Memories of the Great Recession still linger for anyone linked to the real estate industry – including the estimated seven million households that lost their homes to foreclosures around 2008-2010. Adjustable-rate mortgages were cheap and easy to acquire, home prices were artificially inflated and supply plentiful. Then the housing bubble burst.
Fast forward to today and markets here and across our nation are going through serious inflationary pressures. Prices have soared in most areas – including a 30% jump in the past year for single-family homes in King County – amid a shortage of inventory and a sharp rise in the number of buyers. Is this the beginning of a housing bubble, 2021-style?
“I find it difficult to say we’re not in a housing bubble, but I [also] find it difficult to say home prices are going to crash,” says Ali Wolf, chief economist at real estate consultancy Zonda, as quoted by realtor.com. “Today’s prices feel unsustainable, today’s frenzy feels unsustainable. But that doesn’t mean there’s going to be a crash.”
There are some similarities with the two recessions as well as with some housing indicators, but the answer to the question is a resounding “No!”
There are at least five factors that make this housing environment far different – and more stable – than roughly a decade ago:
Low inventory and lack of supply – There were some 4 million homes on the market nationally in July 2007 compared with about 1.1 million for sale today. The home-building pipeline cannot keep up with the need; Freddie Mac indicates the country is approximately 3.8 million single-family homes shy of demand.
Flood of buyers – As I noted last month, Millennials will fuel this housing market for at least a decade to come as about 4.5 million of them enter their thirties, the prime period for first-time purchases, in each of the next several years. Couple that with the return of international buyers – absent from the U.S. market during the pandemic – and there is great anticipation for strong demand.
Cheap money – Securing a mortgage may have gotten more challenging since regulations were tightened post-Great Recession but the price of borrowing has remained inexpensive for a few years – and there is no sign of that changing anytime soon. The Federal Reserve is supporting the Treasury’s purchase of mortgage-backed securities as well as helping to sustain low interest rates for mortgages. These factors have contributed to the sharp rise in buyers, knowing all too well that rates in the 3%-3.5% range won’t last forever.
Greater savings – Americans put their wallets, credit cards and check books into hibernation for about a year as they sat home and binged on Netflix, Zoom meetings and bread-making. One survey estimated Americans’ personal savings increased 15% in a year (April 2021), down from a high mark of 28% a month earlier. That has translated into higher down payments on homes – more cash on the table – prompted by a need to stand out in a crowded field of buyers.
Greater equity – Rising home prices have appreciated the value of our homes. An April report from ATTOM Data Solutions found that nearly one in three of all mortgaged homes was “equity rich,” with loan balances of 50% or less of the property value. Even if a household faced the prospect of foreclosure, buyers would be happy to take the home off an owner’s hands – likely at a profit for sellers – while providing needed inventory. (Washington is the fourth-most, equity-rich state in the nation, with 45% of mortgage holders in that category.)
All of this signals a robust economy and housing market – particularly in the Seattle region, which continues to grow in population and employment.
To be sure, the huge supply/demand imbalance and rising home prices remain unresolved. When will double-digit home price rises stop? Will we ever see a “correction”? That’s a topic for another newsletter.
WHO WOOD HAVE THOUGHT!?
One aspect of rising housing prices is ballooning materials costs for new home builders. You have read here before how lumber prices have soared about 250% in the past year, prompting real concern among developers who are seeing profits dwindle. The problem is very real here in our region.
Some smaller construction companies are heavily burdened by rising costs for everything from lumber and steel to fuel and labor amid a lack of available employees. Some in the industry are pointing to these costs for a near 10% decline in housing production this spring (to about 1.6 million units annually and dropping).
“While housing starts were strong at the beginning of the year … higher costs and limited availability of building materials have now paused some projects,” said National Association of Home Builders Chief Economist Robert Dietz.
