Spring Season is Here

This is that time of year where activity perks up in real estate. New listings will come online at a faster clip. Buyers will start 'kicking tires' and looking at homes. This can be a good opportunity for sellers to get out in front of the market surge the may be coming as we progress deeper into spring. 

Our local market tends to see a 20-25% bump in activity during the spring and summer months usually starting in April or May. The current situation with mortgage rates is such that buyers are starting to make the adjustments to the current rates. We have been pretty stable on rates since the big hike in 2021. Buyers will adapt, banks will adapt, sales will occur. 

For buyers banks are already creating opportunities for buyers. Buyers can be optimistic about the sales cycle this years as prices are holding steady. Banks are trying to create opportunity. Seller's are more motivated.

It could be a good year after all.

Is Urban Living Returning to America?

originally posted in The Couv Life 7/17/2023 by Rod Sager

Decades ago the post war boom started and a new type of neighborhood emerged with cute culdesacs and curvy streets. Homes were built with oversize lots and everything was centered around the automobile. American's ate it up and millions of these houses in suburbia were built and are still being built today. In the 1980s and 90s America's Downtown areas were in rough shape. The age of the suburban shopping mall and highway bypasses left many cities with an urban core in serious decline. The once happy Downtown excitement became a dismal study in urban decay. It was sad really, as some of our nation's most spectacular architecture was on display in the old city center in nearly every town.

But these days I am seeing a massive resurgence in Downtown Living. Not just here in America's Vancouver but all across the fruited plains of our nation. I saw it in Lafayette, IN and Covington, KY. I am seeing it in many places as people are now flocking to the hustle and bustle of the city, even in smaller cities and towns.

Vancouver USA is all over this trend. Not just Downtown and the Waterfront, but the new Palisades development on 192nd and the New Heights District that is under design right now. It seems a new generation of Americans may be longing for that old world city life and communities across the land are building it from high-rises to more modest mid-rise buildings. A new era of urban living is spreading like wildfire. Dense urban development tends to foster a community bond as people walk around the neighborhood, shopping and dining while on foot rather than driving. There can be no doubt this is a big deal to a large group of Americans as Vancouver can't get enough of these modern mid-rise and high-rise residential projects. Vacancy in the city center locally is in the low single digits. 

So it seems, America is returning to the old urban living model and Vancouver USA is all over the scene. To follow Vancouver's urban living check out Urban Living in the Couv here.

Ah the Couv life; it is good.

The market is humming a healthy tune

The numbers were published for last month by the MLS and data shows Clark County, WA was rather healthy. 750 new listings were posted against 610 new pending sales. A total of 1073 units were active and 497 units closed. The inventory remains stable at 2.2 months which still favors sellers. The MLS reported the median home price for new listings in March at $560,000 with the median sold price at $525,000. Despite the advantage to sellers, the median price has remained steady. Buyers are rather limited as rates and incomes are not lining up as nicely as they did a few years ago. 

Most of the activity is in the median price range about plus or minus 10% of the median. This means the sellers looking to part ways with homes between $450-$600k are in really good shape. There are plenty of buyers looking to get a home in this range. Most of the sellers in this range however are selling due to a career change to a new area or older folks retiring to warmer locales, people passing, etc.

The higher price ranges are definitely struggling a bit since that move up market is stifled a bit. There are many homeowners sitting on those 3% loans in their three bedroom two bath house that would love to make the move up to something bigger or nicer, but the new loan will be at 7% and they just can't swing that new payment.

There are ways to make it happen, especially for those with large equity positions. Potential sellers should not presume they can move up. Check to see where your equity position is, what you need to borrow to make that next move up. Maybe you can, maybe you can't, but it is worth a shot.

We do not know if we will see higher or lower prices next year. But if there is a correction, then that can chew up your equity position. Sometimes it is best to stay put, sometimes there is an opportunity to move up. It is wise to avoid assumptions.

Overall the numbers from last month reflect a healthy market that should be sustainable over the long haul.

