Stock Market Tanks, Is Housing OK?

Wall Street is having a hemorrhage over the Corona virus (COVID-19) and the broad stock market has managed to shed more than a quarter of its value in just two weeks time. Is this as bad as it looks? The short answer is: "not really." In my estimation the stock market was a bit overvalued and all it needed was a trigger event to cause some major adjustment. This sell off is an overreaction to a near non-event. However the over reaction may be deliberate on the part of the major market players, the uber rich.

In contrast to the so called "Great Recession" that began at the end of 2008, this event is not being "triggered" by an underlying financial crisis like we had in 2008. Leading up to the last recession, back in '08 there were several real and identifiable problems including a fair bit of corrupt behavior in the mortgage lending business as well as a few government fails on SEC regulations and banking. The 2008 crisis was real. This crisis is simply an excuse for super rich billionaires to take massive profits on what was largely considered to be a puffed up stock market.

The core economic indicators are still much stronger than they were in 2008. That said, this could potentially become something to worry about if the actual job market starts to soften as a result. I still think that isn't going to happen just because of this Corona scare and the recent Wall Street sell-off. A broad economic downtown will require other issues than an overblown virus. Make no mistake, the Corona virus is being exploited. As of this writing less than 5,000 people have died from this COVID-19 virus, on a planet populated by 7.6 BILLION. This year's influenza season (flu) is expected to take the lives of some 700,000 people worldwide. 

Although Corona virus is more aggressive in its spread and in certain risk categories it is more deadly, it however is not a big enough problem to warrant the market response we see here. It has become political in nature and that has created as much a problem as the actual virus itself.

It is important to remember that the rich billionaires that sold early in the market slide are sitting on massive piles of cash. These guys sold off $6.5 trillion last week, this week all of the small investors were in a panic and sold off their positions making matters even worse for them and BETTER for the rich guys. The billionaires will come back into the market after the dust settles and buy back their positions for 60 to 70 cents on the dollar. They will make all the money back again plus a tidy bit extra. Right now about $10 TRILLION in stock market cash has exited the Wall Street equities market and now is circulating in other markets.

What is important is that there is idle cash in the marketplace right now. The billionaires don't like idle cash. Even if the super rich start buying back stocks soon, they will ultimately have surplus cash and some of that cash will likely find its way into the economy via lending, capital investment, and venture capital. Much of this will drive real estate projects that often need large chunks of up front cash to get started.

Treasuries are not yielding much at the moment so investors will look to bonds, mortgages, and other real estate funding for better returns over the long haul. Again the investors will come back to the stock market after the panic subsides and when that happens some of this potential cash for real estate development will go away. Developers should be jumping on this opportunity for financing NOW!

In the current marketplace we still see strong employment, rising wages, low mortgage interest rates, and healthy investment in real estate. The housing market still looks pretty rosy for the rest of our spring season. I am seeing a tightening in inventory and more aggressive offers from buyers and that is also an indicator at least for the short term that conditions in housing are solid. 

Stock Market Rally Pushed Rates Up!

It is not uncommon at all, in fact it is quite normal to see mortgage rates move up when the stock market is strong. The last several days saw a tremendous run up on wall street with nearly every index blasting through all time records. Mortgages are competing with stocks for investor cash and equity has been moving to stocks all week. Investors are not looking for higher returns on mortgages and we saw a sharp adjustment yesterday.

Buyers don't need to panic, but this is an example of the potential for volatility in mortgages and thus the buying power of borrowers. This is a great time of year to buy a house. It tends to be a little more quiet and sellers are anxious about getting an offer before the holidays. Meanwhile sellers can rest assured that the people outside braving the chillier late autumn temps along with rain and snow are serious about buying a house.

Buyers can relax it is only a matter of time before investors start taking profits on all these stock gains and then that money will likely move back into the warm embrace of mortgage securities. This will release some pressure and lower rates again. These last couple of years have been wonderful for mortgages even with this latest uptick. This is not the normal state of mortgage affairs and a return to higher rates is inevitable at some point. Buyers are well advised to strike while the iron is hot and get the home of their dreams while it remains affordable.

Rates Tumble Again

Interest rates continue to be quite favorable and buyers thinking about SW Washington would be wise to invest in local real estate. I wrote last week about Oregon's HB 2001 which bans the Single Family Zoning in all cities in Oregon with more than 10,000 residents.

With rates in the basement and a strong chance for a rush to SW Washington as Oregonians flee the destruction of suburbia, real estate is as good a prospect as it has ever been. Oregon Governor Kate Brown signed several pieces of real estate related bills including HB 2001 over the summer.

Clark County already has a slight real estate price advantage over Washington County and Multnomah County in Oregon. But a rush of new comers across the mighty Columbia could put enough price pressure on our market to move us ahead of our southern neighbors. Buying now before the reality sets in over there could prove rather fortuitous.

Even if we don't see a mad dash north, these low rates are a perfect opportunity to get into the housing market or make the move up to your dream house. Many people fail to realize the significance of these super low rates. Lets say a homeowner bought a 1500 SF 3 bed, 2 bath house in 2014 for $250,000. Lets say it's worth $350,000 today. If the homeowner borrowed 237,500 at 5.5% they have a payment of roughly $1790. They owe about $218k and sell at $350k. Minus closing expenses lets say they walk with a 100k. Now they buy a $500,000 house, much nicer and put down 20% which they just pulled out of the house they sold BTW. The new house won't have mortgage insurance but it will have higher taxes and a bit higher payment coming in at $2300.

But what about the people that bought in 2011? They probably got the same 1500 foot house for $200,000. Their payment is $1300 a month. They owe 155k and sell for the same 350k. After expenses they walk with a very tidy $165k. That shiny new half million dollar home will cost them $1900 which is pretty close to what their current house would rent for.   

Real estate is amazing and one of the best ways to grow wealth for average citizens.

Inverted Yield Curve Aids in Market Panic

Earlier this week the Stock Market shed some 2-3% of its value on one trading day. The DJIA dropped 800 points on Wednesday after the markets showed an inverted yield curve with short term interest rates higher than long term rates. This is sometimes a precursor to a recession and that has investors spooked.

Now the reality is that inverted yield curves do often appear before an economic slowdown, but it is by no means a definitive harbinger. In fact there are many reasons that investors might pour assets into long term bonds and some of that action may of actually been from turbulence in Hong Kong. The US economy is not quite as robust as the White House likes to tout, but it is pretty far from recessionary as well. Employment is maxed, wages continue to climb, and consumer confidence remains high.

The inverted curve is likely to be short lived and the market scare may have provided a convenient opportunity for investors to take profits after record high stock values earlier this summer.

All economics aside, the interest rates on 15 and 30 year mortgage notes will benefit from an inverted curve as long term rates dropped allowing more people to qualify for home loans and pushing the qualifying values higher.

