Hopefully your Valentine’s Day was a sweet one, but it got us thinking. We often share the advantages of this market for home sellers, which is unbelievably positive. With that said, we thought it was time to give the potential buyers in our marketplace some love, hope, and of course data!
Dear Greater Seattle Home Buyer,
Let’s just be up front: buying a home in today’s market is not easy. Quite frankly, it can be a wild roller coaster ride with twists and turns; but remember, folks pay a lot of money and stand in long lines for roller coaster rides. Imagine the excited pit in your stomach as the cart clicks up to the highest point before you plunge down a steep drop, and the thrill of raising your hands up because you trust that you are going to be okay. These emotions also accurately reflect the feelings of today’s home buyer – it can be a wild ride! Let’s also note that many roller coaster riders return to the back of the line right after getting off. Home ownership is also a good exercise to repeat and is often the investment that leads to the most built wealth in one’s life.
So how does one ensure that they are not the Nervous Nelly who stands in line for over an hour, finally makes it to the front to be strapped in to the cart, but who then chooses to bow out? The one that sits on the sidelines watching others throw up their hands with a thrill in their eye; the one with that tinge of regret as their friends rejoin them back on hallowed ground to recount their adventure. Wow, this is getting dramatic! Here are a few tips to follow that will ensure that one can find success securing a home in today’s market and get on the equity building train.
Waiting is Even More Expensive
In 2017, the year-over-year median price gains across our region were strong. In fact, here is a little break down.
The appreciation is for real and as each month ticks by, prices are going up. That is why it is incredibly important to have a plan and realistic expectations. In referring to the chart above, it is plain to see the affordability of each area. Buyers have had to get creative and honest with themselves regarding the city or neighborhood in which they land. Commute times are one of the biggest indicators of home cost. It is paramount to line your budget up with a realistic commute time and then dig in. Too often we’ve seen buyers tightly grip to the idea of an in-city commute, only to have it end up being a more suburban choice in the end. The months wasted trying to perform in a market that didn’t match their budget ended up costing them at least 1% a month, based on last year’s appreciation. Getting real saves time, money, and heartache.
Interest Rates are Rising
This aspect is actually one to pay very close attention to. We have been amazingly spoiled with historically low interest rates over the last five years. In fact, there is an entire generation of buyers who only know rates that have hovered from 3.5 – 4.5% – that is close to 3 points under the 30-year average! A good rule of thumb regarding interest rates, is that for each 1-point increase a buyer loses 10% of their buying power. That means that if you have a $500,000 budget and the rate goes up by a point, that you are now shopping for a $450,000 house if you want the same payment. Note, that shift does not take appreciation into consideration. Today’s rates have helped buyers bear the home prices in our area. It is predicted that rates will rise in 2018 by .5 to 1%.
Rents are High and Don’t Build Wealth
Seattle is now the 5th most expensive city to rent in the country according to the US Census Bureau. With rising rental rates, still historically low interest rates, and home prices on the rise, the advantage of buying versus renting has become clear for folks who have a down payment saved, good debt-to-income ratios and strong credit. Currently, the breakeven horizon (the amount of time you need to own your home in order for owning to be a superior financial decision vs. renting) in the Greater Seattle area is 1.6 years according to Zillow research.
Partner with a Broker Who Will Get the Job Done
A broker that has a process is key! It starts with an initial buyer consultation. I liken the buyer consultation to the seat belt you would wear on the roller coaster ride. The buyer consultation aims to unearth a buyer’s goals, research the areas they are interested in, address financing, and illustrate the challenges of the environment, so one can be successful. Time is money, and this consultation brings clarity, efficiency and trust. This upfront education coupled with a high level of communication and availability is paramount. The depth of the relationship will lead to success, and is the ingredient that enables a buyer to throw up their hands and take the thrilling plunge. It is hard to do that without a seat belt!
Get Your Finances in Order
Aligning with a trusted real estate professional is key, but so is aligning with a reputable and responsive mortgage lender. Getting pre-approved is the minimum, but getting pre-underwritten is a game changer. Finding a lender that is willing to put in the work up-front to vet credit, income, savings, debt, and all other financial indicators will lead to being pre-underwritten, which listing agents and sellers appreciate! Also, be aware that you do not always need to have a huge down payment to make a purchase work. Employment, assets, credit, and what you have saved all work into your ability to acquire a loan. I have seen plenty of people secure a home with 3-5% down. Education and awareness create clarity, and investing into understanding your financial footing equals empowered and more efficient decisions. Note that I mentioned “responsive”. This is a 24/7 market, and lenders who don’t work evenings and weekends can get in the way of a buyer securing a home. If you need a short list of lenders that fit this description, please contact me.
