In the Wenatchee Real Estate market, you have to be careful about too many statistics.  I actually took a statistics class or two back at UW many years ago, and we learned about something called sample size.  Basically, if you don't have a lot of  pieces to measure and slice and dice, it is hard to come up with statistics that mean anything.  In Seattle, you can study trends; in Wenatchee, one good weekend of home sales can skew the numbers.  It is best to look at the overall picture to see what is happening in Wenatchee Real Estate.

In Wenatchee, we have two markets, the locals and the Doctors/retirees/second home market.  People retiring from Puget Sound and moving to the sunshine have more money to spend and buy/build nicer more expensive homes.  People who work in the fruit industry or as medical staff etc are not usually buying those homes, they are buying something more in line with their income. 

Short term, we have an oversupply in certain market segments, but this is correcting itself as builders are not starting new spec homes to add to the supply. The over supply is really above the $350K price level; at prices below this, there is generally only a 5-7 month inventory.   So the over supply is in the more expensive homes, that may be painful if you are trying to sell one of these today, but long-term, these more expensive homes are where the demand will be.

The reason the demand will be there is the same demographic story: as baby boomers in the Puget Sound area retire, they start to notice that there are only 58 clear days a year in Seattle. And with their new found free time they visit the Wenatchee, Leavenworth, Chelan, or Winthrop areas and discover open spaces, no traffic, small town atmosphere, and a glowing orb in the sky that makes everything look pretty and feels warm.  A certain percentage of these people will decide to move here.

Currently, we are slowed down a bit as these Seattlites and Eastsiders are having trouble selling their homes, however, the Puget Sound economy doesn't get hit as hard as the rest of the country in times of downturn, because someone has to build those 787 jets that the Arabs can afford to buy, and Microsoft continues to be the 9th largest country in the world.

So I expect we will see some slowness continue this year as people are a little shell shocked with the recent inflation. By next year the price of flying will be outrageous, and a weekend trip to Chelan will make more sense than a vacation in California, and the migration from rain to sunshine will renew.

One of the things I love about my job is that I have to inspect home construction projects every month throughout North Central Washington, which allows me time to enjoy the beauty and wildlife of our area. I recently made my monthly trip up to Winthrop and Mazama in the Methow Valley, and (I apologize to our Puget Sound area readers), it was nothing like my old commute on 405 and I-5 in my past life.

For those that want to escape the rat race and can tele-commute, you ought to check out the Methow or other parts of Okanogan County.  I have been financing several lot and land purchases in the area, and there are a lot of choices from small lots in the pines to sprawling large meadows.  This isn't Detroit, so don't expect giveaway prices; but spend a couple days up here breathing in the fresh air surrounded by the stillness, and ask yourself what peace is worth.  No lot at any price in suburbia can give you that.  

The real sale comes Monday morning when you are back in traffic at home after spending a weekend in the Methow Valley, when you ask yourself all kinds of questions about what really happens if I win the rat-race anyway?  Just make sure you keep your Realtors card with you so you can call back and make that offer on your own piece of paradise.

I look forward to meeting you when I come up and inspect your new cabin construction project.

I wrote last time that this was a great year for building your own home, and I have had lots of requests for financing. One thing I want to point out to people,  is that at this point in time, if you want someone to finance you as an owner builder,  you will need some equity in your land or have some cash. This is a t least true in my market of Eastern Washington. 

In the past, some lenders would finance 100% of your entire land acquisition and construction, but those programs are gone, and you should plan on having 10-20% down payment. The way to figure this is figure how much you need to borrow (estimated cost of construction plus any loan payoff on your land. This is your maximum loan amount.  Divide this by the value of what you are building (cost of construction plus the current value of your land (not what the County  taxes you on).

