Residential growth: climbing costs hinder homebuyers
A competitive sellers’ market in the Tri-Cities is creating bidding wars and raising prices of not only resale homes, but also the price of lots for new construction.
Dave Retter, owner of Retter & Co. Sotheby’s International in Kennewick, said it’s not rare for a house to be listed at $190,000 and sell for $200,000 — ultimately raising the value of the home, if not the bank’s appraisal.
Buyers can easily become discouraged, Retter said.
“When the prices of houses have been rising so rapidly, if buyers don’t have cash to pay the difference, it can be very frustrating,” he said.
In a recent four-month span, the average number of days on the market for homes listed between $150,000 to $200,000 has been 12 days for Benton County and 19 days for Franklin County, Retter said.
But the homes will have multiple offers in days, sometimes in just a few hours.
“It’s not uncommon for a house within a day or two to have two to three offers. It can be very frustrating for buyers. They have to make up their mind rather quickly, and you can get beat out by other offers. They have to stay patient,” Retter said.
Jeff Smart, broker at Smart Realty and president of the Tri-City Association of Realtors has seen this, too.
“In some of the more attractive price points, we’re seeing multiple offers within hours of putting a house in market,” he said. “Sometimes the buyer will be waiting over a year or more. What’s tough is that as you wait to find a home you can afford, prices are going to keep rising.”
Retter said a normal market will see 3 percent to 5 percent appreciation annually, but the Tri-Cities is seeing closer to 10 percent appreciation. The average sale price for a home from January to August 2016 was $245,000, in 2017 it was $263,000 and this year it’s upward of $290,000.
Many real estate agents say it’s a simple case of supply and demand in action — a growth in population, with available inventory not keeping pace. And if previous years are any indication, the trend will continue.
From January to August 2017, there were 682 homes for sale; this year, that number grew only by two. In 2016, there were 18 more homes available.
From January to August 2018, there were 212 active new construction listings, which went up slightly from 160 new construction listings during the same period last year. The average sale price for a new home was $377,000 this year, which is $50,000 more than the average sale price last year of a new home.
Retter said a healthy housing market should have 1,200 homes for sale. In August, there were 27 new construction homes for sale priced under $300,000 and 170 for sale over that price.
For resale homes, there were 276 homes listed at more than $300,000, 189 homes below $300,000 and 42 listings under $200,000.
“I’ve been doing this for 39 years and by far this is the most interesting market we’ve had with some longevity,” Retter said. “It’s been consistently growing for going on three years now.”
“Values have gone up quite a bit, but especially in certain areas and in certain price points, we’re seeing double digit appreciation, which is unheard of for our market,” Smart said.
Smart routinely hosts first-time homebuyers’ classes where most people are looking for homes under $200,000.
“In that price point, in all five cities, totaled, there will be maybe 20 homes, meaning there aren’t enough homes to satisfy people in that class,” Smart said.
It would be easy to say that injecting the market with new construction would alleviate pressure from resale homes, but Smart and Retter said it’s not that easy, primarily because the cost of lot prices is also going up, not to mention the cost of building.
“The issue we have with new construction is not that there is scarcity of land, but the developable land is becoming harder to find within the cities; the location and land ends up controlling the price of the house,” Smart said.
“To get homes down to that price, south of $300,000 becomes more problematic. An ordinary home lot in a subdivision could sell for $60,000. Now you’re looking at anywhere from $75,000 to $90,000, just because there are not as many lots ready to be built on,” said Jeff Losey, executive director of the Home Builders Association of Tri-Cities, or HBA.
Data compiled by the HBA shows that 1,046 single-family residential building permits were issued through August 2018, compared to 972 in the same period last year.
“There’s a lot of activity in Badger Mountain and Badger Mountain South in Richland, and in Southridge in Kennewick, just on the back side of Thompson Hill,” Losey said.
Losey said one factor driving up prices for new construction is the cost of material and labor.
“When the market crashed in 2008, employees left the building industry and didn’t come back. Over the last few years there hasn’t been enough construction workers. You have to pay more to keep the ones you have, and the ones in the work force are working sun up to sun down,” Losey said.
Smart points to population growth and a steady job market. A July Kiplinger’s Personal Finance magazine named Richland one of the best places to retire and Smart says the magazine isn’t wrong.
He calls it the Goldilocks effect: retirees from Seattle are looking to buy real estate and live out their golden years.
Sequim is too wet. Phoenix and Scottsdale, Arizona, are too hot; Bend, Oregon, is too cold; many come to find that the Tri-Cities is just right.
“Here you can see all four seasons, you have all the wine you can drink, there is low cost of energy, it’s very attractive for them,” Smart said. He added that although prices have gone up, Tri-City real estate is still affordable compared to bigger metropolitan areas like Seattle.
“Everybody is waiting for the perfect time to buy the perfect house at the perfect price and they may not find it,” Smart warned.
Smart is hopeful the market will flatten out in the next few years.
“Things will level out a little bit with our appreciation rates, mainly because we’re going to see more homes come on the market,” Smart said. “I don’t think we’ll keep up the pace we’ve had in the last few years.”