Jim Reppond and the Reppond Team, Coldwell Banker's number one team in Seattle, host this informative blog on Seattle Real Estate. Whether your a seasoned investor or a first time home buyer, Jim's vast knowledge of the Seattle Real Estate Market will captivate and educate.
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Jim Marks: Hello and welcome to the Seattle Real Estate Podcast. I am your host, Jim Marks of Virtual Results, and with me as usual I have Jim Reppond, Founder of the Reppond team; the number one producing Coldwell Banker Bain team in all of Seattle and the man we have come to call The Seattle Specialist. Jim, it's great to have you back.
Jim Reppond: It is nice to be back, Jim.
Jim Marks: Jim, the Seattle Real Estate Podcast is the perfect way for our listeners to stay on the pulse of the Seattle Real Estate market, and although we have those seasoned real estate buyers and investors listening, we also have that individual or couple that's looking to purchase their first home. Now, a lot has been said about the rise of Seattle Real Estate, and I know that these first time buyers are asking questions about whether or not there is a perfect property for them in Seattle and can they still afford to buy in Seattle. So, let's ask the Seattle Specialist, Jim, are there still affordable homes in Seattle?
Jim Reppond: Well, yes, there are Jim. I think anybody who has been looking for a while can tell you a story about how they should have bought a year ago or two years ago or five years ago, because prices have definitely gone up a bit, but as long as people's expectations are in line there are homes here that people can afford.
A lot of times what happens with first time buyers is that they realize they can't have the ultimate dream home that they're going to land in forever, but they can get a starter home and that their expectations are to stay there three to five years, then they can lower their thoughts about what they really need. They could get by with a smaller home. They might get by with a town home or a condo, because it's not a permanent end all end. So, for that reason a lot of places are still affordable, but you're not going to buy a top-end 3,000 square foot Victorian on Capitol Hill for low price anymore.
Jim Marks: Understood. So, is your advice to the first time home buyer get their foot in the market now and in that way they have got a place in this market and they can upgrade as they wish later?
Jim Reppond: Absolutely, this market is a strong market, it's not like a lot of the areas in the Unites States that have seen dips. We have a very strong economy here. We have a strong demand. Inventory is still kind of tight, there is more now though than there was a year ago by far. So, there are choices out there. There are fewer buyers, so there is less likely — it is less likely for you to get in a situation where you're going to get in a multiple offer situation. Still probably about 20-30% of the transactions are with two or more offers though.
So, it's still a very healthy market here and if you don't get it, and before interest rates continue to rise, it's going to be tougher and tougher. What that means is that you will just have to continue to probably lower your expectations about what you're able to buy as time moves on if you don't move soon.
Jim Marks: Understand, sounds like great advice. Let's put yourself in the first time home buyer shoes, if you were a first time home buyer in today's market, what are the type of properties you would look for, what areas, and how would you go about finding that perfect home?
Jim Reppond: That's a great question because it's going to depend a lot on individual buyer, it's a personal preference thing with many criteria around it. I would look at the fundamentals of what your situations are; about where you work, how far you need to commute, how far are you willing to commute. If it's a couple you need to sort of compromise as to where that might work. If one of you is over in Bellevue and one of you is in downtown, you're going to need to go either North or South at those places and both of you will have to commute a little bit.
So, that has a lot to do with it, but location should be one of the primary focuses of your decision because that will make the ultimate difference in the long run when you go to resell.
Jim Marks: Got you. Let's talk a little bit about the lending environment. This whole subprime lending debacle has really made the news. For those of us who are not quite sure what that's all about, can you explain what has happened and how it might affect the first time home buyer or any buyer for that matter?
Jim Reppond: Sure. The national news on this has gotten to be really at a hyperbole. It is so unlike of the Seattle market and that what you're really focusing on when you talk about subprime are properties that are sold, or I should say have mortgages with relatively distressed buyers.
