Finding the Elusive Livable $100k Home

So the bank said they'd loan you a 100 large. Well then, let's find you a home. What was that? You are really hoping for a single family detached house? Hmm, you are not going to make this easy, are you?

My first question is this; How do you feel about central Alabama? The Crimson Tide is ranked number one in the AP football poll. Perhaps Greater Detroit, the Motor City? No, you really want to stay here in the 'Couv'. Yeah, I understand, America's Vancouver is pretty tough to beat. Do you have any money in the bank, say another 75 grand? No? OK.

I am helping a wonderful client right now to find a house that can be financed by the VA (which means livable BTW) and our budget is in the $100k range with maybe just a little bit of wiggle room. This is a challenging task, but not as impossible as you might think. I have already found several homes that would be a little tough to get FHA or VA financing on, but are livable and under that $100,000 price point. These mind you are very small houses. "Cozy", we like to say in the real estate world.

This was listed at $99,500, It sold really fast!
Multiple offers over list price but still close to $100k

Vancouver USA has a nearly 200 year history and was quite robust during WWII. After the infamous attack on Pearl Harbor, the entire Fruit Valley neighborhood was erected in 1942 by the federal government to house civilian ship builders. These were small houses with roughly 700-1000 square feet. These homes can be had for reasonable prices. There are other areas with smaller homes, but I think Fruit Valley has the largest collection of affordable houses in the 'Couv'. The neighborhood has gone through a renaissance of sorts over the last ten years. There is the additional bridge over the rail yard at 39th Street. The park was renovated and quite a bit of modern new construction has been added.

Fruit Valley also offers close proximity to Downtown and the Port of Vancouver. My hunt for a $100k house definitely starts here. But Fruit Valley is not our only choice. One may prefer a more ancient home. There are 100 year old homes in Rose Village that can be had for a song. And if I look really close I may find a spattering of homes across many neighborhoods in that $100k range. Those are often hiding in pocket somewhere.

This is listed at $85,000. It is very nice and tidy inside.
It needs siding, but is still financable

Once our general economy starts to really roll again, the $100,000 house will disappear. Maybe forever. The full mortgage payment with taxes and insurance on a house like this is around $700. That is still about $300 less than you would rent it for. I am amazed that we don't have an even larger rush of entry level home buyers snatching these up.

These types of homes may not be as comfortable and modern as a comparable sized condo, but they will have better resale in general and do not have HOA dues. A condo with $200 a month HOA dues is like adding $40,000 to the price. Yes I said 40 large! The mortgage payment on $40,000 is about $200 a month. So a $80,000 condo with $200 a month HOA dues has the same payment as a house that costs $120,000. These little charming homes in America's Vancouver have provided families with shelter for over 70 years. These are a great opportunity for first time home buyers or even a first time investor. All hail, the $100,000 house, the Holy Grail of Real Estate! Eureka!

It's Getting Tough to Buy Condos with FHA or VA

500 Broadway, Vancouver, WA
Condos on the upper floors

Many buyers are interested in a condominium home. There are many advantages to this type of home. The homeowner is only responsible for the interior of the unit and they pay an HOA to manage the grounds, external facilities and common areas. Small modestly built condos can also be less expensive than a comparable home. There are disadvantages as well but once a buyer has decided that a condo is for them, they must be certain that they can finance it.

If the buyer is a veteran looking to use a VA loan or is intent on an FHA loan, they must be certain the condo is approved by HUD (Federal Government, Department of Housing and Urban Development). HUD has stopped approving condos on an individual basis and is requiring the entire complex to be approved. In the Clark County, Washington market I am finding that the overwhelming majority of condos are either expired or not approved at all.

If the condo is approved, the buyer and their agent ought be certain that the approval does not expire before the sale closes. This is paramount should the condo be a short sale. Short sales take much longer to close. Buyers should have at least 6 months and preferably a year of approval left is wise when offering on a short sale condo.

The good news for FHA buyers is that some banks are offering a 95% conventional loan. These loans do not require FHA approval on the condo unit or complex. They will however have some underwriting requirements that could pose problems. For example, most banks are looking for at least 50% owner occupied units in a condo project. These conventional loans require a slightly higher down payment than an FHA loan but offer superior terms regarding mortgage insurance. It is always a good idea for buyers to meet with a mortgage professional prior to home hunting.

When offering on a condo, buyers should be certain that their agent is thorough in vetting any potential issues with financing.

Since I am on the subject of condos, I will touch on HOA issues as well. Condo projects have HOAs that oversee the common areas and buildings. Since the unit owner only owns the space inside, the HOA owns the buildings and land. The HOA is a common ownership of all the unit owners. Essentially condo owners have two things they own. They hold title to the unit (interior space of their unit) solely as an individual and then they hold title to the whole complex property as a partial owner, usually held as tenants in common. They have an equal share with each of the other owners or possibly proportionate to the relative value or size of their unit.

HOAs are required to keep to state standards for financial disclosure and management. Before buyers commit to a purchase on a condo or other property with an HOA, they should be certain to check out the HOAs financial and legal status. There are times when an HOA is involved in litigation. They can be either the plaintiff or the defendant. In either case, financing is nearly impossible to obtain while there is an open litigation or a judgement is in force.

Attached Townhouse in Camas, WA
This is not a condo

Condos should not be confused with other homes in planned unit developments. Many neighborhoods and attached housing projects have an HOA but they are NOT condos. A condo is unique in the ownership as just the space inside the walls. Attached housing with common walls such as a townhouse or row houses are often held in ownership the same as detached housing. The owner owns the structure and the land. Typically the HOA (if present) takes care of keeping the neighborhood consistent by enforcing rules designed to protect its integrity. These HOAs may also provide upkeep and care of other amenities such as a neighborhood park, swimming pool, etc. In these scenarios, the HOA is not responsible for the structure of the buyers home, roof, siding, etc. The dues are likely to be lower than those in a condo. The FHA and VA loans will not require HUD condo project approval on these types of developments.

Buyers should work with an experienced agent when considering a condominium home. They can be a wonderful opportunity for quality living, but they have a few quirks that require thorough care during the purchase process.

The Sales Data Looks Healthy

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

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

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

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

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

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

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

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