Real Estate Information

With home equities dropping and lenders unwilling to lend money, small business are feeling the squeeze.   The video below explains the impact upon our economy and the small business owner.

Washington State Housing Market Snapshot
Second Quarter 2011

Quarterly Washington State University publishes housing statistics for the State.  For the Second Quarter of 2011, I selected some counties to provide a comparison with the Tri-City area.   It is interesting to note that Benton County and Franklin counties had a 30% decline in sales as compared to the previous year while the state average indicated a decline of only 11.3%.    One reason for this difference is that other counties have experienced major sales declines during previous quarters.   The Tri-Cities continues to have a median sales price less than the State average and the prices are continuing to climb.  Our high percentage of new home sales is contributing to this situation.   For the lowest priced homes Lincoln and Wahkiakum Counties are the places to live and San Juan County is the most expensive.   I suspect many are building their retirement homes on San Juan Island.

The Housing Affordability Index (HAI) measures the ability of a typical family to make payments on a median priced home.  It assumes a 20% down payment and 30-year amortizing. For First-time buyers it assumes a less expensive home, lower down payment and lower income.   Based upon this measure the Tri-City area continues to be an affordable place to live for both first-time buyers and move up buyers.

The Wall Street Journal reported today that 100 economists are forecasting that national real estate prices will continue to fall 2.5% this year and prices will start to recover during 2012.  The economists are forecasting an annual appreciation of 1.1% through 2015 effective 2012.   If this forecast becomes a reality, it will take years for some homeowners to recover the 30% plus home equity lost during recent years.

I believe three major forces are impacting on the negative news.  One is the massive foreclosure backlog in some areas.   In states where a court order is required, it will take several years to process the paperwork.    The New York Times reported that it will take lenders 62 years to repossess the 213,000 New York homes currently in foreclosure.  New Jersey will take 49 years and a decade for Illinois and Massachusetts.

The second factor is the tight lending guidelines and the third is job market situation.   Until these factors are brought into alignment, our national market is not likely to become positive.

The Wall Street Journal last week published an article about  identifying when a real estate market has hit bottom. The article provides three clues that signal better times may be ahead.   The first factor is a change to the long standing joke about what three factors to consider when buying real estate.  Instead of the answer being “location, location, location”, the new answer is “jobs, jobs, jobs”.   For the area to have a stabilized real estate market, it has to have a low unemployment rate. 

Secondly, low rents can be another factor of a healthy real estate market.  If it’s cheaper to purchase than rent, more will consider the home buying option.  One technique to assist in this analysis is the “15 times annual rent” formula.  For instance, if annual rents were $12,000 multiplied by 15, this equals $180,000.   If one were able to purchase for less than $180,000, buying may be a better option.

Finally, the article identified forecloses.  Healthy communities have low foreclose rates.

I believe the article misses a major point and that is price trends.  If one measures the average and median sales prices, one can identify a change in market direction.  We publish these statistics monthly and view the trends.  If this information would be of value, send me an email to Don@Key2Homes.com

PS for First Time Home Buyers, you may want to view my new video at http://youtu.be/5kg6rm8fkUE

Recently, I held an open house in Richland WA and one of the visitors requested the information flyer.   Her first response was, “where is the price per square footage information?”  I explained that normally do not provide that information on home flyers because it is information not well understood.  I proceeded to explain that the price includes lot cost and using this information is not well suited for comparison purposes.   For instant, if a small rambler were built on a lot costing $50,000 and a large two story were built on a similar lot costing $50,000; the smaller rambler would normally have a higher cost per square foot based upon the fixed land cost. 

Therefore, if one uses prices per square foot as a measure of value, one has to ensure that all other factors are essentially the same.  For instance, if one were comparing” track homes” all of the same size and features “plus the same lot cost”, this would be a valid comparison.  Otherwise one is comparing apples and oranges resulting in bananas.

Unfortunately, many real estate agents do not understand this concept and continue to use price per square foot as a means to determine value.   They take three comparables and determine the average price per square foot; then multiply that factor by the subject's total square feet.   Appraisers would never consider using such a method.

Washington State University publishes a housing market snapshot based upon quarterly residential sales data.  It is interesting to note that counties like Yakima and Walla Walla have median residential sales prices that are lower than the Tri-Cities area, but their affordability indexes are more expensive.  For clarification, the higher the affordability index, the more affordable homes become.   The affordability index is based upon factors of the median incomes compared to median sales prices.  For example, Walla Walla County reported for the 4^th quarter of 2010, a median sales price of $171,000 and the Tri-Cities area reported $182,400.   Yet, Walla Walla had an affordability index of 173.7 compared to the Tri-Cities’ 180.6.   King County index was 119.1.  

For access to Washington State University’s report CLICK HERE

Our economy and housing market are impacted upon by the Hanford Project.  We are watching the national and regional news to determine what impact potential reduced federal funding will have on our housing market.  I suspect the upper price ranges will continue to get softer.

Last week an excellent video was produced.  It is the first part of the Hanford Story.  It is approximately 17 minutes in length.  I recommend you view it if time permits.  As addtional videos are produced, you will be able to view them here.

Now that the federal budget for 2011 has been passed, it’s up to DOE at this point to determine how the reduced funding will be implemented.   Once the DOE plan has been announced, we will have a better understanding of the 2011 budget and its impact upon the Tri-Cities.

Nearly daily I receive emails from home owners across the nation.  Their message is common, “We want to move or buy in the Tri-Cities, but our market is very soft.”  Until they are able to sell, they are unable to purchase here.  David Chu, the economist for the National Association of Realtors, provides his forecast for the national job and housing markets.    See the video below.