Housing market takes off like a rocket in Oregon and Washington in 2017

 

lockbox activity end of Jan

RMLS reports showed massive increases in buyers looking at homes during the week ending January 22, 2017. Washington viewings were up 54.3% while Oregon viewings increased by 47.8%.

It is not unusual to see almost frenzied buyer activity during the month of January. We’ve seen it every year since the housing market recovery began in 2012. This year buyers are citing the added pressure to find a home as quickly as possible because we are seeing significant increases in mortgage interest rates which has many buyers scrambling to lock in a their home before rates go any higher. Buyers are very aware that banks will have free reign to start raising rates as quickly as possible this year, especially since President Trump has been saying that he will be rolling back many banking regulations via Executive order very quickly. The only thing that has kept a slight damper on massive rate hikes since Trump’s election is competition. Banks do want your business, so they can’t charge ahead and start increasing rates willy-nilly so to speak.

But in talking with mulitple mortgage lenders, I’m finding that rates are anywhere from 1/2% – 1% higher than they were just a couple months ago. Last week, lenders quoted best 30 year mortgage rates ranging from 3.8% – 4.5%!  That’s a huge range, so it definitely pays to shop around. The average rate quoted was 4.25% for all the lenders surveyed.

One of the factors that is hindering buyers in the Portland metro area is the extreme shortage of inventory. As of the end of December 2016, inventory had again dropped to almost record lows at 1.3 months (the amount of time it would take to sell all inventory if no new listings are added.)

Buyers do need to be aware that the shortage in inventory with high demand WILL push prices higher. If you couple the higher prices with higher rates, unfortunately many potential buyers could find themselves priced out of the market.

You might like to read How inflation affects your ability to buy a house ~ perhaps more than you think. 

 

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How inflation affects your ability to buy a house ~ very likely more than you think

If you’ve been watching the news, you know that housing inflation has far outpaced the rate of inflation in the rest of the economy.

In the Portland metro area, home prices have been rising 10% – 20% annually since 2012. In 2016 the average house increased in value 11.4% and average home prices have increased from just under $350,000 at the end of 2015 to just under $400,000 as of the end of 2016. Have you managed to save for that type of inflation? If you add to that the increase in mortgage rates in just the last year, from around 3.625% at the beginning of 2016 to 4.25% as we start 2017.
how inflation affects monthly paymentsTo put this into more perspective for you, let’s assume that you first started thinking about buying a house in January 2016 with a maximum purchase price of 300,000. With inflation that house will very likely cost you 11.4% more (average value increase for 2016) so you should now expect to pay approximately $334,200 for the same or an equivalent house.

So your required minimum 5% down payment has risen from $15,000 to $16,710. That’s not too bad and certainly doable for most people. BUT… mortgage rates have risen about .625% at the same time. So check out the chart above to see what has happened to your monthly payment based on increased value and mortgage rates. It has increased from about $1300 just a year ago, to $1560.93, You are looking at an increase of $261.18 increase in your monthly payment! Do you still qualify at this new monthly payment?

Unfortunately, all too often buyers focus on how much more money they need for the down payment without taking into account how the increased purchase price will increase the mortgage amount AND if rates rise at the same time, can have a MAJOR affect on the monthly payment. This combination will cause many buyers to be priced out of the market.

The solution is one that you might not like, but IF you are already priced out of your market or the increased monthly payment feels uncomfortable for you, perhaps you might seriously rethink your “must have” list. Clearly in this type of market it is very difficult for the average home buyer to keep pace with this double whammy inflationary environment.

But, prior to this most recent environment, most first time home buyers particularly, were not thinking of forever. They just wanted to get into a house. Perhaps it’s time to return to that type of thinking and just get into a house. You’ll not only save money on your monthly payment, but also on your annual taxes. That gives you more opportunity to save at a much faster rate for that “must have” list you want in your forever house.

In Portland Oregon, we have the ideal environment for home values to continue to rise, regardless of mortgage rates.

  1. Employment is strong
  2. We are and have been one of the strongest housing markets nationwide
  3. Housing inventory is dismally low (at only 1.3 months as of December 2016)
  4. Migration into Portland is so high that our population is growing by approximately 150 people or more every single day.
  5. Our rental market is so bad that it is actually cheaper to own a house than rent.

Perhaps most importantly, competition is fierce in our market.