Our local real estate market is a tale of two markets really. Homes priced up above 150% of median are in a bit of an inventory glut and sellers are reducing prices while buyers take their time. Meanwhile in the entry level market at 120% of median and below buyers continue to face stubborn sellers and multiple offers on well priced properties.

Things are actually healthy in the local market with strong sales activity and excellent economic indicators for the next several months, possibly into next year.

Analyst Projections are Softening for 2018

The overall Portland Metro area has already seen a slowdown in the rate of price appreciation in the first 1/3 of 2018. There is near unanimous analyst agreements that market conditions will soften as the year progresses. For buyers that may not seem like the case especially resale buyers in places like Portland, where inventory remains critically tight.

A low inventory definitely tips the scales towards sellers int he supply and demand view of economics, but demand in real estate is a little different than demand in many other commodities. Demand for real estate is almost always high, but the problem isn't that there aren't ready and willing buyers, there are plenty; the problem is that there are many "able" buyers.

The greater Portland-Vancouver market has seen housing price growth so outstrip income growth that many ready and willing buyers are simply no longer able. Many sellers still believe they can list their home for a sky high price because they have a "rare" commodity. But having something rare still requires having more buyers than sellers. For example, if I have a rare and desirable item that I price so high no one can afford it, I will not sell it, even if it is the only one on Earth.

One real classic trap that I see seller's right now falling into is the chasing down the market. Last year a seller could float a high price above market and get away with it. Buyers outnumbered sellers so much that someone would always step up and make an offer close enough to close. But now I am seeing, and the analysts have confirmed, that strategy is leading to a series of price reductions from sellers.

A series of price reductions puts buyers in a position of strength against sellers. As interest rates rise the pool of eligible buyers shrinks. Sellers are well advised to price their home at market pricing because higher interest rates reduce the buying power of prospects for the home. Remember inventory IS in short supply, but recent conditions have also reduce the supply of "able" buyers. This local market is moving into a neutral status where it is neither a seller's or buyer's market. I still think current conditions tend to favor sellers, but another few upticks in interest rates could level the field.

For younger buyers that have never seen a mortgage rate above 6 percent, I'll tell you this. The 50 year average rate on a home loan is still above 6%. Young people have seen these historic low rates as the "norm" when in fact this has been an abnormal decade for interest rates which are now beginning to normalize. Paying 6% on a mortgage loan is still reasonable when compared to the long term averages.

That however does not mean the buyers shouldn't try to score a house while rates remain lower than 6%. Interest rate is a much bigger impediment to buying a house than price. Interest rates will likely rise faster than prices this year, so buyers should focus on their ability to pay, not trying to grind out the lowest price on a house.

So overall Clark County, Washington saw roughly 10% growth in the median home price from 2017 to 2018, most analysts are projecting 2018-19 growth to be about 1/3 that in the 3% range. So prices are still rising, but not at the rate they were last year. Incomes are the limiting factor. For buyers, the price slowdown may feel like a reprieve, but combined with the up creep in rates the purchasing power will make the market "feel" like it's rising just as fast as last year.

Sellers need to be cautious, analysts are not the end all be all. Market conditions can be fragile, and they are in my opinion fragile right now. If national and local economic indicators remain strong most of the analyst projections will likely pan out, but any negative economic factors could lead us back to a buyers market. Sellers: A bird in the hand is better than two in bush, in 2018.

Spring has Sprung... Real Estate should follow...

Yes it is spring and the real estate market generally likes the springtime! People start thinking about moving. Buyers want to get out and look at the homes on a nice spring day. Sellers want to get their house on the market before everyone else does. The cycle repeats in some form or another every single year.

The market tend to warm up in the spring. This spring seems to have the added braking effect of interest rate creep. Yes those pesky rates have been inching higher and that can take a bite out of the buyer's wallet. But I don't think that will stop the market from doing its fresh spring dance. Inventory should increase a bit and buyers may jump in as well.

I still feel strongly that 2018 will be a much more modest market in terms of price appreciation. The tug of higher rates will likely keep things under a sustainable growth pattern. Vancouver is bringing hundreds and hundreds of new apartment units to market over the next couple of years and that will ease some pressure on housing in general.

The real factor in whether this local market can continue to sustain solid growth will be int he job arena. Will the area continue to add good paying jobs across a diverse sector of business? If so we will continue to see a great and healthy real estate market. If not, then things will slow down abruptly.

The market is showing signs of a slight softening, not a pull back mind just a slowing in the rate of price appreciation. Buyers with tight budgets need to make their move now as the double jeopardy of rising prices and rising rates in in play.

Things are looking healthy and bright for 2018.

Thousands of Condos and Apartments Coming...

Vancouver and Portland are both bringing thousands of new condo and apartment units online over the next few years. The local rental market has been as tight as the local housing market and these units should help to ease the puffed up rents, particularly over in Portland.

These new units coming online locally in Vancouver are by no means limited to the massive waterfront project that has phase one under construction. The first series of units should be available sometime this summer at the waterfront.

A great deal of new units has come online in greater downtown very recently including a sizable project called 15 West apartments on Mill Plain between Esther and Columbia, another project at 13th and Columbia, Senior apartments at Mill Plain and Esther near VanVista, and the Uptown building recently complete at 17th and Main. Also under construction is Our Heroes Place at Mill Plain and E Street.

Apartments are under construction all over Vancouver in an effort to keep up with an increasing demand. The waterfront apartments and condos are not likely to be in the "affordable" range. The city will have a certain number of units for "affordable housing" as part of development package, but most of these units will be more expensive as this is a desirable location with Columbia River waterfront exposure.

These waterfront and downtown mid-rise and high-rise apartments and condos will be a little more expensive but they will take the pressure off of the rents in more modest apartment complexes that have been pushing the boundaries ever higher on rent. A 2 bedroom 1 bath apartment in a suburban east Vancouver complex was easily had for $600-700 in 2007 at the peak of the market before the big "crash". While housing values plummeted, apartments suddenly became scarce as owners became renters in large numbers. Those same $600 units are now nearly double that amount. I would love to see a little rental pressure release to soften prices in older and less well maintained complexes and put a proper spread between the values of a more luxury complex against a more modest development.

Now that the city has opened up this floodgate of apartments, it is time to open up the floodgates for employers to come in with good stable, high paying jobs. Vancouver USA needs to aggressively go after employers from all over the nation looking to move to the Pacific Northwest. Our area is currently very popular all around the nation, we are a bit of a "hot spot" and this is the time to capitalize on it by getting medium and large employers to locate here.

Having rents moderate a bit will also take a little pressure off the purchase market and that might be a good thing. Inventory has been so tight that buyers are being squeezed to the last drop. A little less buyers would moderate the market and help keep a sustainable appreciation rather than marching towards a "bubble."

