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.
REGIONAL ECONOMIC OVERVIEW
It appears as if the massive COVID-19 induced contraction in employment that Washington State — along with the rest of the nation — experienced this spring is behind us (at least for now). Statewide employment started to drop in March, but April was the real shock: total employment dropped almost 460,000 between March and April, a decline of 13.1%. However, this turned around remarkably quickly, with a solid increase of 52,500 jobs in May. Worthy of note is that, in May alone, Western Washington recovered 43,500 of the 320,000 jobs that were lost in the region the prior month. Although it is certainly too early to categorically state that we are out of the woods, the direction is positive and, assuming we respect the state’s mandates regarding social distancing and mask wearing, I remain hopeful that Washington will not have to re-enter any form of lockdown.
- There were 17,465 home sales during the second quarter of 2020, representing a drop of 22.2% from the same period in 2019, but 30.6% higher than in the first quarter of this year.
- The number of homes for sale was 37% lower than a year ago, but was up 32% compared to the first quarter of the year.
- Given COVID-19’s impacts, it’s not surprising that sales declined across the board. The greatest drops were in Whatcom and King counties. The smallest declines were in Grays Harbor and Cowlitz counties.
- Pending sales — a good gauge of future closings — rose 35.7% compared to the first quarter of the year, suggesting that third quarter closings will grow as well.
- Home-price growth in Western Washington rose by a relatively modest 3.5% compared to a year ago. The average sale price in the second quarter was $559,194.
- Compared to the same period a year ago, price growth was strongest in Grays Harbor County, where home prices were up 14.3%. Clallam County also saw a double-digit price increase.
- It was interesting to note that prices were up a significant 6.6% compared to the first quarter. This suggests that any concern regarding negative impacts to home values as a function of COVID-19 may be overblown.
- I will be watching for significant price growth in less urbanized areas going forward. If there is, it may be an indication that COVID-19 is affecting where buyers are choosing to live.
DAYS ON MARKET
- The average number of days it took to sell a home in the second quarter of this year matched the second quarter of 2019.
- Across the entire region, it took an average of 40 days to sell a home in the second quarter. I would also note that it took an average of 14 fewer days to sell a home than in the first quarter of this year.
- Thurston, King, Pierce, and Snohomish counties were the tightest markets in Western Washington, with homes taking an average of only 17 days to sell. All but two counties, Grays Harbor and Cowlitz, saw the length of time it took to sell a home drop compared to the same period a year ago.
- Market time remains well below the long-term average across the region. This is due to significant increases in demand along with the remarkably low level of inventory available.
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.
What a difference a quarter makes! Given that demand has reappeared remarkably quickly and interest rates remain historically low, it certainly remains a seller’s market and I don’t expect this to change in the foreseeable future.
The overall housing market has exhibited remarkable resilience and housing demand has rebounded faster than most would have expected. I anticipate demand to remain robust, but this will cause affordability issues to remain as long as the new construction housing market remains muted.
ABOUT MATTHEW GARDNER
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.
This is a health crisis, not a housing crisis. Equity levels across the country and in our region are incredibly secure. This crisis is unlike the housing crisis of the 2008 Great Recession where homeowner equity was very low based on high-risk loans. Homeowners will not up and walk away from their homes as they did during the Great Recession because the positive equity equals a strong asset. I know these are uncertain times. It is our goal to help keep my clients informed. Please reach out if you’d like to discuss how COVID-19 relates to the housing market. Review the numbers nationally, and for King and Snohomish counties! If you have questions about your home value, please contact us.
On March 23rd, Washington State Governor Jay Inslee issued a statewide “Stay Home, Stay Healthy” order for a period of at least two weeks. As a part of this order, all “non-essential critical infrastructure” businesses have been forced to close, including real estate brokerages. But that doesn’t mean we’re closed for business!
That’s the message we aim to communicate in this piece, as well as a reassurance that you and Windermere are “All in” for our clients and community, especially during these unique times. We will update this piece as needed if changes are made to the Governor’s order as it pertains to real estate.
DURING SOCIAL DISTANCING
❱ Real estate brokers may: Provide services to their clients remotely from their house using technology services that enable remote business, including online forms, electronic signatures, virtual tours and property videos, and mobile applications to allow brokers to continue to facilitate real estate transactions. We can also just be a friendly ear if you need it.
