Low mortgage rates fuel a frenzied, revved-up housing market
January 13, 2021
By Janice Podsada for Everett Herald | Everett Herald
Arthur Sepulveda’s Thursdays, Fridays and weekends just got a little less hectic. The Lynnwood resident bought a new condominium last month and that means he’s skipping the online and in-person search for new real estate listings that took up a big chunk of the week.
The frenzy had him on high alert for months on end.
“A house you saw on Thursday could be sold three days later,” said Sepulveda, 32, who began his home search in July. “In this market, when you see something you like, you’ve got to move pretty quick.”
COVID-19 delayed the traditional spring start of the real estate market, until summer. But boy, when it finally launched, it immediately shifted into overdrive.
It’s gone at a gallop ever since.
The market usually quiets down during the winter months, but this year is different, said Matthew Gardner, Windermere Real Estate’s chief economist. “Activity remains higher than we would normally see at this time of year,” Gardner wrote in a year-end summary.
Some of the lowest mortgage rates on record and the desire for more space are drawing throngs of would-be homebuyers, local real estate experts say.
In mid-December, the average 30-year fixed-rate mortgage dipped below 3%, down from 3.9% a year ago, according to a Bankrate weekly survey.
“We’re seeing record-low interest rates coupled with record-high demand and record-low inventories,” said Jo Dallas, residential production manager at Peoples Bank, headquartered in Bellingham.
Those low rates are turning up the heat on home prices.
Bidding wars, which had quieted down in recent years, are back, Dallas said. In some cases, homes are selling for tens of thousands of dollars or more over the list price.
Sepulveda, a prosecuting attorney with the city of Bellevue, can attest to soaring home prices. During his months-long search, he made offers on four properties. In each instance, he lost out to buyers who offered more than the list price or waived home inspections. (Skipping an inspection that’s intended to uncover major flaws could cost a buyer thousands of dollars in repairs. While a waiver may give your offer an edge in the current market, do so advisedly, experts say.)
“Every offer I made other than the last one was a bidding war,” Sepulveda said.
Some properties he “lost by a little bit of money,” maybe a few thousand dollars — others by a lot, Sepulveda said. “Some, I wasn’t even close.”
His fifth offer — for a Lynnwood condo that’s still under construction and won’t be ready until March or April — was accepted. There was no wheeling and dealing, Sepulveda said.
“I met with the builder, he told me his my asking price and said he wasn’t going to negotiate,” Sepulveda said. “I saw it twice and put in my offer.”
Zoom town, USA
In real estate circles, small cities and suburbs are now being referred to as “Zoom towns” — and Snohomish County is looking like Zoom town central. The name refers to the popular virtual meeting platform that’s a staple for the working-from-home set.
City-dwellers, many from King County, are seeking roomier digs in Snohomish and Skagit counties. They’re working from home and don’t expect that to change.
“People are moving out of the cities to Zoom towns for more space,” said Jennifer Evans-Thompson, director of mortgage lending at Peoples Bank.
In Snohomish County and beyond, a 2,000-square-foot home can cost the same or less than a 900-square-foot condominium in downtown Bellevue.
Seattlelites, for example, who’ve been living near the city’s downtown core to be close to work, are eyeing homes in so-called Zoom towns such as Shoreline, Bothell, Edmonds, Mountlake Terrace, Lynnwood and Everett, said Sam Mansour, a real estate agent with John L. Scott Lynnwood who specializes in relocation services.
Several local, big-name employers are telling employees “they’ll never have to spend five days a week at the office,” Mansour said.
Economist Gardner says the Zoom town trend is real but predicts “most won’t move far away.” He, like many others, foresees a post-COVID hybrid workplace in which the average work week is split between the home and office.
“For that reason,” said Gardner, “I see many households still staying within reasonable proximity to their workplaces.”
While a normal real estate market might offer a five-month supply of homes for sale, the current supply is less than one month. That’s lower than last year, when it stood at about two months. (If there are 50 homes on the market, and 10 homes sell each month, that’s a five-month supply of homes for sale.)
A low mortgage rate usually translates into lower monthly mortgage payments. In theory, it means buyers can afford “more house.”
“It’s cheaper to buy a $650,000 house at a 2.9% interest rate than a $550,000 house at 5%,” said Mansour, who helped Sepulveda find the condo he eventually purchased.
But with bidding wars sending home prices into the stratosphere, the “more house” theory is looking a bit shaky.
Sam Khater, chief economist at the Federal Home Loan Mortgage Corporation (Freddie Mac ), said in a statement, “Unfortunately, the record low supply combined with strong demand means home prices are rapidly escalating and eroding the benefits of the low mortgage rate environment.”
In November, median home prices in the Puget Sound area rose 13.8% year over year, according to the Northwest Multiple Listing Service.
The median prices increase in Snohomish County was slightly higher, at 14.1%. The median sales price in November was $538,475, compared to $471,747 in November 2019. In the meantime, homes are being bid up anywhere from 5% to 15% above the asking price, with some selling for $100,000 or more over list price, Mansour said.
Despite low inventories and soaring home prices, there’s no shortage of home buyers.
Homeowners in search of a second home, investors seeking multiplexes and fixer-uppers, and former renters are among those making purchases, said Mansour, with John L. Scott Lynnwood.
“We’ve seen 40% more sales this November than (November) 2019,” Mansour said.
With the right property, a monthly mortgage payment can be lower than your monthly rent, Mansour said. If the mortgage is a bit higher than a rent payment, the federal tax benefits that accompany home ownership can offset the difference, he said.
The city of Everett may be part of the home ownership trend. In the past decade, Everett became a homeowner-majority city for the first time, according to RENTCafe, an online listing site for rental properties.
Today, nearly 52% of Everett residents are homeowners, compared to 49% 10 years ago, the study indicated. (Seattle, on the other hand, became a rent-majority city in 2020: 50.3% of its residents were renters, compared to 46.8% in 2010.)
Buyers in search of a second home or a vacation getaway have also been drawn to the market. In the midst of the pandemic, second homes have become a stand-in for vacations. And buyers who didn’t splurge on vacations or travel this year “have got money to purchase a second home,” Mansour said.
In a real estate market crowded with renters, investors and second-home seekers, how do you compete?
Start by meeting with a loan officer, in-person or online, Dallas with Peoples said.
The COVID-19 pandemic has tightened lending guidelines for some would-be borrowers, especially those who are self-employed.
So be ready to provide documentation for the pre-approval process, Dallas said.
Sepulveda began his home search with a rigorous assessment of his finances.
“I started hammering down what I wanted, and how much to save up,” Sepulveda said. Colin McMahon, who grew up in Marysville, hopes his knowledge of Snohomish County will give him an edge over out-of-towners.
“If I see one in the geographical area I like, I’ll jump on it,” said McMahon, 34, a renter in the Martha Lake area who is hoping to purchase a condominium.
Low interest rates and “being in a position where it feels like the right time to buy” drew McMahon, a first-time buyer, into the housing market.
Like Sepulveda, McMahon describes a daily online hunt for new listings.
“As soon as I see a place pop up, I will go in and request a tour,” McMahon said.
Sepulveda, also a first-time buyer, advises patience.
“In this market you have to be patient,” Sepulveda said. “But, if you see a house you like be ready to submit a hard offer.”
“As much as I was in a rush to get my own place, I thought — I’ve waited this long, what’s waiting a little longer?” said Sepulveda.
View original story on Everett Herald.