State of the Market 2020

Last week I gave brief outlook on the market for 2020 but today I will dive into the "state of the market" at the moment. Right now we have a bit of a tale of two markets if you'll pardon the Charles Dickens reference. In fact it may be a tale of three markets.

Breaking down conditions by relative price points will show that conditions vary wildly depending on price range. Now locations and neighborhood specific variables always play a big role in the real estate market, we tend to have broad market indicators that typically effect most segments similarly. But not so much right now. I will rate the market conditions based on a 20 point scale 0 is dead neutral. 1-10 Seller's market and -1 to -10 Buyer's Market. Take a look below:

Single Family Detached housing

• < $300,000 +5 Seller's Market multiple offers common on well priced properties, overpriced listings linger but ultimately sell.
• $300,000 - $400,000 +3 Seller's Market multiple offers on well priced home under $350k not so much above that. Marketing time @30 days
• $400,000 - $550,000 0 Neutral Conditions are prevailing with neither side seeing an advantage. Even well priced homes may require some marketing time. Typical days on market 30-45
• $550,000 - $700,000 -2 Buyer's Market. Buyers have the upper hand here due largely to an expanded inventory and a fair amount of high end new construction filling the space. Marketing time in this price range for properly priced homes is likely to exceed 60 days.
• $700,000 - $1,000,000 -4 Buyer's Market. Although pricing in the range is holding steady inventory exceeds buyer capacity at this price range. Buyer's have many options. Marketing time in this segment will approach 90 days for properly priced properties, well priced properties will sell faster, of course.
• > $1,000,000 -6 Buyer's Market. This segment is notoriously slow due largely to the limited number of qualified buyers in this upper range of pricing. Again like the last segment, pricing is holding up, but demand is weaker in the lofty price range so marketing time can be quite long.

Often times news media will present broad market conditions and as such this broad market is neutral with neither buyers nor sellers holding the advantage. But looking more closely at individual segments tells another story. So broadly speaking, it is neither the "best of times", nor the "worst of times" pardon again the Dickens reference. But buyers in the bottom pricing segments will still find a competitive environment, mid range is neutral, and high end buyers can kick a few tires before buying.

Generally these conditions are healthy and sustainable. Pricing appreciation should remain in the 2-5% year over year range and that is long term sustainable that allow incomes to keep pace and homeowners to gain needed equity.

2020 is looking good.

Houses taking a little longer to sell

Our local resale home market remains strong but other than the sub median price market conditions are mostly neutral. In Clark County buyers seeking homes priced under $375,000 will find sellers at a slight advantage but as the price pushes north of the median price conditions quickly neutralize.

There are still plenty of buyers but resale homes are now competing with a fairly large inventory of new construction and that means buyers in the $375k plus price range have more options than they have seen in several years. Pricing seems to be holding steady at the moment but marketing times are increasing. A well priced home will sell quickly and that is an indicator that buyers are plentiful. When buyers have lots of choices however, they will be picky and that means the sellers have to be patient and wait for the buyer that falls in love with their house.

Sellers that find themselves in a contingent contract and have to sell cannot afford to try and get top dollar because top dollar will take 90 days or more to fetch unless your house is in that sub median price range that remains hot.

This is a symptom of success, the builders have rushed in to fill the demand and now we have reached a point where inventory levels are higher and in the top half of the market buyers can be a bit choosy. Builders can't afford the build a traditional detached house for much less than $350,000 these days so buyers in the entry level pricing are looking at attached housing or an older resale home. Inventory in that arena is much tighter so pricing favors sellers to some degree.

Overall our local real estate market is pretty darn healthy and that is a good thing!

Top of Housing Range is still on the Brakes

Locally the real estate market continue to apply the brakes on properties listed at 120% of median or more. Below that threshold there is not much available in the new construction so those median and under price points still see a lot of activity. Up higher in the price ranges things are crawling with price reductions and a strong move towards a buyer's advantage. This is one of those moments in the market place where a seller of the median or lower price point home can sell high and then go beat up the seller of a more expensive home. These market opportunities to move up and save are rare coming around every few years during transition phases like we have right now.

