2012 Yakima Real Estate Report – Update

Yakima Real Estate Report                                                                                 May 1, 2012

       Real Estate markets across the country are seeing a much anticipated revival this spring.  Many major metropolitan areas are reporting a shortage of homes available for sale, and competition among buyers for those properties that are available. 

       While accurately calling the bottom of any market cycle is difficult, it appears that in many cities, the bottom of the real estate cycle is near or even behind us.  Areas such as Phoenix, many parts of California, and in the Puget Sound Area, homes are being sold at faster pace, even while fewer homes are being put on the market.

       Here in Yakima, a more muted example of this national trend is taking place.  The inventory level of homes available for sale is down 14% from the same period in each of the last two years. The cause of this reduction in available inventory is hard to pin down, and may in fact be temporary, as homeowners decide to take advantage of today’s market conditions and low interest rates and purchase that move-up house.

      

       The swirl of optimism in the air coupled with this news from other cities, it is surprising to learn the pace of closed residential sales in Yakima is actually flat year over year through April. Local Realtors report increased showing activity on their listings, and buyers are showing confidence in their decisions to purchase.  The monthly data has given no clear signal as to an improving marketplace.  When we compare the number of closed sales each month between last year and this, one month the current year will be better and the next month it trails 2011 by a significant margin.  Comparing this year and last, during January through April, nearly the identical number of residential properties have sold and closed.

       Yet when we dive deeper into the data, we do see some clues to the emerging trends and the improving marketplace.  The Pending Home Sale Index is a set of factors that demonstrate the state of the immediate market.  This index looks at the number of homes that are under contract but not yet closed in relationship to the total number of properties available for sale.  The chart indicates the significance of the changing dynamics in the immediate market.  During all of 2011, the index averaged only 17% (where that percentage of homes for sale where under contract awaiting close of escrow), and peaked at 19% early in the year.

       We began 2012 in the same territory, but since March, when agents noticed buyer activity increasing significantly, this index has shot up, reaching 27% in April.  This increase of 10 percentage points is dramatic and signals a considerable change in the local marketplace.

       Analyzing further, if we were to hold steady for the quantity of homes available for sale, and just look at the change in quantity of properties under contract, we still see a substantial change in the index.  Without the influence of fewer homes on the market, the index is at 23%, which is still an increase of six percentage points over the same time period last year.

       Another common way of analyzing the current market is to study the Number of Months of Inventory.  Similar to the Pending Home Index, this statistic takes into account the current inventory and the most recent months pace of sales.  Simply put, if no new homes were put on the market, how many months would it take to sell the current inventory.  In 2011 the Yakima market averaged 13 Months of Inventory.  Economists consider 6 Months of Inventory a balanced market, yet here again, Yakima sets its own norms.  Even during the heat of the market, say in 2007, the local market still have 8 Months of Inventory, when other markets were measuring in only weeks.  In the Yakima Metro area, we began the year in January with 15 months, and now as the market has improved we are down to only 9 Months of Inventory.

      

       These dynamics may eventually have an impact on pricing, less supply coupled with more demand; well you remember your ECON 101 class…  At first glance, it appears that those factors have in fact already exerted their influence, as the average price of residential properties sold in the Yakima metro area is in fact rising.  Yet we must be careful not to be seduced by the sirens of statistics, and vigorously question every data point to see if in fact it is revealing an accurate perspective.  Average Price is one of those tricky metrics, and when we looked deeper we found some more clues.   Rising prices is not what we are experiencing when we are helping buyers and sellers in transactions, so when this factor showed itself, we had to dig deeper. 

      

       What we found is a change in the types of homes that are selling.  While the movement is slight, it is significant.  Less homes in the under $100,000 range have sold this year compared to last and more homes have sold in the $200,000 to $300,000 range.  In addition, more homes are selling priced between $500,000 to $1,000,000 range and this year we have had two homes sell for over $1m, where last year during the same period there were no sales in this upper end.

       This explains why the average price of all homes sold is up, even while we are negotiating contracts, we are finding buyers are still able to purchase homes at incredibly attractive prices. If anything, the average price of homes has been bouncing around the $170,000 range for the past few years, some months a little higher, other months a little lower. 

