Relax...There's an Alternative

Is the stock market keeping you up at night?  Are you consuming more antacids than ever before?  Are the ups and downs causing more stress than you want or need?  There is a simple alternative in rental real estate.

Single family homes for rental purposes offer an excellent rate of return in an investment that most people understand better than other investments.  The concept is simple: stay with predominantly owner-occupied homes in a slightly below average price range.  In most areas, tenants are easy to find and they’ll usually stay two to three years or more.

For the person who doesn’t want to be bothered with calls from tenants, professional management is available and commonly won’t dramatically affect the rate of return.  Managers can achieve economies of scale that individuals can’t due to managing multiple properties and having good connections with the best workmen.

Unlike most commercial property, single family homes are much more liquid because of the higher demand for residential property.  Single family homes offer the investor the opportunity to borrow high loan-to-value mortgages at fixed interest rates, for long periods of time on appreciating assets with tax advantages while providing the investor a higher than normal level of control.

Spend an hour investigating the benefits and you might sleep better at night, eat less antacids and find yourself more mellow than you’ve been in years.

2013 Second Place Scholarship Contest Winner – Hania Marien

by MITCH DIETZ

Congratulations again to our 2013 second place winner Hania Marien. Hania submitted a wonderful essay on how growing up within two cultures has shaped her life.

Here is Hania’s wonderfully written essay:

The Gift of Perfect Pruning and Otherworldly Oreos 

“Hoe ziet uw huis eigenlijk uit?” asked my five-year-old cousin. I was visiting family in België, as I have done every year since I was born. It had not occurred to me that he would not know what my home was like. He was fascinated with America, with visions of Oreo cookies and blue jeans.

At first, I didn’t know how to respond to his question. In België, I feel like I am home. After a few days there, I no longer notice the cobblestone streets, the perfectly pruned geometric hedges, or the bars busting full of jolly townsfolk at eight in the morning as something extraordinary. I looked around, searching for a house comparable to ours, at the narrow streets lined compactly with skinny red brick houses, at the busy market square brimming with historic buildings, and all the tiny cars spewing diesel fumes. Discovering that there were none, I settled for a photograph, of our small blue house with wooden siding. While the house was a distinctive part of my tree abundant Pacific Northwest childhood, for him, it was a glimpse into a whole new world. He was astonished that our house wasn’t made of red brick.

His response got me thinking about my home, my life within the blue wooden siding.

Two different cultures. Two different languages. The day I was born, they meshed together to become one world – mine. I speak one language with Papa, another with Moeke. My birthday signs have always said “happy birthday” twice, once in Flemish and once in English. Books in both languages cover my shelves. On the soccer field, I was cheered on in two languages, and my brain learned to understand the differences. We could walk around town talking about the sky, Venus or cheese, and no one else would understand. In the grocery store people would ask if we were speaking German. Even though I could barely see over the counter, I knew if we told them it was Flemish they wouldn’t have known what we were talking about.

My cousin’s simple question sparked a realization. When I was younger, I did not think about speaking Flemish, or what it meant to grow up within two cultures. Now I recognize that my childhood home was unique. I was given a gift of seeing life from two points of view, and it has made me who I am: Someone who is intrigued by foreign lands and languages, who notices differences and wants to explore them, who understands that there is more than one solution to a problem. I see the beauty and resourcefulness in varied cultures, and want to experience and learn from them.

I loved seeing that familiar curiosity in my cousin’s eyes, and his realization that a house doesn’t have to be made of brick. He may have been listening to my explanation about the influence of local resources on houses, on the people themselves. But who knows, maybe he just wanted to see a picture.

2013 Third Place Scholarship Winner – Riley Kua

by MITCH DIETZ

Congratulations again to our third place winner Riley Kua. Riley submitted a  wonderful essay on his appreciation for his parents sacrifices which have allowed him so many wonderful opportunities today.

(Riley pictured with his sister Kelsey and mother Sandra.)