If the Washington DC is successful in keeping the Federal Reserve on a low interest track we may see this opportunity vanish. I cannot overstate that a seller with a house fairly priced under $350k will probably get multiple offers and/or sell quickly for full price and then can take that equity and apply it towards a high priced home in the $500,000 range and find far less seller resistance to discounts. The market can do several things among them the most likely path is a continuance of the seller's market strength at the entry level and neutral to buyer's market conditions the higher up the price range you go. But the gap could close and new buyers riding low rates could put pressure back on the higher ranges tightening the top of the range back to neutral or even mild buyer's favor. Or the market could slide further and start eroding the entry level should interest rates start moving up again. In either case the incentive for an entry level homeowner to sell and move up to a larger more expensive house is very strong. Sellers in the upper end are in a less obvious situation and will have to make a call on what the market may or may not do.

Sellers of larger homes are in a tough spot right now. Builders are producing large family style two story houses that compete directly with older resales. Those looking to downsize are in a tough spot as buyers are in control on the upper end large house market and sellers rule the bottom. Pricing in the upper end does not appear to be contracting, but rather just riding the brakes with nominal appreciation and that has led buyers to lose that sense of urgency.

Buyers at the entry level however must remain vigilant because there is far less inventory under $400k than there is buyers and that means a well priced small ranch house in the low $300's is gone before the ink is dry on the listing forms.

The real estate market is rarely in sync at all levels and neighborhoods, so staying in contact with your preferred professional Realtor® is always wise advice.

Happy Holidays!

Wow, 2018 is nearly done and it was a good year for real estate locally. Some say it was flat or 'softer' to which I say, "yes it was." But frankly, that is good. A crazy market that puts too much favor on one side of the transaction is great for the favored but terrible for the 'unfavored' side.

2018 brought us a transition into a near neutral market. Sellers are still favored a bit on the entry level price point and buyers tend to hold an edge at the high end. In the majority middle from 90% of median to 120% of median, we seem to have a solid neutral market and that keeps things fair, and dials back the intensity in a positive way.

Looking ahead to 2019 is a challenge as some variables for the coming year are unpredictable. Will mortgage rates remain flat? The stock market may play a role in that equation. The last six months has had a flat and volatile stock market and that tends to bring some money into the mortgage side. Should that continue then rates should remain relatively stable in 2019 and that bodes well for real estate.

The economy continues to move forward at a very healthy clip and that means that buyers feel good about making big financial decision like buying a house or upgrading their current home. One of the issues we are facing that may be playing a role in the move from seller's market to neutral is the segment of homeowners that bought a house around 2012 when rates were in the middle 3's. Home values were depressed and they are sitting on a sizable tank of equity. This is the point that historically they make the move up to the house they wanted back then but couldn't afford. But now rates are little higher averaging closer to 5%. Now let's be VERY CLEAR, 5% is still a remarkably low rate for a mortgage, but it is also remarkably higher than 3.75%. I wonder how many of those sitting on that 3.5% to 3.75% mortgage from 2012 are saying they will just stay put. It seems from an anecdotal viewpoint, that the pace of listings is steady but the pace of buyers has slightly softened. Data seems to suggest that is the case at the moment but it is not conclusive.

Will those 2012 homeowners make the move in 2019? That is the big question. 7 years has long been the standard average move rate for a homeowner. If they do, the entry level may get some much needed relief and the middle market might get a shot in the arm, so to speak. This is the scenario that I feel is best for the local market. If we keep pushing positive volume without exerting excessive pressure in any one segment, that is a sustainable situation.

Whatever the the economics deliver for 2019, it should be a good healthy market for real estate. Getting a 30 year loan at 5% is still a great deal for the buyer.

Local Market Report

The MLS numbers for 2018 are showing some interesting trends. For the first four months of 2018 I am seeing a typical bump in activity on both sides of the market, supply and demand in roughly equal amounts maybe a slight gain for buyers in what has been a stubborn seller's market. Inventory is still tight but not as tight as last year, listed units outpacing sales by 50% will help pad the inventory and is clearly leading to a flattening of prices.