       Even with the reduced inventory, there are still many homes for buyers to choose from.  While we have seen a small percentage of properties receiving offers from multiple buyers, that is the exception here in Yakima, not the rule, unlike the stories you hear from the large metro areas,.  In April of this year, only 10.7% of available homes sold, compared to the average for all of last year when 8.4% of properties available for sale in any given month would sell and close.

       This means there is still robust competition between homeowners vying for those all important qualified buyers.  Of course, all real estate markets are local, and each home that goes on the market has its own niche market that it is competing in.  An analysis of any particular market by a knowledgeable real estate professional will help a homeowner understand the competitive environment that exists for any particular property.

       Anyway you look at today’s market; you find that more Yakima residents are deciding that buying a home is a good decision.  They are looking at home prices and seeing incredible values.  When today’s low prices are coupled with the incredibly low interest rates on home mortgages, the decision to purchase is an easy one.

This Summer, GYOV — Grill Your Own Veggies

3 Reasons It’s Easier Than You Think to Grow Your Own Produce

1. You don’t need as much space as you think

Square foot gardening is an alternative to traditional “row gardening” that offers more produce from less space, time and effort. A gardening method tailor-made for beginners, it is also great for experienced gardeners.

• An area just four feet by four feet can hold about 130 plants and yield enough produce to feed one person all summer long.
• Square foot gardens use about 20 percent of the space and 10 percent of the water to produce the same amount of vegetables as traditional gardens.
• Spend less money on tools, supplies and seeds — the only tool you’ll need is a hand trowel and rather than sprinkling seeds widely, you plant them according to precise formulas.
• To learn more about square foot gardening, check out Building a square foot garden on Journey To Forever, Square Foot Gardening, the non-profit organization and 9 Reasons You Should Try Square Foot Gardening on HouseLogic.

 

2. You don’t even need a yard – you can garden in containers

Perfect for beginners, container gardening is one of the easiest ways to grow your own vegetables. If you don’t have space in your yard (or you don’t have a yard), you’ve never grown vegetables before, or you’re put off by weeding and watering, container gardening might be just your ticket.

• Grow anything from peppers to spinach, radishes to cucumbers. Different vegetables have different container, soil, sun and water requirements — so read up a little before you plant the first seed.
• Watering is easy — just like watering a house plant, in fact, some specialized containers are “self-watering” and have a reservoir area below the soil.
• No weeding — because your garden is “contained” there is nowhere for weeds to come from.
• For more on container gardening, check out Minimal Space, Maximum Tomato in the Chicago Tribune, Fresh Ideas for Growing Vegetables in Containers on Better Homes and Gardens and 10 Foolproof Vegetables for Container Gardening on HouseLogic.

 

 

3. You can be better at it than you think

With the nearly infinite resources available at your local home store and online, it’s easier than ever to get your garden right.

•  Waste less water and avoid over-watering — Invest in a drip hose (less than $20 for 50 feet) to wind through your garden.
• Take the easy way — for every high-maintenance vegetable (like tricky tomatoes), choose two or three foolproof, hardy growers (like peppers and parsley) that will thrive under most any condition.
•  Stay away from the spray — remember there are a multitude of natural, and effective, pesticides that are cheaper and healthier than store-bought chemicals, such as soapy water and vinegar.
• For more tips on summer vegetable gardening, check out Weekend Gardener’s Monthly Web Magazine, Tips for Growing an Organic Vegetable Garden on Better Homes and Gardens, and Vegetable Planting Guides and Growing Tips on The Garden Helper.

NEW HOME CONSTRUCTION

        This is the final of seven parts reporting on the state of housing in Yakima.  You can start at the beginning here, or go directly to articles on Yakima Homes For Sale, Home Prices, Foreclosures, Home Lending, the Luxury Home Market and New Construction.

        The quantity of new construction sales puts in stark relief the plight of the current housing market. No housing-related industry has been hit harder by the housing crunch than the building trades. Many builders have stopped constructing new homes entirely and, instead, are focused on remodeling projects or have left the industry altogether.