Mortgage rates are stable, Buyers agency in jeopardy

The mortgage rates over the last few months have stabilized with the usual fluctuations in the market but a generally flat trend curve. Stability is almost as important as the rates themselves as buyers do not have to make rush decisions to try a lock a low rate. 

Recent legal matters based on a proposed settlement between the NAR and Federal regulators could lead to poor representation for buyers. Buyers may find themselves in a situation where they have to choose between paying an agent for their services or going it alone with the seller or listing agent. 

As is typical in these types of suits the plaintiff either doesn't understand the arrangement and purpose of the MLS or they don't care. In a nutshell an antitrust suit was filed against the NAR and it seems some of the plaintiffs accusations were true. But rather than simply fixing the problem this settlement is an egregious overreach and will ultimately end up hurting buyers and sellers alike.

There were apparently several areas of the country where the NAR had a fixed commission requirement for the buyers agent rather than a negotiable amount. If this is true and it seems like in some areas it was, then the antitrust suit on that charge has merit. The settlement however as proposed is likely to make things worse, not better. Here in Washington State for example, commissions have always been statutorily mandated as negotiable. We should not have to make any changes here. Yet we may have too. 

The idea of the MLS was to move away from the car dealership style of home selling that was rampant in the early 20th Century. People would go to a broker's office and look at houses they had, if they didn't like them they would go to another broker and so on. It was tedious and it often led to aggressive behavior by agents just like we see at car dealerships. The MLS idea was to have brokerages share their commissions with other brokerages. Under this arrange a Weichert Realtor could show properties listed by other brokerages such as RE/Max and still be paid for their efforts. The buyer was now represented with their own agent that at the least had a fiduciary responsibility to work in the best interests of the buyer. In Washington State it is not only a fiduciary responsibility it is a statutory responsibility. 

The plaintiff's claim was that the seller should not have to pay for the buyer's broker. That seems logical until you dig deeper. The seller is paying indirectly. The commission is solely the listing brokerages fee. The listing broker chooses to share it with another broker to help sell the home faster and for the highest possible price. The listing broker could keep the whole commission for himself and try to find a buyer on his own. In our county we have nearly 2000 agents. Why would I want to keep that property from those agents. They may have the buyer that loves the property so much they are willing to bid it up higher than any other buyer.

The seller agrees to pay a fee that is fully negotiable to the listing brokerage. The seller is not paying the buyers agent fee, they are paying the listing agent's fee. The listing agent is choosing to share that fee with another broker if they bring the highest and best offer to the table. How the listing agent chooses to use that fee is her business. She could donate the entire fee to charity, she could go on vacation to Hawaii, she can put it in her retirement account. It is hers to spend as she sees fit. Most listing agents choose to place the property on the MLS and share their fee to help get the highest price and best terms for their client. On the MLS the home will sell faster and for more money almost every time.

Feel free to reach out in the comments section if you have any questions about how agency works in the state of Washington. You can text "waloa" to 360-364-5621 to receive a link to the Washington State Law of Agency official pamphlet. 

High end market seeing cash deals

I have noticed many high end properties closing with cash listed as the payment method. With mortgage money costing about as much as investment earnings, some well heeled buyers are choosing to part with cash in the short term rather than borrowed funds. Someone earning 4% to 5% on conservative investments may rather invest that cash into real estate which may not earn 4%-5% in the current climate but will still be better than borrowing at 7% or more. The stock market has been somewhat volatile lately and that may be part of the cash movement in high-end properties lately. Cash has always been common in deals where someone is downsizing a large home into a smaller home. This is typical in retirement. Lose the giant house on the huge lot and move into a smaller condo or townhouse to eliminate a large portion of the maintenance. 

There can be advantages to borrowing however. Mortgage interest is deductible in most cases from income tax. Sometimes this makes strategic sense. Carrying a mortgage does encumber the property and thus makes it a bit more difficult to sell if market conditions soften up, but generally in the high end market larger downpayment are common. 

Cash is king and people choosing to use cash to purchase can always do a loan against the property later should they need access to their cash. There are a many different angles when making a real estate purchases and it seems that cash is just popular right now for those making purchases of more expensive properties.

Is Real Estate Headed South?