Usually when we're talking about a zero down buyer who had really pushed themselves to the limit as to what their payments were and now they're in a position where they can't afford the rise in the interest rates and they're going to have to maybe foreclose.
Now, that is a really rare situation here. It could happen in a place like say Detroit or Miami or some place where they have seen depreciation in values, but see, anybody who has been here, Jim, in the market and owned a property for two or three years, they have seen their values go up 20-30%. So, even if they get into a situation where they cannot afford the higher payments they have an option of selling and getting their equity out and paying off the loan, they're not going to fall into the foreclosure status. So, it's really just not happening here really, to be honest.
Now, in the rest of the country it does make a huge difference. There are people that are foreclosing, and that subprime market is affecting how everyone gets their loans, but we're talking about a fraction of a fraction of the market. There is only a fraction of the loan borrowers who are subprime and of them there is only a fraction of them that are defaulting. But let's face it, the fear has taken on and it has really affected how lenders are going to be doing things.
So, the newest information that's out there is that now lenders are in a situation where they have a — they are using a term I think, lower tolerance for risk, to indicate that any loans that are nonconforming loans they're going to be charging substantially higher for, and that's true for a prime buyer or a subprime buyer. So, anybody that's not got a conforming loan, and that's any loan that the loan value is more than $417,000, that's what we call a jumble loan or any portion above that, they are going to end up being paying a higher premium.
So, net spread used to be a quarter to — an eight to a quarter percent and in the last 24-48 business hours, has gone up to over half a point, and that's going to probably continue to have a bigger spread.
So, what that means for the first time buyer is A. You really need to have some down payment money. Zero down loans are starting to become very scarce. Many of the top-end lenders, they're just not going to be offering them anymore, and a couple have already made that call.
It's also going to be tough for anybody that wants to get home equity loans or second mortgages. So, typically those zero down buyers are what we call 80/20 buyers, where they're getting an 80% loan and then a second loan for 20%. That 20% loan market has dried up. So, if you can put 5, 10, or 20% down you will do much better, and if you can keep your loan value under 417,000 you will do much better. So, 20% down loan on 417, Jim, you do the math, I think that's about 540,000, but you will be able to get a home for the 540,000 range and still be able to get the lowest rates out there. Those fixed rates are a heck of a lot better than it was just several years ago.
Jim Marks: Right, I understand that. With all the press about interest rates going up and some of the lenders themselves saying you need to lock in now, interest rates are going up, historically this is still a very, very low and attractive interest rate.
Now, for the first time home buyer, so what I hear you saying Jim is that the buyer that had his down payment and good credit two years ago is still a qualified buyer and they're not going to be ultimately negatively affected by all the news we're hearing.
Jim Reppond: Other than, they need to make sure that they are able to stay under that 417 amount or willing to pay a little higher interest rate, regardless of their credit.
Jim Marks: Fantastic. Jim, it has been a little while since our last podcast, what can you tell us about the Seattle Real Estate market today; things like current trends, how time and market is going, basically, how is your business?
Jim Reppond: Business is good. We had a little bit of a slow down right around the 4th of July. I think people were having just a little bit too much fun, and since then the market has taken off again. We have a lot of buyers and properties are moving, particularly in the downtown condo market, but anything in the city, in good neighborhood, that's priced right is going. Like I say, it's going with multiple offers. We have seen — in the last couple of weeks I have seen two or three properties between 6 and 15 offers each on them. So, that's still a pretty lively and warm market.
Jim Marks: Well, that wraps up this episode of the Seattle Real Estate Podcast. Jim, before we finish I would like to remind our subscribers that they can also influence the content of this podcast by submitting questions or suggestions for topics for The Real Estate Podcast to the Reppond Team blog at www.seattle-realestate.com. Jim, again, a very informative podcast, and thank you so much for your time.
Jim Reppond: Thank you Jim, and have a great day.
Jim Marks: This has been the Seattle Real Estate Podcast featuring Jim Reppond. Thanks for listening.
Total Duration: 10 Minutes