In The News June 29, 2023

Every Which Way But Loose….??

We’ve been bombarded by divergent economic news events and statistics for the past few years. The forecasts seem just as divergent. There seems to be some consensus that a recession is coming but when? How severe? How long? What can we do about it? There’s no consensus on these answers. We, the general public, have done remarkably well at coping with this chaos and our ability and willingness to ignore this chaotic data only confounds the so-called experts and their forecasts. We were going into or in a recession in early 2022 but to most of us, it didn’t feel that way. The data said some things, life said others.

So how does this impact real estate? Interest rates doubled last year—bringing on more fears of an economic or at least real estate “CRASH”. This much of a rate hike would typically slow down buyers and we’d see the real estate market cooling off dramatically. That’s what the FED said they wanted—“to kill the real estate market”! However, the rise in interest rates created a shortage of homes for sale as some who were considering selling, stopped and sat still. They didn’t want to give up their low interest rate by selling their home, then turn around a buy a different home at likely a still higher price point and much higher interest rates. So what happened? The market didn’t crash. Prices did drop, in some of our area 25%, but in other areas only 10%. Then buyer demand kicked back in and sales came back with multiple offers and prices being bid back up 10-25%+! While these bids may not have reached our peak prices from the early spring of 2022, they still were and are going well above the valley of prices from November/December of 2022. Yes, overall sales volume, quantity of homes selling, is lower but the market is still quite active and the search for more homes to buy is still quite strong.

We’ve seen a pretty steady rise in median home prices in all of our region since the first of this year. Month over month in most areas and price ranges, we’ve seen a steady rise in home prices. But how with interest rates so high? Simply put—demand. We still have plenty of new household formations going on; people with new jobs in our area or in need of new houses and able to afford the homes they want at the interest rates of today. They’re all looking to and planning on refinancing their homes in 1-2 years, when we expect rates to be back into the 5% range, but for now they can and are affording to buy. It’s this willingness to spend, with confidence in their incomes, that is confusing the financial forecasters. Most forecasts expected the threat of higher interest rates would stop the market. Add in the threat of a recession and/or a job loss would surely stop people from spending but—the spending goes on. In housing, in travel, in automobiles, certainly in grocery spending. We’re all spending more and confounding “the experts”. Jerome Powel, FED Chairman, is still threatening to raise interest rates more to slow down the economy. We will see if these come to pass. New jobless claims are up, near peak levels for the past 4 years, but our confidence in the overall American economy, in our abilities to get that next job with a stable or better income is keeping the economy moving ahead.

There are certainly many economic indicators that are not encouraging but so far none of them are really dampening the housing market or the economy. There’s lots of talk about worrying but the overall sentiment appears to be more of an eye for opportunity and caution but a willingness to take on risk. We’re seeing some people diversify out of the stock market into real estate—fearing if there is a real economic collapse, real estate will perform better as we continue to have demand—in particular in our area of the country. People have to live someplace. Certainly the stock market’s rebound or strength is more concentrated in fewer stocks than most would like to see but it’s hard to say the market isn’t performing well. There’s lots of promise and optimism, despite constant watching for signs of trouble.

Fear is never a great motivator nor a good guide. Taking on risk is unique and subjective to each of us. I never recommend buying or selling a home without a broader discussion of your wants, needs and timelines. That said, we saw a huge run up in home values since 2019 and despite the drop in values last fall, it’s hard to say that real estate isn’t a wise decision—in our local region in particular. We have great diversity in economic engines in our region; wonderful natural resources to enjoy; pretty amazing weather—despite our reputation for rain and great services, culture and opportunities. Huge amounts of wealth and innovation are also in our region. These 2 factors alone, will continue to attract others to the Puget Sound area. Combine them  with our other attributes and we are a unique and desired location for many and this means strength in the housing market.

