Economy Should Keep Demand up on Real Estate

The latest economic numbers are out and the second quarter produced a strong 4.1% annualized expansion rate. This is going to increase consumer and commercial confidence as well as job expansion. These kinds of economic conditions almost always benefit the real estate market.

Although interest rates have been creeping up all year long it cannot be overstated that rates remain well below the established 50 year average. Long term mortgages continue to offer excellent investment opportunity in both residential and commercial real estate with a cheap cost of money value proposition.

In our local market we still have a shortage of apartments and that shortage is being addressed with massive numbers of units under construction right now. More locally, Vancouver USA has a variety of apartments from luxury units to affordable units coming online to alleviate tremendous pressure on the rental market. That may make some of the owners of older complexes tear up as they may actually have to return to more market rates as these newer units come online.

In the resale homes market I am continuing to see more new listings than new pending sales and that indicates a trend towards more inventory. These things take time to develop especially when considering that the Portland - Vancouver Metro area has had one of the tightest inventories of rentals and resale properties in the whole country over the last few years. 

If the trend plays out to the end of the year buyers will have the upper hand across all price segments except the ultra tight sub $300k range. As long as the economy continues to produce strong gains and employment remains at or near full levels, the real estate market will enjoy success. I do hope we can continue with this trend of 3% or better growth quarter in and quarter out. It all bodes well for real estate and life in general.

Clark County Continues its Strong Growth

The Columbian recently had an article outlining the recent growth projections and cited a number of sources including Washington State Department of Finance. Our county is expected to reach a population of around 640,000 by 2040. That may seem far off but its only 22 years away! 640,000 may not seem like a huge number but Clark County is a very small county in terms of physical area. With just 628 square miles of land within our boundaries we are the smallest in size other than the tiny island counties in the Puget Sound and Wahkiakum county near the mouth of the Columbia River.

Comparatively Clark County has a high population density with 750 persons per square mile. Only King County has a higher density although Kitsap is very close. That means Clark County is an urban county. Yes we can still drive out into the countryside and see horses, cattle, orchards, and vineyards. But we are still packing them in tight, particularly along the Columbia River. Our 471,000 residents rank us at 5th by population among Washington's 39 counties and we are the fifth smallest by area.

Measured against our Portland Metro neighbors we are slightly less dense than Washington County which has a density of 808 per square mile and well behind Multnomah and her 1839 per square mile. Multnomah County is nearly fully built out, so it has little room to grow. Washington County is trending at 17% per decade on pace with us.

Growth tends to act as a regulator in real estate. Strong population growth is fueled by both an attraction as a place to live and a community willing to provide the space. Clark County has both. The willingness to provide the space keeps real estate prices manageable. Once an area loses the ability or desire to provide space in the form of development, real estate prices can skyrocket until the demand or desirability wanes. Skyrocketing prices are not nearly as good economically as modestly increasing values. Like the fable of the Tortoise and the Hare, skyrocketing pricing leads to strong corrections. The hare rockets ahead only to be "distracted" by downturns as the tortoise passes by.

Many areas in California have had harsh boom-bust cycles. Clark County is poised to enjoy a strong balanced real estate profile over the next several decades. Sure there will be some market adjustments along the way, but this area continues to attract residents and local governments continue to provide development opportunities. 

Real estate in Clark County is a strong bet for the future.

This Market is in Desperate Need of New Listings!

This local market of ours is really screaming for listings. There are buyers lined up around the block and they are all in a bidding war to get a house.

While this is very good for sellers, it can lead to market problems as buyers become so discourage they just leave and go rent something.

Sellers are in the proverbial, 'catbird' seat right now and that golden sales opportunity may only last a short while. The market wants and needs fresh new inventory to help satiate the the thirst of all those buyers.

Many people associate this kind of rapid price increase as healthy for the market. It really isn't healthy, as it is not sustainable. A healthy and robust real estate market is one that grows at 4-6% annually. Double digit growth if allowed to persist for too long leads to uncomfortable negative adjustments.

That's why this market needs an influx of new listings now. Buyers are clamoring for opportunity to get into the real estate market. With inventory tight they are struggling to find homes they can buy. For quite awhile banks were holding on to their inventory to avoid having a flood of inventory crash the market. It's high time those banks start releasing a slow and steady flow of REO back into the market. Just enough to take the edge off the entry level market.

