Interest Rates Bottom Out, Sparking High Buyer Demand

 

Interest Rates Bottom Out, Sparking High Buyer Demand 

Most recently, we have experienced an uptick in market activity. In fact, King county saw a 35% increase in pending sales from December to January, and Snohomish County 38%. The seasonal uptick from the holidays to the New Year is normal, but it was quite sizable. This is reinforced by a 6% increase in pending activity this January over last January in King County, and a 10% increase in Snohomish County. This increase is being driven by multiple factors, such as our thriving economy and growing job market, generational shifts and historically low interest rates. 

Currently, rates are as low as 3.5% for a 30-year fixed conventional mortgage – 1 point down from the fourth quarter of 2019. Moreover, the interest rate is down 1.75 points from 2 years ago. These levels are unprecedented!  The current rates are as low as they have been in 3 years. This is meaningful because the rule of thumb is that for every one-point decrease in interest rate, a buyer gains ten percent in purchase power. For example, if a buyer is shopping for a $500,000 home and the rate decreases by a point during their search, the buyer could increase their purchase price to $550,000 and keep the same monthly payment. 

Why is this important to pay attention to? Affordability! The Greater Seattle area is not an inexpensive place to own a home; we have seen strong appreciation over the last 7 years due to the growth of the job market and overall economy. The interest rate lasts the entire life of the loan and can have a huge impact on the monthly cash flow of a household. This cost savings is also coupled with a balancing out of home-price appreciation. Complete year-over-year, prices are flat in King County and up around 3% in Snohomish county. Note that from 2018 to 2019 we saw an 8% increase in prices in both King and Snohomish Counties. Price appreciation is adjusting to more normal levels and is predicted to increase 5-7% in 2020 over 2019. 

As we head into the spring market, the time of year we see the most inventory become available, the interest rates will have a positive influence on both buyers and sellers. Naturally, buyers will enjoy the cost savings, but sellers will enjoy a larger buyer pool looking at their homes due to the opportunities the lower rates are creating. Further, would-be sellers who are also buyers that secured a rate as low as 3.75% via a purchase or refinance in 2015-2017, will consider giving up that lower rate for the right move-up house now that rates would be a lateral move or possibly even lower. 

This recent decrease in rate is making the move-up market come alive.  Baby Boomers and Gen X’er’s are equity rich and able to make moves to their next upgraded home or fulfill their retirement dreams. What is great about this, is that it opens up inventory for the first-time buyer and helps complete the market cycle. First-time buyers are abundant right now as the Millennial generation is gaining in age and making big life transitions such as getting married, starting families, and buying real estate. 

Will these rates last forever? Simply put, no! Right now is a historical low, and depending on economic factors rates could inch up.  According to Matthew Gardner, Windermere’s Chief Economist, rates should hover around 4% throughout 2020. While still staying well below the long-term average of 7.99%, increases are increases, and securing today’s rate could be hugely beneficial from a cost-saving perspective. Just like the 1980’s when folks were securing mortgages at 18%, the people that lock down on a rate from today will be telling these stories to their grandchildren. Note the long-term average – it is reasonable to think that rates closer to that must be in our future at some point. 

So what does this mean for you? If you have considered making a move, or even your first purchase, today’s rates are a huge plus in helping make that transition more affordable. If you are a seller, bear in mind that today’s interest rate market is creating strong buyer demand, providing a healthy buyer pool for your home. As a homeowner who has no intention to make a move, now might be the time to consider a refinance. What is so exciting about these refinances, is that it is not only possible to reduce your monthly payment, but also your term, depending on which rate you would be coming down from.  There are some pretty exciting money saving opportunities for people to take advantage of right now. 

If you would like additional information on how today’s interest rates pertain to your housing goals, please contact us. We would be happy to educate you on homes that are available, do a market analysis on your current home, and/or put you in touch with a reputable mortgage professional to help you crunch numbers. Real estate success is rooted in being accurately informed, and it is our goal to help empower you to make sound decisions for your lifestyle and investment. 