 For example you bought some land 2 years ago and paid $60,000. It is now worth $110,000. Lets say you still owe $40,000 on this.  Now suppose you want to build a house for $250,000 in building costs.  If you don't want to put any cash in, then you want to borrow the $40,000 to pay-off the lot, plus the $250,000 to build the house. Your loan amount is $290,000.  The value of what you are building uses the current lot value of $110,000 plus the $250,000 in construction, or $ 360,000. We would confirm this number with an appraiser.  So your loan to value is $290,000 divided by $360,000 which my calculator shows to be just over 80%. So a 90% loan program would allow you to add your closing costs and finance everything-because you are using your lot equity as your down payment.  For an 80% program, you would need to bring in a few dollars to get your loan amount below 80%,  plus you would pay your closing costs out-of-pocket. 

People who bought just about any land in Wenatchee, Chelan, Leavenworth, the Methow Valley or Okanogan County 2 or more years ago likely have built up enough equity to build, because our land prices went up and haven't come down.

If you are looking for financing to be your own builder, and you are calling around to various lenders, here is atip to save some time: Instead of telling them about the land or the amount you wantto borrow, or even how long you have been a customer of their bank, just ask, "Do you do Owner-Builder" financing. You will soon find that there aren't many players left in the game.

2008 seems to be a great year to build your own home in the Wenatchee area. I have seen a large increase in the number of clients requesting owner-builder mortgages.  Some bought land a few years ago and others are buying their lots now.  It looks like people will save some money building their homes this year versus 2007. The reason for this is that every subcontractor and supplier was scrambling last year to keep up with all the projects from their regular builders; this year, fewer builders are starting new speculative projects, which means the subs are a little hungrier and are more reasonable on their pricing.

Financing owner-builder projects is one of the most rewarding things I can do; I love to see someone build a house and gain a bunch of equity from their efforts.  The key to this is good planning and organization. Without good planning, an owner-builder project can be costly.

Not everyone who builds their own home lifts a hammer; some do, but many just organize the subcontractors.  As you price out all the work tasks of your home, sometimes you will find that a good sub with a professional, fast-working crew can often do a task for less than you can do it for yourself.

If you are considering being your own general contractor, I have a few tips: I should first qualify that I am only speaking from the experience of financing these owner-builder projects in my market areas; greater Wenatchee, Leavenworth, Suncadia, Okanogan County, and Lake Chelan; things may be different in Western Washington or other areas.  I work for a smaller community bank, so for these loans, I am very familiar with the details as I not only did the upfront analysis, I did the individual monthly inspections and draws, so I have seen the downstream impacts of little mistakes on the front-end.

If you have never built a home before, I would suggest hiring a consultant to help you manage the project. Some licensed General contractors will simply do this for a fee, or you can hire one to do your main framing and finish carpentry. By doing this, you have someone to help you look at the overall project.  One advantage of this is that they can recommend reliable subcontractors who will show up on time; many owner -builder projects have been delayed just waiting for a plumber, etc.

Looking at it from the subcontractor's side; if they were planning to come to your jobsite today, but one of their regular builders, who will give them 4-5 jobs this year, calls and asks them to come out to one of their projects, where do you think the sub is going to go?

Also, when a sub, say an electrician, is writing up your bid, he doesn't know how well your project is going too be managed; you may call him out to do the rough wiring before the roof is dried-in.  He is not allowed to proceed, so he has to leave and come back another day. He has to factor in these unknowns about your management into his bid.  If a professional is either building your house, or acting as your consultant, that electrician will likely give you a lower bid as he knows he won't have to make extra trips to your jobsite.

The things we need to see for an owner-builder project are 1)  a cost breakdown of all major components of the home (foundation, framing, siding, plumbing, etc) with each item backed up by a bid from a licensed subcontractor. 2) A materials list that tells us what you are using, (what type of floors, roofing material, siding, etc) and 3) a set of plans.

If you don't have a consultant helping you, the biggest piece of advice is to not rush the planning; ask the subs lots of questions. Does the concrete bid include the rebar and concrete, pump truck, and finishing? For the plumbing bid, does it include the actual fixtures, or just the labor?  Ask lots of questions, get good bids and have some contingency for those unknowns and you should be alright. 