Here is Riley’s wonderfully written essay:

“There’s No Place Like Home”   

The other day, while I was spending some time working on an application for an arts scholarship, my dad told me how happy it makes him to see me working hard for my education. I asked him why, and he started going on about the story that I’ve heard a million times: the story of how he came to the USA from the Philippines to find work and a home for his future family.

After my parents met and fell in love in their high school in the Philippines, they soon married and dreamed of raising children in an environment that provided new opportunities. Although my father had already received his MD in the Philippines and could have settled down as a doctor, he stepped down and started his education all over again in the USA. With his limited English-speaking ability and complete change in culture, he courageously stepped into this new and scary world of opportunity.

Often, I am reminded of the opportunities that he opened not just for him, but for me as well. The only reason I could participate in an arts scholarship audition was because of the piano lessons that he started paying for and driving me to over a decade ago. Every night, he will come home from work and still cook dinner for the family. The clothes I am wearing right now and the computer I use to write this essay came from his hard work.

I have come to realize that the true meaning of a home is a family that cares for you and is a place of comfort. My dad realized this early on and didn’t want his family to grow in a place where it couldn’t thrive, so he moved to a smaller and better environment. The beauty of a home is not in the extravagance of an expensive house, but in the love that is nurtured in the hearts of all who inhabit it. It comes from the hard work that it took to support it. It welcomes all who need welcoming. Most of all, home is knowing that people love you enough to make sacrifices for you and that you would do the same.

In L. Frank Baum’s The Wonderful Wizard of Oz, Dorothy Gale realizes the importance of a home as well. While her companions wanted important things like a heart, a brain, and courage, Dorothy’s simple wish was to return home. It’s scary to be away from those you love. In just a few months, I will be leaving to study at a university away from home to start my own journey. I can only hope to make decisions as wise as my father’s to create a home as beautiful as the one my parents so lovingly made and also to give back to my parents who have worked so hard to get me to where I am today.

Remember When?

Having served the Thurston County real estate markets since the 1960s, our company has been through a great many market cycles.  Over those 46 years we’ve used a lot of tools to help serve our clients.  Recently, we ran across a mortgage payment table book from 1985.

Books like this were standard issue in those days.  They listed various interest rates and set out the monthly payments at various loan amounts. While today’s “apps” have replaced the book, it was interesting to revisit this bit of history.

Many people recall the high interest rates in those days.  The highest rate in the book is 17%. Just a few years earlier, in 1982, we recall rates were even higher.  However, what we found most intriguing was the lowest interest rate stated inside the book: 6%.

I can imagine the debate back in 1985 the book’s publishers must have had – asking, “How low do we go?”  It is easy to picture some asking why even list rates in the single digits.  After all, in 1984 the average rate was nearly 14%.  Single digit rates hadn’t been seen since 1978, and even then they were slightly below 10%.  Settling on 6% for the low rate must have been a great debate, indeed.

The first-time buyers of today can hardly recall interest rates higher than 6%. With today’s rates much lower than 6%, it is a uniquely good time to purchase a home. Even as rates rise over the next couple of years, borrowing will still be inexpensive relative to historic averages.

However, higher rates do mean less buying power. People contemplating a move over the next year or two might consider how rising rates will impact their desired move. With the housing market beginning to improve, we expect to see both higher rates and higher home prices.  That combination means today’s home buyers will be happy they locked in when they did.

Market News – Local Prices Still on the Rise

by MITCH DIETZ

Those who follow my blog know that I have been commenting about local home prices being on the rise. Beginning in 2012, I began pointing out that conditions were in place for our market to experience rising prices in 2013.  In fact, the last half of 2013 saw modest but steady gains in home prices.   We have now had seven consecutive months of rising homes prices (specifically, year over year improvement to the trailing twelve month median home sales price).

