Home prices have clearly recovered in King County and a few other areas served by Northwest Multiple Listing Service. Many brokers say prices are likely to keep rising as a backlog of buyers competes for depleted inventory.
The latest report from the MLS shows the year ended on a mostly positive note with pending sales, closed sales and prices all showing year-over-year increases. Not surprisingly, listing activity dropped, in part because some sellers are balking at listing their home for fear of not finding a replacement.
Selling prices for single family homes and condominiums that sold across the Northwest MLS 23-county service area surged 8.6 percent from a year ago, rising from $290,000 to $315,000. The price of a single family home (excluding condos) that sold in King County during December jumped nearly 15.5 percent, from $440,000 to $508,000, prompting OB Jacobi, president of Windermere Real Estate to comment, "If December told us one thing, it's that home prices have clearly recovered in King County. Last month the median price for single family homes broke the pre-recession record of $481,000 that was set in July 2007."
J. Lennox Scott, chairman and CEO of John L. Scott, noted the 9.2 percent drop in King County's pending sales during December, saying "The only reason pending sales dropped in King County was due to a lack of inventory." MLS figures show active listings in King County were down 39 percent (about 1,400 fewer properties) from 12 months ago. Area-wide, inventory was off 29 percent from a year ago.
Inventory levels fell well below the threshold many industry experts use to gauge a balanced market.
Area-wide there was just under 1.8 months of supply, with four-to-six months generally considered to be a "balanced" level. In King County, inventory dropped to less than one month (0.84). It was slightly better in the adjacent counties, with Snohomish at 1.13 months and Pierce at 1.76 months. Kitsap County also reported less than two months of supply. Only five of the 23 counties in the MLS report had more than six months of supply. "The lack of inventory makes buyers twitch when a new listing hits the market," observed Dick Beeson, a member of the Northwest MLS board of directors. "These buyers and their brokers are ready, willing and able to pounce on well-priced, well-located properties," added Beeson, the principal managing broker at RE/MAX Professionals in Tacoma. These prepared buyers helped propel last month's 15 percent increase in pending sales in Pierce County compared to a year ago.
Pending sales system-wide clearly outpaced the brokers' ability to replenish inventory. The sales volume was up 3 percent from a year ago.
With the backlog of buyers waiting in the wings, any new inventory that comes on the market will be snapped up immediately. It seems obvious that 2016 will continue to be very stressful for some buyers due to low inventory, increasing prices, rising interest rates, plus a growing pipeline of qualified buyers as sources of house-hunter anxiety.
Other factors could also come into play to squeeze inventory. They include buyers whose credit has been repaired after foreclosures or short sales, investors who see real estate as an alternative to the stock market, escalating rents that prompt renters to consider home ownership, and buyers from outside the U.S.
Lennox Scott foresees a fast-paced, "intense" market, with prices escalating in areas where inventory is low. "The lack of inventory near job centers persists," he remarked. Buyers come out in big numbers beginning January 1, he noted, but new listings come later, typically toward the end of February.
"The low inventory in the Seattle area market will send many first-time homebuyers looking at suburbs and put additional pressure on multifamily properties," said John Deely, principal managing broker at Coldwell Banker Bain in Seattle. He points to the formation of new households due to the strong job market as a factor in the imbalanced market. "Our economy is being charged by a multi-faceted job base and this is driving employment to new all-time highs," he observed.
Deely, a director with Northwest MLS, said both long-time homeowners and new homebuyers are feeling the impact of rising prices and interest rates.
One consequence Deely noted is decreased buying power. "For buyers, every 1 percentage point increase in interest rates decreases buying power by about 10 percent," he explained. He believes the diminished power coupled with rising prices will push buyers who are on the fence to make their move. "The same two factors will also motivate long-time homeowners to jump into the market as they looking to maximize their profit and find suitable replacement properties," he remarked.
Some brokers say rising prices are more worrisome than upticks in interest rates. Noting differences in the tri-county area where pending sales declined by 9.2 percent in King County but increased by double digits in both Snohomish and Pierce counties, Jacobi thinks price hikes in King County are "clearly pricing many buyers out and into the adjacent areas."
MLS figures show wide differences in prices within the four counties in Central Puget Sound region. Pierce County had the lowest median price for December's sales at $249,950, while King County had the highest at $450,000. Homes and condos that sold in Kitsap County last month had a median price of $266,500; in Snohomish County the median sales price was $335,500.
Despite rising prices in most areas, closed sales ended the year on a strong note. Brokers reported an increase of 12.8 percent for the same month a year ago. For the year, Northwest MLS members logged a 14.3 percent gain.
Commenting on prices, Beeson said, "Although prices have risen year over year throughout the NWMLS region, it has not been a phenomenal rise as seen in the mid-2000s." Beeson also dismissed speculation of a housing bubble – unless "lenders get greedy again." "The housing bubble created in 2005-2008 does not appear evident at this time," Beeson stated, adding, "Today's buyers are generally very well qualified and they are using real money as down payments — their own money. They are not relying on creating a second mortgage as their down payment, thereby disguising the fact that they had no real money of their own for a down payment." Beeson remains wary of some lenders, however.
"Watch out for lenders if they begin allowing buyers with lower credit scores to qualify to buy homes as interest rates tick up. Those days are to be feared."
Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership of nearly 2,100 member offices includes more than 25,000 real estate professionals. The organization, based in Kirkland, Wash., currently serves 23 counties in Washington state.
With holidays approaching, real estate brokers usually expect a slowdown as buyers and sellers shift their attention elsewhere. This year is different.