❱ Real estate brokers may not: Conduct any business outside of their home, including physically showing or previewing properties, conducting in-person listing presentations, taking property photos, staging homes, etc.
***First and foremost, talk to your real estate broker. Certain “Financial Services Sector” businesses have been deemed essential, including those needed for processing financing transactions and services, such as mortgage lenders, escrow, and title insurers. Because of this, real estate transactions that are under contract are expected to be able to proceed to closing. In partnership with the Washington REALTORS®, we are working closely with Governor Inslee’s office to continue to have clarity on this process and keep the industry moving forward during the next two weeks and beyond.
~Despite the challenges we’re facing, homes will continue to be bought and sold thanks in part to the abundance of technology out there that allows us to stay connected and transact real estate. It’s also thanks to our brokers who are more focused than ever on taking care of their clients and helping them achieve their real estate goals with outstanding professionalism, attention to detail, and an over commitment to service.
We recognize that the coming weeks are going to be challenging for real estate buyers, sellers, and brokers. But please know the entire Windermere family is here to support you for however long the COVID-19 pandemic lasts, and beyond.
We Are All in For You!
Most recently, buyers have enjoyed more selection in the marketplace which has led to more open negotiations versus bidding wars. This is illustrated by an increase in average Days on Market and a decrease in the average Sold-to-List Price Ratios complete-year over year (the last 12 months over the previous 12 months). In King County, the average Days on Market increased from 22 days to 36 days complete-year over year, and the Sold-to-List Price Ratio decreased from 101% to 98%. In Snohomish County, the average Days on Market increased from 25 to 35 days complete-year over year, and the Sold-to-List Price Ratio decreased from 100% to 98%.
Buyers have had more selection to choose from which has tempered price growth complete-year over year. Median price remains even in King County and up 3% in Snohomish County. Multiple offers are not as commonplace as they were, but terms such as inspection contingencies and home sale contingencies are doable in some areas and price ranges. This balancing out has created some more normal terms for buyers, while sellers are getting close to full price on average and cashing out on the above-average appreciation we enjoyed from 2012 to 2018.
It is still a seller’s market, yet we are heading towards balance. The months of available inventory based on pending sales (the amount of time it would take to sell out of homes if no new homes came to market) currently sits at 1.7 months in King County and 1.5 months in Snohomish County. Zero to 3 months is a seller’s market, 3-6 months a balanced market, and 6+ months a buyer’s market. In 2017 to early 2018, inventory levels were commonly under one month, which was a very volatile and constricted environment within which to purchase a home. The direction towards balance is welcome and providing much more comfort when making a move.
The inventory levels are an amazingly beneficial phenomenon due to the fact that buyers are simultaneously enjoying the lowest interest rates we’ve had since 2016! Currently, the 30-year mortgage rate is hovering around 3.6% and the 15-year around 3.07% according to Freddie Mac. Not only are rates the lowest we’ve seen in 3 years, but they are an entire point lower than they were in Q4 of 2018. When rates crested 4.5% last year, we saw a marked reduction in pending sales. This highlights the recent opportunities that have come alive for buyers to secure such low debt service and for sellers to have a larger audience. When rates rise, folks reassess and sometimes step aside, which is why this current opportunity should be taken advantage of.
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, they can up their price ceiling to $550,000 and keep the same monthly payment. This is huge, especially in the wake of intense price growth over the last 6-7 years, which priced many buyers out of the market. Buyers that took a break and stepped to the sidelines in the past may want to consider their opportunities now. This is the most favorable buyer environment (inside of a seller’s market) we’ve seen in some time!
This recent decrease in rate is helping the move-up market come alive. 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 buying real estate. According to Nerd Wallet, 49% of all Millennials have a home purchase in their 5-year plan. The rates are also providing very low debt service for investors, second-home buyers, and down-size buyers headed toward retirement.
Will these rates last forever? Simply put, no! According to Freddie Mac, rates should increase closer to the 4’s as we round out 2019 and head into 2020. While still staying well below the 30-year average of 6.85%, 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 30-year average – it is reasonable to think that higher rates 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 advantage in helping make a move 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.