       In 2011, the quantity of new homes sold in Yakima County dropped another 30% from the prior year, which was down from 2009 by 17%. Only 118 sales of newly constructed homes were recorded in the county, down from 170 in the prior year. New construction represented about 8.5% of homes sales, versus 11% in 2010.

       This mirrored the national trend, where the annual rate of new home building was at historic lows last year. Many of the permits issued for new residential housing nationwide are for construction of multi-family housing. The single family marketplace is suffering from extreme low rates of new home building. This eventually will cause a housing shortage in America. The lack of new household formation is creating pent-up demand and, at some point, will cause demand for new homes to outstrip the available supply. (please visit our website at PruAlmon.com for more information.)

       Another factor impacting contractors is the cost to build a new home compared to the current price levels of existing homes. Prices of labor and materials have not gone down the way that home prices have. The average price of homes in many markets has dropped so far that they are available at an attractive discount compared to purchasing new. In Yakima County, the average price of a new home last year was $211,000, down from 2010’s average price of $214,000. This represents only 1.4% drop compared to average prices overall for Yakima that have dropped 5.2% in the past year.

       Additionally, now it is much more difficult for builders to secure financing for construction. In other cities, when the housing market stalled, builders found themselves with too many unsold homes completed or nearly complete. To avoid this scenario repeating itself, banks are now limiting their lending primarily to builders who have contracts with buyers in hand. This has proven to reduce the risk of creating unsold inventory, but makes it more challenging for a builder to demonstrate their product and attract buyers.

       Of the new homes built in 2011, the vast majority – 81% – featured three bedrooms, with an average of 1658 square feet of living area. Four-bedroom homes made up 17% of the total and averaged 2144 square feet. Overall new homes sold in 2011 averaged 1762 square feet.

       Of homes built in 2011, more than a quarter (27%) were designed with between 2000 and 3000 square feet and these homes averaged $274,000. Homes in this category dropped nearly 10% from 2010’s average price of $282,000. Homes less than 2000 square feet dominated the new construction marketplace representing 71% of the market and averaging $186,500 up from last year’s average of $180,000.

       Local builders and land developers are continuing to prepare for future increases in demand from local home buyers. There are more than enough new home community projects in the pipeline to answer the demand for new housing in the near future. In the meantime, plenty of builders and a variety of new home styles and price points of new homes available now should satisfy today’s new construction buyer.

Or simply download the entire report.

When Form Meets Function Meets Frugality

Ceiling fans are one of the unsung heroes of home décor — and here’s why:

1. Fans are…  energy efficient

Consider this: ceiling fans use a fraction of the energy as air conditioning and can reduce the temperature in a room by up to eight degrees. Ceiling fans can now qualify for an Energy Star rating — Energy Star fan/light fixtures are more than 50 percent more efficient than other fan/light units.

2. Fans are.. simple

Ceiling fans are easier and less expensive to install and maintain — a good handyman should be able to handle anything that comes up.

3. Fans are… not just for summer

Most ceiling fans available these days offer forward and reverse direction for the blade rotation. In the cold weather, reversing the direction of the blades will help move heated air that has risen to the ceiling out to the edges of the room and down the walls, maximizing your heat and helping to reduce heating costs. 

4. Fans are… good for outdoors too

Installing ceiling fans in outdoor patios, porches and decks can make a huge difference in the comfort of your outdoor space. Creating a constant breeze and air flow, fans can combat not only the heat, but also bugs.

LUXURY HOMES

       This is the sixth of seven parts reporting on the state of housing in Yakima.  You can start at the beginning here, or go directly to articles on Yakima Homes For Sale, Home Prices, Foreclosures, Home Lending and the Luxury Home Market.

       Yakima’s luxury home market has some unique characteristics. Homes in this segment of the marketplace (priced over $450,000) are typically larger, averaging 3800 square feet in living area, and can have a wide assortment of amenities. Some are located in neighborhoods dominated by similar homes; others may be in more modest locations, yet have features such as large lots and outbuildings. A third of these properties have swimming pools, and 20% have hot tubs. Many of these homes have expansive views of the valley, some with the sparkle of city lights at night for an added delight.

