It's Black Friday!

Well if there was a real estate store the deals would be amazing right? There isn't a real estate store; well not in the traditional sense at least. But if there is a "Black Friday deal" in real estate it is probably going to be found between Thanksgiving and the New Year.

Sellers keeping their home open to buyer tours during the holidays are quite likely VERY ready to make a deal. And buyers that are trudging around in the rain and snow are probably pretty serious about making an OFFER on the right house.

Buyers should not get too excited about a crazy deal because the real estate market is not as malleable as brick and mortar retail stores or the Cyber Monday craziness we'll see next week. Not at all, really. Buyers and sellers are both reasonably well informed these days and most are represented by a professional. But the idea that both the seller and buyer are almost certainly motivated to act is a big bonus to both parties.

The real problem is simply the fact that fewer houses are available during the holidays and fewer buyers are looking as well. The actual impact on pricing during this five week period is usually not noticeable. What is noticeable is that willingness to ACT from both parties. That means sellers should pay attention to offer opportunities and buyers should be willing to write them. December is the month for deals because December is a month where people are ready to take action.

So get ready real estate peeps, December is about to arrive.

Townhouses Can be the Ticket!

originally posted in Retire to Washington, by Rod Sager, June 2017

For many retirees downsizing the big family house after the family has moved out is a typical decision. Moving out of the "family house" can be caused by any combination of factors. The big yard becomes a time consuming hassle to maintain and/or an expensive chore to delegate to the pros.

If the home is large say 2000 plus squares and/or has 4-5 bedrooms, this may be unused space when it's just one or two adults in the home.

Many people are tempted by the "condo" option. For some this is ideal in that you are only responsible for the space between the walls inside your unit. Condos may offer common area amenities like walking trails, swimming pools, exercise equipment, etc. These luxuries can come at a price usually in the form of high HOA dues.

A great alternative to the condo is a town house or row house. These can be reasonably spacious, usually have a common wall between neighbors and a smallish garage. They feel like a house in nearly every way. Often these types of properties have a small back yard that is easy to maintain and the front yards are routinely kept up by an HOA. If the common areas lack a lot of luxury items, the HOA dues tend to be fairly inexpensive. Unlike a condo in which the homeowner does not maintain the exterior structure directly, the townhouse is maintained by the homeowner. The owner owns the dirt underneath the unit and structure including the windows and roof. It is truly a bit of a hybrid when you think about it.

I believe these types of homes are ideal for retirees looking for ease of maintenance, a 'house like' feel and reasonable amount of living space. Town homes are typically priced well below the market for a similar square footage traditional detached house. Modern designs made in the 21st century often have double wall or heavily insulated walls between the units to avoid that 'apartment' feeling where you here your neighbors chatting at the dinner table.

I am the classic example; my wife and I live in a five bedroom 2500 SF house and we are essentially empty 'nesters'. I do have a son about to graduate from college so he may be back in the house for awhile, but his career path will no doubt lead him away somewhere soon.

I can sell this big house for a high price right now and move to a smaller less expensive townhouse pocketing a bunch of cash and saving money every month on the mortgage. A townhouse could be in my future, what about you?

Are there 'good deals' in this market?

Well, are there? As Robert Ripley might say, "believe it or not", yes there are good deals to be found. In general, real estate is most expensive in close to the center of a metropolitan area. In our case, Portland. If the 'core' city is built out (Portland is) that city becomes increasingly expensive as there is little room for growth. Aside from assorted affluent communities scattered throughout the suburbs, homes tend to become less expensive as you radiate out away from the center of the urban mass. There are notable exceptions to this notion but here in Metro Portland the rule is generally applicable.

