Happy 2019! As we head into the New Year, it’s a great time to look ahead to what the real estate market has in store. Just last week, I had the pleasure of hosting an Economic Forecast Event with Windermere’s Chief Economist, Matthew Gardner, and soaked up his knowledge and predictions. Below are his general predictions for the at-large real estate market across the nation. Please review and let me know if you have any questions.
Beyond the national forecast, at the event Matthew reported specifically on the Greater Seattle market, including both King and Snohomish counties. I received his Power Point presentation and I am happy to share his slides, should you request them.
A few take-a-ways to note are:
- Seattle remains strong economically and our job market is thriving.
- Interest rates are still historically low and will rise, but not beyond 6%.
- It is still a seller’s market in our area, but price escalations are softening, creating more balance and sustainability. We are NOT experiencing a bubble.
- 25% of homeowners in our region have 50% equity in their homes.
- An economic recession is upon us in 2020. This one should be much like the 1991 recession; short and not based in housing.
- Be careful how you process the media’s take on the market as they often use extreme month-over-month numbers vs. richer long-term data.
- Prices are expected to rise 5-7% in 2019, which is more normal, but above the long-term average, yet lower than the recent double-digit year-over-year gains we’ve seen since 2012.
It is always my goal to help empower my clients with information to help them make informed decisions regarding their real estate. Let me know if you’d like that Power Point. I’m happy to share and help you dissect the information. Here’s to a great 2019!
What a year it has been for both the U.S. economy and the national housing market. After several years of above-average economic and home price growth, 2018 marked the start of a slowdown in the residential real estate market. As the year comes to a close, it’s time for me to dust off my crystal ball to see what we can expect in 2019.
The U.S. Economy
Despite the turbulence that the ongoing trade wars with China are causing, I still expect the U.S. economy to have one more year of relatively solid growth before we likely enter a recession in 2020. Yes, it’s the dreaded “R” word, but before you panic, there are some things to bear in mind.
Firstly, any cyclical downturn will not be driven by housing. Although it is almost impossible to predict exactly what will be the “straw that breaks the camel’s back”, I believe it will likely be caused by one of the following three things: an ongoing trade war, the Federal Reserve raising interest rates too quickly, or excessive corporate debt levels. That said, we still have another year of solid growth ahead of us, so I think it’s more important to focus on 2019 for now.
The U.S. Housing Market
Existing Home Sales
This paper is being written well before the year-end numbers come out, but I expect 2018 home sales will be about 3.5% lower than the prior year. Sales started to slow last spring as we breached affordability limits and more homes came on the market. In 2019, I anticipate that home sales will rebound modestly and rise by 1.9% to a little over 5.4 million units.
Existing Home Prices
We will likely end 2018 with a median home price of about $260,000 – up 5.4% from 2017. In 2019 I expect prices to continue rising, but at a slower rate as we move toward a more balanced housing market. I’m forecasting the median home price to increase by 4.4% as rising mortgage rates continue to act as a headwind to home price growth.
New Home Sales
In a somewhat similar manner to existing home sales, new home sales started to slow in the spring of 2018, but the overall trend has been positive since 2011. I expect that to continue in 2019 with sales increasing by 6.9% to 695,000 units – the highest level seen since 2007.
That being said, the level of new construction remains well below the long-term average. Builders continue to struggle with land, labor, and material costs, and this is an issue that is not likely to be solved in 2019. Furthermore, these constraints are forcing developers to primarily build higher-priced homes, which does little to meet the substantial demand by first-time buyers.
In last year’s forecast, I suggested that 5% interest rates would be a 2019 story, not a 2018 story. This prediction has proven accurate with the average 30-year conforming rates measured at 4.87% in November, and highly unlikely to breach the 5% barrier before the end of the year.
In 2019, I expect interest rates to continue trending higher, but we may see periods of modest contraction or levelling. We will likely end the year with the 30-year fixed rate at around 5.7%, which means that 6% interest rates are more apt to be a 2020 story.
