This phenomenon has been driven by interest rates being under 5% for the last five years and under 4% for the last 2 years. In addition to low debt service, the tech-influenced job market has kept the local economy humming. Couple all of this with the convergence of Millennials breaking into the market as first-timers or moving up, Gen-Xers moving up, and Baby Boomers cashing out to the right-size house in our area or relocating altogether, and demand is high. This high demand has put pressure on available inventory, driving up price appreciation.

The more recent influence on home values is the effect of the work-from-home lifestyle on housing. Many companies have announced that post-pandemic they plan to let their employees permanently work from home or do so in a hybrid model. This has changed the preference to be closer to the in-city job centers to avoid a long commute. Now, more and more people are attracted to the suburbs and in some cases more rural settings in order to enjoy larger interior and exterior spaces. According to Matthew Gardner, Windermere’s Chief Economist, over 30% of all homeowners in America have over 50% equity. These moves to the suburbs are also propped up on liquidating their equity elsewhere and utilizing it to make a large down payment on the next purchase. Check-out Matthew’s latest video update here.

I see this as a re-organization of lifestyle propped up by strong equity growth, low debt service, and the flexibility to live further from one’s job. Homes in-city are still experiencing favorable appreciation with the median price up 7% year-over-year in Seattle proper, but there is stronger year-over-year growth in suburban locations. For example, in Lynnwood the median price is up 11% year-over-year. Where this has been a challenge is the typical suburban buyer is now competing with far more buyers for these coveted locations. The former suburban buyer accepted a longer commute for a less expensive home. With commute times a lesser concern, now we have a larger audience vying for homes outside the in-city core, making the suburbs more expensive.

The large price gains might seem familiar to the gains of the previous up market of 2004-2007 that resulted in a bubble, but this environment is much different, which is why we are not headed toward a housing collapse. Previous lending practices allowed people to get into homes with risky debt-to-income ratios, minimal down payments, low credit scores, and undocumented incomes. A large part of why the housing bubble burst 14 years ago was due to people getting into mortgages that were not sustainable, which led to the eventual fall of sub-prime lending and the bubble bursting.

It is supply and demand that is creating these huge gains in prices, not predatory lending. We are starting to see an uptick in homes coming to market which is both seasonal and catch-up from the pause the pandemic created last spring. With the vaccine becoming more and more available, more home sellers will become more comfortable bringing their homes to market. The shake-out of the work-from-home shift will eventually temper as some will choose to stay closer in-city and some employers may revert back to in-person work forces. The suburbs are not for everyone, but for now the puzzle of how housing and lifestyle relate to one another is being re-built.

We are anticipating an increase in inventory as we head into spring and summer which will temper price growth and simmer the frenzy. Many folks who have been waiting out the pandemic to make a move based on retirement or upgrading homes are well-positioned to enter the market. If you are one of those people, I hope these examples provide insight on the increase in home values and how they might pertain to your goals.

Potential buyers might shy away from the market due to affordability. While it is expensive to buy a home in the Greater Seattle area, the people that have become homeowners over the last six years have built some amazing wealth. Interest rates remain low, helping to absorb the cost of a home in our area. Last month, I wrote an article about wanting to sell but needing to also buy, which helped layout some strategies to successfully participate in today’s market. If you or anyone you know is considering making a purchase, it is worth the read.

As we head into the active spring and summer months, if you’d like me to provide you a complimentary Comparable Market Analysis (CMA) on your home so you have a better understanding of your home’s value, I’d be happy to do that. This would be an important component in charting your 2021 financial goals. Please reach out, it is my goal to help keep my clients informed and empower strong decisions.

The biggest challenge for buyers, which is conversely a benefit for sellers in the marketplace right now, is limited inventory levels. Buyers who need to sell their homes first in order to buy want to benefit from the upward pressure on prices for their home sale but are fearful of finding their next home in a timely manner. Currently, King County sits at 0.6 months of inventory and 0.4 in Snohomish based on pending sales data. These levels create a multiple-offer environment that is tough for buyers whose down payment is not readily available. Historically, buyers that are also sellers (those who have their down payment tied up in the equity of their home) would commonly secure a new home contingent on the sale of their current home. Meaning the seller of the new home they are buying would give them a month or so to get their current house sold in order to buy theirs. In this market, that is only rarely an option- like unicorn status.

