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Are we in another real estate bubble in Washington?

Houses in the Laurelhurst neighborhood go up for sale in 2009 after the last real estate bubble burst. (A Mclin, Flickr)
LISTEN: Windermere economist discusses Seattle real estate and

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.”

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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. Fret not, if you’re worried about a repeat 10 years later.

“That is where we were, but that is where we are absolutely not today,” said Windermere Real Estate’s chief economist Matthew Gardner.

So, currently, no “bubble.” This is largely because, unlike 10 years ago, lending has become very “stringent” Gardner said. 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.

“One thing that people aren’t really thinking about is where mortgage rates are today, relative to where they were in 2007,” Gardner said. “They 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.”

Gardner predicts that rates will rise as high as 5 percent by late 2018.

Why Seattle real estate is so expensive

Still, 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.

Millennials are another concern, Gardner said. 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).

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