This article originally appeared on Inman.com
After seven years of some of the lowest interest rates in recorded history, the Federal Reserve has decided to raise the key Fed Funds Rate by 0.25 percent, which is causing some to be concerned that it will lead to a jump in mortgage rates and negatively impact the US housing market.
So, the question everyone wants to know is, do we need to worry about interest rates leaping?
While I expect there to be some volatility in rates for a while, I don’t believe the real estate market will implode in a rapidly rising interest rate environment. So, yes, interest rates are going to rise modestly, but no, I don’t think we need to be overly worried about it.
To qualify this statement, we need to understand that mortgage rates do not run in “lock-step” with the Fed Funds Rate. Although the Fed Funds Rate is a bellwether for the greater economic environment, there have been times when these two rates have moved in opposite directions, such as we saw in 2004/2005.
It’s also important to understand that while interest rates for revolving credit, such as credit cards and home equity loans, are tied to the Fed Funds Rate, non-revolving loans – like mortgages – are not. Mortgage rates are tied to bond yields – specifically the 10-year treasury.
So what do I think will happen?
I believe interest rates will rise above 4 percent, but we will not see a sharp spike in rates. The Fed has stated that any upward movement in the Fed Funds Rate will be slow and steady, and will reflect the greater economy. And I believe that mortgage rates will follow suit. Additionally, mortgage rates have already moved higher in anticipation of an increase in the Fed Funds Rate.
That said, it is worth noting that any weakness in the global economy can actually have a downward effect on interest rates. This is referred to a “flight to quality”. In essence, investors seek safe haven during times of economic uncertainty. If markets outside the U.S. continue to underperform, there will likely be increasing demand for bonds which will drive up their price and drive down interest rates. Between China, the Eurozone, war in the Middle East, and a massive drop in oil prices, it's certainly possible that the price of mortgage backed securities could rise, leading U.S. mortgage rates lower.
Interest rates could not realistically stay at their current levels forever. But an increase should not be a great cause for concern. Yes, an increase makes mortgages more expensive, but not to a point where they will have a negative effect on home values. That said, the rate of home price growth will undoubtedly slow in the coming year, but that isn’t necessarily a bad thing.
A little perspective might help: the average rate for a 30-year loan in the 1970’s was nine percent. It was 13 percent in the 1980’s and eight percent in the 1990’s. And yet people still managed to buy and sell homes throughout those years. With that in mind, the rate increases we’re likely to see in 2016 are nothing to fret over.
The increase in the Fed Funds Rate should be taken as a sign that our economy is expanding and is a preemptive move to limit anticipated inflation. While interest rates have risen from their all-time low, they are still remarkably favorable. And will remain so through 2016.
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.
After a period of above-average growth, Washington State has seen a modest slowing in employment growth, but we continue to add jobs at a respectable rate. The State unemployment rate was measured at 5.3%, marginally above the national level, but it is trending in the right direction. Although growth continues to be uneven across the state, there are some encouraging signs which suggest that all of our main metropolitan areas should see positive job growth for the foreseeable future.
Home Sales Activity
• There were 22,207 home sales during the third quarter of 2015, up by 14.1% from the same period in 2014. • For the first time in several years, there were no counties that saw annual decreases in home sales. • The growth in sales was most pronounced in Kittitas County, and all but two counties saw double-digit percentage increases from the same period last year. • The lack of available inventory in the region continues to be a concern. Listings in the third quarter were down by 18% from the second quarter, and down by 24.5% from the third quarter of 2014.
• Prices in the region rose by an average of 6.3% on a year-over-year basis and were 9.6% higher than seen in the second quarter of 2015. • The only county where home prices fell on an annualized basis was in Kittitas County, but the drop was a minuscule 0.5%. Kittitas County saw sale prices grow by 5.8% between the second and third quarters of this year. • When compared to the third quarter of 2014, San Juan County showed the fastest price growth with an increase of 14.6%. Double-digit percentage gains were also seen in four other counties. • As long as inventory constraints persist, it is likely that price growth will continue. However, if interest rates rise in 2016, as they’re expected to do, we will likely see price growth slow.
Days on Market
• The average number of days it took to sell a home dropped by nine days when compared to the third quarter of 2014. • It took an average of 74 days to sell a home in the third quarter of this year—down from 84 in the second quarter. • There were just two markets where the length of time it took to sell a home did rise, but the increases were minimal. Jefferson County saw an increase of eight days while Mason County rose by two days. • King County remains the only market where it takes less than a month to sell a home.
