If you’re looking to buy a house for under $300,000 in Bellingham, good luck.
Low inventory, rising prices and a lack of lots to build new homes have almost eliminated that price tier in the city.
It’s not just a Bellingham problem. Zillow recently came out with a study showing tight inventory in April across the U.S. is leading to home price appreciation that is rising faster than many anticipated, up 5 percent nationally compared to a year earlier.
18 Number of homes in Bellingham listed for under $300,000 in late May, according to Lylene Johnson of The Muljat Group.
71 Number of Bellingham homes listed for under $300,000 on the same day last year.
In the Bellingham metro area — which is basically Whatcom County — the rise is most dramatic in the middle tier of home purchases, traditionally in the $250,000 to $300,000 range. The median price for the middle third of homes on the market topped $300,000 for the first time in March and in April hit $303,400.
Homes in that middle tier locally appreciated 6.7 percent in April compared to April 2015.
The lowest priced tier increased 5.2 percent. The upper tier increased 6 percent, according to the report.
It turns out that the middle tier also has the lowest inventory levels locally, according to Zillow, which is an online site focused on real estate property. That partially explains the faster rise in home prices, said Lylene Johnson of The Muljat Group.
It also explains something she’s noticed this spring — the disappearance of the under-$300,000 home in Bellingham. On Saturday, May 21, Johnson discovered that Bellingham had only 18 homes listed for sale under $300,000. On the same Saturday a year ago, there were 71 such homes for sale.
This evaporation in the number of homes available for sale under $300,000 is extraordinary because of how fast it has happened, said Gragg Miller of Coldwell Banker Bain. One factor in play is the lack of construction for new homes inside the city limits. Bellingham has reached a point where a buildable lot is hard to find. Homebuilders that do find an empty lot pay quite a price for it, he said, upwards of $150,000 to $200,000. A contractor can’t make money building a home on that kind of lot by selling it for under $300,000.
“That makes the market not as competitive because there are no new homes in that price range to keep the used homes in check,” Miller said.
Ryan Wasserman is seeing first-hand the challenges of a low inventory market. Wasserman and his wife, Christine, own a starter home. They have two children and were hoping to find a bigger home with a yard. They’ve been looking for more than a year, finding places but getting outbid each time. One situation that he remembers well is a listing that went up at 10 a.m. They called Johnson, who is their agent, and scheduled a 3 p.m. showing. By the time they showed up, the house already had a full-price offer that was accepted. They put in a bid anyway with an escalating clause and still ended up third in the bidding.
“We’re still looking for a house but have low expectations in actually getting one,” said Wasserman, a professor at Western Washington University.
He said a big frustration is the added pressure of having everything ready all the time, whether it is the pre-approval for financing or having their current house ready to hit the market.
Despite the challenges, Wasserman sees something positive about this market, noting that the beauty of Bellingham is one reason there is such demand.
To Miller, who has been in the real estate business for more than 40 years, the current market has become abnormal, but not in the way it did 10 years ago when speculation and easy access to loans led to a real estate bubble that eventually burst. In a normal market the more home values rise, buyers would drop out as they get priced out. However, Seattle’s home values are even more extreme and in today’s world of telecommuting the number of buyers may not slow down, he said. According to the Zillow report, Seattle’s mid-tier index was $386,300, about $83,000 higher than Bellingham.
When it comes to price increases, it also hasn’t been as dramatic in the mid-tier level compared to the housing bubble. Between 2003 and 2007, the Zillow mid-tier price rose 64.4 percent from $174,000 to $286,000. From April 2011 to April 2016 the mid-tier price rose 22.8 percent.
Higher prices likely ahead
As home values rise, it could actually lead to further tightening of inventory. In a traditional market, some families will buy their first home, live in it for several years and build equity before moving into a more expensive home. With inventory low across all tiers, Miller said there are more people choosing to remodel rather than move up, leading to even fewer homes on the market. That will mean even higher prices for the homes that are left.
Despite the low inventory, new home construction isn’t picking up, further suggesting the lack of buildable space being an issue. In the first four months of 2016, permits were issued for 48 new homes, according to the City of Bellingham permit center. That’s on pace with the last few years, which each ended up with around 145 new home permits.
In 2004, with more buildable spots during a hot real estate market, permits were issued to build 316 homes in Bellingham.
For Wasserman, he may end up selling the family’s starter home because the market is so strong but may settle for something smaller and remodel. He said they will continue to look for a bigger place first.
So, what advice would he have for those looking to buy a home?
“Be prepared to move quickly (when something is available),” he said.