This week, more than 100 Windermere brokers from all over the Puget Sound area came together to discuss the local luxury real estate market, premier their newest luxury listings, and hear from featured speaker, Matthew Gardner, Chief Economist for Windermere Real Estate.
Matthew Gardner gave a lively and engaging presentation on the regional economy and housing market, and how they compare nationally. He spoke of the impact that the technology sector is having on Seattle area housing, as well as King County’s population, which has grown by more than 50,000 since 2011. He said that more and more Silicon Valley-based tech companies are looking at Seattle in order to keep their employees happy, including Apple, Facebook, Google, and others. For some, the lifestyle and relative affordability is seen as a much better choice than cities like San Francisco where even the highest paid employees simply cannot afford to buy a home.
Matthew also discussed the Millennials who he says are incorrectly described as being the “renter generation”. Instead, he said that many of them are delaying their home purchases because of student debt and lack of choice in the current market. But 2016 saw a significant increase in the number of Millennial buyers in Seattle, and he expects to see even more in 2017.
In terms of what to expect in the luxury housing market in the coming year, Matthew says it will generally parallel what we’re seeing in the rest of the market. Competition from Seattle’s growing wealthy population is causing homes to sell quickly and driving up prices. Furthermore, interest rates for jumbo loans remain historically low, making it more accessible for buyers to access large sums of money to purchase higher end homes.
Washington State finished the year on a high with jobs continuing to be added across the market. Additionally, we are seeing decent growth in the area’s smaller markets, which have not benefitted from the same robust growth as the larger metropolitan markets.
Unemployment rates throughout the region continue to drop and the levels in the central Puget Sound region suggest that we are at full employment. In the coming year, I anticipate that we will see substantial income growth as companies look to recruit new talent and keep existing employees happy.
HOME SALES ACTIVITY
There were 19,745 home sales during the fourth quarter of 2016—up by a very impressive 13.4% from the same period in 2015, but 18.7% below the total number of sales seen in the third quarter of the year. (This is a function of seasonality and no cause for concern.)
Sales in Clallam County grew at the fastest rate over the past 12 months, with home sales up by 47%. There were also impressive sales increases in Grays Harbor and Thurston Counties. Jefferson County had a fairly modest decrease in sales.
The number of available listings continues to remain well below historic averages. The total number of homes for sale in the fourth quarter was down by 13.7% compared to the same period a year ago.
The key takeaway from this data is that 2017 will continue to be a seller’s market. We should see some improvement in listing activity, but it is highly likely that demand will exceed supply for another year.
Demand continued to exceed supply in the final three months of 2016 and this caused home prices to continue to rise. In the fourth quarter, average prices rose by 7.1% but were 0.4% higher than the third quarter of the year. The region’s average sales price is now $414,110.
In most parts of the region, home prices are well above historic highs and continue to trend upward.
When compared to the fourth quarter of 2015, price growth was most pronounced in Kittitas County. In total, there were eight counties where annual price growth exceeded 10%. We saw a drop in sales prices in the notoriously volatile San Juan County.
The aggressive home price growth that we’ve experienced in recent years should start to taper in 2017, but prices will continue to increase at rates that are higher than historic averages.
DAYS ON MARKET
The average number of days it took to sell a home in the fourth quarter dropped by 15 days when compared to the fourth quarter of 2015.
King County was the only area where it took less than a month to sell a home, but all markets saw decent improvement in the time it took to sell a home when compared to a year ago.
In the final quarter of the year, it took an average of 64 days to sell a home. This is down from the 78 days it took in the third quarter of 2015, but up from the 52 days it took in the third quarter of 2016. (This is due to seasonality and not a cause for concern.)
We may experience a modest increase in the time it takes to sell a home in 2017, but only if there is a rapid increase in listings, which is certainly not a given.
This speedometer reflects the state of the region’s housing market using housing inventory, price gains, sales velocities, interest rates, and larger economic factors. For the fourth quarter of 2016, I actually moved the needle a little more in favor of buyers, but this is purely a function of the increase in interest rates that was seen after the election. Higher borrowing costs mean that buyers can afford less, which could ultimately put some modest downward pressure on home prices in 2017. That said, the region will still strongly favor sellers in the coming year.
