Seattle’s population is booming — it was recently ranked the fastest growing big city in 2013 by the U.S. Census Bureau.
Seattle’s job growth is accelerating — the metro area’s unemployment rate shrunk to 4.8 percent in April, plummeting from 5.8 percent just the month before, according to the Bureau of Labor Statistics.
Meanwhile inventory of homes for sale is shrinking — down to a new low of 8,958 in the city of Seattle in February 2013, according to www.deptofnumbers.com. Inventory has increased since then, up to 12,462 in June 2014, but is still less than half its peak of 25,668 in July 2010.
“We’re bound by the geography fairly significantly, mountains on both sides and water everywhere,” said OB Jacobi, president of Seattle-based Windermere Real Estate Services Company, which owns 320 real estate offices along the West Coast as well as in Nevada, Montana, Alaska and Hawaii.
According to Jacobi, who oversees the day-to-day operations of 11 Windermere offices in the Seattle market in addition to his role on the corporate side of the business, the strong job market, along with limited availability of land and a “strict growth management policy” in the region makes for a hot housing market with the hallmarks of low inventory and strong demand.
“The urban centers are very competitive right now and busy,” said Jacobi, whose father founded Windermere in 1972. “On average buyers are writing four to five offers to get a home.”
The competitive market growing out of the low supply and high demand environment in Seattle has resulted in shrinking days on market and rapidly rising home prices over the past couple years, according to Chris Richter, owner of Canopy Real Estate Group, a real estate acquisition firm that scours local property data to identify and secure deals for real estate investors.
“Inventory is down, days on market are down across the board, prices are leveling, although most homes are still getting slightly above asking; multiple offer scenarios are the norm,” said Richter, who said the slowing home price appreciation is healthy “because it kinds of puts us in a holding pattern where things don’t get too overheated.”
Buyer Fatigue Growing
Stiff competition from other buyers — both foreign and domestic — is wearing down buyers and could lead some to make poor decisions, according to Jacobi, who pegged “buyer fatigue” as one of the biggest challenge facing the residential real estate market in Seattle.
“I do think that buyer fatigue is a problem ,” he said. “People become emotional and tired and they make offers that might not be as appropriate as they should. We’ve had multiple offers for 18 months. At the beginning … people were making educated choices about how high they should escalate the offer above the asking price. … (But now) buyer fatigue is pushing people to make offers that are not fact based.”
Jacobi said these poor decisions are being made despite the fact that homes in Seattle are still affordable thanks in part to low interest rates — although affordability could become a problem if home price appreciation continues at the torrid pace it’s been on for the last year and half.
“We’re not in a bubble right now, but if it continues another 18 months like this I’d start to get a little nervous,” he said, noting that additional inventory from move-up buyers will theoretically help cool home price appreciation.
Affordability is faring better in the Seattle area than some other comparable big city coastal markets, according to a county-level affordability analysis by RealtyTrac, which found median-income earners in King County would need to spend 31 percent of their income to make the monthly mortgage payments — including property taxes and insurance — on a median-priced home. Median income earners would need to spend 23 percent of their income to purchase a median-priced home in Snohomish County, and 19 percent of their income to purchase a home in Pierce County.
Those Seattle area numbers look quite affordable when compared to markets like Kings County (Brooklyn), New York, where median income earners would need to spend 74 percent of their income to make monthly mortgage payments on a median-priced home, or San Francisco, where median income earners would need to spend 70 percent of their income to make mortgage payments on a median-priced home.
Other markets where home prices were less affordable than Seattle included Los Angeles, San Diego and Orange counties in Southern California, and Bronx and Queens counties in New York.
Still, rapidly rising prices in Seattle mean fewer homeowners are underwater with negative equity. According to RealtyTrac data, 14 percent of Seattle metro homeowners had at least 25 percent negative equity in the first quarter of 2014, down from 24 percent in the first quarter of 2013.
“We’re starting to see people who are not equity locked in their home and are moving up,” Jacobi said, adding that even these buyers with equity face the challenge of finding a new home once they sell their current home. “People need to sell before they buy, which creates a bit of a chicken-and-egg situation in a low inventory market like this.”