What lies ahead for the local housing market in 2018? We sat down with Windermere Chief Economist Matthew Gardner to get his thoughts. Here are some highlights:
Home prices will continue to increase, but at a slower pace
The strong local economy, high demand and very low inventory will continue to boost home values in 2018, according to Gardner. However, he believes that the double-digit growth of 2017 will moderate, and predicts home prices in King County will rise by 8.5% in the new year.
Mortgage interest rates will rise slightly.
Gardner admits that interest rates continue to baffle forecasters. The rise that many economists have predicted the past few years has yet to materialize. His forecast for 2018 sees interest rates increasing modestly to an average of 4.4% for a conventional 30-year fixed-rate mortgage.
More Millennials will enter the housing market.
Despite the relatively high cost of homes in our region, Gardner expects more Millennials to buy homes in 2018. They are getting older and more established in their careers, enabling them to save more money for a down payment. Many are also having children and are looking for a place to raise their family.
The tax reform bill will have a limited effect on our housing market.
The recent changes to the income tax structure will have an impact on homeowners, but Gardner does not believe that impact will be significant here.
The mortgage interest rate deduction will be capped at $750,000 – down from $1,000,000. But according to Gardner, just 4% of the mortgages in King County exceeded $750,000 in 2017. Most buyers of more expensive homes have been making larger down payments, or buying homes for cash.
Since the $1,000,000 mortgage deduction cap is grandfathered in for those who have already purchased a home, some homeowners may opt to stay put rather than move. That could result in fewer homes being placed on the market.
- The tax bill eliminates the deduction for interest on home equity loans. This is bound to slow down the trend of homeowners choosing to remodel their home rather than trying to find a new home our inventory-deprived market.
The increase in home prices may moderate, but inventory will still be very tight. 2018 is on track to be a strong seller’s market.
This post originally appeared on Windermereeastside.com.
As home prices in King County have reached record highs, some people are wondering whether we are approaching another housing bubble.
While it’s true that home prices here have surpassed the last peak hit during the housing bubble, that doesn’t mean we are in bubble territory today. The last bubble was fueled by faulty mortgage practices. Today, loans are granted on much more sound principles.
More importantly, the local economy is flourishing. Seattle has the fastest growing population of any major city in the country. The demand for homes, and historically low inventory, have been the catalyst for rising home prices here.
Still not convinced that there is no bubble? Let’s take a look at the statistics.
King County Median Sales Price
According to data from the Northwest Multiple Listing Service, the median home price in King County rose steadily since 1993 (the first year the NWMLS reported median home figures), fell during the crash, and has risen since 2012.
Now, let’s assume there was no housing bubble and crash in the mid-2000s and that home prices appreciated at normal historic levels for King County, which has been an average annual rate of 6 percent for many decades. This graph compares actual home prices (blue bars) with what prices would have been with normal appreciation (orange bars) over the same period.
King County Median Sales Price
Bottom Line: Had there not been a boom and bust, based on historic appreciation rates home values would be close to where they are right now. However, there is no doubt that home prices have risen rapidly the past few years, and that rate of appreciation can’t be sustained over the long term. If you are considering buying a home today, make sure you can afford the payments, and choose a location that will appeal to you for years to come.
This post originally appeared on Windermereeastside.com.
Housing demand is still exceeding supply. The low inventory has kept the market in an upward appreciation trend. Find out what the average days on market is, as well how much home prices have risen since 2015.
Washington State continues to see strong employment growth, outpacing national numbers with an annual rate of more than 3%. Interestingly enough, despite these substantial job gains, the unemployment rate remains stubbornly high at 5.8%. However, we're not overly concerned about this because it’s largely due to a growing labor force rather than a declining job market. This means that those who are unemployed who had previously stopped looking for work are now resurrecting their job searches because they have confidence in the economy.
We're expecting to see a modest drop in the unemployment rate through the balance of the year, and believe we will continue to outperform the nation as a whole with above-average job gains.
HOME SALES ACTIVITY
There were 22,721 home sales during the second quarter of 2016, up by 4.4% from the same period in 2015. We finally saw a much-needed increase in listings, which rose by 30.1% between first and second quarter. This increase in the number of homes for sale led to an increase in sales, which rose by 4.4% when compared to the same period in 2015.
Island County saw sales grow at the fastest rate over the past 12 months, with sales up by 22.1%. This is a small county which is subject to wild swings, so I take the data at face value. That said, the larger Thurston County saw sales up by an equally impressive 19.7%. Most interesting is that King County saw sales fall modestly compared to the same time period in 2015. Price—and supply—are clearly an issue in the most populous county in our state.
Overall listing activity was down by 21.8% compared to the second quarter of 2015, but the good news is that the supply side deficit is actually getting a little less than we have seen over the past few years. The total number of homes for sale was 30.1% higher than seen at the end of the first quarter. While much of this can be attributed to seasonality, it is still nice to see!
- The region is experiencing positive job growth, and with it, migration to Washington State is running at a very brisk pace. Given these factors—in addition to our lack of new home construction—it is not surprising to see demand substantially usurping supply. As I look forward, I believe inventory levels will continue to rise modestly, but it will remain a solidly seller's market for the rest of the year.
With demand still exceeding supply, we should not be surprised to see average sale prices continuing to rise, as is certainly the case in our region. Home prices rose by 8.1% between the second quarter of 2015 and the second quarter of this year. This is down from the annual rate of 10.1% that we showed in our last report, but the rate is still far higher than the historic average of 4%.
Regular readers of this report will remember that there were several counties where average sale prices in the first quarter were actually lower than seen a year before. It was suggested that seasonality was to blame and that was indeed the case, with all counties in this report now showing annualized price gains.
- When compared to the second quarter of 2015, price growth was most pronounced in San Juan County and, in total, there were nine counties where annual price growth exceeded 10%.
- The prevailing supply/demand imbalance continues to push prices higher, and persistently low interest rates are just adding fuel to the flames. If rates stay at current levels, it is unlikely that we will see much in the way of slowing appreciation for the rest of the year.
DAYS ON MARKET
The average number of days it took to sell a home dropped by 17 days when compared to the second quarter of 2015.
It took an average of 67 days to sell a home in the second quarter of this year—down from both the 86 days it took to sell a home in the first quarter of this year, and from the 84 days that it took to sell a home in the second quarter of 2015.
- The only market where the length of time it took to sell a home rose was in the notoriously fickle San Juan County, where it rose by 30 days to 196 days. In the rest of the region, the average decrease in the time it took to sell a home between the second quarter of 2015 and the second quarter of 2016 was 20 days.
- Snohomish County has joined King County as a market that takes less than a month to sell a home. At 18 days, King County is unarguably the hottest market in the region, but sales are slowing due to the lack of inventory. This imbalance is unsustainable over the long term.
This speedometer reflects the state of the region’s housing market using housing inventory, price gains, sales velocities, interest rates, and larger economics factors. For the second quarter of 2016, we're leaving the needle in the same position as last quarter. Inventory levels have improved, albeit modestly, and price growth has slowed very slightly. However, this is offset by a jump in pending sales, a slightly higher number of closed sales, and a drop in interest rates. As such, the region remains staunchly a seller's market.