By Matthew Gardner, Chief Economist, Windermere Real Estate
2016 was another stellar year for the Seattle housing market, in which a surplus of buyers and a deficit of sellers drove home prices higher across the board. So, can we expect to see more of the same in 2017? Here are some of my thoughts on the Seattle/King County housing market for the coming year:
Our market has benefited greatly from very healthy job growth, driven in no small part by our thriving technology companies. Economic vitality is the backbone of housing demand, so we should continue to see healthy employment growth in 2017; however, not quite as robust as 2016. Migration to Seattle from other states will also continue in the coming year, putting further pressure on our housing market.
Are we building too many apartments? The answer to this question is “maybe”. I believe we are fast approaching oversupply of apartments; however, this glut will only be seen in select sub-markets, such as South Lake Union and Capitol Hill. Developers have been adding apartments downtown at frantic rates with many projects garnering very impressive rents. In the coming year, look for rental rate growth to slow and for concessions to come back into play as we add several thousand more apartments to downtown Seattle.
The Millennials are here! And they are ready to buy. 2016 saw a significant increase in the number of Millennial buyers in Seattle, and I expect to see even more in 2017. The only problem will be whether Millennials will be able to find – or afford – anything to buy.
Home prices will continue to rise. But price growth will taper somewhat. The market has been on a tear since bottoming out in 2012, with median home prices up by a remarkable 79% from the 2012 low, and 14% above the pre-recession peak seen in 2007. Given the fact that interest rates are now likely to rise at a faster rate than previously forecasted, I believe price appreciation will slow somewhat, but values will still increase at rates that are well above the national average. Look for home prices to increase by an average of 7.5 – 8.5% in 2017.
More homes for sale? I am optimistic that inventory levels around Seattle will increase, but it still won’t be enough to meet continued high demand.
This is my biggest concern for the Seattle housing market. Home prices – specifically in areas with ready access to our job centers – are pulling way ahead of incomes, placing them out of reach for much of our population. This forces many buyers to move farther away from our job centers, putting additional stress on our limited infrastructure. We need to have an open discussion regarding zoning, as well as whether our state’s Growth Management Act is helping or hindering matters.
New Home Starts/Sales. As much as I would love to say that we can expect a substantial increase in new homes in 2017, I am afraid this is not the case. Historically high land prices, combined with ever increasing construction and labor costs, slow housing development, as the price of the end product is increasingly expensive. This applies to single family development as well as condominiums. We should see a couple of towers break ground in 2017, but that’s about all. Vertical construction is still prohibitively expensive and developers are concerned that there will not be sufficient demand for such an expensive end product.
Are we setting ourselves up for another housing crash? The simple answer to this question is no. While home price appreciation remains above the long-term average, and will continue to be so in 2017, credit requirements, down payments, and a growing economy will all act as protectors from a housing crash in Seattle.
Located just south of I-90, and running south to Genesse Park, Mount Baker is a neighborhood that is definitely reaping the benefits of a booming real estate market. Taking their name from the sweeping views of Mount Baker to the north, this neighborhood is a great cross section of what Seattle has to offer. On the water side it boasts the sprawling mansions that once typified Seattle following the turn of the last century, but as you move west toward Rainier Avenue, older single-family homes are giving way to town homes and modern architecture. The rising cost of housing continues to force a surge of new construction, and with easy access to the new light rail, commuting from Mount Baker has never been easier.
Given the relative affordability and continued growth, Mount Baker has seen a 13% increase in home prices over the past year and currently has a median home price of $568,800.
Home sales in Mount Baker over the past two months by listing brokerage:
For more than 100 years, floating homes have helped define Seattle’s social culture and maintain its reputation as a place where unconventional modes of living are enjoyed. The thriving houseboat colony on Lake Union, made famous in the 1993 film Sleepless In Seattle, attests to the continuing desirability of this unique lifestyle.
House boats have come a long way since their inception as affordable alternatives to traditional homes and vacation rentals. Currently there is a floating home available for $3.2 million dollars, however most sell for well under that. In the past six months, there have been 21 floating home sales with a median sale price of $635,000. Pack lightly however, those same 21 homes average a tidy 777 square feet. For those who love them, they wouldn’t live anywhere else, but bring your sea legs. Life on the water isn’t everyone’s cup of chowder.
What keeps Windermere’s Chief Economist, Matthew Gardner, up at night? Housing affordability. As the U.S. Population moves towards both coasts and the Southwest, putting upward pressure on land prices and the value of homes, we will see a greater cost of living, which could directly impact the work force and economies in those areas. Gardner weighs in on how West Coast cities can improve housing affordability through policy and infrastructure changes.