I also believe that non-conforming (or jumbo) rates will remain remarkably competitive. Banks appear to be comfortable with the risk and ultimately, the return, that this product offers, so expect jumbo loan yields to track conforming loans quite closely.
There are still voices out there that seem to suggest the housing market is headed for calamity and that another housing bubble is forming, or in some cases, is already deflating. In all the data that I review, I just don’t see this happening. Credit quality for new mortgage holders remains very high and the median down payment (as a percentage of home price) is at its highest level since 2004.
That is not to say that there aren’t several markets around the country that are overpriced, but just because a market is overvalued, does not mean that a bubble is in place. It simply means that forward price growth in these markets will be lower to allow income levels to rise sufficiently.
Finally, if there is a big story for 2019, I believe it will be the ongoing resurgence of first-time buyers. While these buyers face challenges regarding student debt and the ability to save for a down payment, they are definitely on the comeback and likely to purchase more homes next year than any other buyer demographic.
Originally published on Inman News.
At Windermere we help people buy and sell homes, but we also help build community. I’m proud to support the Windermere Foundation with every home I help sell or buy. 2018 concluded with another great year of fundraising and giving for the Windermere Foundation, thanks to the continued support of agents, franchise owners, staff, and the community. Nearly $2.5 million was raised in 2018, bringing our grand total to over $38 million raised since the Foundation’s inception in 1989! This money goes right back into our community, helping low-income and homeless families. Read the full blog post here.
This past Christmas, my office adopted 22 foster boys, ranging in age from 13-18 years old, and living in group homes managed by Pioneer Human Services. These group homes serve boys who are struggling with emotional, behavioral and/or psychiatric problems that prevent placement in a traditional foster care setting. We purchased gifts, using wish lists from the boys, to help provide a joyful Christmas morning for these teenage boys who might otherwise be overlooked.
The office also raised money for grocery gift cards for families in need (also referred by Pioneer Human Services). This year we distributed $2,068 in grocery gift cards to 15 local families.
We are also thrilled to report that through our partnership with the Seattle Seahawks, this season Windermere raised a total of $31,900 for YouthCare, an organization that provides critical services for homeless youth. This brings our three-year total to $98,700 towards our #tacklehomelessness campaign! Thank you to the Seahawks and to YouthCare for helping us support homeless youth in our community. We’ll be back next year to raise even more!
Price Appreciation Case Studies in North King & South Snohomish Counties
17836 1st Ave NE, Shoreline • 4 bedroom • 2,917 sq ft
Sold in November 2014
Sold in January 2018
$240,000 INCREASE IN HOME VALUE: 42.85%
18407 62nd Pl W, Lynnwood • 3 bedroom • 1,305 sq ft
Sold in September 2014
Sold in July 2017
$135,000 INCREASE IN HOME VALUE: 42.85%
Since 2014, home values have grown by over 10% each year, resulting in a resounding 35% or more return in pricing. Above are some examples of actual homes sold in late 2017 to early 2018 that also sold in 2014, and that were not remodeled or significantly improved in between sales. These examples show the growth in home values that we have experienced over the last three years due to our thriving local economy. I pulled these examples to show you actual pound-for-pound market data versus the statistical percentages I often quote in these market updates. I thought these examples were pretty telling and quite exciting.
This phenomenon has been driven by a lack of available housing inventory and super high demand due to the robust job market in our area influenced by companies like Amazon. In 2017, there were 1,000 people moving into our area each week! According to census data, that trend is supposed to continue.
The large price gains might seem familiar to the gains of the previous up market of 2004-2007 that resulted in a bubble, but this environment is much different, which is why we are not headed toward a housing collapse. Previous lending practices allowed people to get into homes with risky debt-to-income ratios, low credit scores, and undocumented incomes. A large part of why the housing bubble burst 10 years ago was due to people getting into mortgages they were not equipped to handle, which lend to the eventual fall of sub-prime lending and the bubble bursting. Matthew Gardner, Windermere’s Chief Economist speaks to this topic in this video.
