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A Love Letter to Buyers
We often share the advantages of this market for home sellers, which is unbelievably positive. However we thought it was time to give the potential buyers in our marketplace some love, hope, and of course data!
Dear Greater Seattle Home Buyer,
Let’s just be up front: buying a home in today’s market is not easy. Quite frankly, it can be a wild roller coaster ride with twists and turns; but remember, folks pay a lot of money and stand in long lines for roller coaster rides. Imagine the excited pit in your stomach as the cart clicks up to the highest point before you plunge down a steep drop, and the thrill of raising your hands up because you trust that you are going to be okay. These emotions also accurately reflect the feelings of today’s home buyer – it can be a wild ride! Let’s also note that many roller coaster riders return to the back of the line right after getting off. Home ownership is also a good exercise to repeat and is often the investment that leads to the most built wealth in one’s life.
So how does one ensure that they are not the Nervous Nelly who stands in line for over an hour, finally makes it to the front to be strapped in to the cart, but who then chooses to bow out? The one that sits on the sidelines watching others throw up their hands with a thrill in their eye; the one with that tinge of regret as their friends rejoin them back on hallowed ground to recount their adventure. Wow, this is getting dramatic! Here are a few tips to follow that will ensure that one can find success securing a home in today’s market and get on the equity building train.
Waiting is Even More Expensive
In 2017, the year-over-year median price gains across our region were strong. In fact, here is a little break down.
The appreciation is for real and as each month ticks by, prices are going up. That is why it is incredibly important to have a plan and realistic expectations. In referring to the chart above, it is plain to see the affordability of each area. Buyers have had to get creative and honest with themselves regarding the city or neighborhood in which they land. Commute times are one of the biggest indicators of home cost. It is paramount to line your budget up with a realistic commute time and then dig in. Too often we’ve seen buyers tightly grip to the idea of an in-city commute, only to have it end up being a more suburban choice in the end. The months wasted trying to perform in a market that didn’t match their budget ended up costing them at least 1% a month, based on last year’s appreciation. Getting real saves time, money, and heartache.
Interest Rates are Rising
This aspect is actually one to pay very close attention to. We have been amazingly spoiled with historically low interest rates over the last five years. In fact, there is an entire generation of buyers who only know rates that have hovered from 3.5 – 4.5% – that is close to 3 points under the 30-year average! A good rule of thumb regarding interest rates, is that for each 1-point increase a buyer loses 10% of their buying power. That means that if you have a $500,000 budget and the rate goes up by a point, that you are now shopping for a $450,000 house if you want the same payment. Note, that shift does not take appreciation into consideration. Today’s rates have helped buyers bear the home prices in our area. It is predicted that rates will rise in 2018 by .5 to 1%.
Rents are High and Don’t Build Wealth
Seattle is now the 5th most expensive city to rent in the country according to the US Census Bureau. With rising rental rates, still historically low interest rates, and home prices on the rise, the advantage of buying versus renting has become clear for folks who have a down payment saved, good debt-to-income ratios and strong credit. Currently, the breakeven horizon (the amount of time you need to own your home in order for owning to be a superior financial decision vs. renting) in the Greater Seattle area is 1.6 years according to Zillow research.
Partner with a Broker Who Will Get the Job Done
A broker that has a process is key! It starts with an initial buyer consultation. I liken the buyer consultation to the seat belt you would wear on the roller coaster ride. The buyer consultation aims to unearth a buyer’s goals, research the areas they are interested in, address financing, and illustrate the challenges of the environment, so one can be successful. Time is money, and this consultation brings clarity, efficiency and trust. This upfront education coupled with a high level of communication and availability is paramount. The depth of the relationship will lead to success, and is the ingredient that enables a buyer to throw up their hands and take the thrilling plunge. It is hard to do that without a seat belt!