Things are looking good in America's Vancouver.

A New Market is Emerging

Pay close attention to this headline. A new market? Yes a new market. I am a representative of the last or youngest of the Baby Boomer generation and I have been being 'harassed', imagine a winky emoji here, by AARP for several years already. Baby Boomers have not been driving the real estate market for three or four years. In fact Boomers are rapidly falling in the market as many have already settled into that "final" house. Kids are gone, they downsizing, the whole enchilada of retirement or empty nesting.

It has been Millennials driving the market and as buyers they represent more than a third of all housing transactions. This generation of young adults is often maligned by the Baby Boomers and often in an unfair way. I am the father of two adult Millennials who like me are at the "young" end of their generation. There are many projections pushed out in the media that Millennials are lazy and living at home well into adulthood, failing to "grow up" et al. Mostly that is B.S.

If one dives into the data beyond the surface, one will find that Millennials have a much harder time getting out on their own due largely to outside economic circumstances rather than any failure to "Grow Up". Sure, being a part of the "participation trophy" era definitely didn't help, but the over-consumption driven economy of their parents is much more to blame. Wages in the US have been stagnant for two decades now and the cost of housing, taxes, and most non-tech products have outpaced income. Millennials, no matter how motivated, will have a tougher time "adulting" than us Boomers had. The deck is stacked against them, but they are holding some good cards to play.

Millennials find themselves facing heavy college debt or low paying non-college degree jobs if they don't have to aptitude for skilled positions like electricians or plumbing, etc. This creates a difficult transition and Millennials often need an extra five years to get on solid financial footing. Millennials are less likely to rush out into the world and fail financially, and this added to the aforementioned higher cost of living, is why we see a longer stay at home period.

The upside is that these young Americans aged roughly from 20-38 are proving to be rather frugal. Not in an annoyingly stingy way, but in a smart financial management sort of way. Surprise! Millennials are going to have savings values more akin to the WWII or 'Greatest' generation than their Boomer parents. Boomers have been a huge consumer driven group and generally poor savers, Millennials are proving to be savvy savers and this is a very good thing indeed.

What does this mean to the real state market? It means that Millennials will continue to drive the market and will likely have nearly half the market share of transactions by the early 2020s. They are now becoming a heavy market influence as did their Boomer predecessors. They however, unlike their parents, are practical, frugal, and well informed. They will be patient, they will save for a down payment, and they will be amazing home buyers.

Builders are in for an abrupt kick in the teeth at least locally. They continue to build giant expensive houses that are more in tune with what Boomers were buying twenty years ago. Boomers are downsizing and many builders are ignoring the fact that Millennials are far less likely to have a large family of more than two kids, and are less capable of buying a "big" expensive house. Sure Millennials would love to have the space, but they are proving to be more cautious with their borrowing.

Millennials with a couple of kids will likely buy more modest homes than their parents. The 2500 plus square foot homes are less appealing to them not because they don't want the space, research says they do want big houses. They are likely to buy a smaller 1600-2000 SF, but nicer quality home, than the cheaply constructed 1990s 'big -n-crappy' homes that dot the landscape of decades past. Millennials are late to the market and many are skipping the 'starter' homes. But in our local high cost market, they are finding that starter homes are all they can swing financially.

Builders need to look ten years ahead yet they are only looking at next year. This bodes well for resale houses as Millennials will buy what they think they can afford. I see this group of young people often spending less than the bank will lend them and that is wise beyond their years. This is in harsh contrast to Boomers and Gen Xers that were spending every last penny their credit would afford them.

A new market is emerging and it is a market looking for practical use of space, modest but spacious dimensions, and high build quality. It is a market filled with people that can actually save for a down payment. This new market is filled with buyers looking for value and demanding quality. These are not bad traits my friends, these are the strong traits of their great grandparents rather than the consumption mentality of the Boomers. Although I have seen a great deal of market data suggesting the Millennial buyers want a big house, they also want to spend less than the bank will lend them, they are frugal, and they appreciate quality. Something has to give and based on the high cost of living locally it is the size of the house that they will skimp on, not quality or value.

For Millennials in the entry level price ranges of expensive markets like our local area, they may have to push the limits of their borrowing capacity. They may not like it, but they will benefit in the long run. Millennials are driving the prices of smaller entry level resale properties up because builders locally are not building what they can afford or are willing to pay. Oddly enough, older Boomers are seeking the same properties as Millennials. Boomers are downsizing and Millennials are practical. It seems we are moving back into a 1960s style of three beds and pair of baths for a large swath of America, Boomers that didn't save enough for retirement and Millennials that can't bust out the big cash of our expensive market. Builders better wise up. because a frugal, practical, and savvy group is coming their way.

Now I am not suggesting that the sizes will return to the 800-1200 foot range of decades long past, but smaller is the new world order in high cost markets like ours. Boomers complain that Millennials want it all and they want it for less. With 80 million of them entering peak earning years over the next ten years, they will drive the market to them. Builders will need to find a way to provide large living spaces with a look and feel of yesteryear while maximizing land use and cost per foot. It's a tall order but it needs to be filled. Get ready America, a new market is emerging, and it looks a bit like the mid-century market we had 50 years ago. It's just that the group is 30 somethings, rather than 20 somethings this go round.

Crazy Week Ahead!

I have a crazy week ahead my friends so I will be on blogger hiatus till next week. Meanwhile take a look at this:

Although the market is slowing its growth rate just a touch and wages are moving in a better direction, this article still rings true.

The following is an article published nine months ago and based on trending data at that time. The market has softened up a bit, but the rising interest rates coupled with the wage problems discussed in this article could spell trouble if something doesn't give. The President-Elect of the United States is driving at skilled labor jobs and if he is successful that could alleviate the wage to housing slide we have been in for a good long time.

Home prices have returned in most markets to the peaks of 2006-07 but wages have not seen significant increases over that time. Let's hope our economy can start producing real jobs so more Americans can afford a home. In the meantime buyers should pay close attention to rate they perked up in December and appear to have leveled off, for a little while at least.

Fast-Rising Home Prices Plus Slower Wage Growth Could Equal a Problem

By Clare Trapasso | Mar 24, 2016 originally posted here.

As Scooby-Doo would say: Ruh-roh!

Housing prices are rising at a faster pace than wages across the U.S.—and that could spell extra trouble for those looking for a home to call their own, according to a recent RealtyTrac report.

The average worker typically spent about 30.2% of his or her paycheck on the combined mortgages, property taxes, and insurance premiums on a median-price home costing $199,000, according to the report. RealtyTrac looked at housing prices for the first two-and-a-half months of this year as well as U.S. Bureau of Labor Statistics wage data from the third quarter of last year, the most recent available, for the report.


