Is Seattle’s real estate market cooling?

After a chaotic summer that saw extremely low housing inventory, bidding wars and record-breaking jumps in median sale prices, Seattle’s tight real estate market could be showing signs of cooling off for the fall season.

A new market report form the Northwest Multiple Listing Service (NWMLS) found that competition for homes in Seattle eased slightly in July, with brokers adding more listings and less homes going under contract. The agency saw slightly fewer pending sales in July than in June and May.

Some of that slowdown might be seasonal, while other experts took into account that the state lifted all COVID-19 restrictions on June 30, and more people could be traveling after spending so much time at home.

“Although the local market is intense, buyers can find some relief because there aren’t as many offers to compete with compared to earlier this year,” said J. Lennox Scott, chairman and CEO of John L. Scott Real Estate in a news release Thursday. “August historically is the last month of the year with elevated levels of new listings before they slowly taper down in the fall and decline more substantially over the winter.”

However, inventory still remains historically low and prices are still climbing, meaning any breathing room for homebuyers might be short lived. Across all 26 Washington counties surveyed by the NWMLS, there is only 0.73 months of inventory. And only 12 counties report having more than one month of supply.

“Despite the extreme shortage of inventory and robust sales activity, there seems to be a bit of a leveling off from the market frenzy,” said Gary O’Leyar, broker owner at Berkshire Hathaway HomeServices Signature Properties. “In my opinion this is due to a typical mid-summer season market combined with some buyer fatigue.”

Prices also continued to climb. In June, median sale prices for homes in the region soared 30% compared to the previous year, marking a new record high. In King County, the median home sale price hit $775,000 in May, up 23% from the same time last year.

However, that growth is not just in the Seattle metro area. Many brokers said that suburban counties along the Interstate 5 corridor have seen sharp price increases, mirroring the fact that homes in the heart of Seattle are appreciating at a slower rate than homes located away from downtown.

“Prices in Lewis County are up 54.2% from the July 2019 level, Snohomish County is up 40.6%, and Island County is up 44.3%,” said James Young, director of the Washington Center for Real Estate Research at the University of Washington. “The search for value in the suburbs with sharp price increases suggest households are making their housing preferences known. They want to own rather than rent.”

One area of the market continues to rebound from the pandemic: condominium sales. New listings outpaced pending sales in July, and prices rose more modestly at 12.6%. In King County, where the majority of condos are sold, the median priced condo sold for $460,000.

Brokers are advising residents to make the most of the seasonal lull in the market while also warning potential sellers about overpricing.

“My advice to buyers would be to take advantage of this time before Labor Day and the fall market,” said O’Leyar. “[For sellers,] don’t get overly hyped with anecdotal information about the real estate market. Overpricing a listing in this market is still a big mistake.”

~Callie Craighead, Seattle P-I

Buyers struggling to buy homes

First time homebuyers and seasoned homebuyers alike are finding themselves frustrated when they bid over asking price, without concessions, only to be declined over and over.

“Why are we getting outbid?”

It’s the question on a lot of would-be homebuyers’ lips right now, and there are a few different factors at play.

Although it may feel like another housing bubble, the issues plaguing the market today are far different. In 2008, the housing market crash was precipitated by questionable mortgage practices and home builders churning out more homes than the market could absorb.

Today, that equation is flipped: lenders are only issuing mortgages to highly qualified individuals, the existing housing stock isn’t enough for a growing population, Boomers are aging in place rather than selling, and home building continues to lag behind demand. The current market conditions aren’t going away anytime soon.

Although there are nuances at the local market level, it’s safe to say that the housing market in the U.S. right now is extremely competitive. Well-qualified buyers are struggling to understand why solid offers at full asking price are no longer enough. This January, 56% of buyers faced bidding wars on their offers, according to a Redfin survey.

In order to make offers more appealing to sellers, buyers are having to go above and beyond – whether this means making an all-cash offer, an offer well above asking price, or a no-contingency offer. And frequently, buyers are offering all three.

The problem is, of course, that many buyers are limited in what they can offer. First-time home buyers are often lucky if they can put down 20%, let alone an entire cash offer, and often have student loans and other obligations holding them back from bidding higher. Other buyers – rightly so – are wary of waiving inspection contingencies. And even if a buyer is offering over asking, in this market, it may simply not be enough.