Get Your Finances in Order
Aligning with a trusted real estate professional is key, but so is aligning with a reputable and responsive mortgage lender. Getting pre-approved is the minimum, but getting pre-underwritten is a game changer. Finding a lender that is willing to put in the work up-front to vet credit, income, savings, debt, and all other financial indicators will lead to being pre-underwritten, which listing agents and sellers appreciate! Also, be aware that you do not always need to have a huge down payment to make a purchase work. Employment, assets, credit, and what you have saved all work into your ability to acquire a loan. I have seen plenty of people secure a home with 3-5% down. Education and awareness create clarity, and investing into understanding your financial footing equals empowered and more efficient decisions. Note that I mentioned “responsive”. This is a 24/7 market, and lenders who don’t work evenings and weekends can get in the way of a buyer securing a home. If you need a short list of lenders that fit this description, please contact me.
‘Tis the Season – Inventory is Coming
Have hope! This is the time of year where we see inventory climb month over month. There will be more selection, but bear in mind it is also the time of year that the appreciation push happens. If you are feeling 75-80% in love with a home, it is one to act on. You’re never going to “get it all”, so a willingness to focus on priorities will pay off, because waiting will have an expense.
If you or someone you know is considering a purchase in today’s market, please contact us. It is our pleasure to take the time to educate, devise a plan, and help buyers find success in a challenging, yet advantageous market.
Quarterly Market Trends: South King County
Q4 2017
Q4 2017Price growth was particularly strong in 2017! Median was up 13% and average price up 12% over 2016. Median price in 2017 landed at $405,000 and the average at $440,000. The average amount of days it took to sell a house in 2017 was 30 days which is 9% faster than 2016. The average list-to-sale price ratio over the last year was 100%, with the spring months as high as 102%! In 2017, inventory growth continued to be a challenge, with a 7% decrease in new listings compared to 2016. Even with inventory limitations there were 2% more sales! This phenomenon illustrates strong buyer demand and a need for more listings.
South King County real estate has seen a steady stream of buyers come our way due to affordability, reasonable commute times and quality of life. In fact, the median price in 2017 was 75% higher in Seattle Metro. Historically low interest rates continue to drive the market as well, they have helped offset the increase in prices. Sellers are enjoying great returns due to this phenomenon and buyers are securing mortgages with minor debt service.
This is only a snapshot of the trends in south King County; please contact me if you would like further explanation of how the latest trends relate to you.
Quarterly Market Trends: Eastside
Q4 2017
Price growth was particularly strong in 2017! Median was up 15% and average price up 16% over 2016. Median price in 2017 landed at $865,000 and the average at $1,049,000. The average amount of days it took to sell a house in 2017 was 24 days, which is 17% faster than 2016. The average list-to-sale price ratio over the last year was 101%, with the spring months as high as 103%! In 2017, inventory growth continued to be a challenge, with a 4% decrease in new listings compared to 2016. Even with inventory limitations there were a near equal amount of sales! This phenomenon illustrates strong buyer demand and a need for more listings.
Demand for Eastside real estate has grown due to close proximity to job centers, great schools and quality of life. Over the last year, the Eastside was 70% more expensive than south Snohomish County and 22% over Seattle Metro. Historically low interest rates continue to drive the market as well, they have helped offset the increase in prices. Sellers are enjoying great returns due to this phenomenon and buyers are securing mortgages with minor debt service.
This is only a snapshot of the trends on the Eastside area; please contact us if you would like further explanation of how the latest trends relate to you.
Quarterly Market Trends: South Snohomish County
Q4 2017
Price growth was particularly strong in 2017! Median was up 14% and average price up 12% over 2016. Median price in 2017 landed at $508,000 and the average at $543,000. The average amount of days it took to sell a house in 2017 was 24 days, which is 17% faster than 2016. The average list-to-sale price ratio over the last year was 101%, with the spring months as high as 103%! In 2017, inventory growth continued to be a challenge, with a 1% decrease in new listings compared to 2016. Even with inventory limitations there were 4% more sales! This phenomenon illustrates strong buyer demand and a need for more listings.
