Five years ago, with the nation holding a teetering housing market, buying a new home was a gamble.
Now the Whatcom County real estate industry, at least outside of Bellingham, is showing positive signs.
Home sales in the county rose more than 12 percent during the first quarter of this year compared to 2011, according to an April report from Lylene Johnson, a real estate agent with the Muljat Group in Bellingham.
The increase has been led by surges in Ferndale and Lynden, while in Bellingham sales fell 11.3 percent.
Though more people are finding homes in the region, overall housing prices continue to fall. We asked Johnson about the uncertain future for home prices in the county and her insight into what buyers should keep in mind.
BBJ: Is it better to be a first-time buyer today or a homeowner looking to move up?
Johnson: It is always easier to buy if you don’t have to sell another house to do so. In a hot market it may be hard to find another if you sell yours. In a slow market, it may be hard to sell your house so you can buy another. A first-time buyer doesn’t have to work through that process.
To a certain degree, however, the answer to this question depends on when you bought your house.
If you bought prior to 2005 and didn’t take money out via a refinance, you should be in good shape. You have equity in your house and can afford to sell at current prices, so you are still able to move up.
On the other hand if you did take money out, or if you bought in the peak years of 2006 forward with less than a substantial down payment, you may very well have no equity in your home. That means you cannot count on it for the down payment on the next house, and you may be “underwater” or “short.”
That means a sale of your home will not generate enough money to pay off the loan and costs of sale. In that case, the only way you can move up is if you have extra funds to pay off your loan and make a downpayment on the next house or have sufficient funds to make a downpayment on the new home and qualify for the payments while renting out your old home.
The first-time buyer, on the other hand, does not have that deficit.
BBJ: Do you think home prices will swing back, or should we brace for more declines?
Johnson: I would hesitate to use the word “swing,” as it implies momentum, and while I see some good indicators for the future in the housing market, I think we will still see some price declines.
There are several reasons for this.
The move-up buyer has been a strong force in past markets, moving on average about every 7 years. We are now beginning the seventh year after the start of the boom. In the past, those buyers would now be coming into the market. Now, most of them can’t.
They have either lost their down payment, have to make up the deficit between their loan amount and their home value, or must go through a short sale or foreclosure. Any of these circumstances will preclude them buying another home in the near future.
Distressed homes will continue coming into the market. They are typically priced to sell, and non-distressed homes must compete with them.
Much of the price increase during the boom was fueled by buyers from more expensive areas coming to Whatcom County with lots of cash from their home sales elsewhere.
Our largest incoming markets were the Seattle area and California. Home owners in those areas now have the same problems we do, only at higher levels.
Possibly the most influential factor is that we are back to the days of responsible, rather than “fantasy” lending. That limits the pool of buyers, which means there is less competition for homes and less upward pressure on prices.
BBJ: Why are Whatcom County communities outside of Bellingham more attractive for home buyers right now?
Johnson: I don’t think that is true as a general statement. Bellingham is by far the largest market in Whatcom County.
The first quarter of this year it comprised 37.5 percent of the total single family residential housing market in Whatcom County. In 2009, it was 41 percent. During the first quarter of 2012, 142 homes sold in Bellingham; next was Ferndale with 66.
I think it is true in new and newer construction, and that is because there is more available at a lower price in Ferndale and to a lesser degree in Lynden.
Much of the reason for this can be traced back to land development during the boom years beginning around 2005. I remember at one point hearing that Ferndale had more than 800 new lots approved. Bellingham didn’t have anywhere near that number, and the lots available in Bellingham were much more expensive. The lots developed in Ferndale then are being built out now, while the lot inventory in Bellingham is tight – and still more expensive.
On the other hand, if one looks at the markets for smaller character homes or homes in neighborhoods with views of the water or waterfront, those are Bellingham dominated because Bellingham has more of them than any other place in the county.
BBJ: Is it usual to see sales increase outside of Bellingham when prices drop? What are the major trends you’ve noticed in recent years?
Johnson: No, it is actually more common to see sales in Bellingham increase as prices drop, because Bellingham becomes more affordable.
I think the difference this time is related to the relative availability of new and newer construction, which was built outside Bellingham during the boom due to more available land and lower land prices.
I discussed the trends with colleagues at The Muljat Group, and we came up with the following:
• Buyers are coming into the market with much more information, some of it accurate and some of it not.
• There is more regulation of the housing industry, from development standards to disclosure requirements.
• There is more interest among buyers in the possibility of raising their own food in an urban setting, whether vegetables, chickens or honey bees.
• There is less interest in “mega-homes” on acreage – or anywhere else. Boomers are looking for smaller homes, but with the quality finishes.
• If they are able, sellers are more willing to get their home in the best condition possible before putting it on the market.
• Changes in the lending industry have been dramatic, not just in qualification of buyers, but also in scrutiny of appraisals and home condition.
BBJ: How do real estate agents shift their sales strategies when the market slides?
Johnson: From the perspective of selling a property, different agents approach sales differently in both good times and bad. In general, they tend to look for more effective ways to do what they think works and cut those things that aren’t productive.
That could be shifting advertising from one venue to another, educating sellers to the importance of preparing their home for sale or changing how they spend their time or communicate with their clients.
It could also be developing stronger market knowledge and doing more counseling with their sellers about the reality of today’s market, or even becoming more, or less, selective in the properties they are willing to represent.
In our business, we have broken down the process a buyer goes through to buy a house, and then have developed methods of providing for that process in the marketing of every property we represent.
We are constantly looking for changes in the process and new approaches or technologies to tap into it.