It is supply and demand that is creating these huge gains in prices. An increase in inventory would be healthy and would temper price growth. Many folks who have been waiting for their current home values to return in order to make big moves involving their retirement, upgrading homes, investing, or even buying a second home are well poised to enter the market. If you are one of those people, I hope these examples provide insight on the increase in home values and how they might pertain to your goals.
Potential buyers might shy away from the market due to affordability. While it is expensive to buy a home in the Greater Seattle area, the people that have become homeowners over the last three years have built some amazing wealth. Interest rates remain low, helping to absorb the cost of a home in our area. Last month, I wrote a Love Letter to Buyers which helped layout the advantages of participating in today’s market and how to be successful. If you or any one you know is considering making a purchase, it is worth the read.
As we head into the active spring and summer months, if you’d like me to provide you a complimentary Comparable Market Analysis (CMA) on your home, so you have a better understanding of your home’s value, I’d be happy to do that. This would be an important component in charting your 2018 financial goals, and what a great time of year to gather that information! It is my goal to help keep my clients informed and empower strong decisions.
Celebrate Earth Day with us! Bring all your sensitive documents to be professionally destroyed on-site by Confidential Data Disposal. Limit 20 file boxes per customer.
We will also be collecting non-perishable food and cash donations to benefit Concern for Neighbors Food Bank. Donations are not required, but are appreciated.
Saturday, April 21st, 10am – 2pm.
4211 Alderwood Mall Blvd, Lynnwood 98036
*This is a shredding-only event. Only paper will be accepted – no electronics or recyclables.
Spring Gardening Tips to Help Get Your Yard Flourish-Ready
It is approaching that time of year when April showers will start to bring May flowers, so no better time to get outside to start prepping the garden. First, one must get their hands dirty cleaning out the beds, tending the soil and trimming back plants to prepare for new plantings and fresh growth. For a complete list of Spring gardening tips, click here.
I hope your Valentine’s Day was a sweet one, but it got me thinking. I am often sharing with you the advantages of this market for home sellers, which is unbelievably positive. With that said, I thought I’d take some time to give the potential buyers in our marketplace some love, hope, and of course, data!
Dear Greater Seattle Home Buyer,
Let’s just be up front: buying a home in today’s market is not easy. Quite frankly, it can be a wild roller coaster ride with twists and turns; but remember, folks pay a lot of money and stand in long lines for roller coaster rides. Imagine the excited pit in your stomach as the cart clicks up to the highest point before you plunge down a steep drop, and the thrill of raising your hands up because you trust that you are going to be okay. These emotions also accurately reflect the feelings of today’s home buyer – it can be a wild ride! Let’s also note that many roller coaster riders return to the back of the line right after getting off. Home ownership is also a good exercise to repeat and is often the investment that leads to the most built wealth in one’s life.
So how does one ensure that they are not the Nervous Nelly who stands in line for over an hour, finally makes it to the front to be strapped in to the cart, but who then chooses to bow out? The one that sits on the sidelines watching others throw up their hands with a thrill in their eye; the one with that tinge of regret as their friends rejoin them back on hallowed ground to recount their adventure. Wow, this is getting dramatic! Here are a few tips to follow that will ensure that one can find success securing a home in today’s market and get on the equity building train.
Waiting is Even More Expensive
In 2017, the year-over-year median price gains across our region were strong. In fact, here is a little break down.
|North Snohomish County:||$371,000||up 13%|
|South Snohomish County:||$508,000||up 14%|
|North King County:||$715,000||up 14%|
|Seattle Metro:||$710,000||up 15%|
|South King County:||$405,000||up 13%|
This aspect is actually one to pay very close attention to. We have been amazingly spoiled with historically low interest rates over the last five years. In fact, there is an entire generation of buyers who only know rates that have hovered from 3.5 – 4.5% – that is close to 3 points under the 30-year average! A good rule of thumb regarding interest rates, is that for each 1-point increase a buyer loses 10% of their buying power. That means that if you have a $500,000 budget and the rate goes up by a point, that you are now shopping for a $450,000 house if you want the same payment. Note, that shift does not take appreciation into consideration. Today’s rates have helped buyers bear the home prices in our area. It is predicted that rates will rise in 2018 by .5 to 1%.Rents are High and Don’t Build Wealth
Seattle is now the 5th most expensive city to rent in the country according to the US Census Bureau. With rising rental rates, still historically low interest rates, and home prices on the rise, the advantage of buying versus renting has become clear for folks who have a down payment saved, good debt-to-income ratios and strong credit. Currently, the breakeven horizon (the amount of time you need to own your home in order for owning to be a superior financial decision vs. renting) in the Greater Seattle area is 1.6 years according to Zillow research.
