I’ve mentioned in earlier posts that I think the fears of a housing bubble are misguided or more accurately not well founded. The number of people owning their homes outright, no mortgage debt at all, is still quite high, in the 25-30% range. The number of people with 50+% equity in their homes is also in this same nearly 30% range. The underwriting standards for loans today is much more strict than back before the Great Recession, so borrowers, as any recent home buyer knows, must supply a significant amount of documentation to get their loans approved. This offers confidence to the lenders and stability to our housing markets. Short of a catastrophic national or global event—Covid wasn’t enough, as we have all seen, –it’s very unlikely we have a housing bubble issue.
That said we have other housing issues that are deserve attention. Namely supply and affordability. Supply shortages are well known and the horror stories myself, my clients and other agents and buyers are seeing are quite frustrating. We bare our souls, our dignity and empty our bank accounts and oops, sorry not quite enough to win against some other home buyer. Who are these home buyers?
It’s true we do have more outside investors jumping back into our marketplace but the reality is most of these other buyers were already here or have come here for a new job. Yes, the region as a whole has seen an increase in people leaving the Puget Sound area and the state, but the reality is we have many new people coming in. We also have a huge population of Millennials living here, looking for their first or move up home. Millennials are a larger segment of our population than Baby Boomers and they are all looking to get out of apartments and small condominiums and into traditional homes. The Gen Z population, about the size of Baby Boomers, are also breaking into the marketplace and this will continue to put pressure on our supply side.
Combining this continued pressure from existing residents in our area with the ability to work from home, part or full time, is also helping spread this demand around the Sound. That too may not be going away in any near-term scenario. Now add what is expected to be another 50-60K new employees to the region in the next 2-4 years and you can see why I don’t see any way for us to be facing a housing bubble. A lot of apartments are being built in anticipation of this new surge but they’ll be homebuyers very soon as well.
While we’re on the topic of misplaced or unfounded real estate rumors, here’s another big misconception. That there are no houses for sale. Yes, most of the region is at .4 or less month’s supply of homes but the other reality is that our new listings taken–homes coming on the market every day, week and month are also near record levels. The Eastside’s new listings so far this year are only up 3.8% compared to 2019 levels which were very similar to 2018 levels. Seattle, however, is up 46% over 2019 levels which were slightly higher than 2018 levels. King County’s new listings were up 89% over 2019 levels, again 2018 about 4% lower than 2019’s new listings and Snohomish County has 81% more inventory this year than 2019 which was slightly lower than 2018’s inventory levels.
What you see when you look at the bigger picture and more data is we actually have had an extremely full inventory so far this year. I didn’t compare to 2020 as the Covid interruption skews the data to even greater disparities. Seeing this new level of inventory gives you a better sense of the true demand for housing in our area. So while the overall inventory levels are down, they are down mostly due to demand vs. supply. Let’s look at one other data point for maybe a deeper understanding of the market conditions.
Homes priced from $1M-$2.5M show the second issue for our area–affordability. I know I’ve cautioned you in the past, don’t just look at the home price–look at the monthly payment. Low interest rates and your current home’s equity combined make what seems like unaffordable home prices be within the reach of many in our region. That said, it’s still beyond the reach for many. On the Eastside the number of closed sales so far this year in this $1M-2.5M range is up 55% from 2019. Seattle is up 100%; King County up 89% and Snohomish County is up 60%.
So, when we look at this new data point we see that yes, overall inventory is up but in most areas the real inventory is in the $1M-2.5M range. The homes under $1M are still coming on but a healthy percentage of the inventory increase is in these upper price ranges of homes. Many like to say this isn’t fair; that housing should be a right; that prices should be controlled or regulated but there are no examples of any housing market interference or price controls that have shown to work in any market. Not in rent and certainly not in ownership. As you see in any world class city, our region has now evolved to that level, there are areas that many people can not afford to live. It’s simply a reality to accept not fight. I’d love to live on the beaches of Carmel or Monterey but it’s not going to happen. I can ask and demand my fair share and equity of access but it still won’t happen.
Our region went on a crash diet of no or almost no new construction being built for 7+ years. New regulations for new construction now add almost 25% to a new home’s costs. The time to develop land to build can be 4+ years, so we are behind the curve on getting new homes built to increase our supply and undoubtedly these new homes will not fit in the current day’s “affordable” price range for homes. Builders are paying 2018-2019 home prices to buy a home and tear it down to build new homes. These certainly can’t be in the affordable price range. The reality is much of our area won’t be affordable for some.
Prices can’t continue to escalate–that’s also a reality. Rise, indeed, but at today’s pace, no; we can’t maintain this amount of price escalation. Wages will tap out the price range but that is still likely above our current price points. Does that mean a bubble is coming? No. Only that there is and will be a ceiling coming. We still have a tremendous wealth transfer approaching as well. Baby Boomers can’t live forever and we will be selling our homes, or our estates will, in the next 8-10 years and for the decade thereafter. This creates homes to sell while also not creating a buyer for a new home. It also will mean the passing of wealth to younger family members. This increase of sellers who also won’t be buying a home will help bring some balance to our market and won’t come by regulation or outside interference. We’re in a cyclical market and currently that is all going up. I don’t see the downside being steep or significant; just coming our way but quite a few years out from now. In the meantime, ask for guidance from an active agent who can help you find the right opportunities for your needs. Don’t fear a bubble, a collapse or a home’s sale price. Take advantage of the very low interest rates to find a home you can enjoy and afford for the next 5-7+ years. The numbers show the homes are out there. They may sell in a week but they are coming up and on the market for you to capture. Be patient. Summer can be a very good time to be a buyer in our region. With post-Covid vacation plans in place, some buyers will be taking themselves off the market for some of our summer time.