Lennox's Real Estate Blog

sharing my passion for real estate

Archive for the ‘2010 Forecast’ Category

King County Real Estate Sees Positive Shift

leave a comment »

Single-Family Inventory Levels Very Low Close To Job Centers

The psychology of the residential real estate market in King County is shifting in a more positive direction; the roller coaster has started to level out with single-family home inventory levels decreasing and prices stabilizing under $750,000 in markets close to the job centers in Seattle and Bellevue. Simultaneously there’s a pool of buyers that are motivated to take advantage of low interest rates and increased affordability. As a result, Read the rest of this entry »

Written by Lennox

March 25, 2011 at 5:09 pm

The New “Normal” In A Post-Boom Era

with 3 comments

As we look back at the real estate boom, it’s clear that many of us got used to the idea of quick home price appreciation. Real estate speculation became a game not just for investors, but for anyone with some equity and the desire to move. As we become accustomed to the post-boom market, our expectations for home price appreciation need to evolve as well.

From 1980 through 2010 (including six months forecasted for this year), home values appreciated on average 25% every five years. This average appreciation rate incorporates the post recession boom of the late 80s, the housing downturn of the early 90s, and the more recent boom and financial crisis of the past decade. The years since 2000 have been anything but normal. As a nation, we experienced extremely high real estate appreciation rates between 2002 and 2007, which were followed by historic price declines over the past three years. Though these appreciation and depreciation rates vary depending on area and price range, what seems to be true for all price points and regions is that homes are once again places of shelter—not get-rich-quick investments.

From this point forward, most homeowners will want to stay in their homes for three to five years to build up enough equity to make selling and moving a sound financial decision. This is because most major real estate economists anticipate that we will not see moderate appreciation in home value appreciation until 2011 and very gradual year-over-year improvement into the next decade.

The multi-year recoup period is historically normal: annual appreciation rates averaged 4.6 percent (compounded) per year since 1980, despite the many ups and downs over the past 30 years.  

Since they will most likely want to stay in their next home for at least three to five years, today’s buyers need to consider their near-and long-term plans as they shop. Growing families, retirement, children going off to college, or any other factor that could affect their budget or the amount of space they’ll need over the next several years should be taken into account.

Many homeowners and would-be buyers are wondering if it is a good time to sell or buy. We have seen valuations stabilizing in many areas and price points, and since current historically low interest rates equal greater purchasing power, sellers and buyers need to consider their individual situations carefully.

As normal appreciation rates return and become more familiar, we must realize that while real estate is still a good long-term investment, a home is about far more than money—there are many personal riches that come with owning a home, including those that fuel a healthier family and community.

Written by Lennox

June 24, 2010 at 1:53 pm

Should I Stay Or Should I Go? Trying To Time The Market

with one comment

In my travels around the region, one question I hear over and over again from people is, “Should I buy now or wait till later?” It’s a great question to ask in the face of some of the lowest interest rates we’ve seen in recorded history. But, it’s a tough question to answer within the context of today’s market because conditions vary greatly from one price range to the next. In the absence of a crystal ball, I will do my best to explain how I see the market and what buyers might want to consider as they plan their next move.

More affordable prices:
This is the part of the market where homes are priced at or below the median price in a given area. For example, in Seattle that number stands at about $360,000. In Bellingham and Portland the median home price is about $240,000. For those thinking about buying in the ‘more affordable’ market, the most important thing to keep in mind is Buyer Purchasing Power. Most economists agree that interest rates are as low as they’ll go, but many of them disagree about when they’ll start to rise. The economic events in Europe helped keep U.S. interest rates at their current lows longer than originally expected, but as a result, they now represent the wild card. As a buyer who is trying to time a purchase in the ‘more affordable’ market, it’s important to understand that a 1% rise in interest rates equates to about 10% less purchasing power. Prices in this market are expected to remain relatively stable, but even a moderate drop in prices will not make up for the lost purchase power when interest rates rise. So, my advice to these buyers is that if you’re in a good position to make your move, this is a great time to check out your options.

Above the mid price point:
The next level of prices represents the middle of the pack. Conditions in this segment of the market differ somewhat from the ‘more affordable’ price ranges. Prices above the ‘mid price’ point may adjust down by about 5% over the next year. If interest rates only go up half a point during this time, it’s a wash as to when it makes most sense to buy economically. But, if they go up a full point, as many economists are predicting, that’s a 10% drop in purchasing power. On a $500,000 house, that’s $50,000 less purchasing power. If you factor in the 5% decline in home values, it adjusts to a $25,000 loss in purchasing power. If I were a motivated buyer in this market and in a good position to buy, I would shoot for sometime this summer.

Upper price ranges:
Those homes at the top of the price pyramid almost always have a set of conditions unto themselves. That’s because there are fewer qualified buyers which results in less sales. This segment of the market could see a downward adjustment in home prices of about 10% over the next year. However, as mentioned before, economists think that interest rates will rise by one point over the next 12 months, which equates to about a 10% loss in purchasing power. What this means is that if you buy a home today or if you wait six-to-twelve months from now, affordability will be about the same. If you have a home to sell in this market as well and you’re concerned about it losing value, remember that when you buy and sell within the same market timing, the next home you buy will also have adjusted down in price, so in theory, you shouldn’t leave any money on the table.

