In The News January 19, 2023

Confusion Is The State of The Market

We have data, headlines, whispers and fears running in all directions at this time. It is beyond me, and from what I’ve read, seen or heard, it seems beyond anyone to say they “know” what the market is or will do. Some of our region has prices still up from last year while other parts of our market are off 3-6% from this time last year. But is comparing to last year really of value? We had peak pricing last April to May that was 15-30% over today’s prices, so does it sound genuine to say our prices are in line, slightly above or slightly below last year? Not likely for most home sellers and home buyers know these statistics aren’t reflecting the actual market conditions or temperament.

So, if not last year at this time, then when or what do we compare to? First, I think you have to recognize that 2021 and early 2022 were such abnormal times in our market that they don’t make a great basis for comparison to start with. When a market is accelerating at such a strong rate, any slow down is going to look extreme. When our weekly or monthly inventory levels were so low, comparing available homes to those times makes any “normal” inventory level look out of balance, especially if you use percentages for comparison. I think a better perspective is to look at the general market sense. We have seen price appreciation settle back down to a 4.5% range for annual appreciation over the past 2 years in Seattle and about 7% per year on the Eastside. By any historical standard, this is a very good rate for homeowners and provides sound reasons for home buyers to want to own their home.

We saw interest rates rise from 3% to 7% between March to September. This again was unprecedented. We’re now seeing rates moderate and drop to the 6.125% range, lower if you’re borrowing in the $1M+ range, closer to 5.5%. Rates are likely to see some bumps and gyrations this spring but the expected trend is for modest declines. There are also some reduced fees for some first time borrowers, to help ease the funds needed to secure a loan. The moderations in rates, even though still well above last winter’s rates, is good for home buyers and sellers. Payments and affordability are improving.

My perspective is this: there is always a market. People want to own their own home–it’s a wise investment and a great stabilizing force in controlling our lives. If you have fears of a recession, you have control over your housing costs, likely lower than rental rates. If you have fears of inflation, you again have control over your housing costs and an appreciating asset. If you have the desire to buy or change your home, the market is looking for good homes and there are solutions to help you afford your new home.

Home buyers are not overwhelmed with home choices in almost any area or price range. The headlines of a glut of inventory are nowhere near accurate. Yes, there’s some inventory, but most of us active in the market know we still have a scarcity of good homes to choose from. This is great news for home sellers. We currently have a stalemate in the thinking of some buyers and sellers in the market. The Sellers want last spring’s prices and the Buyers feel that if they hold out on making offers, home sellers will have to lower their prices. Both parties have too biased of perspectives.

Last spring, buyers were paying 20-40+% over asking prices. As I stated before, we’ve seen those sale prices decline by 15-30% depending on location and price range of the home. Today’s home sellers are generally accepting offers 2-3% under their asking prices. Buyers may be hoping to get 20-40% below asking prices but that’s not realistic and it won’t be going forward, either. Some home sellers still want last year’s values but that too isn’t going to happen. Instead, look at 5-7+% gains of the last few years and accept that’s very strong for annual real estate appreciation. Since most home sellers have owned their homes for 5+ years, your effective gain in value is still phenomenal. Recognize that buyers are still paying a higher price, in terms of monthly payments, than they were last year, so accept your good fortune for the value of your home and sell it, if that is your need, desire or intention.

Many people are fearing a recession this year and we’re now hearing more local employers will be laying off employees versus the hiring freezes we saw last year. Some may feel like they shouldn’t be risking a home purchase during these uncertain times. That’s a very wise consideration. It is never wise to buy a home if you think you will need to sell it in less than 3-5 years. Patience, not fear, can be your friend. I would still offer some perspective to also consider. We’re at near record low unemployment levels. If you were to lose your current job, how likely is it you would find another one, locally, in the near future? For most of our local employees, the answer is usually very good odds for finding a comparably paying job in a fairly short time frame. Still, no one wants to lose their job, without their control. The  solution may well be to sit still and ride out the first half of this year and see how your job and company are performing. Interest rates are expected to soften going into the second half of the year and inventory will likely  increase to offer you more good choices. Late summer and fall often present better market conditions for home buyers.

