Home prices have finally hit a wall on the West Coast

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Home sellers have had it easy over the last few years. Housing demand has risen along with the improving economy, and home builders have struggled to build at a pace that keeps up with that demand. The result was a shortage of housing inventory that allowed sellers to sit back and let buyers bid up the price of their home.

But data from the last two months suggests that the housing market is entering a new stage, especially on the West Coast, where home prices have risen beyond most people’s capacity to pay. Instead of bidding wars, houses are sitting on the market longer, and price cuts are becoming more common. Buyers are starting to regain the upper hand.

“If we’re right, nationally, we’ve already entered the early stages of a buyer’s market,” writes Rick Palacios Jr. director of research at John Burns Real Estate Consulting. “Should supply levels cross above five months we’ll be watching for flat [or] possibly declining resale prices in some markets, especially where affordability is already very stretched.”

Housing supply constraints have been a primary factor in driving prices up, but there are signs this is changing. Data from the National Association of Realtors shows that “months of supply”—a leading indicator of housing supply that divides the number of active listings by the pace of sales—has ticked up year-over-year in the last few months after years of declines.

But real estate experts often say there’s no such thing as a national housing market—new homes for sale in New York, for example, don’t mean anything for people who live in San Francisco—and the spikes in supply are most pronounced on the West Coast.

Some of the biggest jumps are in markets that have been red hot over the last 5 years, namely the San Francisco Bay Area, Seattle, and Denver. Active real estate listings in September were up by a whopping 113 percent year-over-year in San Jose, 81 percent in Denver, 47 percent in Seattle, 33 percent in San Francisco, 34 percent in San Diego, and 12 percent in Los Angeles.

But the trend isn’t limited to the largest markets, as smaller cities across California, Colorado, Washington, and Oregon have seen jumps as well. Of the 30 markets that showed the highest spikes in active listings in September, 19 are in those four states.

While the number of active listings has risen, home sales have fallen dramatically across the U.S., as inventory woes and affordability constraints continue to drag down the market as a whole. But as with supply spikes, home sales are falling by double digits in some markets on the West Coast. In September, home sales were down 24 percent year-over-year in Seattle, 16 percent in San Jose, 16 percent in Los Angeles, and 13 percent in San Diego.

The combination of more homes on the market but fewer sales means that despite surging demand for housing, homes are sitting on the market. And given the affordability crisis sweeping across America, especially on the West Coast, this points to only one thing: Home prices have outpaced wages in these markets and people simply can’t afford to buy.

In Southern California, the year-over-year rate of home price appreciation—meaning the rate at which home prices are going up—began to decline in the spring and has continued to do so into the fall. Northern California was a little later to respond, but San Jose and San Francisco registered their first year-over-year declines in September.

 

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Another wild card in this dynamic is rising interest rates, which are once again approaching 5 percent. Rising rates were cited as a possible cause of last week’s stock market selloff, and the housing market is particularly sensitive it. When interest rates rise, monthly mortgage payments go up.

For markets where home prices have already hit their ceiling, rising rates will likely cause home prices to drop just because something will have to give for people to be able to buy a home. Unfortunately for home buyers, the price drop won’t result in lower payments, just that they will pay less on the principal of their mortgage and more on interest.

Regardless of where rates go, though, home prices on the West Coast markets where supply is up and sales are lagging appear to have nowhere to go but down.

~Jeff Andrews, Curbed

Improving supply helps slow escalating home prices in Western Washington

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House-hunters in Western Washington can choose from the largest supply of homes in three years, and they are facing fewer bidding wars, according to officials from Northwest Multiple Listing Service.

New statistics from the MLS show prices appear to be moderating (up about 6.7 percent overall), but brokers say they are not bracing for a bubble, or even anticipating a quick shift to a buyers’ market.

“There have been incremental increases in listing inventory the past few months,” noted Gary O’Leyar, the designated broker/owner at Berkshire Hathaway HomeServices Signature Properties, but, he added, “By no means have inventory levels reached a point that is deemed to be a balanced market.”

Area-wide, the number of active listings of single family homes and condos (combined) rose 16.2 percent, but 16 counties reported year-over-year drops in inventory; of those, nine had double-digit decreases from twelve months ago. At month end there were 18,580 active listings, the highest level since September 2015 when buyers could choose from 19,724 listings. Compared to July, inventory was up nearly 11 percent.

The latest numbers from Northwest MLS show wide-ranging changes in the volume of active listings when comparing the 23 counties in the report. In Clark County, inventory doubled from a year ago to lead the list based on percentage gains. King County was runner-up with a 74.3 percent increase, rising from 3,329 active listings a year ago to 5,803 at the end of August.

System-wide there is about two months of supply, but less than that in the four-county Puget Sound region – well below the “balanced market” range of four-to-six months.