You might also like to read How inflation affects your ability to buy a house ~ very likely more than you think

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President Trump signs executive order eliminating the 1/4% FHA mortgage rate cut just announced

A new President, a new day! But not a good day for first time home buyers nor President Trump supporters.

With one quick stroke of his pen, on day one, President Trump took back the FHA mortgage insurance rate cut that had just gone into effect on January 9, 2017. For the average home buyer using FHA financing, this will cost each of you an average of $500 per year. Here in the Portland area, this will cost you between $700 – $900 per year. Not necessarily a deal breaker for many of you, but why in the world did he do that?

FHA has the reserves now to support this rate drop. Perhaps you should ask him.

Please read the article just published yesterday about this rate cut for more information

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FHA lowers mortgage insurance premium for most home buyers – maybe?

In an effort to attract more home buyers to the FHA financing option, on January 9th, FHA announced a reduction in the monthly mortgage insurance premium that most home buyers will pay by 25 basis points for new mortgages closing on or after January 27, 2017.**

FHA says that they have finally reached a stable point in their finances after the enormous losses they endured during the housing collapse. The last four years of housing growth and stability has allowed the FHA to recoup their losses and they want to pass some of these savings on to home buyers to make housing more affordable.

To put this into perspective, for a mortgage of $368,000 (the maximum allowable mortgage for the Portland metro area at this time), this would equate to a monthly savings on your payment of approximately $76.00 (an annual savings of $912).

However, it’s important to remember that mortgage rates have risen over the last several months. We are no longer seeing the low rates we had grown accustomed to over the last 4-5 years at below 4%. Average 30 year fixed rate loans as of today are around 4.25%, even for those with the best credit. So this .25% rate reduction for FHA mortgages only partly offsets the rate increases. Still, every little bit helps, and FHA is the best financing option for prospective home buyers with less than 5% down payment.

In contrast, a conventional home loan will cost the home buyer more to purchase. While there are conventional loans requiring as little as 3% down payment, these are available to only those with the best credit scores; AND the mortgage rate rises for buyers with less than 20% down. FHA rates are the same for those with low down payments  and less than perfect credit, though there is a minimum credit score requirement of at least 620-640 at this time.

**NOTE: I apologize for this footnote, but just as I hit publish on this article, the following news came across: As of yesterday, National Mortgage News reported that Trump is recommending that this reduction in mortgage insurance premiums be delayed until it can be further reviewed by his new Secretary of Housing and Urban Development Ben Carson. This is purportedly just one of the Executive orders that he intends to sign as soon as he is inaugurated.

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2016 Portland housing market wrap

Final housing stats for 2016 are out. There weren’t many surprises, but there were a few.

Overall, the market was not quite as hot as 2015. Total sales were down a bit for the year, but not by much. According to RMLS, “Activity was cooler in 2016 than in 2015. Comparing all of 2016 to 2015, new listings (41,121) increased 0.7. Closed sales (32,798) decreased 1.5% and pending sales (33,234) decreased 3.9%.”

2016 housing market value increases

Housing values increased by an average of approximately 11.4% for the year for all homeowners throughout the Portland metro area. (Of course, some neighborhoods saw bigger increases while others saw a bit less. But there were no neighborhoods that saw values decrease during the year.) So, for those of you still on the fence about buying, owning a house is not only a good way to stabilize the percentage of your monthly income that goes towards putting a roof over your head; it also makes home ownership a very good investment for your future.

shopping for a houseAs of the end of 2015, the average home price was $347,000 but by the end of 2016, that number had risen to $395,000! Clearly Portland is no longer a low priced city to retire in. There has been a lot of speculation about whether or not we are soon going to be the next Seattle or San Francisco in terms of home values. That remains to be seen, but Portland is still a lot more affordable than either of those cities which in part is what is driving so many migrants to our area.

Extreme weather caused slowdown for housing market in December 2016

December 2016 experienced quite a slowdown in home purchases and listings with the extreme weather we experienced for much of the month, but that should come as little surprise to anyone. January 2017 is also off to a bit of a slow start with the recent snow storms, but is expected to pick up as the snow melts away and warmer, or at least drier weather returns.

Get your buying hats and shoes on. Housing inventory closed out 2016 at only 1.3 months (the number of months all houses would be sold if no there were no new listings.) But, we are seeing quite a lot of new listings hitting the market already this month, so we expect buyers to hit the streets as we have seen in January for the last few years. 

In case you missed it, you might want to read Seattle – Portland fastest rising home prices nationwide

 

 

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