Thurston County home sales have been steadily on the rise over the past 18 months. Despite this now well-established trend, many misperceptions about the market still persist. The three most common we hear are: (1) sellers still believe buyers aren’t out there; (2) buyers believe the market is still slow, giving plenty of time to act; and (3) mortgages are simply unavailable or too difficult and costly to obtain.
Our message to sellers, with a few exceptions, is that buyers are back. Prices and interest rates have restored buyer confidence. After five years of depressed numbers, sales began picking up last year. The big bounce, however, didn’t come until this year (Chart 1). Through the first half of 2013 our market has posted a 22% gain in the number of home sales compared to the same period last year. Not since 2007 have sales been this robust.
Only in the upper-end of our market, prices above $700,000, are sales still down. So far this year, there have been only five home sales above $700,000. That represents a fraction of one percent of the total sales in our market. Recoveries, however, always start at the bottom price ranges and move up. Sales have steadily improved up the price ladder over the past two years. We expect all price ranges will be performing well by next summer.
The overwhelming majority of home owners are finding conditions have shifted in their favor. Over the past six months we have seen numerous examples of people selling at or above prices they failed to sell at just last year.
A seven-year-low inventory count combined with more buyers has made this a particularly attractive time to sell. This is especially true for the seller looking to trade-up to that next home. Selling before prices jump up is a financial win for these sellers.
Of course, many sellers are very interested to learn what is happening locally with prices, especially after hearing recent reports of prices shooting up in other parts of the country.
In some markets the rebound in home prices has been dramatic. The most recent home price study by the S&P/Case-Shiller Index of 20 large U.S. cities shows that prices over the last year were up by an average of more than 12%, with increases of 23.3% in Las Vegas, 20.6% in Phoenix, and 19.2% in Los Angeles.
With news like this it is understandable that sellers are getting excited about where their property values are headed, but it is equally important to remember that all real estate is local. That theory of “location, location, location” applies equally to individual properties as well as entire marketplaces. Every community has its own factors that determine values and pace of sales.
Prices locally are not rising as fast as the most widely reported markets, nor do we expect them to. Many of the large metro markets receiving the most media attention had both a dramatic rise and crash in prices. We did not see such steep curves here. In the short run, those markets’ percentage gains in prices will be dramatic because they are coming off very low figures compared to historic trend lines. In fact, the declines were so dramatic in those markets that their prices are still well off peak levels.
The good news for sellers here is that prices are definitely on the rise. Chart 2 shows that prices on non-distressed homes (neither short sale nor bank-owned) have risen about 1% in each of the past couple of years.
Prices always lag 12 to 18 months behind movement in number of sales. With sales steadily on the rise over the past year and a half, and with inventories back under control, local market conditions have finally emerged for the rise in prices to escalate from here.
From the buyer’s perspective, it is hard for them to imagine how the pace of sales is hot after years of being depressed. Many are surprised to find that good homes are moving so fast, and without the price concessions seen over the past five years. This presents a big psychological change for home shoppers.
Not since the frothy days of 2006 have so many owners sold without first requiring a price reduction. Nearly 58% of sellers are now in this category, which compares to just 36% in 2011. These well-priced homes are selling in just 33 days, nearly two weeks faster than the last seller’s market in 2006.
The good news for buyers is that our prices have not jumped up as steeply as places like Arizona, Nevada, and California. While we see no signs that our market will soon return to annual double-digit price gains, prices are definitely on the rise and today’s buyers will be happy they bought when they did.
Besides confidence in price, buyers are acting now with low borrowing rates. There is little doubt mortgage rates will climb from here. In fact, they are already on the rise. However, rates are still crazy low by any historical measurement. The combination of prices and rates places housing affordability at an all-time high.
Buyers who are thinking about purchasing in the next year or two would be wise to start shopping now. The irony for many buyers waiting to purchase is that rising prices and interest rates will make the desired home less affordable than it would be today.
This leads us to the final misperception – buyers’ inability to obtain mortgages. Many buyers are waiting because they think a mortgage is too hard to get, requiring burdensome documentation, perfect credit, and too much for a down payment.
Obtaining a mortgage today is more difficult than in 2005, but back then getting a mortgage was ridiculously (some say irresponsibly) easy. With the exception of 2004-2007, today’s lending requirements are not any more burdensome than other normal times in modern history. Buyers just have to plan to have documentation ready, including assets and income through bank statements, pay stubs, and tax returns.
What we find different today – and this is good news for buyers – is that lenders have more programs that require less money down than was the case from 2008-2011. It was common to require 20% down on conventional loans during that time. Lenders were reeling from losses and were spooked by falling prices. Higher down-payments were a hedge to those risks.
Understandably, many buyers don’t have that much for a down payment. Today, however, there are many loan programs with just 5% (or less) required for a down payment. This is a good sign that lenders believe prices have moved off the bottom.
Certainly not everyone is going to find that today is the right time to buy or sell, but for many it is worth the time to consider getting into the market. Armed with some smart information about what is really going on in the local market, including the mortgage markets, today’s buyers and sellers are finding great success.
* Statistics not compiled or published by the Northwest Multiple Listing Service. Statistics compiled by Coldwell Banker Evergreen Olympic Realty from MLS data.