Shortages of materials for new homes are more widespread than at any time since the NAHB began tracking the issue in the 1990s. More than 90% of builders in May reported shortages of appliances, framing lumber and other wood products:
To address rising costs, some 47% of builders surveyed this spring say they are including price-escalation clauses in their sales contracts to avoid a deeper hit on their bottom lines. One-tenth surveyed said they have added language to contracts that require buyers to share in the materials costs if they continue to rise.
Now there is preliminary talk that the Biden administration is considering raising tariffs on Canadian lumber shipments into the U.S., potentially doubling the current 9% levy – even possibly doing so retroactively by as many as two years. Many experts believe the move is aimed to help U.S. lumber mills get back on their feet, but others argue there is plenty of demand for all countries to support home builders and homeowners doing DIY projects.
WORKERS FACE OFFICE RETURN – BUT WILL THEY?
For employers and their workers, it will be interesting to watch how the next several months pan out. Since the pandemic, thousands of people have migrated distances much further than historical norms – to save on costs, find bigger homes and/or seek renewed purpose in their lives. The Seattle Times reported on a city exodus to South King County this past year. (We are even hearing of families pulling up stakes without much notice to family and friends, leaving many of their possessions behind – to the bewilderment of listing agents hired to sell the property.)
What arrangements the long-distance workers make with those big-city employers is going to be interesting to measure. A May survey of 1,000 U.S. adults showed 39% would consider quitting if forced to return to the office full-time. Some workers have already submitted their resignations over the issue, while others are searching for compromise with their bosses.
A separate survey of 5,000 U.S. adults showed about 40% of workers expect to have some form of remote work flexibility post-pandemic. About one in five expect they will have the ability to work exclusively from home. And roughly the same number surveyed, 19%, moved over the past 12 months.
The biggest surprise (to me, at least): 42% of full-time remote workers say they are planning to move over the next 12 months and 26% of on-site workers are making similar plans. The number one reason for their plans to move: They want to own a more affordable home.
If that sounds like you, let’s talk!
BY THE NUMBERS
>> Who said our city is shrinking? Despite reports of a mass exodus, Seattle’s population grew by about 16,400, or 2.2%, for the year (through June 2020, the latest available data), to 769,700. The U.S. Census reported the city’s growth rate was the largest among any U.S. metro, beating out growing Sunbelt markets Fort Worth, Texas, and Mesa, Arizona – both of which added about 2%. Seattle was the fastest-growing U.S. city in the 2010s and this recent spurt surpassed most years from that decade.
>> The same U.S. Census report noted Kirkland’s population growth in 2020 was even larger than in Seattle. The Eastside city saw a 2.6% increase in its population to 95,400. Bellevue’s population remained about the same year-on-year at 148,100.
>> As of Jan. 1, there were 624,829 homes of all types in King County. The county’s Assessor’s Office says that includes 111,679 condo units. Another 43,126 residential lots are vacant.
>> About 4.4 million people work in residential construction, or about 2.8% of the U.S. civilian labor pool, according to NAHB Economics. California claims the largest number of workers in home building, with 640,000 (3.3% of the state’s labor force). Washington has an estimated 3.5% of its labor force employed in home building.
>> A sign of a rebounding economy can be found in the declining number of households making use of mortgage forbearance programs in the U.S. A full 65% of the roughly 6.1 million borrowers have safely exited from their program. That leaves about 2.1 million households (and falling) looking for a solution to their mounting mortgage obligations with the pause on payments expected to stop sometime this year and no sooner than September. (Assistance is available in King County.)
>> The National Association of Realtors® revised its economic forecasts for 2021 – and things are looking up. The only blemish is a prediction of rising inflation, to 2.7% after a 1.4% reading last year. Among other revised national forecasts from NAR:
- New-home sales will rise 20%.
- Existing-home sales will increase 10%.
- Home prices will add 7%.
- Mortgage rates likely will increase to 3.5% by year’s end (up from the earlier forecast of 3.2%).
JUNE HOUSING UPDATE
We may still have June to complete but it’s already clear that King County’s spring housing season was one of historic proportions – and not in a good way. Home prices continued to surge as listings wobbled up one month and down the next. Few housing options and ultra-competitiveness left many buyers at the doorstep holding their earnest money for another day – and possibly for another year.