       However, these properties make up a small portion of the overall market. In 2011 only 25 luxury homes closed, representing just 2% of sold homes overall. This is a rebound from the previous year where substantially fewer homes in this category sold. The dramatic drop in the prior year (2010) of upper end homes resulted in only 17 closed sales, which was just over half the activity in 2009 when 30 properties traded hands in this category. We are encouraged by last year’s improvement in activity and see it as a sign that these home buyers are placing faith in Yakima real estate by making these investments.

       Yet there are plenty of these high-end homes to choose from, with an average of 34 months of supply for the year. The active listings in this segment represent just over 6% of all homes available for sale, which has remained fairly consistent over the last few years.

       The average price of a luxury home has been more impacted by market forces – the dynamics of supply and demand – in the last few years. Within the limitations of statistical analysis that a relatively small data sample imposes, we are still able to discern some trends. 2011 saw an increased downward drift in the average price. 2010 luxury home prices were down 3% from the prior year; yet in 2011 the prices of closed sales in this category went down another 9% for an average price of $519,798 – representing $136 per square foot of living area, down from $153 in 2010.

       Homes in this price range take longer to sell than average. The average market time for those properties that sold in 2011 was 354 days compared to 137 days for all homes. Properties that sold without the need for price adjustments during the marketing period sold in one-third the time, averaging just 105 days of market time.

       With all the talk about foreclosures and distressed properties, it may come as a surprise that none of these homes were owned by a bank that had foreclosed on the home. A few homes were dependent upon a secured lender agreeing to a Short Sale, though this was uncommon in this price range. For a more detailed look at the impact distressed properties had on the overall market turn to Page 7.

       None of these properties were newly built homes. While three of the properties sold were owned by builders, those homes were occupied by a tenant or the builder themselves, and could not be considered “new.” Nonetheless, these homes include the quality and features expected for new luxury homes, and certainly their condition was nearly new.

       Including these nearly new homes, half of all the upper-end properties sold were built in the 2000’s. Featuring the modern amenities sought after by today’s buyers, many of these homes were custom-built, reflecting the tastes and personal preferences of the original owner. A quarter in this category were built in the 90’s with the remaining 25% representing all earlier years, including two homes built in the 50’s and one being a historic home built in 1913.

Next is a review of the current state of New Home Construction.  How much does a brand new home cost in Yakima?

MORTGAGE FINANCING

      This is the fifth of seven parts reporting on the real estate market in Yakima County.  You can start at the beginning here, or go directly to articles on Yakima Homes For Sale, Home Prices, and Foreclosures.

       The good news is homes are more affordable today than ever. Between today’s lower prices and record low interest rates, more Americans can afford a median-priced home today. We finished 2011 by setting yet another record low for home mortgage rates in modern times. At less than 4%, the cost of home financing is creating purchasing power unknown for decades. According to signals from the Federal Reserve, we are likely to see these low rates continue for another year.

       The Washington Center for Real Estate Research reports the affordability index for Yakima County at 175.4. This means that a Yakima household with the median income has nearly twice the income needed (1.75 times) to qualify to purchase the median priced home. With incomes remaining stable, home prices moderating and ridiculously low interest rates, housing affordability is at its highest in the last 40 years.

       Low interest rates are one important factor in the home lending scenario, but qualification requirements are another. Home lending rules have undergone significant changes in the last few years, as the industry rebounds from the absurdly lenient lending standards that created the housing bubble.

       This return to more stringent lending guidelines has limited the number of buyers who qualify for a home loan, and the process itself takes longer, so we now commonly see closing time periods of 45 to 60 days. Loan underwriters are carefully examining borrower’s ability to repay a loan, frequently asking for updated information as the loan approval process slowly progresses.

       Lenders are especially cautious in their analysis of the property being purchased. In a market with escalating prices, lenders are insulated from underwriting mistakes. Today, underwriters are looking closely at property appraisals, in some cases ordering a second appraisal to confirm the first opinion. That said, banks, savings and loans, credit unions and mortgage companies are all lending money to qualified home buyers.

       In Yakima County, conventional loans were used in 41% of home purchases last year and are available with as little as 5% down. Borrowers who have a 20% or larger down payment can avoid paying mortgage insurance, saving themselves .75% to .85% in borrowing costs. FHA financing has experienced a resurgence in popularity – last year 24% of buyers obtained an FHA insured mortgage in Yakima. FHA loans only require a 3½% down payment and have more relaxed income requirements.