Historically low inventory levels, how we got here, and what to expect in the coming year
The housing market is performing remarkably well, with the exception of incredibly low inventory levels in many areas throughout the country. Why is this happening? Windermere’s Chief Economist, Matthew Gardner, explains why and offers his predictions for what we can expect in the future.
The supply of homes for sale in April was up over March, indicating that more sellers are deciding to list their homes. But with less than a month of inventory available in the area, it’s still a seller’s market. While prices were up over last year, the increases aren’t as lofty as they were in the first quarter of this year. Buyers looking for affordable housing continue to push their search outside the more expensive urban cores.
After breaking records for home prices in February and March, King County reached a new record-high in April. The median price of a single-family home was $540,000, a 12 percent increase over the same time last year. The more affordable areas in the south and north ends of the county saw the greatest increases, with home prices climbing almost 20 percent in these outlying areas.
Seattle continues to have the tightest inventory of homes in King County. An influx of young, well-paid technology workers has fueled demand for homes close to the city. The median price of a single-family home increased 15 percent over a year ago to $637,250. But like the Eastside, that number was down slightly from February and March.
At $730,000, the median price of a home on the Eastside was up 11 percent over last year. That figure was down slightly from February and March, suggesting that prices may be moderating. Competition for homes has not moderated. Brokers continue to report homes on the Eastside selling very quickly and often for over asking price.
Washington State has seen very robust growth over the past 12 months with the addition of 102,600 new jobs, which is 224,000 more jobs than seen at the previous peak in 2008. With this robust growth, it is unsurprising to see the unemployment rate trend down to 5.8%—well below the long-term average of 6.4%. As pleasing as it is to see the unemployment rate drop, it is equally pleasing to see that the decrease comes in concert with growth in the civilian labor force, which continues to grow at a very solid pace. I continue to believe that there is no risk that we will see a statewide decline in the employment picture in 2016.
HOME SALES ACTIVITY
There were 13,841 home sales during the first quarter of 2016, up by 3.8% from the same period in 2015. Sales activity continues to slow as a function of inventory constraints. Any spring “bounce” in listings has, thus far, failed to materialize.
The growth in sales was most pronounced in Grays Harbor County, which increased by 35% (but represented a real increase of just 63 units). Robust increases were also seen in Kittitas, Mason, Pierce, Snohomish and Island Counties. Sales declines were seen in San Juan, Jefferson, Cowlitz and King Counties.
Overall listing activity was down by 30.1% compared to the first quarter of 2015, and this continues to put upward pressure on home prices (discussed below).
Economic vitality in the region, combined with interest rates that continue to retest historic lows, is driving buyer demand that simply cannot be met. I hope that we will see more inventory come online as we move through the year, but believe that any reasonable growth in inventory will still be insufficient for the demand in the market.
Given the demand factors mentioned above, I am not surprised that prices are up by an average of 10.1% year-over-year. This is up from the 9.3% average growth in prices that was reported in the fourth quarter 2015 report.
When compared to the first quarter of 2015, price growth was most pronounced in Jefferson County, and all but three counties saw prices increase by double digits from the previous year.
Interestingly, there were eight counties that actually saw a drop in average sale prices between the last quarter of 2015 and the first quarter of 2016. I believe this was caused by seasonal factors, but will keep an eye on it.
Very straightforward supply and demand factors are pushing prices higher. While this certainly favors sellers, I believe that there are some buyers who are starting to suffer from “buyers’ fatigue”. Rampant growth in inventory would sort this out but it is unlikely to occur this year.
DAYS ON MARKET
The average number of days it took to sell a home dropped by sixteen days when compared to the first quarter of 2015.
As was seen in the Q4 2015 report, there were just two markets where the length of time it took to sell a home did rise, but again the increases were minimal. Skagit County saw an increase of three days while San Juan County rose by nine days.
It took an average of 86 days to sell a home in the first quarter of this year—up from the 78 days it took to sell a home in the last quarter but this is simply due to seasonality.
Sales activity remains most brisk in the Central Puget Sound counties. Given their proximity to the major job centers, this is not a surprise.
This speedometer reflects the state of the region’s housing market using housing inventory, price gains, sales velocities, interest rates, and larger economics factors. For the first quarter of 2016, I have moved the needle slightly more in favor of sellers. Inventory constraints persist and this is now starting to affect sales activity, with growth in pending as well as closed sales starting to trend down. However, price growth remains well above average and interest rates are still close to historic lows.
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.