Seattle housing: Is it a bubble?

Seattle area single-family home prices in March were up 10.8 percent from a year ago, behind only Portland, where prices have shot up 12.3 percent, according to the latest S&P/Case-Shiller data. (Greg Gilbert/The Seattle Times)

Seattle area single-family home prices in March were up 10.8 percent from a year ago, behind only Portland, where prices have shot up 12.3 percent, according to the latest S&P/Case-Shiller data. (Greg Gilbert/The Seattle Times)

Single-family house values in Seattle shot up 10.8 percent year-over-year in March, the second highest in the nation after Portland, according to the latest S&P/Case-Shiller index.

It’s a new record, surpassing the previous peak in the summer of 2007 — and we saw how that turned out. Nationally, the increase was 5.2 percent. Here, it’s especially good news for homeowners and bad for buyers.

Perhaps, but probably not.

The old bubble was a nationwide phenomenon, stoked by subprime mortgages, Wall Street hustles, high leverage, and compromised regulators. While the latter two always bear watching, the same dangerous confluence of factors from 2007 don’t apply to today. The Case-Shiller 20-city index remains below its 2007 levels.

Instead, the biggest price increases are tied to low supply, high demand and strong economies in certain very desirable cities, such as Seattle, Portland and Denver. Elsewhere, it is a natural consequence of the recovery.

Black swans do appear. So, for example, an economic meltdown in China, a trade war under President [real-estate developer], earthquake or volcano eruption could ruin your whole day. The more likely outcome is a slow moderation caused by higher interest rates, deflation of a tech bubble, slowed jobs growth or, in some places, new inventory of housing coming online.

Even then, if San Francisco is an example, prices will soon begin marching up again.

The issue of high prices doesn’t exist in a vacuum. There’s not a linear connection between housing costs and the very diverse problems lumped under the sometimes-misleading term homelessness. But economists have found that less affordable housing is a factor behind rising inequality.

House prices have been disconnected from median incomes since the early 2000s. So the issue is not merely housing affordability but stagnant or falling incomes. And bubble pops only make this worse.

This article originally appeared on The Seattle Times website.

Posted on June 9, 2016 at 1:40 pm
Denni Shefrin | Category: Buying, Homeownership Trends, Local Market Update, Selling

Seattle metro-area home prices up nearly 10 percent in a year

Seattle-area home prices surged in December, posting the fourth-highest annual gain among 20 metros, according to the S&P/Case-Shiller 20-city index released Tuesday.

The average price of existing single-family homes sold in King, Snohomish and Pierce counties climbed 9.9 percent over the year in December, its fastest pace in 2015. In the 20-city index, Seattle trailed only Portland (11.4 percent), San Francisco (10.3) and Denver (10.2) in annual price increases.

Nationally, prices in the 20-city index climbed 0.8 percent over the month in December, slowing a bit from a 1 percent increase in November. The index recorded a 5.7 percent annual gain.

Home prices in all but one city are rising faster than inflation, said David Blitzer, chairman of S&P’s index committee. Some might take that as a sign of trouble, especially given the stock market’s turmoil this year and the current age of this economic expansion.

“The recovery is 6 years old, but recoveries do not typically die of old age,” Blitzer said in a statement.

Higher home prices are encouraging builders: “Housing construction, like much of the economy, got off to a slow start in 2009-2010 and is only now beginning to show some serious strength,” he said.

Average prices in the Seattle metro area in December were less than 3 percent below the peak set in summer 2007, according to Case-Shiller data. The 20-city index is still about 12 percent off its 2006 peak.

Svenja Gudell, chief economist at Seattle-based Zillow, the real-estate website, said in a statement that the nation’s housing market faces a few challenges this spring: Low housing inventory is a factor in nearly every market now. Low oil prices are a drag on job growth in the Dakotas, Alaska and Texas. And the stronger U.S. dollar will affect demand from foreign buyers, while keeping mortgage-interest rates low.

This article originally appeared in the Seattle Times.

Posted on March 3, 2016 at 9:29 pm
Denni Shefrin | Category: Buying, Homeownership Trends, Local Market Update, Selling

Lack of inventory “a game changer” for home buyers

Depleted inventory is contributing to "overwhelming" traffic at open houses, shifts in strategies for both buyers and sellers, and escalating prices, according to officials with the Northwest Multiple Listing Service.

