Residential growth: Home values rise as affordable housing options languish
As Tri-City home prices climb, so does their value.
In the last three years, Vicki Monteagudo, broker-owner at Century 21 Tri-Cities and NAI Tri-Cities, said she’s observed a 10.4 percent home appreciation rate.
“Some areas have hit double-digit appreciation in the last 12 months alone, especially in those more lower-end prices,” she said.
The Tri-Cities ranks No. 8 among the nation’s top 10 markets forecast to appreciate the most through June 2020, according to the latest projections from Veros Real Estate Solutions, a firm specializing in real estate valuation data.
But will that trend continue?
It’s doubtful, said Dave Shinabarger, president of the Tri-City Association of Realtors and a real estate agent with Smart Realtors.
“Will the market turn? When will it happen and will it happen? We don’t know,” he said, “but you can’t take a rubber band and stretch it as far as we have and not expect it to snap.
“We’re probably good through the summer of (2020), but if you’re considering selling your home, I wouldn’t be waiting another year, especially if you have a transitional plan like moving,” Shinabarger said.
Monteagudo sees the local real estate market losing some steam briefly in the second and third quarter of 2020 and then picking back up, which she says is normal every election cycle.
Low inventory has continued to drive up the prices of homes, with the average Tri-City home sale price in the first eight months of 2019 reaching $333,500. And the increases apply to new home construction, too.
“If a piece of dirt for just an average size lot, anywhere from 10,000 to 12,000 square feet, costs between $80,000 and $120,000, depending on where it’s located, a home that is $150,000 is almost impossible to do,” said Jeff Losey, executive director of Home Builders Association of Tri-Cities. “Anything less than $300,000 is difficult to do and when you do find it, they go fast.”
The average sale price for a 1,400- to 1,600-square-foot, one-level home with three bedrooms and two baths was $249,336 in 2018. In 2019, the home is worth $265,332, Shinabarger said.
That bodes well for sellers, not so much for buyers, he added.
The availability of affordable housing options for entry-level buyers is slim, he said. Three years ago, the cost of a starter home ranged between $150,000 to $200,000, but today it is between $225,000 and $300,000, Shinabarger said.
“That’s a considerable jump for an entry-level buyer or someone who can’t afford very much,” he said.
But the good news is that mortgage interest rates have remained relatively low, Monteagudo said, which makes the market more enticing and can lower the barrier for a slew of potential buyers.
Still, finding homes in an affordable price range continues to be challenging.
It’s also not uncommon for a home to have three or four offers within days of being listed, causing a bidding war that ultimately drives up the home’s value—as well as other homes in the neighborhood, Shinabarger said. Appraisers have to look at sales data and that can keep houses locked into a certain value until there’s a sale that breaks that ceiling, he said.
Sometimes buyers come from Seattle and pay in cash.
“West side money has more influence than people think,” he said. “I had a cash buyer offer $20,000 above asking price.”
But the housing market appears to be poised to change.
“We’re seeing inventory slowly creeping up,” Shinabarger said.
In 2018, the average number of active residential listings at any given time was 578; in the first eight months of 2019, the average was 505, according to Tri-City Association of Realtors data.
A healthy housing market for a community the Tri-Cities’ size should have at least 1,250 listings, Monteagudo said.
“We haven’t been at that level for years,” Losey said.
In 2017, the average time a home remained on the market was 20 days and the median was six. Those numbers haven’t changed since.
Losey knows the problem well, but he hasn’t seen any trends indicating the market is turning a corner any time soon.
“Lot and land availability and cost of labor are at the forefront of hindrances of getting more homes completed,” he said.
Homebuilders cannot keep up with the Tri-Cities’ population surge, an astonishing 6.3 percent growth in the last four years. “A lot of it is because we didn’t have new land platted fast enough for our builders to keep up with demand,” Monteagudo said. “It usually takes about two to four years for new land to be platted and ready to be built on.”
Monteagudo points to more home lots becoming available in coming months.
Westcliffe Heights in Richland is a master-planned community by Pahlisch Homes with 60 lots available for purchase. Another 155 lots will be released once the others sell and a pool and clubhouse will be built in 2020. The Reserve at Summerview Terrace is adding more than 60 lots in 2019, and Wild Canyon at Horn Rapids has two new phases bringing new lots for development in 2019.
In Richland, activity continues in Badger Mountain South, where there were 181 permits through July 2018 and 202 for the first half of 2019.
But the most significant growth so far is in Pasco, with the biggest concentration along Road 100 and Broadmoor Boulevard. Columbia Terrace off Chinook Court added 44 new lots in 2019. The city issued 77 percent more single-family home permits than its two city neighbors in the first eight months of 2019.
West Richland’s Sunset Heights will add 39 lots in 2019 and The Heights at Red Mountain Ranch will add 563 single-family residential lots on 148 acres with the option of later adding 226 multi-family homes on 36 more acres over the next 10 years.
Losey said there’s a lot of continued activity in the Southridge area in Kennewick along the Bob Olson Parkway.
For the first eight months of 2019, 1,109 single-family home permits were issued in Benton and Franklin counties, compared to 715 permits for the same period five years ago.
“At the end of the day it is the same issues plaguing the rest of the country,” Losey said.
He blames part of the problem on Washington’s Growth Management Act, a state law that requires state and local governments to manage Washington’s growth—which can drive up inflation for homes and make it harder to build.
“At some point there needs to be some relief. When homes are selling in days, that’s not healthy and it impacts housing affordability,” Losey said. “Every time you add $1,000 to a home, it just became unaffordable to someone. In the $200,000 range, there’s almost nothing to be had.”