Partner with a Broker Who Will Get the Job Done
A broker that has a process is key! It starts with an initial buyer consultation. I liken the buyer consultation to the seat belt you would wear on the roller coaster ride. When you go to the Dr. they start with your intake, check your vitals, ask questions, etc. The buyer consultation aims to unearth a buyer’s goals, research the areas they are interested in, address financing, and illustrate the challenges of the environment, so one can be successful. Time is money, and this consultation brings clarity, efficiency and trust. This upfront education coupled with a high level of communication and availability is paramount. The depth of the relationship will lead to success, and is the ingredient that enables a buyer to throw up their hands and take the thrilling plunge. It is hard to do that without a seat belt!
Get Your Finances in Order
Aligning with a trusted real estate professional is key, but so is aligning with a reputable and responsive mortgage lender. Getting pre-approved is the minimum, but getting pre-underwritten is a game changer. Finding a lender that is willing to put in the work up-front to vet credit, income, savings, debt, and all other financial indicators will lead to being pre-underwritten, which listing agents and sellers appreciate! Also, be aware that you do not always need to have a huge down payment to make a purchase work. Employment, assets, credit, and what you have saved all work into your ability to acquire a loan. I have seen plenty of people secure a home with 3-5% down. Education and awareness create clarity, and investing into understanding your financial footing equals empowered and more efficient decisions. Note that I mentioned “responsive”. This is a 24/7 market, and lenders who don’t work evenings and weekends can get in the way of a buyer securing a home. If you need a short list of lenders that fit this description, please contact me.
‘Tis the Season – Inventory is Coming
Have hope! This is the time of year where we see inventory climb month over month. There will be more selection, but bear in mind it is also the time of year that the appreciation push happens. If you are feeling 75-80% in love with a home, it is one to act on. You’re never going to “get it all”, so a willingness to focus on priorities will pay off, because waiting will have an expense.
If you or someone you know is considering a purchase in today’s market, please contact me. It is my pleasure to take the time to educate, devise a plan, and help buyers find success in a challenging, yet advantageous market.
This past Christmas, my office adopted 26 foster boys, ranging in age from 13-18 years old, and living in group homes managed by Pioneer Human Services. These group homes serve boys who are struggling with emotional, behavioral and/or psychiatric problems that prevent placement in a traditional foster care setting. We purchased gifts, using wish lists from the boys, to help provide a joyful Christmas morning for these teenage boys who might otherwise be overlooked.
The office also raised money for grocery gift cards for families in need (also referred by Pioneer Human Services). Our in-office donations totaled $1,430, and together with a $1,000 match from the Windermere Foundation and a 5% bulk bonus from Safeway, we were able to distribute $2,557.50 in grocery gift cards to 10 local families.
We are also thrilled to report that through our partnership with the Seattle Seahawks, this season we raised a total of $31,800 for YouthCare, an organization that provides critical services for homeless youth. Last year’s season raised $35,000, for a two-year total of $66,800 towards our #tacklehomelessness campaign!
Flickr Photo/SounderBruce (CC BY SA 2.0)/http://flic.kr/p/MzGznr
Commute Times, Price Premiums: The Value of Location, Location, Location
It is the time of year when I like to re-cap the price premiums in our area based on commute times. The price divide continued in 2017 between key market areas in the Greater Seattle area based on proximity to major job centers. These pricing premiums have cemented the drive-to-qualify market. Seattle proper has always been more expensive than its neighboring suburbs, but the most current prices illustrate the extreme value of a shorter commute.
