Real Estate Market Settles in to 'Healthy'

Our market has slowed considerably and to some that is a bad thing. But in reality the runaway craziness of the last few years was not healthy. When buyers are bidding up properties they often pay too much and that may be great for sellers but it can create that "bubble" people often worry about. Now the market has settled in nicely. There are fewer listings and fewer buyers so that means fewer sales. Fewer sales tends to make people think the market is falling or crashing. So far none of that is happening.  

Prices have been stable and most sellers are getting close to final asking price. We are not seeing the prices being bid up like we were a few years ago and that has allowed the median price to dip about 5% over the last year.  Actual prices however have been flat. Higher interest rates have cut into buying power so people are buying less expensive homes to compensate, that is what has brought the median price down, not actual falling prices. 

Yes, you will see price reductions but behind the scenes most of those price reductions are sellers realizing that their agent was right and they were simply overpriced. You can't blame a seller for trying to get the most out of their home, but in stable healthy markets, buyers won't bite on overpriced listings.

So long as interest rates remain where they are we should be able to sell enough houses to keep agents like myself busy enough to make a good living, inexperienced agents may struggle a bit, but us veterans will be fine. Younger people have not seen interest rates above 6% in their adult lives, but the 50 year average for rates is in the mid sixes, we are quite literally looking at pretty average rates right now.

Vancouver is seeing strong demand for real estate and that is being driven by multiple forces including excellent job growth, higher wage jobs, Portlanders relocating, Puget Sound relocations, and even some retirees taking advantage of our no income tax. Pricing should remain stable as I think the fed is going to dial back the medicine for now. We can only wait and see. 

Builders may have to start building small homes again and Vancouver has shown a willingness to do zero lot lines and compact communities to help builders squeeze enough lots out a parcel to make $350,000 homes possible. Builders however tend to gravitate towards the larger luxury homes and they may feel a squeeze in 2023.

Overall healthy is the operative word, we have buyers and sellers in near equal numbers and that means stability barring any major economic changes in either direction.

Trying to time your closing is a fool's errand

All too often and sometimes against my best counsel, buyers and sellers will try to time the closing to a specific day. As the title states, that really is a fool's errand. I wrote a post right here own this blog back in 2020 that sums it up well:

"All too often I find buyers and sellers trying to line everything up for the perfect close and move. Real estate transactions have lots of moving parts, seriously, internal combustion engine levels of moving parts! Trying to time everything perfectly with a train of buyers and sellers all lined up like the proverbial dominoes, is like herding cats.

I have mentioned this before and it is worth mentioning again. Buyers do not try to time your closing with your move out date for perfect alignment. That is a recipe for drama. You have a seller who is moving and often waiting on another seller at the other end who is waiting on a seller, etc. Pay a few bucks extra rent and give yourself a two week cushion. It's the best money you ever spend because now you are moving slowly rather than in a rush. Even in the best case scenario with the "perfect timing" approach you end up damaging your current apartment/house and or breaking your valuables because you are in a hurry. The worst case scenario is that you have movers show up but your seller can get out! Save yourself the heartache buy giving yourself a two week cushion. You'll thank me later :)"

In the situations where multiple parties have transactions up or down the chain the number of moving parts multiplies making a percent timing situation that much more complicated and unlikely. We all have enough drama in our lives don't we? The wise person gives themselves and other a cushion to ensure a smooth and happy close.

Is the era of large homes over?

Many countries in the world are failing to reproduce at replacement level. Russia and China are notable examples. The United States has fallen to the lowest birth rates in our history now below replacement levels at 1.7 births per female with 2.1 the standard measure for replacement. Many young adults are foregoing the family experience and those that do decide to have a family are often sticking to just one or two children. Since this is a real estate site I'll skip the economic issues and implications of a falling population. I do believe however this trend will lead to lower demand for large homes.

Builders like to have large homes as they tend to be more profitable, This is especially true of two story homes which have a larger living area with a smaller footprint on the lot. The notion of a five bedroom house was once commonplace but these days families with one or two kids are not really looking for that many bedrooms. Builders will adapt, we can bet on that. 

Over the last several years I have noticed that the price differential on resale homes between large four plus bedroom homes and smaller ranch style three bed homes has gotten very tight. A nice mid-grade remodeled 1990s five bedroom 2500 square foot home in East Vancouver might get $600,000 in the current market, but a similar 1990s mid grade home in the same neighborhood with 1400 square feet and three beds will fetch $500,000. Think about that for a second, the smaller house has 56% of the living space but costs 86% of the price of the larger house. 

There has always been a price per foot increase on smaller houses built on similar lots due to the fixed land and development costs. But the gap has tightened much more these days. Smaller homes used to be mostly in demand by first time buyers and older people downsizing. Now these small homes are also acting as move up homes for the older millennials coming from a townhouse, condo, or apartment. The pressure on the classic three bed, two bath ranch is greater than ever. 

Many builders locally are capitalizing on a growing population and a sizable number of out of area buyers to keep our local housing market going. But these builders are still building a lot of large 3000 SF homes with 4-5 bedrooms. That market may dry up here in the next year or two. The future seems to point to smaller homes with upscale models attracting a "move up" market as well as basic simple homes at more affordable pricing for first time buyers. Townhomes are also a rising star among the new downsized American family.

Sellers looking to sell a large older resale home should anticipate downward pressure on pricing over ht next few years even if the general market is advancing. After decades of housing size increases were are starting to see some shrinkage. The era of large homes may not be entirely over, but it is about to become a bit inventory bloated in the market.