This isn’t a great real estate market for everyone, sadly not a great one for those trying to climb onto the economic ladder, but it seems likely we will continue to see stable to improving home values. Steady demand to buy into it will continue, especially when interest rates improve. We have some recession fears to watch, but the most likely scenario if these come to fruition are for  improved interest rates and improved demand for housing. Home prices usually improve or stay stable during times of recession. Waiting for the economy to crash and housing prices to drop isn’t likely a good strategy for those looking to get into the housing market. A better plan is to talk with advisors on how to save monies, pay off specific debts and find unique opportunities for you to get into the market. If you’d like advice or specific assistance with your needs, please reach out. I’m happy to help.

Photo by Jon Tyson on Unsplash

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 February 17, 2021

Where Is Our For Sale Home Inventory?

Some of us likely remember the Johnny Carson show and his banter with his audience of “how crazy is it….” Well, it’s pretty crazy out there.

Likely many of you also saw the skit on Saturday Night Live a couple of weeks ago spoofing Zillow searches for homes as today’s dating or other unusual website surfing. It’s true, since the Covid crisis, home searching and buying seems to have become “the” national pastime. Many want to get away from or get out of their homes, even if only dreaming, while others truly want to find their new home. While the skit was very funny, finding and buying a home in today’s market is very challenging.

Strong demand for a change in our house style, size, location and features coupled with record low interest rates are creating unprecedented circumstances. The freedom and need to work from home, teach and learn from home, get some separation and privacy–safety and distance are all adding to the demand part of the picture.

At the same time we have unprecedented refinances taking place as interest rates have been in the mid 2% range which is allowing many to refinance their home loans and save $100’s to $1,000’s of dollars on their house payment. Great news for these home owners but it also means these home owners aren’t likely selling their homes for several more years–like 5, 7 or 10+ years to come. This is creating a significant shortage of homes for sale. While this is bad across the country, it’s staggering in our region. One silver lining to this point is these home owners aren’t likely to be competing buyers any time soon either.

So how bad is it?

In all of King County we only have 887 homes on the market for sale as of 2/17/2021; adding condos to the figure adds 796 more choices for a combined total of 1683 homes for sale. Typically this figure would be in the 3-4,000 range for an average month. The current inventory represents only .00185% of all homes in our region being for sale. That’s 1/4 to 1/3 of last years record low levels. Snohomish County is even worse with a combined houses and condos total of only 251 total homes for sale. That’s .0008% of all households in Snohomish County and 10-15% of normal inventory levels. The Eastside area has only 354 combined homes for sale and South Snohomish County only 124 total homes for sale. This is all homes, no bedroom, bathroom, price range or features as filters, just a house or condominium being for sale! Crazy! By the way, the national inventory level is only at 1.2% but that’s still well above our local figures.

Active agents like myself are hopeful for some increase in homes for sale but from these low levels, any increase will be welcome but not likely enough to change the real dynamic of what it’s like to be a home buyer in the present market. I know many people think or thought we would be seeing a collapse in home prices, some form of bubble bursting. We all remember the economic collapse from 2008-2010 and no one wants that repeated. Now let’s look at what an economic recovery will mean for our region, the country and the world as a whole. As more businesses reopen, new jobs will be created and filled; more people with more incomes will start to feel better and hopefully spending continues. Will this mean a decline in demand for homes? A rise in homes for sale? Not likely. It’s most likely to mean some increase in demand and hopefully some trading of homes–people moving out of and into a new home but a one to one exchange of households.

The results of this shortage of homes to sell is resulting in rapid home appreciation. We’re seeing home values rise 10%+ in the last couple of months in much of the area and 30%+ in much of the region over the last year. So what stops this price appreciation? Nothing in our current or near-term economic forecasts. While it’s easy to ask: “How many people can afford a $1M+ home?” the answer is more than you think. With our record low interest rates a $1M home with a 20% down payment equates to about a $3,266 principal and interest payment. With taxes and insurance this moves up to $4,182. Compare this to recent times when a $500K home with 10% down and a 5% interest rate meant a payment of $3,031. The gap isn’t that big between these two. When you also consider that an average 3 bedroom home rents for around $3,000 and the price tag on a $1M home doesn’t seem so out of line.