In 2017, the average sales price for a single-family residential home in the Seattle Metro area was $801,000, up 14% from the year prior! In south Snohomish County (Everett to the King County line) the average sales price for a single-family residential home in 2017 was $543,000, up 12% from the year prior, however 48% less expensive than Seattle Metro.
Further, if you jump across Lake Washington to the Eastside, the average sales price in 2017 for a single-family residential home was $1,049,000, up 16% from the year prior and 31% more expensive than Seattle Metro! The Eastside has the infrastructure to support their own job centers, making it a second “Seattle”, with the benefit of newer and larger housing stock, which reflects the pricing. Many folks are living and working on the Eastside, or using the 520 toll bridge to jump over to Seattle.
In 2017, closed transactions were up 4% in south Snohomish County despite fewer new listings coming to market, which I think was driven by its affordability compared to Seattle and the Eastside. Snohomish County offers lower prices, larger houses and yards, new construction, lower taxes, strong school district options and longer, yet manageable commute times. Newer transit centers and telecommuting have also opened up doors to King County’s little brother to the north.
Another hot button that has continued to influence pricing is the future expansion of Light Rail and the locations of the planned stations. We have seen home values in these areas sell at a premium as consumers anticipate the shorter commute times the rail will bring. These neighborhoods are experiencing zoning changes now and the additional expansion is being phased in over the course of the next 15 years. There will be more multi-family and commercial development in these areas, creating more density to serve the public using these commuting services. This has created great appeal for homeowners that want to get in on the ease of nearby public transportation, and developers eager to be part of the infrastructure growth. Stations at Northgate, 145th & 185th in Shoreline, Mountlake Terrace and Lynnwood are all slated to open over the next 3-6 years.
No matter which neighborhood you are interested in learning about, in either King or Snohomish County, I am happy to provide a 2017 re-cap of that market. I work in both counties and understand each of their nuances. 2017 was another eventful year in real estate and we are looking for that to continue in 2018. With these strong market prices, we hope to see an increase in inventory levels, providing more options for buyers and allowing price growth to temper to sustainable levels. Check out the article below that touches on Matthew Gardner’s, Windermere’s Chief Economist, 2018 predictions for the national housing market. I attended his local forecast this week and if you’d like a copy of his presentation, outlining what he thinks is in store for our area, please email me. I’d be happy to forward it along and explain his findings. Here’s to a successful 2018!
In a nutshell, here is Matthew Gardner’s 2018 Housing Forecast. If you want to read his forecast in more detail, click here: http://bit.ly/2Cx1oSG
Recently the Seattle Times published an article about Seattle being the hottest real estate market in the country. This phenomenon has been taking place for over a year and experts don’t see this slowing down. According to the Case-Schiller Index, over the last 5 years since the market started to recover from the downturn, there has been an 80% increase in prices! I thought it would be interesting to take a look at the median price in each of our market areas to illustrate the price differentiation and affordability. If you are curious how this increase relates to your home, please contact me. It is my goal to help keep my clients informed and empower strong decisions.
North Snohomish County
Sale Price: $380,000
Square Footage: 1,551
Year over Year Appreciation: 13%
South Snohomish County
Sale Price: $500,000
Square Footage: 1,784
Year over Year Appreciation: 14%
North King County
Sale Price: $715,000
Square Footage: 1,980
Year over Year Appreciation: 14%
Sale Price: $725,000
Square Footage: 1,780
Year over Year Appreciation: 14%
Sale Price: $855,000
Square Footage: 2,170
Year over Year Appreciation: 14%
South King County
Sale Price: $400,000
Square Footage: 2,400
Year over Year Appreciation: 13%
Knowing the value of your home is helpful in many ways. It can help determine one’s net worth, help decide if a home sale or purchase is a financially feasible move, determine the ability to get a loan – and it’s just nice to know where your largest investment stands. Consumers have the option to access several websites such as Zillow® to search the AVM or Zestimate® on their property.