The traditional peak season is nearly over and the number of listings hitting the market has already started to decline, a few weeks earlier than most years. This suggests a wave of 2020 owners who timed their sales after the pandemic waned finally put their homes on the market earlier than the usual spring blitz. Don’t let the children see these figures because they’re scary:
- The number of new listings for all home types fell 5% across King County from April to May, often the busiest month of the year, believed to be a first such decline this century.
- Eastside total new listings fell 9% to below 1000 (922 to be exact) for the first spring month since April 2018 (905).
- King County single-family home prices surged 30% ($869,975) in the last year, including 4.8% in the past month.
- Seattle single-family home median prices hit a record high – $890,000 – breaking the previous mark by 3.2% set the month before.
- North King (Richmond Highlands to Lake Forest Park) experienced a 33% year-on-year price jump for single-family homes.
- Bellevue west of I-405 (including Medina and Clyde Hill) saw single-family home median prices skyrocket 72% in the past year and 15% in a month to an eye-watering $3.1M.
- The average King County single-family listing sold in May 9.5% above the asking price (that’s why I coach my buyer/clients to search for homes 5%-10% below their comfort level).
High demand kept supply depleted. Overall, our county has 0.6 months’ inventory (or 17 days of supply if not replenished with new listings), and only 0.4 months for the single-family category. Both figures are down a notch from the previous month. Notably, Seattle single-family inventory slipped to 0.6 months (from 0.7) and the Eastside reported only 0.3 months of homes on the market (down from 0.4 in April). A swath of Bellevue East and East of Lake Sammamish have only 0.2 months’ inventory, or about 5 days of available supply. (Inventory is calculated monthly by taking a count of the number of Active listings and Pending sales on the last day of the month. Months’ supply refers to the timeframe it would take for the current inventory of homes on the market to sell given the current sales pace.)
The main photo atop the newsletter is of the famed Chittenden Locks in Ballard, a neighborhood with a thriving housing market. The chart below shows a mostly steady rise through this year in both new listings and Pending sales (mutual acceptance). High demand in Ballard is keeping supply thin, with 403 new listings and 385 Pendings in May. Homes are selling at a median price of $779,000, with only 0.5 months of inventory.
In addition to King County’s 3.3% median price month-to-month increase on all home types, to $775,000, Snohomish County saw the sharpest jump – a rise of 4.0% from April to May ($655,000). Pierce added 2.0% on its media price since April ($500,000) while Kitsap was virtually unchanged ($486,944). Single-family home prices in King jumped 4.8% in a month ($869,975), followed by Snohomish (up 3.3% to $697,000), Pierce 2.0% ($510,000) and Kitsap 1.9% ($500,000). Year-to-year, single-family median prices soared in our region, led by a 35% jump in Snohomish, 29% each in King and Pierce, and 25% in Kitsap.
Click here for the full monthly report.
CONDO NEWS
The buzz in Bellevue? A new construction project just north of Bellevue Square Mall.
Plans are well underway to build companion high-rises with about 365 luxury condo homes in the heart of the city. The community will be known as Avenue Bellevue, comprising a classic luxury condo called Residences and a super-luxe neighbor named Estates, which will share space with a new InterContinental Hotel.
Buyers – both investors and future residents – are getting in on the action. About 40% of all units are pre-sold, quite an achievement for a project that hasn’t even popped out of the ground and is still about two years away from opening.
Watch this newsletter next month for a close-up look at the project, which will also include dozens of ground-floor luxury boutiques, a fresh-food market and restaurants with international appeal.
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While one Bellevue project moves forward another comes to an end. One88, on Bellevue Way Northeast, is selling its final 2-bedroom, 2-bath residences – a 1328 sq. ft., fourth-floor home for $1.484M and a 1450 sq. ft., sixth-floor residence for $2.21M.
The community offers 25,000 sq. ft. of curated amenities (including indoor saltwater pool), a significant amount of space for a boutique condominium of only 147 homes.