That’s a hefty 26.4% over the first quarter of last year.

Home price growth outpaced earnings in nearly two-thirds, or 61%, of the markets tracked in the report.

“We’re heading in a direction where people are no longer going to be able to afford homes,” says RealtyTrac spokesman Daren Blomquist. “The fear: Is this heading in the direction of a housing bubble?”

The numbers are also a big jump from early 2012 when workers plunked down only about 22.2% of their earnings on their new homes. But it’s a significant drop from the titanic 53.2% that homeowners spent at the peak of the pre-collapse real estate market in 2006.

The report looked at public sales deeds in counties with at least 100,000 residents and average earnings data from the U.S. Bureau of Labor Statistics. Affordability was calculated based on the percent of earnings required to meet a 3% down payment (which, in the world of down payments, is pretty low) as well as make payments on the property taxes, insurance premiums, and a 30-year, fixed-rate mortgage for a median-price home.

Lower interest rates on mortgages have kept home buying still reasonably affordable.

But if those rates, along with home prices, continue to rise—while wages don’t—Blomquist worries only the superwealthy will be able to afford to become homeowners. Or prices could plateau or even plummet.

The worst-hit area tracked by the study: Denver. Buyers in that fast-growing city saw the biggest hikes in the percentage of their wages they shelled out to purchase a new home compared with what buyers had paid in the past.

“Our home values are increasing about 1% a month,” says Denver-area real estate agent Kristal Kraft at the Berkshire Group. “It’s insane. I’ve never seen anything like it.”

The Colorado capital was followed by counties in New York City; Omaha, NE; Austin, TX; San Francisco; and St. Louis.

Brooklyn, NY, was ranked the most populated county where homeowners saw the biggest increase in what they forked over for their personal palaces compared with previous years.

The most affordable market for wannabe homeowners was Boston, when looking historically at how much of home buyers’ paychecks went toward the purchase compared with previous years.

Next up were counties in Baltimore; Birmingham, AL; Providence, RI; and Chicago.

Here’s a surprise: The most populated and more affordable county was Los Angeles.

When housing costs rise faster than salaries, workers will often take a closer look at which jobs they can afford to accept and which parts of the country they can afford to live in, says Daniel Shoag, a public policy professor at Harvard University.

“You basically have a situation where it’s not worth it to move to expensive cities, if you don’t have a high-paying job,” he says. Or they’re just loaded.

However, it isn’t “out of whack” for homeowners nationally to spend about 30% of their paychecks for the roof over their heads, he says.

“But it could put the strain on budgets if [prices] continue to rise,” Shoag says.

Clare Trapasso is the senior news editor of realtor.com and an adjunct journalism professor. She previously wrote for a Financial Times publication and the New York Daily News. Contact her at clare.trapasso@move.com. Follow @claretrap

Robust Economic Acceleration Equals Higher Interest Rates

The engine of the American economy is starting to fire on all cylinders. The DJI average busted up over 20k for the first time ever this week and the 'bull' is on the loose. Companies seem to be poised for expansion and hiring; all of this leads to strong economic growth. That is a good thing and will be much needed relief to the anemic post-recession economy.

There is of course a slight downside. Strong bull economies lead almost invariably to higher interest rates. As with everything in capitalistic economies, the market is based largely on supply and demand. As the stock market begins to soak up cash to chase the bull, interest bearing bonds, bank accounts and home loans begin to look less attractive. Rates rise to increase the demand and thus buying a home with borrowed funds becomes more expensive.

Buyers are in a precarious place of having to deal with stingy sellers and the threat of rising rates. Losing a deal by bickering over a few grand with the seller could cost tens of thousands later, in the form of a 1/2 point spike in rates.

I have written many times on this blog that higher interest rates are a much bigger deterrent than price. Any rate under 5% is historically a FANTASTIC rate and any rate under 6% is still historically better than average. But I fear Americans have gotten used to the 3.5%-4.5% mortgages we have had for the last 5-6 years. People under 35 can't remember rates much higher than 5%. The last ten years has been an aberration caused by a sluggish economic growth rate and a huge recession in 2008-2009.

Buyers that lock in a low sub-five rate will be dancing for joy a few years from now when rates are back in the "normal" range of the low 6's.  Back in 2015 I went into extensive detail about rate versus price; check that article out here : "Rate Usually Beats Price" February 9th, 2015.

2016 Real Estate Outlook

Week one is done already! Welcome to 2016 and watch out because 2017 will be beating down the door before you know it. What is the outlook for 2016? Real estate has multiple trend lines to consider. There are national trends and local trends and they can be very different at times. There are leading markets and trailing markets as well spread out over the whole of country.

Wall Street Journal

California continues to be a leading trend for the western U.S. Here in the Pacific Northwest we should always keep an eye on California trends as they tend, and the operative word is "tend" to lead our market by several months up to a year or two. If California starts to slow down, the Pacific Northwest may continue robustly but will likely follow some months later.

National market conditions are a good starting point for long term analysis but short term is too local for the national trends to really matter. An exception would be a major national economic shift either positive or negative, such as the financial crisis and subsequent recession from late 2008 till late 2009.

This Case Schiller chart was part of an article by Renee Lightner, Andrew Van Dam and Nick Timiraos of the Wall Street Journal. The chart is interactive and allows for several major US Cities to be activated or deactivated, I chose to compare San Francisco and Portland. The dashed line represents the national average. This chart shows cumulative growth as a percentage not as a price value. Note that the point where San Francisco and Portland cross on the chart does not mean that home values were equal but rather that the relative value compared to the starting point in 2000 was the same. So a SF house that started at $500k in 2000 would be $825k in 2008 where the two cities cross. Likewise that same house in Portland may have been $300k in 2000 and it would be at $495k at the crossing point in 2008. The same relative cumulative increase in value. At no point in this period did actual median home values in Portland exceed those in San Francisco, not even close, really.

Here you see the typical California excess of rapid growth and hard falls and that the Golden State tends to lead our market This chart shows the San Francisco market peaking in late 2005 where as Portland peaked in the summer of 2007. The Bay Area had a rapid hard crash whereby Portland had a moderate crash and a slower decline that eventually caught up to San Francisco. There was even a little teaser growth that occurred after the 2009 bottom climbing a bit till mid 2010, and then another decline that nearly matched the 2009 bottom in 2012. San Francisco's second bottom came early in 2012 and Portland's first bottom followed a few months later. Once again a huge steep rebound has occurred in SF, where Portland has had a moderately steep increase. San Francisco is starting show a flatter curve and that may indicate a slow down in Portland within a year.