If you would like additional information on how today’s interest rates pertain to your housing goals, please contact me. 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 you and your family.
With the sharpest increase of available homes for sale in years, more opportunities are now available for buyers, including first-timers. Many first-time home buyers have sat on the sidelines and remained renters due to the constriction of inventory, which put major pressure on price affordability. Not only has affordability been an issue, but the terms required to prevail in a multiple-offer situation were often not within reach for someone entering the market for the first time.
For example, over the last 12 months in the Seattle Metro area we have seen a 66% increase in the selection homes for buyers to choose from. There is currently 1.8 months of available inventory based on pending sales versus 0.8 months that was available the same month last year. This is still a seller’s market (0-3 months), but it is providing more than twice as much selection than a year ago. This loosening up of the market has helped to temper price growth by reducing the amount of price escalations and the need to have super aggressive financing terms in order to secure a home.
You see, over the last 3-4 years we have experienced double-digit price appreciation (10-14%) year-over-year, each year. A normal rate of appreciation is 3-5%. Minimal amounts of available inventory, low interest rates, and rapid job growth lead to this increase in prices. Now that more homes are coming to market and job growth has stabilized a bit (still growing, but not as fast), price growth has slowed. This is good news for sustainability and affordability. Here’s the deal though – we are still experiencing growth in values, making home ownership a sound investment over renting.
According to the most recent survey from rentcafe.com, the average rent for an apartment in Seattle is $1,906 with an average square footage of 736 sq. ft. That is quite a bit of money for not a ton of space. Further, that monthly expenditure does not create any wealth for the renter, only for the landlord. With renting, rates can be increased at any time, and you are paying down someone else’s asset, not your own. Also, owning gives the homeowner control of their overhead, while getting to make their house their home by adding improvements such as painting.
There are several factors to consider that will lead a person to make the best decision for their lifestyle and their financial bottom line. One of the biggest factors is interest rates! Currently, the rate for a 30-year fixed, conventional, conforming loan is hovering around 4.88%. Up from earlier this year and predicted to rise, but still historically low over the course of the last 30 years. These rates need to be considered the greatest opportunity of them all! With prices tempering and rates still under the 30-year average of 6.65%, buyers are able to secure a sound investment with very low debt service.
With interest rates predicted to rise over the next year, a good rule of thumb to remember is that for every one-point increase in rate, a buyer loses 10% of their buying power. For example, if the rate jumps from 4.75% to 5.75% and one wants to keep the same monthly payment, they must adjust their price point down by 10%. So, a $450,000 budget becomes a $405,000 budget, and that isn’t taking appreciation into consideration. If you assume an average appreciation rate of 4% year-over-year, today’s $450,000 house will be $468,000 next year. What side of the equity growth do you want to be on? As an owner now, or a buyer a year from now, when prices are higher and interest rates are most likely higher as well?
Once you secure a mortgage, the payment stays the same over the term of the entire loan. The long-term benefits of owning are abundant, including the stability of not being asked to move. These are important factors to consider for everyone, but especially millennials, who are enjoying the benefits of Seattle’s attractive job market. One myth to address is the common belief that you must have a 20% down payment in order to buy a home. That is simply not true. There are loan programs as low as 3% down, decreasing the need to have a large sum of money saved up before being able to buy.
Where folks are having to compromise the most due to affordability is commute times, and settling in less-urban neighborhoods. Worth pointing out, is the average home price in south Snohomish County is 34% less than Seattle Metro – that is a huge savings! Further, south King County is 74% more affordable than Seattle. Some people, mainly millennials, have not been willing to give up living in the core urban neighborhoods that have high walk scores and shorter commute times. That should be apt to change with more selection available in the purchase market, coupled with low interest rates. The advantages of moving out a little further and securing a home will start people on the track of building long-term wealth. If you or anyone you know is currently renting and is considering a change, please let me know, as I would be happy to get their questions answered and help them make an informed decision.
Opportunities Abound for both Buyers and Sellers
How’s the market? This is a question we get all the time. It is a common segue in casual conversation over the neighbor’s fence, at a cocktail party or family gathering. Now more than ever, the answer to this question is critical, yet fascinating. You see, our market is experiencing a long-awaited correction, a tempering of price appreciation. This is providing great opportunities for both buyers and sellers.
