May 20, 2019

Last winter, it wasn't uncommon to hear from buyers who were waiting to see what happened with the real estate market.  Many believed prices would decline and the market would change to one more favorable to buyers instead of sellers.  Some believed a real estate slowdown was imminent.

Fast forward to a Sunday afternoon a few weeks ago.  I got a phone call from a new customer who was interested in making an offer on a house in Port Townsend.  He wanted to get pre-approved right away.

As soon as I hung up the phone, I received a text from one of my REALTORS®.  She was hosting an open house at the same house my new customer was interested in buying.  She invited me to come have a look.  The open house was from 1pm to 4pm.  When I arrived at 3:30, my REALTOR® informed me that over 100 people had visited her open house that day.

I won't be surprised if the home sells for $50,000 above the asking price.

I closed a loan for a couple in April who were first time home buyers.  They made offers on at least five different houses before they had an accepted offer.  Every time, they were beat by buyers offering cash or higher prices.  They were initially pre-approved for an FHA loan, which would have been their least expensive option.  But they ultimately decided on a (more expensive) conventional loan because they thought it would make their offer more attractive to sellers.

This is not a slowdown.  If you're waiting for the market to cool before you buy, you probably won't be owning a home in Port Townsend or Jefferson County, WA anytime soon.

New listings declined from 89 in April, 2018 to just 65 in April, 2019.  LIkewise, closed sales declined from 50 homes in April, 2018 to 47 homes in April, 2019.  This is likely because inventory (the number of homes for sale at any given time) is getting worse instead of better (Source:  NWMLS).  In fact, at the time of this writing, there were only 34 homes for sale in Port Townsend!

The lack of inventory will almost certainly drive demand this summer, as will continued low interest rates.  With slightly weaker consumer spending and plenty of trade drama, interest rates for 30-year fixed mortgages are remaining in the mid-4s for most borrowers.

So how do you buy a home in such a competitive market?

  • Put your best foot forward.  This is not 2011.  This is not the time to look for a "deal."  Sellers know what their homes are worth and they're not going to accept less.  That's not to say there aren't some great opportunities out there.  There are!  But if you are getting a mortgage, you are competing with people who are offering more money than you and they're offering cash.  Put your best foot forward and make a strong offer.
  • Don't even think of not hiring a REALTOR®.  One reason there are so few homes on the market is that they sell so quickly!  When a home comes on the market - especially one that is modestly priced - it could have multiple offers in a day or two.  You will never see that house if you're not working with a REALTOR®.
  • Get your ducks in a row.  The time to get pre-approved is not when you've found a house you want to buy.  By the time we spend a day (or two or three depending on how busy your schedule is and whether or not you kept a copy of last year's tax returns), the house you want will be gone.  And most REALTORS® won't submit an offer without a pre-approval lettter.
    So get pre-approved.  And do it months before you want to start looking at houses.  No matter who you are, how good your credit is, or how many times you've bought before, getting a mortgage can be a complicated process.  Give yourself time in case you need to correct a credit report, track down old court documents, or pay off a debt.
  • Be realistic.  I know you don't want a mortgage payment of more than $900/month.  But unless you have a significant down payment, you'll need to cough up a little more.  The median (half higher, half lower) price of a home in Jefferson County in April, 2019 was $362,000.  With 5% down, that's a payment closer to $2,300/month. (1)
  • Stay positive.  You may not get your first choice.  Or your second choice.  Or your third choice.  But you will find a home.  And you will love it.  And it will all be worth it in the end.  Remember, you don't need a ton of inventory.  You only need one home!

(1) Assuming $362,000 purchase price, $343,900 loan amount, conventional 30-year fixed rate loan at 4.5% with no points.  APR is 4.579%.  740 credit score, single family/stick built, primary residence, 40% debt-to-income ratio.  Estimated payment = $1,742.49 principal & interest + $105.58 homeowner's insurance + $301.67 property taxes + $123.23 mortgage insurance = $2,272.97/month.