The first thing a frustrated buyer can do in this type of market is to look a little further out. One thing that is nice about our area, is that most of the heavy traffic is in close to Portland. Generally Clark County freeways away from the Columbia are running at the limit around the clock. For a person that is commuting to Downtown Portland, the ride from Mill Plain, Blvd. in downtown Vancouver, WA at 8:50 AM this very morning is shown at 24 minutes with some heavy congestion between Delta Park and the Fremont Bridge. The distance is 9.9 miles. Double that distance to 20 miles at the SR 502 interchange North of Vancouver and the ride is 31 minutes. In all fairness it is still double the distance and a commuter will put more mileage on their car, but most people are more concerned with time, rather than a little extra wear and tear on the car. This is not the case with every suburban area. But Clark County has an excellent highway system, so it does apply here. Push that ride all the way up to Woodland at 30 miles out and the ride is 37 minutes. The median price of a home in Woodland is roughly 40% less than a comparable home in either North Portland or NE Portland. Of course it should be noted that a bad accident on the highway can make the commute randomly horrible and the further out one lies, more chances for a random traffic issue. Of course timing is often everything and commute times at 8:50 are lighter than they are at 7:30. A typical traffic pattern in the morning sees the peak of heavy traffic at SR500 on I5 in Vancouver and on the return trip home almost all the heavy traffic is south of the Columbia. In general the notion that one can double the distance for only 20% more time is still viable.

Another way to find a deal is to look for a home that needs some work. This market right now is strong, but not as "hot" as some suggest. The houses that are getting bid up to ridiculous prices tend to be immaculate specimens. The homes that need a little work are lingering a bit longer. I am not suggesting really ugly homes. Often those are not financable. I am referring to the house with older worn carpet, scuffed up flooring, dated kitchen and bath. These homes do not attract the hordes of hungry buyers and can still be found at a respectable price. Of course the buyer will be faced with some weekend sweat equity to make the house shine. This could be a great alternative to the 'further out' approach.

For buyers that want a really screamin' deal, the application of both principles can be considered. Perhaps a light fixer in Woodland or Washougal. That should get you a house on the cheap! Don't fret frustrated buyers, there is light at the end of tunnel :)    

2015 Becoming a Serious Seller's Market

I wrote this post late last year that 2015 could be the last chance to snatch up a "deal". Things seem to be leaning towards a full throttle seller's market. There are still great opportunities to buy but mainly due to great interest rates. Remember buying a house in an appreciating market means that equity grows faster.

Originally posted 12/26/14

That headline should have got your attention. We have seen modest to robust appreciation across the USA over the last two years in the real estate market. The mortgage rates have been ranging from really low to ridiculously low and the economy has been slowly moving towards full recovery.

This has kept real estate as a value. Prices have run from the basement in 2010-11 rising to the point now that they are about where they were in 2007-08. Rates are the real story however. They unprecedented long run of sub 6% rates has kept housing active despite and overall economy that has run from dismal to fair.

2015 could represent a turning point however. If this economy gets into full swing, we very well could see the Fed back off the loan guarantees and rates could end up where they really should be in the 6% range. Coupled with the last two years of appreciation that would move the home affordability index much higher and lock out many buyers that can buy today but couldn't with 6% mortgage rate.

As an FYI 6% is still a very good rate and well below the 50 year historical average of 6.8%

Buyers should take care of their finances and get ready to buy in 2015 if they want to secure a housing "deal". The deal may not be so much a price deal but a rate deal. I have said it many times before and I will say it again here, rates kill buyers much more than price.

2014 has shown us that the entry level clean house was king. These little 1400 square foot 3 bedroom 2 bath homes have pushed up towards the $200,000 in the local market while just 10-15% percent more money buys a house nearly twice as large. These low rates have brought out the entry level buyers in force. Any upward movement in rates will "thin the herd" at the bottom and that could mean a serious appreciation slowdown at the entry level. I have seen the starter houses already showing signs that the economic ceiling has been reached. The middle however should continue to move up in appreciation with a modest but healthy rate of growth.

The real estate market doesn't just move in broad based motions. There are subtle differences for neighborhoods, price ranges, style, etc. Prices can be moving up in mid size house while remaining flat at entry level. That is my prediction for 2015 if we see interest rates move up into the 6% range. The market a few years ago allowed two minimum wage earners to buy the median priced home in our local market (Washington minimum wage at $9.32/hour). That is off the table now and that means a lot of buyers can no longer afford a house. This is why the bottom of the market has seen a leveling on appreciation. As the economy ramps up, middle income earners are getting back on the job, better wages, etc. that will help push the gap between entry level and mid-level back into proper proportion.