South Snohomish County real estate has seen a steady stream of buyers come our way due to affordability, reasonable commute times to job centers and quality of life. In fact, the median price in 2017 was 41% higher in north King County. Historically low interest rates continue to drive the market as well, they have helped offset the increase in prices. Sellers are enjoying great returns due to this phenomenon and buyers are securing mortgages with minor debt service.
This is only a snapshot of the trends in south Snohomish County; please contact us if you would like further explanation of how the latest trends relate to you.
Quarterly Market Trends: North Snohomish County
Q4 2017
Price growth was particularly strong in 2017! Median and average prices were up 13% over 2016. Median price in 2017 landed at $371,000 and the average at $400,000. The average amount of days it took to sell a house in 2017 was 35 days, which is 10% faster than 2016. The average list-to-sale price ratio over the last year was 99%, with the spring months as high as 101%! In 2017, inventory growth continued to be a challenge, with an 8% decrease in new listings compared to 2016. Even with inventory limitations there were 3% more sales! This phenomenon illustrates strong buyer demand and a need for more listings.
North Snohomish County real estate has seen a steady stream of buyers come our way due to affordability and quality of life. In fact, the median price in 2017 was 37% higher in south Snohomish County. Historically low interest rates continue to drive the market as well, they have helped offset the increase in prices. Sellers are enjoying great returns due to this phenomenon and buyers are securing mortgages with minor debt service.
This is only a snapshot of the trends in north Snohomish County; please contact us if you would like further explanation of how the latest trends relate to you.
Demystifying the Zestimate®
Knowing the value of your home is helpful in many ways. It can help determine one’s net worth, help decide if a home sale or purchase is a financially feasible move, determine the ability to get a loan – and it’s just nice to know where your largest investment stands. Consumers have the option to access websites such as Zillow® to search the Zestimate® or other Automated Valuation Model (AVM) on their property.
A Zestimate is an AVM. The product of an automated valuation technology comes from analysis of public record data and computer decision logic combined to provide a calculated estimate of a probable selling price of a residential property. An AVM generally uses a combination of two types of evaluation, a hedonic model and a repeat sales index. The results of each are weighted, analyzed and then reported as a final estimate of value based on a requested date.
Often times when we talk with potential sellers, their Zestimate (or other AVMs) come up in the overall conversation, which is understandable. This information is relatively easy to access and gives the seller a starting point on the value of their home. Where an AVM can become dangerous is when a consumer thinks it’s accurate. Even worse, when a consumer makes a major financial decision solely based on this information. According to Zillow, less than half of all Zestimates in the Seattle metro area are even within 5.4% of the actual value, and they only give themselves a 2-star (fair) rating on their accuracy. In fact, they publish an accuracy report that you can view here.
In August, the average home price in the Seattle Metro area was $824,000. With less than half of all Zestimates within 5% of the actual value, that is a beginning margin of error of $41,200! Further, they claim that 72.3% of their Zestimates are within 10% of the actual value, which is a marked difference – up to $82,400. Where AVMs are incomplete is that the basis of their formula is tax records, which in our experience are often inaccurate. Also, and most importantly, an AVM does not take into consideration the condition of the home, the neighborhood and other environmental impacts such as school district, road noise and unsightly neighboring homes, to name a few.
At the end of the day, to give an accurate accounting of the value of a home in today’s market requires actually physically touring the home and the surrounding homes that compare. As well as considering current market conditions such as supply and demand and seasonality. An algorithm cannot accomplish this, but a real estate broker can.
So why does the Zestimate exist? Zillow is a publicly traded company (ZG) and their website is their vehicle to create profit. The Zestimate drives consumers to the website who are often dipping their toe in the pool to see what their home might be worth, or searching available homes for sale. When a consumer is searching on the website they are surrounded by real estate broker and mortgage broker ads on every page. These real estate brokers and mortgage brokers are paying for that advertising space, which is how Zillow makes its money and why there is a Zestimate. The Zestimate is not a public service, it is a widget to bring eyes to their advertising space which in turn, sells more ads.