‘Tis the Season – Inventory is Coming
Have hope! This is the time of year where we see inventory climb month over month. There will be more selection, but bear in mind it is also the time of year that the appreciation push happens. If you are feeling 75-80% in love with a home, it is one to act on. You’re never going to “get it all”, so a willingness to focus on priorities will pay off, because waiting will have an expense.
If you or someone you know is considering a purchase in today’s market, please contact us. It is our pleasure to take the time to educate, devise a plan, and help buyers find success in a challenging, yet advantageous market.
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.
Price growth was particularly strong in 2017! Median and average prices were up 14% over 2016. Median price in 2017 landed at $715,000 and the average at $787,000. The average amount of days it took to sell a house in 2017 was 17 days, which is 19% faster than 2016. The average list-to-sale price ratio over the last year was 104%, with the spring months as high as 107%! 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 sales! This phenomenon illustrates strong buyer demand and a need for more listings.
Demand for north King County real estate has grown due to close proximity to job centers while maintaining a neighborhood feel. Over the last year, north King County was 41% more expensive than south Snohomish County and 77% 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 north King County; please contact us if you would like further explanation of how the latest trends relate to you.
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.
The two graphs here illustrate a thirteen-year overview of inventory levels in both King and Snohomish Counties, highlighting the 2007 crash. Inventory levels are measured by the months of available inventory. For example, if there were 60 homes available in July and 30 homes sold in July, you would be left with two months of inventory; meaning that if no new homes came to market, the demand of 30 homes per month would absorb the 60 available homes in two months. A buyer's market is defined by 6+ months of inventory, a balanced market, 3-6 months and a seller's market, 0-3 months. From March to June of this year we averaged 1.1 months of inventory in King County and 1.2 months in Snohomish County, both extreme seller's markets.
In King County over the last 13 years we saw three years of a buyer's market, which happened during the biggest economic downturn since the Great Depression, after the crash of the housing market in 2007. This economic fallout was a result of predatory lending practices, which created a large population of buyers who were not truly qualified to purchase a home. This oversaturated the market and then led it to its crash when those lending practices were shut down. These severe influences on the market led to quick jumps from a seller's to a buyer's market and then a buyer's to a seller's market. It only took one short year to transition from the seller's market of 2004-2006 to the three-year long buyer's market after the housing crash. Once the sub-prime lending options were shut down in July 2007, it eliminated many buyers, creating an extreme buyer's market. It also only took one short year to transition out of the downturn and back to a seller's market as the economy started to recover. It has been a seller's market in King County since May of 2012 – four years!
In Snohomish County over the last 13 years we saw four years of a buyer's market. Snohomish County was hit a bit harder by the Great Recession than our neighbor to the south, as it took longer to recover. It has been a seller's market in Snohomish County since May of 2012, except for one quarter of a balanced market in the beginning of 2014, when we saw a surge of new construction come to market due to the national builders releasing some neighborhoods they had acquired in the downturn.
Interestingly, the market shifts were brief because the downturn was so severe, which changed the market environment quickly. In order to clean up the predatory lending mistakes of 2004-2007, the market essentially had to come to a standstill and flush out all of the bad loans via foreclosure and short sales, which took five years. The only time we found ourselves in such an extreme buyer's market, was after one of the biggest economic fallouts of the last century. Once that corrected itself we quickly returned to a seller's market due to many positive factors.
Our available housing stock is affected by the limited land left to build on, a thriving job sector (especially in tech), historically low interest rates and the Greater Seattle area being a nice place to live. All four of these indicators have shrunk inventory and put upward pressure on prices. Sellers continue to enjoy great market returns, and buyers continue to fight to secure a home with a 4% interest rate, and not too far from their workplace. Additional inventory would be more than welcomed, it is very clear that we have the demand to absorb it. If you are curious about the value of your home in today's market or securing a purchase please contact one of our agents. We are always happy to help educate you on how this market can benefit your bottom line.
The beginning of 2016 has been quite the ride so far in our local real estate market. It has been the most extreme seller's market we've ever seen. At the end of February, both King and Snohomish Counties ended the month with only one month of inventory based on pending sales. Pending numbers (the amount of homes going under contract) were up 35% in King County from the previous month and up 24% in Snohomish over the previous month. Demand is strong! How we manage that demand is critical. Every type of market calls upon different skills to achieve the best outcome for our clients. In this extreme seller's market the strategy one creates for their sellers to gain the best possible outcome is a fine-tuned, high-effort approach.
