Friday, February 16, 2024

Can Two Minimum Wage Earners buy a 3 bedroom Home in Vancouver USA?

Well that's a loaded question? Although our market is not yet officially a neutral market we do have significantly more inventory than we did 18 months ago. Interest rates remain mostly in the low 7s right now for government backed loans. Rates have been a bit volatile this year so far and clever lenders can get locks near 7 flat at times. Let's use a 7% FHA loan as our example and see if two minimum wage earners can in fact buy a home in one of America's most expensive housing markets. Washington State ranks third behind California and Massachusetts for median home price. Vancouver is about 15% below the statewide median making us relatively affordable. Vancouver however is well above the national median of $392,000. 

Well I intend to answer the title query with some local facts and available homes as of writing this post. As of January 1st, 2024 Washington State's minimum wage is $16.28 per hour. At this wage two full time earners will bring in $5500 a month income. Now credit is always a concern and in our market an income of $5500 a month is going to need some credit help. A 720 or better score for both borrowers. Also a low amount of debt. People earning minimum wage cannot expect to have a brand new car payment and still qualify for a mortgage. Some patience will be in order as well since a 7% interest rate will need to be locked as soon as it appears or rates could swing back the other way and become unfavorable. 

Let's look at borrower(s) A: Two earners at $16.28 full time $5500 per month, 720+ scores, < $150 in monthly credit debt, and 15,000 in the bank. At $320,000 buyer brings in $11,200 down, will likely have $8,000 in closing costs that we will ask the seller to pay. Keep in mind that the FHA will allow gift funds for the downpayment from an immediate relative. With a total PITI payment of $2660, this is a doable transaction even if there is a small < $100 HOA fee. Yay!

3 beds, 2.5 baths, 1378 SF listed at $340,000
OK great, can I find a house that is clean enough to qualify for FHA financing at this price point in Vancouver USA? After a short research period, the immediate answer is "No." The closest I got was an end unit townhouse with a small but usable backyard and priced at $340,000 with $250 in dues. So how much more income does our borrower(s) need to qualify for this home? About $1000 more. The dues for the HOA are killing us here. I have seen townhouses in this price range with HOA dues under $100 but there just weren't any listed right now. If I found such a place then the extra income required would be $800. Still that is difficult to overcome. 

3 beds, 2.5 baths, 1368 SF listed at $420,000
What does that look like then? Well if our two earners made $20 an hour then no problem. Here is where the issue is. That $250 HOA fee is worth $38,000 in purchasing power. So our buyer could look at detached homes with no HOA and pay $378,000. In fact at $20 and hour they could qualify for about $430,000 so long as they keep their other debt service under $200. Well the house on the left is currently listed for $420,000 and it is in good shape, easily financeable as is, and offers 3 beds, 2.5 baths and 1368 SF.

Now looking at the median wage in Vancouver shows a different story. The median wage is $25.17 per hour or more accurately $52,363 annually. Median means half of the people make more and half make less. So two people making the median can buy these homes. In fact two people making the median can look at homes with payments at around $4000 a month. That will buy a $485,000 house which is pretty close to the median in Vancouver, maybe a touch lower depending on the data source. 

We may have gotten a little spoiled back a few years ago when rates were in the 2's and 3's. Two minimum wage earners could if fact buy a modest three bedroom house. But with rates now closer to the 50 year average it takes a little more than two minimum wage jobs to buy a house. The good news is that incomes have been rising locally and means more people will qualify soon. When rates relax a bit and settle into the high 5's of low 6's we may see two minimum wager earners once again qualify for an entry level home. 

Friday, February 9, 2024

Fed is hinting at Rate Reductions

Surprise, Surprise, it's an election year and all those politicians want to get reelected! Seems the Fed may be under some pressure to let up a bit on the money squeeze. For real estate some easing would be nice. I'd like to see rates come down a point or so. I wouldn't expect to see the all time lows again anytime soon, but just a nice gentle 6% would add tens of thousands of buyers to the pool and help real estate start moving again. 

Inventory levels continue to creep up and we are still at a very healthy 3.2 months supply. But we don't have enough buyers to keep things moving. We have a lot of potential sellers sitting on loans at 4-5% and if rates get back down to 6% many of those sellers may consider selling. I have been on about how so many sellers are literally parked in their ultra low mortgages in the 2-3% range. They aren't likely to be swayed at 6% but the thousands sitting in those 4-5% loans just might.

I'm looking forward to a nice near neutral market this spring.