Many people are concerned that real estate values may take a dive as some analysts are bearish on real estate. The way I see it, the analysts pulling the alarm on real estate are the usual suspects. The same people that are always trying to promote other investment vehicles, like precious metals, looking at you Robert Kiyosaki.

Most industry insiders feel that the market will experience a soft landing correction and so far that is exactly what it is doing. Inventory is gradually creeping up and buyers are seeing some relief on pricing. Although prices are not falling locally the asking prices are lower and that may lead to lower median prices as the year wear on.

Presidential election years traditionally have some economic turbulence as investors react to polls and predictions about what the future administrations and congress will do. Typically once the election is over and the results are in things settle down. If we follow this pattern real estate will likely continue its soft and gentle landing with eventually median prices dropping by 5%-10% over a year or so. 

Of course it is important to note that massive corrections can and occasionally do happen. We had just such a scenario back in 2009. That correction came on the heels of many different issues with the stock market, lending markets, and housing. A great deal of legislation was enacted to keep that trifecta disaster from happening again. There has not been a significant relaxation of those laws, so I think we are unlikely to see that level of collapse in the near future.

Buying a home is still a very solid way to build wealth and equity over time.

Have interest rates made renting more affordable than owning?

Back a few years ago when we had all time lows for mortgage interest rates it was absolutely more affordable to own than rent. The numbers were very convincing, but now with interest rates in the 7s is it still the more affordable approach?

I have spent some time on the rental websites looking at rental properties advertised locally and have found very recent sales of similar homes in the same neighborhoods to see if I can tackle that question. Affordability comes down to more than just the monthly payment. Renters generally do not have to pay for repairs and upkeep whereas homeowners do. These are expenses that should be calculated in to be fair. But homeowners also have the benefit of building equity through a combination of reducing the monthly principle on the loan and through market appreciation over time.

The number one advantage of renting is mobility. Typical lease commitments are one year. When choosing to buy a home you should be committed to at least four years. The disadvantage to renting is you run the risk of not getting a new lease at the end of your current lease. The owner may choose to sell the property. With apartments, this is rare, but with houses it happens fairly often. 

So operating under the notion that we are committed to staying in the property long term and we have a small to medium sized dog. Let's crunch some data.

ForRent.com

The first property is a rental house about 25 years old and nicely updated in NE Vancouver. The home is a very common house that many builders built in that time period. It has 2080 SF with four beds and 2.5 baths. It sits on a typical 6000-7000 foot lot. It is listed for rent at $2850 per month. The upfront cost is two months rent and a security deposit. Pets are allowed but with a larger deposit of an extra $500 and an extra $100 per month.  So we have to come in with $6200 and our monthly payment is $2950. This home has a classic 1990s two story floor plan with the living room up front, kitchen, dining and family room in back with a 1/2 bath down and all four beds and both full baths up. Renters insurance will run between $50-$100 depending on how much coverage for loss you choose. Total monthly expense is $3000

RMLS

The comparable home to purchase closed late last year at $475,000 and the seller paid $7000 in buyers closing costs. This home was also updated but not quite as nice on the inside as the rental house. The exterior is a little nicer and it is located just a few blocks away in the same neighborhood. Its floor plan is a near clone of the rental but with slightly less space at 1960 SF and four beds with 2.5 baths on a 6000-7000 foot lot. For the sake of comparison I'll assume an FHA buyer with 720 credit score, 3.5% down, and $7000 in closing costs. Buyer will need to come in with $16,625 and will have a $3887 monthly payment including taxes and insurance. I found several similar homes currently for sale a little further away but less than 2 miles in this general price range. This home had a newer furnace and newer roof.