One last tip for those who have built a home in the past; almost every owner-builder project that I have seen run over budget has been someone who has built a home in the past, and they proceeded quickly assuming they knew how to do it. Inevitably, they forgot the fire-sprinklers, or they priced a generic floor tile without examining it closely; when they switched to what they really wanted, it was another $4,000 , etc.  So the point is, even if you have done this before, take the time to plan.

Lastly, have your lender go through all your bids with you to make sure you haven't overlooked anything.  With all the details in place, you should have a great project.

This weekend is the 5th Annual NCHBA Home Show in Wenatchee. NCHBA is the North Central Homebuilders Association; so the show is all about construction, remodeling ideas, doors, flooring, decks , windows etc.  And of course I am there to help people finance their construction or remodel project. There are no pots and pans or ginsu knives.  I have participated in all 5 and I like the fact that it is construction focused and that there is an admission charge.  As a vendor, the price of admission keeps it from being overrun with people who are just bored on a weekend, so the people coming through are really serious. This allows us to engage in meaningful conversations with people at our booth as we are not distracted handing out flyers to people who don't want them.

The other nice thing about this show is that 99% of the vendors are from the local area and do business in the local area; these are not people who fly into town to sell a product and then leave.  At the website you can get all the times, a list of vendors, and print a $1 off coupon.  You'll also find a list of the practical Do-It -Yourself demos that will be presented.  If you bring your kids along, they can build a wooden project in the KidZone manned by our local Lowes store.

So come on by, walk around slowly and talk; we are Eastern Washington folks, and were not in a hurry. Tell us about your project and well get you hooked up with the right people to help you out.

Lot and land sales at Lake Chelan seem to be brisk right now; as I am getting inquiries every week from people wanting to finance a building lot or some land. Most people have not financed land before so I hope to remove some confusion with a little explanation.  This would also apply to people financing Leavenworth land or a building lot in Wenatchee.

The first thing you will find is most lenders don't want to finance land; especially now. Land is harder to liquidate if the bank ends up taking the property back, and the national lenders who are trying to improve their loan portfolios are dropping their land financing programs. So your first place to start would be a community bank that knows the area. 

The next thing you will find is that the loan programs vary widely between lenders; one will want a 30% down payment and the loan will only last 12 months, and the next will take 10% down and give you a 30 year loan.  Some offer interest-only programs.  Some will only do subdivision lots with full utilities, others will let you do 20 acres or more. So if you are looking at property, you better check out your financing options before you start writing an offer.

One thing that is fairly consistent amongst lenders; because land is a little more risky, there are usually minimum credit score requirements, so you better know where you stand there. I check mine at annualcredit report.com, because you don't have to sign up for any monthly monitoring service. I suggest paying the small fee to each of the three agencies so you can get your actual score; it cost me maybe $7-9 each. 

 As the banks are usually lending out their own money, rather than selling the loans, the underwriter can sometimes be flexible; for example, we want to see a minimum Equifax score of 680 for a lot loan, but we approved a client in the 620's because he had a credible explanation for his credit, he had a low debt-to-income ratio,and high documented income; we call these things 'strong compensating factors'. Another exception was someone who wanted to finance a 20 acre parcel with 0 down. Of course his national bank turned him down; but we looked at his overall situation and saw an enormous income with millions of dollars in the bank (the one that turned him down), so we wrote the loan.  Heck, we probably would have financed a toxic waste dump for this client; it was obvious we would be paid back. On other occasions, we will write the loan to cover the lot purchase and also use another property as extra collateral if the buyer is weak in a certain area (ratios,credit score, down payment).

Before you call a lender,its a good idea to have your overall plan in mind; what are you going to do with the land and when.  I would say the most common thing I hear is that the customer wants to acquire the lot now, and plans to build a home on it in 2-3 years.  So try to find a loan program that fits your needs, and check the terms.  If they are offering an Adjustable Rate Mortgage (ARM), is it amortized over 20 years, or 30 years?  What happens after the initial period, does it adjust and keep going, or does it re-set, or does it balloon?  If it adjusts, how high can it go? 

