Living in the San Juan IslandsOrcas Island Real Estate MarketReal Estate August 25, 2021

WHAT HAPPENED TO THE SUPER HOT REAL ESTATE MARKET?

And Why Is Orcas Island Days On Market (DOM) Up 295.8%?

Some experts claim rapidly rising home prices are having a downward push on demand and, by extension, leading to the recent slowdown in sales activity. However, demand isn’t the real issue. According to the Wall Street Journal for new home construction:

“Homebuilders have sold more homes than they can build. Now they are limiting their sales in an effort to catch up.”

Danielle Hale, Chief Economist for realtor.com, also explains that the slowdown in sales was a supply challenge, not a lack of demand in the existing home market. She notes:

“. . . if these changing inventory dynamics continue, we could see a wave of real estate activity heading into the latter part of the year.”

San Juan County-wide, and here on Orcas, we continue to see extremely high demand for homes, just as seen nationally. Despite the number of home sales on Orcas Island, July over July dropping 45.8%, DOM is up significantly from 72 July last year to 285 this July, per-square-foot on Orcas Island, Area 901 has continued gains, up 8.8% from July 2020.

Reviewing the Northwest Multiple Listing Service (NWMLS) graph below for Area 901, you can see the number of homes for sale in July 2021 was down 89.7% from July 2020. This continued lack of supply prevents well-qualified and eager home buyers from completing their real estate goals to sold and is the driving force behind the lower number of closed sales. However, the buyers are here; we just need properties to sell them.

 

Gudgell Group Windermere Real Estate Orcas Island Realty San Juan Islands NWMLS July Homes and Land for Sale Trend Graph

If waning demand were the driver of this dip trend, we would see home prices beginning to moderate instead of the continued gains in median per-square-foot sold, illustrated in the below NWMLS bar graph. Mark Fleming, Chief Economist for First American, explains:

“There’s a lot of conversation around rising prices and falling quantity in the housing market, and there’s this concept, or this idea, that it’s a demand-side problem . . . . But, if demand were falling dramatically, we would actually see less price pressure, less home price growth.”

Gudgell Group Windermere Real Estate Orcas Island Realty San Juan Islands NWMLS July Per Square Foot Sold Trend GraphNationally we also see price appreciation accelerate throughout this year, as evidenced by the year-over-year percentage increases reported by CoreLogic:
*Note: July numbers are not yet available.

  • January: 10%
  • February: 10.4%
  • March: 11.3%
  • April: 13%
  • May: 15.4%
  • June: 17.2%

We continue to experience a historic shortage of listings, not buyers, and there are three solid reasons for homebuyers to reach for the dream of homeownership this year.

1. AFFORDABILITY ISN’T THE CHALLENGE SOME CLAIM IT TO BE

Though home prices have risen dramatically over the last 18 months, mortgage rates remain near historic lows. Because of these near-record rates, monthly mortgage payments are affordable for most buyers. For each mortgage rate percentage drop, it equates to 11% more buying power. [1]

While homes are less affordable than they were last year, when we adjust for inflation, we can see they’re also more affordable, as seen in the table below, than they were in the 1970s, 1980s, 1990s, and much of the 2000s.

Gudgell Group Windermere Real Estate Orcas Island Realty San Juan Islands Fannie Freddie Mac Mortgage Rate History Affordability

2. OWNING IS A BETTER LONG-TERM DECISION THAN RENTING

A recent ZILLOW study shows renting a home takes a higher percentage of household income than owning one. According to the analysis, here’s the percentage of income home buyers and renters should expect to pay now versus at the end of the year.

Gudgell Group Windermere Real Estate Orcas Island Realty San Juan Islands Zillow Renting versus Buying

While the principal and interest of a monthly mortgage payment remain the same over the loan’s lifetime, rents increase almost every year.

Gudgell Group Windermere Real Estate Orcas Island Realty San Juan Islands US Census History of Rent Increases3. OWNERS BUILD THEIR WEALTH. RENTERS BUILD THEIR LANDLORD’S WEALTH

Whether you’re a homeowner or an investor, real estate builds wealth through growing equity year-over-year. If you own, your household is gaining the benefit of that wealth accumulation. Fleming says:

The major financial advantage of homeownership is the accumulation of equity in the form of house price appreciation . . . . We have to take into account the fact that the shelter that you’re owning is an equity-generating or wealth-generating asset.”

Odeta Kushi, Deputy Chief Economist at First American, elaborates in a recent article:

“. . . once the home is purchased, appreciation helps build equity in the home, and becomes a benefit rather than a cost. When accounting for the appreciation benefit in our rent versus own analysis, it was cheaper to own in every one of the top 50 markets, including the two most expensive rental markets, San Francisco and San Jose, Calif.”

Today, that equity buildup is substantial. The National Association of Realtors(NAR) reports:

“The median sales price of single-family existing homes rose in 99% of measured metro areas in the second quarter of 2021 compared to one year ago, with double-digit price gains in 94% of markets.”

In 94% of markets, there was a greater than 10% increase in median price. That means if you bought a $400,000 home in one of those markets, your net worth increased by at least $40,000. If you rented, the landlord was the recipient of the wealth increase.

THE BOTTOM LINE

For many reasons, housing demand is still robust, and homeownership has real advantages over renting. What we need to bring the market back into balance is more supply, both new and existing homes and vacant land to meet demand. Whether you’re looking to buy or sell, let’s connect to discuss your options and why now is still an excellent time to make your move.

For a complete picture of the Orcas Island market and Matthew Gardner’s Q2 2021 Real Estate Report, click the below links to read the complete reports. And feel free to get in touch with us with questions, available options for homeownership, an overview of your property’s market value, or a more detailed and comprehensive, free no-obligation market analysis.

 

 

– Wally, Laura & Terri
The Wally Gudgell Group
Windermere Real Estate Orcas Island

 

>  AUGUST 2021 ORCAS ISLAND REAL ESTATE MARKET REPORT LINK

>  WESTERN WASHINGTON GARDNER REPORT Q2 + ORCAS ISLAND BREAKOUT LINK

 

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[1] https://mymortgageinsider.com/1-percent-rate-increase-11-percent-price-reduction/