It is quite evident that the cost to buy a single family detached home is substantially higher than the cost to rent it at the moment. But let's fast forward ten years. Trends in rental properties over the last several years have shown increases of roughly 2-3% annually but are tracking a bit less lately so I'll operate at 1.5% annually so rent would be roughly $3500. Property taxes will fluctuate based at least partly on the market. Vancouver is currently experiencing very modest price appreciation and will likely remain flat over the next couple of years. The historical post war (WWII) appreciation over a ten year period has been about 70%. Since we are currently trending lower than the historical average I'll run the next 3 years flat and then historical average for the remaining 7 years. That would yield a 50% price appreciation over ten years for the owned home which is conservative barring a recession with the severity of 2009-2012. The only likely increase in the mortgage payment would be in taxes so that payment would look like $4100. Home value at $712k with equity at about $280k. Repairs and maintenance costs would run about 1% annually on this house as most of the expensive bits are new. Much of that could be performed by the homeowner to save money, yard work, minor repairs, light painting, etc. Over tens years assuming half of maintenance DIY would be $25,000 so net equity is still more than $250,000. If interest rates were to drop during that decade a refinance could lower the payment and eliminate mortgage insurance. The payment after six years if rates are 5% could be lowered to $3000. Obviously there is no way to know if rates will go back down or go the other way. If they do the latter then the homeowner is sitting pretty with a sub market rate.

The moral of the story is that long term home ownership will benefit the buyer immensely but for short term, renting is often the superior option. I have lived in my home since 2002. I paid $200k for it with $40,000 down. I could sell it now for $600k. Over the 22 years I have put roughly $50,000 into the house for maintenance and upgrades including a roof, furnace, and kitchen remodel. All told I have paid into the house including said maintenance, upgrades, and principle, interest, taxes and insurance, $441k. This includes three refinances one of which had cash out to clear a home equity line I used to pay for some upgrades. My first loan was at 7.5%, the second loan was at 5% the final was a rate and term refi at 2.9%. All those payments including my down payment over the 22 years and the maintenance costs adds up to $441,000. If I sell the house today I would walk away with $274,000. That means I lived for 22 years in this house for a total real cost of $167,000 and that works out to $632 per month. This is why long term, buying is the only way to go. It's not all peaches and cream, as the market can be volatile at times and early on in your homeownership, it can be expensive to move. Sometimes you can feel trapped in the house when the market is soft or when rates are much higher than your current rate. If I sold my home for $600k and used the 274k as a down payment on a smaller house at say $450k my payment would be about the same because the smaller mortgage at a higher rate works out about the same as my current larger mortgage. So I am staying put, for now. 

Homeowners Insurance Getting Complicated

In the aftermath of a series of really bad claims cycles insurance companies have tightened their belts in the Western US. The biggest claim culprit has been wildfires particularly in California. Insurance companies are now using fire line data to determine eligibly and/or cost for insurance. Most of California, Eastern Washington, and Easter Oregon have high fire line scores that affect insurability of homes in the area. Generally homes in cities and suburbia have manageable fire scores but once you venture out in the countryside things can get dicey. 

If you are buying a home with a bank loan you will be required to have adequate homeowners insurance. This can get very expensive and your qualifying for the loan includes the cost of insurance. Flood zones will require additional flood insurance which can be expensive. If you are buying a home along a creek or river be prepared to encounter more expensive insurance and keep in mind it could affect your ability to qualify for financing.

As for the fire line ratings you can go to risk factor.com and enter your address or an address you are interested in to see the rick factors from flood, pollution, fire, etc. Fortunately here in Clark County the vast majority of homes even in the mountains are below fire rating of 6 which is the number that starts making insurance companies nervous. The scale is 1-10 with ten being severe. Here in Western Washington we have a long wet season that provides for a lot of fuel for fires, but the dry season is short enough that our fire season is pretty short. We tend to stay green for most of the year and that provides some protection from major out of control wildfires. We are by no means immune but I have't yet found an address with a rating above 5 in Clark County, let's be clear I have only run a couple of doezen dresses through the system. Up high on Rawson Road in the cascade foothills was brings 4's and 5's where as my suburban Vancouver home is a 3. Washougal River Road address were also bringing 4-5's. 

I'm not saying there are not any high risk addresses because there probably are some. But I would recommend looking into this when you are deciding to write an offer. You don't want to be blindsided by an insurance problem after you have paid for an inspection, appraisal, etc only to have to kill the deal over insurance.

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. 

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.

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.

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.

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.