Despite that news, many people we have encountered over the last week have asked us to comment on a recent story in our local newspaper, The Olympian.  In an article a few weeks ago, entitled “Thurston home prices mysteriously slip a bit”, the story points out in January area “median sale price took a tiny dip, dropping almost 3 percent from the same time a year ago.”  Here is a link to the full article:http://www.theolympian.com/2014/02/06/2968743/thurston-home-prices-mysteriously.html.

The reporter cited numbers shared from the Northwest Multiple Listing Service.  While the numbers are accurately reported, they can’t tell the real picture without deeper access to numbers.  So, we will address the “mystery” of the price drop.

The first thing to point out is that numbers reported were just figures for the month of January.  Monthly market wide prices are more highly variable because those figures are based on a data pool that is too small to be reliable.  It is one of the reason we track the trailing twelve month figures.  By doing so, we can present a more reliable data set that isn’t subject to swings in seasonality or unusual events.   For instance, there is a much higher percentage of bank-owned properties that sell in the winter compared to summer months.  Bank owned properties are much more heavily weighted toward the lower prices ranges; therefore, monthly market wide numbers look far worse in the winter months.

Nevertheless, since the comparison of January 2014 to January 2013 was made, here is why the monthly number retreated 3%. The number of bank-owned properties sold in January 2014 went up 200% from January last year.

Last year there were just 20 bank-owned property sales in January.  This past month there were 60.  The median price of those bank-owned homes were just $156,501, which is 32% lower than non-distressed homes, which had a median sales price of $229,975.  Pumping 40 more of the lower priced homes into the mix in January 2014 drove down the market wide median price.  This is simple math that does not reflect the actual price movement of most homes in the market.

A look at just the non-distressed sales (neither bank-owned nor short sales) in both months shows that those prices were actually flat.  Last year there were 138 sales with a median price of $229,575.  This January there were 156 sales with a statistically identical median price of $229,975.  Again, comparing those market-wide median numbers can be misleading.  The mix of homes available for sale trended toward the lower range this January.  The lack of inventory in the mid-price ranges ($250k-$350k) has more buyers in those price points still searching.  We should see the mix of sales improve as the spring selling season begins and more sellers enter the market.

In the meantime, our own repeat sales analysis, which tracks the price movement of individual homes over time, shows that prices are continuing to trend up.  Homes purchased within the past three years are largely experiencing gains in the neighborhood of 2-4% annual appreciation.

Going forward, we find that buyer activity continues to be robust.  The significant jump in pending sales we saw in December led to a 29% increase in closed sales in January.  We had 238 closed home sale in January versus just 185 a year ago.

The “Seahawk” effect that might have negatively impacted new contracts in January, as folks turned to their TVs to cheer on the  Hawks, apparently did not slow buyers too much.  Pending sales rose 7% from 311 sales in January 2013 to 332 sales last month.  While that rise may seem small, consider that in January 2012 there were just 236 pending sales.  The buyers are back!

On the supply side of things, Inventory crept up 4% to 1,031.  Despite that uptick, we are still in a Seller’s market at just 3.9 months of homes available for sale.

The combination of these factors tells us that median price should not be a mystery – it is on the way back up.

STATISTICS NOT COMPILED OR PUBLISHED BY THE NORTHWEST MULTIPLE LISTING SERVICE.  STATISTICS COMPILED BY COLDWELL BANKER EVERGREEN OLYMPIC REALTY FROM MLS DATA.

Smart Buying in a Seller’s Market

by MITCH DIETZ

In this market, buyers need to know that most price ranges are attracting more buyers than sellers. This makes it competitive for buyers; and these conditions can tempt the unprepared to go places they wouldn’t otherwise be willing to venture.  In this post, I share some thoughts for smart buying in a seller’s market.

 Know your Budget

Before starting the search process, it is very important to know your budget.  Many lenders will approve a buyer up to the maximum of their ability.  That number may be higher than is comfortable.  Therefore, buyers are wise to understand their overall household budget and immediate and long range goals.

