The Seattle region is experiencing quite a unique set of circumstances — old and new — that are creating unattainable prices for many.
- Topographical: There’s not much land to go around with lakes and Puget Sound in the way. There are also growth management boundaries. This makes what land is available for housing more expensive.
- Development: Builders aren’t building enough to meet the housing demand because land is expensive. Labor costs are also up and that adds to the price.
- Mass transit: Infrastructure, or lack thereof, makes it difficult to get around. So living in a convenient location is more expensive. Time is valuable, and commutes are growing. Buyers are moving farther out from Seattle along the freeways to find housing they can afford. More mass transit is coming to bring the region together, but that is decades away.
- More people: More and more newcomers are moving into the area as Seattle’s economy booms. This places even more demand on the already tight market. Currently the greater Seattle area is adding an additional 73,000+ new homes.
- SEE: Seattle Area Needs 73,135 New Single Family Housing Starts to Keep Pace With Growing Population
Millennials are another concern. They are the up-and-coming market. But builders are not constructing housing in their price point (which goes back to the previous issue that building is currently very expensive).
Ever since the real estate market took a dive a decade ago, buyers and sellers around Seattle have been wary of the term “housing bubble.”
Bubbles burst, after all. It’s what happened in 2007 when prices went through the roof; buyers were flipping homes, and lending was out of control….. But fret not, if you’re worried about a repeat 10 years later.
This is largely because, unlike 10 years ago, lending has become very stringent. High credit scores are required to buy a home. Down payments, which often were not required before the last bubble burst, are also a necessity.
In addition people need to understand the reality of where mortgage rates are today, relative to where they were in 2007. Current mortgage rates are a full 2 percentage points lower. Which means you can buy 20 percent more house for the same payment. That’s going to drive prices higher, organically.
In the Seattle metro area, single-family home costs are up 13.3 percent from a year ago, and are rising at the fastest clip since the 2006 housing bubble, according to the Case-Shiller index. Compare that to 5.6 percent home price growth nationally.
Across Washington, home values are up 12.7 percent from a year ago, also easily tops in the nation, according to CoreLogic. Even cheaper places like Spokane and Bellingham have become less affordable.
We should note that the vast majority of local real estate agents and lenders do not believe a bubble is coming .
One thing is for sure: The problems that led to the last bubble before the recession, like underqualified buyers egged on by unscrupulous lenders, aren’t present this time around. Home loan data shows local buyers are getting good credit scores, forking over big down payments and paying their mortgages on time.
It’s unclear what could even cause housing prices to drop right now. Layoffs at Amazon and Microsoft? A sudden flooding of the market with homes for sale? Mt Rainier finally blowing her top?
There’s also a third, less talked about and more boring scenario for the market’s future: Somewhere between a bubble and continued exuberance.... The “flattening market,” with prices rising at a more normal rate — like 3 percent or so.
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