Homeowners that are currently living in a entry to mid level home that has a value less than 110% of the local median are in prime position to make a move up. The pressure on the bottom 60% of the market is intense and the step up market at 110-150% of median is much less competitive, This means a seller can sell their smaller home and get top dollar while having an opportunity to buy that dream upgrade house that does't have the same level of market pressure.

Don't get me wrong, there are buyers bidding strong on $400k homes as well, but I am not seeing the frantic crazy overbidding on the top half of the market like we all are seeing in the bottom half. Selling that $280k house today and stepping up to that $380k house is a pretty smooth deal for those in position to do it. Yet so many are choosing to stay put.

Any homeowners sitting in a 3 bedroom 2 bath 1500 square foot house wondering if it is a good time to sell. The answer is YES!

Economic Indicators are Trending Up; "Op Window" is Closing

Many market analysts are mildly bullish on the numbers coming out of the marketplace as we enter the final quarter of 2014. For me personally as a Realtor®, this was my strongest year ever. I enjoyed sales that were even better than the pre-crash heyday of the mid-2000s. Low interest rates and improving consumer confidence has made conditions for real estate ripe over the last two years. In 2011 through the middle of 2013 the first time home buyer segment was roaring. Prices were still a little depressed and rates were low so people that had been long priced out of the market saw a rare opportunity to own real estate. Economic recovery and confidence has led to a spill over into the middle and upper end markets.

Looking forward; the strong potential for the economy to swing into a more robust growth could lead to rising interest rates. If the rates get too high, they can have a negative effect on real estate sales and appreciation can slow. The "op window" for many buyers may be closing. Prices have swollen over the last two years by nearly 20%. If rates were to get closer to the 30 year average and settle in at 6%-6.5%, many entry level buyers will find themselves priced out. A strong economy is a good thing and even higher interest rates are worth having when strong job growth and higher incomes are part of the equation. Right now, buyers are in the open window of opportunity. They can lock in a low interest rate that can save them tens of thousands of dollars over the life of the loan before the improving economy drives prices and rates up.

Fear and uncertainty are what keep people from buying real estate. But no matter what, people need a place to live and buying right now for many people is just as affordable as renting. As the economic conditions improve the cost to own will rise faster than the cost of rent and that window will close as well. It is a good time to buy and a good time to sell.  

This was published by Kiplinger this month:

By David Payne

The economy looks better than was previously thought: Look for about 3.5% growth at an annual rate in the third quarter, driven by motor vehicle sales, business equipment, exports and nonresidential construction. A likely upward revision of second-quarter growth to near 5.0% after a dismal first quarter (a -2.1% growth rate) is also likely. In the fourth quarter and into 2015, growth should settle down to a 3.0% rate. That would mean average GDP this year would be about 2.2% over the average for 2013.

Setting the stage for more sustained growth in coming months: After wringing out inflation, disposable income grew at a strong 4.0% annualized rate from December 2013 through July 2014. Consumer confidence is at its highest level since before the recession. Motor vehicle sales in July hit their highest level in over eight years. An index of manufacturing activity points to strongly expanding output. New orders for business equipment have climbed 13 percent at an annual rate since May, indicating strength in business investment spending. Plus, hiring is on the rise, layoffs are scarce (indicated by a very low rate of initial unemployment claims since May), and retail sales have rebounded.

And growth may accelerate more dramatically through 2015. Improving business confidence could push investment growth back up. Consumer spending and confidence remain below what would be considered normal levels by the standards of past economic expansions. As job growth returns and consumers feel more secure, more robust income and spending increases may well be triggered, pushing second-half growth over the expected 3% pace. While that happening in what remains of this year is an outside chance, it’s a good bet that in 2015 such a virtuous cycle will kick in.

There is a slight possibility that rising interest rates next year could have a mild depressive effect, knocking growth down from an above-average (better than a 3%) rate to a simply average (2.5%) pace. For now, however, we expect that the likely small increase of a quarter- or half-percentage point in rates won’t have much impact on GDP growth.