So, the million-dollar question is this: how does one who has gained so much equity, now itching to get that bigger house, more functional floorplan, different location, or perfect rambler for settling into retirement, make this transition? We need to get creative, have a strategy and be ready to take on some possible short-term discomfort for long-term gain. Three options that are proven to be successful are: negotiating a rent-back for my sellers, using the Windermere Bridge Loan program, or having the bold courage to sell first and possibly move twice.

1. RENT-BACK
First, negotiating a rent-back has become a great option for someone who needs to first sell their current home in order to buy. The way it works is we put their home on the market, price it competitively to create demand, and ask for a rent-back as one of the preferred terms. If this rent-back is successfully negotiated, then the seller closes on their home and collects their funds but gets to stay in the house anywhere from 30-60 days post-closing. This enables the seller, who is now a buyer, to have their cash-in-hand, time to find a new house, get it under contract, and close the sale when their rent-back is ending. This eliminates the need to move twice. There is a bit of calculated risk in this plan, but I’ve seen it work several times, always with a plan B (interim place to move) ready just in case. Rarely has plan B needed to be executed, and often we’ve even been able to negotiate under market rent rates during the rental period.

2. WINDERMERE BRIDGE LOAN
The second option is the Windermere Bridge Loan program. This is an amazing tool for homeowners that own their homes free and clear, or who have sizable equity. This is an efficient, low-cost option where a buyer who needs to sell can pull the equity out of their house prior to selling it in order to make a non-contingent offer. The way it works is we establish the market value of the house the homeowner currently owns, via comparative market analysis (CMA) that I complete and is signed off by my managing broker. We then take 75% of the CMA value and subtract any debt owed, and that is the maximum amount the homeowner can borrow for their next down payment (max limit $1M).

They can then make a non-contingent offer on a new home as long as their lender approves that they can hold the current home and qualify for the new mortgage at the same time. What is really great about this program, is that it doesn’t require an appraisal (like a HELOC does), and these can easily be turned around in 5-7 business days. This tool provides the opportunity to quickly and inexpensively utilize your equity, be competitive to win the next house, and eliminates the double move.

The fees associated with this program are a 1% loan fee on the equity that is pulled, a title report, and interest that is incurred between the loan funding and being paid off once the subject home is sold. That interest is conveniently wrapped up in the closing costs when they close the sale of their home, eliminating the need to make monthly interest payments. In a strategy that is somewhat mind-blowing- we can sometimes use these bridge loans and never have to actually fund them. For example, if we secure a property non-contingent with the bridge loan and immediately get the bridge loan home on the market, we can often secure a sale with a simultaneous closing, and never have to fund the loan. This eliminates the loan fee, interest, and the need to carry two mortgages.

3. SELL FIRST, MOVE TWICE
The third option is to tie up your bootstraps and get your home sold before you start actively shopping for the next.  By all means, study the market, get pre-approved and have an idea of where and what you want, but remain committed to selling your home first. The benefits of selling your home first are being up against less competition and knowing exactly how much money you have to work with in the end.

Typically, we see more inventory come to market in Q2 and Q3, the earlier in the year a home comes to market the less competition they experience which is always favorable for the seller’s financial outcome. Knowing exactly how much you are going to net from your home sale is an empowered position to be in as is having the cash in the bank when vying for your next home. In this market, we are seeing shocking price escalations and this “extra” cash could be the difference-maker to obtain your dream home.

It does take bold courage to sell your home first as it often requires a double move. I know, that sounds miserable, moving is hard and disruptive. What is also costly and miserable is spinning your wheels as a buyer as prices appreciate and missing out on opportunities. The advent of VRBO and AirBnB has created a much more available short-term rental market and can provide an interim place to land while you shop for your next home. Some folks have friends and family that will take them in, it’s all in the name of getting creative. Having your cash in hand will make you more competitive and you will have a clear financial picture. Most things in life that are meaningful are hard. If it was easy, everyone would do it. Be bold, be courageous! Short-term discomfort for long-term gain is the focus with this strategy and after 2020 our resilience muscle seems to be a bit stronger, making this option more viable.