This speedometer reflects the state of the region’s housing market using housing inventory, price gains, sales velocities, interest rates, and larger economics factors. For the third quarter of 2015 I have moved the needle a little farther in favor of sellers. Although sales did slow between the second and third quarters, I attribute this to a lack of inventory rather than any other factors. Additionally, interest rates dropped between the second and third quarters, which made buying more favorable. The persistently low levels of inventory in the region remain a concern. Such an imbalance between supply and demand is unsustainable. When I look at the ratio between listings and pending sales there are some counties with less than two months of inventory, which is troublesome. Any number below four months is certainly considered to be a seller’s market and, in my experience, a prolonged period of time with less than six months of inventory results in an unstable market. In normal housing market cycles, when such an imbalance exists we could expect home builders to fill in the gap with inventory, but this has not happened thus far. Unless we see a rapid escalation in construction activity, the market will remain remarkably tight well into 2016.
About Matthew Gardner
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K. You’re welcome to download and view the full PDF report for more information. This blog was originally posted on the Windermere Blog.
Last week, over 100 Windermere Real Estate agents gathered for a preventative education class from the legal experts of Demco Law Firm.
Lars Neste and David Daniels proved again why Demco Law is an asset to Windermere brokers and their clients in this legal class focused on keeping everyone up-to-date on current real estate laws. Lars and David are part of a team that is an asset to Windermere brokers and their clients. They are sensible, have practical knowledge and experience, and are accessible to all Windermere agents.
Along with these preventative educational classes comes a sense of camaraderie among Windermere brokers. Real estate can be a lonely profession where agents often spend most of their time independently. Brokers, when is the last time you were in the room with over 100 productive and professional brokers? We bring that atmosphere to each of our educational classes and seminars. Our focus is community, relationships, and collaboration so we can bring you, our clients, the best real estate experience possible.
It's my mission to stay ahead of the changing real estate market so I can offer you the smoothest real estate transaction possible.
Believe it or not, it's almost the end of October! Haunted houses, hay rides, pumpkin patches, and even a special harvest market from the Bellevue Farmers Market are waiting for you in the days ahead.
If you're looking for something to do on Halloween Day, make sure you check out the Halloween Market with the Bellevue Farmers Market. They're transforming their typical Saturday Market into something fun and full of treats. There will be pumpkin painting, face painting, live music, a family photo booth, costume contest, fresh cider, and a scavenger hunt for kids at the vendor booths.
If you still need to visit the pumpkin patch this weekend, here are a few great farms for you:
Looking for something spookier than pumpkin patches and hay rides? Here are some haunted houses and events:
Strong sales continue to whittle down a dwindling supply of homes. The lack of supply to meet demand kept driving home prices upward in September. While the Puget Sound area saw steady appreciation over a year ago, there are signs that that the frenzied level of growth may be starting to moderate – good news for a market that was starting to look unsustainable. Click images below for full reports.
The Eastside continues to lead the region in home values. The median price for homes sold in September was $680,000, an increase of 12 percent over a year ago. Sales were up as well, with many homes selling within days of being listed. As a result, inventory is at historic lows, with only a six week supply available. That is far below the three to six months of supply that is considered to be balanced.
Home prices rose a moderate seven percent in King County as compared to last year. The median price for a single family home in September was $490,250. Areas farther from the urban core are relative bargains, with the median price in Southeast King County coming in at $344,975, and at $304,000 in Southwest King County. Inventory remained tight throughout the region, with just five weeks of available supply.
The Seattle market continues to be very hot. Homes are snapped up as soon as they come on the market. As a result, the city has under a month of available inventory, the lowest in the region. Home prices climbed 10 percent over last year to a median of $571,000. That increase hasn’t seemed to decrease demand from buyers, who have become accustomed to facing multiple offers on newly listed homes.
It's a great time to buy a home right now. With low rates and high home values, many are taking advantage of moving up. It's also a good time for first-time homebuyers to make their move since rent costs continue to increase. If you're ready to jump into the housing market, do you know how much home you can afford?
3 More Reasons Why Now is a Great Time to Buy
The real estate market traditionally cools off in the summer, but August saw a continuation of the market’s hot streak. Home prices increased by double digits over a year ago, fueled by strong demand and the lowest inventory in more than a decade. Rising prices are kindling hopes that more sellers will be willing to put their home on the market.
Home values on the Eastside continue to be the highest in the region. The median price for homes sold in August was up 11 percent to $672,000. Very limited inventory translated into brisk sales as buyers snapped up homes at every price point. A $3.7 million home on Yarrow Point sold in just four days after being listed.
Click image to view full report.
The median price for a single family home in King County was $499,950, a 14 percent increase over last August. Inventory has inched up, but the five weeks of existing supply is far below the three to six months of supply that is considered to be balanced. Condo sales were strong, with 22 percent more sales than a year ago.
Click image to view full report.
Seattle home prices have exceeded their 2007 peak. The median sale price for single family homes sold in Seattle in August was up 15 percent to $575,000. With just three weeks of available inventory, supply just can’t meet demand. Multiple offers and escalation clauses were the rule rather than the exception here.
Click image to view full report.