I believe the value proposition for 2015 will be in the upper middle and lower high end homes. Locally that means $350-500k. That is probably where the "deals" will be found. I am no Nostradamus, but that is where things appear to be headed. 2015, it's time to jump in. 

Why Interest Rate is more Important than Purchase Price

So many buyers get wrapped up in the notion of securing the lowest price on a house. This is part of the natural buying process. We all want a great deal right? The funny thing is that we are generally selective with that desperately seeking deals mentality. Houses, gasoline, electronics, and cars are items that Americans will shop to death until they find the golden deal. Other things like groceries, clothing, and shoes not so much. I see people buying Campbell's soup at whole foods. $2 for the same exact product Winco sells for 99 cents. Whole Foods offers many top grade products that are not available at discount markets, like Winco. So Whole Foods has its place. Funny thing that is. Oddly purchase price on items we pay cash for is paramount. It is the only thing that matters so long as the product is the same. Houses have many variables. The largest of these is interest rate. I think it is very important to recognize what the difference is between even subtle rate changes.

Two scenarios interesting results:

200,000 home 30 years fixed FHA at 4.5% with 3.5% down.

• Down payment is $7,000
• PITI payment is $1,371
• Total of payments over 5 years is $82,260
• Total interest paid over 5 years is $41,609
• Balance on loan after 5 years is $175,935

210,000 home 30 years fixed FHA at 4.0% with 3.5% down.

• Down payment is $7,350
• PITI payment is $1,368
• Total of payments after 5 years is $82,080
• Total interest paid after 5 years is $38,960
• Balance on loan after 5 years is $183,291

Using a fixed annual appreciation of 4% (actually lower than we are seeing now) we can calculate a future value for both houses. The first house would be valued at $243,331 and have an equity position of $67,396. The second would be valued at $255,497 with an equity position of $72,206. The lower interest rate on the loan allows for a more rapid pay down in principle and places the buyer in a stronger position to sell later. We always want the best price but not at the expense of a higher rate of interest. Right now rates remain very low, lower even than I used in these scenarios. Buyers may miss a golden opportunity if they wait to long to buy. Many buyers continue the effort to barter down prices in a seller's market. With each house they fail to buy due either to being out bid or flat out rejected by the seller, they run the risk of an interest rate hike. Even if they get the "deal" they are seeking, in the long run they may very well still end up paying more and they probably "settled" on a less than prime home. 

Let's look at two more scenarios with a larger down and long term implications added:

$200,000 home 30 years fixed at 5.0% with 20% down

• Down payment is $40,000
• Amount borrowed is $160,000
• PITI payment is $1,116
• Total of payments after 30 years is $309,209
• Total interest paid after 30 years is $149,209
• Total of payments after 5 years is $66,960
• Total interest paid after 5 years is $38,461
• Balance on loan after 5 years is $146,925

$210,000 home 30 years fixed at 4.5% with 20% down  

• Down payment is $42,000
• Amount borrowed is $168,000
• PITI payment is $1,108
• Total of payments after 30 years is $306,443
• Total interest paid after 30 years is $138,443
• Total of payments after 5 years is $66,480
• Total interest paid after 5 years is $36,219
• Balance on loan after 5 years is $153,145

Here I used twenty percent down so the difference is less dramatic. The striking fact here is the house that cost $10,000 more has a slightly lower payment since the interest rate is a half point lower. The fact is the half point better rate buys 5% more house. Too many buyers hold out for the best price only to find that rates go up or that prices go up and the deal they are seeking never materializes. Notice how much less interest is paid in the first five years on the more expensive house. The buyer of the $200,000 home will pay $2,200 MORE in interest over the first five years with the higher rate. 

Let's assume again the real estate market appreciates at an annual rate of 4% over the first five years in each of these transactions. This time lets handicap the more expensive house by suggesting it was slightly over price and the "cheaper" house was slightly under priced. Let's say the target value of the scenario one house is is $202,500. Scenario one represented a $2,500 "deal" and scenario two was $2,500 above market so its base value is $207,500. In general the market doesn't allow for much fluctuation. And buying a fixer and fixing it up versus buying a move in ready home is an unfair comparison. After five years the market value of the houses is $246,372 and $252,455. All else being equal, scenario one (less expensive house) has $99,447 in equity and scenario two has $99,310. The more expensive house did have a higher down payment of $2000 and a higher loan amount by $8,000 and yet after five years the equity position is about the same. If the scenarios were not handicapped the equity position in the less expensive house would be $96,405 versus $102,353. In my experience they are rarely any "deals" in real estate. There are too many buyers competing for the same houses. Some buyers find "deals" by looking at houses that need a little TLC. They don't show as well and thus don't generate as high an offer. Once the TLC is done the buyer reaps the benefit of the now higher value.    