Friday, January 26, 2024

Interesting Non-traditional Loan Options in Vogue Again

Lenders are trying to revitalize their sagging business models with more flexible loan options to help buyers across the wide spectrum. HECM loans which are often referred to as "reverse mortgages" although these are not the old reverse mortgages of yesteryear. These loans are for older Americans looking to use the equity in their home as a source of income or to eliminate a house payment. 

Another popular blast from the past is the seller second. Lenders are once again embracing sellers willing to carry a second to help a buyer get into a property. Sellers with strong equity position can offer to carry back a second mortgage at a rate and term favorable to both parties. This can help a buyer qualify for a house they otherwise could not. The seller makes 6-7% on their investment. 

These types of programs are not for everyone, but for some it can be the golden ticket. Buyers struggling to find the right home with the right terms should talk to their mortgage professional and see what alternative financing options are available to them. Older Americans above age 62 can also see if a HECM loan is a good product to consider.

Real estate is an important piece of the wealth puzzle and buyers historically have found a way to buy even when rates were in the teens back in the early 80s. The rates we see now are very comparable to rates we had just 15-17 years ago in the mid 2000s. Lenders had more tools in their toolbox back then and some of those products will never return, and that's a good thing honestly. But some of those products are returning and they are welcome in this challenging market.

Don't give up buyers, new solutions are arriving often and it is wise to stay in touch with your lender as we move forward into a little less hectic market this spring.

Friday, January 19, 2024

Winter weather can make things seem slower than they are.

We just had a nasty snow and ice event that has had road conditions in bad shape in the local neighborhoods where real estate showings typically happen. The snow and ice have been treacherous in some areas and I have seen many showings cancelled and rescheduled then canceled and rescheduled again as the cold weather has been a little more persistent than is typical. 

This will certainly result in fewer pending sales over the next week or so. It will make the market seem slower than it really is. Likewise after the weather clears out this coming week, a flurry of showings is rather likely which may make the market seem busier than it really is.

Overall the market has been slow and steady with interest rates slightly improving over the last month or so, buyers are starting to settle in to this new reality of rates at or around the 50 year average. Although we still have fairly tight inventories levels that favor sellers, it is no where near as tight as it was 18 to 24 months ago. The chart shows how inventory has been creeping up slowing and we do not have enough qualified buyers snatching the properties up quickly like we did before. Generally when inventory levels get in the 4-6 months range we move into neutral conditions. More than six months favors buyers, less than 4 months favors sellers.

Buyers should find sellers to be a little less resistant to offers requiring help with closing costs or in some cases a lower offer price as marketing times have increased from a matter of a few days to a more typical 30-45 days. Some sellers are more motivated than others. Buyers can take advantage of these situations. 

Overall I am enthusiastic for a possible neutral market that allows prices to rise slowly and parties can negotiate terms on even ground. It's been a long while since we had that kind of market. I foresee that in the near future.

Friday, January 5, 2024

Happy New Year: Market Outlook for Clark County, WA

It seems like mortgage interest rates are stabilizing in the 6.5-7.5% range with credit and other lending qualifications delineating to upper and lower ranges. Historically mid 6's have been very healthy for the real estate market. 

The real estate market has been rather slow with both supply and demand being weak. Prices remain stable without any significant changes some markets a little up others a little down. If interest rates continue to be stable and maybe even dip a little bit more leading into he spring, we may very well see an uptick in demand. Supply however will likely remain tight as we still have thousands of homeowners sitting on their 3% mortgages. It may take four or five years before we start to see the turnover from all the first time buyers that bought in the last two years at 5-7% start making their move up.

Meanwhile our local economy continues to produce high paying jobs that are attracting people to the area. If that trend continues we very well could see an uptick in demand from that. Locally Clark County is still seeing significant demand for homes coming from Portland transplants. According to the Oregon Government, Portland has lost roughly 30,000 people since the 2020 census. Washington and Clackamas counties have seen little or no growth in that same period whereas Clark County has seen an increase of some 30,000 people since the 2020 census.

This means that we could see a drop in Portland home values and an increase in Vancouver over the next few years. Over the last few decades Multnomah County housing prices have tended to be a little higher than Clark County, but they have been inverted at least once in the last 25 years. I believe that may happen again if Portland leaders can't stop the proverbial bleeding south of the Columbia.

Another potential issue for Clark County that favors existing homeowners but could be detrimental to renter is the potential for a slowdown in new construction. I believe Vancouver will continue pushing high density apartment projects that ultimately will result in lower rents for entry level and mid level apartments. But single family homes and condos could very well see spikes in value in builder slow down on the construction of new homes. 

The overall outlook for the local real estate market is for a small uptick of activity in the first half of 2024. The second half is a crap shoot at this point.