Dick Beeson, a former chairman of the MLS board, said the lack of inventory in almost every county is, "without question, a 2016 game changer." He described traffic at open houses as sometimes simply overwhelming. "There haven't been any battle royals on the premises, but it could happen any day now," quipped Beeson, the principal managing broker at RE/MAX Professionals in Tacoma.

The latest figures show a drop of nearly 28 percent in the number of active listings in the MLS database compared to a year ago. Members added 6,670 new listings during the month across 23 counties in the MLS service area. That's down nearly 4.6 percent from twelve months ago. At month end, members reported 12,357 active listings, which compares to 17,082 at the end of January 2015.

Measured another way, there is just under 2.5 months of inventory which compares to 3.8 months the MLS reported for January 2015. Supply was especially tight in King County, at 1.4 months of inventory, and Snohomish County, with just under 1.6 months.

Condo inventory (excluding single family homes) fell sharply, from 1,793 active listings a year ago to last month's total of 1,145 at month end, a plunge of 36 percent. In King County, the inventory of condos dropped 42 percent. 

For the area overall, there is just 1.7 months of condo inventory, with Snohomish County reporting the tightest supply (1.1 months) followed by King County (1.2 months).  

The inventory shortage took a toll on last month's sales. The number of pending sales (mutually accepted offers) fell about 5.3 percent area-wide during January, although half the counties in the report tallied increases compared to a year ago. The 5.3 percent drop marked the first negative change in year-over-year comparisons since April 2014.

Member brokers reported 7,253 pending sales last month, down from 7,658 for the same month a year ago. Despite January's downturn, industry leaders remain upbeat.

"Only three other Januarys since 2000 had more homes go under contract in the four-county region area of King, Snohomish, Pierce and Kitsap counties," noted Mike Grady, president and COO of Coldwell Banker Bain. "This, in the face of stock market scares, shows the viability of real estate as the better investment for both homeowners and investors," he suggested.

Commenting on last month's activity in King County, MLS director Joe Deasy said sales are down nearly 15 percent compared to last January because inventory is down more than 31 percent. "Demand is still really strong based on multiple offers and high-volume open house traffic," added Deasy, the co-general manager of Windermere Real Estate/East.

Other industry leaders agreed. "We're selling virtually all new listings, many with multiple offers in all the market areas of King, Snohomish, Pierce and Kitsap counties in the price range where 90 percent of the sales activity is happening," said J. Lennox Scott, chairman and CEO of John L. Scott.

Scott also said his analysis of the number of homes selling in the first 30 days is double what a normal, healthy market would look like.

"The Greater Seattle area housing market remains out of equilibrium," stated OB Jacobi, president of Windermere Real Estate. He said sales will continue to suffer at the current pace of transactions without adding new inventory. "At the same time, prices will continue to appreciate and could outperform our expectations if inventory levels and mortgage rates remain at current levels."

MLS director Frank Wilson said the Kitsap County market is "taking off again right out of the gate," adding, "We are seeing an increase in open house activity as well as more multiple offer situations."

Wilson said Kitsap County, where there is only 2.4 months of inventory, is "deep into a seller's market." He expects the market will become more unbalanced throughout the first half of 2016. "First-time home buyers are probably being hit the hardest in this type of market," observed Wilson, the branch managing broker at John L. Scott's Poulsbo office. In general, he said financial resources are thin for this segment, their confidence is low, and the types of loans they use are often not as favorable.

A strong fourth quarter in 2015 is reflected in January's closed sales of single family homes and condos (combined), which rose 11.6 percent from a year ago. Members reported 4,985 completed transactions; a year ago, they tallied 4,467 closings. The year-over-year median price on these sales increased 7.5 percent, rising from $279,000 to $300,000. Ten counties reported double-digit gains.

Single family home prices (excluding condos) jumped 7.6 percent from a year ago for the area overall. For the four-county Puget Sound region, the median price for a single family home rose 12 percent, from $325,000 a year ago to last month's figure of $363,975. Snohomish County reported the largest increase at 16.6 percent. A comparison of prices by county shows King County tops the chart with a median sales price of $490,970, up 11.2 percent from a year ago.

Condo prices spiked 16.3 percent from a year ago, rising from $219,900 to $255,750.

Rapidly rising prices and low inventory are worrisome, according to some brokers. 

