Seller's Need to Relax

This recent upswing to a seller's market has left many seller's with a serious attitude problem and the market is starting to make an unfavorable adjustment. Seller's are finding that buyer's are leaving the market and this has reduced pressure on inventory. It is still very much a seller's advantage, but the craziness of last spring has softened into a more healthy condition.

The problem is that seller's continue to exert pressure on buyer's as if they had ten offers in line when in fact they have just one. Buyer's are leaving the market in frustration. This market has shifted back into a more traditional situation that still favors the seller in the lower portion of the price range up to about 10% above median. But sellers need to actually "sell" their house and being rude, making it difficult to show the home, demanding unreasonable closing periods, etc. are going to lead to disappointment for them. They are leaving cash on the table by pushing away potential buyers with a bad attitude.

Regarding timelines, there are many things delaying closing times right now, the most prevalent is the ridiculous appraisal situation. Appraisers are quoting 4-6 weeks for an appraisal and then extorting cash to get it faster. Right now we have a racket being run by appraisal companies that are basically selling appraisals to the highest bidder. There is no accountability at all and as usual the federal government has screwed the system up. I have heard of appraisals being bid up over $2000. This is a practice so egregious that it would make the Godfather blush.

Locally the cost of appraisals has more than doubled int he last 12 months. It is time for "El Federale" to crack down on these appraisers or better yet mandate that the banks pay all appraisal fees. After all it is the banks that demand appraisals, right? Believe me, if the banks were paying they would kick the appraisers teeth in before succumbing to this latest round of extortion.

Once again the government under the guise of protecting consumer rights has gone off and created a situation where pure unadulterated greed reigns supreme and the ultimate victim of this unregulated catastrophe is of course, the consumer. Classic. I find it interesting that appraisers were offended that they were targeted after the collapse of the market in late 2008. There were some appraisers on the take back then, puffing up prices for dirty loan officers to get cash out refinances pushed through. I have no doubt that these dirty scoundrel appraisers were a minority representation of the industry. But they certainly have not helped buff out the tarnished reputation with this current trend of plundering the public like an 18th century pirate. Ahoy matey, raise the black flag, there be treasure to plunder in thar appraisals...

Our Healthy Market

Despite some media claims to the contrary the current real estate market in Clark County and the greater Portland Metro Area is not as hot as it was pre-crash. Don't get me wrong, the market is hot, but we are not seeing double digit growth across the whole of the market. Some areas are hotter than others and certain segments are crazy right now. The entry level market is a 'dog-eat-dog' situation with a frenzy of multiple offers on well priced homes under $240k.

Data for the local MLS for Clark County, WA reveals a healthy market. Remember, the robust boom is exciting when prices are rocketing into the stratosphere, but those conditions often suffer a hard landing. Real estate pricing is limited to the market's ability to pay. Incomes only rise so much. We are in a nice healthy situation where home prices are rising nicely, providing equity for homeowners but also staying somewhat in check with incomes. Right now the median household income in Clark County will buy a house priced at 85% of median. Although this is a little less than ideal, it is very healthy especially when compared to markets in California such as Sonoma County where the median household income buys a house priced at only 55% of median.That is not healthy at all. The quality of life in a community where only the wealthy can afford homes is miserable. That is also not sustainable, and this is why those types of markets suffer a boom-bust cycle that is often severe.

We are very fortunate here in the Portland-Vancouver Metro area to have reasonably high incomes and moderately high home prices. Yes this real estate market is more expensive than markets such as Spokane, Boise or Salt Lake City, but we are within 10% of the income in most California markets yet have housing that is anywhere from 20-70% less expensive. That is in a word... "Healthy". Affordability is the key and it remains important to keep housing available to working class people here in Clark County. 

Our local government may have to back off the heavy development fees imposed on builders willing to build in the sub-median market. Governments can be greedy and that is no way to serve the people. I can't help but notice that much of the building boom in new residential construction is coming in well above the median pricing. This is largely because development fees are so high builders simply cannot make a profit building $250k houses. The demand for these homes is astronomical. It will be interesting to see if the local governments can help pave the way to retention of working class home ownership.

The Sales Data Looks Healthy

I just spent the better part of this morning analyzing recent data from our local Multiple Listing Service and decided to run my 13 month analysis. One thing we often get in real estate is snippets of data year over year. This can be a good quick check to see which way the market has moved over a year, but lacks the insight provided by a monthly look at the trend over that whole period.

Many people like to see great leaps in price or sales but that can be unhealthy. Of course it is not as unhealthy as a depreciating market or precipitous drop in sales. But a rapid rise can lead to a premature peak and result in an uncomfortable drop in the market. Think about the four years of 2004 to 2007.

Data acquired from Regional Multiple Listing Service for Clark County, WA 
9-2012 through 9-2013 single family homes, excluding condos

Generally a modest and smooth appreciation in home values along with solid relatively flat seasonally adjusted sales is very healthy. Guess what? That is exactly what we have right now. The 50 year average appreciation for homes runs right around six and a half percent per year with a little more in up markets to offset the down markets. So an 8-10% annual appreciation over a decade is pretty healthy.

The median price for Clark County, WA is up from 197k in September 2012 to 237k as of September 2013. That represents a non-seasonally adjusted jump of around 20% but the curve will flatten again as we approach the winter. That sharp increase is a much driven by a movement from entry level buyers to mid level buyers as it is about actual appreciation. What I mean is that the inventory for the 125k-150k move in ready home dried up. Most of those entry level buyers are still making the same income they made a few years ago and they are priced out of the market. However those who sold their entry level homes a year ago made the move up in the last year driving the move up market. That moved the median price up disproportionately to actual appreciation.

I believe we will see a 30 month growth in median price starting from June of last year and ending on January 2015 at close to 30% which will average to around 10% annually. This is would be healthy. The current flat economy will keep things well regulated and without some improvement could lead to a fade in this valuation bump we had recently. The first spurt of growth is also often bigger as fence sitters jump into the market. If the market growth slows to a more modest 8-10% that is not a bad sign. On the contrary, it could lead to a steady long term rise in prices that is sustainable over a decade or more.

All that said, the real estate market is affected by many variables in the economy. Interest rates are a strong driver of real estate sales and they have been in the basement for several years. They could be on the rise as the federal government backs off their support of mortgage securities.  Even if rates continue their upward march toward normalcy, the market can still enjoy some growth. The fed will most likely continue their support of rate suppression until the economy is on solid footing. A growing and healthy economy will produce more qualified home buyers. We will lose some entry level buyers to higher rates but gain some in economic upward mobility as things shape up on the job front.

Inventory remains tight but there could be a pent up supply waiting to come on the market. Many people have been sitting on those homes they bought in the boom of '04-'08. They bought at or near the top of the market and have been unable to sell since the crash because they owe more than the market will pay. That is beginning to change as the prices move upward. Many of those people will soon be in a position to sell and many may exercise that option to take advantage of these still relatively low interest rates. Furthermore it has been reported that many banks are strategically holding on to REO inventory which adds to that potential inventory increase over the next few years. An increase in inventory will flatten out the sharp appreciation, but the availability of willing buyers should keep things modestly improving. Overall the real estate market is in position to enjoy a sustained gentle growth pattern that is healthy and beneficial to a recovering economy.