The moral of the story is that the lower price is nowhere near as important as most buyers think and interest rates determine how much house you can buy or more importantly how quickly you reduce principle on your loan balance. 

The Holidays are a 'Serious' Time for Real Estate.

image from www.azcentral.com

I have said it before and I'll say it again; the holidays are a serious time for real estate. Anybody that is buying or selling during this time of year is very serious about real estate.

Buyers that are out in the weather during a time they could be at office parties, visiting with family, shopping for the elusive perfect gift, etc. is very committed to finding a house in a timely fashion. Otherwise why wouldn't they just put it off until the New Year?

Likewise for sellers. They would probably rather not have people tromping through their home during the holidays, when guests are over, the decorations are up, etc. Yet there they are doing just that. Maybe they just really want to sell their house?

This is a great time to buy or sell. All of the classic "looky-loos" are on hiatus while the serious contenders are still in the game. I will likely close four transactions this month and that is as many as I closed in the summer months. Don't take the holidays off, you might just get everything you want in the month of December!

As always, seller's should be mindful of the basics of presented their home to prospective buyers. This might be the year to keep half of your holiday decorations in the attic. Too much clutter can be a negative. Keep baking all those yummy holiday goodies because buyers love the smell of fresh baked cookies. Keep the walkways clear of tripping or slipping  hazards. Keep snow off the driveway and walkway.

Buyers are well advised to keep shopping during the holidays. Sellers are usually easier to negotiate with when they are busy with other aspects of their lives. At the point they have chosen to keep their home open during this month, they are motivated, whether they say so or not.

December is a win-win month for buyers and sellers so neither should shy away from the golden opportunity that December brings to real estate.

Boo! Don't Let Scary Looking Houses Fool You.

The current local real estate market is clamoring for clean, move-in ready homes. These tidy houses are being snatched up quickly while the properties with a few rough edges sit on the market for a while. The general rule for listing a home is to shine it up as best you can before presenting it to the market. But in the past, there was always a strong light fixer market as well with prices hovering just below the values for the perfectionist's pad.

This market seems a little less forgiving. This market is providing a great opportunity for big value in the form of a less "pretty" house. I am not talking about rough fixers here. I am talking about a dated home, with a few bumps and scrapes. I am not referring to properties that need a roof or furnace. Just a bit of updating or cleaning up.

Recently I had the pleasure of helping a great family buy their first home. They have four children. They wanted a house with a nice sized yard and as much space as the budget would allow. $200k was the mark. I showed them many super clean and tidy three bedroom homes but they were hoping for a four bedroom home.

Four beds with a big yard for 200 large is a tall order. I discussed with them the idea of an FHA financeable light fixer. After some counsel they started looking at some of the properties I sent that they had previously rejected. Most of the homes in the $190-$200 thousand range had been clean small 1100-1200 SF on decent lots.

Lo and behold we found a 1979 4 bedroom ranch with 1500 square feet listed at $205,000. The house was no supermodel, but the bones were good and the owner was willing to fix a few things to get it into FHA qualifications. Patience and a willingness to look at homes that don't glitter in the pictures can be a ticket to value. This four bed house had no updates and it just didn't have that shiny polish like all those little three bed homes that sold in a week for the same price did.

Once they apply the "polish" to their new four bedroom house they will quickly have a $225,000 home. But more important than that, they have the space they really wanted for their four children! There are deals out there, they just might not be packaged exactly the way buyers want them. But make no mistake, they are out there.    

Back to School Brings Opportunity

There is typically a nice little summer boost in the number of real estate transactions. June and July enjoy a robust seasonal perk up as many families prefer to move in the summer while kids are out of school, and while the weather is fair for moving. The summer month's totals are usually about 20% higher than the average month. Mid-August tends to see a slight slow down in activity that is most likely due to families with children in "back to school" mode.