A Zestimate is an AVM (Automated Valuation Model). The product of an automated valuation technology comes from analysis of public record data and computer decision logic combined to provide a calculated estimate of a probable selling price of a residential property. An AVM generally uses a combination of two types of evaluation, a hedonic model and a repeat sales index. The results of each are weighted, analyzed and then reported as a final estimate of value based on a requested date.
Often when I am talking with potential sellers, their Zestimate (or other AVMs) come up in the overall conversation, and I understand why. This is information that is relatively easy to access and gives the seller a starting point on the value of their home. Where an AVM can become problematic is when a consumer thinks it’s accurate. Even worse, when a consumer makes a major financial decision solely based on this information. According to Zillow, less than half of all Zestimates in the Seattle metro area are even within 5.4% of the actual value, and they only give themselves a 2-star (fair) rating on their accuracy. In fact, they publish an accuracy report that you can access here.
In August, the average home price in the Seattle Metro area was $824,000. With less than half of all Zestimates within 5% of the actual value, that is a beginning margin of error of $41,200! Further, they claim that 72.3% of their Zestimates are within 10% of the actual value, which is a marked difference – up to $82,400. AVMs are incomplete because the basis of their formula is tax records, which in my experience are often inaccurate. Also, and most importantly, an AVM does not take into consideration the condition of the home, the neighborhood and other environmental impacts such as school district, road noise and unsightly neighboring homes, to name a few.
An accurate accounting of the value of a home in today’s market requires actually physically touring the home and the surrounding homes that compare, as well as considering current market conditions such as supply and demand and seasonality. An algorithm cannot accomplish this, but a real estate broker can.
So why does the Zestimate exist? Zillow is a publicly traded company (ZG) and their website is the vehicle to create profit. The Zestimate drives consumers to the website who are often dipping their toe in the pool to see what their home might be worth, or searching available homes for sale. When a consumer is searching on the website they are surrounded by real estate broker and mortgage broker ads on every page. These real estate brokers and mortgage brokers are paying for that advertising space, which is how Zillow makes its money and why there is a Zestimate. The Zestimate is not a public service, it is a widget to bring eyes to their advertising space which in turn, sells more ads.
Another important item to note is that Zillow does NOT have all available real estate inventory in the Greater Seattle area on their website. In May, they cut off access to manually input listings, leaving some real estate firms unable to get their listings on the site any longer. Some firms just plainly chose not to syndicate to them. It is estimated that Zillow has between 70%-80% of the total available inventory on their site. In an inventory-tight market like the one we are in now, it is important for consumers to understand that if Zillow is the only source they are searching with, they may be missing out. Brokerage firm websites, such as Windermere.com have a direct IDX feed from the Northwest Multiple Listing Service which refreshes every 15 minutes, insuring the accuracy and completeness of all listing data.
The best use of Zillow is to think of the site as one of the many tools in your real estate evaluation and search toolbox. Zillow provides a great starting point and contains a ton of information to whet your palate when embarking on a real estate endeavor. Nothing beats the evaluation and discernment of a knowledgeable and experienced real estate broker to help you determine accuracy, which will lead to the empowerment of clarity.
If you are curious about the value of your home in today’s market, please contact me. I can provide an annual real estate review of all of your real estate holdings, and can even dive deep into a complete comparative market analysis if you would find that helpful. It is my goal to help keep my clients informed and empower strong decisions.
Zillow® and Zestimate® are trademarks of Zillow, Inc.
Equifax Data Breach
If you have a credit report, there’s a good chance that you’re one of the 143 million American consumers whose sensitive personal information was exposed in the data breach at Equifax, one of the nation’s three major credit agencies.
Here are the facts, according to Equifax. The breach lasted from mid-May through July. The hackers accessed names, social security numbers, birth dates, addresses and in some cases, driver’s licenses numbers and even credit card numbers.
There are steps you can take to help protect your information from being misused. Visit Equifax’s website, www.equifaxsecurity2017.com to find out if your information was exposed and set up protections. Click here to access the entire press release from the Federal Trade Commission that includes step by step instructions to help you navigate the website.
