The 2021 Pacific Northwest Real Estate Market: Boom-towns and Zoom-towns

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It started off as a joke for us:  “We should just go on vacation for a year until this whole thing blows over”... and yet the more we thought about it, the more it made sense. Why not change up our living situation? After all, our home used to be a base from where we’d go to work, social activities, vacations and restaurants.  Now it’s an office, a school, a playground for the little one, a movie theatre, a place where we eat all our meals, and simply a place where we were spending more and more time.

We needed space, a place to be near family, quieter working conditions, and a bigger kitchen.

Fast forward to a few months later, we were living in our favorite vacation city. Without realizing it, thousands of others had the same idea.  We moved smack in the middle of September 2020, unbeknownst to us the most competitive and strangest real estate month in decades. We helped many of our friends find new living situations and became a Redfin Partner

Turns out, lots of other people were/are thinking the same thing.  Big rents and big mortgages just don’t have the same utility when you can accomplish the same work anywhere. The higher the population of your city, the more lockdowns, the more risk. We packed up and went where our quality of life was better, and we were safer.

In a recent survey 83% of AirBNB’s employees reported that they would consider relocation, and the National Association of Realtors 2020 survey indicated that 40% of households are considering a move in 2021. 40% is over 4x more than the usual number of people relocating in a given year, so we’re making a prediction that this will be another wild year for buyers and sellers, and so is the Seattle PI.

According to USPS, 15.9 Million People Have Relocated Since the Beginning of the Pandemic *

Shifts in Urban Density are coming

It’s no secret that Seattle is pricey, and packed. Aside from being locked in by mountains and water, it’s not likely that Seattle will make many moves to increase density. Legislation has not been kind to folks wanting to add ADUs (Accessory Dwelling Units), DADUs (Detached..), Mother in Laws, or change their home configuration. Rules and Regulations add a staggering $200,000 to the cost to build each new home in Seattle. Compare that to Houston, Texas at $15,000 for regulations (and nice homes cost about $200k or less in total). Country living is starting to look more attractive to a lot of people.

Property taxes are high because we don’t have income tax in Washington, so cost (as a result of extremely high permitting, high property tax and high demand) are the single biggest factors pushing people out of the Seattle area. The high paying, active job market in Seattle is the single biggest factor bringing people in. Anchored by Boeing, Amazon, Microsoft and more, there was once a strong desire for workers to live within short commutes to these anchors, but the pandemic has accelerated adoption of remote working by a decade or more .

These two forces (cost, employment opportunity) balance each other, however data shows that there is a small decrease in the number of people moving to Seattle, however the low cost of loans and the need for a home to accommodate more tasks is a factor that’s keeping demand and interest high among people currently renting there. In short, people are cramped up, ready to buy, and there’s not enough for sale.

Economists predict an 18% increase in Seattle home values in 2021, with similar increase of values in Tacoma, Portland, and Bend.

Last year’s data YoY

Why are prices still climbing?

Despite a very rough year in every way we’re still seeing prices climb.  Why is that?

  • Currently there are more willing and able buyers than available houses. Supply and demand is at play; demand is exceeding supply and thus prices are climbing. Incidentally demand is decreasing for rentals all over the country
  • Cashed up tech workers from San Fran and Seattle are bailing from their $5K a month apartment and instead buying a home with a $2500 mortgage payment in Bend or Portland.
  • Parents are working from home and kids taking classes online from home, families need/want larger homes. Open concept is not as popular as it once was.  People are looking for big common spaces, and smaller private working and learning areas.
  • Interest rates are low, which always has an upward effect on prices.  Borrowing at todays rates is very attractive, at the current average home price, a single percentage of interest would cost the average homeowner $800/month.
  • Debt-to-income ratios set up by the FHA are allowing lenders to give people more money in relation to their salaries.
  • Many many companies are moving to fully remote: so highly paid workers that can stay remote are relocating to Oregon, Tacoma, Bend, Vashon and other comparatively cheap, commutable locales with more room to breathe.
  • Many parents are helping their kids buy homes.  Their long view of the market tells them that things could get much worse for buyers in the near future, and their equity positions are allowing them to do so.
  • Tech stocks are booming. Many people are cashing out, making huge gains and buying a house with the proceeds. A record number of people are buying Portland homes with cash, and about 24% of Seattle homes are all-cash purchases, compared with about 16% nationally.
  • After a year of spending far less than usual on travel and entertainment, folks are instead redirecting that money into buying the nicest home they can afford.

