Homeowners Insurance Getting Complicated

In the aftermath of a series of really bad claims cycles insurance companies have tightened their belts in the Western US. The biggest claim culprit has been wildfires particularly in California. Insurance companies are now using fire line data to determine eligibly and/or cost for insurance. Most of California, Eastern Washington, and Easter Oregon have high fire line scores that affect insurability of homes in the area. Generally homes in cities and suburbia have manageable fire scores but once you venture out in the countryside things can get dicey. 

If you are buying a home with a bank loan you will be required to have adequate homeowners insurance. This can get very expensive and your qualifying for the loan includes the cost of insurance. Flood zones will require additional flood insurance which can be expensive. If you are buying a home along a creek or river be prepared to encounter more expensive insurance and keep in mind it could affect your ability to qualify for financing.

As for the fire line ratings you can go to risk factor.com and enter your address or an address you are interested in to see the rick factors from flood, pollution, fire, etc. Fortunately here in Clark County the vast majority of homes even in the mountains are below fire rating of 6 which is the number that starts making insurance companies nervous. The scale is 1-10 with ten being severe. Here in Western Washington we have a long wet season that provides for a lot of fuel for fires, but the dry season is short enough that our fire season is pretty short. We tend to stay green for most of the year and that provides some protection from major out of control wildfires. We are by no means immune but I have't yet found an address with a rating above 5 in Clark County, let's be clear I have only run a couple of doezen dresses through the system. Up high on Rawson Road in the cascade foothills was brings 4's and 5's where as my suburban Vancouver home is a 3. Washougal River Road address were also bringing 4-5's. 

I'm not saying there are not any high risk addresses because there probably are some. But I would recommend looking into this when you are deciding to write an offer. You don't want to be blindsided by an insurance problem after you have paid for an inspection, appraisal, etc only to have to kill the deal over insurance.

Can Two Minimum Wage Earners buy a 3 bedroom Home in Vancouver USA?

Well that's a loaded question? Although our market is not yet officially a neutral market we do have significantly more inventory than we did 18 months ago. Interest rates remain mostly in the low 7s right now for government backed loans. Rates have been a bit volatile this year so far and clever lenders can get locks near 7 flat at times. Let's use a 7% FHA loan as our example and see if two minimum wage earners can in fact buy a home in one of America's most expensive housing markets. Washington State ranks third behind California and Massachusetts for median home price. Vancouver is about 15% below the statewide median making us relatively affordable. Vancouver however is well above the national median of $392,000. 

Well I intend to answer the title query with some local facts and available homes as of writing this post. As of January 1st, 2024 Washington State's minimum wage is $16.28 per hour. At this wage two full time earners will bring in $5500 a month income. Now credit is always a concern and in our market an income of $5500 a month is going to need some credit help. A 720 or better score for both borrowers. Also a low amount of debt. People earning minimum wage cannot expect to have a brand new car payment and still qualify for a mortgage. Some patience will be in order as well since a 7% interest rate will need to be locked as soon as it appears or rates could swing back the other way and become unfavorable. 

Let's look at borrower(s) A: Two earners at $16.28 full time $5500 per month, 720+ scores, < $150 in monthly credit debt, and 15,000 in the bank. At $320,000 buyer brings in $11,200 down, will likely have $8,000 in closing costs that we will ask the seller to pay. Keep in mind that the FHA will allow gift funds for the downpayment from an immediate relative. With a total PITI payment of $2660, this is a doable transaction even if there is a small < $100 HOA fee. Yay!

3 beds, 2.5 baths, 1378 SF listed at $340,000

OK great, can I find a house that is clean enough to qualify for FHA financing at this price point in Vancouver USA? After a short research period, the immediate answer is "No." The closest I got was an end unit townhouse with a small but usable backyard and priced at $340,000 with $250 in dues. So how much more income does our borrower(s) need to qualify for this home? About $1000 more. The dues for the HOA are killing us here. I have seen townhouses in this price range with HOA dues under $100 but there just weren't any listed right now. If I found such a place then the extra income required would be $800. Still that is difficult to overcome. 

3 beds, 2.5 baths, 1368 SF listed at $420,000

What does that look like then? Well if our two earners made $20 an hour then no problem. Here is where the issue is. That $250 HOA fee is worth $38,000 in purchasing power. So our buyer could look at detached homes with no HOA and pay $378,000. In fact at $20 and hour they could qualify for about $430,000 so long as they keep their other debt service under $200. Well the house on the left is currently listed for $420,000 and it is in good shape, easily financeable as is, and offers 3 beds, 2.5 baths and 1368 SF.

Now looking at the median wage in Vancouver shows a different story. The median wage is $25.17 per hour or more accurately $52,363 annually. Median means half of the people make more and half make less. So two people making the median can buy these homes. In fact two people making the median can look at homes with payments at around $4000 a month. That will buy a $485,000 house which is pretty close to the median in Vancouver, maybe a touch lower depending on the data source. 

We may have gotten a little spoiled back a few years ago when rates were in the 2's and 3's. Two minimum wage earners could if fact buy a modest three bedroom house. But with rates now closer to the 50 year average it takes a little more than two minimum wage jobs to buy a house. The good news is that incomes have been rising locally and means more people will qualify soon. When rates relax a bit and settle into the high 5's of low 6's we may see two minimum wager earners once again qualify for an entry level home. 

Fed is hinting at Rate Reductions

Surprise, Surprise, it's an election year and all those politicians want to get reelected! Seems the Fed may be under some pressure to let up a bit on the money squeeze. For real estate some easing would be nice. I'd like to see rates come down a point or so. I wouldn't expect to see the all time lows again anytime soon, but just a nice gentle 6% would add tens of thousands of buyers to the pool and help real estate start moving again. 

Inventory levels continue to creep up and we are still at a very healthy 3.2 months supply. But we don't have enough buyers to keep things moving. We have a lot of potential sellers sitting on loans at 4-5% and if rates get back down to 6% many of those sellers may consider selling. I have been on about how so many sellers are literally parked in their ultra low mortgages in the 2-3% range. They aren't likely to be swayed at 6% but the thousands sitting in those 4-5% loans just might.

I'm looking forward to a nice near neutral market this spring.