Are Rising House Prices a Good Thing?

Here’s a thought-provoking op-ed about the dubious merits of rising house prices.

January Market Stats

Market stats for January are now posted at melvey.com.

Open Houses Are Getting Busy!

Looks like a lot of folks are dipping their toes into the market. According to agents I’ve talked to this week, last Sunday’s open houses were busy, busy, busy!

Straight Talk

Here’s some direct and honest advice for sellers, written by a prospective buyer…

Straight talk from someone in the market to buy a home

“How Long Will It Take to Sell My House?”

When I’m meeting with a client for a home marketing consultation the above question invariably comes up. It’s a tough one to answer because every property is unique. The main factor, though, is just how competitively priced it is. Correctly priced, a home can sell within days. Overpriced, it can take many months of heartache along with a couple of price corrections, only to end up selling at or below what could have been achieved quickly.

That said, I still want to answer the question and I think the scatter graph below does a fairly good job of doing that. It includes all homes in Northwest Seattle that have sold and closed in the past 100 days (early October 2010 to mid January 2011).

As you can see, it is very realistic to expect that your home will sell within 30 days, provided it is priced appropriately. What I found especially interesting is that this holds true throughout the price spectrum. Homes are definitely selling!

Note: I removed properties built after 2008 because builders often market their homes before they are completed. Including them would make the marketing time appear to take longer than it actually does.

Year-End Market Stats

I just posted the year-end market stats. Northwest Seattle had the strongest market in town. The slowest market was in Southeast Seattle.

Remember to Cancel Your Hazard Insurance

A client of mine closed on the sale of her home the other day and will continue living there for a month. I was helping her cancel her hazard insurance and convert to a renter’s policy until she moves out. The insurance agent was thrilled that I called, and went on and on about just how many people forget to cancel their policy. “A lot of times I don’t find out they sold until their renewal notice comes back with a return to sender sticker on it.” He said. “We have many thousands of dollars in our account that we would love to refund to people, but we have no way to reach them.”

The moral of the story? Give your insurance agent a “heads up” as soon as you have a projected closing date. It could be one of the most productive 30 seconds you ever have!

Electronics Recycle at Ballard Windermere

Did holiday gifts make some of your electronics obsolete? Here’s a great opportunity to bring in the New Year by getting rid of the old!
I can help you with most anything except kitchen appliances.

When: Saturday, January 8, 10am to 2pm
Where: 2636 NW Market St

I hope to see you there!

Below is a complete list of what is accepted.

Computers
Laptops
Monitors (CRT, LCD)
Printers / Scanners
Fax / Copy
Ink Cartridges
Keyboards / Mice
Servers /Routers / Hubs
Networking Devices
Communications Equipment
Misc. Office Machines
Televisions
VCRs, DVD players
Stereos & Audio Components
Cell Phones
PDAs, Handheld Games
Cameras
Telephones
Batteries
Misc. Electronics
Washers/Dryers

No Microwaves, Kitchen Appliances or Styrofoam

Housing More Affordable Than Any Time in Past 20 Years

I’ve been curious lately about how the recent decline in prices, combined with historically low interest rates, has affected the affordability of homes. I did a little research and came up with the following info:

This chart uses the Case-Shiller Housing Index and NWMLS average sale prices for King County. Prices peaked in the summer of 2007 and then declined to present levels, losing approximately 25% of their value. Today’s prices are similar to early 2005.

Over the past 20 years, interest rates have come down from a high of 10% to our current level of approximately 5%.

The lower interest rates have drastically reduced home mortgage payments. Principal and interest payments on a 90% loan today are about the same as they were back in 1999.

Over the past 20 years, inflation has caused the value of the dollar to decline. This means that a $2,000 mortgage payment today isn’t nearly as hard to manage as it was back in 1990.

Conclusion:

I discovered that due to declining interest rates and the devaluation of the dollar, mortgage payments today are more affordable than just about any time in the past 20 years. At current prices it would take an interest rate exceeding 8% to increase inflation-adjusted mortgage payments to the levels experienced during the “bubble”.

What does this mean? I don’t know for sure, but my take on it is that the price declines we experienced over the past several years were necessary, but over the long haul there isn’t a compelling reason for prices to drop further. (Prices could still temporarily drop a bit more in areas with a glut of bank owned foreclosures.) When will prices go up again? Since our current affordability is tied to record low interest rates, it could be a while before prices increase significantly. As the economy improves, interest rates will most likely climb which will make mortgage payments at current prices less affordable.

Even with minimal short-term appreciation, today’s low interest rates combined with home prices at or near the bottom could make this time a perfect buying opportunity!

Buying a Home When You Have One to Sell

Buying a home when you have one to sell can be a trying experience, but with a little advance planning it can be accomplished without too much difficulty. The first step is to examine the three basic ways to accomplish it and to weigh the pros and cons of each approach to determine which is best for your situation.

Sell First Before You Buy
Most people have much of their life savings tied up in the equity of their present home, so making the move to another house usually involves selling the old one first. I have worked with buyers who have sold their present home and rented a house or apartment until they could find and complete the purchase of the new one. The double move is inconvenient and can be expensive, but it allows plenty of time to look for the next house and can give you some negotiating clout since the equity from your former home is in the bank. There are other drawbacks, however. Interest rates may rise or it may become a seller’s market causing prices to increase.

A somewhat safer version of this approach is to find several houses that you would consider purchasing before putting your house on the market and to continue looking for others during the marketing of your home. When an offer comes in on your home, negotiate with the buyer for as long a closing time as possible, perhaps even including a one month rentback option. This will allow you extra time to locate other houses and to complete the sale on your new home.

Buy Contingent on the Sale of Your Present Home
A more common approach is to make a purchase offer contingent on the sale of the present home. With a contingent offer you are only obligated to purchase the new home if your old home sells. Since the seller has no assurance that the sale will go through, the seller retains the right to continue marketing the home for sale. If another offer comes in that is acceptable to the seller, you will be notified that you have 5 days in which to either accept an offer on your home or agree to purchase non-contingent, waiving your financing contingency as well. Not many buyers are in a position to do that! Although contingencies offer the highest degree of safety, it can often consume a large amount of a buyer’s time and emotional energy, only to lose the home to a non-contingent buyer.

Use a Bridge Loan
If you have a considerable amount of equity in your present home and have a substantial income, you may qualify for a bridge loan. Bridge loans allow you to borrow your down payment against your existing house so that you can make an offer on the next home non-contingent. Buyers using this approach should be prepared to make payments on both their old house and new house mortgages, and understand that interest will be accruing on their bridge loan. To keep this situation to a minimum, I council my clients to negotiate a lengthy closing on the home they are buying and to price their present home so that it will sell quickly.