Market showing signs of adjusting, but buyers still see double-edged sword
KIRKLAND, Washington (July 6, 2016) Home sales around Western Washington continued at a torrid pace during June, but a 10 percent year-over-year increase in new listings has some brokers with Northwest Multiple Listing Service suggesting a little relief may be emerging.
In the meantime, "We have a long way to go to catch up with the demand," stated Mike Grady, president and COO of Coldwell Banker Bain. Citing reports of projected job growth in the region (pegged at 70,000 new employees) but only 8,000 new residential units in the same forecast, he said this imbalance is rippling to outlying counties. Inventory is now shrinking at a greater rate in some of the outlying counties than in the tri-county area of King, Snohomish and Pierce counties. Pending sales in some of these areas are rising at a faster clip, noted Grady, a past chairman of the MLS board. "It's as if the splash in the center of Seattle's pond is finally making ripples to the outlying counties," he concluded.
J. Lennox Scott, chairman and CEO of John L. Scott, Inc., described the market as "frenzy hot" in June, but suggested there was a "short breath of fresh air for homebuyers." He credits the combination of more inventory coming on the market and lower interest rates with bringing some "welcome relief to the backlog of buyers who have been waiting to purchase a home."
There were fewer multiple offers for each new listing, according to Scott's analysis of the latest data, but he said 80 percent of new listings are still selling within the first 30 days in price ranges where 90 percent of the sales activity is taking place. That, he said, contrasts with a "healthy" (more balanced) market when only around 30 percent of listings are selling in the first 30 days.
Northwest MLS members reported 11,995 mutually accepted offers last month for a 4.73 percent increase over the year-ago volume of pending sales. For the four-county Puget Sound area, brokers reported 8,869 pending sales, the highest total for the month of June since 2005.
New listing activity improved compared to a year ago with 12,759 sellers putting their home or condo on the market. That's a 10.2 percent improvement from twelve months ago and marks the largest number of new listings added in a single month since March 2010 when brokers replenished supply with 12,994 new listings. Last month's additions brought the number of total active listings up to 16,838 properties. A year ago, across the 23 counties in the report, buyers could choose from 20,333 listings.
With only 1.7 months of supply system-wide (for single family homes and condos combined), inventory is well below the four-to-six month level many industry analysts use as an indicator of a balanced market. Both King and Snohomish counties have barely more than one month of supply.
Inventory of condos is more meager, hovering near 1.1 months area-wide. In both King and Snohomish counties there is less than a month of supply (0.80). For single family homes only, there is 1.82 months of supply - and even less than that level in all four central Puget Sound counties.
Not surprisingly, prices continue to escalate. In fact, a recent report from CoreLogic, a property analytics company, indicated home prices are rising faster in Washington than in any other state in the nation.
Last month's 9,805 closed sales across all counties in the MLS report had a median selling price of $350,000, which is nearly 8.9 percent higher than the year-ago figure of $321,500. Seventeen of the 23 counties experienced double-digit increases, led by Grant County (up 24.9 percent), Jefferson County (up 24.4 percent) and Skagit County (up nearly 23.8 percent).
In King County, which accounted for about 40 percent of the sales, the median price surged 13.3 percent from a year ago, rising from $450,000 to $510,000. For single family homes only (excluding condos), prices in King County rose 14.7 percent, from $500,000 to $573,522. Condo prices skyrocketed nearly 22 percent compared to a year ago. The median sales price last month was $350,000; twelve months ago the buyer of a median-priced condo in King County paid $287,000.
Buyers are seeing rapidly-rising prices as a double-edged sword, according to George Moorhead, the designated broker at Bentley Properties. "On one hand, the market is a fabulous investment and a way to secure monthly housing costs," he explained, but added, "On the other side, prices and scarce inventory are getting out of hand. For the first time, we're hearing a common theme," he stated. Buyers are willing to make "huge sacrifices," such as significant concessions on a home's square footage, in order to be closer to jobs and good schools, he said, and they're foregoing once-desired "core features" for their family's home.
Moorhead, a board member at Northwest MLS, characterized the current market as a "vicious cycle but different than what led to the 2007-2008 housing crash, in part because buyers are making large down payments instead of relying on zero down programs. The high down payments (achieved at times by borrowing from family) are sometimes made to help cover the difference between the sales price and appraised value. When coupled with concessions on the "needs" or "wish" lists, Moorhead said these sacrifices are creating a market that cannot be sustained.
In the short term, activity continues at a brisk pace, and now Brexit (Britain's vote to exit the European Union) may contribute to an uptick in home sales, according to some brokers and industry-watchers.
"Demand for U.S. real estate could rise," said Lawrence Yun, chief economist for the National Association of Realtors®. He attributes uncertainty before the Brexit vote as the likely reason the Federal Reserve decided not to raise interest rates in June and said the U.S. could face an influx of foreign buyers looking to pull out of the U.K.
Windermere president OB Jacobi agreed the U.S. housing market could end up benefitting from Brexit. "Uncertain economic times almost always lead to a 'flight to safety,' which means global capital pouring into the United States bond market at an aggressive rate. This ultimately drives down mortgage rates and makes it cheaper for home buyers to borrow money," he stated.
On the flip side, Jacobi acknowledged in markets like Seattle this could also cause housing affordability to take another hit. "Lower interest rates will likely draw more buyers into the market, compounding already competitive conditions, and driving up home prices even further," he noted.
"Buyers are seeing the benefit of world economic turmoil as interest rates remain low and have even dipped a bit. Sellers are benefitting from the 12 percent increase in the median sales price of a home in Kitsap County," said Frank Wilson, immediate past chair of the Northwest MLS board.
"Like the Fourth of July fireworks, the Kitsap housing market is sparkling," commented Wilson. "Sellers are recognizing this is a good time to put their homes on the market," he reported, noting brokers added 20 percent more new listings in Kitsap County last month than the same period a year ago. Pending sales there rose 7 percent while closed sales surged nearly 14.7 percent year-over-year.
"While the world is watching Brexit, oil prices and political theatrics, the average American still needs to transfer, take a new job, receive orders to a new duty station, move to a smaller or one-level home, or purchase a bigger home to accommodate growing family needs," Wilson remarked, adding, "We continue to see good traffic at open houses, multiple offers on correctly priced homes, and people excited about the next phase of life that a new home brings."
Traffic is brisk on all new listings but buyers and sellers alike face hurdles, suggested Dick Beeson, principal managing broker at RE/MAX Professionals in Tacoma. "New listings get the once-over quickly and if passed over for more than a week, maybe two, they typically are overpriced and need a 'price-ectomy'," he said, adding "All properties are in play, even ones where no one has ventured to make an offer in the past."
Statistical Summary By Counties
Market Activity Summary and 4-County Puget Sound Region Pending Sales (PDF)