Early Signs of a "More Balanced Market"

KIRKLAND, Washington (Aug.4, 2016) - Home prices are still rising but the supply of homes is improving, prompting brokers to suggest some relief is in sight for would-be buyers. "We might actually be starting to move very slowly back toward a more balanced market," said OB Jacobi, president of Windermere Real Estate, in commenting on July's figures from Northwest Multiple Listing Service.

The MLS report summarizing last month's activity shows active listings (including single family homes and condominiums) are at the highest level since September 2015 and the volume of new listings added to inventory topped the 12,000 marked for the third consecutive month.

With inventory shortages apparently easing in some areas, once-sidelined and frustrated house-hunters may be resuming their search, based on the latest statistics. Pending sales for the 23-county service area rose nearly 4 percent compared to a year ago, setting a new high for volume during July.

Member brokers reported 11,657 pending sales system-wide last month, a slight drop from June when they notched 11,995 mutually accepted offers. Despite that dip, the four-county Puget Sound region had its best-ever volume of pending sales for July (8,545), eclipsing last year's record number (8,248).

"We are experiencing a record breaking market," exclaimed J. Lennox Scott, chairman and CEO of John L. Scott, Inc. "Last month was the best July in history in the Puget Sound real estate market. We're in a frenzy hot market with a large backlog of buyers." He credits improving inventory with spurring sales. "That additional inventory gave us the boost to not only be able to claim an all-time, best ever July, but to also position the last three months as the best in history for [pending] sales activity in the Puget Sound region."

Some brokers, including MLS director Frank Wilson, expect the robust activity will slow in August as families focus on vacations and back-to-school preparations.

Brokers added 12,178 new listings to the selection during July, which compares to 11,198 additions during the same month a year ago for an improvement of nearly 8.8 percent. At month end, there were 18,287 active listings for sale versus the year-ago figure of 21,069. That represents a year-over-year drop of "only" 13.2 percent; it's been hovering in the minus-20 ranges for most months since spring 2015.

King, Snohomish and Pierce counties still have less than two months of supply, with double-digit increases in prices compared to a year ago, prompting some buyers to expand their search to outlying areas.

"Buyers are feeling the squeeze every day, and now, outlying areas are seeing multiple offers like the major cities have been experiencing the last two years," noted Northwest MLS director George Moorhead.

Buyers are using driving apps with their searches to determine whether or not to consider a home and its proximity to their workplace, according to Moorhead, the designated broker at Bentley Properties.

"Our difficulty with limited inventory and multiple offers continues in Snohomish County," reported Diedre Haines, a past chairman of the Northwest MLS board. "The biggest problem right now is a resurgence of low appraisals - often between $30,000 and $35,000 below the agreed upon price."

Also concerning to Haines is a tendency to forgo due diligence during competitive bidding situations, something she says she sees nearly every day. "In my opinion, sellers and buyers should not consider offers with waived financing, inspection, investigations, etc. as good offers," she stated, adding, "They should be mindful of our state's 'buyer beware' protections and allow buyers the time and ability to perform their due diligence."

Haines, Coldwell Banker Bain's principal managing broker for South Snohomish County, said the appraisal problem is plaguing all market areas of the county, and involves different appraisers.

"This is indeed a strange situation, especially when taking into consideration that most sellers are cautious in their decision to not take the highest offer - even in multiple offer scenarios," Haines remarked. She is also troubled by appraisers' current practice of using comparable properties that are only with one-half mile of the subject property, rather than the historically typical 2-to-3-mile radius, resulting in a "not good comp" that sometimes leads to failed sales.

One notable exception to the existence of low appraisals is new construction, according to Haines. "It continues to return to our marketplace at a slow but steady pace."

"Our brokers in Seattle proper, and now more broadly in King County, say sales are slowing down. With the increase in inventory, there may finally be some relief for home buyers," suggested Mike Grady, president and COO at Coldwell Banker Bain. However, he added, "Prices continue to rise at impressive rates in many areas."

Grady also mentioned the "ripple effect" is continuing, with Seattle's experience of shrinking inventory and rising prices occurring in surrounding areas.

The median price for last month's 9,466 closed sales of single family homes and condos (combined) was $350,000. That reflects a jump of 9.6 percent from a year ago when it was $319,250. Within the 23 counties in the report, the median price ranged from $57,950 in Ferry County to $505,000 in King County.

A comparison of prices by counties shows San Juan County topping the chart. The median price on last month's sales (including single family homes and condos) was $507,500, a jump of nearly 21 percent from a year ago. That edged out King County where the median sales price of $505,000 was up 15 percent from twelve months ago when it was $439,000, but down slightly from June's figure of $510,000.

For single family homes (excluding condos), the area-wide median selling price was $358,150, a 9.2 percent gain from a year. King County had the highest median price for single family homes at $555,000. That's a 14.4 percent year-over-year increase.

Condo prices for July surged 17.3 percent from a year ago, from $260,000 to $305,000. Inventory shortages persist, with less than 1.3 months of supply area wide, and less than a month (0.90) in King County.

Commenting on the market in Kitsap County, where his office is based, MLS director Wilson said there's a significant backlog of buyers. Multiple offers on new listings and steady traffic at open houses are continuing, he added.

Scarce inventory and end-of-summer priorities will likely create "a bit of a pause" in the market, predicts Wilson, the branch managing broker at John L. Scott, Inc. Poulsbo. He expects vacations and back-to-school shopping will divert some prospective buyers and sellers, but come mid-September "the market will take off again until Thanksgiving."

Elaborating on his comment about a possible shift to a more balanced market, Jacobi said King County "really sticks out for me" when looking at the entire region. Single family home inventory levels match those of a year ago, yet home sales have slowed year-over-year. "Price growth also appears to be slowing from the rapid growth that we've become used to in recent months."

Brokers who commented on the latest MLS report dismissed murmurs of a housing bubble.

Wilson emphasized this market is not like it was in 2005-2007 when it was driven by speculation and loans to people who could not afford them. He believes the market's future holds two certainties: "Home prices are heading up and interest rates are soon to follow." Wilson also described this market as "need driven based on an improving job market in King County as well as simple supply and demand." Remember, he added, "normal markets have adjustments . . . ours will come in a couple of years." 

"An imminent bubble is not likely," said Moorhead. "Even though we cannot predict the future, if interest rates remain low and inventory levels remain at historic lows, a bubble is unlikely," he said.

Scott expects current market conditions will continue at least into the summer of 2017. "The best opportunity for homebuyers to find a home will be in the next three months," he suggested, noting new listings coming on the market historically taper off in November. "Because of the current increase in inventory, now may be a great time for buyers who were discouraged from entering the market to rethink their decision," he added.

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.

Statistical Summary By Counties
Market Activity Summary and 4-County Puget Sound Region Pending Sales (PDF)

*This article originally appeared on the NWMLS