Buying a Home in Today's Market

Buying a Home in Today's Market

The following ia a transcript of the Grapevine radio show from Spring 2004. Andrew Holt interviewed local Realtor Joe Cooke of Windermere.

HOLT: Let's dive right in. Tell us what the housing market is like right now in the Walla Walla valley.

COOKE: Well, as many people know that have been out there in the market, either buying or selling, this is a pretty exciting time to be either a buyer or a seller. It's a hot market. Interest rates are low so it's good for purchasers - a lot of first time home buyers getting in - getting out of rentals and into their first home right now. It's good for sellers because inventory is fairly low. Now, it's not as low as it was during the winter, but inventory of available housing is still pretty low. And that means that it’s, in a lot of senses, a sellers market.

HOLT: Meaning that the houses are in demand, so…

COOKE: The demand right now is exceeding supply somewhat. I wouldn’t say that we’re in equilibrium.

HOLT: Okay, all right. And how long do you see this… put your genie hat on… how long do you see this hot market, this exciting time, continuing?

COOKE: Well last year was a record number of homes sold in Walla Walla… 800 homes plus sold in Walla Walla, which is absolutely extraordinary. Interest rates were at an all-time low. Now, if you’ve been watching interest rates at all, they’ve been creeping up a little bit lately. And the forecast for interest rates is that they will continue to rise. In fact the Fed is expected to raise the Federal interest rate in the fall, and that will probably push interest rates up on 30-year fixed mortgages up to about 7%. That’s the prediction. Of course, you know, that’s a prediction and nobody really knows. But that’s going to slow the market down, presumably. So the super hot market like we had last year is still sizzling, but I expect that there’s going to be some slowing this summer, but nothing that’s going to be extraordinarily slow.

HOLT: Now what type of people are buying homes these days? Is it a total broad variety, or do you see a certain type of person looking at homes?

COOKE: I see three really distinct segments. I hate to segment things in, but if I had to – you pushed me up against the wall – I’d say there’s the first time homebuyers. There’s a segment of the market say, below $100,000 homes. Maybe even I could put that into, say $70,000 - $100,000. Where there’s a lot of people that were renting that could now afford a mortgage payment that’s as low as their rent was. So that market is very hot. Sometimes a home will come on the market and sell the same day.

HOLT: Wow.

COOKE: And so, in that market those purchasers usually have a Realtor out there looking for them, specifically looking for their home. And we’re out there, and we see a new home come on the market – I tour on Tuesdays and Fridays, I think most people do, tour the new listings. And when we see a new home come on the market that’s well priced, we’re on the phone right then calling our people, and sometimes writing an offer that same day. So, that segment of the market is really hot.
There’s another segment of the market that is people moving up from a house they’ve been in for a long time. But maybe they bought a three-bedroom, two-bath house, but now they have five kids. And so they’re moving up. And with interest rates low they’re able to afford a much larger house than they originally bought. And they‘ve got a lot of equity in their house because home values have been increasing dramatically in the valley.

The third segment, then, are out-of-town people. The Bay area and Seattle – I just see a ton of people coming in from those two areas. The secret about Walla Walla is out. The people in the cities are reading articles. The Seattle Times last year had that wonderful article about Walla Walla. Sunset magazine had that great article. People are getting tired of – on the far west coast – the rain. It can really start getting to you after awhile. And they’re getting kind of tired of living close together in the city. They want a higher quality of life, and we have that here in Walla Walla. Walla Walla is unique, especially now with the wine industry coming in. You know, onions were great. And everyone knew about Walla Walla Onions. And Walla Walla actually has been well known for a long time. In fact, I was watching Sesame Street the other day and the letter of the day was W, and they mentioned Walla Walla. The reason I was watching is that I have little kids.

HOLT: I was going to ask. You read my mind!

COOKE: My morning program, instead of the news!

HOLT: Other people watch The Today Show, Joe Cooke watches Sesame Street.

