We are very tight and some people feel like everything is slowing down and it kind of did since there was a point a little over a year ago were inventory was measured in DAYS, rather than months. But a neutral market is generally considered to be 5-6 months of inventory so 1.9 is still a hot seller's market.

The inventory has been ever so slowly creeping up but at the pace we have seen 5 months of Inventory would take two years. The spring selling season is knocking at the door. How the activity pans out in April and May as far as new listings will play a pivotal role in determining whether we remain locked in a tight market or whether buyers start to gain a little leverage.

I have said several times over the last year or so, this is not a tight market because we have a lot of buyers, it is a supply side problem of low inventory. Think of it this way if 100,000 buyers are competing for 300,000 properties that's a lot of buyers and ultimately a lot of transactions but buyers would have the upper hand. But if 100 buyers are competing for 10 properties... you get the drift right. There wouldn't be a lot of sales but the sellers would rule the roost.

I hear a lot of agents complain how "slow" the market is but in reality there are just too many agent vying for too few listings. From he buyers perspective it feels like a huge mass of competing buyers are snatching up all the houses and outbidding them. But it is really just an average number of buyers competing for a very low number of available properties.

Keep you eyes open as we stroll into springtime, perhaps sellers are ready to list and make that up move or downsize.

  

 

Multiple offers are not gone!

Although the market is a little less wild and crazy than it was 18 months ago, the multiple offer scenarios are not gone. Houses priced at or below the median and reasonably priced are in fact seeing multiple offers and bidding up. I just called an agent about a pending property I am using as a comp for another property. She had it listed at a very competitive price and I was curious about the offers. She had seven offers and several were well above asking. 

The median price has ticked down over the last several months, but I have mentioned this multiple times, and I'll do it again now, higher end properties are not selling as much as they were last year. More sales right ow are happening in the entry level market. That is lowering the median price despite the fact that actual prices are still rising, just at a slower pace that we have seen in recent years. 

2023 is shaping up to be a decent market. Inventory is tight and there are not enough sellers to go around, so buyers will remain in the hot seat for the time being. Sellers should remain cautiously optimistic and buyers should be very optimistic as things have at least calmed down a bit.

I have seen this pattern many times before. Right now is a great time for a buyer to make a move up. If you have a 3 bed 2 bath home priced around the median of $500,000 or less, you will sell fast and for top dollar. Then make the move up to a larger more expensive house where the market is not quite as crazy. Sellers int he mid-tier are more likely to work with a contingent buyer.

Don't worry about rates, if they go down later you can refinance if they go up later you stay put. Some buyers a parked in a loan with a low rate say less than 4% if you are one of these buyers, are you prepared to stay in that same house for the rest of your life? You have to ask yourself that question, because the 3's we saw were ALL TIME LOWS, we may never see that again. What we could see however is even higher rates later on and that could force you to stay in that same house. These 6.5%-7.5% rates are pretty "normal" when you look at the 50 year average.

If you are ready to make that move up, then now is the time.  

Is the Market still Hot?

The news media, the doomsayers, and other miscellaneous talking heads have declared the real estate market as terminally ill with rising interest rates. Hmm, all because rates are now at the 50 year average. Not above average, not the soaring double digit nightmare that was the late 1970s and early 1980s. No we're are 'plagued' with average interest rates. I'm sorry friends, 7% mortgage rates will not tank a real estate market. This slight slowdown in units sold is a typical adjustment period after coming off a long period of low rates, in fact the lowest mortgage rates in the history of 30 year loans. 

When you look at the historical housing market you see it has had a few bumps in the road over a 50 year history of going up, up, and up. You juxtapose that with the 50 year mortgage rates chart which shifts position more than a politician in a purple state. You see that this "crisis" is completely manufactured. The media and notably other organizations that have something to gain from negative news about real estate, may be behind it.

The real estate market is only temporarily slowed by changes in the interest rates. The demand for housing never goes away, increasing rates can make it difficult for some buyers and that can slow things down for a short while, but banks will always find a way to make loans, and people will always find a way to buy homes. Historically we have only had two major downturns in the last 100 years and they were 1929-1941 and 2008-2012. Every other "downturn" has been short lived and in the grand scheme of things, insignificant. 

