Posted by Joe Wride
Uncertainty in the economy has been unsettling to say the least. Present inflation problems, market downturns, COVID breakouts, and supply chain issues continue to frighten. However, one asset class has continued to soar despite these fears- real estate.
Recently, it’s been a home seller's paradise. But sometimes one person’s treasure is another’s trash. From the homebuyer’s perspective, the real estate market is more of a nightmare. And industry experts aren’t calling for a major drop in these horrific prices anytime soon.
In this article we’re going to touch on what’s happening with the Seattle (region) real estate market. We’ll then cover what’s driving the sky high prices, what could bring them back down, what may happen, and what action you can take to prepare yourself. Let’s get started.
Present Home Buying Problems In The Seattle Region
Sorry for being “that guy,” but I have a podcast you should listen to… On a recent episode of Seattle Now, Chief Economist for Windermere Real Estate, Matthew Gardner, was on to talk about the latest trends in Seattle, Washington real estate.
I’m a huge fanboy of Mr. Gardner, he’s got a thumb on the pulse of our region’s real estate markets. He’s certainly an expert whose advice is worth taking in. But I digress…
Gardner was quick to point out many of the issues currently plaguing homebuyers in the area. These issues included, but were not limited to out-of-reach median home prices, higher mortgage rates, and higher rental costs.1 And he’s exactly right.
Major issues in Seattle area real estate trends include:
- Average home price is ~$900,000.2
- Buyer competition is intense with median days on market being only 6 days.2
- The majority of homes (62.7%) are sold above their listing price.2
- Mortgage rates have risen substantially since their pandemic lows, which presently sit at 6.00% (30-year fixed) and 5.14% (15-year fixed).3
- Average rent cost was found to be $2,190/mo earlier this year.4
A nearly million dollar home is out of many people’s price range. This is particularly true for single-income households and younger generations like Gen Z and Millennials.1 There's plenty of demand coming from these first time homebuyers, but they’ve simply been priced out of the market.1 Even clients we meet who are earning the highest wages in their careers cannot win an offer, or cannot afford to buy now. And the option of renting and saving for a down payment is more difficult too.
What’s Driving These Problems?
If your corruption alarm is sounding off, I don’t blame you. The Great Recession wasn’t all that long ago. And it showed us high house prices and Wall Street greed go together like peanut butter and jelly. But what’s happening now is totally different.
Gardner explains that there are different forces driving up home costs in the Seattle area. He notes that zoning regulations, property-owner attitudes, and poor alternatives are partially to blame. And again, he’s right on the money.
Problematic drivers of current Seattle area real estate trends include:
- Counterproductive Zoning: Over 70% of homes in Seattle are zoned for single family use only. This is close to double the amount of major cities like San Francisco, Boston, and Chicago. This prevents the much needed expansion of home supply to meet fierce consumer demand.1
- Property-owner Attitudes: Similar to panic selling in a recession, the general public’s behavior is only exacerbating problems. Many are under the false impression that creating more infrastructure in the single family zoned areas will devalue their homes.1
- Poor Alternatives: Seattle isn’t alone in facing these problems. Other major cities are seeing similar issues. But answers are not being found in the nearest suburbs; finding something affordable is limited to areas where few want to live (ex: the most affordable place in WA to buy property is Ferry County).1
What Could Fix It?
Build it and they will come. Field of Dreams anyone…? No? Alright, moving on…
Gardner points out that Seattle could “build its way out.” By that he means constructing duplexes, triplexes, etc. in what are now single family zoned areas.1 Contrary to popular belief, the addition of housing units will not decrease the value of existing homeowners’ properties.
But of course it’s not that simple. This would require legislation to evolve, and entails governmental intervention in the form of rezoning laws. The real question is, does Seattle have the political gumption to make the change?
Gardner also acknowledges that rezoning alone wouldn’t be a cure-all. The construction of greater-density housing would be remarkably expensive, and it’s not like there’s an indefinite supply of land to develop on.1 On top of this, it’s also important to consider supply chain issues.
Just recently, we saw how much supply chain problems increased the time frames, labor costs, and material costs of basic remodeling projects. I dealt with it personally! Full home construction is going to be even more challenging. And with a weakening economy to top it off, we have a perfect storm of problems. Fixing them will require a combination of legislative reform, supply chain streamlining, and economic rebounding.
What’s The Future Hold In Store?
Of course the answer is we don’t know. That said, there are some outside expert opinions worth listening to if you're looking to make a move on Seattle, Washington real estate. I’ll also throw in my own opinion as an advisor who lives here.
What Do I Think?
It’s all about high-paying jobs. The Puget Sound region has seen massive population growth because high-paying employers located themselves here. Nationwide, the unemployment rate is way down. But the average wage in other areas doesn’t equate to the average wage here.
Because the supply of housing is still not meeting demand, we won’t see major drops in home prices until the region’s unemployment rate spikes. And that would likely correlate high with a nationwide/global recession.
What Do Other Experts Think?
Richard Branch, Chief Economist of the Dodge Construction Network recently stated, “Rising costs, skilled labor shortages and lack of materials continue to create challenges for general contractors and their clients…”.5 And the idea that key shortages will continue to impede progress seems ubiquitous across the construction industry.
As far as rising home prices go, industry consensus seems to be that home prices will continue to rise, but at a decelerating rate. First American Finacial’s Chief Economist Mark Fleming recently stated, “... data signals the housing market is normalizing…” and there have been indications that, “...annual house price growth is decelerating.”6
This is at least somewhat beneficial to buyers, but they shouldn’t have their hopes up for a major price correction anytime soon. Fleming also said, “history has shown that rising mortgage rates may take the steam out of rising house prices…” but, “... demand for homes continues to outpace supply… so don’t expect house prices to decline.”6
How Can Crafted Finance Help?
At Crafted Finance, we specialize in helping clients plan their finances around real estate trends. And we’re experienced in planning for first time home buying, rental property purchases, and real estate investing.
Now, more than ever, homebuyers need to think before they buy. The economic landscape is uncertain. So you need to have a firm footing before making a major step in today’s real estate market.
If you’re looking to acquire a property in the Seattle area, we’ve got you covered. As a Seattle resident myself, I love helping my clients work through these problems. You can schedule a completely free consultation call with me here, or reach out to us at (650) 336-0598.