The median sold home price county-wide trails the sold average by roughly $44,000 a 12% gap. With a large pool of over 2000 sales, this is a reasonable indicator that the market is moving from entry level to mid-level buyers.

The entry-level has little inventory and many buyers have been nudged out of the market by the combination of high prices and rising interest rates. The middle market is seeing some traction as mid level buyers are jumping in to lock in a manageable mortgage rate.

There was a buyer's gain in March followed by a seller's gain in April so things seem to be about the same with sellers still holding an advantage in this market.

The both the median and average sold price is fairly flat over the last 4 months. Our market is being influenced by the rising interest rates.

Marketing time remains short with the median less than a week. This bodes well for sellers, but may also indicate sellers are more willing to accept lower price when listing price is "puffed up." Sellers are equally anxious to sell as they have the same rising rate concern as buyers.

Overall I see the market flattening for the rest of the year. Analysts seem to agree that middle single digit price appreciation is anticipated for 2018. If inventory remains tight, sellers will continue to have a slight advantage at the negotiating table. Buyers however, have gained some leverage in the market and the flattening of prices surely is a strong indicator the local market is moving towards neutrality. I like a mild seller's market, it is healthy and most importantly, sustainable.

All Eyes on Interest Rates

Happy New Year!

Interest rates are the biggest single influence on the real estate market. There are many 'barometers' for the industry, but interest rates are the one that really can make a market move or stall. The feds have been using all of their influence to keep rates artificially low. The reason is that the real estate market was very fragile from 2009-2013. But as the market heated up the interest rates should have been allowed to creep up. The feds continued exercising their pressure to keep them down. I believe the economy was dependent on strong housing.

Buyer and sellers need to pay close attention to how increasing rates will effect them. Rising rates will make a house more expensive to buy.

For sellers that means a shrinking number of buyers that can afford the house. This will hurt the middle pricing the most. Wealthy people at the very top buying seven figure properties are less impacted. Although the max mortgage interest deduction for taxes was recently reduced so that may have a bigger impact than rates in the high end.

The bottom of the market will always have the most buyers. Even as rates rise the demand for entry level housing will remain stronger. People that once qualified for a 2000 foot 10 year old house may have to settle for a 1500 foot 20 year old house if rates are 2 points higher.

The middle takes the biggest hit in a rising rate market. 120% to 200% of median suffers when rates rise too fast for wages. Locally that means homes priced from $400k to $700k.

Buyers need to understand that waiting for a "better price" in a rising rate market is often counter productive. Most analysts are suggesting a slow rise, but a quick rise will lead to falling real estate prices. The higher rate is far more likely to kill a buyer than high price. I have written on this blog about the effects of high rates against high prices. Read here: Why Interest Rate is more Important than Purchase Price.

Cash buyers win big when rates move up but loan dependent buyers have to thread the needle of value trying to get a good price without paying the bank too much. Sellers have to consider the next home they will buy when selling the current house. Are they moving up to a larger house? Downsizing? Moving up could be a problem if rates are rising as the qualifying income needs to be higher to support higher rates the new house may soften in price but the higher rate could push the payment out of reach. Downsizing is less of an issue as the seller could come in  with a large down payment and a much lower principal balance.

Higher interest rates however are not all doom and gloom. Historically speaking the average rate on a mortgage over the last fifty years has been in the low to mid sixes! We have been in an extended period of sub 5%. So long has it been since rates were at 6 percent I would think millennial buyers can't remember ever seeing them that high.

When the stock market is roaring and mortgage rates are only at 4% investors that might otherwise buy mortgage backed securities may seek their fortune elsewhere. This makes underwriting tight as banks must lure investors to the mortgages through the prism of low risk. As rates flex up towards the 5-6% range the returns are better and investors get pretty excited. Guide lines can soften, making the mortgages a little easier to obtain for buyers. That helps keep the prices on existing homes moving up rather than flattening out. It's about keeping buyers in the market. This is only effective to a point. Back in the eighties when mortgage rates were in double figures the real estate market was brutal. Funny thing though, people still bought houses!