This slight reduction in buyers, means a little less competition for the remaining listings. Buyers that have not found their ideal home or that have been outbid may find a reprieve from the craziness. Likewise, sellers that did not sell over the summer may be ready to take that slightly lower offer that would not have been accepted a month ago.

Sellers with homes that are not selling of course should consider evaluating the price but also other factors that might help sell. One problem that is all too common among sellers is the availability to show the home. Selling a house that is lived in is a difficult pain in the rear end. But the more easily an agent can show the house, the more buyers will be able to see it. More showings will directly translate into more or faster offers. The next 3-4 weeks will mark the end of our late summer sun and making listed properties available until 7 or 8 o'clock can be the difference between sold and sitting.

Buyers should revisit homes they passed over in June and July. If they are still on the market the price may now be reduced or the seller may be softened up and open to a lower price offer.

We continue to see appreciating prices but the rate of appreciation has slowed dramatically from the skyrocketing prices of 2013 to more modest upward trend in 2014. There is no guarantee that prices will continue to move up. The economy is fair and interest rates are a major factor in the recent real estate turn around. Sellers should not assume that they will get a better price next year. They might; in fact they probably will, but it is by no means set in stone. A good solid offer today that generates the cash needed to do what the seller wants to do should not be underestimated.

Don't worry if you missed out on the peak summer sales cycle, there is plenty of opportunity as the Autumn approaches.

How to Find a "Deal" in this Market.

Locally and in many markets across the country real estate values are perking up and multiple offers are becoming more common. This situation can make it difficult to find a property that is value priced. It seems that every sharp priced home is bid up. This 'auctionesque' environment can be exciting, but it rarely leads to getting a "deal".

Here in Clark County, Washington the market is healthy but there are still value properties floating around, one simply needs to know where to look. In our local market the properties that are selling quickly in general tend to be priced well for what they are, priced less than 110% of median and move in ready condition. Of course, in any market a well priced listing will generate offers. Locally there are many properties that need some TLC that are sitting in inventory without offers. Some of these represent solid values and with just a little effort can become nice homes. This is where I see an opportunity to pick up a value.

The consumer real estate market seems to be driven by buyers for less than median priced properties and move in ready condition. These homes that are clean, turn key properties are getting bid up out of the 'value' range.

Trying to buy a high demand  property in a low inventory environment leads to paying a premium price. Looking at low demand properties leads to finding a deal. If we break up single family residential properties into three broad categories of condition, heavy fixer, light fixer and showroom clean. It is the light fixer that is ideal for a consumer looking for a value opportunity. The heavy fixer is generally not financeable. Those properties are often bought by investors for all cash. The showroom ready homes are in demand and get bid up to the top of the market prices. Light fixers are often financeable; maybe not FHA or VA but certainly conventional loans and can be had for great prices.

When looking for a good deal; looking at low demand properties is usually where buyers will find a great value. Below there are two examples of homes that sold this year. Both are dated 1970s ranch houses and are absolutely solid comparables across the board except condition. Both are dated but one is a clean turn key move in ready with fresh paint and carpet the other a HUD owned as-is property that really only needed carpet and paint and the roof was near the end of its life.

This home was listed for $165,000. It sold a just a few days and was bid up to over $175,000

This home was on the market for several months. It needed TLC but was financed. It was listed at $137,000 sold for $140,000 with a seller credit for closing costs. 

These two properties are very similar in age, style and very close together in the same general neighborhood. The difference was the condition, and what a difference that made. The $140k house could likely be brought up to par with the $175k house for less than half the difference in price. That represents a value of $15,000 to $20,000.

The market is being driven by people that want to move right in. Buyers that are willing to take a property that needs some work can find excellent values in bank owned properties or short sales in need of light repair. There are deals to be had for those willing to get their hands a little dirty.

Don't Overlook a Home's Potential

Our local real estate market and many markets around the country have transitioned into a seller's market after several years of a very strong buyer's market. The upper half of the price range is still fairly neutral but the lower half is clearly favoring sellers. In a seller's market, buyers must be able to look past minor imperfections if they want to find a house at a good 'value'.