Another important item to note is that Zillow does NOT have all available inventory in the Greater Seattle area on their website. In May, they cut off access to manually input listings, leaving some real estate firms unable to get their listings on the site any longer. Some firms just plainly chose not to syndicate to them. It is estimated that Zillow has between 70%-80% of the total available inventory on their site. In an inventory-tight market like the one we are in now, it is important for consumers to understand that if Zillow is the only source they are searching with, they may be missing out. Brokerage firm websites such as ours have a direct IDX feed from the Northwest Multiple Listing Service which refreshes every 15 minutes, insuring the accuracy and completeness of all listing data.
The moral of the story is this: use Zillow as one of the many tools in your real estate evaluation and search toolbox. Zillow provides a great starting point and contains a ton of information to whet your palate when embarking on a real estate endeavor. However, we live in a time of information overload and we are overstimulated at best. Nothing beats the evaluation and discernment of a knowledgeable and experienced real estate broker to help you determine accuracy, which will lead to the empowerment of clarity.
If you are curious about the value of your home in today’s market, please contact us. Any one of our experienced agents can provide an annual real estate review of all of your real estate holdings, or even dive deep into a complete comparative market analysis if you would find that helpful. It is our goal to help keep our clients informed and empower strong decisions.
Zillow® and Zestimate® are trademarks of Zillow, Inc.
3 Reasons why we are NOT Headed Towards Another Bubble
Are we headed for another housing collapse?
We get asked this question often, and we can understand why. With the 2008 Great Recession not too far back in our rear-view mirror it is understandable that folks don’t want history to repeat itself, as that was a very painful time for many. Also, price appreciation has been rapid across the country, but especially in our region. The large price gains might seem familiar to the gains of the previous up market of 2004-2007, but the environment is much different. Here are three reasons why we are not headed towards (or in) another real estate bubble:
1. Lending Requirements
As this graph shows, lending requirements are much more stringent now than what they were prior to the fall of the housing market.
Previous lending practices allowed people to get into homes with risky debt-to-income ratios, low credit scores and undocumented incomes. They called this sub-prime lending. A large part of why the housing bubble burst 10 years ago was due to people getting into mortgages they were not equipped to handle, which lend to the eventual fall of sub-prime lending. Currently, the average credit score of secured mortgages over the last 12 months according to Ellie Mae was 724. During the days of sub-prime lending people were funding loans with scores as low as 560! This, coupled with many zero-down loan programs and the risky terms mentioned above left many new homeowners with little to no equity. When you have little or no equity it very easy to just walk away.
The graph above shows the percentage of homes in our state with significant equity (20% or more) according to CoreLogic. Today many homeowners, especially in our region are making large down payments to begin with. Believe me, when competing with multiple offers on a house, the size of down payment matters – hence many buyers landing homes today are making large down payments. Unlike the market prior to the crash, when people have high equity levels they are not likely to abandon their home or miss payments.
2. Inventory Levels & 3. Our Job Market
The biggest challenge in our market has been low inventory levels and high housing demand. It’s simply the concept of supply and demand. Our thriving job market has afforded folks already in our area the ability to make moves, and it is bringing people into our area from other parts of the country. Washington State’s net in-migration is 43% higher than it was 10 years ago. This has created increased demand, especially for homes closer to job centers resulting is shorter commutes. When you have increased demand and not enough homes to absorb the buyers, prices go up. Over the last three years we have easily seen a 10% increase in prices year-over-year. That is above the norm and should slow down as inventory increases. As inventory increases we anticipate a leveling out of appreciation rates to historical norms of 3-4% annually, but not decreasing home values like the 2008-2010 crash.
We understand that the recent increase in home prices has been big and that it might remind you of the previous up market before the crash. Hopefully digging into the topics above has shed some light on how it is different. According to Matthew Gardner, Windermere’s Chief Economist and nationally sought after expert on all things real estate, buyers should not wait this market out, due to future price appreciation and today’s historically low interest rates. Check out his latest vlog that addresses this topic.