More people are buying or selling completely socially distanced

How are brokers adapting?

In 2021 we’ll see lots of brokers and Realtors offering value-adds, like repairs that complete before the sale and pay for after the sale (from proceeds), free staging, more competitive pricing, and and overall extra add-ons to win your business.

Cloud based brokerages will become more prevalent, as customers see less need to go into an office, and brokers are covering larger areas.  Now that e-signing is accepted in all 50 states and more government agencies have adapted it, we will see almost no in-person signing except for the few government mandated signatures at closing.

Brokers also have a harder time meeting buyers and sellers, so you’ll find an increase in touch points, be it emails, texts, or follow up on web forms that you fill out. Brokers will be working harder to find buyers, and following up with them more.

We are also experiencing changes in rules and procedures nearly every week.  Being flexible is part of everyday life for brokers and clients.

Buying season is now year-round

Traditional Real Estate knowledge has dictated (over the last few decades) that if you wanted to sell your home, you should do so in Summer, or in January, as those were the most active months.  However, the severe limits on inventory, as well as the fact that people are at home, looking at the internet and feeling the effects of quarantining and staying home, the concept of a “buying season” has all but vanished.

What are buyers looking for?

  • Kitchens.  Now that we’re eating at home more, kitchens sell homes more than ever. It’s always been a huge selling factor
  • Spa bathrooms.  We’re all looking for luxury anywhere we can find it.
  • Home offices.  Good backgrounds, quiet spaces, less emphasis on “open concept”.
  • ADUs.  We all have family that we want to keep closer, aging parents who are getting taxed out of their markets, or want to come help with home-schooling.  ADU properties will continue to fetch a premium.
  • Access to running trails.  So many folks have given up the gym for outdoor workouts.
  • Luxury pantries. The Joanna Gaines effect.  10 months of scrolling beautiful home ideas has left us with a hankering for organizing all that food we’ve been panic buying.
  • Bio-phillic designs, home gardens, solariums, nature spaces and areas of outdoor solitude are easy and popular value-adds.
  • Smart Home Features are gaining popularity as energy efficiency gains, security, and convenience are helping folks, and as these technologies get better.

The future of remote work and how it affects the real estate market

  • Locality pay: We might see tech companies paying income adjustments to workers working in Low-Cost-of-Living cities. The ability of a worker to work in the Bay Area and live in Montana on a Bay Area salary might soon disappear. Folks are anxious to buy before potential employment changes.
  • Global Workplace Analytics reports that companies save $11,000 / year in office space related costs for each employee that works remotely. We will see increased adoption of remote work, even if the Big City Job and Small Town House combination goes away.
  • The suburbs and vacation towns will level their prices with central areas. Proximity is no longer as much of a factor.
  • Even companies that are going back to partial in-person work are diversifying their location, as in this lease of 85,000 Sqft  in Hillsboro by Microsoft

See more: https://review42.com/remote-work-statistics/

What’s new in Lending

As you might have guessed, lenders are looking to minimize their risk in an unstable time.  Lenders are now asking for 680 credit score minimums (It was 640 earlier this year), as well as 6-12 month reserves on Jumbo loans (anything over the local FHA max)

Foreclosures are down 80% over this time last year last year , down 14% from last month.  Eviction moratoriums, government help for small landlords, and government mandated arbitration for foreclosures mean that more people will have more opportunity to stay in their homes.