Wall Street Journal

More locally and in specific, Clark County, WA, we have something a little different than our southern neighbor, the Rose City. We have a booming new housing market. In the $300-$400k price range new construction is keeping a lid on resale growth.The sub median market remains fire hot as builders are not building much in this lower price range and sellers seem to be hanging on to the properties in the sub-median range. Meanwhile in built-out Portland the resale market is much stronger. There isn't much new housing going on in Rip City.

The crazy rental market certainly is playing a role in the entry level housing market as investors are hanging on to cash cow rentals rather than taking profits on sale. This creates demand as renters want to own but owners want to hold. This is not sustainable. Right now $225k buys a very modest house but $260k buys something much more substantial in the resale market.

The bottom will have to slow down soon unless the middle and top start to grow at a similar rate, I don't see that coming. National statistics on home sales by unit volume show that we are actually pretty healthy and somewhat sustainable. But locally we are seeing some price fatigue as buyers at the entry level are once again becoming priced out. Economic faith is not strong enough for middle income buyers to gamble on the 'big house' like they did in 2004-2007. Lenders are not quite as flexible either, so the middle high end is not growing as fast as the bottom. The bottom end has a price ceiling based on the middle. All else being equal buyers, will not pay $240k for a 3 bed 1 bath home if $245k buys a 4 bed 2 bath. Here in Vancouver USA we are getting close. I just listed and sold a 3 bedroom 1 bath house recently remodeled, so it was clean, for $225k and there are nearby listings in the area for nice 4 bedroom homes with 50% more living area selling at $250k. The bottom has grown much faster than the middle and we are nearing the point at which either the bottom stops rising or the middle has to pick up momentum. I don't foresee any drastic changes for 2016. Presidential election years tend to be flat economically and housing will likely continue to mosey along at a nice clip. Lending rates may see some increases but honestly I have been predicting that for 4 years and still rates are low. What the heck is up with that? This market can easily continue to function well with a rate increase from the current 4% 30 year fixed to 5.5%. Historically anything under 6% is a GREAT rate. If rates were to hit 6% the bottom of the market would probably see a slight decline as a fair percentage of buyers would be eliminated and that would reduce the stress on the entry level. The middle and high end market would likely be fine however.

I think we will see a continuation of appreciation in the market place but at a reduced rate in the 3-6% year over year range. This is a healthy condition and allows housing to remain in reach. More than six percent increase leads to bubbles as incomes rarely rise at that kind of pace. So as the politicians tear each other apart, real estate will likely just be-bop along.

That's my take anyway, check out the Wall Street Journal article these charts came from, it is a good read.    

Metro Area Market Trends

I pulled some data from the National Association of Realtors® for the Portland-Vancouver Metro Area and the results are interesting but not surprising.

Many agents and media outlets have suggested the market is a raging bull and although in context it may be true. But the perception has been that it is a seller's market in the vein of 2005-2006 and that is simply not the case. Back before the crash in 2008-2009 it was a ridiculous seller's market. Homes were fetching whatever the seller wanted and condition was almost a moot point. Double digit appreciation was practically expected rather than being a gross anomaly like it really should be.

This current market is much different and frankly much healthier. yes we are in a seller's market. But sellers still have to present a quality product at a fair price. Over priced listings are NOT selling and that is a very definitive difference between 2005 and 2015.

Buyers are also showing reservations about homes that are in questionable neighborhoods or that need TLC as they say. The market is raging but only if you have a solid move in ready house in a conforming neighborhood. Other homes are are taking longer to sell. 

The media can sometimes make a mountain out of the proverbial mole hill and sometimes they underestimate things. It seems the story is not always what it seems.

We are in a healthy real estate market here in the Portland-Vancouver market. Values are rising in the 3-5% annual range and that is just dandy. If sellers want to have a vigorous multi-offer situation they need to be in a solid hot neighborhood AND they need to have that house looking real sharp. Sellers that are unwilling to comply with the conditions presented by the cold-hearted market will only find disappointment.

Buyers on the other hand, need to realize that the house they want, the clean and sharp beauty in the perfect neighborhood will not be on the market long. It will also sell for more than the asking price. Buyers making low offers on hot houses will also be met with frustration. 

The National Association of Realtors® has some projections for pricing over the next twelve months and the outlook is HEALTHY.

New Homes are Hot

Over the last few years our local market has been driven with buyers looking for clean move-in ready homes. Sure, there have been the deal seekers buying up the rough homes, but most of that was investors flipping or renting the properties. It seems our owner occupant buyers have been willing to bid up the cherry homes with multiple offers while the rough ones tend to sit.

I don't think this is just an anecdote. Fannie Mae and Freddie Mac have been fixing up their REO inventory with fresh paint and carpet to try and tap into this move-in ready market.

It seems that new home builders are tapping that resource as well. There is quite a bubbling renaissance in the new housing industry. What the resale market brings to the table is location, lot size and price. Right now the resale market is clinging to its inventory. There just isn't a whole lot out there. This makes new homes that much more attractive.

Some of the small local builders are back in business and that is providing an opportunity to buy a new house in an established neighborhood. One such development is the Tall Tree Meadow in Vancouver. I am delighted to be a part of this particular subdivision. It is just six homes, three are built already and three more lots will be built later on.

This subdivision is located in a built out area near Arnold Park in Vancouver. It is close in to both SR-500 freeway and I-5. It's just three minutes to the Interstate Bridge, yet offers a home that feels like suburbia.

It is often the trade off home buyers make when looking at neighborhoods. Do I want that bigger, newer home with the three car garage but out in the 'burbs or do I want the eclectic experience of the older, established neighborhood close in to the city?

Developments such as Tall Tree Meadow offer the buyer a third choice, "all of the above". In reality it is a blend of the two, but for many it is the perfect blend. For buyers seeking a perfect conformity of neighborhood, the modern suburbs in an incorporated city are the ticket. For those seeking that multifarious buzz, the older neighborhoods in close to core are the best. But there are those who want both, and small infill developments like Tall Tree Meadow are an ideal option.

In our local market most builders, large and small list their homes on the MLS. I have always liked that about Southwest Washington. Buyers can work with a Realtor®, look at both new homes and resale homes. They get an honest opinion about what is best for them rather than the conflict of resale versus new home with the developer in direct opposition to the resale Realtor®. Other markets around the nation are often different. Ask your local real estate professional about new homes.

Here in our local market we have seen a resurgence in both large scale suburban new home development from national juggernauts like Lennar and the smaller infill developments like Tall Tree Meadow. Buyers considering a new home should be aware that negotiating with a builder is very different than negotiating with a resale seller. Builders are very resistant to a lower price. Many buyers mistake this reluctance as greed. In reality buyers must remember that a a sale in the development is recorded in the public domain. Most new homes are purchased using financing and the bank will require an appraisal. Once the developer sells a house in the neighborhood that discounted comp will haunt him. Imagine a buyer negotiates a $5,000 discount on a 50 home subdivision which is filled with very similar homes. That $5,000 discount could cost the developer $250,000 as that comp is used by every appraiser for every purchase over the next several months. Negotiating with a builder requires some finesse and an experienced real estate professional. There are tactics that can benefit both parties whereby the builder is happy and the buyer gets a "deal".