For so long, inventory has been so limited that prices have had nowhere else to go but up, and up fast! In May, we saw the largest jump in new listings in a decade, which created a slowdown in month-over-month price appreciation. This was especially exacerbated due to the scarcity of inventory in the first quarter of the year when many jobs were being filled by big companies in the area, skyrocketing demand. The graphs above illustrate the price growth in both King and Snohomish Counties. If you average out the last 12 months and compare to the previous 12 months, prices are up 14% in King County and 13% in Snohomish County. Due to a large increase in inventory and other factors, we have seen prices start to balance out since May.
Additional factors that play into this healthy adjustment on the run-up of prices are interest rates, affordability, and Seattle summertime. First, interest rates have been dancing. They have climbed over a half a point from a year ago, which has been coupled with double-digit price growth, forcing many buyers to take a step back. Bear in mind that interest rates are still under 5% and well below the 30-year average of 6.61%. This must be taken to heart!
Affordability has been a huge factor that played into the reduction of absorption rate once the increase in new listings hit this Spring. This was especially true in King County. Prices peeked so far this year at $725,000 in April, whereas they peeked in Snohomish County at $510,000 in June. This is simple supply and demand, as buyers have had more selection. Further, many buyers turned their heads north to find a more affordable option while still sustaining a manageable commute.
The bottom line is that it just got too expensive for some to make King County their home, even Snohomish County for that matter. Combine that with an influx of selection, and you find the top of the market so far in 2018. This is not a bad thing! We must keep the double-digit, year-over-year price appreciation in perspective, and trust that the market factors which led to prices balancing out are healthy. A typical appreciation rate is 3-5%. Matthew Gardner, Windermere’s Chief Economist, predicts that we will finish out 2018 with 7-8% appreciation over 2017, which is well above the norm of 3-5%. Sustainable growth is important to the overall health of our economy and culture; this provides opportunity.
Buyers take heed. As we come out of the Seattle summertime seasonal slowdown, we anticipate a little run on new listings in September and October. Note on the graph above that we seasonally see prices peek in the late spring and early summer, due to many folks taking time to enjoy the summer months traveling and relaxing a bit. If you have been a sidelined buyer or have been thinking about making a move, the remainder of 2018 may be your time to enjoy more selection, still-low interest rates, and the chance to secure the best home for your lifestyle.
Interest rates are still attractive (historically attractive) and are predicted to rise. Plus, selection has increased, making negotiations not as intense. Multiple offers are not always the norm these days, which provides some breathing room for luxuries like inspections and relying on the bank’s appraisal to confirm value. Also, if you are a buyer that needs to sell a home first in order to purchase, this environment is much more forgiving. Believe it or not, we have even started to see contingent offers make a comeback.
This was one reason why we saw such a limit on inventory, because folks were not able to make fluid moves, so they just uncomfortably stayed put. It was the many baby boomers who came to market this spring and summer who relocated out of the area that loosened this up, paving the way for the local first-time, move-up, or move-down buyer to have some opportunity to transition.
So what does all this mean for potential sellers? Well, a lot! The word of the day is perspective. You must keep a close connection to the double-digit, year-over-year price appreciation we have seen over the last three years, and come to terms with today’s balancing out. Great equity gains are behind every homeowner who has owned their home since 2012. If that equity has been cared for, there are large profits to turn, even though you might not get multiple offers. All it takes is one good buyer for a successful sale!
It is all about what is motivating you. If a move seems interesting or imminent, chances are you can take that equity and turn it into something that better matches your current lifestyle. This is where a detailed assessment of the features of your home, along with an analysis of market conditions can be developed into a winning strategy. This does not come easy and requires in-depth research, close attention to condition and comparable homes, and outstanding marketing and merchandising.
Where I have seen the most opportunity is when sellers partner up and listen to the professional assessment of all of these factors. It often leads to satisfying results with one buyer, or believe it or not, the occasional multiple offer. Our market is exciting, but it takes skill to set level expectations, which leads to positive results.
If you or someone you know is curious about “How’s the Market?”, please reach out. Education and explanation are key to awareness, which leads to clarity. I love what I do and look forward to the opportunity to serve during this changing time. It is my goal to help keep my clients informed and empower strong decisions.