Real Estate Market Update
Someone brought up an interesting point the other day – today’s millennial first time buyers have only seen one economic downturn and it was the biggest one since the Great Depression. What they haven’t seen is a calm market correction of the typical up and down economic cycle, which occurs on average about every 7 years.
Today’s real estate market appears to be the more typical flattening of the strong growth we saw between 2011 and 2018. When the housing market slowed down in late summer 2018, quickly rising home prices halted and there was a minor price drop. Since then, prices have continued to be very stable, growing slowly or staying flat month-over-month.
Uncertainty in the market today is caused by a variety of things, such as the impact of regulations, tariffs and taxes on our local economy. We are also impacted by the international economy, like our relations with China and the monetary swings caused by the UK’s Brexit.
There are several reasons to be bullish on the strength of the local housing market though for several reasons, primarily low housing inventory, a strong local job market which causes demand from a influx of new hires, and continued historically low mortgage rates.
Low Housing Inventory
According to statistics recently published by Redfin, the Seattle area has 51.4% fewer homes on the market than it did in 2010. They also show that homeowners are staying in their homes 3.3 years longer than they did in 2010.
New single family permits never recovered after the Great Recession. Since 2011, there are 11,565 single family lots that have not been replaced in the pipeline (per Zonda/Metrostudy). This is due to a variety of factors, including that there are fewer builders in this market than there used to be. Our available land is constrained geographically by mountains and water, and what land is available is strictly controlled by the state’s growth management act. Therefore, the land that is available comes with a premium price tag, driving up the overall cost of housing.
Inventory is predicted to loosen up slightly in 2020, according to Lawrence Yun, chief economist of the National Association of Realtors. However, he cautions that the increased number of homes on the market should create demand and additional sales, and therefore he expects that prices will continue to rise modestly, as they have been doing in recent months.
Strong Local Economy
The Seattle area is home to many major employers that create high-wage jobs, such as the headquarters for Microsoft and Amazon, manufacturing and engineering jobs at Boeing, and many other tech, biotech and health care jobs.
These jobs are highly specialized leading the companies to recruit employees from outside the Seattle market. In 2019, our state has seen a net increase of 43,681 out-of-state drivers (per Zonda/Metrostudy). There is a regularly an influx of demand from outside the market, according to inflow reports from Redfin. It’s only in the past few months that the demand has softened slightly.
With such a diverse range of strong companies, our local economy isn’t based on just one local major employer. And those industries are still growing quickly, with 23,220 jobs added in King County and 8,204 jobs added in Snohomish County so far in 2019 (per Zonda/Metrostudy). That gives it strength to continue through an economic downturn.
Historically Low Mortgage Rates
Our mortgage rates have been below 5% off and on since 2010, so it’s hard to fathom an era when they averaged 17% (in 1981). Last year, economists predicted that rates would creep above 5%, but we haven’t seen that occur yet.
Why do mortgage rates matter so much for home sales? Because for every percentage point that mortgage rates go up, the eventual monthly payment is impacted more than you might think.
Now, a new forecast from the Mortgage Bankers Association predicts that rates will stay low and continue to drive demand for home purchases into 2020.