"How long can this crazy hot market last?"

If I had a dollar for every time I've heard that question in the last......

I don't know, 4 years at least.

It's certainly been a fair question, though.

Real estate prices have been appreciating since 2012 and in these last 4 years alone we've watched the median Bellingham home price increase from $430K in 2018 to $715K today.

That's about a 66% increase in 4 years.

If that pace of appreciation (or inflation, if you prefer that word) stayed consistent until 2030, the median Bellingham home will be priced at $1,970,254.Does 2030 seem impossibly far off?

It's the same span of time as thinking back to 2014, which (to me) seems like yesterday.

I'm not trying to shock anyone here, to be clear.

I'm writing because we mayyy (finally) be seeing something of a cooling trend.

With CPI inflation now at 8.5%, the Federal Reserve HAD TO take steps to get that back under control.

Hence: The increase in mortgage rates, recently hitting their highest level since 2008.

Let's dive into some of the changes we're seeing in buyer, seller, and pricing activity.

First, how do we track the market?

At BNP we have some regular metrics that we feel give us a general pulse on the Bellingham and greater Whatcom County markets.

It's basically a weekly look at housing supply and demand.

Q: How many Active listings are there currently, and how does that number compare to previous weeks, months, and year-over-year (YOY)?

Q: How many Pending sales are there currently, and how does that compare YOY?

Q: What's the absorption rate, or how quickly does available supply get bought?

Q: What are median prices doing?

Q: What about median days on market?

Q: And finally, what's the luxury market doing? (I set the "luxury" threshold somewhat arbitrarily at $1M and up.)

I track and log these data, and share them with the team on Tuesday mornings.

(I mean, can YOU think of a juicier report to read than weekly real estate data delivered before 7 a.m. on a Tuesday???)

I won't bore you with the entire data dump sent to the team, but let me drop some relevant tidbits:

Active single-family detached home listings in Bellingham:

Today: 67.

Actives on this date one year ago: 45.

So, although it's still incredibly lean, we've seen a year-over-year 49% increase in the number of Active listings in B'ham.

(County-wide Actives today vs one year ago: 267 vs 213, a ~25% increase.)

Pending percentage, or the number of homes listed that are under contract with buyers:

Today in Bellingham: 59%.Pending percentage one year ago: 72%.(County-wide today vs one year ago: 57% vs. 66%)

Absorption rate, meaning, again, how long would it take the entire supply of available inventory to sell off if nothing new came on the market?

Bellingham Today: 25.5 days.

Bellingham Last year: 22.1 days.(County today vs. one year ago: 35.6 days vs. 28.3 days)

Bellingham's Median price:

Today? $715,000

One year ago? $625,000.

Thus, we have seen 14.4% appreciation year-over-year for the 90-day period ending today.

Countywide median price today vs one year ago: $630K vs $515K)And about that $1M+ market...

Year-to-date sales in Bellingham over $1M:

Today: 44 sales, or 19.2% of the overall market.

Median time on market?

5 days.

Average sale price to list price? 111.59%Same criteria but going back one year:26 sales, or 14.3% of the overall market.

Median time on market? Same 5 days.

Average sale price to list price? 104.11%Remember my reference to how "2014 seemed like yesterday"?

In 2014, one of every 47 sales in Bellingham was at or above $1M.Today, it's about one in five.

Inside scoop: A South Hill home hit the market last week at $1.1M. Offers went as high as $1.8M. It's pending at $1.65M -- or 50% over list price.

What effect do interest rates have on the market?

In December 2020 a well-qulified borrower could lock a 30-year mortgage for about 2.65%.That means, if you were borrowing $500K, your monthly principal and interest payment would be about $2015.Today, that same borrower's interest rate would be about 5.75%.Therefore, your monthly principal and interest would be $2918.Historically 5.75% is still quite low.

Here's the chart going back about 50 years, with today on the far right.

Despite the graph or historical levels, a buyer still has to qualify.

And when your projected monthly payment increases by $10K or $12K a year, your income will have to be 2 to 3 multiples of that to keep you in the market at that same price range.

For some buyers, that's not the case.

he options, then, are for the buyer to adjust their price range downward and potentially expand their geographic search area......or to hit pause on the buying plans for now, and look for a rental (or renew an existing lease).To be clear, that is EXACTLY the intended effect the Federal Reserve has in mind when it raises rates, eases up on buying mortgage-backed securities, and seeks to calm down inflation.

And Yes, the very rapid doubling of interest rates puts even more pressure on an already very lean and expensive rental market.

To be clear, I'm not suggesting that the Fed is targeting the below-median-price buyers, or even real estate buyers specifically, but they are the ones who are pushed from the buyer pool to the renter pool more than those shopping in the move-up price ranges.

Hold on... let me give some context here

(Most of) the data above does point to a cooling market.But let's be clear: Cooling from what we've had does not equal "cold".

Far, far from it.

The whopping 67 current Active listings in Bellingham right now may be up from just 45 on this date last year, but keep in mind:On this date in 2020 there were 120.On this date in 2014 there were 332.

We have less than 1 month of inventory currently available.

A "buyer's market" is defined as having 6 months of inventory or more.