In the Philadelphia suburbs, homes in poor condition are going for 15% over asking. If the house has several really desirable features, the bids are reaching the 25% over asking range. And if a house is fully move-in ready–it’s actually in decent condition, it’s clean, and everything is great–it can go for 35 to 50% over asking price.

Historically low mortgage rates have been adding fuel to the fire. Mortgage rates reached an all-time low of 2.8% over the past year and continue to remain low, which allows qualified buyers to purchase more house while maintaining lower monthly payments. Knowing that rates will eventually rise is encouraging buyers to stay in the game, rather than waiting for a cooling-off period. There are simply more people than ever competing for a limited number of homes.

Appraisals have also been a factor in buyers losing out on homes. Buyers can bid high, but the lender isn’t going to approve a loan for more than the appraisal amount. Cash offers are preferable only because sellers seem to be looking for the path of least resistance to closing.

FHA loans, while popular among first time home buyers, are at a distinct disadvantage in this market because sellers – whether it’s fair or not – are often under the impression that these buyers will need to jump through more hoops to close on the house, and will have less cash on hand to make up for gaps between the offer and the appraised value.

Those searching for a new home shouldn’t expect the market to dramatically change anytime soon. People are slowly transitioning back to the workplace from work from home, mortgage rates may be going up, and as the country continues to re-open, there may be a cooling off period. Even still, thanks to pent-up demand from the years before COVID, it will likely only go from an “extreme” sellers market to a “strong” sellers market. Demand will continue to outstrip supply for the next several years.

So what can buyers do?

Buyers may want to start off their home search looking 10-20% below their ideal price range. This will give them more room for leverage and to comfortably bid well over asking. If they need a home a year from now, start searching for that home now, because many buyers are waiting 5+ months until they get into a home.

When mortgage rates are so low, another thing buyers can do is talk to mortgage lenders about taking a slightly higher interest rate to get lender credits they can put towards closing costs. This tactic has been helping first time home buyers who don’t have a lot of cash on hand.

If a buyer needs to take out a mortgage to purchase a home, they should consider making a statement to the seller as to exactly how much cash they are willing to bring to closing, in case the appraisal comes back below what the lender will pay. That’s a major factor in why people are getting outbid, and it’s something that someone who needs a mortgage is going to have to consider doing.

It can be tempting to add in contingencies (such as your own home having to sell for the purchase to go through), but realistically it is important to keep the deal as uncomplicated as possible, because buyers simply don’t have the upper hand in this competitive market.

However, there’s one compromise buyers should never make. Don’t eliminate the inspection! Buyers can write the condition of the home in the contract “as is, with right to terminate” so that they have the ability to walk away if any major problem is uncovered. This protects buyers from buying a home with a major, undisclosed issue such as structural/foundational issues or a rotting roof while still assuring the seller they won’t be squabbling over a loose tile.

Buyers should have an in-depth talk with their Realtors about what will help them stand out in their local market and follow their advice. If they say your offer is too soft, it probably is. If a Realtor says the buyers must drop some of their “must haves,” do it.

Buyers should manage expectations so that they’re prepared for the likely event that they need to bid on multiple homes. Don’t fall in love with the first home either; see a second home right after it. Expect to write multiple offers, and expect to get outbid multiple times. It’s all part of the journey to homeownership in today’s market, and it’ll be worth it once the home has been secured.

Mike Maher, Houzer

It’s going to get worse for Renters!

We often promote homeownership over renting when a family is ready, willing and able to purchase. There are both financial and non-financial benefits to owning a home of your own. Based on the headlines below, many news outlets agreed with us after they reviewed a recent report from the Harvard Joint Center for Housing Studies and Enterprise Community Partners.

The study states that the number of households spending 50% or more of their income on rent is expected to rise by over ten percent in the next decade. They concluded:

“Overall, this white paper projects a fairly bleak picture of severe renter burdens across the US for the coming decade.”

What do other experts think of the report? You can tell by the headlines they chose to introduce their stories:

“Renters, get ready to take it on the chin” – CNBC

“The Rent Crisis Is About to Get a Lot Worse” – Bloomberg Business

“Renters Will Continue to Struggle for the Next Decade” – World Street Journal

“Why the renting crisis could be about to get a lot worse” – Fortune Magazine

“Soaring rents are a problem that will only get worse” – Business Insider

“High rents are here to stay” – The Real Deal

Bottom Line

If you are thinking about buying a home and are financially positioned to do so, now may be better than later.

Home Prices Up 12.9% from Last Year: Case-Shiller

 In recent housing news, the latest Standard & Poor’s/Case-Shiller Home Price Index tracked a 0.8 percent rise in February based on a seasonally adjusted basis. This is slightly better than the predictions of national economists. A Reuters poll of economists had forecast a 0.7 percent rise.

Nationwide home prices were up 12.9 percent on a year-over-year basis, and while the numbers—released on Tuesday– seem to indicate a healing market, the U.S. home prices were actually nearly unchanged in February, after slumping 0.1 percent in each month since November, according to the 20-city composite index. The 12.9 percent year-over-year February basis, while seemingly positive, actually shows that price growth is slowing down.

Numbers were down from 13.2 percent in January, and fell even further from the peak of 13.7 percent in November. Additionally, the percentage lands just a smidge shy of the predicted year-over-year basis, which had weighed in at an expected 13 percent.

“Despite continued price gains, most other housing statistics are weak,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices, who cited new and existing home sales data. “The recovery in housing starts, now less than one million units at annual rates, is faltering. Moreover, home prices nationally have not made it back to 2005.”

Zillow Chief Economist Dr. Stan Humphries, commented, “Like pending homes sales numbers yesterday, the Case-Shiller numbers today are generally pretty positive. Behind the flat unadjusted monthly change is a large seasonally adjusted change in home prices. It’s good to have some positive signs amidst some of the sluggish news of late,” “The housing market is showing signs of slowing, but this was expected and is part of a broader return to normal as appreciation slows down,mortgage rates inch up and more balance between buyers and sellers emerges.

Homeownership still represents a good bargain for those that can afford it and can find a suitable home. But affordability issues are becoming an issue in a few markets, and those problems will only get worse as mortgage interest rates rise.”

Pending Sales Change Course

In other real estate news released this week, the Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, increased 3.4 percent in March to 97.4 from an upwardly revised February level of 94.2. The PHSI monthly increase reported by the National Association of REALTORS® was the first since June of 2013, although it remains 7.9 percent below the level of 105.7 last March.

The March PHSI increased in the West, South and Northeast by 5.7 percent, 5.6 percent and 1.4 percent respectively, but fell slightly in the Midwest. Year-over-year, all of the regions were down, ranging from decreases of 11.1 percent and 10.1 percent in the West and Midwest to decreases of 5.9 percent and 5.3 percent in the Northeast and South.

Last week, Census reported a 14.5 percent decrease in March new home sales. Extreme weather was a factor in decreased new and existing home sales at the beginning of the year. The March increase in the PHSI suggests that the existing home market will move forward throughout the spring. The growth in household formations and strong pent-up demand will maintain that momentum throughout this year.

~RIS Media

Mortgage Rates Fall Ahead of Spring Buying Season

Mortgage rates seem to be doing their part to spur the spring home-buying season, according to the latest data released Thursday by Freddie Mac.

After two weeks of increases, the 30-year fixed-rate average fell back to 4.34 percent with an average 0.7 point. It was 4.41 percent a week ago and 3.43 percent a year ago.

The 15-year fixed-rate average also edged down, falling to 3.38 percent with an average 0.6 point. It was 3.47 percent a week ago and 2.65 percent a year ago.

Hybrid adjustable rate mortgages declined as well. The five-year ARM average dropped to 3.09 percent with an average 0.5 point. It was 3.12 percent a week ago and 2.62 percent a year ago.

The one-year ARM average sank to its lowest level of the year, sliding down to 2.41 percent with an average 0.5 point. It was 2.45 percent a week ago.

“Mortgage rates eased a bit following the decline in 10-year Treasury yields,” Frank E. Nothaft, Freddie Mac vice president and chief economist, said in a statement.

“Also, the economy added 192,000 jobs in March, which was below the market consensus forecast but followed an upward revision of 22,000 jobs in February. Meanwhile, the unemployment rate held steady at 6.7 percent.”

Mortgage applications continued to decline, according to the latest data from the Mortgage Bankers Association.

The Market Composite Index, a measure of total loan application volume, fell 1.6 percent. The Refinance index dropped 5 percent, while the Purchase Index showed an uptick for the third week in a row, increasing 3 percent.

The refinance share of mortgage activity waned for the ninth week in a row. Refinances accounted for 51 percent of all applications, their lowest level since July 2009.

~Kathy Orton, Washington Post

Five reasons to buy a home now

Based on prices, mortgage rates and soaring rents, there may have never been a better time in real estate history to purchase a home than right now. Here are five major reasons purchasers should consider buying.

1. Competition is about to Increase

Every spring a surge of prospective purchasers enter the housing market. Like you, they will want the best home available in the best location at the best price. They will be competing with you for the ‘steals’ in the market. Don’t miss the opportunity to get that ‘once-in-a-lifetime’ buy available today that no longer be available as the market heats up..

1. Price Increases Are on the Horizon

Nationally, home prices are projected to appreciate by 4.5% in 2014 and by over 19% from now until 2018. First home buyers will probably pay more both in price and interest rate if they wait until the spring. Even if you are a move-up buyer, it will wind-up costing you more in net dollars as the home you will buy will appreciate at approximately the same rate as the house you are in now.

1. Owning a Home Helps Create Family Wealth

Whether you rent or you own the home you are living in, you are paying a mortgage. Either you are paying your mortgage or your landlord’s. The Federal Reserve, in a recent study, revealed that the net worth of the average homeowner is 30 times greater than that of a renter.

1. Interest Rates Are Projected to Rise

The Mortgage Bankers Association, the National Association of Realtors, Freddie Mac and Fannie Mae have all projected that the 30-year mortgage interest rate will be over 5% by the spring of 2015. That is an increase of almost ¾ of a point over current rates.

1. Buy Low, Sell High

Most would all agree that, when investing, we want to buy at the lowest price possible and hope to sell at the highest price. Housing can create family wealth as long as we follow this simple principle. Today, real estate is selling ‘low’ compared to where it will be next year. It’s time to buy.

~ KCM Blog

Moving-Up? Do it NOW not Later

A recent study revealed that the number of existing home owners planning to buy a home this year is about to increase dramatically. Some are moving up, some are downsizing and others are making a lateral move. Another study shows that over 75% of these buyers will, in fact, be in that first category: a move-up buyer. We want to address this group of buyers in today’s blog post.

There is no way for us to predict the future but we can look at what happened over the last year. Let’s look at buyers that considered moving up last year but decided to wait instead.

Assume they had a home worth $300,000 and were looking at a home for $400,000 (putting 10% down they would get a mortgage of $360,000). By waiting, their house appreciated by 13.8% over the last year (national average based on the Case Shiller Pricing Index). Their home would now be worth $341,400. But, the $400,000 home would now be worth $455,200 (requiring a mortgage of $409,680).

Here is a table showing what the additional monthly cost would be incurred by waiting:

                       

Prices are projected to appreciate by over 4% and interest rates are also expected to rise by as much as another full percentage point. If your family plans to move-up to a nicer or bigger home this year, it may make sense to move now rather than later.

~KCM Blog

 

2013 MLS Annual Review

Brokers report nearly $25.5 billion in 2013 sales

Members of Northwest Multiple Listing Service reported 75,517 closed sales during 2013, surpassing the 2012 volume by around 11,000 transactions for an increase of nearly 17 percent. Measured by dollars, last year’s sales of single family homes and condominiums were valued at nearly $25.5 billion to outgain the previous year by more than $5.5 billion (up 27.4 percent).

Last year’s completed sales included 65,122 single family homes and 10,395 condominiums, as tallied by nearly 21,000 real estate brokers in the 21 counties that make up the Northwest MLS service area.  The total units and dollar volume are the best since 2007 when members registered 82,197 sales valued at $32.3 billion.

The area-wide median price for last year’s sales was $270,000, improving on the previous year’s figure of $245,000 (up 10.2 percent). A comparison by county shows median sales prices ranged from $118,750 in Pacific County to $372,000 in King County.

Prices for single family homes (excluding condominiums) also rose 10.2 percent from 2012, increasing from $255,000 to $281,000. Condo prices jumped 15.3 percent, rising from the 2012 figure of $175,200 to last year’s median price of $202,000.

By one measure, buyers who shopped during 2013 had a bigger selection as members added more than 104,000 listings to inventory during the year. That was an improvement over 2012 when members added 91,359 new listings. However, brisk sales meant the total number of active listings, which averaged 21,946 during 2013, fell below the previous year’s average of 24,604.

During 2013, the area-wide supply, as measured by months of inventory, ranged from a low of 1.95 in March to 3.68 in December. Industry watchers tend to use a 4-to-6 month range as an indicator of a balanced market, favoring neither buyers nor sellers. Supply tended to be tightest in King and Snohomish counties.

Further evidence of a housing recovery is reflected in high-end sales. Northwest MLS members reported 1,621 sales of single family homes priced at $1 million or more, up 45.2 percent from the 2012 total of 1,116 such sales. Condos priced at $1 million and up accounted for another 137 sales, about the same number as 2012 (138 sales).

The highest-priced single family home that sold during 2013 by a member of Northwest MLS was a property in Medina that fetched $9.75 million. A penthouse in downtown Seattle that sold for $6.2 million topped the condo list.

Among other highlights in its annual compilation of statistics, Northwest Multiple Listing Service reported:

• Single family homes accounted for 86 percent of last year’s residential sales.
• Nearly half (49 percent) of last year’s single family home sales were 3-bedroom      homes. More than three-fourths (77 percent) of condos that sold had 2      bedrooms.
• The median price for a 3-bedroom home that sold in 2013 was $250,000. A      comparison by county shows the median price for this size home ranged from      $128,000 in Pacific County to $450,000 in San Juan County.
• Of the condo sales, about two-thirds (64.1 percent) were located in King      County. Within that county, the Eastside edged out Seattle for the largest share (39.7 percent versus 37 percent).
• Last year’s sales included 8,298 newly built single family homes that sold for a median price of $325,000, and 846 condos that sold for a median price of      $350,214.
• A 10-year comparison of median prices of single family homes shows prices      peaked in most counties in 2007. In 2013, Grant County selling prices returned to 2007 levels, Okanogan prices were at 96.7 percent of 2007 prices, and King County prices were at 91.2 percent of 2007 prices. Other counties have not yet reached those levels, but most are experiencing steady gains.
• Prices vary widely among school districts. An analysis of some of the largest      districts in the MLS market area shows single family homes on Mercer Island have the highest prices, followed by homes in the Bellevue, Issaquah, Lake Washington and Bainbridge school districts.

Why 2014 is a Good Year to Buy a Home

If you didn’t buy a home in 2013, you may be kicking yourself now. Home prices climbed nationally an average of 13.6 percent in the past 12 months, according to Tuesday’s release of the Standard & Poor’s/Case-Shiller 20-city home price index.

Don’t make the same mistake in 2014, suggests Benjamin Weinstock, real estate attorney and partner at the firm Ruskin Moscou Faltischek in Uniondale, N.Y.

Market forecasters predict that 2014 will be another year of gains for the real estate market, even though the rapid pace of sales in 2013 cooled off a bit at the end of the year. On Dec. 30, The National Association of Realtors said its pending home sales index, based on contracts signed last month, rose 0.2 percent in November, below the 1 percent rise forecast.

Home prices are expected to rise about 5 percent next year, says Weinstock. Higher mortgage rates will dampen the pace of both sales and price gains, but not bring them to a halt. The average rate on a 30-year fixed mortgage is expected to rise from 4.5 percent to 5 percent in the next year.

Even aside from expected price gains, buying a home is almost always a good investment in the long run, says Weinstock. Tax benefits are not to be overlooked.

“When one rents, at the end of the year he or she has a pile of 12 cancelled rent checks,” Weinstock says. “However, the homeowner has a pile of 12 cancelled mortgage checks that are nearly fully tax deductible in most cases.”

~Amey Stone, CBS Money Watch

The Gardner Report, 2014

The Gardner Report, 2014

Now is the time of year when many prognosticators – like myself – start to gaze into the future and attempt to see what the year has in store.

As I look in the rear-view mirror, 2013 can be considered another year of recovery with all major asset classes performing well, admittedly with no little amount of assistance from the debt and equity markets, as well as overall improved confidence in the U.S. economy.

So what am I seeing for this year? Here are my thoughts.

Employment
It was certainly pleasing to see that in the Fall of 2013 – after five long and grueling years – employment in the Seattle metro area managed to return all of the jobs that were lost during the recession. The area shed over 124,000 positions during the recession, but has managed to not only claw all these back, but the current employment level is now 6,200 jobs higher than the prior peak. (Data as of November 2013.)

Although this is certainly positive for the market, I do have a word of caution. Somewhat counter-intuitively, employment growth in the metro area turned negative in the Fall of 2013 and, while this may be just an anomaly, it has certainly put a damper on my exuberance!

That said, I still see 2014 as a year when we will add to our total employment base, but the pace of growth will likely taper. I am looking at total employment rising by 2.5%, adding around 35,500 new payroll jobs to the Seattle metro area.

With this growth, the unemployment rate should contract from the current level of 5.6% to 4.8%.

Ownership Housing
Single family resale housing prices bottomed out at the end of 2011 at $340,000. By the end of 2013, the average sale price had risen by 28% to $436,000 which is encouraging; however, this is still 19% below the peak seen in the summer of 2007.

I anticipate that 2014 will continue to bring price growth with resale single family home prices growing by 5 percent – essentially matching the rise seen in 2013 for the combined metro area. Modestly greater price gains will be seen in King County than in Snohomish County, but will still be in the single digits. This slower growth model will be a result of rising interest rates as well as more tapered expectations from sellers. We saw list prices drop through the second half of last year – a necessary move as the relationship between average list price and average sale price was getting strained. As such, average sale price growth slowed and this will continue to be the case in 2014.

Listing activity, although 18 percent higher in 2013 than in 2012, is still not where I want it to be and I am hoping that this year will provide more choice for home buyers. There remains nagging concerns over the so called “shadow inventory”, but I maintain the position that this will not negatively impact aggregated values.

On the new construction front, I believe that we will see home builders support the market with the introduction of additional inventory; however, concerns over rising land values and construction costs will have many remaining wary. Finished lot values almost doubled in 2013 which has caused a somewhat bifurcated market with the national builders holding a significant advantage over the smaller local builders as they have the wherewithal to take down these expensive lots.

Additionally land constraints will continue to influence price and this will continue to be an issue in the new home industry.

Looking at the condominium market, we will continue to see a reemergence, but it is unlikely that we will see any additions to the inventory above the two projects currently under construction. Financing in this world remains tight even though demand for new condos appears to have returned.

Mortgage Interest Rates
Mortgage rates are already on the rise and we are sure to see this continue through 2014 as the Federal Reserve continues to taper its purchase of mortgage-backed securities and treasury bills. The increase in rates will not, however, be abrupt, but rather gradual through the year but I would not be surprised to see the average 30-year fixed mortgage rate hit 5.4% by years’ end.

Before we all start to gesticulate madly that this is the end of the world, let us not forget that interest rates were substantially higher in the past (9% in 1990 and close to 20% in 1982!)

This does, however, add further credence to my belief that home price growth will taper this year as affordability — especially for first-time buyers — gets tested.

he time of year when many prognosticators – like myself – start to gaze into the future and attempt to see what the year has in store.

As I look in the rear-view mirror, 2013 can be considered another year of recovery with all major asset classes performing well, admittedly with no little amount of assistance from the debt and equity markets, as well as overall improved confidence in the U.S. economy.

So what am I seeing for this year? Here are my thoughts.

Employment
It was certainly pleasing to see that in the Fall of 2013 – after five long and grueling years – employment in the Seattle metro area managed to return all of the jobs that were lost during the recession. The area shed over 124,000 positions during the recession, but has managed to not only claw all these back, but the current employment level is now 6,200 jobs higher than the prior peak. (Data as of November 2013.)

Although this is certainly positive for the market, I do have a word of caution. Somewhat counter-intuitively, employment growth in the metro area turned negative in the Fall of 2013 and, while this may be just an anomaly, it has certainly put a damper on my exuberance!

That said, I still see 2014 as a year when we will add to our total employment base, but the pace of growth will likely taper. I am looking at total employment rising by 2.5%, adding around 35,500 new payroll jobs to the Seattle metro area.

With this growth, the unemployment rate should contract from the current level of 5.6% to 4.8%.