Supply was replenished in part by the addition of 11,994 new listings during the month, up slightly from the year-ago total of 11,781.

A slower pace of sales also contributed to the boost in supply. Brokers reported 10,109 mutually accepted offers last month, a drop of 14.8 percent from a year ago when they tallied 11,867 pending sales.

“The Puget Sound residential housing market remains positive, though the market has transitioned from a frenzied state to one of strong sales activity,” remarked J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. “We are seeing stability in the affordable and mid-price ranges in all market areas,” he said, citing “one of the best job growth markets in the nation” and favorable interest rates as contributing factors.

George Moorhead, designated broker at Bentley Properties, commented on buyers “still sitting on the sidelines despite clear indicators.” He believes, “This is the best time in three years to be aggressive in the marketplace” given rising inventory, a significant increase in the number of cancelled and expired listings, and more incentives being offered by builders. “We are now seeing price reductions in new home communities as builders try to move inventory of completed homes,” he noted.

With expanding inventories “buyers are definitely taking more time to make a purchase,” stated Mike Grady, president and COO of Coldwell Banker Bain. “This creates a declining curve in pending transactions compared to last year,” he explained. MLS figures show last month’s pending sales in the four-county region were the fewest during August since 2012.

In the four-county Puget Sound region, pending sales were down more than 20 percent, ranging from a 12 percent decline in Pierce County to a drop of more than 23 percent in King County. Referring to King County’s sparse, 1.9 months of supply, Grady emphasized it’s “still a seller-oriented market” with prices continuing to rise at a faster clip than the rate of inflation and the historical 10-year average sales price increase of 3-to 3.5 percent annually.

Unlike most counties, Thurston County nearly matched year-ago levels for both pending and closed sales. “Last month was the second best ever for closed sales in our area,” noted Ken Anderson, president/owner of Coldwell Banker Evergreen in Olympia. He attributes the achievement to the area’s relative affordability. “We continue to present the most affordable options when compared to the other major counties along I-5,” Anderson stated, adding “Demand is very high.”

With more homes on the market in the tri-county area, growth of home prices has slowed, noted OB Jacobi, president of Windermere Real Estate. “Buyers are under less pressure to bid on any home that comes on the market,” he remarked. “Despite what some of the headlines may read, this is no cause for panic; in fact, it’s good news because it’s an indication that we are moving closer to a more balanced market,” he suggested.

The median sales price on the 9,288 completed sales of single family homes and condos during August was $405,000, up nearly 6.9 percent from the year-ago figure of $379,000. All but one county reported price gains, including a dozen counties with double-digit increases; the exception (San Juan County) had only a small 1.7 percent decrease.

For single family homes, the median sales price was $415,000 overall, a 6.4 percent year-over-year increase. Single family homes in King County continue to command the highest price at $669,000, up 2.9 percent from the year-ago price of $650,000, but down from May when a countywide median price of $726,275 was reached, the highest so far this year.

Condo prices also rose by 8.1 percent area wide and 11.3 percent in King County. That segment also experienced a slowdown in sales, with closed transactions off by about 15 percent. Inventory shows signs of improving, with active listings jumping nearly 58 percent, but there was still only about 1.7 months of supply at the end of August.

“The real estate sky isn’t falling,” said Dick Beeson, who acknowledged the “huge increase in inventory the past few months speaks volumes about the anxiety levels sellers have as they try to get all they can before the market crashes, which it won’t. The Northwest still has the best economy in America,” Beeson emphasized.

Why the run-up in listings?, Beeson asked rhetorically. Sellers have read about exorbitant prices and the need for inventory, he explained, adding “I guess we should have schooled them a bit about a phasing in process and not to bunch up at the listing house door.” The velocity of the market is still strong, with well priced and conditioned homes still selling in a matter of days or a few weeks, Beeson stated. “Only now there are just 3-to-5 offers, not 50.”

Several brokers commented on the importance of realistic pricing. “You can’t underprice a home in today’s market, but you can overprice it,” Beeson stated.

Northwest MLS director John Deely agreed. “Sellers should be careful to avoid overpricing as savvy buyers are wary of properties pushing the upper end of the market. Properly priced properties will still see heavy activity in this market. Sellers of homes that linger on the market are reducing their prices to spur activity.”

Deely also said many buyers are coming back into the market but being more cautious by presenting offers with standard contingencies such as inspection and financing provisions.

“Homes that are priced and presented right are still garnering multiple offers, but unlike the past few years, buyers aren’t having to waive protections with their offers,” Scott said.

“Pricing is becoming increasingly important,” Grady emphasized. According to his analysis, recent listings are averaging 22 cumulative days on the market, while other properties listed prior to August are now averaging almost 50 days of marketing time. “This points to pricing and how sellers may have overpriced their homes in the spring and early summer and now have to adjust their asking price.”