If you are excited about the equity you have grown and want to pair it with today’s low interest rates to obtain your next home, but have been fearful of how to do it all – I can help! These three options, along with great attention to detail, hand-holding, and careful planning have helped many people make these exciting transitions. It is my goal to help keep my clients informed and empower strong decisions. Please contact me if you would like further information on how this might work for you or someone you know.

The stats above for King and Snohomish counties highlight the January statistics. In both markets, prices are up year-over-year and well above average appreciation levels. This is due to the phenomenon described above which is a classic case of supply and demand. This has led to months of inventory remaining tight, with mere weeks’ worth of available homes. Days on market have reduced by 38% in King County and 41% in Snohomish County year-over-year, and homes are consistently selling at or above list price.

What does this market mean for sellers? We have already seen sellers that have come to market in Q1 enjoying large buyer audiences and great results. Note that the stats in the image are closed sales in January, which means most of them went under contract (pending) in December. Transactions that closed over the last 7 days and most likely went pending after the first of the year are recording very favorable results for sellers. For example, in King County, there were 305 closed sales from 2/9/21 to 2/15/21 with average days on market at 24 days and a 108% list-to-sale price ratio. In Snohomish County, there were 101 closings in the same timeframe, with average days on market at 14 days and a 104% list-to-sale price ratio. Tight inventory and motivated buyers are creating these results. As we head into spring, we expect to see more homes come to market which could soften these escalations. This would not be a bad thing as sellers are sitting on 9 years of equity growth and these recent gains have been a bonus.

What does this market mean for buyers? Well, you must have a plan! Pre-underwritten financing, pre-offer performed due diligence, organized funds for the down payment, and possible appraisal cushions have been key elements for success. In addition, aligning with a skilled broker to help a buyer prevail is paramount. A responsive broker who is a good communicator can be the difference-maker in winning a home. Listing agents and sellers will not only vet the elements of an offer, but they will also consider the working relationship established with buyers’ brokers as they review offers. There is a special magic to developing these relationships and it takes extra effort. Windermere as a company has been a market leader for many years and continues to work hard to make strong connections for success.

Buyers are anxious to secure their next home with today’s interest rates helping to off-set the expense of price appreciation. With debt service so low, buyers are hungry for more inventory and will most likely start to see an increase in selection in the spring and summer months. Fortitude is the name of the game for buyers, but it will be worth it in the end as the interest rates are amazing and price gains don’t seem to be going away anytime soon.

If you are curious about how today’s market relates to your real estate goals or know someone that needs real estate assistance, please reach out. I am constantly studying the activity in the market to anticipate where we are headed in order to provide sound guidance. It is always my goal to help keep my clients informed and empower strong decisions.

At Windermere, we help people buy and sell homes, but we also help build community. I’m proud to support the Windermere Foundation which has raised over $43 million in the past 32 years for low-income and homeless families right here in our local community.

In 2020, the Windermere Foundation provided over $2.5M in funds to 569 organizations, while keeping administrative expenses to 2%. The Foundation has been dedicated to helping homeless and low-income families and individuals since 1989. A portion of every commission is donated to this effort along with funds raised from special projects in individual offices.

In 2020, my office donated 5,600 lbs of food and $24K to various food banks associated with The Volunteers of America of Snohomish County as a result of four separate food drives we held throughout the year. We partnered with the YMCA’s Camps Orkila and Colman and donated just over $9K in order to keep the camp operating even though they were not able to open due to the pandemic. This will ensure they will be ready to have kids enjoy the benefits of camp when it is safe. We also sponsored 24 teenage foster boys at Christmas and made sure they had gifts on Christmas morning. We aligned with Pioneer Human Services to create this connection as well as provided grocery gift cards totaling over $3K to eleven families so they could enjoy well-stocked cupboards during the holidays. These opportunities to give back bring purpose to our work and we will continue to work with these organizations in 2021.