When you consider that the owner of a home they bought for $500K, 5 or less years ago can now sell that home for $800K+ and the equity they then have to put down on the $1M home makes that home even more affordable. The point being with so much equity in our current homes and wage levels for those less affected by Covid where they are, a huge percentage of our population can now afford a $1M+ home. Homes priced from $1M to $1.5M have become the most sought after homes in our region, as they are considered the most affordable and desirable homes for a large percent of local buyers.

The perspective of the most informed buyers in our marketplace is not one that focuses on the price of the home but on the monthly payment of the home. They don’t worry about the home’s price because it’s most likely they will never be paying it “off” but instead they consider if they can afford the payments. With current wages and stable employment this perspective and focus is why so many people see today’s market as an opportunity that can’t be passed on in hopes or fears of some dramatic crash in home values. Given our current inventory levels, any bubble burst or calamity likely only creates a very short term relief on price appreciation.

What can we do with this information?
It depends on what is going on in your life; what changes are occurring or anticipated in the next few years. If buying a home is your focus, then teaming up with a well-informed agent and diligent attention to the market is necessary to capture this opportunity. With all the refinances that have taken place it’s likely inventory won’t change that dramatically in your favor. If making a move from your present home to a new one is your focus, the current value of your home combined with record low interest rates means the bridge between your present home and your next home is likely closer now than in the future as your present equity is at a high and it’s likely that economic recovery will put some upward pressure on interest rates, making that new home’s payment higher, regardless of how that compares to your present payment.

If you are thinking “when is the best time to ‘cash out’ take my money and run”—well, typically only the rearview mirror can tell us this but here’s a few points to consider. First, just as we don’t have “a” real estate market, we have many micro markets, there are also many micro peaks. Your home’s size, features, condition and location will adjust where your peak may be. We still have 20-30,000 more new jobs scheduled to come to our region over the next couple of years. This is besides any rebound of jobs in travel, hospitality and dining. That likely means more new people to our area. Yes, many can work remotely but most will stay in our region. A quick side note to this point—King county’s population shifts have gone mostly to other central Puget Sound regional counties–Pierce, Snohomish, Kitsap counties; some to Clark county near Portland but most of the population shifts are still in our local market. So with increasing jobs, increasing populations and a tight inventory, what happens to your home’s value? Likely the peak continues to form. The point being, if you’re ready to “cash it out”, make that call and change when you’re ready is most likely the best advice. Historically we see the most appreciation in our market in the earlier months of a year but as we all learned last year, tomorrow is always uncertain so finding that peak may be more difficult to do than enjoying the timing that fits your life’s goals.

So, how crazy is it out there?
You’d be crazy to not seek guidance from an active, informed agent to help you capitalize on the opportunities and navigate these challenges. Give me a call. I’m happy to help you.

 

Photo by Edi Libedinsky on Unsplash

In The News October 27, 2020

Q3 2020 Gardner Report for Western Washington

I am fortunate to work for Windermere Real Estate and one of the benefits I derive is access to a local economist, Matthew Gardner, who monitors various economic details and trends for insights and perspectives on our real estate market. Here’s his latest analysis of the Western Washington market place. It seems we have recovered many of the job losses since Covid struck our region, but not sure the new jobs are for the same people and certainly not for the same jobs that were lost since March. Still, the employment picture is improving and the real estate market continues to thrive–being one of the strongest economic engines in our area and across much of the country. Most expectations are for home sales and values to continue strong into 2021 with low levels of homes for sale, low interest rates and high buyer demand. A trend for 2020 has been for buyers to either look for second homes or to move out to less urban and business-centric areas. Market times in many of these suburban to rural  areas are dropping while home prices are rising sharply. We’ll se if this trend continues as we hopefully gain more control over the Corona virus impacts to our country and region.

Take a look at the report:

 

 

 

 

In The News April 10, 2020

Which Way Is Up For Real Estate?

This trek of isolating in our homes marches on. Hopefully some of our sunny days have helped to break the monotony and stress of isolation and lifted your spirits as we stay home to stay safe.

