Inventory continues to be tight

It seems that the market remains very tight on inventory anywhere near the median price. It looks like one has to get to 150% of median before inventory starts to push beyond 2 months. With rates creeping up and buyers scrambling it is still a tough go for the under $400k buyers.

I seem to be unusually busy for the dark and wet season. There is also some indication that we may see some inventory levels swell a bit as spring approaches. I welcome a little bit of moderation in the market.

Right now rates have been slow to move, but they are definitely headed north on the chart. This is just a year to date chart so it is only four weeks, but this could be an ongoing trend. For buyers this means time is of the essence. Even if inventory doesn't open up in the spring, rising rates will thin the herd of buyers and that will result in a softening of appreciation. Most analysts are still counting on modest home price gains for 2018.

I have said it many times before on this blog, rate is a much bigger killer of deals than price. For conventional loans the benchmark for house payment to income is 28%. Of course there are things in a buyer's profile that can create a variance. To push that number higher the borrower might have exceptional credit, extra large cash down payment, large savings, or any combination thereof. Government loans often have a housing ratio that can approach 40%. But if we use the standby rule of housing payment at 33% or 1/3 of income that means every dollar the payment increases the income must be $3 higher.

A borrower approved for a $300,000 loan at 4% will have a payment of roughly $1800 a month including taxes and insurance and this assumes no mortgage insurance. That typically requires a gross income of $5400 per month. Of course I have seen lenders under the right circumstance allow much more than 1/3 housing ratio, but a third is a solid baseline. If rates increase to 4.5% then the buyer is looking at an $80 per month increase in payment and thus will need $5640 per month in income. Don't forget that over a five year period the home owner will pay $4800 more in house payments at 4.5% than at 4%. Over the full thirty years... are you sure you want to hear this? You need to! $28,800 That is all interest for the bank and its investors that could have been in YOUR pocket.

Interest rates will need to rise all the way up to 6% just to get to the 50 year average so don't fret higher rates, just understand that if this trend continues, you will pay more even if prices were to drop in say 2019 or 2020.

Home ownership is mostly about equity investment. You own the property and you gain equity as you pay down the loan and prices rise. Rates and prices and all the drama, isn't worth diddly squat if you don't take advantage and buy your own home while you still can.

The Two Hundred Thousand Dollar House is Elusive, But Not Dead Yet

975 SF, 3 bed 1 bath, $199k

Here in Clark County, Washington the housing prices have been robust. Maybe just a little too robust, but none-the-less homeowners that were once underwater to the bank are now finding themselves free to sell and move up or down as the case may be. Interestingly enough, sellers are sitting tight on their homes, and this has created a flush demand for entry to mid-level homes locally.

The $200,000 dollar price point is beginning to vanish in this market. Sure there are fixers and super tiny homes as well as condos and townhouses, but the single family detached dream is getting tight at $200k. I have a young man interested in buying his first home. He is looking to keep it around $200k and wants to use the USDA lending program. This loan program is designed to serve rural areas but there are a few here in Clark County.

1506 SF, 3 bed 1 bath $199k 

The bottom line is that buyers can still find some properties in good shape under this thresh hold. In close to the city, here in Vancouver, these will be fixers or really small houses. In the outlying areas such as Washougal and Battleground there are still opportunities for a decent sized home around 1100-1400 squares either modern and attached or older and detached. Many of these properties will qualify for a variety of financing options. Buyers need to be aware that most of the government sponsored loan products, FHA, VA, USDA, etc. have requirements that may exclude a "fixer" type house. There are other programs designed specifically for fixing up a troubled house, those a bit more complex and buyers should consult with a qualified loan officer about how they work.

This entry level housing market is almost always in demand. During the recent hard recession (2009-2012) I sold a great deal of homes in the entry level price range. The tough market conditions created a whole new class of buyers in a much more modest income bracket. Back then, I wrote articles about two minimum wage earners qualifying to buy a real house! These buyers are now sitting pretty with a nice chunk of equity in the homes they paid $125-150k for now valued at $200-250k.

The entry level buyers are the most vulnerable during an upswing in values. They can easily be priced out of the market by either rising home prices or rising interest rates. The whole new class of buyers I mentioned above are already priced out of this housing market. The window has closed locally for two minimum wage earners to buy a detached single family. Buyers in the higher prices ranges may not get priced out, but they can get priced down, meaning they may have to downsize the dream if they sit on the fence too long.

Sellers are in a prime zone right. Selling in the middle of an upswing can be good for the move up housing market. Sellers can let that entry level home go, use that equity to buy up to the larger home and still enjoy some market appreciation. Waiting too long, like people did in 2007-08 can result in being "stuck" for a few years when the market dips down. In my book 'Don't Panic', the whole theme is to buy low and sell high. We are running slim on the buy low opportunities so don't sit on that entry level house much longer. Sell it and grab your new house while their is still strong upside potential on the value.

Ready, Set, Sell it!

The summer market is still looking warm and delicious for sellers. Turn key, move-in ready properties are still the habanero sauce in this real estate tamale. There is however a shortage of well-priced listings in the low to mid price ranges in general. Buyers are lurking about in every neighborhood, looking for an opportunity to capitalize on low interest rates. There are also many buyers still looking for a "deal". They likely won't find it in a clean ready to live in home, but they might find it in a less complete home that needs a little TLC. Many buyers are realizing that the 'screaming deal ship' left port a few years back. They still want a deal and a less than perfect listing could be mutauly beneficial for buyer and seller.

Generally speaking this market likes clean and tidy listings and any house that needs some love and attention falls into the rule that ten will get you twenty. If a seller has the cash it is usually well advised to spend it and take advantage a market full of thirsty buyers seeking refreshment in the form of a sharp looking home. If a seller is tight on cash then they still may have an opportunity to sell their home to one of those "desperately seeking a deal" buyers that are plying the real estate ads every day.

The only thing missing in the market is listings! Many homeowners may be unaware that their previously upside down house could very well be in a profitable position to sell. The median price in Clark County Washington is now roughly 90% of the 2007 median price. We are well on pace to return to the 2007 median values sometime early to mid next year. Numbers vary slightly from source to source but the bottom line is that many homeowners are in a position to sell. They also may not realize that their home has scores of potential buyers just waiting for an opportunity to buy it.

Sellers are advised to consider that as their current home escalates in value so does that home they will replace it with. Many sellers are upgrading to a more expensive home. A ten percent gain on their $200,000 home is $20,000 but they will have a $30,000 price increase on the $300,000 upgrade house. So those potential sellers are in that twenty will cost you thirty situation and waiting to list may or may not be the best course of action. Homeowners should sit down with a trusted real estate professional to determine whether or not now is the best time to sell. For some sellers waiting a bit longer may yield better results. The decison to wait however is always based on the uncertainty of the future. Caution is always advised when planning ahead based on current market trends. The market does not always do what people want it to do. For sellers looking to upgrade, selling now may yield a little less on the current home but could save thousands on the upgrade.

Sellers should also understand that this real estate market is very healthy but it is not the rabid, frothing at the mouth, anybody can get a loan, market of the mid 2000's. An overpriced listing in any condition will sit. Buyers will scrutinize price. Sellers should avoid the greed factor because today's cautious buyers want a house but they won't be taken for the proverbial "ride". Seller's also need to understand that appraisers are less liberal with overpriced homes than they were prior to the "crash".

It is mid-June and this is the time to jump into the market with a new listing. Buyers love to close in the summer, especially if they have children. They also don't like to move in the rain and snow, so summertime is not just hot on the thermometer, it is hot in the real estate market as well.