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Also in Bellevue and to the north, Mira Flats is the process of selling off its final homes. The six-story, 162-unit condo opened in 2018 and is now about 93% sold.
Located on 103rd Avenue Northeast, Mira Flats has special offers to clear its remaining inventory. In April, the sales team announced a free year’s HOA dues. They followed that in May with a $10,000 credit at closing. What do they have in store for June? Contact me to learn more.
LUXURY LIVING
This month’s notable listings include one that was on and off the market for two years and scooped up in recent weeks. It’s one of the penthouse suites at Escala, the downtown condo noted for being the setting for “50 Shades of Grey” novels. This 3-bed, 3.25-bath, 4522 sq. ft., 31st-floor home was first listed in 2019 at $9.995M and a million dollars less a year later. The home, which apparently was never occupied since the building opened in 2009, comes with five deeded parking spaces. Within a day of being listed this May at $7.2M ($1592/sq. ft.), a buyer put in an accepted offer. We won’t know the final price until closing.
You cannot deny Mercer Island is a special place with exclusive waterfront properties. This one makes the list: A West-facing, 5-bedroom, 6.25-bath, 5950 sq. ft., 2-story with basement on a just-over, half-acre of ground. The gated property has it all with wonderful finishes – media room, wine cellar, office, electric car-charging station and guest suite in the 2019-built beauty. The owners did not want to part with the home but they have reportedly decided to move to London. Asking price: $5.275M ($887/sq. ft.) – not bad for island living. Have a look for yourself. [Update: The home went Pending a few days ago.]
The listing agent calls it “modern farmhouse.” I describe it as “stylishly Northwest.” Whatever you call it, this 4-bed, 3-bath, 4560 sq. ft., 1-story with basement has a welcoming feel that is looking for a new owner in Issaquah Highlands. This well-appointed, 2017-built home provides views of Seattle in the distance and Lake Sammamish nearby. My personal favorite is the outdoor heated living space, featuring plenty of room for dining/grilling, a big-screen TV above a large fireplace and stunning westerly views. There is also an in-ground pool, hot tub/spa and sauna. The custom playhouse in the back is a replica of the main residence! The sellers are asking $5.288M ($1160/sq. ft.).
North to Redmond we go and this 4-bed, 3-bath, 4120 sq. ft. lodge home. Curated with top-line features from appliances to architectural craftsmanship, this home sits on 5 acres high on vista-happy Union Hill. The property includes a separate accessory dwelling unit to host friends/family or as a rental. List price: $2.999M ($728/sq. ft.). Go on a breathtaking tour of the grounds. [Update: Sellers accepted an offer in early June.]
Venture to the west side of Lake Washington and a newly built waterfront property in the Cedar Park neighborhood. This 4-bed, 3.25-bath, 2468 sq. ft. multi-level jewel box offers a rare chance to own lakefront property, on the market for $3.875M ($1570/sq. ft.). The home, also within feet of the Burke-Gilman Trail, offers a rooftop, great views, smart-home technology and a private dock with 50 feet of waterfront.
Really want to get away? Try this 3-bed, 3.5-bath, 5466 sq. ft., 10.1-acre estate on the San Juans. The one-story home appears built into the hillside and offers amazing scenery from the seamlessly designed indoor/outdoor living area. A massive stone wall with fireplace and media units is striking when supporting impressive, vaulted ceilings. A page right out of Architectural Digest. Listing price: $4.5M ($827/sq. ft.)
Arguably leaving the best for last, this Queen Anne condo home offers stellar views of Seattle that even a discerning Frasier Crane would appreciate. The home is immaculately crafted – 2-beds, 2.25-baths, 2764 sq. ft. – but the postcard-quality views are what sells this place. I defy you to find a home with a better South-facing horizon, from downtown high-rises, across Elliott Bay and to West Seattle. Oh, and on a clear day you can see Mt. Rainier! Even Frasier’s dog, Eddie, would approve.