The real estate market was put on the essential business/services list just a few days after we were told we weren’t an essential business. That said, social distancing and personal safety, along with restrictions on movers, photographers, contractors, inspectors and home stagers all slowed the market activity level dramatically. We’ve since seen a release of these various jobs to open back up, but we’ve still seen a market slow down. Despite the recent publication of March sales and pricing data, all showing a continued strong market, we did see a pullback in new pending sales, homes sold but not yet closed. I expect we’ll see lower figures for closings and pending sales as we get into May and see the April figures.

Real estate has never seen such a giant swing in momentum in such a short period of time as we’ve experienced in the last 4 months. We had a sluggish early fall, with increasing market times and slower than normal sales but a steep decline in homes for sale that went on into March. December saw a big jump in sales activity and a corresponding jump in home prices. The lack of inventory and high demand made for quite a frenzy of multiple offers and new price highs. January and February continued very strong, even into early March which showed 55-58% of homes selling above their asking prices and average market times of 15 days or less for much of our region.

Then Covid 19 came to roost in our area and across the country and the World. We saw stock markets plunge and housing freeze. Quite a change in a 3-4 month period. The stock market plunge created panic in the Federal Reserve Bank, and they started buying Mortgage Backed Securities which created more troubles in the mortgage market and nearly collapsed the Secondary Mortgage market. This pushed interest rates up from the 3.375% range to over 5% and many lenders pulled out of the market altogether.

Calm is restoring in the mortgage market due to The Fed changing their behavior and time passing to allow lenders to get their books and balance sheets back in synch. We’re also seeing some rebound in the stock market as we see improving optimism related to the Covid 19 virus. So, what about the real estate market? With so many job losses and business closures, where will home prices go in the coming months? I wish I knew.

Economists and predictions vary widely, mostly due to any lack of true certainty over the Virus influence and impact. Most of us are hoping to be released from our homes by early May and then see some jobs and earning power restored. Unemployment is understandably high, but hopes are that we can see this decline over the next few months when the economy is open. Unemployment won’t drop back to its 3-4% range, but hopefully back below 10% yet this year. Hope is all any of us have right now.

The recent sales data do show a broad range of home values selling and generally across the whole Puget Sound region, so I’m optimistic that we’ll see a generally strong rebound in home sales. Not likely the frenzy of this late winter and early spring, but still a lively market. We’ve had 1,999 closed sales in the last 20 days in King and Snohomish Counties. We’ve also had 1,347 Pending sales and 364 Pending inspection sales in the last 20 days. That’s a bit over 1700 sales in 20 days of limited mobility; fairly active against a backdrop of 4,164 homes for sale in these 2 counties.

Real Estate, shelter, is an essential human need, along with food and safety/security. It offers us both shelter and hopefully some improved sense of safety and security. This means there is always “a” market. Every market has some holes within it; specific property types, locations or price points that are not as active as others. That will be the case in this recovery too. What I’m focusing on is the strength of many of our larger employers, their employee counts, spending patterns and the overall physical health of our region. This will help us have a more balanced market and housing opportunities for all.

Our social distancing seems to be paying off, even if taking longer that we wanted. I hope we can see a steady improvement in our physical recovery, no delayed or unexpected spikes in incidence or severity rates, so that businesses can re-open, re-hire and start finding our balance again. We will need more of us to participate in the physical and economic recovery to keep housing stable and a driving force in our economy.

No one knows with any certainty when or what the ultimate recovery pattern will be but I think most of us will be happy if we can see home values maintain close to their peak values attained this winter and our continued recovery in the stock market and our business climate. I have no fear of the market stalling out; we just have too much demand. We may well see a very lively initial bounce as families try to find their new homes this summer, so they’re settled in for the coming school year. My hope is that we have seen more of a deferral in market activity than a loss in market interest, ability or demand.

Some potential home sellers won’t be coming on the market due to their personal economic circumstances but anyone wanting or needing to sell should still find an ample supply of buyers looking for their new home in your neighborhood, hopefully inside your front door. Let me know if you’d like to talk about your particular market, concerns and circumstances. I’m always glad to talk with you.

Stay safe, home and healthy. Hopefully we’ll all be celebrating our release on Cinco de Mayo!

 

 

Photo by Jakob Owens 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.