Can Expensive Real estate be a Good Thing?

 From Retire to Washington blog last week...

Washington State is now famous for its expensive housing. Sure, states like California and Hawaii have significantly higher housing costs, but Washington is currently the 4th most expensive in the US. This can be a problem for retirees looking for a place to hang their hat. What if I told you, that higher housing prices can be beneficial?

Now this is an angle that only works in certain situations. But buying a house with 20% of you own money in an expensive market can lead to far greater wealth as the home values increase. Later in life that expensive house can provide a lump sum of cash or a lifetime of handsome cash flows whereas a cheaper house appreciating at the same rate cannot produce an equal equity gain over time. 

Say I buy a $500,000 house here in Vancouver USA with $100k down. Lets say over 20 years the house doubles in value which based on the last twenty including a HUGE correction in 2009-2012 is still conservative, I now have an asset valued at $1,000,000 with a debt load of $202,450. That is nearly $800,000 in equity and roughly $750k net if I sell the house. God forbid I need specialized elder care at this point, I can afford $5,500 (State Average) a month for more than 11 years!

Let's take a look at a cheaper state like say Mississippi. Now a nice house down near Gulfport can be had for $250,000. Run the same scenario out twenty years and you have a house worth $375,000. Why? Because Vancouver USA has more than double the rate of appreciation over the last 20 yeas than has Gulfport, MS. Now all fairness, the past doesn't alway mean the future will be the same. So we owe $101,225 and have an equity position of nearly $275k offer roughly $250k net after sale. Comparable elder care is about 25% less expensive in Mississippi. I will still run out of money in less than 6 years at the star average of $3,500 a month. Not only is there less money to pay for care, you are getting arguably less quality care since Washington is among the highest rated states for health care.

Many retirees plan on using the equity in their home to stabilize cash flows as retirement funds become diluted by inflation. A reverse mortgage is an option for some and so long as there is ample equity, the reverse mortgage can provide actual income. The more expensive house will generate a larger cash flow all else being equal.

Paying all cash for a property is not always the best idea. A reverse mortgage can sometimes be a better option providing cash based on a current value could protect the owner from downside market trends that occasionally occur. The reverse mortgage is designed as a long term investment for the bank with the short term protection of a large equity position. I am not pushing reverse mortgages here, but for some they can be a good tool especially in a high value area.

Last bit on the reverse mortgage, they are very rate sensitive. Higher interest rates reduce the amount of potential cashflow due to the higher loan service needed to cover the interest. Interest rates could rise in the next few years to levels that make the reverse mortgage unsustainable and thus unavailable.

So for buyers using a traditional mortgage to buy their retirement home, expensive states tend to be a barrier and Washington is among them obviously at #4 on the median housing cost list. But again if housing costs are rising equally the equity gained in a state like Washington is going to be far greater than that gain in a less expensive state. Some states with low housing prices have these low prices because the market doesn't appreciate as well as other states. In that scenario the cheaper house not only produces a lower gross equity gain it does so at a slower rate of gain. If you are going to stay in the house till the bitter end, this is not a problem. But what if you need to sell it to provide cash for elder care like the scenario above? You could end up on federal assistance rather than choosing your own care options.

Retirees should take time to work with a professional planner to see how their own situation lines up and where the best options are. Here in Washington we are plagued with high housing costs in most parts of the state, but we have no income tax, and reasonable property tax rates. We have excellent weather to suit nearly any preference. I said nearly, if you want that tropical island feel Florida is that way (pointing vigorously to the Southeast). 

When you decide Washington is the place for you, call me and I'll help you find the ideal house.

Rare Snowstorm Blankets the Coast

A typical winter at the beach results in little or no snowfall. Sure some flurries may fly when the chilly winter air dips down from Canada, but generally snow is a fleeting event on our typically mild coast. 2021 decided things would be different as the year went out with cold temps and sometimes heavy snowfall on the peninsula beaches.

My sister's home in Oysterville saw snow depths of more than four inches at times last week. Starting on Christmas Day and all the way through to the new year, storm after storm, system after system, brought snow rather than rain to the normally wet coast. 

The real oddity was having snow on the ground for a whole week. That is not strange for the inland locations this time of year but at the beach? Yeah definitely an unusual display and a wild way to end a wild year.

2022 started out a little more "normal" as temps jumped up into the mid 40s and buckets of rain replaced all that snow with good ole water puddles. The next few weeks should provide some excellent storm watching opportunities and as always be very careful; the Pacific Ocean will literally eat you if you are not cautious.

Storm watching is back!

We have had a fair bit of rain and wind over the last month and the coast is the best place to watch Mother Nature unleash her fury. Although the pandemic is still around, vaccinations and better treatments have allowed people to get out and about more often. But the hotels and B&Bs still have space for traveller looking to storm watch on the Peninsula.