Now get out and soak up the beautiful spring weather while looking at great new homes. I'll be back next week.

Real Estate Trends Well in Clark County

I have been perusing through the copious sums of real estate data provided by our local MLS. Overall the market trends are looking solid. I took a look at the last three months, August through October in Clark County. The median price for a home sold excluding bank owned and short sales, was $254,000. This 3 month period produced 1875 sales. This compares to 1475 sales with a median price of $240,000 over the same period last year.

I took short sales and bank owned out because these properties can skew the figures. Often bank owned properties are trashed and snatched up by investors with all cash at prices well below market for a move-in ready home. Short sales dramatically skew the marketing time because they take months to complete. Both bank owned and short sale categories are decidedly shrinking as a percentage of the market.

Investors are finding it increasingly difficult to find homes they can either fix up and resell or purchase for rental. That market is very tight right now.

The data shows a few hidden gems. First the average price is 290k which is roughly 15% higher than the median. This indicates that the activity below the median is closer to the median, clumped up tight against the middle. The activity above the median stretches well beyond the middle into the upper end. Median means half cost more, half cost less. The idea is to eliminate skewed results from a large number of sales at the extremes. But the average is still important because it shows us where the market trend is; high, low or middle. If the average is higher than the median, like it is here; the activity in the half of sales above the median tended to be well above and/or the sales under the median were close to the median. If the average is lower than the median (this is unusual in large markets), that indicates that sales below the median often fell well below and the homes in the top half were likely clumped close to the median. When the median and average are very close it means that the bulk of sales were very clustered around the median with few extremes or there was a very even disbursement across the full range of values.

The trend now, is in the high side of the median. The bottom of the market has become so tight that most of those properties are selling in the $200-250k range. The top of the median is showing broad activity well above $500,000. This is driving the average up. This can mean many things economically. Perhaps this is indicating a vote of confidence in the local economy or real estate market as people return to upgrading their property. It could also indicate an urgency at the top of the market as loan rates remain low but prices are heading north.

Sellers with homes that are above median have an opportunity to list and get solid activity and a good offer. There is strong movement towards the middle upper price range and that was absent just a couple of years ago. 2015 has strong potential to be a great year in real estate.

The Mortgage Insurance Debacle

Mortgage insurance (AKA "MI") is one of those necessary evils that most buyers have to endure in order to get into their new house. I find that many people are unaware of exactly what MI is and what it "covers".

First a basic profile of loan types. Conventional loans generally conform to a set of standards and guidelines imposed mostly by one of two major investors; Fannie Mae and Freddie Mac. These loans are packaged and traded as securities on the open market. They are based on a 20% down payment. Since many borrowers lack the ability to make a 20% down payment; mortgage insurance companies offer to insure the down payment (or lack thereof). FHA loans are insured by the Federal Government rather than a private mortgage insurance company. VA and USDA loans are guaranteed by the Federal Government. A federal guarantee is stronger than Federal Insurance from an investors point of view. There are non-conventional loans that represent a very small percentage of mortgages. These loans are often held in the lender's portfolio rather than sold to investors.

MI is designed to cover the bank's (or investor) exposure to risk due to a small down payment. Traditionally a 20% down payment is required to avoid having mortgage insurance. Often people assume that the MI covers the full balance of the loan in case of default. It does not however. It covers the gap between what was actually paid as a down payment and what "should" have been put down. For example, if a borrower is buying a $200,000 home and plans on paying a down payment of 5% with conventional financing they will pay $10,000 down. The actual 20% down payment would have been $40,000. The bank is therefore taking on additional risk to the tune of $30,000. They will require  PMI (private mortgage insurance) to cover the $30,000 gap in the down payment. These conventional loans are packaged and sold to investors who are expecting a 20% down payment. This is why the PMI is needed.

Buyers need to understand the basic difference between these various programs and the insurance associated with them to make the best decisions possible when considering their options for buying a home. Since I am not a professional loan officer, I will only use broad terms for discussing mortgage rates and services. I always recommend consulting a licensed mortgage professional for more detailed information. Mortgages are complex and programs vary substantially based on lender, borrower's credit profile, location, etc.

In general FHA is the most commonly used mortgage in our current lending environment. The attraction to FHA is widespread because it offers a low down payment of just 3.5% and very lenient credit and debt ratios when compared to conventional loans. This however translates into a more aggressive MI. FHA loans require a 1.75% up front MI fee. This fee is financed into the loan amount. Then there is a MIP or monthly insurance premium which is based on an annual premium of 1.35%. Using the same $200,000 dollar scenario as I did above it works out as such: $7,000 as a down payment leaving $193,000 as the loan amount. $3,377 is added to the loan amount to cover the 1.75% up front fee bringing the amount borrowed to $196,377. Now the monthly MI is calculated annually at 1.35% of the loan amount that works out to $3,043.84 a year or $253.65 a month. The MI on FHA loans is very expensive. The silver lining is that government loan rates (VA, FHA) are often the very lowest around and the aforementioned leniency can help borrows qualify where they might not otherwise.

Conventional loans use private mortgage insurance. These loans are underwritten by the lending institution but are subsequently underwritten again by the PMI company. Borrowers are run through two underwriting gauntlets which increases the chance of a loan failure. Conventional loans typically have slightly higher interest rates and are generally underwritten with tighter standards on credit profile and debt ratios. Conventional loans also have the advantage of temporary MI payments. Whereby FHA loans the MI is paid over the full life of the loan, PMI on a conventional loan can be removed once the loan to value drops under 80%. A borrower must refinance or payoff an FHA loan to get the MI removed. Refinancing in the future could be difficult if rates are substantially higher. PMI rates will vary widely based on both the down payment amount and the borrower's credit profile. A 5% down borrower will see a range of PMI monthly payments in the annualized 0.67% to 1.20% based largely on credit profile with those over 720 FICO seeing the lowest rates. I have a comparison below.

USDA loans are for rural areas and have modest income requirements. These loans offer 100% zero down payment loans to people who earn less than 115% of the local median income. There are a variety of restrictions, but this program can be a godsend for many borrowers. My experience is that USDA rates trend closer to conventional interest rates rather than the lower government rates on VA/FHA. The upside is in the MI. There is a 2% up front MI payment that is added to the loan amount and then a very low 0.40% annualized monthly payment. On that same $200,000 scenario the MI payment would be based off a higher loan amount since there is no down payment the borrowed sum would be $202,000. MI monthly would work out to only $67.33 per month!