Affordability is an ongoing concern, particularly for first-time buyers wanting to live near job centers. In King County, for example, nearly 60 percent of the current inventory of homes and condos has an asking price of $750,000 or higher. Despite that challenge, brokers are upbeat about what Scott describes as a more “normal pace” with buyers having greater selection and availability.

“Even with some doom and gloom about sales being down in many counties, inventory doubling in some areas, and appreciation holding at around 8 percent for the year, our market is still very healthy and recovering from the depleted inventory of the past three years,” remarked Moorhead.

NW Multiple Listing Service

5 tips for making an offer in a hot real estate market

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Steady demand. Limited supply. That’s what we are seeing in real estate markets across the country right now. Inventory is particularly tight within the lower price ranges. “The starter house is nearly missing in some markets,” according to Jessica Lautz, managing director of survey research and communication for the National Association of Realtors.

Conditions can vary from one city to the next, but the overall trend in housing markets across the country is that supply is still falling short of demand.

Given these conditions, it’s important for home buyers to make a strong, smart offer when the right house comes along. Here are five tips for doing exactly that.

1. Understand the supply and demand situation in your area.

According to housing experts, a so-called “balanced” real estate market has five to six months of supply. This means it would take five or six months to sell off all homes currently listed for sale, if no new properties came onto the market.

Many real estate markets across the country have less than a three-month supply right now. And some cities have less than a two-month supply.

The first step to making a strong offer is to understand the supply-and-demand situation in your area. We are still seeing sellers’ market conditions in many cities, as of spring 2018. And this could persist for some time.

2. Study recent sales prices in your area.

This is something a real estate agent can help you with, but you can do some of it for yourself. The idea here is to get a good understanding of recent sales prices in the area where you want to buy.

This will help you in a couple of ways. It will save you time during the house-hunting process, by eliminating the need for repetitive research and pricing “sanity checks.” It will also help you make a strong, realistic offer backed by recent sales trends. And speaking of offers…

3. Make a strong and timely offer, backed by comparable sales.

In a slow housing market, where sellers are ready to jump on the first offer that comes along, home buyers have the luxury of taking their time. A buyer might start off with an initial offer below the asking price, just to open negotiations. The seller would probably come back with a counteroffer, or accept the first offer.

But it doesn’t work that way in a more competitive real estate market with limited inventory. In a tight market, buyers are better off making their first offer as competitive as possible. Otherwise, the house could go to a competing buyer.

4. Consider writing a love letter to the seller.

A house love letter, that is! Recent studies have shown that buyers in competitive real estate markets can improve their chance for success by writing a heartfelt letter to the seller. Sure, real estate is a business transaction. But there’s a personal side to it as well. Writing a personal letter to tell the sellers what you love about their home might just tip the scales in your favor.

5. Get an agent on your side.

It’s always a good idea to have help from a local real estate agent. It’s even more important in a tight market with limited inventory. An agent can help you move quickly, putting together a strong offer that’s supported by recent sales data.

~MetroDepth

Is Seattle’s red-hot real estate market cooling down?

 

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For the first time in 10 years since the recession, the number of homes for sale in the Seattle area has increased considerably, reports The Seattle Times.

“There aren’t as many bidding wars right now,” said Beata Miklos, Managing Broker for Savvy Lane, a local online brokerage firm. “There isn’t as much urgency for buyers to place offers because they know that it’s softening up a little bit.”

Fierce competition for low-inventory of homes for sale has led to extreme bidding wars and lightning-fast sales. Now, the total number of single-family homes on the market in King County has jumped 43 percent in June from a year ago. And condo inventory has risen to an eye-opening 73 percent.

The Times reports homes already on the market are sitting unsold for longer periods of times, according to monthly data released Thursday by the Northwest Multiple Listing Service. Brokerages tell the NMLS since mid-spring, they’ve noticed fewer bidding wars and more homes selling for list price or below.

The total inventory of homes listed for sale has grown for three straight months on a year-over-year basis, reports the times, but the region still has a ways to go to make up for the past 10 years of declining numbers of homes for sale.

Robert Wasser of Prospera Real Estate said the price drop from May to June is the first price drop in King County since before the recession.

~Liza Javier, King5 News

Home Buyers Still Competing for Sparse Inventory in Western Washington, Driving Up Prices – Especially for Sought-After Condominiums

“The Seattle area real estate market hasn’t skipped a beat with pent-up demand from buyers is stronger than ever,” remarked broker John Deely in reacting to the latest statistics from Northwest Multiple Listing Service. The report on January activity shows a slight year-over-year gain in pending sales, a double-digit increase in prices, and continued shortages of inventory.

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“Sellers that have put their properties on the market early this year have less competition and are seeing multiple offers. Open houses are experiencing heavy traffic with hundreds of potential buyers attending,” reported Deely.