As always, it is our goal to help keep the community informed, and empower strong decisions. Please let us know if we can answer any questions or help you or anyone you know with their real estate needs.
You’d Like to Sell Your Home, but Where to Next… and How?
Homeowners across our region are enjoying very healthy equity levels due to an upswing in the real estate market over the last five years. In fact, the median price in King County is up 50% over the last five years and up 47% in Snohomish County. This growth in equity has given homeowners the exciting option to sell their home for a high price and move on to their next chapter, such as a move-up, down-size or second home. This price growth is great news and provides many opportunities, however we have also faced some challenges in how to make these transitions.
Our biggest challenge in the marketplace right now is inventory levels; sometimes requiring a buyer to compete in multiple offers for their next home. Currently King County sits at 0.7 months of inventory and 0.8 in Snohomish. Historically, buyers that are also sellers would commonly secure a new home contingent on the sale of their current home. Meaning the seller of the new home they are buying would give them a month or so to get their current house sold in order to buy theirs. Well in this market, that is only rarely an option. So, the million-dollar question is this: how does one who has gained so much equity, now itching to get that bigger house, different location, or perfect rambler for settling into retirement, make this transition without having to move twice? We need to get creative and have a strategy. Two options that have recently proved to be successful, are negotiating a rent-back for sellers or using the Windermere Bridge Loan program.
First, negotiating a rent-back has become a great option for someone who needs to first sell their current home in order to buy. The way it works is we put their home on the market, price it competitively to create demand, and ask for a rent-back as one of the preferred terms. If this rent-back is successfully negotiated, then the seller closes on their home and collects their funds, but gets to stay in the house anywhere from 30-60 days. This enables the seller, who is now a buyer, to have their cash in-hand, time to find a new house, get it under contract and close the sale when their rent-back is ending. This eliminates the need to move twice. There is a bit of calculated risk in this plan, but we’ve seen it work several times, always with a plan B ready just in case. Rarely has plan B needed to be executed, and often times we’ve even been able to pay little to no rent during this time.
The second option is the Windermere Bridge Loan program. This is an amazing tool for homeowners that own their homes free and clear, or have paid down their debt quite a bit. This is a low-cost alternative to pull the equity out of one’s house prior to selling it in order to make a non-contingent offer. The way it works is we take the market value of the house the homeowner current lives in, established by a comparative market analysis completed by your Windermere agent and signed off by the Broker. We then take 65% of that value and subtract any debt owed, and that is the maximum amount the homeowner can borrow for their next down payment. They can then make a non-contingent offer on a new home. What is really great about this, is that it doesn’t require an appraisal (like a HELOC does), and these can easily be turned around in 3-5 business days. This tool provides the opportunity to quickly and inexpensively pull your equity out, be competitive, and eliminates the double move.
The fees associated with this program are a 1% loan fee on the equity that is pulled, a title report, and interest that is incurred between the loan funding and being paid off once the subject home is sold. That interest is conveniently wrapped up in the closing costs when they close the sale of their home, eliminating the need to make monthly interest payments. In a strategy that is somewhat mind blowing- we can sometimes use these bridge loans and never have to actually fund them. For example, if we secure a property non-contingent with the bridge loan and immediately get the subject home on the market, we can often secure a sale with a simultaneous closing, and never have to fund the loan. This eliminates the loan fee, interest, and the need to carry two mortgages.
If you are excited about equity levels and today’s low interest rates and have thought about making that move you’ve been waiting for, but have been fearful of how to do it all – we can help. These two options, along with great attention to detail, hand-holding, and careful planning have helped many people make these exciting transitions. It is our goal to help keep our clients informed and empower strong decisions. Please contact any one of our agents if you would like further information on how this might work for you or someone you know.
Demand is High, Inventory Low… Here we Go!