       Two programs still offer zero down options: loans for Veterans insured by the VA and Rural Development loans insured by the USDA. Of course these loans have requirements that are very specific to their borrowers and are not an option for everyone.

       A big obstacle for many buyers is saving enough cash to make the purchase. This is especially true for first-time buyers, yet is quite common with “move-up” buyers, too. With the decrease in home prices, many people don’t have significant equity in their current home to use towards the down payment on a new one.

 

       Lenders require that buyers use their own funds (or gifts from immediate family) as a source of their down payment. In certain cases, down payment assistance programs are available in the form of a grant or a low — or no-interest loan to qualifying buyers and properties. The City of Yakima, for instance, offers up to $4000 in assistance to qualifying borrowers, and Washington State also provides a variety of loan and down payment assistance programs.

       In addition to the down payment, buyers must pay closing costs, including loan origination fees, appraisal, title and recording fees, to name a few. A buyer’s available resources may be strained by these additional costs so today, most purchase contracts are negotiated where the seller pays a portion of these buyer closing costs – anywhere from 2% to 4% of the purchase price. This creates a win-win situation – both the buyer and the seller reach their goals.

Next is a review of the current state of the High End Home Market.   Luxury home buyers are placing their faith in Yakima real estate.

Small DIY Projects With a Big Impact

3 Ways to Increase Your Home’s Value Up To $7,000

HomeGain released its annual home improvement and home staging survey for 2012 last week — questioning 500 real estate agents across the country regarding the top 10 DIY home improvements under $5,000 that home owners should make to increase the value on their home, weighing both cost and ROI. (For the full list from HomeGain, click here.)

Fundamentally, the practical value of your home, or anything for that matter, is what a buyer is willing to pay for it. So the more appealing your home is to buyers, the more valuable it will be — and the trick to that is presenting a home buyers can imagine themselves living in. And the more of an ideal, fantasy-worthy home you can create, the more buyers will salivate to move right in.

Which makes it hardly a surprise that the number one project on the list is one that will most likely cost more time than money — and for many, require ruthless determination.

“Less is more.”
~Ludwig Mies van der Rohe (famous architect)

#1 — Clean and de-clutter

For the tenth year in a row, cleaning and de-cluttering your home ranks as the number one recommendation by agents to increase the value of your home. Back to that “ideal fantasy home” you are creating — don’t most people dream of living an organized, clutter-free life? Walking into a home that feels that way instantly creates a “boy, I wish my home looked like this” feeling.

According to the survey, the average cost of de-cluttering a home is $402 and the average value benefit is $2,024 — giving a 403% ROI.

#2 — Lighten and brighten

You can’t appreciate — or covet — what you can’t see. Not only do plentiful light and bright windows (cleaned and unblocked) shed light on your home, light rooms are inviting and friendly. While mood lighting has its place and time, when you want to show your home to its best advantage, light up the joint. When museums mount an exhibition, the first thing planned is the lighting. Place table or floor lamps in dark corners, make sure every bulb is working, and think about putting light in unexpected places — like closets and counter tops.

According to the survey, the average cost of lighting and brightening a home is $424, with an average value benefit of $1,690 — giving a 299% ROI.

“The devil is in the details.”
~Ludwig Mies van der Rohe (again)

#3 — Repair electrical & plumbing

Think about your ideal home — wouldn’t it be one where everything just… works? It probably wouldn’t be one where the hall light doesn’t turn on when you flip the switch, or where the kitchen faucet drips incessantly. While everyone has lived with a blown bulb for days before changing it, nobody goes out of their way to do so.

According to the survey, the average cost of electrical and plumbing repairs for a home is $808 with an average value benefit of $3,175 — giving a 293% ROI.

One chance to make a first impression

Ultimately, you want your home to feel perfect to buyers. When they walk in, you want them to feel that your home is not only a home they could live in, but a home they want to live in — a home where faucets don’t leak, closets are organized, lights always come on, keys are always where you put them, toilets don’t run — a home where life runs smoothly.