 

 

Posted on February 20, 2020 at 3:28 am
Becky and Steve Larsen | Category: Statistical Information, Strategy

Top 12 Takeaways from the Matthew Gardner Presentation for the Year 2020

 

 

 

On January 22nd, we had the pleasure of attending our office’s 11th Annual Matthew Gardner Economic Forecast Event.  At this event, Matthew gives the crowd a review of the previous year and forecasts trends for the economy and housing market for the next year and beyond.  Below are the Top 12 Takeaways worth noting as you start to chart your economic goals for 2020 and beyond.

  1. He anticipates our next recession taking place in 2021, not 2020 as previously thought. The last 11 recessions averaged 58 months in between one recession to the next, and we are currently at 127 months since the last recession, so we are due. Worth noting is the next recession will not be based on housing like the previous recession. It is predicted to be a more normal adjustment that should also be short in length, unlike the Great Recession of 2008-2010.
  2. Recessions do not always cause home prices to drop. Of the last six recessions, home prices actually ended up higher than when the recession began with the exception of the Great Recession of 2008-2010, which was based on housing due to predatory lending.
  3. The U.S. Economy will add 1.8M new jobs, but national unemployment rates should rise to 4% from 3.5% by the end of 2020. However, wage growth should start to improve as that has been slow over the last decade. In the Greater Seattle area, unemployment hovered at 3% in Q3 of 2019.
  4. We are living in our homes longer. In 2019, the average home seller in the U.S had owned their home for an average of 8.2 years compared to the average home seller in 2000 at 4.2 years. This is reflective of homeowners choosing to build more equity over time before they cash-out and move on to the next home, as well as the increased amount of Baby Boomers coming to market with their long-time homes as they pivot towards retirement.
  5. We are not headed toward a housing bubble. When seasonally adjusted, home prices are still 5.8% below the prior peak. In addition, predatory lending practices were eliminated after the 2008 housing crash and the average down payment is much higher. Overall, home equity is high with the national average in Q3 2019 sitting at 26.7% and the average FICO score of a borrower in Q3 of 2019 was 755. This, along with foreclosure starts being low, indicates that we are not headed towards a housing bubble.
  6. Interest rates should remain under 4% in 2020These are historical lows, but reflective of the last decade. In 2010, rates were around 5% and were as low as 3.4% in 2012. In late 2018, rates almost crested 5% but careened down under 4% for most of the year. The 2000’s averaged 6.3%, the 1990’s 8.1%, the 1980’s 12.7%, and the 1970’s 8.9%. This should put today’s rates in perspective.
  7. Single-family new construction remains muted due to the expensive cost of land, labor, materials, and regulatory fees. This has made inventory levels tighter and the appreciation of existing homes stronger. The lack of overbuilding is also another contributing factor to no housing bubble.
  8. Millennials are a force in the real estate market! They are the largest generation at 79M, are the largest cohort in the U.S. workforce, and more than 1M Millennial women are becoming moms every year. This generation has grown up and is experiencing big life transitions that lead to home ownership decisions. Nationally, they accounted for 37.5% of home purchases in Q3 of 2019. In the Greater Seattle area in 2019, 46% of home purchases were done by Millennials with an average down payment of 17% and with a FICO score of 741.
  9. The Greater Seattle economy looks to outperform the U.S. economy due to continued corporate growth, specifically in information services, which will balance out any losses we may see due to the current setbacks in aerospace.
  10. In the Greater Seattle area, as we start 2020 inventory levels are tight due to a high level of absorption over the course of 2019 after a big inventory dump in mid-2018. Many investors offloaded properties in 2018 and it took time to absorb this inventory as it accompanied a time frame where interest rates were near 5%. The market softened at that time, but now we have returned to constricted inventory levels and lower interest rates. This will bode well for home sellers and provide buyers low debt service.
  11. The average sale price in King County in December of 2019 was $830,000 and King County saw a 3% increase in home prices in all of 2019 over all of 2018. It is predicted, due to low inventory, strong job growth. and low interest rates that year-over-year price appreciation in King County in 2020 will be around 6.6%. Affordability and consumer sentiment are the biggest challenges in King County, especially in-city Seattle and on the Eastside, which are closer to job centers.
  12. The average sale price in Snohomish County in December of 2019 was $552,000 and Snohomish County saw a 5% increase in home prices in 2019 over 2018. It is predicted, due to low inventory, strong job growth, and low interest rates that year-over-year price appreciation in Snohomish County in 2020 will be around 7.3%. Snohomish County has benefited from the high prices in King County, leading folks to purchase further out for affordability purposes.