The two graphs here illustrate the amount of homes for sale, the amount of homes that sold, pending sales and new listings over the past two years in King and Snohomish Counties. This gives us a good look at the simple principle of supply and demand. We are currently experiencing one of the strongest Seller’s markets in recent history. A Seller’s market is defined by having three or less months of available inventory. Currently, King and Snohomish counties have only 0.9 months of inventory based on pending sales. This means that if no new homes came to market, we would be sold out of homes in less than a month. What is crazy is that this inventory count is down 30% from the year prior, which was also an extreme Seller’s market!
Where this particular Seller’s market is unique, is that a decrease in new listings is not creating this environment, but very high buyer demand is. In fact, King County new listings were up 5% over the last year, but so were sales. In Snohomish County new listings were up 7% over last year, but sales were up 11%! Despite the increase in homes coming to market, demand has matched or outpaced, leaving us with the lowest inventory levels ever.
We can thank our local, thriving job market. So much so, that many people from out-of-state are relocating here to be a part of our economy and the quality of life the Greater Seattle area has to offer. We also have poised move-up buyers ready to cash in on their equity and first-timers ready for action. Combine the healthy local economy with strong equity levels and still historically low interest rates, and the audience for homes that come to market is huge!
Multiple offers are very common and prices are increasing. Median price is up complete year over year in King County by 13% and Snohomish County by 10%. This growth in equity has provided home owners the option to make the moves they have been waiting for, such as a move-up, right-size or relocating out of the area for retirement.
These graphs predict that we will see an increase in new listings as we head into the Spring and Summer months, which is needed to meet demand. If you are considering putting your home on the market this year I would advise the sooner the better, as buyers did not hibernate for the winter and will not be worried about flowers blooming in your front yard. Sellers that beat the second quarter increase in listings will enjoy a larger audience due to less competition.
The importance of both buyers and sellers aligning with a knowledgeable, well-researched and responsive broker is paramount. One might think that it is “easy” to sell a house in this market, but how the preparation, exposure, marketing, management of all the communication and negotiations are handled can make or break a seller’s net return on the sale. While market times are short, they are intense! Negotiations are starting as soon as the property hits the market by educating buyers and their brokers on exactly what a seller would like by the time offers are due. The goal is to bring the sellers I work with not only the highest price, but the best-termed offer that I know is going to close.
If you’re a buyer, it is overwhelmingly important that you are aligned with an agent that knows how to win in this market. Terms, negotiations, financial preparation, communication, responsiveness and market knowledge are what set a highly capable selling agent apart, and are required to prevail. While the market for buyers is fierce, we can assure you that with a well thought out and executed plan, we have helped buyers win.
If you have any curiosities or questions regarding the value of your current home or purchase opportunities in today’s market, please contact us. It is my goal to help keep you informed and empower strong decisions.
You Don’t Need Tulips for a Strong Home Sale
These graphs (click to view larger) above provide a 10-year history of the odds of selling in the month of October for both King and Snohomish Counties. As you can see, the odds of selling are at a 10-year high, hitting 86% in King and 85% in Snohomish. These are quite favorable odds for sellers and indicate what one might expect moving toward 2017.
Buyer demand remains very strong! In fact, pending sales reached peak levels in May of this year and continued with steady momentum throughout the summer and fall. Every month this year recorded a higher pending level than the same month the previous year. This illustrates strong buyer demand and is coupled with lower inventory levels than the year before. This combination has created very low months of available inventory, and we anticipate this continuing as we complete 2016 and head into 2017. For a potential seller, this means the market is in your favor, and waiting until the tulips bloom in April might have you lined up against more competition. Historically, we see inventory peak April through June, however pending sales have closely matched supply all throughout the year. With that said, one might consider bringing their home to market in the first quarter of the year versus the second, because they will have less competition, but still enjoy an engaged buyer audience.
Most recently we have seen interest rates bump up a bit, and this has created more urgency in the market. While still historically low, buyers are smart enough to know that cheap money is a huge long-term savings. Paying attention to all of these market factors will empower one to make the best real estate decisions. Please reach out if you are considering a move over the next year, and I’d be happy to apply this research and weigh in on your options.