Is it a good time to buy or sell real estate. Yes friends it is a good time. Real estate has always been and will likely always be an excellent long term investment. There is no 'day trading' real estate. The transactions are slow and expensive. It is a long term investment. Buyers and sellers need to stop thinking short term. If you plan on living in a house for less than 2 years, generally it's better to rent or buy a house and rent it out when you need to leave. Even during the Great Depression of 1929-1941 real estate was a good long term investment. Why do I say that when prices were declining or flat through most of that period? Because the home still provides you with its essential function of shelter for you and your family.

In my 2010 book, "Don't Panic" I have an entire chapter dedicated to dispelling the notion that your primary residence is an investment property. If it is an investment property you should be renting out any extra rooms you have to maximize that investment and increase your rate of return. But most people don't. Why not? Because it is their home, safe haven, shelter from the elements, a basic human need. That's why. Owning that shelter is better than renting it from a third party in 99% of life's scenarios.

As for the market, locally we are sitting on a 2 month supply of houses. With 4-6 months being average, we are in fact still hot. Yeah, it's a good time friends.

 

How is 2023 Starting Off?

January is typically a slower month for closed real estate transactions. But the numbers can still provide a trend insight. January 2023 produced 306 closed single family homes including condos in Clark County. The median price was $490,000 and the average a bit higher at $543,000. For review, the median is the halfway point so half sold for less and half sold for more than the median. Average is a classic mathematical formula add up all the sales and dived by the number of sales. Because there is a lot more room at the top of the range locally the average tends to be higher than the median.

Roughly 100 homes sold between $400-$500k and another 100 between $500-$750k. That is a the meat of the local market with about 2/3 of transactions falling that range $400-$750k. 

Compared to last year, January 2022 numbers were 507 closed units with a median price of $493,000 and an average of $553,000. As I have been reporting over the last year, values seem to be holding steady and the numbers bear that out. What has dropped is the volume of transactions. We only closed 60% as many transactions this past January as the prior year. The difference between the two years isn't o much demand as it is interest rates. Rates were comfy in the 3's in January 2022 where they were a more average 6's last month. Fewer buyers qualified to purchase in 2023 than last year, plain and simple.

So as of this first month's data, the sky is not falling and neither are prices. $490k vs. $493k is akin to a rounding error. What is happening in the market is buyers are not willing to pay large amounts over asking price unless the house is priced ridiculously low. Buyers are more sensitive to price in this current market, but they will pull the proverbial trigger on a well priced home. In fact they did just that 306 times last month.

I'll be watching the trends closely during March and April as these are the months that tend to set the tone for the local market during the late spring and summer peak season. I'm a cautious bull on Real Estate for Q2, 2023.  

Real Estate Market Settles in to 'Healthy'

Our market has slowed considerably and to some that is a bad thing. But in reality the runaway craziness of the last few years was not healthy. When buyers are bidding up properties they often pay too much and that may be great for sellers but it can create that "bubble" people often worry about. Now the market has settled in nicely. There are fewer listings and fewer buyers so that means fewer sales. Fewer sales tends to make people think the market is falling or crashing. So far none of that is happening.  

Prices have been stable and most sellers are getting close to final asking price. We are not seeing the prices being bid up like we were a few years ago and that has allowed the median price to dip about 5% over the last year.  Actual prices however have been flat. Higher interest rates have cut into buying power so people are buying less expensive homes to compensate, that is what has brought the median price down, not actual falling prices. 

Yes, you will see price reductions but behind the scenes most of those price reductions are sellers realizing that their agent was right and they were simply overpriced. You can't blame a seller for trying to get the most out of their home, but in stable healthy markets, buyers won't bite on overpriced listings.

So long as interest rates remain where they are we should be able to sell enough houses to keep agents like myself busy enough to make a good living, inexperienced agents may struggle a bit, but us veterans will be fine. Younger people have not seen interest rates above 6% in their adult lives, but the 50 year average for rates is in the mid sixes, we are quite literally looking at pretty average rates right now.

Vancouver is seeing strong demand for real estate and that is being driven by multiple forces including excellent job growth, higher wage jobs, Portlanders relocating, Puget Sound relocations, and even some retirees taking advantage of our no income tax. Pricing should remain stable as I think the fed is going to dial back the medicine for now. We can only wait and see. 

Builders may have to start building small homes again and Vancouver has shown a willingness to do zero lot lines and compact communities to help builders squeeze enough lots out a parcel to make $350,000 homes possible. Builders however tend to gravitate towards the larger luxury homes and they may feel a squeeze in 2023.

Overall healthy is the operative word, we have buyers and sellers in near equal numbers and that means stability barring any major economic changes in either direction.