We are still very much seeing multiple offers and escalation over list price on well-prepared, well-priced listings.

Inside Scoop: The team at BNP just shared this info on a 2-bed 1-bath in the Core neighborhoods that went pending minutes ago. It had listed for $735K. It pended for $965K with 9 offers.

That case study notwithstanding, the overall number of offers across all listings has generally shown a tapering.

On average, where we may have seen 5 to 8 offers, we're now seeing 2 to 4.So yes, the market data indicates a slowing....The same way your speedometer indicates slowing when you've been doing 120 mph in a 55 zone, and now you've "slowed" to merely 100.

There is still that very significant issue of lack of new construction

It's no secret that Bellingham is growing, and it's not a result of locals having more kids.It is primarily a result of people who have previously lived elsewhere moving here.

Since they didn't have a house here to sell before buying one, which would balance supply and demand, the demand they create that didn't exist prior to their arrival puts pressure on the already-limited supply.How, then, is that supply ultimately handled?

New construction.

Only, there's this whole supply chain fiasco and labor shortage thing happening, maybe you've heard.According to this (sobering) report on Realtor.com:

Between 2015 and 2020, the average rate of household formation was 1.5 million households per year, while the average rate of home completion was 806,000 homes per year.

If building and household formations were to continue at this clip, the gap between these metrics would never close.If the rate of home completions doubled to an average rate of 1.6 million home completions per year, it would still take over 20 years to close the existing gap.

The rate of home completions would have to be three times the current rate (2.4 million homes completed per year) to keep up with demand and close the existing gap within 5 – 6 years.Knowing what you know about how easy it is to (afford to) build right now, what do you think the odds are of that tripling happening?

But aren't all offers "CASH" these days?

They must be, right?

Many are, but far from all.

In Bellingham, over the past 6 months, there have been 513 sales of houses and condos.1 of every 4 sales has been cash.

The 385 financed sales have closed for an average of $35K over list price.

The 128 cash sales have closed for an average of $55K over list price.

For sales over $1M, 50% have been cash.According to research by Attom Data, despite Bellingham's growth and apparent popularity with buyers, we are lagging the national average for % of cash sales.

Attom reports that nationwide 34.2% of sales in Q1 2022 have been cash.In some markets it's over 60%.Where is all this cash coming from?

Primarily from the sale of inflation-friendly assets that have done well in recent years, including stocks and other real estate.

Until the recent decline, the average Dow Jones return over the past 5 years has been 18.55%.An investment in Bitcoin 5 years ago, even in the face of its recent decline, would currently yield a 1430% return.

And Yes, a lot of people are selling their homes in more expensive markets and relocating to Bellingham.Our $715K median price may make our local eyes bug out of our heads......but in some markets, that's the annual landscape maintenance bill.

In Aspen, CO, the median price is $9.5M, up 82% in the past 2 years.

Inside Scoop: This humble abode, below, bends the Aspen pricing curve a bit. It is currently listed for $75,000,000.

Let's zoom out and hear from some economists

While there is general agreement about the factual data, i.e. interest rates rising, number of sales slightly tapering, and a dramatic tapering in the refinance market, what you will not find are economists predicting a loss of value or even price-flattening, but rather a tapering of the recent appreciation rates.

From National Association of Realtors Chief Economist Lawrence Yun:

"The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power," said Yun "Still, homes are selling rapidly, and home price gains remain in the double-digits."

With mortgage rates expected to rise further, Yun predicts transactions to contract by 10% this year, for home prices to readjust, and for gains to grow around 5%.Sources including Zillow and CoreLogic were cited in this article on Fortune.com, posted in April:

Over the coming year, CoreLogic predicts that home prices are set to decelerate to a 5% rate of growth. The Mortgage Bankers Association says home prices are poised to rise 4.8% over the coming 12 months, while Fannie Mae predicts home prices will rise 11.2% this year, and 4.2% in 2023.

And finally, Danielle Hale, Chief Economist for Realtor.com, shared this opinion:

“Affordability will increasingly be a challenge as interest rates and prices rise, but remote work may expand search areas and enable younger buyers to find their first homes sooner than they might have otherwise,” she said.

Hale predicts the price appreciation for existing homes will be 2.9 percent.

What does this all add up to?

For Buyers:

It's become wise again to think about your realistic timeline of ownership.

Whereas in the past few years you could buy a home, live there only a year, and sell it at a profit......our broader advice has been to plan on a 5-year hold if selling at a profit is a priority.

Inside Scoop: If you lock in a loan at today's 5.75% rate or above, be sure to watch for the sure-to-happen-again interest rate declines. When rates are +0.5% lower than your current rate, run the numbers for a refinance.

For Sellers:

No one has thus far predicted actual price declines... only tapering of appreciation.

But if selling within the next 12 months at a peak price has been on your to-do list, you may want to schedule an appointment with us sooner rather than later.

We only see the peak in the rearview mirror, and once buyers get a sense that they could get a better price next month if they just wait, the market slowdown tends to happen very quickly.

As of today, assuming it's in good condition, your home is as valuable as it's ever been.

Just sayin'.