While we’re talking about inventory increases, let’s address another unrealistic hope or fear. Home inventories will continue to balloon, foreclosures will rise, home prices will drop substantially and you’ll be able to get that 20% low offer accepted by any or every home seller. Do you recall me talking about the above normal appreciation our local homeowners have been experiencing? This now equates to the average local homeowner having 40+% equity in their home. If they were in real need of their home’s equity, they would sell it, even at today’s prices or lower—if we follow the pessimist’s logic, but certainly not lose it to foreclosure. Additionally, we had 70+% of homeowners, with a mortgage, refinance their home between 2020 and the early spring of 2022. These folks aren’t likely planning to sell their home any time soon. They have as low of a house payment as they can get–lower in most cases than they could rent any type of home for–so they won’t be selling now or in the near future. This will keep overall inventory levels in check. The rationale that panicked home sellers will be flooding the market with inventory isn’t a reality; certainly not in our local market. Pessimistic buyers in this market are looking for “a deal” more than a home. If that’s your perspective, you likely won’t find the deal you want and you’ll miss good opportunities to own a home and asset that will perform very well for you. But they, hopefully not you, were only looking for a deal.

The reality is simple and usually constant for real estate. There is always a market. If you have a need or desire to buy or sell, opportunities are and will be available in this market. We have a more balanced market–supply of homes matching demand by buyers–than we’ve had in the past 4-5 years. We have an overall strong local economy with good, stable employment–even with the headline fears–and we have improving interest rates. We still have increasing household formations as our millennial population grows and a pretty steady supply of the baby boomer population retiring and likely ready to capture their equity and change their housing situation. It’s not frenetic, like the last 2 years, but it’s a market that works for buyers and sellers, if you’re realistic and want to be in the market.

Give me a call to discuss your interests, needs and concerns. We can create a strategy to help you win in these confusing times. I’m happy to talk when you are. Thank you for your time.

 

Post Photos by Uday Mittal on Unsplash and Brett Jordan on Unsplash

In The News March 2, 2022

Working in Crazy Times

To say these are crazy times is certainly an understatement. Many of us have wondered how crazy things could get since Covid arrived. So many directions to go on this but we’ll stick with the real estate world. Certainly declining inventory of homes for sale has occurred. Buyer demand hitting near all time highs has too. Job growth–for many; wage growth–also for many; government handouts of money–again for many; combined with a desire or need for a different home has just added crazy amounts of fuel to the fire of the already on-fire marketplace. We now add in fears of war, inflation, of stock market corrections–already happening, pushing many investors and people looking for new homes to jump after many or any opportunities in the local marketplace. Our February statistics will be out soon but they will likely show 70+% of home sales being at or above their asking price and I’d bet the median over asking price for most homes will be above20% for much of our region.

Juxtapose those statements with what may be a temporary or not so temporary breath in the market in the last 10 days and it’s very difficult to advise Buyers or Sellers on what is going on in the market. You make an offer 30% over asking price with no contingencies in one week and lose. The next week you win with a full price offer and little to no competition in the same area and price range. Change your location or price range and the sands are still shifting and conditions are completely different. WOW. It is exhausting and infuriating for home buyers, sellers and agents alike. There is no one winning strategy and certainly no logic to what it takes to win in these crazy times.

Here’s what we know. Several layers of uncertainty are impacting the market in different directions at the same time. War in Ukraine obviously has us all worried and wondering where this path goes and how quickly can this turn our world upside down. Stock market worries have some investors jumping back to buy real estate–especially in strong job and job-growth markets, like the greater Seattle area. Inflation has spooked the Fed and their raising of rates is now the expected for the balance of the year. But…other investors are looking for security and US Mortgage Backed Securities are seen as a very safe investment and we’re now seeing drops in interest rates as more investors look toward these for security. It is not abnormal to see interest rates drop when the Fed is raising interest rates at the same time. It might seem counter intuitive but again, not abnormal and these are crazy times.

Local businesses are staring to announce and ask their employees to start coming back to the office and there are millions of square feet of new office building being built in our region, set to open in the next 2-3 years and beyond. This will mean more job growth, new inward migration, more demand and….yes, most likely continued price hikes on home values. I have no expectation of prices spiking like we saw in 2021 for the region as a whole, but Seattle, as an example, has only had a 10% price growth  over the last 3 years while the Eastside has had 66.5% growth  in that same time frame; Snohomish County is up 57%. Seattle is making up for some of that so far this year, prices likely up 20% so far this year. It’s likely this will moderate through the year for Seattle and the rest of the region, but upward pressure will remain; even in the face of so much uncertainty.

Many ask, are we crazy to be bidding up so high on so many houses? This can’t continue, it has to crash and then what? I answer, these are great questions and reasonable sentiments to hold, however the bigger pictures still show expected price growth of close to 10% for this year and likely moderating closer to a long-term norm of 6%/year growth thereafter. So, if you really want or need to buy a home and you expect you’ll stay in that home for 3-5 to 7+ years, much shorter than the norms these days, then you’ll be missing out on great appreciation on your home if you aren’t in the market now. I think most agents are somewhat hoping for some breath moments in the market, like we’re seeing in the last 10 or so days. We are continuing to see increasing new on market listings, so our reservoir of homes to sell may finally start to raise. Don’t get too optimistic on this raise though. We had near record levels of new on market listings last year–it’s the only way we could have had near record levels of sales, but our reservoir only depleted. There’s optimism for some filling of this reservoir in 2022.

Buyers, take heed. The market conditions are improving with choices but our reservoir is still so low that when the right home choice(s) show up for you, you do have to be ready to act and still be bold with your offer. We are by no means entering market conditions that will have sellers making any significant concessions. Getting the home you want, in the location you want, at a price you can afford–that is a win and I don’t see that definition changing in any dramatic sense for the balance of this year. So, as crazy as things are, it seems they’re pretty well the same and norm of the last few years. Let’s hope the war in Ukraine can be resolved soon, so we can all breath a little easier and that layer of uncertainty can dissipate.

Buyers and Sellers, please recognize that you really do need an experienced agent to help you determine what the best potential strategies are and help present you, your home or your offer to the market. There are too many variables for those outside the market to understand. Seek advice and guidance on how to define and find your win in these crazy times.

Photo by Nick Fewings on Unsplash

In The News November 5, 2021

Zillow Bows Out of i-Buying Homes

Big news was announced this week when Zillow stated they will no longer be buying or making Instant Offers to buy homes across the country. In early October they announced they were putting the program on hold due to backlogs of homes, labor and material shortages. They had too much inventory on their books. It now seems that these issues, along with improper valuations, have taken a larger toll on the company and turned the profits and business model upside down. Zillow had a huge run up in buying of homes across the country after hitting pause during much of 2020 and the Covid crisis. Now, they’ve come to find out that buying and selling homes is more complicated than they thought. Something they recognized 15+ years ago but decided to ignore when Wall Street and large financial companies were plowing money into their company.

While Zillow is not alone in the Instant Offer, iBuying, model, they were a dominant player in the small share of iBuying in our area and around the country. Most iBuying programs don’t operate in Washington for a number of reasons. First and foremost, our home prices are high, relative to many other regions in the country. Second, many of our homes and neighborhoods are not formulaic in pricing. Each neighborhood has unique characteristics and those affect home values. The variation in our home’s sizes, features, character and styles also affect values and market appeal. Many iBuying programs are offered only on more specific home sizes, locations, age and styles. If there are 200, similarly sized, 2-story homes built by the same builder in fairly similar communities, it’s much easier to evaluate and predict present and future values for a home. But formulas don’t work in our areas and many others. You need hands on experience for proper valuations. These errant valuations have been good for those homeowners who were able to sell their homes to Zillow, but it shows that assessing a home’s value is part science and part art. The art takes people and time to master.

Zillow has been improving their valuation models over the past several years. By their own admissions in the beginning, their Zestimates were off by 20%, + or -, almost 50% of the time. In the last 5-7 years their valuations were more like 5-7% variable, high or low. Yet even with 5-20% annual appreciation across the country, their valuations still weren’t close enough to stem their losses. The latest estimates show they were losing 6% per home bought. For a while, they accepted and attributed the losses to marketing–we’re capturing more eyeballs, we’re connecting sellers with agents who are paying us $5,000-$25,000/month for seller leads, so we’ll make up the losses on those lead revenues or future market share. Sadly, like all businesses must learn, you can’t lose money on most of your sales and make it up in volume. At some point the zeal of Wall Street’s money slows and a return on investment is demanded.

I don’t consider this a uniquely Zillow issue. Having been in this business for 34 years, I’ve seen many cycles and also understand the many nuances to this business. It is much harder to be in this business, running a business, than it looks like from the outside. Lots of Wall Street Fin-Tech companies want to get into the Real Estate market and continue to try and disrupt the industry. Like all businesses, technology and change are inevitably changing the process but for all the monies spent, it still turns out that most home buyers and sellers look for a referral of a trusted advisor or go back to a trusted advisor to buy or sell a home. Most Buyers who don’t have their own agent/advisor either bought a new construction home, without an agent to represent them, or regretted not having someone to help them navigate, understand and capitalize on the market when they bought or sold. This is not a swipe left, swipe right process and those who seek to promote it as such only show their lack of true knowledge of what you need to know and how the real estate industry operates.

This is and will continue to be a people business. Our homes, our security, our identities are wrapped up in many to most real estate sales and thinking an automated chat bot or algorithm can handle the variables and nuances is naive to ignorant. Yes, technology does make it simpler, smoother and easier to conduct. It doesn’t replace the need for a trusted advisor and guide to help you through the innumerable steps and potential pitfalls of “figuring it out” or trusting a bot or algorithm to complete this with you.

Zillow isn’t going away; they’ll continue to work to capture eyeballs and pair the “what’s my home worth” homeowner to an agent willing to pay them $1,000’s a month or now, a per sale percentage even higher than before. Their hope is still to draw homeowners into their system to help them get a new mortgage for their new home or do the title and escrow work for the sale of the home you’re seeking a value for. They just won’t be buying your home in the near future. I have no doubt they will resurrect that step in a few more years. My concern is that Zillow, and all other Fin-Tech companies, don’t really want to help you. They only want to steer you to people who are paying them for your name and an introduction. Your satisfaction isn’t their goal. Capturing your information so it can be sold to someone else, so they make money on you, regardless of what next steps you actually take is their goal. I don’t think that’s what most home buyers or sellers are looking for–to be digitized data, sold to the highest bidder without regard for your actual needs or goals. If that’s progress and the main goal of the disruptors, which it seems it is, then I hope you’ll join me in seeking a better way, a personal and personable way. Seeking to understand your needs, goals and fears and walking the path to success beside, in front and behind you, to the end. Technology helps us, but people helping people is what this business is truly about.

 

Photo by Annie Spratt on Unsplash

 

In The News June 22, 2021

Why a Housing Bubble Isn’t Our Problem

I’ve mentioned in earlier posts that I think the fears of a housing bubble are misguided or more accurately not well founded. The number of people owning their homes outright, no mortgage debt at all, is still quite high, in the 25-30% range. The number of people with 50+% equity in their homes is also in this same nearly 30% range. The underwriting standards for loans today is much more strict than back before the Great Recession, so borrowers, as any recent home buyer knows, must supply a significant amount of documentation to get their loans approved. This offers confidence to the lenders and stability to our housing markets. Short of a catastrophic national or global event—Covid wasn’t enough, as we have all seen, –it’s very unlikely we have a housing bubble issue.

That said we have other housing issues that are deserve attention. Namely supply and affordability. Supply shortages are well known and the horror stories myself, my clients and other agents and buyers are seeing are quite frustrating. We bare our souls, our dignity and empty our bank accounts and oops, sorry not quite enough to win against some other home buyer. Who are these home buyers?

It’s true we do have more outside investors jumping back into our marketplace but the reality is most of these other buyers were already here or have come here for a new job. Yes, the region as a whole has seen an increase in people leaving the Puget Sound area and the state, but the reality is we have many new people coming in. We also have a huge population of Millennials living here, looking for their first or move up home. Millennials are a larger segment of our population than Baby Boomers and they are all looking to get out of apartments and small condominiums and into traditional homes. The Gen Z population, about the size of Baby Boomers, are also breaking into the marketplace and this will continue to put pressure on our supply side.