Here are some tips about the best places to watch storms, taken from the Long Beach Peninsula Website:

• Waikiki Beach: 200 foot cliffs, giant waves, and the Cape Disappointment Lighthouse above make this a favorite spot for photographers. For a different perspective, head up to the Lewis & Clark Interpretive Center.
• Dismal Nitch: Lewis & Clark christened this area “Dismal Nitch” after a rather unpleasant night camping along its shore. Find this location on the Columbia, just east of the Astoria-Megler Bridge.
• Pickled Fish: The restaurant atop the Adrift Hotel is the only Peninsula restaurant that overlooks the ocean, making the perfect perch for storm-watching season.
• Willapa Bay: Watch miles of storm clouds hang heavy over the placid waters of the bay. Vistas stretch well into the Willapa Hills, offering expansive and exciting views of Pacific County.
• The Beach: Bundle up to feel the full force of the storm. It’s an invigorating and refreshing experience unlike any other. Beware of sneaker waves and tides.
• Stay with a View: If you prefer to stay indoors and watch in your pajamas, find oceanfront lodging and simply open the curtains.

The Reverse Mortgage looks Attractive Right Now

 Originally posted on "Retire to Washington" September 28th, 2021by Rod Sager

The Reverse Mortgage as a purchase tool in the current market is perhaps stronger than ever before. With rates under 3% possible and inflation at record levels, this product is a solid tool for any retiree with some cash on hand or large amounts of equity. Generally a younger retiree, say 65 years old will need at least half the purchase price in cash. Selling a home with a large amount of equity and downsizing can lead to a large down on the new house. Now the retiree can live in the house indefinitely without paying a mortgage payment. In some cases if the property was free an clear, the bank will pay a monthly payment to the homeowner indefinitely. The low interest rates make reverse mortgages an attractive alternative to more conventional financing methods. It is not for everyone, so borrowers should consult a trusted mortgage professional.

The premise is this: Borrower puts a large down payment or refinances a free and clear property. The older the borrower the more flexible the terms. Generally 50% down is a minimum requirement. The borrower makes no payments. The interest accrues as normal so every month a little bit more interest is applied as the loan balance grows. When the borrower leaves the residence, the bank collects the full amount of the balance. Typically this would be done by selling the house and paying off the mortgage with the proceeds. Any left over amount after closing would be returned to the borrower or to heirs. Retiring without a mortgage is a nice idea and some may not be able to buy a house completely free and clear. The reverse mortgage allows the borrower to have no payment and that can be rather reassuring especially in the hyper-inflation scenario we see brewing right now.

Cape Disappointment fails to Disappoint, again.

Cape Disappointment State Park is always a pleasure to visit. I recently visited the park and took the easy stroll up to the North Head Lighthouse. The Cape Disappointment Lighthouse on the Columbia River side is a longer hike, not really LONG though just a bit more than a stroll. Some nicely restored and  maintained buildings are in the area along with the lighthouse standing watch atop a high cliff.

Cape Disappointment State Park is rather beautiful with a diverse cross section of Washington terrain. The rugged windswept cliffs yield picturesque views similar to the Norther California coast line. Just a matter of yards in away from the sea lies lush fern gardens and classic Western Washington fauna. 

I love this state park and it offer more than just day trip opportunities. You can camp here as well and they  have a wide range of yurts, cabins, and even some houses available. Whether you live at the beach like my sister or just visit form the city like me, stop in to this excellent state park and enjoy another little treasure on the Peninsula. 

 

Long Beach Peninsula Prices Surge

Year over year housing prices have surged along the SW Washington coast. Although much of Washington State has seen low inventory and steep rises in median home prices, the Long Beach Peninsula has been much more aggressive. For years now, the beach has been a value proposition with prices well below the metropolitan inland areas of Portland-Vancouver and Seattle-Tacoma. The peninsula has also been a great value when compared against the northern Oregon coast communities of Astoria, Warrington, Seaside, and Canon Beach.

It stands to reason that the stars have aligned, so to speak; call it the COVID inventory crunch, but inventory has been tight and that is coinciding with the "discovery" of the great opportunity in Pacific County. The greatest real estate value op' on the West Coast has apparently been discovered, but it still remains a better value than places like the Oregon Coast.

Some may think that prices are being driven up by Californians moving in, and that may be partially true, but more than likely it is retiring people from the Puget Sound area and Portland-Vancouver. Prices in those regions are highly inflated and the coast looks too good to be true from their perspective.

As for those pesky Californians, you may be surprised to find that once out of the Central and Southern coastal areas, California real estate is actually cheaper than most of Western Washington. I wrote this article with data from the MLS and the National Association of Realtors® recently comparing Clark County, Washington (Vancouver) and King County, Washington (Seattle) against California. It is safe to say that 40% of Californians live in areas with LOWER home prices than Clark County and 70% of them live in areas with lower median home values than King County! 

Did you see that coming?

Here is the article from Rod's Real Estate News posted last Friday, click here.

Detached Condo at the Beach

This go round I'll take a look at a property listed locally on both the RMLS and NWMLS, by Anchor Real Estate. This is a small 630 square foot bungalow that is detached like a traditional home. It is however part of a gated condominium community that directly fronts the beach. The home has access to the beach via trails. 

This little house is a condo however, you own the space between the walls rather than the land and structure which is owned collectively by all the homeowners. There are ten total. This is a lovely little community.

The price is listed at $359,000 and is worth a look should you be looking for oceanfront property with minimal maintenance needs.

If you have any questions about this or any other property drop me a message or call at 360-737-4600