Puget Sound area home sales slow (but not prices) as supply can't match demand
KIRKLAND, Washington (April 4, 2016) - Traffic isn't the only thing that is gridlocked around many Puget Sound communities. "We're experiencing gridlock in the Puget Sound housing market," suggested J. Lennox Scott in reaction to the latest statistics from Northwest Multiple Listing Service.
MLS figures show pending sales across the 23 counties it serves dropped about 4.5 percent in March compared to the same period a year ago. Inventory fell sharply - down more than 25 percent. Brokers say that imbalance helped spur a 9.4 percent escalation in prices area-wide, with 12 counties reporting double-digit increases.
One MLS spokesperson wondered if spring "has sprung in the wrong direction." Noting inventory usually grows at this time of the year, yet it is shrinking, broker Frank Wilson said "I feel like we planted our tulips upside down in Kitsap --- as if the spring housing market has sprung in the wrong direction. Instead of growing up, things are growing downwards."
"The housing pool is getting smaller, resulting in a market that is extremely hard on people who are looking to find a place to live in Kitsap," remarked Wilson, the branch managing broker at John L. Scott's Poulsbo office. He suggested the only homes that aren't selling "are truly overpriced or have some other challenging condition."
Kitsap County is one of six counties with less than two months of supply. Area-wide, Northwest MLS figures show only 1.8 months of supply, well below the "balanced" range of four-to-six months.
"We are virtually sold out of inventory and there's a pipeline of stalled buyers," commented Scott, the chairman and CEO of John L. Scott, Inc.
During March, brokers reported 10,900 pending sales, about 500 fewer mutually accepted offers than a year ago for a drop of nearly 4.5 percent. For the four-county Puget Sound region, pending sales were down about 6 percent.
The year-to-date drop in pending sales versus first quarter 2015 is a reflection of tight inventory, according to MLS members. "It's not for any other reason except there aren't enough homes coming on the market to satisfy pent-up buyer demand," stated Scott. He also points to listing shortages for the steady escalation of home prices.
To illustrate his point, Scott cited figures for the single family component. In King County, pending sales for March declined nearly 11 percent, while prices spiked 20.7 percent. Pending sales of condos (excluding single family homes) were about the same as a year ago in King County, but year-over-year prices jumped 15 percent.
MLS members added 10,511 new listings to inventory during March, about the same as a year ago when they added 10,505 single family homes and condos to the offerings. At month end, there were 12,653 total active listings in the Northwest MLS system. That represents a drop of 25.6 percent from the year-ago total of 17,007 active listings.
"In today's market sellers want to find their next home before they list their current home, but because of the severe inventory shortage it's hard to win in a multiple offer situation," Scott explained. He said some sellers are hesitant to put their home on the market because they fear it would sell instantly and they might not win their next home. "It's a Catch 22 situation," he explained.
Wilson said the stalemate is especially frustrating for homeowners who are finally above water and have equity in the homes. "They now want to buy, but can't find a home to purchase so they can't sell."
Kitsap County's large military population also faces hurdles, according to Wilson. This group, which includes active duty military, retirees and veterans, would like to use their VA benefits, but in multiple offer situations, VA is a third choice behind cash and conventional. "We're asking these buyers if there's any way they can qualify for a conventional loan as one means to make their offer more attractive to sellers."
Wilson also believes the diverse pool of buyers is larger than it has ever been, fueling the frenzy among would-be owners. He said these potential purchasers include first time buyers, renters seeking to own (because rents are so high), investors, move-up and move-down buyers (who were held back by the last market), relocating families, and offshore buyers.
Buyers are finding themselves in the company of another buyer "waiting in the wings" as back-up buyers, thereby creating an environment where the "first place" buyer is reticent to ask for repairs in response to inspection discoveries, reported Bobbie Petrone Chipman, a member of the Northwest MLS board of directors. "The existence of back-up buyers often shifts leverage to sellers when negotiating property improvements," noted Chipman, principal managing broker at John L. Scott in Puyallup.
"The market continues at a breakneck pace," reported Diedre Haines, principal managing broker-South Snohomish County for Coldwell Banker Bain. She's seeing more multiple offers - "as many as 20-plus per listing" -- as buyers vie for scarce inventory. Cash buyers are in abundance, she also noted.
While some express concern about a housing bubble as prices continue to escalate, she said she is not yet worried about a bubble in Snohomish County. Areas in north and northwest Snohomish County and some pockets in the southern part of the county still have homes not yet out of the underwater status - "close, but not quite there," according to Haines.
An uptick in new construction around Snohomish County is expected to continue, Haines stated. "This would certainly help stabilize the market so appreciation can return to more 'healthy' escalation or normal levels," she suggested.
MLS director George Moorhead agreed the hottest areas continue to draw multiple offers and offers over asking prices, but he said many buyers are unwilling to overpay. "Home pricing is critiqued at a much higher level now with all the information available to buyers," he reported. "The conversations we have with buyers today are totally different than in years past. We're discussing pricing in greater detail, along with school ratings, neighborhood trends, and future values," he said.
Mike Grady, president and COO of Coldwell Banker Bain, noted closed sales outside of King County are outpacing year-ago levels. "This is most likely a reflection of the lack of affordability within King County and indicates that buyers are increasingly looking to other counties for their home purchases," he remarked.
The median selling price on homes and condos that closed last month was $320,000, up 9.4 percent from twelve months ago when it was $292,500. Compared to February, prices rose nearly 4 percent. In King County, year-over-year prices for March jumped 11.5 percent, from $411,200 to $458,450.
For single family homes (excluding condos), prices area-wide are up 8.7 percent from a year ago. In King County, prices soared 20.7 percent compared to year ago, jumping from $440,250 to $531,250.
Condo prices shot up nearly 14.6 percent from a year ago. For the 1,075 sales that closed last month, the median price was $275,000. That compares to the year-ago sales price of $240,000.
MLS members reported 7,075 closed sales of single family homes and condos during March for a gain of 4.5 percent from the year-ago volume of 6,769. First quarter figures for King County show the number of completed transactions is trailing 2015 slightly (6,114 versus 6,148), but the total for the other 22 counties in the MLS report shows a year-over-year increase of 11.4 percent.
"It will be interesting to see if the announced job cuts at Boeing and JBLM (Joint Base Lewis-McChord) will affect home sales in Snohomish and Pierce counties in particular," wondered Grady.
Moorhead reports hearing almost daily conversations around two topics: the possibility of rising interest rates and a near-term real estate correction. "These concerns are expressed by first-time buyers to luxury home buyers." He also reports hearing comments on recent loan programs with zero down or no income qualification loans akin to programs blamed for the 2007 crash. "It is refreshing to hear such comments as it shows people in the market, both buyers and sellers are more in tune with trends" and, he suggests, more poised to make better financial decisions.
Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership of nearly 2,100 member offices includes more than 25,000 real estate professionals. The organization, based in Kirkland, Wash., currently serves 23 counties in Washington state.
Statistical Summary By Counties
Market Activity Summary and 4-County Puget Sound Region Pending Sales (PDF)