If you would like more information or a copy of Matthew’s PowerPoint, please reach out. It is our goal to help keep our clients well-informed in order to empower strong decisions. 2020 looks to be another positive year in real estate! If you or anyone you know is considering either buying or selling, please use us as a resource. It is an honor to help people make such important investments and meaningful lifestyle choices.

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

Posted on January 30, 2020 at 6:08 am
Becky and Steve Larsen | Category: Statistical Information

Q4 2019 Western Washington Gardner Report

The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist, Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere agent.

 

ECONOMIC OVERVIEW

Employment in Washington State continues to soften; it is currently at an annual growth rate of 1.7%. I believe that is a temporary slowdown and we will see the pace of employment growth improve as we move further into the new year. It’s clear that businesses are continuing to feel the effects of the trade war with China and this is impacting hiring practices. This is, of course, in addition to the issues that Boeing currently faces regarding the 737 MAX.

In the fourth quarter of 2019 the state unemployment rate was 4.4%, marginally lower than the 4.5% level of a year ago. My most recent economic forecast suggests that statewide job growth in 2020 will rise 2.2%, with a total of 76,300 new jobs created.

 

HOME SALES

  • There were 18,322 home sales registered during the final quarter of 2019, representing an impressive increase of 4.7% from the same period in 2018.
  • Readers may remember that listing activity spiked in the summer of 2018 but could not be sustained, with the average number of listings continuing to fall. Year-over-year, the number of homes for sale in Western Washington dropped 31.7%.
  • Compared to the fourth quarter of 2018, sales rose in nine counties and dropped in six. The greatest growth was in Whatcom County. San Juan County had significant declines, but this is a very small market which makes it prone to extreme swings.
  • Pending home sales — a barometer for future closings — dropped 31% between the third and fourth quarters of 2019, suggesting that we may well see a dip in the number of closed sales in the first quarter of 2020.

 

 

HOME PRICES

  • Home price growth in Western Washington spiked during fourth quarter, with average prices 8.3% higher than a year ago. The average sale price in Western Washington was $526,564, 0.7% higher than in the third quarter of 2019.
  • It’s worth noting that above-average price growth is happening in markets some distance from the primary job centers. I strongly feel this is due to affordability issues, which are forcing buyers farther out.
  • Compared to the same period a year ago, price growth was strongest in San Juan County, where home prices were up 41.7%. Six additional counties also saw double-digit price increases.
  • Home prices were higher in every county contained in this report. I expect this trend to continue in 2020, but we may see a softening in the pace of growth in some of the more expensive urban areas.

 

 

DAYS ON MARKET

  • The average number of days it took to sell a home dropped four days compared to the third quarter of 2019.
  • For the second quarter in a row, Thurston County was the tightest market in Western Washington, with homes taking an average of 29 days to sell. In nine counties, the length of time it took to sell a home dropped compared to the same period a year ago. Market time rose in four counties and two were unchanged.
  • Across the entire region, it took an average of 47 days to sell a home in the fourth quarter. This was up nine days over the third quarter of this year.
  • Market time remains below the long-term average across the region, a trend that will likely continue until we see more inventory come to market — possibly as we move through the spring.

 

 

CONCLUSIONS

This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.

The housing market ended the year on a high note, with transactions and prices picking up steam. I believe the uncertainty of 2018 (when we saw significant inventory enter the market) has passed and home buyers are back in the market. Unfortunately, buyers’ desire for more inventory is not being met and I do not see any significant increase in listing activity on the horizon. As such, I have moved the needle more in favor of home sellers.