Combining this continued pressure from existing residents in our area with the ability to work from home, part or full time, is also helping spread this demand around the Sound. That too may not be going away in any near-term scenario. Now add what is expected to be another 50-60K new employees to the region in the next 2-4 years and you can see why I don’t see any way for us to be facing a housing bubble. A lot of apartments are being built in anticipation of this new surge but they’ll be homebuyers very soon as well.

While we’re on the topic of misplaced or unfounded real estate rumors, here’s another big misconception. That there are no houses for sale. Yes, most of the region is at .4 or less month’s supply of homes but the other reality is that our new listings taken–homes coming on the market every day, week and month are also near record levels. The Eastside’s new listings so far this year are only up 3.8% compared to 2019 levels which were very similar to 2018 levels. Seattle, however, is up 46% over 2019 levels which were slightly higher than 2018 levels. King County’s new listings were up 89% over 2019 levels, again 2018 about 4% lower than 2019’s new listings and Snohomish County has 81% more inventory this year than 2019 which was slightly lower than 2018’s inventory levels.

What you see when you look at the bigger picture and more data is we actually have had an extremely full inventory so far this year. I didn’t compare to 2020 as the Covid interruption skews the data to even greater disparities. Seeing this new level of inventory gives you a better sense of the true demand for housing in our area. So while the overall inventory levels are down, they are down mostly due to demand vs. supply. Let’s look at one other data point for maybe a deeper understanding of the market conditions.

Homes priced from $1M-$2.5M show the second issue for our area–affordability. I know I’ve cautioned you in the past, don’t just look at the home price–look at the monthly payment. Low interest rates and your current home’s equity combined make what seems like unaffordable home prices be within the reach of many in our region. That said, it’s still beyond the reach for many. On the Eastside the number of closed sales so far this year in this $1M-2.5M range is up 55% from 2019. Seattle is up 100%; King County up 89% and Snohomish County is up 60%.

So, when we look at this new data point we see that yes, overall inventory is up but in most areas the real inventory is in the $1M-2.5M range. The homes under $1M are still coming on but a healthy percentage of the inventory increase is in these upper price ranges of homes. Many like to say this isn’t fair; that housing should be a right; that prices should be controlled or regulated but there are no examples of any housing market interference or price controls that have shown to work in any market. Not in rent and certainly not in ownership. As you see in any world class city, our region has now evolved to that level, there are areas that many people can not afford to live. It’s simply a reality to accept not fight. I’d love to live on the beaches of Carmel or Monterey but it’s not going to happen. I can ask and demand my fair share and equity of access but it still won’t happen.

Our region went on a crash diet of no or almost no new construction being built for 7+ years. New regulations for new construction now add almost 25% to a new home’s costs. The time to develop land to build can be 4+ years, so we are behind the curve on getting new homes built to increase our supply and undoubtedly these new homes will not fit in the current day’s “affordable” price range for homes. Builders are paying 2018-2019 home prices to buy a home and tear it down to build new homes. These certainly can’t be in the affordable price range. The reality is much of our area won’t be affordable for some.

Prices can’t continue to escalate–that’s also a reality. Rise, indeed, but at today’s pace, no; we can’t maintain this amount of price escalation. Wages will tap out the price range but that is still likely above our current price points. Does that mean a bubble is coming? No. Only that there is and will be a ceiling coming. We still have a tremendous wealth transfer approaching as well. Baby Boomers can’t live forever and we will be selling our homes, or our estates will, in the next 8-10 years and for the decade thereafter. This creates homes to sell while also not creating a buyer for a new home. It also will mean the passing of wealth to younger family members. This increase of sellers who also won’t be buying a home will help bring some balance to our market and won’t come by regulation or outside interference. We’re in a cyclical market and currently that is all going up. I don’t see the downside being steep or significant; just coming our way but quite a few years out from now. In the meantime, ask for guidance from an active agent who can help you find the right opportunities for your needs. Don’t fear a bubble, a  collapse or a home’s sale price. Take advantage of the very low interest rates to find a home you can enjoy and afford for the next 5-7+ years. The numbers show the homes are out there. They may sell in a week but they are coming up and on the market for you to capture. Be patient. Summer can be a very good time to be a buyer in our region. With post-Covid vacation plans in place, some buyers will be taking themselves off the market for some of our summer time.