Fannie Mae is also now offering a great program called the Family Opportunity Mortgage, which allows you to purchase a home for a family member using your own financials.  When folks move away from the big city, it’s often cheaper to move aging family into a cheaper suburb rather than assisted living situations.

Trends for buyers to look out for in 2021

  • Vacation towns or “Zoom towns” are seeing unprecedented offer levels. If you want to move to the beach or to a ski town, set your price 100k under your max budget.  Towns like Sunriver are all the rage right now. 12 Oregon homes escalated 200k over asking this year, with the biggest escalation being 750k!
  • Wood is getting harder to source, and as such new construction prices are going up, as well as the cost of renovating your own home. Expect big delays and backlogs if you are planning any home improvement.
  • Similarly, skilled tradespeople are more in demand.  If you need any kind of roofing, electrical, plumbing, concrete, etc, expect to wait, and expect to pay handsomely.
  • Smaller cities like Tulsa are offering people up to $10,000 to move there and work remotely.  There’s a lot of options for folks who need to make a change. We also love browsing the cheap European property websites to daydream.  Lots of locales that have seen a drop in population are making it worth people’s while to move there.
  • With constantly changing direction and regulation from local government, you must be very flexible.  Sellers might pull their home off the market for a while, open houses might be cancelled without notice, and showings may require different paperwork or different preparation in various markets.  Be prepared to change plans without much notice.
  • County recorders are heavily backlogged, and in the past buyers typically take possession of their homes the day of closing.  In 2021, you might have to wait several days after closing to get your keys.

Adapting to the new normal

A lot of the things that we thought would be short-term stop gap measures, or temporary trends have become the new normal.  Viewing properties remotely over FaceTime or Skype (and sometimes buying them sight-unseen) is becoming more common.  In addition to helping buyers get offers in faster, it’s also a way that a long-distance move can be coordinated without unnecessary air travel.

Getting your home listed without ever meeting a broker in person (just Zoom or Skype meetings) is something that is relatively easy to do now that we’ve all had experience making this happen over the last 10 months. Sure, people will still have to come into the house for showings, staging, photography, etc, but we can do a lot over video chat, and with appointment requirements handled by ShowingTime, a software package that all brokers use to avoid concurrent showings.

Buy now or buy later?

If we had made a prediction one year ago today of what the market would look like now, we wouldn’t have had any idea what this year had in store for us.  Similarly, we have no way of knowing what next year will look like, however we do know that there are still a lot of people looking to change up their location.

Right now it’s looking like mortgage prices will stay low (according to the Federal Reserve).  That’s good news for everyone, but it also means you probably don’t have to rush into anything, at least from the mortgage perspective.

Folks who’ve lost their jobs can apply for a one year forbearance of payments, so we’re not likely to see a rush of new properties hit the market, similarly landlords are looking at government assistance for non-paying tenants, so we’re not likely to see many income properties hit the market.

Stiff competition means that it might take you months just to find something acceptable in the current market, so we always suggest setting the expectation of looking for at least 6 months. Multiple offers and cash offers are still dominating the most desirable properties all over the Pacific Northwest. Californians with deep pockets look to move to the Pacific Northwest to escape taxes, high cost of living and let their dollar go further and have a lot of sway, but patience and an eye for the potential of a property will always win out.

In a market with fewer options, we recommend taking more time to distinguish between wants and needs, and embracing more possibilities.

More equality in home ownership and Real Estate Careers

We’re also excited to see a long overdue trend on behalf of many brokerages, lenders, and regulatory bodies to increase diversity across home ownership and in real estate careers.

Things we expect to see in 2021

  • Increased training for Appraisers, Brokers, Inspectors and Lenders in bias and equity.
  • Government programs to increase access to diversity and equity in home-ownership.
  • More representation in Real Estate careers. If you’re looking to get started on a career, we can advise you.

We’re excited to see what this year brings.  As always, if you want to know more let’s have a cup of coffee (over video chat) and talk more.

Resources for homeowners negatively affected by Coronavirus

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