First, market research and price positioning not only takes studying the history of the market, but anticipating what is next, so no opportunities are missed. Second, properly bringing the home to market is still paramount. Even though there are less homes to choose from in this market, how a home "shows up" could make a difference of thousands of dollars in return for a seller. An investment in professional photography, staging and marketing only adds to the exposure, increasing interest from the buying public. Third, managing the demand – this is huge! This is where communication and being the calm in the storm is key. It is always our goal to harness control and bring calm during the intense initial market time. It is not our goal to take the first offer that comes our seller's way. Instead it is our goal to massage what the home has to offer over a set period of time in order to garner a great price for our Sellers, but also superior terms, such as waived contingencies. Fourth, it is our goal to end with a contract that has a great price, but also one that will make it to the closing table. There are obstacles in this accelerating market, such as passing appraisal, which we anticipate up front to insure a smooth journey through closing.
By completing extensive market research, studying upcoming trends, highlighting a property's features with superior marketing, executing a strategy to manage the demand and negotiating the best terms for our sellers, we are creating above market-average results! In the first two months of 2016, the average cumulative days on market in King County was 40.5 days and Snohomish County was 50.5. My office averaged 23 days and 25 days respectively. In those same two months the list to sale price ratio in King County was 100.5% and 99.5% in Snohomish County. My office averaged 101.2% and 103.1% respectively. Saved market time and higher price acceleration is resulting in a better bottom line for our clients.
These results do not come without a refined, strategic approach. Understanding the nuances that each market brings equals results in the best interest of our clients. If you or any one you know is contemplating participating in this extreme seller's market please contact one of our agents. It would be our honor to have the opportunity to help create and navigate a successful strategy resulting in a win.
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.
What defines a housing market? We have had many different markets over the years that have been defined by certain identifiable factors. Will the last person leaving Seattle- turn out the lights, do you remember that billboard from 1971? Or the global housing boom of 2005-2007 that was driven by sub-prime credit lending options (which no longer exist, thank goodness!). Our current market is defined by strong demand and low inventory – the basic economic principle of supply and demand – Economics 101! A market with 0-3 months of inventory is a seller's market, 4-6 a balanced market and 6+ months a buyer's market. The route of the 2007-2011 economic down-turn, where months of available inventory favored buyers and was as high as 13 months, seems like ancient history. Since the Summer of 2012, months of inventory has favored sellers in both King and Snohomish counties, with an average of two months of available inventory between the two counties over the last three years. There is a market divergence going on between King and Snohomish County due to some unique factors each county possesses.
First, King County's lack of inventory has been drastic. Year-to-date, it has hovered at one month of available inventory, which means that each month we are nearly selling out of homes! This is due to the fact that demand is high and inventory is down. In the last 12 months, Seattle has had 27% less homes for sale than the previous 12 months, and closed sales are up 6%. In fact, Auction.com just named Seattle the number one housing market in the nation. This is due to the city's large technology sector driving employment, low interest rates and an increase in household formation. The housing premium in Seattle is rooted in shorter commute times to job centers, high walk scores and hip urban centers. The premium is real though, with the median home price over the last 12 months in Seattle reaching $528,000 – up 13% from the previous 12 months.
In Snohomish County inventory is still tight, with an average of two months of available inventory this year. Inventory has been somewhat supported by new construction and improved equity levels for re-sale properties. The median home price over the last 12 months was $347,000 – 34% less than Seattle. Median price growth is up 9% complete year-over-year.
What should we expect going forward into 2016? In both counties there was an increase in inventory in the third quarter. This is a promising indicator that folks are feeling more comfortable coming to market due to price increases after a booming spring market and healthier overall economic environment. Where this market is different from the bubbly market of 2007 are the drivers of the strong local economy, low interest rates and job growth, versus the unsustainable lending standards of the sub-prime loan movement. I believe we will see more homes come to market, especially as we head into the spring 2016 market. Folks are ready to move on to what is next for them, and recouped prices are enabling those choices. This increase will be welcomed as it will provide more options for buyers and will start to temper price growth, which is a good thing.
Where this market has gotten a bit tricky, is where one goes once their home sells. The low inventory has made this challenging, but with any market challenge you find creative and strategic ways to maneuver through and find success for your clients. Windermere has a great Bridge Loan product to utilize, temporary moves have solved these transitions, and longer closings with seller rent-backs have also been widely used to help make seamless transitions. This an exciting market to participate in, and creative strategy is the name of the game. Please contact one of our agents if you would like to know more about the current market conditions and how they relate to your bottom line and lifestyle decisions.