Cash buyers:
These buyers can afford to pay cash for their next home and therefore are not reliant upon interest rates. As a result, purchasing power doesn’t apply to this small segment of the market. Cash buyers usually buy in the ‘upper end’ market which means that prices are the most important factor to this group. As mentioned before, prices in the ‘upper end’ could adjust downward by 10% during the next year, so homes should only get more affordable to those not tied to the mortgage market. We also expect to see increased inventory levels which mean more homes to choose from. So, if you’re a cash buyer and you find your dream home tomorrow, make an offer, but if you decide to wait, market conditions should continue to improve over the next year.

Ultimately, buying a home is about far more than just timing the housing market. It’s a major decision made up of many factors, of which market timing is just one. And in the process of buying a home, it’s important to be well informed about everything that impacts this life changing experience.

As always, thanks for reading.


Written by Lennox

June 3, 2010 at 1:44 pm

Beyond The Tax Credit – What Now?

with 4 comments

With the Federal Home Buyer Tax Credit behind us, now it’s time to focus on the next phase of the housing market. I’ve had numerous people ask me, “what now”? So, here are my thoughts in a nutshell. The tax credit was a compelling call for action for those who took advantage of it. It also played a critical role in stimulating economic recovery. But the tax credit didn’t define the entire housing market. Even without the tax credit, the home buyer purchase power advantage remains high thanks to historically low interest rates and lower adjusted home prices.

Now it’s time to turn our attention to interest rates. Rates are currently hovering around 5% for a 30-year fixed-rate mortgage. But many economists are predicting that they will steadily rise to 6.5% by the end of 2011. As a buyer, it’s important to understand the impact that this can have on housing affordability. 

To simplify the math, I will defer to the National Association of REALTORS®, who state that for every 1 percentage point rise in interest rates, 300,000 to 400,000 less home sales take place. The rule of thumb is that every 1 percentage point increase in mortgage rates reduces a buyer’s purchasing power by about 10 percent. Here’s an example the Associated Press put together that demonstrates this concept:

“Taking out a 30-year mortgage for $300,000 at a rate of 5 percent will cost you about $1,600 a month, not including taxes and insurance. But the same monthly payment at a rate of 6 percent will only get you a loan of $270,000.”

Using this same example, you can also deduce that with a 1 point rise in interest rates, a buyer’s purchasing power reduces by $30,000 on a $300,000 loan.

What we’re seeing now is a bifurcated market in which the more affordable housing markets are experiencing relatively low inventory levels and strong sales in areas close to the job centers and large-scale businesses. In the upper end markets there are higher levels of inventory due to fewer sales. In the coming year, the more affordable markets will continue gaining strength, the mid price ranges should remain fairly stable, and the upper end will likely experience some minor downward price adjustments.

Evidence that economic growth is heading in the right direction came out in a recent report by the Commerce Department which stated that the GDP increased by 3.2% in the first quarter, fueled mostly by growth in consumer spending. Furthermore, in early April, the Labor Department reported that nonfarm payrolls increased by 162,000, which is the largest gain in three years.

The home buyer tax credit brought many buyers forward that would’ve normally bought in the months ahead, so we can expect to see a temporary dip in sales along with increased inventory levels in all price ranges for the next few months. But barring any unforeseeable events, the health of the housing market can be expected to steadily improve as consumers continue to regain confidence in the U.S. economy and the American Dream.  

*More affordable refers to homes priced at – or below – the median home price in a given market.

Written by Lennox

May 3, 2010 at 4:04 pm

What a Ride . . .

leave a comment »

As many of you know, April 30 marks the expiration of the U.S. Federal Housing Tax Credit. What has commonly become known as “the tax credit” originally kicked off on February 17, 2009 when President Barack Obama signed into law the American Recovery and Reinvestment Act which included an $8,000, non-repayable tax credit for first time homebuyers. This tax credit was intended to help support the housing market  as an integral part of the overall recovery of the U.S. economy.

In the weeks following the passage of the tax credit, interest rates fell below 5% and mortgage applications nearly doubled. There was an immediate uptick in home sales in the “more affordable*” price ranges throughout the nation. What we soon discovered was that the tax credit – combined with low interest rates and adjusted home prices – provided buyers with a compelling reason to buy.

As we transitioned into Fall 2009 and the expiration of the tax credit drew closer, real estate professionals everywhere reported a frenzy of first-time buyers trying to close on homes before November 30. Meanwhile, the Federal Government decided to extend the tax credit. On November 6, 2009 President Obama signed into law the updated Federal Tax Credit, which not only saw the extension of the existing $8,000 tax credit for first-time buyers, but also a new $6,500 tax credit for eligible repeat buyers.