"A true conundrum exists," said George Moorhead, designated broker at Bentley Properties. "For sellers there is no better time in history, but the concern we hear is there's no place to move." He said since most sellers are looking to move up to larger homes, the ripple effect is "more like a tidal wave as it rolls back to the first-time buyers in the market who are quickly getting priced out of the possibility of purchasing a home."

Moorhead, a member of the Northwest MLS board of directors, reported doing a recent search of homes for sale in Bellevue with asking prices between $500,000 and $800,000. That search yielded only about a dozen properties in the database, a result he described as "staggering" and well below the norm.

Despite such challenges and complaints by buyers, Moorhead said buyers are still presenting offers that are very aggressive.

The increasingly competitive market is prompting hesitation among some would-be sellers, reported Bobbie Chipman, principal managing broker at John L. Scott in Puyallup. She said potential sellers are expressing reluctance to list their existing home prior to finding a home to move into due to limited inventory.

"A strong strategy is for sellers to list their home, sell and close, and move into temporary housing," suggested Chipman, one of the MLS directors. "This approach allows offers to be written that are not conditioned upon their sale closing, and it strengthens their position as a buyer," she explained.

Echoing the notion of being flexible, Frank Wilson said a seller's decision to accept an offer does not come down to sales price alone. "Type of loan, lender, closing time, amount of earnest money, and other concessions like closing costs and offer price all play into a seller's decision," he stated. "On top of that, a seller can choose any offer for any reason, even a lower price offer if other variables are favorable. Escalation clauses, back-up offers and finding funds or a bridge loan are all tools that buyers will need to employ to be successful in today's market."

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership of nearly 2,100 member offices includes more than 25,000 real estate professionals. The organization, based in Kirkland, Wash., currently serves 23 counties in Washington state.

This was a news release from the Northwest Multiple Listing Service.

Posted on February 18, 2016 at 7:18 pm
Denni Shefrin | Category: Buying, Homeownership Trends, Local Market Update, Selling

2016 Housing Forecast: “Very Strong” for Sellers

2016-forecast-header

According to a recent REALTORS® Confidence Index Survey Report, 2016 is projected to be a very strong market for local area sellers.

With inventory at historic lows, prices at or near record highs, and multiple offers the norm, it’s an exceptional time to get top dollar for your home.

Washington is one of only three states in the country projecting a “very strong” market for single family home sales.

single-family-forecast

This information was originally posted on Windermere Eastside's blog. Read more here!

Posted on January 28, 2016 at 10:45 pm
Denni Shefrin | Category: Local Market Update, Selling

Buyers pay cash in a third of Seattle home sales

This story originally appeared on King5.com

The number of home-buyers paying cash rose to more than 31 percent of transactions, according to RealtyTrac, which released data for November 2015 in Seattle.

Also in December, the median sale price rose to $508,000 — that's 15 percent higher than a year earlier.

"It's a downer," said Tony Aguilar, who was touring open houses in Ballard on Saturday with his girlfriend. "We've come into a few places, thinking about putting in an offer. We found others are already putting in a cash offer. That makes it way more competitive for us."

"I think it's really frustrating for normal people who want to get financing," said Kim O. Dales, a real estate agent showing a $1.8 million home in Laurelhurst. Dales and other agents say buyers are paying cash across the price spectrum.

Cash buyers are sometimes builders or corporate buyers, but they're also wealthy individuals from the Bay Area, investors from China or younger people borrowing money from their parents to compete in a red-hot market, says Dales.

 

Posted on January 14, 2016 at 10:32 pm
Denni Shefrin | Category: Buying, Local Market Update, Selling

No Wage Stagnation on the Eastside

Wages on the Eastside are up

Last month’s U.S. Census report showed that middle-class incomes nationally were stagnant, confirming a trend that has been widely reported. But when 425Business magazine crunched the numbers for a local perspective, the picture changed. Unlike the U.S as a whole, median incomes in Bellevue and the greater Seattle area have risen – and wage growth has been particularly strong on the Eastside. A booming technology industry has made the Puget Sound area’s economic growth a standout.

Home prices soar as well

A steady influx of well-paid tech workers has boosted the local real estate market. With an increasing demand for homes, and not enough supply to meet the need, home prices have soared this year. The latest figures from the Northwest Multiple Listing Service show the median price of a single family home is up 10 percent over last year. If you’re considering selling, you’d be hard-pressed to find a better time to get top dollar for your home.

eastsideincome

Posted on January 7, 2016 at 11:13 am
Denni Shefrin | Category: Local Market Update

No Need To Panic About Rising Interest Rates

 

This article originally appeared on Inman.com 

 

After seven years of some of the lowest interest rates in recorded history, the Federal Reserve has decided to raise the key Fed Funds Rate by 0.25 percent, which is causing some to be concerned that it will lead to a jump in mortgage rates and negatively impact the US housing market.

