Buying a starter home just a year ago for $500,000 was manageable for buyers, even for many first-time buyers when interest rates were at 2.8 percent. In fact, owning a home became more affordable than renting it.
Fast forward to today with rates hitting 8 percent for a 30-year fixed mortgage rate and that $500,000 home will now cost over $1,000 more per month. Consumers lulled themselves into believing that interest rates below 4 percent were an entitlement. First-time home buyers in their 20s and early 30s were spoiled by low rates so when they climbed above 5 percent, the buyer market received a shock wave and suddenly they knew almost overnight that many areas had shifted from a “seller’s market” to a “buyer’s market,” except prices did not decline so affordability suffered.
It’s important to remember that the average mortgage rate over the last 50 years is actually 7 percent, so the sky has not fallen and we are statistically back to normal for mortgage rates. If interest rates soared as a result of the Federal Reserve’s battle with inflation and crushed buyer’s ability to meet today’s prices, why are we not seeing real estate fall off a cliff in Whatcom County, Blaine and Birch Bay? Because we still do not have enough housing nationally, regionally and locally.
To add to that, to build a no-frills spec home on a postage-stamp-sized lot in Whatcom County typically costs more than $300 per square foot for a very basic home, meaning a 2,000-square-foot house will start around $600,000. Those costs have to be reflected in the price of a new home in order for the builders to stay in business. While inventories have more than doubled over the past few months, there are still only 600 homes available countywide when we actually need more than 1,200. We were running on a three-week supply of housing in the spring and now a three-month supply, but won’t have a balanced market until we have a six-month supply. Not having enough homes keeps prices high through the age-old economic rule of supply and demand. A key reason inventories are still lagging market needs is the fact that people are simply not moving as often. Who is going to sell their home with a 2.8 percent mortgage rate to move up or down to a 8 percent mortgage rate?
Fortunately, residential real estate is a truly unique market and we will weather a potential downturn better than most of the country. We check all of the boxes for people moving here predominantly from Seattle and California including lower housing prices than where they came, a fairly rural community compared to any large city, lower crime rates, temperate climate (no tornadoes, hurricanes, massive fires and punishing droughts) and amazing outdoor recreation opportunities. That, coupled with half of today’s office workers opting to live at the end of a fast internet connection, all makes Whatcom County a safe real estate investment.
Will we see 20 percent increases in value again this year? Absolutely not. But will our area double in value over 10 years as is the national average? In all likelihood, yes.
The most dynamic area for growth in Whatcom County will be north in areas like Blaine, Birch Bay and Ferndale, where hundreds of homes are being built and services will soon pop up to serve the growing population. We still can’t buy a pair of socks north of Bellingham, but that soon should change.
We are sitting in a great spot for real estate and if we simply have a flat year for prices through 2022 and 2023, we should be thrilled. If your home went up 50 percent or more in value over the past three to four years you can celebrate, but don’t cry in your beer if it does not do so this year or next … even if it pulls back 10 percent.
Mike Kent is a realtor with Windermere Real Estate. Every Saturday at 10 a.m., he hosts the weekly “Radio Real Estate” program on 790 KGMI
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