Photo from Anthony Real Estate, via Google Images

The turn key, move in ready, charmer will get bid up over asking. Often those homes end up being less of a value than that cosmetic fixer buyers sometimes look past. Paint and indoor decor are easy to update. A bad roof or siding can be more expensive, but often homes that have been left with that old 1970s interior are overlooked. Updating an otherwise solid older home can be done over time as the buyer lives in the house. all too often throwing in some new carpet and a fresh coat of paint can completely transform the feel of a house. These dark old houses may sell for ten to fifteen thousand less and require half that for the remedy. Therein lies the value.

For first time home buyers, it is imperative that they take advantage of our current low interest rates and our still fairly low prices. I have attached an article from Realtor.com that offers some good insight into cosmetic fixers.

Cosmetic issues are easy to remedy
By Michele Dawson

Home shopping for first-time home buyers, it's an exciting, albeit nerve-wracking, experience. If you're like others in the market for their first home, you probably have in mind exactly how your soon-to-be home will look. But it's important not to fall into the bad decorating, dingy walls and dirt-bare back yard equals bad-home trap. If you don't see past the hideous wallpaper, funky light fixtures and avocado green carpeting, you may miss out on a home with great potential. And, if you're looking for a home in a seller's market where homes are being snatched up as soon as they go on the market, you'll come to realize you can't be choosy if you want to make a competitive offer.

One of the first things to do is to get pre-approved for a loan and determine the maximum you can afford to offer for a house. Don't look at homes that are asking for more than 5 percent above your maximum, otherwise you'll be setting yourself up for disappointment if you find the perfect—but outside your budget—home. So what to do? The floor plan of the home is extremely important. If a floor plan isn't quite to your liking, consider rearranging it or adding on. If you're looking at an existing home and will need to remodel or expand to suit your needs, the estimated cost of renovation needs to be considered when making an offer. Also, consider the features of a home: 

Walls. While these are among the easiest to remedy, they also make a huge first impression. If the walls need to be painted, are covered in wallpaper or are painted a color you find distasteful, picture them crisp and clean in the color of your choice—that's how they could look after you paint them. 

Floors. Like walls, carpet or floor surfaces that are old or outdated can be easily replaced. You could even ask for a carpet allowance in your bid, especially if you're in a buyer's market. 

View. Things like old, ugly—even dirty—windows and window treatments can make a view appear less desirable. Those things can be improved, so unless the only view you have is of your neighbor's clunker on the side of the house, don't get hung up on what is surely a fixable view. 

Landscaping. Your best bet is a moderately landscaped yard because you can always improve landscaping without spending too much. Worst case, even if you're looking at dirt, landscaping is one of the easier projects to tackle. Plus you get to design it however you'd like if you're starting from scratch. 

Closets and garages. You can never have too much storage space, which is why so many newer homes have three-car garages. But if you encounter a converted garage that is now a bedroom or storage room, don't give up. Converted garages can almost always go back to their original purpose without much cost or labor.

Kitchen. The most popular room in the house, many homeowners want their kitchen to be large and have modern appliances. Don't let outdated color schemes deter you because there's nothing like a fresh coat (or two) of paint to make a kitchen your own. Plus, if you like the rest of the house enough to make an offer, you can give the kitchen a minor spruce-up with some new appliances or a major overhaul complete with new counter tops, cabinets, and flooring.

The exterior. If the home doesn't have good curb appeal, try to picture it with a fresh coat of paint and revitalized landscaping.

Pools. If you want a pool, buy a home with a pool already built in. Pools are expensive and you will not get a full return on the cost when you go to sell. Let someone else lose the return. The cost of repairing a pool is less than putting one in, so if you're looking at a home with an old pool that looks like it's in bad shape, it's still a better bet than putting one in later.

When making an offer, consider what you can't live without, as well as your budget. Also, be sure you hire a professional home inspector to inspect the house. If the home's systems are in good working order and the house has everything you want except a minor item or two, make an offer accordingly. Most importantly, keep in mind that unless you're building your dream home from scratch, you'll probably never find the perfect home. But seeing past a previous owner's bad decorating choices to the core of the home and its potential for livability will yield you the home you've always wanted. It may take some work, but hey—it's yours.