In July, the U.S. saw the fastest rate of single-family home starts since 2007. Housing starts across the U.S. in July rose 0.2 percent to a seasonally adjusted annual rate of 1.21 million homes, the Commerce Department said Tuesday. According to The Seattle Times, "construction of single-family homes account for all of the gains, shooting up 12.8 percent last month to the highest rate since December 2007."
This means more confidence from real estate developers and an increase in construction jobs bolstering our housing market. Year-to-date, housing starts have risen 11.3 percent.
Confidence is also spreading to the retail market as homeowners feel they can spend a little more to improve their homes and get top dollar when they sell. Home Depot reported a record number of transactions over the last three months. "When consumers believe their home is an investment, not an expense, they spend differently. We are seeing that," said Carol Tome, Home Depot's chief financial officer.
The market is continuing to grow; however, the report also showed some of the potential limits of further gains as the number of building permits fell. The decrease is likely due to some pullback after months of gains and the continued low inventory (especially in the Seattle area) and increase in home prices.
Our housing market is definitely booming and repairing itself after the Great Recession, but the lack of inventory may cause a slow-down in homebuilding activity. However, homeowners are still confident in the values of their homes and there's no doubt that this year has held the growth we predicted it would.
Nothing in life lasts forever – and the same can be said for your home. From the roof to the furnace, every component of your home has a life span, so it’s a good idea to know approximately how many years of service you can expect from them. This information can help when buying or selling your home, budgeting for improvements, and deciding between repairing or replacing when problems arise.
According to a National Association of Home Builders (NAHB) study, the average life expectancy of some home components has decreased over the past few decades. (This might explain why you’re on your third washing machine while Grandma still has the same indestructible model you remember from childhood.) But the good news is the life span of many other items has actually increased in recent years.
Here’s a look at the average life spans of some common home components (courtesy of NAHB).
Appliances. Of all home components, appliances have the widest variation in life spans. These are averages for all brands and models, and may represent the point which replacing is more cost-effective than repairing. Among major appliances, gas ranges have the longest life expectancy, at about 15 years. Electric ranges, standard-size refrigerators, and clothes dryers last about 13 years, while garbage disposals grind away for about 10 years. Dishwashers, microwave ovens, and mini-refrigerators can all be expected to last about nine years. For furnaces, expect a life span of about 15 years for electric, 18 for gas, and 20 for oil-burning models. Central air-conditioning systems generally beat the heat for 10 to 15 years.
Kitchen & Bath. Countertops of wood, tile, and natural stone will last a lifetime, while cultured marble will last about 20 years. The life span of laminate countertops depends greatly on use and can be 20 years or longer. Kitchen faucets generally last about 15 years. An enamel-coated steel sink will last five to 10 years; stainless will last at least 30 years; and slate, granite, soapstone, and copper should endure 100 years or longer. Toilets, on average, can serve at least 50 years (parts such as the flush assembly and seat will likely need replacing), and bathroom faucets tend to last about 20 years.
Flooring. Natural flooring materials provide longevity as well as beauty: Wood, marble, slate, and granite should all last 100 years or longer, and tile, 74 to 100 years. Laminate products will survive 15 to 25 years, linoleum about 25 years, and vinyl should endure for about 50 years. Carpet will last eight to 10 years on average, depending on use and maintenance.
Siding, Roofing, Windows. Brick siding normally lasts 100 years or longer, aluminum siding about 80 years, and stucco about 25 years. The life span of wood siding varies dramatically – anywhere from 10 to 100 years – depending on the climate and level of maintenance. For roofs, slate or tile will last about 50 years, wood shingles can endure 25 to 30 years, metal will last about 25 years, and asphalts got you covered for about 20 years. Unclad wood windows will last 30 years or longer, aluminum will last 15 to 20 years, and vinyl windows should keep their seals for 15 to 20 years.
Of course, none of these averages matter if you have a roof that was improperly installed or a dishwasher that was a lemon right off the assembly line. In these cases, early replacement may be the best choice. Conversely, many household components will last longer than you need them to, as we often replace fully functional items for cosmetic reasons, out of a desire for more modern features, or as a part of a quest to be more energy efficient.
Are extended warranties warranted?
Extended warranties, also known as service contracts or service agreements, are sold for all types of household items, from appliances to electronics. They cover service calls and repairs for a specified time beyond the manufacturer’s standard warranty. Essentially, warranty providers (manufacturers, retailers, and outside companies) are betting that a product will be problem-free in the first years of operation, while the consumer who purchases a warranty is betting against reliability.
Warranty providers make a lot of money on extended warranties, and Consumers Union, which publishes Consumer Reports, advises against purchasing them. You will have to consider whether the cost is worth it to you; for some, it brings a much needed peace of mind when making such a large purchase. Also, consider if it the cost outweighs the value of the item; in some cases it may be less expensive to just replace a broken appliance than pay for insurance or a warranty.
View the original article on Windermere's blog.