 

Photo by Armand Khoury on Unsplash

In The News March 9, 2020

Covid-19 and Real Estate?

There’s no doubt, there’s a lot of fear in our local marketplace. Today we saw our stock indexes drop by 7% and even the good news of great jobs reports from last week, major drops in the costs of oil and record low interest rates can’t seem to win the headlines against Covid-19. So what’s ahead for our market? I wish my bald head was a better crystal ball for knowing the answer but here’s some facts that you may want to know.

We’ve been dealing with this virus for over a month now and we just had an amazingly strong February real estate market. Prices were up, sales were up–even in the face of drastically lower supply of homes which meant quicker sales and multiple offers for Buyers to compete against and Sellers to rejoice in. On the Eastside, 51% of homes sold at or above their asking price, up from 37% in January and 32% a year ago. The percentage over asking price was 34%, compared to 20% a year ago. That’s up 70% compared to last year’s over-asking price percentage. Single family home prices are up 9% over last year and condo sale prices are up 7%.

In Seattle prices remained flat while supply of homes for sale dropped almost 50%. The percentage of over-asking price sales and full price offers went up, almost identically to the Eastside figures. The same percentages and changes occurred for condos in Seattle as on the Eastside. A very strong market by all measures and the same strength is evident from Skagit to Pierce County as well as on the west side of the Sound. Our region is humming along very well.

Photo by National Cancer Institute on Unsplash

With the announcement of Covid-19 in our local region, some are fearing a significant pullback in sales enthusiasm but that’s not translated to reality yet. Open house traffic has been pretty steady over the last couple of weeks. Only time will tell if a pull back will occur but so far demand is winning the tug of war. Typically supply begins to match buyer demand as homes for sale normally spring up like daffodils and tulips as our spring bloom begins. I see no reason to doubt this cycle.

Interest rates have declined to record low levels and this has balanced out the move up in home prices. If the stock market continues to struggle, we’ll likely see more investor flight to safety and security and that often means Mortgage backed securities–especially since the last major recession and the improvement to the quality of these securities. This demand for security by investors should keep our interest rates low and a lid on upward pressures.

The overall strength of our economy and businesses is unquestioned. The Covid fears and transmission of that into the world and local economies is near-term troubling; possibly longer term for some industries like the airlines, cruise ship travel and the travel sector as a whole, but most predictions are for a bottom to be near. Likely we sit still here while we get better data on Covid-19 incidence and health risks/remedies but most indications I’m seeing are still in strong support of American business strength and the American economy as a whole.

Fear may trap too many of us in our homes and cause unnecessary harm to restaurants, entertainment and small businesses.  That would be a shame as most people are not sick and need not live shuttered in and in fear. Simple precautions and steps will likely help all of us weather this storm of concern and infection. Treating fear is much harder than a virus and recovering from the unintended consequences can take much longer to complete.

I see no reason to anticipate or expect any significant decline in our sales or prices even if our economies are bombarded by the fear virus on top of Covid-19. The local economy is extremely strong and diversified. Employment and wage growth are active in most career categories. Business expansion is widespread and seems committed to completion regardless of any short term setbacks or surprises. I’d prefer we only deal with Covid-19 but it seems the fear virus is too intertwined.

Negative economic impacts will likely keep our interest rates low for the balance of this year, allowing more affordable payments for homes and a cash resource for those looking to spend some of the equity in their homes. I’m not always a big fan of spending our home’s equity but this is likely the best time to consolidate other debts you may have and likely still lower your monthly mortgage payment as interest rates are very near 3% for 30 year fixed mortgages.

So, what’s the likely effect of Covid-19 on our local housing market? Barring an unusual set of unlikely possibilities, it will hopefully be minimal. Obviously any given family can be upset to devastated by this virus. I hope none of us has the misfortune to suffer this. Let’s all agree that we won’t let fear rule our lives and dictate our activities to an unnecessary degree. Housing is a change and need-driven industry for the most part; we have all the change and need pieces in place to keep our real estate market moving ahead. Stay safe, be wise and we’ll all get through this together.