 

Posted on January 23, 2020 at 11:28 pm
Becky and Steve Larsen | Category: Quarterly Reports, Statistical Information

Q4 Quarterly Snapshot Statistics

North Snohomish County – South Snohomish County – North King County – Seattle Metro – South King County – Eastside

 


 

 

 

 

Posted on January 16, 2020 at 10:07 pm
Becky and Steve Larsen | Category: Quarterly Reports, Statistical Information

Matthew Gardner’s 2020 Real Estate Forecast

Posted on December 5, 2019 at 6:50 pm
Becky and Steve Larsen | Category: Statistical Information

October 2019 – What is a Dual Real Estate Market?

 

 

Last month, we did an analysis on the new phenomenon of a dual market. A dual market is when you have different market conditions within the same overarching real estate market. This duality presents amazing opportunities for sellers who are also buyers, depending on where they want to go. We reported on two dual markets, the move-up market and the move-out market. Another dual market that deserves to be shared is the condo market compared to single-family residential.

In September, single-family residential homes in Seattle Metro had an absorption rate of 43% while condos were at 27%. Months of inventory based on pending sales for single-family residential was only 1.9 months of available inventory, and condos, 3.5 months! That is the difference of a seller’s market for single-family residential to a balanced market for condos. After many solid years of strong appreciation, folks that are looking to cash out the equity on their single-family residential homes and move to a condo have the opportunity to move their investment with a sizable down payment and upgrade to a lifestyle that is often stair-free with less maintenance.

The median price for a condo in Seattle Metro in September was $455,000 and for a single-family residential home, $750,000. The median price for a condo in south Snohomish County is September was $343,000 and for a single-family residential home, $569,000. It is common for folks to sell their long-time family home and downsize into a condo and pay all cash. The buildup of equity over the years and paying down their loans allow for large cash-outs and easier all-cash purchases.

If one is getting a loan though, it is important to highlight today’s interest rates. They are a point lower than they were a year ago, affording buyers 10% more buying power. For example, a one-point-lower rate on a purchase at $500K will now afford a buyer the purchase of a home at $550K with the same monthly payment. Couple that with price appreciation tempering and you have a perfect downsizing market, which often includes condo purchases!

If you are curious about moving from a single-family home to a condo and the opportunity this dual market presents, please reach out. It is our goal to help keep clients educated and empowered to make strong decisions. This is especially rewarding when it leads to their next chapter in life, which can be an amazing transition.

 

 

 

 

Posted on November 4, 2019 at 11:00 pm
Becky and Steve Larsen | Category: Statistical Information, Strategy

Q3 2019 Gardner Report for Western Washington

 

The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist, Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere agent.

 

ECONOMIC OVERVIEW

Washington State employment has softened slightly to an annual growth rate of 2%, which is still a respectable number compared to other West Coast states and the country as a whole. In all, I expect that Washington will continue to add jobs at a reasonable rate though it is clear that businesses are starting to feel the effects of the trade war with China and this is impacting hiring practices. The state unemployment rate was 4.6%, marginally higher than the 4.4% level of a year ago. My most recent economic forecast suggests that statewide job growth in 2019 will rise by 2.2%, with a total of 88,400 new jobs created.

 

HOME SALES

  • There were 22,685 home sales during the third quarter of 2019, representing a slight increase of 0.8% from the same period in 2018 and essentially at the same level as in the second quarter.
  • Listing activity — which rose substantially from the middle of last year — appears to have settled down. This is likely to slow sales as there is less choice in the market.
  • Compared to the third quarter of 2018, sales rose in five counties, remained static in one, and dropped in nine. The greatest growth was in Skagit and Clallam counties. Jefferson, Kitsap, and Cowlitz counties experienced significant declines.
  • The average number of homes for sale rose 11% between the second and third quarters. However, inventory is 14% lower than in the same quarter of 2018. In fact, no county contained in this report had more homes for sale in the third quarter than a year ago.

 

 

 

HOME PRICES

  • Home price growth in Western Washington notched a little higher in the third quarter, with average prices 4.2% higher than a year ago. The average sales price in Western Washington was $523,016. It is worth noting, though, that prices were down 3.3% compared to the second quarter of this year.
  • Home prices were higher in every county except Island, though the decline there was very small.
  • When compared to the same period a year ago, price growth was strongest in Grays Harbor County, where home prices were up 22%. San Juan, Jefferson, and Cowlitz counties also saw double-digit price increases.
  • Affordability issues are driving buyers further out which is resulting in above-average price growth in outlying markets. I expect home prices to continue appreciating as we move through 2020, but the pace of growth will continue to slow.

