Page 26 - WCA December Ketch Pen 2020

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Current market conditions in the real estate industry
By: Allison Trimble, Coastal Realty
This year the Washington real estate market has found itself in usual circumstances. Many of the issues are a continuation of what we have been experiencing for a few years, but this year we saw some new factors layered on top.
Low Inventory: We have seen consecutive years of steady growth in home values, partially driven by a steady decrease of inventory on the market. A balanced market would see about 6 months of properties active on the market, and in most urban areas, the inventory sits under
2 months. Home inventory is tight, causing sellers to worry they won’t find the right home to purchase if they sell, keeping potential listings off the market. Contingent offers (an offer contingent on the sale of another property) can’t compete in a market flush with multiple, competitive offers, which leaves many folks stuck. Agricultural properties and hobby farms are already a smaller market segment and sellers and buyers feel the extra squeeze in these market conditions.
Low Interest Rates: I feel like each of the last four years I have said to clients that we are seeing historically low interest rates, only to have rates drop again. I financed our farm a little over a year ago and am still pleased with the rates we closed with. First mortgage rates fell below 3%
this year, and I just saw USDA Farms loans available in
the low 2% range. That said, jumbo loan (mortgages for amounts above the Federal Conventional loan limit) rates subtly rose in 2020 and self-employed borrowers saw added
restrictions to their ability to obtain a mortgage as a result of COVID-19. It is obvious that lower interest rates are better for Buyers, but they are beneficial to Sellers as well. A lower interest rate for a Buyer is directly correlated to an increase in the amount a Buyer can spend on a home. A 1% change in interest rate on a Buyer looking in the $500,000 range can see an increase in borrowing power of $50,000. This is part of what is helping to drive property values up.
Election Year: Each major election cycle I have clients that are concerned about making decisions pending the outcome of a given election. Elections do have direct impact on the real estate industry, but they make slower shifts that most people expect. Land use policies, tax laws, environmental policies, zoning and water rights are all issues that impact land value, but those shifts don’t happen in the months following an election.
Bubble Burst: I often hear chatter about Buyers concerned about property values being on the verge of a market collapse like we saw around 2008, and that they are hesitant to buy in case the market “tanks.” The issues we saw during the market crash were based nearly entirely on faulty lending practices, which resulted in significant changes to lending regulations. This is not a set of conditions that we will see again. In mid 2016, as foreclosures rolled off the books, we saw rapid recovery, and the market has steadily increased since. That is not to say that there is not the potential for changes to the market, but factors like interest rates and inventory have far more impact on appreciation rate of home values.
Ketch Pen www.washingtoncattlemen.org
December 2020