Rates ought to be around 5-6% right now, and the fed is moving away from its tinkering so we will starting creeping up towards that in 2018. We should see rates settle in at market values in that range over the next 12-18 months. Buyers shouldn't fret as that is a very "normal" range and still slightly lower than the historical average.

2018 should be a solid year for real estate. The out of control seller's market should soften into the near neutral market and that will be a welcome sight for me. I have never liked it when the market is too heavily tilted in one direction. Either a mild seller's market or a neutral market is typically best for all parties to a real estate transaction.

#200 How did that happen?

Well a few years ago I changed my monthly real estate newsletter that went out in email form to a weekly Real Estate Blog. Look at that! Issue 200 on this blog has already arrived. Yikes! I do thank all of you for reading this blog.

I do hope you have all found useful information regarding the state of our industry both locally and nationally. I do strive to bridge the gap between facts and conjecture. There is always going to be a great deal of speculation in an industry as influential and popular as real estate.

Speaking of speculation, interest rates are on the minds of many these days. There is a lot of chatter coming out of the financial world about where mortgage rates are heading on the news of a hike in the fed rate over the next few cycles. The Fed Rate doesn't have nearly as much direct influence on mortgages as many people think. It does have a significant indirect effect in that it signals to the markets at large the government's relative attitude regarding the state of the economy.

The Fed Rate (Federal Funds Rate) is a short term interest rate. In fact it is the rate at which banks charge each other for overnight loans. The reason banks make these overnight loans is due to Federal government regulations requiring them to have a certain amount of cash on hand at the end of every business day. Since banks are constantly moving money around, making loans and receiving deposits, they often find themselves short of the government regulated minimums and other banks are in excess of those minimums as billions of dollars move from bank to bank.

The reality is, it doesn't directly effect any long term lending. It does effect short term lending. The reason so many people in the industry point to it as if it were a direct influence is due to the reason the Fed Rate rises. The Fed's action is often due to a rise in inflation and is often raised in an attempt to slow the release of ready cash into the economy.

Generally when the stock market is hot, investors are less interested in collateralized long term debt as an investment. Making 3%-5% annually on mortgage debt is great in a bear market or in a less robust stock market. But when the wall street bull is running the big money starts to gravitate towards stocks and that means lenders need to "entice" the investors with more generous rates of return.

As far as long term mortgage rates are concerned, I have been warning that the 3% party was going to end. In all honesty, it lasted WAY longer than I ever expected. Frankly, it is a testament to the fact the the recovery from the 2008-09 crash was much slower than our slick politicians in Washington DC were willing to admit.

The bottom line on mortgage rates is this. Over the last 70 years rates on 30 year real estate notes has averaged around 6.5%. We had historic highs in the 1980s when mortgages were deep into the teens and historic lows just recently when 30 year money was available in the low threes.

Buyers need to recognize that over the long haul paying a higher mortgage rate will hurt them more than paying a higher price for a home. This market offers no favors to those sitting on the fence. Sellers likewise need to recognize that the robust seller's market will slow a bit as interest rates rise. This means they need to drop the attitude that leads them to believe they don't need to accommodate buyers, and follow best practices for selling a home.

Our real estate market locally in Clark County has a much different dynamic than the market in bordering, Portland, OR. Portland is built -out. They only have infill and re-development options. There is no "new dirt" in Portland. They will likely continue to see pressure on the resale market. Here in Clark County, we do have available, buildable land. The builders are here and the nails are being hammered in. This puts real limits on the resale growth potential as new homes will always carry more value than resales, all else being equal. Right now the median home price county-wide is just above $300k. New homes are widely available in the $325-400k range and that means it will be hard to push a similar 20 year old resale much above the current median mark.

Additionally wages have not kept up with home prices locally and that will begin to slow the rate of new buyers coming into the market. Sellers need to decide whether to sell now or hold tight, but the future is uncertain where the now is known. Right now, we have a modest number of buyers seeking homes from a severely restricted inventory. This is good for sellers now, but when other homeowners decide to sell before rates get too high, inventory will swell and the sellers market will become more neutral. Now is a great time to sell that house and get your new home while rates are still low.

Thanks for helping me reach 200 posts and here's to the march to a thousand!