VA loans are the best loan product going. They have the low government interest rates like FHA but have no monthly MI payments at all. VA requires what they call a "funding fee" up front but financed into the loan of 2.15%. Veterans with disabled status have this fee waived.

Now I would like to offer up a comparison of these various programs based on a borrower with average credit and solid debt ratios. As I mentioned above, buyers should always consult a local trusted mortgage professional to have their individual scenario evaluated. This example is purely designed for a comparative analysis only and borrowers may see different results based on their individual situation.

Let's assume Rhonda Renter is seeking to buy her first home. Rhonda is a Veteran of the US Armed forces with out a disability rating. She is pondering her options for a mortgage in a USDA qualified rural area and her income falls below the 115% of median threshold. Let's assume that Government rates are at 4.25% and USDA about an 1/8th higher and conventional 3/8th higher. She is willing to put as much as 20% down but wishes to hold on to her cash if possible. She has low debt to income so she qualifies for any of the standard programs. Below is a chart showing an estimate with three different credit scores. This is just a rough estimate. I would like to thank Mike Roy at Pinnacle Mortgage Bankers for calculating the PMI on the conventional loans for me.

CLICK HERE FOR LARGE IMAGE

In most cases, the best bet for a Veteran is the VA loan. For non-vets you can see a dramatic difference in the programs. Remember, FHA is often the most expensive loan for monthly payment, but FHA can also require less income for the same amount of borrowed money. This is especially true when the borrower has other debts. Many loan officers can work an FHA loan with clients that have over 50% debt to income ratios whereby the conventional product will rarely allow a borrower to exceed 45% debt to income. Often it is even tighter than that. FHA is also a bit more forgiving for lower credit scores and less rewarding for higher credit scores. Buyers should try to keep their overall debt as low as possible and should work on getting that FICO score up above 720. Non- veteran buyers can look to areas where USDA loans are approved but should be warned the the USDA process is a bit longer and sometimes runs out of funding. Buyers should be certain to check with a qualified loan officer before presuming that USDA is available.
 

Spring Market Trends

Trends for the $200k-$400k market

The market is just moseying along at a nice comfortable pace. Inventory numbers show a bit of a spike in the middle of the market. The bottom is still hot but the middle is now starting to see solid and promising activity. Between $200,000-$400,000; new listings, pending units, sold units are looking favorably up with a median price running flat since the start of the year. One statistic that is intriguing in this middle market analysis is the price change differential. This indicates how much less than list price homes sold. That is trending down which means more full price or near full price offers are coming in. Once the middle gets some good traction we will see the top of the market begin to swell a bit also.

Trends for the $200k-$400k market

2014 is shaping up to be a healthy market. I do not expect explosive growth like we had in 2013 but I am very optimistic about the overall trends that seem to be forming now.

I have also seen a nice surge in the $275k-$325k new home market with builders offering a little more inventory in that middle upscale market. The move up market can drive both the top and bottom and I feel that it is critical to see positive movement in this area.  Buyers are out there and they seem to be jumping in cautiously but in good numbers.

Buyers also seem to be continuing the trend of spending less than the bank will offer. The mid 2000s saw buyers using every dime of borrowable assets but lately I see a trend to leave some on the table. Caution after a rough market crash that is only five years in the rear view mirror.

This is a great time to list a home and it is still a good time to jump in and buy.

Rate of Foreclosure Down, Very Good Indeed.

The rate at which banks are foreclosing on property has dropped substantially over the last twelve months. In general this is of course a very good thing indeed. The National Association of Realtors® has published an article on foreclosure data with which a link to the public portion is included below. Generally foreclosure rates run under 1% in a healthy market and many markets are already at or below 1% foreclosure rate.

Low foreclosure rates inspire buyer confidence and keep under market priced 'as-is' REO from undermining local prices. This can help move the market upward.

Not everyone however benefits from reduced foreclosures. Investors looking for non-financable homes at a bargain price are beginning to feel the pinch caused by a lack of inventory. The last thing a real estate investor wants is competition from an owner occupant buyer. Owner occupants typically use financing from a bank so investors can capitalize on cash only properties without a primary residence buyer inflating the price.

All of that aside, lower foreclosure rates is good for the market and good for the economy.

Public version of the NAR article on foreclosures at the link below.
Foreclosure Rates and Changes: Q4 2013 vs. Q4 2012

How Important is Curb Appeal in this Market?

I have talked about curb appeal in the past. It is and has always been a critical component to getting the best price possible. Curb appeal sets the tone in a positive fashion before the buyer even gets out of the car. Many buyer just drive by a listing when the curb appeal is low. I strongly discourage my clients from drive-bys. These low curb appeal listings are often the best value because the do not fetch top dollar. This is good for the buyer and bad for the seller. 

This post is from the National Association of Realtors®

WASHINGTON (January 16, 2014) – A home’s curb appeal is crucial because it can be the first thing buyers notice about a home. That’s why Realtors® rated exterior projects among the most valuable home improvement projects in the 2014 Remodeling Cost vs. Value Report.

“With many factors to consider such as cost and time, deciding what remodeling projects to undertake can be a difficult decision for homeowners,” said National Association of Realtors® President Steve Brown, co-owner of Irongate, Inc., Realtors® in Dayton, Ohio. “Realtors® know what home features are important to buyers in their area, but a home’s curb appeal is always critical since it’s the first impression for potential buyers. That’s why exterior replacement projects offer the greatest bang for the buck. Projects such as entry door, siding and window replacements can recoup homeowners more than 78 percent of costs upon resale.”

NAR’s consumer website HouseLogic.com highlights the results of the report in its “Best Bets for Remodeling Your Home in 2014” slide show. The site also provides information and advice on various home improvement projects, including a guide to kitchen remodeling with the best payback and dozens of exterior replacement projects.

Realtors® judged a steel entry door replacement as the project expected to return the most money, with an estimated 96.6 percent of costs recouped upon resale. The steel entry door replacement is consistently the least expensive project in the annual Cost vs. Value Report, costing little more than $1,100 on average.

Eight of the top 10 most cost-effective projects nationally, in terms of value recouped, are exterior projects. A wood deck addition came in second with an estimated 87.4 percent of costs recouped upon resale. Two different siding replacement projects also landed in the top 10, including fiber-cement siding, expected to return 87 percent of costs, and vinyl siding, expected to return 78.2 percent of costs. Out of the top 10 projects, the fiber-cement siding replacement project improved the most since last year, with costs recouped increasing by more than 15 percent. Two garage door replacements were also in the top 10; a mid-range garage door replacement is expected to return 83.7 percent while an upscale garage door replacement follows closely at 82.9 percent of costs recouped. Rounding out the top exterior remodeling projects were two window replacements; a wood window replacement is estimated to recoup 79.3 percent of costs and a vinyl window replacement is estimated to recoup 78.7 percent of costs.