COOKE: Hey, it’s pretty good, actually. I learn a lot of things on Sesame Street. So, the secret is out, though now, that Walla Walla is a great place to live. I mean, you look look out there today – wonderful weather, the balloon stampede, the wine industry. And look at the cultural events we’ve go going on. Right now Wa-Hi is putting on Romeo & Juliet, Walla Walla College Pirates of Penzance, we’ve got Little Shop of Horrors playing at the Community College, we’ve got Annie this summer, we’ve got a great production of Godspell coming in June. So, all the things that people that were living in the city, the things that they wanted there, they can find it here plus quality of life. So we’re seeing a huge influx of people coming from those areas. Now the thing there is that a home in Seattle, a small home in downtown Seattle, like a bungalow we might think of here, will sell for $300,000. And those people are used to making big mortgage payments. They might be Microsoft millionaires, people that have cashed in their stocks before they dropped. They’ve got quite a bit of money and they’re looking for very quality homes. They’re buying homes from $300,000 to a million dollars.

HOLT: Right here in the Walla Walla valley. They can get a tremendous home for those prices.

COOKE: A tremendous home in a beautiful city. And they’re not always even buying them to live in year round. It could be a second home. If you look this weekend, I know that Rick Voth is unveiling his new “creation”, I guess you’d have to call it, out there at Titus Creek - $1.4 million home. It’s absolutely gorgeous. And it’s right here in Walla Walla. It’s like a mansion. It’s a beautiful home.


HOLT: Before we went to break, you talked about the price of homes in the Walla Walla valley going up. Can you give us an idea of where they are right now, what the average price is right now, and where it’s been and where you think it’s going to go?

COOKE: Well, you know an average is an interesting number, because basically you take every home, including those $1.2 and $1.4 million homes, and just divide by the total. But what is interesting, I don’t know if you say my January article, maybe it was February, but I had mentioned in there that in 2003 the average home price had gone up to about $145,000. Before that, in 2002, it was $127,000 and in 1996, back in 1996, the average home price was $104,000. So, definitely, the trend is upward. Right now I’m looking at 308 homes in the Walla Walla area, Walla Walla County for sale, and the average price of those is $190,000.

HOLT: Wow, okay.

COOKE: So, it’s definitely… I think if you were just looking a straight statistic you would conclude that home prices are going up, but let me give you a more specific example. I was looking at a home that was listed for sale and I happened to go back and look at the last five times it had sold, purchased, whichever way you want to look at it – back to 1995, I think, so maybe nine years back. And it had originally gone on the market back in the mid-90’s at about $60,000. Then it had sold a couple of years later at $75,000, and then $95,000 and then $120,000 and now it was on the market at $140,000. That is an extraordinary growth rate in the price of a home. And I think what it speaks to… you know, as a home-seller, we love that, or as a homeowner, we love to see that equity building. But it’s kind of a double-edged sword because if you were to sell and move, every other home has gone up in relation to yours. So, we’re not really making that much progress as homeowners, except for the fact that we’ve got these out-of-town buyers coming in and buying our places that cashes us out or gives us that equity that we can then use for a bigger down payment. But it also, I think the scarier part for me is the whole concept of affordable housing. The people that live here, like you and me, people that have kind of day jobs, I guess you’d call it, firemen, policemen, teachers, are they going to be able to afford to buy a house in the next few years? And I don’t know the answer to that question.

HOLT: Okay, you’re just throwing that out. Okay, that’s interesting. Let’s get back to the first time homebuyer. I know so many people have told me that they have delayed their decision or delayed the effort to buy their first home because they feel that it is such an enormous process, you know, that it’s overwhelming. And then they go through it, and they think, “Wow, I wish we would have done this a lot earlier”. Talk about the home buying process and exactly what you go through, and that it is not as daunting as people think it is.

COOKE: It really isn’t. And I remember my first house that I bought. I was living in an apartment and I didn’t really have a clue even how to buy a house or if I...I didn’t think I could afford one or that I had enough credit. And I don’t remember what got me over the hump. But I do know now, here’s 20 years later and having been in real estate, that what I tell people is, the first step is find a lender. Go to your bank, or go to one of the mortgage brokers in town and connect up with somebody who is an expert in financing, especially first time homebuyer financing. And I recommend that people interview – don’t just go into the first loan officer you see and say set me up with a loan, but go in and ask them questions. Say, hey, I’m a first time homebuyer, maybe I have a couple of dings on my credit. What do you do? What kind of programs do you have? And interview a few people and find a good fit. And that would be step one. And get comfortable with the fact that you can purchase a home. And what the payments are going to be. And get to that comfort level. And that will also tell you what your maximum purchase price is going to be. And you might not want to buy up to the maximum, you might want to keep your monthly payment down in a comfortable range. But at least you’ll know that so when you go out looking... Some people want to go look at houses first, but you’re going to really like the ones that are out of your price range. We all do that, right? I love that one that Rick Voth has just built, for $1.4 million, but not much of a chance that I’ll ever be able to afford that. So go out and look after you have set up your financing. You’ll find that it’s a much more comfortable and fun process because you’ll have that unknown out of the way.

