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October 2016

Seattle one of four areas in "Exuberance" phase of housing cycle

Using the metaphor of a nine-inning baseball game, researchers at John Burns Real Estate Consulting believe Seattle and three other metro markets are "pretty close to the 7th inning stretch."

The Emerald City, along with Austin, Dallas, and the Bay Area are some of the strongest and most profitable markets in the county for Burns' clients, according to Rick Palacios Jr., the firm's director of research. Analysts believe these markets could remain profitable for "quite some time, especially if rates stay low and tech avoids a major correction," he added.

In a report comparing where 20 major markets are in the five phases of the housing cycle, the author emphasized every market has its own unique set of industry influences, supply impediments (or lack thereof), and demographic drivers. "While some markets took it on the chin during the last cycle, many others were left relatively unscathed," Palacios stated.

The cycles, as outlined in the Burns analysis, include Cycle Bottom/Early Recovery, Expansion, Exuberance, Contraction/Early Downturn, and Full Downturn/Recession.

During "Exuberance" (Seattle's current position) capital has flowed freely for several years, prices and sales volumes have surged, and smart money is now investing more cautiously. Unlike Austin and Dallas where job growth has been "phenomenal" and home prices have skyrocketed (despite "barely budging" during the Great Recession), both the Bay Area and Seattle didn't experience a similar run-up during the subprime heyday. Now, however, sky-high prices, surging job growth and booming construction activity have become the norm. 

"Along with a possible tech slowdown, our biggest concern in all Phase 3 markets is lack of affordability," stated Palacios.

The Burns report indicates three expanding markets, Denver, Nashville, and Orange County have nearly reached the Exuberance phase. Only Chicago remains in the Early Recovery phase with an underperforming economy.