Fallout Possible from NAR/Brokers Suit

A lawsuit naming a handful of large national brokerages and the National Association of Realtors® as defendants has possible class action potential. The suit alleges commission rigging among other things. Washington State was not involved nor were most states, our state has statutory regulation on negotiating commission in real estate.

As is typical lawyers will make a lot of money, plaintiffs will make very little and legislators will freak out and do something stupid. Locally here is the deal: Washington State law stipulates that real estate commissions are not fixed by law or other regulation and are freely negotiable between the brokerage and the seller. Furthermore the lawsuit alleges that seller's should not have to pay for the buyer's agent commission (they do not have to in Washington State but often do for various reasons that are beneficial). This on the surface may seem reasonable but one must first study the ugly history of real estate to understand why we list on the multiple listing service and how that has had a very positive consumer benefit.

100 years ago the notion of an organized system of sharing listings started to pick up in popularity, but it wasn't until the 1970s that the modern system really took off. Years ago before there was a truly organized multiple listing service (MLS). Brokers would offer to list a home and then employ their own salespeople to sell the listings. Sound familiar? Automobiles perhaps? Yes that is exactly how it worked, brokerages were like car lots trying to get buyers to buy what they had listed. Just like competing car dealers, things could get a bit testy and often sales people would deviate from good decorum to get the sale closed. There was no system to properly allow a broker from one agency to sell a listing listed by another agency so they basically tried to sell their own listings. Very few agents were interested in helping buyers, they wanted listings. Why? Because a listing would get them paid, a buyer might not unless they bought a listing from within the firm.

The modern multiple listing service allows agents to freely show any and all properties listed regardless of which brokerage has the property listed and the buyer's agent is assured of being paid whatever fee was negotiated for them by the seller and listing agent for services rendered. The advantage to the seller is that all of the area real estate agents are exposed to his/her listing rather than just a few at the office holding the listing. The MLS also allows smaller independent brokers to operate against the larger national companies. This suit if successful will likely help the big national companies rather than hurt them. Removing the traditional MLS system in favor of one that has buyers hire their own Realtor® at their own expense will plunge us back into the dark ages of shady horse traders and bad consumer experiences. Buyers are already strapped for cash to close deals they certainly don't have the money to pay for real estate services. So buyers will go directly to the listing agent who is of course morally and statutorily obligated to the SELLER, read: buyer beware.

Short of a few dirty rotten scoundrels, the real estate system employed throughout most of the country is rock solid and beneficial to ALL parties. Go after the few bad guys, lock them up, throw away the key and leave our perfectly fine system alone.

Vancouver Rental Surge Impacts Market

I have reported recently that the rental market in Portland has dropped dramatically. In fact the once red hot rental market in Portland has cooled to a healthy pace as tens of thousands of new units came online in that city. Now the typical rent for an apartment in Portland is LESS than similar rent in Vancouver. Portland median home prices are still 20-30% HIGHER than Vancouver, yet rents are lower.

Vancouver is also on an apartment building binge and thousands of new rental units are coming online here as well, with many more under construction or planned. Presumably this will soften the rental pricing here as well and that is a welcome change; or is it?

High rents makes owning more attractive. It isn't hard to sell someone on the idea of owning a 'real' house for $1700 a month versus renting a 3 bedroom apartment for the same. Honestly that's just too easy. When rents soften up, it is possible that demand for purchase housing will soften up with it.

There has been much reporting about the trends among millennials to rent rather than buy. Most of the data suggests that mobility is the primary concern. That is fine and well, sure most young people are not certain where they will end up. But the older half of the millennials are now in their 30s. They are settling in to that 'good' job. They are getting married and starting families. That is a stability inducing situation that lends itself to buying a home rather than renting.

Additional data shows that millennials are continuing the trend towards smaller family units having fewer children on average than any previous generation of Americans. Builders are still missing the mark locally producing large 3000 square foot homes with four or five bedrooms for a mass of upcoming families with one kid.

The market is desperate for classic "three 2s" and the builders are not delivering. This is why most of the market is a bit flat with very modest appreciation, but the bottom is still pretty hot with multiple offers on 40 year old 1400 square foot ramblers.

This is a great time to sell your classic ranch house and step up to that larger house or country property if that is your desire since the little rancher will get top dollar and the sellers of larger homes and rural acreage are softened up ready for a discount offer.

 

Unincorporated Growth Driving Need for Annexation

The Urban Growth Boundary (UGB) for Vancouver is being built out out a rapid pace. This is creating an ever increasing urban population in unincorporated areas. The level of services and infrastructure provided at the county level is rarely as solid as that at a municipal level, yet Vancouver is nearly HALF unincorporated and will likely be more than half in the next decade if the city and county don't pull their heads out of the dark and stinky.

UGB Map from City of Vancouver Website

This is not intended as a insult to the Clark County government but rather more of an urban planning and development issue. Right now Vancouver is made up of land spread across more than a dozen zip codes with roughly 325,000 residents. Of those only 57% live in the incorporated city of Vancouver. It is safe to say that 90% of those living outside the city limits are living in a mostly urbanized area. Sure there are several thousand living in the "country" out in Proebstel and north of Barberton, but the overwhelming majority are in underdeveloped URBAN unincorporated areas that for the most part, are not well planned out communities. This is unacceptable behavior at the government level both City and County.