If you plan to start construction soon, you may be able to combine your land purchase with your construction loan. For  more information on construction loans in Eastern Washington click the link.

With the government owning about 80% of Chelan County, and much of the rest in agriculture or on steep unbuildable slopes, supply and demand points to increasing values for your land purchases. Plus the sunshine and recreation continually attracts people from the Puget Sound region to Lake Chelan, the Wenatchee Valley and Leavenworth. All this is to say, if you want a piece of it for yourself, I don't think its going to get any cheaper. 

Come and take a look, and then shop around for your financing, you will find 10% down lot loans, interest only lot loans, ARMS and fixed rate lot loans; whatever you need to meet your needs.

In our markets of Wenatchee, Leavenworth and Chelan, we are benefitting from the drop in mortgage rates while not participating in the housing market declines that are hitting some parts of the country. But, as we have local media that just re-prints what the national Press is saying, we have some people sitting on the fence not sure if they should buy right now.  The local mountains,lakes, skiing and sunshine with a close proximity to Seattle keeps a steady flow of second home and retirement buyers coming to Wenatchee, Leavenworth and Chelan. The majority of my business is land and construction loans for these people.

I try to get out some financial market news to agents and builders in our market on a regular basis to help them see where the mortgage markets are headed.  Because, we do have plenty of potential buyers out there, and a good interest rate is often all it takes for them to jump in. 

 I was expecting some more volatility in rates than we saw this week, but I don't think we are done with rate declines. The Prime Rate came down a full 1.25%  in January and that did not really rally the stock market, it just kept it from a deep decline (so far).  I think today's announcement of the first decline in US payrolls in over 4 years is significant.  The FED can't lower their short-term rates every week, so when we get a negative report next week, I think you will see the slide continue. Plus, this is going to be aided by the Press; they have been beating the Housing market to death for the past 6 months, and it looks like they are now targeting the whole US Economy.

The attached article appeared by the Associate Press today and highlights what you will see coming. The added words used to 'interpret ' the data for the reader is full of opinion and assumption. The 'Shower of Pink slips' they are talking about is a loss of 17,000 jobs. Against a US non-farm employment of 146 million people, I can't get enough digits on my calculator to figure that percentage.  They also mention the economy grinding to a halt and tumbling into recession. As we learned with housing, once the press decides that the economy is crumbling, they will be making headlines out of anything.  So, my analysis is that they will succeed in convincing the public that the sky is falling, enough to drive down the stock market and as a result, mortgage rates will continue to drop.  It will be a net gain to us, because we won't lose any local jobs (because the sky really isn't falling here) but we will sell a lot of homes because of the low rates.   Have a great weekend    

I have talked to several people this month who are buying land in our area with plans to have a home built in the near future.  As most of the questions are similar, I thought I would fill people in on Construction Lending in Wenatchee, Leavenworth and Chelan. 

First of all, its Winter here, which is very pretty, but if you didn't pour your foundation beforehand, you'll need to wait until it thaws.  Depending on where you are in the area, that can be anywhere from February to May.   Also, people who are finishing homes right now are generally moving in without exterior paint, stonework, patios, driveways or sidewalks; those things will be finished up in the Spring. These items are generally completed towards the end of the project, so if you are planning a new home which takes 6 months to build, and you start in July, guess what, you need to plan for this.

If you have never had a home built before, you need to make sure you are working with an experienced builder and lender who can help you through the process. You need to be working one-on-one with people you trust, because who is going to make sure that someone comes out in the spring to finish up those items, and how do they get paid?  We can handle all this, but I just want to emphasize that it is alot easier when the lender, appraiser, escrow company and builder all work and  live in the same market and know where to find each other; trying to move into your unpainted house in Wenatchee when your lender is in Texas, may pose some problems.  Owner-builders need to be especially careful, if it is not something you normally do. If a subcontractor gives you a quote, make sure he knows what time of year you plan to have him up on a ladder.  Just some things to think about.  I don't mean to put construction fears into people, it is a great thing to do, and it's the majority of my lending; I just want people to be smart and get some good advice.