Today we have one of the best markets we've ever seen for sellers. Buyers are still surging to the market and inventory is low. It's a very good time to sell. Owners who are eager to make the next move don't have to wait six months or until spring to act.
Newly released MLS figures for October show pending sales are up 7.8 percent from a year ago. Nearly half the counties in its service area reported double-digit gains in the number of mutually accepted offers. For the four-county Puget Sound region encompassing King, Kitsap, Pierce and Snohomish counties, Northwest MLS tallied the highest October volume in pending sales in a decade.
For 19 of the 23 counties in the latest MLS report the number of pending sales surpassed the number of new listings added to inventory. System-wide there were 8,094 new listings that came on the market during October, about the same as 12 months ago when members added 8,102 listings. With those additions (the fewest monthly total since February), inventory at the end of the month was at a 23.1 percent year-over-year drop.
Closed sales rose 7 percent from a year ago. Last month's total slipped below 8,000 closings for the first time since April, with some brokers citing inadequate inventory as a factor. "Given the severe shortage of homes for sale, I'm not surprised to see that both pending and closed sales slowed down last month," said OB Jacobi, president of Windermere Real Estate.
Broker Mike Gain agreed. "If we just had more homes to sell the number of closed units would have increased even more during October," he stated. "Selling more homes at a faster rate than we are replenishing supply shows just how good the local real estate market really is," remarked Gain, CEO and president of Berkshire Hathaway Home Services Northwest Real Estate.
The MLS reported 2.33 months of supply area-wide, well below the 4-to-6 months figure many in the industry say indicates a balanced market. The months of supply figure has not been above three months since February when the figure was 3.56 (usually six months of supply is considered a balanced market).
Both King and Snohomish counties had less than two months of supply. The most acute shortages are in King County with only 1.29 months of supply; Snohomish has 1.91 months of supply.
Commenting on the gap between supply and demand, MLS director George Moorhead said, "This is not sustainable and will create a market condition where buyers will overpay for a home." Moorhead, the designated broker at Bentley Properties, also commented on bidding wars. "Multiple offers are now being seen in outlying areas as buyers look farther out just to find a home that is a perfect fit while sacrificing distance to work and services." Good schools remain the highest sought-after criteria, he added.
Even with inventory shortages in some areas, strong open house traffic is expected for the coming weekend, thanks to the bye on the Seattle Seahawks schedule, suggested MLS director Frank Wilson. “A weekend without a Hawks game is good news for real estate brokers and sellers who hold open houses on Sundays.” Open houses for new listings draw decent traffic, Wilson reported, adding. "New listings get picked through pretty quickly, and homes that are correctly priced are selling within days, with multiple offers." He also said homes that have been on the market for more than 60 days have little traffic unless they have had a price reduction. "Some sellers are tending to overprice their homes due to all the hype."
The Seattle area's home price gains are outpacing the nation's, earning the city No. 1 ranking on a recently released list of the hottest single-family housing markets in the U.S. Strong demand, rising prices, low interest rates and the area's healthy economic conditions are all reasons for the strength.
"We will experience a hot housing market over the winter months," predicts J. Lennox Scott, chairman and CEO of John L. Scott, who also expects 2016 to be "another fantastic year for sales activity." Noting home sales activity is historically lower during this time of year, Scott believes activity this winter will be "red hot" in price ranges where inventory is low. He believes continued low interest rates and job growth will ratchet up demand as spring approaches.
Despite general optimism among Northwest MLS leaders, some pullback is anticipated.
Jacobi, who last month commented on the market being on the cusp of a slowdown, faults scarce inventory. "I expect this trend (of slower pending and closed sales) will likely continue through the end of the year due to the lack of available inventory for buyers." Jacobi also said appreciation may start to slow over the winter months, but, “overall the housing market continues to benefit from our thriving local economy."
Diedre Haines, principal managing broker-South Snohomish County for Coldwell Banker Bain, said they are noticing some slowdown, but "not as much as we've seen historically."
"There remains a lot of frustration with multiple offers and getting transactions to actually make it to closing," reported Haines, a past chairman of the Northwest MLS board. She attributes failed sales to several factors including low appraisals, financing issues, and an increase in sellers and buyers not being able to come to terms on inspections.
Prices on last month's closed sales jumped nearly 9.7 percent from a year ago. Area-wide the median price for sales of single family homes and condos that closed during October was $318,000. That compares to a price of $290,000 for the same month a year ago.
For single family homes (excluding condos), year-over-year prices increased nearly 8.4 percent, rising from $299,950 to $325,000. In King County, the median price for a single family home was $480,000, rising 7.3 percent from the year-ago figure of $447,250, but dropping from September's median price of $490,250.
"Appreciation for most of Snohomish County has continued, but not exorbitantly," noted Haines. Prices in that county are up more than 5.8 percent from a year ago. "Modest gains in value are in reality much better for the market than the rapid gains we've seen in the past. For us, this means no sign of a growing bubble."
The MLS reported strong sales in the condo segment, with both the volume and prices rising by double digits. Area-wide, closed sales rose 13.2 percent. Prices surged 16.2 percent, jumping from $228,500 a year ago to last month's median price of $265,500.
Condo inventory is also depleted with the number of active listings down nearly 26 percent from a year ago. MLS figures show only about 1.6 months of inventory area-wide; in King County there is less than 1.2 months of supply.
Looking ahead, many of my colleagues expect the area's housing market will continue on a gradual upward trend into 2016. As rents continue to rise, it makes buying a home more affordable than renting in many cases. It also insures that the monthly payment will remain the same as rents continue to escalate. Buying a home today is simply a smart decision for most who have the ability and resources to do so.