Of 23 counties served by Northwest MLS, eight counties, including three in the Puget Sound region (King, Kitsap and Snohomish), reported fewer pending sales than a year ago. In King County, where acute inventory shortages exist in many neighborhoods, pending sales dropped 7.5 percent and closings dropped 18.5 percent.

“The decline in sales last month can’t be blamed on the holidays, weather or football. It’s simply due to the ongoing shortage of housing that continues to plague markets throughout Western Washington,” said OB Jacobi, the president of Windermere Real Estate. The number of total active listings at month end stood at 8,037 homes and condos, down nearly 17.6 percent from a year ago. Measured by months of supply, there was only about 1.5 months overall, well below the 4-to-6 month level many industry experts use as a gauge of a balanced market.

Condo inventory is especially tight in Snohomish County (0.8 months of supply) and King County (0.92 months). System-wide there is under a month’s supply (0.93 months). For the four-county Puget Sound region, there were only 427 active condo listings at month end, down almost 31 percent from a year ago.

Despite the sparse selection, brokers expect inventory to improve.

“I actually believe 2018 will bring us moderately more listings, which should help offset the growing demand that continues to result from the area’s strong economy,” remarked Jacobi.

“The month of March can’t come soon enough for home buyers,” said J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. “In March, the number of new listings will bump up substantially from the low number of new listings typical for winter months. Better selection will start in March as we enter the spring housing season,” Scott predicts.

In the meantime, Scott reported “a multiple-offer everything, virtually sold out market” in all price ranges close to job centers and in the more affordable and mid-price ranges in surrounding counties. “Sellers are receiving premium pricing and home buyers are pouncing on each new listing,” he added.

Prices continue to rise in all but a few counties, even as the volume of closed sales fell about 9.3 percent. For January’s 5,325 closed sales, the median price was $363,500, a jump of about 11 percent from the year-ago figure of $327,500. Twelve counties reported double-digit spikes.

Within the four-county Puget Sound region, King County had the largest year-over-year gain. Prices for homes and condos combined shot up 20.3 percent in that county, rising from $475,000 to $571,250. Pierce County reported a jump of 15 percent, followed by Snohomish County at about 12.2 percent and Kitsap County at nearly 3.5 percent.

The depleted supply of condos meant premium prices. Area-wide the median price for last month’s completed transactions rose nearly 18.6 percent, from $269,900 to $320,000. Snohomish County’s condo prices surged nearly 25.5 percent, followed by King County at nearly 22.6 percent.

Some brokers expect the hefty price gains to ease.

“As interest rates rise, the rate of price increases will slow down,” predicts Northwest MLS director Dick Beeson, principal managing broker at RE/MAX Professionals in Gig Harbor. Despite this expectation, he believes sparse supply and the area’s appeal both nationally and internationally will mean ongoing competition and multiple offer situations.

 

The luxury market is also off to a quick start in 2018. “Close to job centers, the luxury market is gaining positive momentum due to the wealth effect of the stock market, the strength of the U.S. economy, and homebuyers from the Pacific Rim, especially China,” noted Lennox Scott.

Northwest MLS figures show sales of homes selling for $2 million or more are far outpacing year-ago activity. Last month, member-brokers reported selling 55 residences at this price threshold. That’s up 66 percent from the same month a year ago when brokers sold 33 such homes.


~Northwest Multiple Listing Service

Seattle’s Condo Conundrum: Historically Low Supply

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Seattle is experiencing a historic shortage of condos, as developers choose to build apartments rather than market-ready living spaces.

One reason for the shortage is an unusually stringent state condo law that makes it easier for condo owners to sue developers for construction defects.

“This is really an affordable housing issue,” said Kerry Bucklin, condo attorney with Bucklin/Evens in Seattle. “We need more housing. And in order to have more housing, we need to stop suing developers over ticky-tack complaints.”

There are only four tower developments currently slated to include condos in the downtown core.

Before 1999, King County had an average of around 2,000 condos on the market for buyers to purchase. Today, it’s lower than 350 — a record low.

Dean Jones with Realogics Sotheby’s International Realty says clarifying the law is one of several steps that can be taken.”The only solution I see to this affordability crisis on market-rate housing is reduce the headwinds that developers face in getting permitted products,” he said.

One foreign developer sees the void of condos and is ready to take a risk on Seattle. Dali Development from Taiwan has plans to construct the KODA tower at 5th Avenue and Main Street in Seattle’s International District. It’s slated to have 17 floors and 202 units, and will soon hit the market with condos between 400-1,124 square feet for up to $1 million.

“A lot of developers are looking to diversify their portfolio, and Seattle is the place to be,” said Kevin Hsieh with Dali Development.

“Also, Amazon is huge in Asia right now, so it’s become the most attractive place on the West Coast when it comes to growth and potential. Seattle is the city of the future right now,” said Hsieh.

~Jake Wittenberg, KING