And then, the next thing I think, especially for a first time homebuyer, is hook up with an experienced Realtor. And again, interview Realtors. I highly recommend that people just don’t pick a Realtor at random. But rather, maybe choose three different Realtors. Ask your friends who they used and get some referrals. And then interview Realtors and find out who’s a good fit for you. And as a first time homebuyer, for instance, if you were to pick somebody at random you might get somebody who really deals in the higher end homes – half a million dollar homes is their specialty.

HOLT: Right

COOKE: Well that might not be a great fit for you. Or it might be. It just depends. But find somebody who’s really experienced, knows the market, and then get them working for you, and out there looking for a home that’s in your price range, in the parameters you’re looking for, the neighborhood you’re looking in. But I think that makes the process more fun, if you start with the financing.

HOLT: One of the things that has really come up in the arena for government throughout the Walla Walla Valley is the urban growth area and the urban growth boundary. And for people who aren’t familiar with that term, that is an area that the city can provide services to, utilities, but is not a part of the city proper, but it can be annexed into the city. And it has a lot to do with the development of houses. Is there a big demand right now, Joe, on government, be it College Place or be it Walla Walla, to either develop their urban growth areas, or to increase their urban growth boundary?

COOKE: That is a huge issue and every week it comes up in some form or fashion. In fact just this week there were some property owners trying to create some developable land outside of the urban growth boundary. What happened is, many states have adopted urban growth management acts. And the state of Washington back in the early 90’s adopted this, and Walla Walla County has opted into it. And it creates a line around the city that is bigger than the city. But the intent is to encourage development within that boundary first so that it makes it more efficient for the city to provide services: sewer, water, fire, police protection. And outside of that boundary, basically development is denied. So you’ll see, maybe, within the urban growth boundary - and it’s a strange line. If you ever want to see it you can go down to the county; they’ve got maps. We’ve got one at Windermere. I imagine the other real estate agencies have one too. But within that boundary you can develop land. And outside of that boundary, close-in, it’s usually a five acre minimum lot size, a little further out it’s ten, and then it goes to forty. And what that does is, it helps maintain the agricultural characteristics of this area. And that’s part of what we love about Walla Walla. I’m a strong supporter of urban grown management, having moved here from the city where you see urban sprawl The city of Vancouver, WA – there were developments everywhere. You’d have developments out in the middle of farmland, and it was a crazy thing. So, it’s a very good idea. The problem has come, I think, in that there are developable lands – lands that we have the ability to develop into city-size lots, let’s say, within the urban growth boundary – there’s quite a bit of that land available. But the people that own that land simply aren’t selling it, so they aren’t developing it. And what that’s done is it’s made land scarce, which drives up the price of a city lot. So, maybe a few years ago you could have bought a city lot for $20,000, and there were quite a few of them around. That same lot now might be as high as $45,000 and they’re very hard to find – terribly hard to find. The city of College Place, I heard one official there the other day say that they were basically out of buildable land. And they’ve been… that’s where you see a lot of the new development going is over there in College Place off B street and , of course , down in The Villages. But most of that land is taken up. And in the city of Walla Walla, there aren’t many city-sized lots left, at least not for sale. But there are some big plots of land; we just have to wait for those landowners to let go of those. But it’s driving the cost of housing up, because of the cost of land. The other thing that’s driving the cost of new housing up – lumber prices have gone up astronomically in the past year. Part of that is the war in Iraq – a lot of lumber being diverted there, there were big fires down in the San Diego area, and just general inflation. Although we don’t see it in the consumer sector, in some of the building products sectors, of course we’ve seen it in gasoline prices. For instance a sheet of waferboard, I think a few years ago a builder could buy it for $7.00. Now it’s something like $16.00 or, I even heard someone say the other day it was as high as $20.00 a sheet. So, if you figure most of your house is lumber… The finishing that goes into it: sinks, toilets, doorknobs, those are an insignificant cost compared with lumber, which is the trusses, the roof, the sheathing on the side and the flooring. So new housing is getting to be very expensive. And not only that, but you just can’t find a place to build it.