So, the question everyone wants to know is, do we need to worry about interest rates leaping?

While I expect there to be some volatility in rates for a while, I don’t believe the real estate market will implode in a rapidly rising interest rate environment. So, yes, interest rates are going to rise modestly, but no, I don’t think we need to be overly worried about it.

To qualify this statement, we need to understand that mortgage rates do not run in “lock-step” with the Fed Funds Rate. Although the Fed Funds Rate is a bellwether for the greater economic environment, there have been times when these two rates have moved in opposite directions, such as we saw in 2004/2005.

It’s also important to understand that while interest rates for revolving credit, such as credit cards and home equity loans, are tied to the Fed Funds Rate, non-revolving loans – like mortgages – are not. Mortgage rates are tied to bond yields – specifically the 10-year treasury.

So what do I think will happen?

I believe interest rates will rise above 4 percent, but we will not see a sharp spike in rates. The Fed has stated that any upward movement in the Fed Funds Rate will be slow and steady, and will reflect the greater economy. And I believe that mortgage rates will follow suit.  Additionally, mortgage rates have already moved higher in anticipation of an increase in the Fed Funds Rate.

That said, it is worth noting that any weakness in the global economy can actually have a downward effect on interest rates. This is referred to a “flight to quality”. In essence, investors seek safe haven during times of economic uncertainty. If markets outside the U.S. continue to underperform, there will likely be increasing demand for bonds which will drive up their price and drive down interest rates. Between China, the Eurozone, war in the Middle East, and a massive drop in oil prices, it's certainly possible that the price of mortgage backed securities could rise, leading U.S. mortgage rates lower.

Interest rates could not realistically stay at their current levels forever. But an increase should not be a great cause for concern. Yes, an increase makes mortgages more expensive, but not to a point where they will have a negative effect on home values. That said, the rate of home price growth will undoubtedly slow in the coming year, but that isn’t necessarily a bad thing.

A little perspective might help: the average rate for a 30-year loan in the 1970’s was nine percent. It was 13 percent in the 1980’s and eight percent in the 1990’s. And yet people still managed to buy and sell homes throughout those years. With that in mind, the rate increases we’re likely to see in 2016 are nothing to fret over.

The increase in the Fed Funds Rate should be taken as a sign that our economy is expanding and is a preemptive move to limit anticipated inflation. While interest rates have risen from their all-time low, they are still remarkably favorable. And will remain so through 2016.

 

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K. 

Posted on December 17, 2015 at 1:35 pm
Denni Shefrin | Category: Local Market Update, Mortgages

No national bubble in sight, but there are some frothy markets

 

This article originally appeared on Inman.com 

Earlier this year, I wrote an article called “No housing bubble in sight — for now” in which I shared my belief that the nation, as a whole, is not currently at risk of seeing another housing bubble.

However, I did qualify that statement by saying that I was noticing some “frothy” markets around the country that might be getting a little too hot.

In this article, I plan to divulge those markets that are likely to see slowing price growth in 2016 and possibly a downward correction.

The primary data sources that I used for my analysis were the Case-Shiller Index and the Federal Housing Finance Agency (FHFA).

I chose these two providers as they both prepare indices on home values using the repeat sales method. That is to say, they use data on properties that have sold at least twice to capture the true appreciated value of each home.

What the data shows

As I studied these data sets, it became apparent to me that there are some markets that we need to watch. From a very simplistic standpoint, both Case-Shiller and the FHFA indicated a few cities that have already surpassed their peak index levels.

Using the Case-Shiller numbers, these were Dallas, Denver, Portland and Boston. The FHFA data showed Dallas, Atlanta, Charlotte, Portland, San Francisco and Seattle as having surpassed their previous peaks.

While this can certainly be an indicator that a market is getting overheated, it’s not the be-all and end-all because external influences, such as mortgage rates and recessions, can all affect index levels.

Because of this, I thought it was important to take a closer look and focus on those markets that might be tracking above their natural trend.

That’s to say, I looked at pre-bubble growth rates, forecasted that rate forward in time and then compared that number to the present index levels.