Nothing feels more like fall than pumpkin picking, hay rides and corn mazes. Get your latte in hand and head out to any one of these great, local farms to have some harvest fun and find that perfect jack-o-lantern to light up your porch.
Ray & Lynn Trzynka
Mike & Chris Russell
To these buyers that closed recently:
Gilbert & Patricia Holzmeyer
Jacob & Shannon Foran
Mike & Chris Russell
Chris & Sarah Larson
1820 NW 195th St, Shoreline 98177
2 Bedrooms/1.75 Baths, 1592 Sq Ft.
Listed at $589,950
16736 76th Ave W, Edmonds 98026
4 Bedrooms/3.25 Baths, 3808 Sq Ft.
Listed at $798,950
8809 Olympic View Dr, Edmonds 98026
4 Bedrooms/2.75 Baths, 3956 Sq Ft.
Listed at $1,289,950
Listings currently under contract:
7010 177th St SW, Edmonds 98026
4 Bedrooms/3 Baths, 2684 Sq Ft.
Listed at $635,000
23834 113th Place W, Woodway 98020
5 Bedrooms/2.5 Baths, 3000 Sq Ft.
Listed at $869,950
9222 183rd Place SW, Edmonds 98020
4 Bedrooms/2.5 Baths, 3084 Sq Ft.
Listed at $659,850
410 Dayton St, Edmonds 98020
Bed & Breakfast
Commercial listing & business opportunity
Listed at $750,000
Thank you for trusting me to help your friends and family!
I get asked this question often, and I can understand why. With the 2008 Great Recession not too far back in our rear-view mirror it is understandable that folks don’t want history to repeat itself, as that was a very painful time for many. Also, price appreciation has been rapid across the country, but especially in our region. The large price gains might seem familiar to the gains of the previous up market of 2004-2007, but the environment is much different, and that is why we are not headed toward a housing collapse.
As the graph shows, lending requirements are much more stringent now than what they were prior to the fall of the housing market.
Previous lending practices allowed people to get into homes with risky debt-to-income ratios, low credit scores and undocumented incomes. They called this sub-prime lending. A large part of why the housing bubble burst 10 years ago was due to people getting into mortgages they were not equipped to handle, which lend to the eventual fall of sub-prime lending. Currently, the average credit score over the last 12 months according to Ellie Mae was 724. During the days of sub-prime lending people were funding loans with scores as low as 560! This, coupled with many zero-down loan programs and the risky terms mentioned above left many new homeowners with little to no equity. When you have little or no equity it very easy to just walk away.
The graph above shows the percentage of homes in our state with significant equity (20% or more) according to CoreLogic. Today many homeowners, especially in our region are making large down payments to begin with. Believe me, when reviewing multiple offers on a house, the size of down payment matters – hence many buyers landing homes are making large down payments. Unlike the market prior to the crash, when people have high equity levels they are not likely to abandon their home or miss payments.
Inventory Levels & Our Job Market
The biggest challenge in our market has been low inventory levels and high housing demand. It’s simply the concept of supply and demand. Our thriving job market has afforded folks already in our area the ability to make moves, and it is bringing people into our area from other parts of the country. Washington State’s net in-migration is 43% higher than it was 10 years ago. This has created increased demand, especially for homes closer to job centers resulting is shorter commutes. When you have increased demand and not enough homes to absorb the buyers, prices go up. Over the last three years we have easily seen a 10% increase in prices year-over-year. That is above the norm and should slow down as inventory increases. As inventory increases we anticipate a leveling out of appreciation rates to historical norms of 3-4% annually, but not decreasing home values like the 2008-2010 crash.
I understand that the recent increase in home prices has been big and that it might remind you of the previous up market before the crash. I hope that digging into the topics above has shed some light on how it is different. According to Matthew Gardner, Windermere’s Chief Economist and nationally sought after expert on all things real estate, buyers should not wait this market out, due to future price appreciation and today’s historically low interest rates. Check out his latest vlog (video blog) that addresses this topic.
As always, it is my goal to help keep my clients informed and empower strong decisions. Please let me know if I can answer any questions or help you or anyone you know with their real estate needs.