HOLT: We talked about first time homebuyers, but very interesting dynamics and statistics regarding folks who are remodeling their homes to sell them and upgrade their situation. Talk about that a little bit.

COOKE: It’s kind of interesting as homeowners when we go to sell our home, we often think that it is inadequate and we want to do things to it to fix it up. I did that with the last home I sold. A lot of the remodeling I did was because I was living there and didn’t plan to sell, but things change. But what we did with our last house is when we put it on the market, we did a lot of tidying up, and what I call staging. So we put bark dust out in the yard, which is very cheap. I think we spent $30 on bark dust. And we neatened up the lawn and, you know, painted inside where it needed it. And what I’ve discovered through my own personal experience, and then also studying the statistics is that a lot of times when you buy a home and you’re going to sell it again, the remodeling that you put into it, you don’t recoup those costs when you sell it. And a lot of people think oh, if I completely remodel my kitchen, my house will sell and I’ll get more money. But statistically, you only recoup about 80% of the costs of that remodel, whether it be a minor or major kitchen remodel. So a lot of those things that we think we should do as homeowners to remodel our house to make it more saleable will make it more saleable, but we won’t recoup the costs of it.

HOLT: Okay. So are you saying it’s worthwhile to do that or stay away from that?


COOKE: I think you have to look at it on a case by case basis. It’s another place where a homeowner could use some experience. You know, on average, we probably buy and sell five homes as an individual, during our lifetime. Five, maybe ten, if you move around a lot. As a Realtor, we see oh, hundreds of homes every year. And so we kind of have this databank of knowledge, and not all of it is statistical. Some of it falls in to that range of base knowledge, or you might call it intuition. But, statistically, there aren’t many remodeling projects where you recoup the full cost. Now, that being said, if you had a three bedroom, one-bath house and you were able to add a second bathroom, statistically that would increase the selling price of your house by about 24% or 25%. So there are some things you can do that will pay you back. But you always have to look at that on a case by case basis. Every piece of real property is unique.

HOLT: You mentioned earlier that development is a big issue with the UGA and the UGB, again the Urban Growth Boundary and the area within it that’s not incorporated in the city, the Urban Growth Area. But, the development that’s going on, what type of homes are being developed?

COOKE: I see a lot of bigger homes. A lot of them in the $300,000+ range. I do know that there are some builders right now who are… have the same concern I have about… for instance, the prison expansion is going to bring a lot of new people into town and it’d be nice to have some affordable housing for those people so they don’t have to rent. Because actually, there’s not much in the rental market either. I’m kind of worried about where all these people are going to live. So there are several developers out there right now that are planning three-bedroom, two bath homes in the 1500 sf range which puts them in what I would call affordable range. But even then, they’re going to be $150,000 to $180,000. Now, if you remember when Autumn Meadows first came on the market which was maybe eighteen months ago, or twelve months ago, those homes were $99,950, I think was the entry price on those. They’re reselling right now for $140,000 to $160,000. And we’re looking at those same kinds of homes going on the market now, what I would call the affordable housing, in the $170,000 range. So, although we’re trying to build affordable housing, it’s very difficult with the price of lumber and the price of land being high.

HOLT: Sure. And the fact that a lot of people want to move here and are willing to pay big bucks because of the quality of life.

COOKE: And interest rates are low so those mortgage payments are still in the affordable range, but I think we’re pushing the envelope. It’s got me a little bit nervous, although it seems to be working out fine right now. So, I’ve got my fingers crossed that everybody’s going to have a house to live in, a good place to live and an affordable payment.

Joe Cooke can be reached at (509) 520-1005 or via e-mail at joecooke@windermere.com. His web site is www.homesinwallawalla.com .