After having completed this analysis, San Francisco, Denver and Dallas appear to be appreciating at a faster rate than their historic averages.

Even two indicators that point toward a potential problem don’t guarantee an outcome. Because of this, I decided to round off my analysis by looking at the ratio of home prices to incomes in the market areas that were of interest.

This is another important indicator when determining the health of a housing market as it speaks to affordability.

For the past few years, home values have been rising at rates well above that of incomes, but thanks to low-interest rates, this hasn’t yet created a significant barrier for buyers.

However, mortgage rates are set to rise, and this could leave some markets with homes that are too expensive for buyers earning that area’s median income.

When we look at the world through this lens, the cities where I see a cause for concern are San Francisco, San Diego and San Jose.

So what does this all mean?

Well, for one thing, San Francisco stands out — and not necessarily in a good way. Additionally, several markets have recovered from the housing collapse, and they are getting a little ahead of the rest of the country; specifically Denver and Dallas.

I will be watching these markets closely and anticipate that we might see a relatively steep slowdown in home price growth in these three cities.

The U.S. housing market has spent the past three years in recovery mode with robust demand, tight supply and favorable interest rates, which created a perfect environment for prices to rise — and rise they did.

However, I believe that a select few markets, such as San Francisco, Denver and Dallas, are getting a little out of sync and should start to prepare for an almost certain slowdown in price growth.

Now, if there is any consolation, it’s that the slowdown is supply-driven. If we do not see a significant increase in inventory in these markets, any slowdown in home prices might be offset by persistently high demand. Only time will tell.

 

Matthew Gardner is the chief economist for Windermere Real Estate. Follow him on Twitter @windermere
Posted on December 3, 2015 at 2:17 pm
Denni Shefrin | Category: Local Market Update | Tagged , , , , ,

Local Market Update – November 2015

The hot real estate market shows little sign of slowing down. Home prices continued to move upward. With the number of pending sales exceeding the number of new listings, the supply of homes is falling well short of demand. The inventory of homes in the Puget Sound area is 23 percent less than a year ago.

Eastside

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Home prices on the Eastside continue to be well above those in other parts of King County. The median price for homes sold in October was $667,000, an eight percent increase over the previous year. Inventory remains at historic lows, with only a six week supply available – far below the three to six months of supply that is considered to be balanced.

King County

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Inventory remained tight throughout King County with just five weeks of available supply. Limited inventory has fueled home prices, pushing the median price of a home up seven percent over last year to $480,000. Home prices vary significantly based on location. While the median home price was $555,000 in Seattle, the median price was $449,950 in North King County, and $297,824 in Southwest King County.

Seattle

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A recent analysis ranked Seattle as the nation’s #1 hottest market for single family homes. That demand has depleted the supply of homes, which stands at just under one month of inventory. Demand has also kept prices climbing. The median price of a home in Seattle increased eight percent over the previous year to $555,000.

Posted on November 19, 2015 at 2:12 pm
Denni Shefrin | Category: Local Market Update | Tagged , , , , , , ,

Local Market Update – October 2015

Strong sales continue to whittle down a dwindling supply of homes. The lack of supply to meet demand kept driving home prices upward in September. While the Puget Sound area saw steady appreciation over a year ago, there are signs that that the frenzied level of growth may be starting to moderate – good news for a market that was starting to look unsustainable.

Eastside

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The Eastside continues to lead the region in home values. The median price for homes sold in September was $680,000, an increase of 12 percent over a year ago. Sales were up as well, with many homes selling within days of being listed. As a result, inventory is at historic lows, with only a six week supply available. That is far below the three to six months of supply that is considered to be balanced.

King County

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Home prices rose a moderate seven percent in King County as compared to last year. The median price for a single family home in September was $490,250. Areas farther from the urban core are relative bargains, with the median price in Southeast King County coming in at $344,975, and at $304,000 in Southwest King County. Inventory remained tight throughout the region, with just five weeks of available supply.

Seattle

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The Seattle market continues to be very hot. Homes are snapped up as soon as they come on the market. As a result, the city has under a month of available inventory, the lowest in the region. Home prices climbed 10 percent over last year to a median of $571,000. That increase hasn’t seemed to decrease demand from buyers, who have become accustomed to facing multiple offers on newly listed homes.

Posted on October 8, 2015 at 11:06 am
Denni Shefrin | Category: Local Market Update