According to the report, two interior remodeling projects in particular can recoup substantial value at resale. An attic bedroom is ranked fourth and is expected to return 84.3 percent of costs; nationally, the average cost for the project is just above $49,000. The second interior remodeling project in the top 10 is the minor kitchen remodel. The project landed at number seven and is estimated to recoup 82.7 percent of costs. Nationally, the average cost for the project is just under $19,000. The improvement project likely to return the least is the home office remodel, estimated to recoup 48.9 percent.

For the report, Realtors® provided their insights into local markets and buyer home preferences within those markets. For 2014, the national average cost-value ratio stands at 66.1 percent, a jump of 5.5 points over last year and the largest increase since 2005, when the ratio increased 6.1 points to reach a high of 86.7 percent. For the second consecutive year,Cost vs. Value data shows that the value of remodeling is up for all 35 projects included in the survey. Additionally, for the first time in four years, improved resale value of residential housing had more of an influence in the cost-value ratio than construction costs. A modest 2.2 percent increase in average national construction costs was more than offset by an 11.5 percent improvement in average national resale value.

The 2014 Remodeling Cost vs. Value Report compares construction costs with resale values for 35 mid-range and upscale remodeling projects comprising additions, remodels and replacements in 100 markets across the country. Data are grouped in nine U.S. regions, following the divisions established by the U.S. Census Bureau. This is the 16th consecutive year that the report, which is produced by Remodeling magazine publisher Hanley Wood, LLC, was completed in cooperation with NAR.

“Every neighborhood is different and the desirability and resale value of a particular remodeling project varies by region and metro area. Before undertaking a remodeling project, homeowners should consult a Realtor® as they are the best resource when deciding what projects will provide the most return upon resale,” said Brown. “Realtors® have a unique understanding of local markets, home features and buyer preferences and know that there are a variety of factors that affect a home’s value, such as location, condition of surrounding properties and regional economic climate.”

Seven of the nine regions covered in the report outperformed the national average, a distinct improvement over 2013, when just four regions performed better than average. Once again, the Pacific region, consisting of Alaska, California, Hawaii, Oregon and Washington, led the nation with an average cost-value ratio of 88 percent, due mainly to strong resale values. The next best performing region was West South Central with 76.4 percent, followed by three regions tied at 74.6 percent: South Atlantic, which improved from 63.7 percent in 2013, New England, which improved from 56.2 percent in 2013, and East North Central, which improved from 54.8 percent in 2013.

To read the full project descriptions and access national and regional project data, visit www.costvsvalue.com. “Cost vs. Value” is a registered trademark of Hanley Wood, LLC.

HouseLogic is a free source of information and tools from the National Association of Realtors® that helps homeowners make smart decisions and take responsible actions to maintain, protect and enhance the value of their home. HouseLogic helps homeowners plan and organize their home projects and provides timely articles; home improvement advice and how-tos; and information about taxes, home finances, and insurance.

Founded in 1976, Hanley Wood, LLC, is the premier media and information company serving the housing, commercial design and construction industries. Through its operating platforms, the company produces award-winning magazines and websites, marquee trade shows and events, market intelligence data, and custom marketing solutions. The company is also North America’s leading publisher of home plans.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Online Tools, are they any good?

Happy New Year! I get a lot of clients that utilize a wide variety of online websites to find houses, get values and stats, etc. But are these websites any good? Is the data accurate? These are valid questions and the answer is not as simple as yes or no.

There are many popular sites that people use. Redfin is a popular home hunting site but is not in all markets yet. Zillow is just about everywhere and at its core is a valuation site.

In general public search able sites that offer for sale listings are only accurate when they pull data directly from the local MLS system. If the site is relying on the listing agent to update the listing then often the information is inaccurate. Some agents may simply forget to pull the listing after it sells. If they have it advertised on a dozen sites the could easily miss one of the sites when they mark the listing as sold. Some agents may deliberately leave the listing up after it sells to get calls from prospective buyers. None of this is bad per se, just inconvenient for the person looking to see what's available online. Using the public access site for the local MLS systems is the best choice when searching for listings. Many real estate companies also have search able MLS on their websites. The local MLS system typically has strict requirements that agents keep the data current. This is what makes it more reliable for actual house hunting.

Websites like Zillow offer much more than just house hunting. Zillow made itself famous with the "Zestimate". This is their own proprietary system of estimating the value of individual homes. My experience with this is that they do not have enough data on individual sales to make a price evaluation on a specific house. They do not know the variables in the pricing equation. What they have is a bunch of numbers from local MLS and county recording records. You can have two identical houses right next door to each other one sells for $200,000 and a week later the other sells for $150,000. What gives? Zillow has no way of knowing the difference in these two houses outside of raw numerical data. Maybe the lower priced house was gutted inside. The $200k unit could have been nicely remodeled. Homes in the entry level and middle market that are solid enough to qualify for VA, FHA or USDA financing can generally fetch a high price than a home that does not qualify for those financing programs. As for county records, they can be inaccurate. Sometimes a home shows up on the county records as a four bedroom house when it is actually a three bedroom house. This is more common locally than many people realize. There are a variety of reasons and usually it is on homes that were built during a busy construction period and in large subdivisions where changes were made last minute on lots and homes. Zillow will not be aware of these facts.

But Zillow is not a bad site. On the contrary, I find some of their data to be quite useful. You will notice I use some of their tools on this blog! The mortgage and median value widgets in my right sidebar are powered by Zillow. The Zillow data is very good for looking at broad market indicators. Looking across the whole of a local market area, such as Clark County, Washington does not require specific individual data. Here we are seeking trends in valuation and general closing and recording data is more than adequate. If one wishes to compare large neighborhoods for valuation differences, Zillow can be very effective. Locally someone living in Orchards are of Vancouver might wonder if they could afford a similar house in Camas, WA. Checking the 98682 zip code against the 98607 zip code on Zillow is a broad enough comparison to at least get an idea of relative difference in pricing between the two areas.

I find that buyers and sellers that utilize these various websites often misread the data. When a buyer is using a loan to acquire a loan for a house, the bank orders an appraisal of the property. The bank does not log into Zillow. A real appraisal is necessary to get a reliable and solid opinion of the market value. The local tax assessed value is also very confusing to many people. Tax assessors do not do a true appraisal. They do not enter the home. They utilize a generalized condition in their market analysis. They also use a cost approach system. The land value is separated out and the structure is depreciated based on condition and useful life. This is done to determine the taxes on the property and is not a reliable source of fair market value.

Overall I think buyers and sellers should use these sites when they are in the preliminary stages of buying or selling a house. These tools can provide insight that may help a person decide whether they are ready to proceed to the next step. Once the decision is made then it is time to trust a local professional to help them find their next house or list their home for sale.