Unarguably, the tax credit has bolstered home sales over the past 16 months, proving to be most effective with first-time buyers who don’t have an existing home to sell. The National Association of REALTORS® projects the credit will spark 900,000 such purchases this year, on top of two million last year. In addition, 2010 is expected to see 1.5 million repeat purchasers. According to Moody’s Economy.com, when the previous tax credit was due to expire last fall, existing-home sales peaked at a 6.5 million annual rate. This spring, they’re expected to peak at a 5.7 million rate in May. The National Association of REALTORS® recently stated that existing-home sales rose 6.8% to a seasonally adjusted annual rate of 5.35 million units in March from February.

The positive effects of the tax credit were first felt in the “more affordable” price ranges, which represent about 50% of all home sales, and then started making their way up the price points. The $6,500 tax credit motivated many repeat buyers to jump off the fence and make their move to a new home. As a result, the mid price ranges saw an uptick in sales, followed by slight increases in the upper end.

For many generations, homeownership has been considered one of the fundamental components of a healthy American economy. This is the very reason that my Scottish, immigrant grandfather went into the real estate business nearly 80 years ago.

What it comes down to is that the tax credit did what it was designed to do; it helped with efforts to stabilize the U.S. economy. What can we expect to happen in the wake of the expiration of the tax credit? Stay tuned for my next blog entry and I will give you my thoughts.

*More affordable refers to those homes that are priced at – or – below the median home price in a specific market.

Written by Lennox

April 30, 2010 at 3:09 am

Is That Some Light I See?

The following information came to me via Erik Hand, the president of John L. Scott’s mortgage partner, Response Mortgage. There’s some good information in here that’s worth taking note of. It’s more indication that there’s a light at the end of the tunnel for the U.S. economy.

OVERVIEW ~ Though credit market indices appeared poised on the edge of losing their strength, with rates likely falling in the face of investor concerns about the week’s Treasury security actions, the auctions very quickly showed their strength over the week of March 8 through March 12. There were causes that almost seemed to conflict with one another. Doubts about the ability of European Union nations to resolve debt problems seemed to fade, keeping rates from rising on fears that near-term debt problems would push them higher. But, at the same time, there was an apparent flight to safety evidenced in the higher percentage of foreign investor bids in the auctions (35% as against 32% in the prior recent auctions).

The Treasury auctions were preceded by a small run-up of yields as investors anticipated the possible need for higher rates to attract bidders to the auctions. At Monday’s close, therefore, the 10-year Treasury note yield had climbed to 3.710%. This most likely made the auction all the more successful as investors sought both safety and higher yields. The auction was very successful, with 3.45 bids for every 10-year note auctioned.

Notice, though, that the 10-year note ended the week at 3.703% and may remain at this higher level for some time if a continuing stream of favorable economic data continues to increase investor confidence in the U.S. recovery. Indeed, interest rates may have already been making a turnaround in the week ending March 12, heading north, but slowly and unevenly.

The Freddie Mac average 30-year fixed rate, measured from Thursday through Thursday, edged down two basis points meantime, as mortgage rates remained rather flat over the week.

FOCUS ~ The net worth of U.S. households fell by $14 trillion during the recession. Keeping in mind that consumer retail purchases make up roughly 70% of our nation’s Gross Domestic Product (GDP), we can understand that the astonishing plunge in funds available for spending has reduced retail sales significantly and caused our GDP to fall. 

What were the main causes of the loss of household net worth? The decline in home values was significant, as was the reduction in stock values. Losses of jobs have also created much slower retail sales. A formula for a large part of our nation’s economic recovery, therefore, should include an improvement to real estate values (or, at the least, a firming, eliminating concerns about further price declines), higher stock prices, and above all, an improving jobs market. The latest figures already suggest improvement, with a $5 trillion gain in household net worth from the first quarter through the end of the third quarter 2009. There are no guarantees, of course, but the formula may well continue to move the economy in the direction of recovery.

Economic summary content © 2010 Right Side Marketing

Written by Lennox

March 31, 2010 at 2:00 pm

Seattle and Tacoma Make Smart Money’s List

Smart Money recently published a list of the five cities they predict will be the top performers in the 2010 housing market. And it’s good news for the Puget Sound region because Seattle and Tacoma both made the cut. Several factors went into determining the cities, including the labor market, foreclosure rates, home prices, and the number of adjustable loans that are due to reset in the coming year. They make a good point that the bar is not set incredibly high given the market of late, but it’s certainly encouraging none-the-less to see two Puget Sound cities on the list (Tacoma actually ranks #1). You can read the entire article here: http://realestate.msn.com/article.aspx?cp-documentid=23191526

PS: I recently read another article on CNN Money that has a similar list made up of mid and smaller sized cities; both WA and OR are well represented. Here is a link to the complete story and list:  http://money.cnn.com/magazines/moneymag/moneymag_realestate/2010/biggest_gains.html

Written by Lennox

March 25, 2010 at 11:58 pm

%d bloggers like this: