It is the time of year when we like to re-cap the price premiums in our area based on commute times. The price divide continued in 2017 between key market areas in the Greater Seattle area based on proximity to major job centers. These pricing premiums have cemented the drive-to-qualify market. Seattle proper has always been more expensive than its neighboring suburbs, but the most current prices illustrate the extreme value of a shorter commute.
In 2017, the average sales price for a single-family residential home in the Seattle Metro area was $801,000, up 14% from the year prior! In south Snohomish County (Everett to the King County line) the average sales price for a single-family residential home in 2017 was $543,000, up 12% from the year prior, however 48% less expensive than Seattle Metro.
Further, if you jump across Lake Washington to the Eastside, the average sales price in 2017 for a single-family residential home was $1,049,000, up 16% from the year prior and 31% more expensive than Seattle Metro! The Eastside has the infrastructure to support their own job centers, making it a second “Seattle”, with the benefit of newer and larger housing stock, which reflects the pricing. Many folks are living and working on the Eastside, or using the 520 toll bridge to jump over to Seattle.
In 2017, closed transactions were up 4% in south Snohomish County despite fewer new listings coming to market, which I think was driven by its affordability compared to Seattle and the Eastside. Snohomish County offers lower prices, larger houses and yards, new construction, lower taxes, strong school district options and longer, yet manageable commute times. Newer transit centers and telecommuting have also opened up doors to King County’s little brother to the north.
Another hot button that has continued to influence pricing is the future expansion of Light Rail and the locations of the planned stations. We have seen home values in these areas sell at a premium as consumers anticipate the shorter commute times the rail will bring. These neighborhoods are experiencing zoning changes now and the additional expansion is being phased in over the course of the next 15 years. There will be more multi-family and commercial development in these areas, creating more density to serve the public using these commuting services. This has created great appeal for homeowners that want to get in on the ease of nearby public transportation, and developers eager to be part of the infrastructure growth. Stations at Northgate, 145th & 185th in Shoreline, Mountlake Terrace and Lynnwood are all slated to open over the next 3-6 years.
No matter what neighborhood you are interested in learning about, in either King or Snohomish County, we are happy to provide a 2017 re-cap of that market. We work in both counties and understand each of their nuances. 2017 was another eventful year in real estate and we are looking for that to continue in 2018. With these strong market prices, we hope to see an increase in inventory levels, providing more options for buyers and allowing price growth to temper to sustainable levels.
Here’s to a successful 2018!
Price growth was particularly strong in 2017! Median was up 13% and average price up 12% over 2016. Median price in 2017 landed at $405,000 and the average at $440,000. The average amount of days it took to sell a house in 2017 was 30 days which is 9% faster than 2016. The average list-to-sale price ratio over the last year was 100%, with the spring months as high as 102%! In 2017, inventory growth continued to be a challenge, with a 7% decrease in new listings compared to 2016. Even with inventory limitations there were 2% more sales! This phenomenon illustrates strong buyer demand and a need for more listings.
South King County real estate has seen a steady stream of buyers come our way due to affordability, reasonable commute times and quality of life. In fact, the median price in 2017 was 75% higher in Seattle Metro. Historically low interest rates continue to drive the market as well, they have helped offset the increase in prices. Sellers are enjoying great returns due to this phenomenon and buyers are securing mortgages with minor debt service.
This is only a snapshot of the trends in south King County; please contact me if you would like further explanation of how the latest trends relate to you.
Price growth was particularly strong in 2017! Median was up 15% and average price up 16% over 2016. Median price in 2017 landed at $865,000 and the average at $1,049,000. The average amount of days it took to sell a house in 2017 was 24 days, which is 17% faster than 2016. The average list-to-sale price ratio over the last year was 101%, with the spring months as high as 103%! In 2017, inventory growth continued to be a challenge, with a 4% decrease in new listings compared to 2016. Even with inventory limitations there were a near equal amount of sales! This phenomenon illustrates strong buyer demand and a need for more listings.
Demand for Eastside real estate has grown due to close proximity to job centers, great schools and quality of life. Over the last year, the Eastside was 70% more expensive than south Snohomish County and 22% over Seattle Metro. Historically low interest rates continue to drive the market as well, they have helped offset the increase in prices. Sellers are enjoying great returns due to this phenomenon and buyers are securing mortgages with minor debt service.
This is only a snapshot of the trends on the Eastside area; please contact us if you would like further explanation of how the latest trends relate to you.
Price growth was particularly strong in 2017! Median was up 15% and average price up 14% over 2016. Median price in 2017 landed at $710,000 and the average at $801,000. The average amount of days it took to sell a house in 2017 was 18 days, which is 10% faster than 2016. The average list-to-sale price ratio over the last year was 103%, with the spring months as high as 106%! In 2017, inventory growth continued to be a challenge, with a 3% decrease in new listings compared to 2016. Even with inventory limitations there were 4% more sales! This phenomenon illustrates strong buyer demand and a need for more listings.
Demand for Seattle Metro area real estate has grown due to close proximity to job centers. Over the last year, Seattle Metro was 40% more expensive than south Snohomish County and 75% over south King County. Historically low interest rates continue to drive the market as well, they have helped offset the increase in prices. Sellers are enjoying great returns due to this phenomenon and buyers are securing mortgages with minor debt service.
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.
At Windermere, we have the privilege of working with esteemed economist, Matthew Gardner. Throughout the year, I have shared his quarterly Gardner Reports which delineate out all the different housing markets in Western Washington and reports on price appreciation and sales data. Below is a recent article he wrote about predictions for the 2018 real estate market; which was picked up by several news sources, including Inman News.
As a bonus, I recently had the opportunity to chat with him and get some specific insights on the Greater Seattle real estate market for 2018 and have included those at the end of this article. 2018 looks to be another strong year in real estate. If you are curious about how the market might affect your bottom line, please contact me. It is my goal to help keep my clients informed, empower strong decisions and create exceptional results. Here’s to a very happy New Year!
What Can We Expect From the 2018 Housing Market?
by Matthew Gardner, Chief Economist, Windermere Real Estate
Millennial Home Buyers
Last year, I predicted that the big story for 2017 would be millennial home buyers and it appears I was a little too bullish. To date, first-time buyers have made up 34% of all home purchases this year – still below the 40% that is expected in a normalized market. Although they are buying, it is not across all regions of the country, but rather in less expensive markets such as North Dakota, Ohio, and Maryland.
For the coming year, I believe the number of millennial buyers will expand further and be one of the biggest influencers in the U.S. housing market. I also believe that they will begin buying in more expensive markets. That’s because millennials are getting older and further into their careers, enabling them to save more money and raise their credit profiles.
Existing Home Sales
As far as existing home sales are concerned, in 2018 we should expect a reasonable increase of 3.7% – or 5.62 million housing units. In many areas, demand will continue to exceed supply, but a slight increase in inventory will help take some heat off the market. Because of this, home prices are likely to rise but by a more modest 4.4%.
New Home Sales
New home sales in 2018 should rise by around 8% to 655,000 units, with prices increasing by 4.1%. While housing starts – and therefore sales – will rise next year, they will still remain well below the long-term average due to escalating land, labor, materials, and regulatory costs. I do hold out hope that home builders will be able to help meet the high demand we’re expecting from first-time buyers, but in many markets it’s very difficult for them to do so due to rising construction costs.
Interest rates continue to baffle forecasters. The anticipated rise that many of us have been predicting for several years has yet to materialize. As it stands right now, my forecast for 2018 is for interest rates to rise modestly to an average of 4.4% for a conventional 30-year fixed-rate mortgage – still remarkably low when compared to historic averages.
There are changes to the income tax structure that could potentially have a significant impact on homeowners and the housing market. The first is the mortgage interest rate deduction which will be capped at $750,000 – down from $1,000,000. In theory this can be considered a tax on wealthy households, but there have been nearly 100,000 home sales this year where the mortgage loan was over $750,000 (almost 4% of total sales), so the effect will be felt more broadly.
That said, this change will disproportionately affect high-cost markets in California, New York, and Hawaii, and to a somewhat lesser degree, it will also be felt in Seattle, and parts of Colorado and Arizona. The capping of the deduction for state and local property taxes (SALT) at $10,000 will also negatively impact states with high property taxes, such as California, New York, and New Hampshire.
The final tax bill also eliminates the deduction for interest on home equity loans which is currently allowed on loans up to $100,000. This is significant because it will largely affect the growing number of homeowners who are choosing to remodel their home rather than try to find a new home in supply-starved markets like Seattle.
While these measures will likely have a dampening effect on housing, I do not believe they will lead to a substantial drop in home values. However, there is a concern that it will lead to fewer home sales, as households choose to stay put so they can continue to take advantage of the current mortgage interest deduction. The result could be fewer listings, which could actually cause home prices to rise at above-average rates for a longer period of time.
I continue to be concerned about housing affordability. Home prices have been rising across much of the country at unsustainable rates, and although I still contend that we are not in “bubble” territory, it does represent a substantial impediment to the long-term health of the housing market. But if home price growth begins to taper, as I predict it will in 2018, that should provide some relief in many markets where there are concerns about a housing bubble.
In summary, along with slowing home price growth, there should be a modest improvement in the number of homes for sale in 2018, and the total home sales will be higher than 2017. First-time buyers will continue to play a substantial role in the nation’s housing market, but their influence may be limited depending on where the government lands on tax reform.
Gardner, Matthew. “What Can We Expect From The 2018 Housing Market?” Windermere Real Estate. Windermere.com, 8 December 2017. Web. 27 December 2017.
A Conversation with Matthew
It is always a pleasure to talk with Matthew. We recently discussed his thoughts on the Greater Seattle real estate market and what he sees shaping up for 2018.
Millennial homebuyers were more of an influence in the Greater Seattle market in 2017 because of the robust hiring that corporations such as Amazon have made. He thinks that this will continue to grow in 2018, because the cost of rent continues to rise at a rapid pace and in many cases owning makes superior financial sense. For example, it is not unheard of to pay $3,000 a month in rent for a unit in South Lake Union. While this eliminates a commute, it is an incredibly costly payment that goes entirely towards the landlord’s investment. If one is willing and able to pay that much in rent, it is important to look at the fact that that number is equivalent to a mortgage payment on a $550,000 home! He predicts that we will see more millennial homebuyers move out to the more traditional suburbs to start building their wealth in real estate. Ideally, Millennials would love to live in “ex-urban” areas that are still close to their places of work; however, listings are slim and prices very high for this type of product.Therefore, he expects to see Millennials having to look at the suburbs when deciding where to buy.
In 2017, net in-migration totaled 50,000 in the Greater Seattle area. Matthew predicts that we will see the same in 2018 due to our robust job market and Californians continuing to move to the area. Employment in the region will continue to expand, but at lower rates than seen in 2017. That said, he sees more wage growth than job growth in 2018 as companies have done so much hiring over the last 3 years, and now they are focused on maintaining their employee base. Amazon has signed on to occupy 5 million additional square feet of space over and above the 8+ million square feet that they currently occupy, so we will continue to see job growth there. The unemployment rate will stay below 4% in 2018.
Matthew believes we will see a slight increase in inventory taking our market to hot from boiling. Some new construction will help this increase and he does expect to see some Baby Boomers deciding to either cash-out and leave the area, or downsize. This inventory growth should temper price growth and increase sales by 6%. In 2017, we saw a year-over-year price appreciation rate of 13% in the Greater Seattle area, and he predicts 8-8.5% for 2018. This is still well above the normal rate of 5.5%, but certainly much more sustainable than 13%!
Lastly, Matthew is adamant that we are not headed toward another bubble. The average down payment in the Greater Seattle area is now over $100,000 and home owners have great equity positions, which is a critical ingredient to a non-bubble market. Additionally, credit is still very tight and buyers are very highly qualified, and the rampant speculation that is the key sign of a bubble is not being seen locally. His biggest concern is affordability, and that we need to continue to find ways to create more housing through zoning changes and decreasing the cost of regulation for builders. This density would create more affordable housing.
Are we headed for another housing collapse?
We get asked this question often, and we can understand why. With the 2008 Great Recession not too far back in our rear-view mirror it is understandable that folks don’t want history to repeat itself, as that was a very painful time for many. Also, price appreciation has been rapid across the country, but especially in our region. The large price gains might seem familiar to the gains of the previous up market of 2004-2007, but the environment is much different. Here are three reasons why we are not headed towards (or in) another real estate bubble:
1. Lending Requirements
Previous lending practices allowed people to get into homes with risky debt-to-income ratios, low credit scores and undocumented incomes. They called this sub-prime lending. A large part of why the housing bubble burst 10 years ago was due to people getting into mortgages they were not equipped to handle, which lend to the eventual fall of sub-prime lending. Currently, the average credit score of secured mortgages over the last 12 months according to Ellie Mae was 724. During the days of sub-prime lending people were funding loans with scores as low as 560! This, coupled with many zero-down loan programs and the risky terms mentioned above left many new homeowners with little to no equity. When you have little or no equity it very easy to just walk away.
The graph above shows the percentage of homes in our state with significant equity (20% or more) according to CoreLogic. Today many homeowners, especially in our region are making large down payments to begin with. Believe me, when competing with multiple offers on a house, the size of down payment matters – hence many buyers landing homes today are making large down payments. Unlike the market prior to the crash, when people have high equity levels they are not likely to abandon their home or miss payments.
2. Inventory Levels & 3. Our Job Market
The biggest challenge in our market has been low inventory levels and high housing demand. It’s simply the concept of supply and demand. Our thriving job market has afforded folks already in our area the ability to make moves, and it is bringing people into our area from other parts of the country. Washington State’s net in-migration is 43% higher than it was 10 years ago. This has created increased demand, especially for homes closer to job centers resulting is shorter commutes. When you have increased demand and not enough homes to absorb the buyers, prices go up. Over the last three years we have easily seen a 10% increase in prices year-over-year. That is above the norm and should slow down as inventory increases. As inventory increases we anticipate a leveling out of appreciation rates to historical norms of 3-4% annually, but not decreasing home values like the 2008-2010 crash.
We understand that the recent increase in home prices has been big and that it might remind you of the previous up market before the crash. Hopefully digging into the topics above has shed some light on how it is different. According to Matthew Gardner, Windermere’s Chief Economist and nationally sought after expert on all things real estate, buyers should not wait this market out, due to future price appreciation and today’s historically low interest rates. Check out his latest vlog that addresses this topic.
As always, it is our goal to help keep the community informed, and empower strong decisions. Please let us know if we can answer any questions or help you or anyone you know with their real estate needs.
The two graphs here illustrate the amount of homes for sale, the amount of homes that sold, pending sales and new listings over the past two years in King and Snohomish Counties. This gives us a good look at the simple principle of supply and demand. We are currently experiencing one of the strongest Seller’s markets in recent history. A Seller’s market is defined by having three or less months of available inventory. Currently, King and Snohomish counties have only 0.9 months of inventory based on pending sales. This means that if no new homes came to market, we would be sold out of homes in less than a month. What is crazy is that this inventory count is down 30% from the year prior, which was also an extreme Seller’s market!
Where this particular Seller’s market is unique, is that a decrease in new listings is not creating this environment, but very high buyer demand is. In fact, King County new listings were up 5% over the last year, but so were sales. In Snohomish County new listings were up 7% over last year, but sales were up 11%! Despite the increase in homes coming to market, demand has matched or outpaced, leaving us with the lowest inventory levels ever.
We can thank our local, thriving job market. So much so, that many people from out-of-state are relocating here to be a part of our economy and the quality of life the Greater Seattle area has to offer. We also have poised move-up buyers ready to cash in on their equity and first-timers ready for action. Combine the healthy local economy with strong equity levels and still historically low interest rates, and the audience for homes that come to market is huge!
Multiple offers are very common and prices are increasing. Median price is up complete year over year in King County by 13% and Snohomish County by 10%. This growth in equity has provided home owners the option to make the moves they have been waiting for, such as a move-up, right-size or relocating out of the area for retirement.
These graphs predict that we will see an increase in new listings as we head into the Spring and Summer months, which is needed to meet demand. If you are considering putting your home on the market this year I would advise the sooner the better, as buyers did not hibernate for the winter and will not be worried about flowers blooming in your front yard. Sellers that beat the second quarter increase in listings will enjoy a larger audience due to less competition.
The importance of both buyers and sellers aligning with a knowledgeable, well-researched and responsive broker is paramount. One might think that it is “easy” to sell a house in this market, but how the preparation, exposure, marketing, management of all the communication and negotiations are handled can make or break a seller’s net return on the sale. While market times are short, they are intense! Negotiations are starting as soon as the property hits the market by educating buyers and their brokers on exactly what a seller would like by the time offers are due. The goal is to bring the sellers I work with not only the highest price, but the best-termed offer that I know is going to close.
If you’re a buyer, it is overwhelmingly important that you are aligned with an agent that knows how to win in this market. Terms, negotiations, financial preparation, communication, responsiveness and market knowledge are what set a highly capable selling agent apart, and are required to prevail. While the market for buyers is fierce, we can assure you that with a well thought out and executed plan, we have helped buyers win.
If you have any curiosities or questions regarding the value of your current home or purchase opportunities in today’s market, please contact us. It is my goal to help keep you informed and empower strong decisions.
These graphs (click to view larger) above provide a 10-year history of the odds of selling in the month of October for both King and Snohomish Counties. As you can see, the odds of selling are at a 10-year high, hitting 86% in King and 85% in Snohomish. These are quite favorable odds for sellers and indicate what one might expect moving toward 2017.
Buyer demand remains very strong! In fact, pending sales reached peak levels in May of this year and continued with steady momentum throughout the summer and fall. Every month this year recorded a higher pending level than the same month the previous year. This illustrates strong buyer demand and is coupled with lower inventory levels than the year before. This combination has created very low months of available inventory, and we anticipate this continuing as we complete 2016 and head into 2017. For a potential seller, this means the market is in your favor, and waiting until the tulips bloom in April might have you lined up against more competition. Historically, we see inventory peak April through June, however pending sales have closely matched supply all throughout the year. With that said, one might consider bringing their home to market in the first quarter of the year versus the second, because they will have less competition, but still enjoy an engaged buyer audience.
Most recently we have seen interest rates bump up a bit, and this has created more urgency in the market. While still historically low, buyers are smart enough to know that cheap money is a huge long-term savings. Paying attention to all of these market factors will empower one to make the best real estate decisions. Please reach out if you are considering a move over the next year, and I’d be happy to apply this research and weigh in on your options.
The two graphs here illustrate the amount of homes for sale and the amount of homes sold over the past two years in King and Snohomish Counties. This gives us a good look at the simple principle of supply and demand. We are currently experiencing one of the strongest Seller's markets in recent history. A Seller's market is defined by having three or less months of available inventory. Currently, King County has 1.2 months of inventory based on pending sales and Snohomish County 1.3. Where this particular Seller's market is unique is that it is not only a shortage of inventory creating this environment, but very high buyer demand as well. Our local job market is thriving, so much so that many people from out-of-state are relocating here to be a part of our economy and the quality of life the Greater Seattle area has to offer. Couple the healthy local economy with still historically low interest rates and the audience for homes that come to the market is huge! Multiple offers are very common and prices are increasing.
In order to get a better understanding of the market conditions we dug a little deeper and were quite surprised. We looked into the amount of new listings that came to market this January, assuming that there would be a huge deficit of new listings – we were wrong! In King County there were only 111 less listings (-4%) that came to market this January compared to last January, and only 16 less listings (-1%) in Snohomish County. Yes, fewer homes are coming to market, but the high buyer demand has eaten up any inventory carryover month-to-month, leaving us with 30% less homes to choose from compared to the year prior – hence the very low months of inventory. We are coming close to selling out of homes each month and new inventory is required to create more market. It is sort of mind blowing! The good news is, if you look at the graphs above you will see a seasonal uptick in inventory in the Spring and Summer months, and that is needed to meet demand. If you are considering putting your home on the market this year I would advise the sooner the better, as buyers did not hibernate for the winter and will not be worried about flowers blooming in your front yard. Sellers that beat the Spring increase in listings will enjoy a larger audience due to less competition. If you’re a buyer, it is overwhelmingly important that you are aligned with an agent that knows how to win in this market. Terms, negotiations, communication and market knowledge is what sets a highly capable selling agent apart and is required to prevail.
If you have any curiosities or questions regarding the value of your current home or purchase opportunities, please contact any of our agents. It is always our goal to help keep you informed on all things real estate, and help you manage these investments.