Housing inventory improves, but market still favors sellers
KIRKLAND, Washington (May 5, 2016) - Northwest Multiple Listing Service reported strong gains in the volume of new listings its members added during April (up 13.6 percent from March), but inventory remained well below the supply needed for a more balanced market. MLS leaders say the lopsided market is prompting some anxious buyers to take ill-advised risks.
Prices showed some signs of moderating with a 5.5 percent year-over-year increase across the MLS 23-county market area. That's the lowest YOY gain since December 2014 when it was 5.45 percent.
In its latest statistics with summaries of April activity, the MLS reported 11,407 pending sales during the month, about the same as a year ago when brokers reported 11,384 mutually accepted offers.
For the four-county Puget Sound region, pending sales totaled 8,332, making last month the third strongest April in the past 16 years. Compared with prior Aprils, last month's volume was surpassed only in 2015 and 2005.
"Our market is near historically low levels of absorption. This has things weighted in sellers' favor," remarked Ken Anderson, president/owner of Coldwell Banker Evergreen Olympic Realty and a former Northwest MLS director. "Successful buyers are working closely with their brokers to study the market, choose great lenders, and make smart choices in composing compelling but not careless offers," he added.
Area-wide, members added 11,939 new listings to the MLS database during April, a modest improvement from a year ago when they logged in 11,495 homes and condos. With last month's additions, total inventory at the end of April included 14,235 active listings, a sharp drop (down 21.5 percent) from twelve months ago when the selection included 18,132 residences.
J. Lennox Scott, chairman and CEO of John L. Scott, Inc. described April as "another grand slam month for housing," adding, "The market is more intense than a year ago. We are still seeing 80 percent of the homes coming on the market sell within the first 30 days."
Scott said "virtually all new listings are selling, many with multiple offers in all the market areas in King, Snohomish, Pierce and Kitsap counties in the price ranges where 90 percent of the sales activity is happening." Heavy open house traffic and multiple offer situations are keeping brokers extremely busy, he added.
"Low inventory and low interest rates are still putting upward pressure on prices, but hopefully last month's bump in new listings is the start of a longer term trend, and will lead us towards a more balanced market," said OB Jacobi, president of Windermere Real Estate. Saying the number of homes for sale is still well below where it needs to be, he expressed happiness "that the long awaited spring market finally sprung."
Across the 23-county market area, there is 1.85 months of supply, a slight improvement from March when there was 1.79 months of supply, but down from the year-ago level of 2.36 months of supply. King County continues to have the scarcest inventory, with only about 1.1 months of supply.
"It's this lack of inventory (both new construction and resale) that's causing prices to escalate so quickly," agreed Mike Grady, president and COO of Coldwell Banker Bain. He notes almost all multi-family developments in past few years are apartments, rather than condominiums, which he believes is due to construction defect litigation. "Multi-family developers are now making the business decision not to create condominiums and thus avoid such litigation," he stated, while suggesting a need for legislative reform.
Commenting on low inventory and high demand, Grady remarked, "We must ask when will apartment projects that were (or are being built) to condominium standards be converted to condos?"
Brokers say the shrinking supply of condos is likely contributing to fewer sales and escalating prices. Inventory is down nearly 28 percent from a year ago, pending sales fell 5.8 percent, and prices for condos jumped 14 percent, rising from $250,000 to $285,000. In King County, where more than 62 percent of the sales occurred and supply is at 0.86 months, year-over-year prices surged nearly 19 percent, rising from $272,000 to $323,500.
For single family homes only (excluding condos), inventory dropped about 21 percent, pending sales were about even with twelve months ago (up 1.2 percent), and year-over-year prices rose about 4.7 percent, from $320,000 to $335,000. King County's single family home prices shot up 12.5 percent, to $540,000.
Brokers believe the frenzied market is altering some buyers' behavior - and not all of it is prudent, they suggest.
Anderson, a former MLS director whose office is in Olympia, said "buyers are back in a big way." In choosing to buy now, they're showing a good deal of confidence, he believes.
Diedre Haines, a former chairman of the Northwest MLS board of directors, reports there are growing signs "of buyers' fatigue, and game-playing at its finest." Pre-inspections are being conducted as the "new normal," and/or buyers are waiving many of their rights with regard to inspections, title reviews, neighborhood reviews, and financing contingences, according to Haines, Coldwell Banker Bain's principal managing broker for South Snohomish County.
"In my opinion, this is risky behavior for both buyers and sellers," Haines commented, adding, "Buyers need to perform their due diligence investigations, and sellers should be cautioned about the wisdom, or lack thereof, in thinking these waivers strengthen the offer, are good for them, or that they create a 'no hassle' quick-close transaction." She urged parties to a transaction to think through the potential consequences of taking such risks.
"Buyers are severely limited in the negotiating process and are paying prices for properties they wouldn't have a few years ago," said Dick Beeson, principal managing broker at RE/MAX Professionals in Tacoma. He likened the market to a fine violin that's playing the tune of sellers.
Beeson, one of the current directors of Northwest MLS, noted the number of bank-owned properties sold in King County dropped from a high of almost 14 percent of all homes sold in 2011 to under 3 percent so far this year. His analysis also indicates the percentage of all-cash sales has remained fairly constant -- near 15 percent -- during the same period.
"Buyers are being forced to make large down payments or pay all cash at the same or higher rates than previously because of tighter loan requirements and seller requirements that buyers pay the difference between the appraised value of a home and the purchase price." He said this is becoming an expectation in King County and has filtered its way south into Pierce and Thurston counties.
Director George Moorhead said both buyers and sellers are feeling the pinch with a lack of inventory. This is "increasing the level of concessions on offers regardless of the warnings given by brokers," he reported. He also noted an increasing number of cash offers are occurring as buyers turn to family members for short-term loans and assistance with down payments.
"Sellers are still holding off as they too cannot find the home to upgrade or downsize. Even though many sellers are willing to sell, then rent until the right home comes up, many are still wary they would be buying in a bubble and fear the loss of value," stated Moorhead, the designated broker at Bentley Properties in Bothell.
MLS vice chairman John Deely pointed to "tech transplants from California where urban housing is much more expensive" as fueling bidding wars. "Even though this relocating buyer is sometimes paying 20 to 30 percent over list price in our market, the size, quality and location are superior to what they owned or could have bought in the California market. These buyers are bringing cash . . .and cash offers still dominate the successful winners in the multiple offer competition," stated Deely, principal managing broker at Coldwell Banker Bain in Seattle.
Deely also expressed concern around buyer concessions. "Buyers are forgoing the protective investigations of properties and waiving the escape-type contingencies to strengthen their offers, he noted. "Waiving financing is of particular risk when combined with bidding wars as we have seen an increase in low appraisals."
Looking ahead, Anderson said given the lack of new home construction and the huge pent-up demand, the seller's market will likely continue for some time. "This means prices will rise higher than normal - which means today's buyers will be happy they purchased when they did."
Pricing is more important than ever, Deely emphasized. "Some sellers are missing the mark as they aggressively price their properties and they end up languishing on the market. Sellers with above average time on the market are cause for concern - and in most cases will ensure an offer at less than list price."
Scott agreed. "We will continue to see price appreciation and a shortage of supply through the summer. To win a home, buyers need to have all the bases covered."
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)