Most homes in our market are not being bid up above list price, but there are many homes that have buyers competing.  That competition generally leads to higher prices.  The buyers who fully understand their financial capabilities, and limits, will be in the best position to succeed in this market.

Sometimes success is knowing when to walk away.  If bidding becomes too robust, a buyer should consider how comfortable they would be paying the higher price.  Even if a buyer is willing to go higher to “win” the bid, the bank (if the buyer is borrowing money for the purchase) may not lend if the home fails to appraise at the higher value.

To that point, even though a buyer can be contractually protected by a financing contingency (which means the buyer is not obligated to purchase the home if the lender will not loan the money), there is other harm to the buyer.  For instance, a buyer typically spends just under $1,000 on an appraisal and home inspection.  These common and otherwise worthy expenses are for not if the home doesn’t appraise for the purchase price.  Therefore, it is important to consider how high a price is too high for the lender.

By the same token, many buyers can walk away from a competitive situation only to later regret doing so.  Often times it is just a slightly higher price that wins out in a competitive situation.  If the house truly fits most of the buyer’s needs, and there aren’t other good options available, then paying a bit more may be worth it.  That is particularly the case with rising interest rates and home prices.  By waiting for the next home a buyer could end up paying more in the end.  Those opportunity costs should also be considered when faced with a competitive situation.

Be willing to compromise – but only on some things

In addition to establishing that comfortable budget, buyers should be thorough in determining the must-have features from those that would simply be nice to have. Keep an open mind about improvements that can be made over time. For example, paint is an easy, affordable update. Features such as flooring, cabinets and countertops can be done over time. The right home may just need a little work to make it perfect.

In this low inventory market buyers can become frustrated that the “perfect” home isn’t out there.  The reality in any market is there isn’t such a thing as perfect.  Nearly all buyers look at making some changes to their new home.

At the same time, be aware of things that cannot be changed, or at least are very expensive to change.

The location of the home is the biggest driver of price – and it cannot be changed.  Also, if the home does not have the desired floor plan, a buyer should consider how much it would cost to achieve that better layout. The cost of that type of improvement can range from the modest to the prohibitive.

Without great thought going in, compromising on these types of things in a competitive bid process can lead to buyer’s remorse.

A lesser known option to help

Even for buyers who had been willing to take on renovations to make the home just right, the main challenge in the past was paying for the improvements.  The outlay of cash upfront can be prohibitive, and separate home improvement loans typically come at a much higher interest rate than the purchase loan.

Today, there is a great loan program for buyers to wrap the cost of improvements into the purchase mortgage loan.  This way, a buyer can get into a home, accomplish desired improvements after closing, make just one lower-interest mortgage payment, and reserve the cash that would otherwise go to pay for the renovations. These “purchase and renovate” loans are a great product to help a buyer achieve the desired plans.

This is definitely a uniquely good time to be a buyer. Prices around the country are just beginning to rise and interest rates are still unbelievably low.  With interest rates rising less house will be available at the same mortgage payment. Now that prices are also on the rise, a buyer can quickly be priced out of something that may have been affordable when prices and interest rates were lower.  This is ultimately why we are seeing a big jump in the number of buyers in the market.

However, with the proper preparation, buyers willing to compromise on some things, while standing firm on those that matter most, will find success and a comfortable outcome in this market.

Backyard Oasis

by MITCH DIETZ



You may not be thinking about improving your backyard living space as you look out the window on a dreary, rainy winter day, but now is the perfect time to begin planning to enjoy the summer months in your backyard oasis! In taking a peek at the Farmer’s Almanac, this summer just may be a great time to enjoy the outdoors with the predictions of a warm summer. To spurn your dreaming , Houzz.com shared some great ideas! To be inspired, check out their post on “Backyard Dreaming.


http://www.houzz.com/ideabooks/22735132/w/sid=1/list/Backyard-Dreaming--13-Ideas-to-Spark-Your-Imagination