The city of Vancouver is already the de facto second largest city in the state. If the city would complete the Orchards annexation that was supposed be done over a decade ago the city would be the actual in-fact second largest in the state. Why does this matter? Simply put, large cities are noticed by companies looking to expand, move their HQ, build factories, and create JOBS, good jobs, not just service sector jobs. More than 50,000 Clark County residents commute into Oregon (mostly to Portland) to work each day. I would venture a bet that NONE of them are happy about the drive, nor paying Oregon's egregiously abusive state income tax. It is too easy to bring jobs here, yet our leaders seem to be a bit uninterested. To the great credit of the the city and the last three Mayors, the downtown and waterfront renewal has been outstanding and there are not enough kudos to go round for it.

Vancouver has an excellent port, wonderful rail connections, substantial amounts of available industrial land, better schools (than Portland), better quality of life, lower cost of living, frankly it's better in every measurable metric than Portland. Yet there go those 50,000 plus residents driving across that crappy old bridge into the clutches of the Rose City. I blame our county and city leaders. They are failing us on this botched annexation schedule and on jobs.

We need not wait for the new bridge, in fact if we took half of those commuters off the bridges we wouldn't need to replace it anyway, other than the fact that it is old. Oregon is making a move to "punish" Vancouver and Clark County commuters by trying to toll I-5 and I-205. Originally they wanted to toll the area south of Portland, but a new movement targeting Clark County has arisen with a notion to toll the North Portland and NE Portland areas instead.

Clark County and in particular Vancouver needs to focus on attracting medium to large employers from Portland and Washington County and beyond the region. I'm referring to companies with skilled labor and professional positions that pay well. I'm not talking about little 50-100 employee ops although those are fine, we can attract bigger 500-1000 employee operations, we have the space, and their employees will be MUCH happier on the north shore of the mighty Columbia. Portland is not exactly business friendly. Getting noticed is a big part of the equation, the Waterfront has attracted attention for the better and now we need to annex those areas already served by Vancouver's city utilities and move from mid-size to large city without a single new resident moving in. It's not about more growth, it's about capitalizing on the growth we have already had. Vancouver is already a large city, the people are already here, the city just hasn't recognized them yet. 

Inflated Local Rents, Drive the Purchase Market

As we move into the spring season our local market is primed to out perform the national market due largely to our puffed up rental market. a recent article in the Columbian newspaper showed that average Vancouver, WA 2 bedroom apartment rents were on par with Seattle and noticeably higher than neighboring Portland, OR. What is odd about this factoid, is that both Portland and Seattle have significantly higher median home prices than Vancouver.

Renting in Portland is far less expensive than buying, but in Vancouver it is actually cheaper to BUY than rent and that is rather anomalous for this region. This may be a fleeting moment however as a massive construction boom is underway with more than 7,000 new apartment units scheduled to come online over the next 12-18 months in Vancouver. Portland had a massive construction boom as well bringing some 20,000 units online recently or in the near future.

Over the last 5 years national trends among the millennials was to rent rather than buy and in fact that generation of Americans has had the lowest rate of home ownership in the post war era. That trend seems to be reversing and new reports show millennials are jumping in to the real estate market at rates not seen before.

I still believe 2019 will have modest growth rather than the robust seller's market conditions of 2016 through mid 2018. All things considered, millennials have market making potential just in their shear numbers. They represent 80 million Americans and are now reaching there prime earning years, the next several years should bring reasonable housing demand, but builders need to get ready to change their direction. The trend locally in new construction has been aimed at retiring baby boomers with one level homes. Other builders are still focused on large expensive homes as well and data suggests millennial buyers are not interested in 5 bedroom houses. This younger segment is having fewer children and is driving a bit of an urbanism movement.

Millennials are interested in modern design, energy efficiency and good use of space. The market is healthy and remains mostly neutral with a slight advantage to sellers in the 120% of median an lower market. Sellers of more expensive homes are at a slight disadvantage. 

Late Winter Slows Showings

We have had some late winter weather that still persists and the constant threat of snow seems to have kept many away from touring listed properties. All of my listings saw a substantial fall off over the last two weeks beginning with the the snowy weather in the middle of last month. We shall see if the snowy and chilly weather is the real cause or whether their is some other more diabolical market condition developing. My gut is that the sketchy weather was the real culprit.

Tomorrow and the next several days will be chilly by March standard to be sure, but the great yellow orb will be blazing bright across the late winter sky. I think that will bring the masses out to house hunt.

I read an interesting article in the Columbian today that cited rents in our area (Vancouver) are at or very near the same level as Seattle for a typical two bedroom apartment. We are well ahead of Portland which averages $1300 to our $1650. Ouch! I didn't see that coming, or did I? Portland has been on a red hot apartment building binge adding more than 13,000 units in recent months. Vancouver is also on a bit of a building binge, but units in Vancouver have not all come online yet.

For resale real estate, this bodes well as high rents tend to chase people towards ownership. Why rent if you can own for less? I think this could lead to a bit of a buyer's resurgence as spring awakens. That will keep our housing market humming along for the rest of the year. Inventory is still technically tight, but levels have been increasing slowly over the last 8-12 months and soon there will be a more 'normal' level of inventory with market absorption rates coming in at 4-6 months. Nice and healthy.

Let's see if this sunshine filled weekend proves me right, or if I have to start worrying about the spring.