 

 

 

 

 

DAYS ON MARKET

  • The average number of days it took to sell a home dropped one day when compared to the third quarter of 2018.
  • Thurston County was the tightest market in Western Washington, with homes taking an average of only 20 days to sell. There were six counties where the length of time it took to sell a home dropped compared to the same period a year ago. Market time rose in six counties, while two counties were unchanged.
  • Across the entire region, it took an average of 38 days to sell a home in the third quarter. This was down 3 days compared to the second quarter of this year.
  • Market time remains below the long-term average across the region and this trend is likely to continue until more inventory comes to market, which I do not expect will happen until next spring.

 

 

CONCLUSIONS

This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors. I am leaving the needle in the same position as the first and second quarters, as demand appears to still be strong.

The market continues to benefit from low mortgage rates. The average 30-year fixed rates is currently around 3.6% and is unlikely to rise significantly anytime soon. Even as borrowing costs remain very competitive, it’s clear buyers are not necessarily jumping at any home that comes on the market. Although it’s still a sellers’ market, buyers have become increasingly price-conscious which is reflected in slowing home price growth.

 

Posted on October 22, 2019 at 11:43 pm
Becky and Steve Larsen | Category: Quarterly Reports, Statistical Information

Q3 2019 Seattle Metro Quarterly Trends

 

Increased pending activity is an indication of strong buyer demand which is very much being driven by historically low interest rates, a thriving job market, and an overall strong local economy. In fact, interest rates are an entire point lower than they were a year ago! This affords buyers a price point that is 10% higher over last year while maintaining the same monthly payment. A year ago, the monthly payment for a home at $750,000 is the same for a home at $825,000 today. Today’s rates coupled with tempered price appreciation provides increased affordability for buyers, which in turn is providing a healthy audience for sellers.  After many years of strong price increases, many sellers are moving their equity to the next lifestyle home they desire.

This is only a snapshot of the trends in the Seattle Metro area; please contact us if you would like further explanation of how the latest trends relate to you.

Posted on October 16, 2019 at 6:25 am
Becky and Steve Larsen | Category: Quarterly Reports, Statistical Information

Q3 2019 North King County Trends

 

Increased pending activity is an indication of strong buyer demand which is very much being driven by historically low interest rates, a thriving job market, and an overall strong local economy. In fact, interest rates are an entire point lower than they were a year ago! This affords buyers a price point that is 10% higher over last year while maintaining the same monthly payment. A year ago, the monthly payment for a home at $750,000 is the same for a home at $825,000 today. Today’s rates coupled with tempered price appreciation provides increased affordability for buyers, which in turn is providing a healthy audience for sellers.  After many years of strong price increases, many sellers are moving their equity to the next lifestyle home they desire.

This is only a snapshot of the trends in north King County; please contact us if you would like further explanation of how the latest trends relate to you.

Posted on October 16, 2019 at 6:19 am
Becky and Steve Larsen | Category: Quarterly Reports, Statistical Information

Q3 2019 South Snohomish County Quarterly Trends

 

Increased pending activity is an indication of strong buyer demand which is very much being driven by historically low interest rates, a thriving job market, and an overall strong local economy. In fact, interest rates are an entire point lower than they were a year ago! This affords buyers a price point that is 10% higher over last year while maintaining the same monthly payment. A year ago, the monthly payment for a home at $550,000 is the same for a home at $605,000 today. Today’s rates coupled with tempered price appreciation provides increased affordability for buyers, which in turn is providing a healthy audience for sellers.  After many years of strong price increases, many sellers are moving their equity to the next lifestyle home they desire.

This is only a snapshot of the trends in south Snohomish County; please contact us if you would like further explanation of how the latest trends relate to you.

 

Posted on October 16, 2019 at 6:13 am
Becky and Steve Larsen | Category: Quarterly Reports, Statistical Information