Right now is a great time to be doing your planning; most builders in our area did not start new spec homes last fall (waiting to see where the market is going), as a result, they have more time right now to review your plans and give you bids.  I can't quote it here, as I only heard it 2nd hand, but I heard of someone quoting a cost per square foot today that was at a rate I hadn't heard in 3-4 years. 

As of today, all-in-one type construction loans were back down to levels we haven't seen since last Spring, and with the Prime rate coming down, the 'Construction-Only' loans are the lowest they have been in 2 1/2 years.  Combine these rates with some good builder quotes, and that new house becomes a reality.

For the details on how a construction loan works, see my Wenatchee Construction post.  One place to do your homework: the North Central Homebilders Association is putting on their annual Home Show.  There are no frying pans or kitchen knives, its all homebuilding related. Feb 8,9,10 in Wenatchee. You can get a dollar-off coupon and more info here.

We are very fortunate in the markets of Wenatchee, Leavenworth and Chelan in Eastern Washington. We are able to take advantage of the low mortgage rates driven by the cooling national economy, all without actually having to participate in the cooling economy.  Last week was crazy, and it looks like mortgage rates are poised for another wild ride this week.

Last week they plunged briefly on Tuesday to some recent record lows, then they rose late that afternoon and later in the week were back up to almost the December levels.   Mortgage rates respond to economic news (see below if you want more detail *), and this week is packed with more critical economic reports than I have ever seen in one week.  Since I am not a fortune-teller, I can't tell you what all these reports will say, but odds are some will be positive and some negative, and the result will likely  be extreme turbulence.

So here is my advice: Last week, the extreme low rates were only available for about 30 minutes.  So if you have a transaction ready to lock, I would tell your loan officer what rate you want, and tell them to lock for you if we hit that rate.   If it would benefit you to refinance your own mortgage in the low 5% range, I would suggest getting your application in with enough info that your loan officer can lock for you if rates hit your magic number. 

 Last Tuesday I called some people and quoted them the great low rates, but by the time we got the info and ran the numbers, the rate was gone; but now we are ready to pull the trigger at a moments notice.   For your clients who don't like risk, if they like the monthly payment they can get today, they should probably lock ahead of the roller coaster ride.  

      *More info if you want it:   Remember, Mortgages rates are one of those strange creatures which are not driven by their own supply and demand; more people wanting mortgages does not drive the rates up. Instead, they are driven by Wall Street Investors' view of the stock market. If the investors are concerned that stocks won't provide a good return, they buy securities with a guaranteed return, such as bonds or Mortgage Backed Securities (MBS). These are driven by supply and demand, so when more investors buy them, it drives the price up and the interest rate down

Most jobs involve some driving; and mine is no exception with construction inspections around Eastern Washington. But I love the outdoors, so I have chosen a great place by living in Wenatchee. Last week I did inspections in Suncadia and Ellensburg. During my drive, besides the sunshine and fall foliage, I saw a 4-point Bull Elk with 3 cows, a coyote, and a flock of about 20 wild turkeys.  Now I used to live in the Seattle area, and I will take this drive over the best day on I-405.  I forgot to mention that I also saw Mt Rainier that day as well, as you get  a clear view when you see it from the east.

Next week I have to run up to Chelan, and that means seeing Big Horn Sheep, this time of year it is almost impossible to not see the sheep and some deer along that road.  Last Spring I drove up to Okanogan one day to teach a First Time Homebuyers Seminar with the Community Action Council.  I stopped counting Bald Eagles after I got to 20; and its only about a 90 minute drive.

As you can tell, I believe there is a difference in the quality of life you get when living in Wenatchee. Wenatchee gets lots of press for being the top of numerous lists; all I can tell you is, if you like the outdoors, it can't be beat.