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Economist: Unsustainable for Puget Sound home values to be up every year

Houses in the White Center neighborhood. (MyNorthwest photo)

In the Puget Sound area, housing prices are continuing to go up, says Matthew Gardner, chief economist at Windermere Real Estate. But it seems the prices must hit a ceiling at some point.

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“Looking at the latest numbers, it’s really kind of fascinating,” Gardner told Seattle’s Morning News. “What the interesting thing for February is that irrespective of ‘Snowmageddon’ are, indeed, mortgage rates that rose by almost a quarter point in the month.”

There was a lot of activity, Gardner said, with a rise in pending sales as well.

“Home prices in King County are up by almost 10.5% again. It’s really quite remarkable. But even more so, it’s 16.5% in Snohomish year over year, and 18% down in Pierce County,” he said.

“Nothing to buy, I’m afraid. That’s still a big issue for home buyers. However, we did see even the listing activity was down, but a lot of pending sales occurring, so a lot of demand is still there,” he added. “Prices continue to go up even in the face of rising mortgage rates.”

But there’s something else in the numbers that Gardner pointed out, in the condominium market.

“You look at condos and the biggest concern is on the urban environment. Well, we still saw a reasonable pick-up in the number of sales occurring, let’s say in downtown Seattle and Queen Anne. However, what we’ve seen already, active listing price is actually dropping,” he said.

“So we’re seeing more supply. But because there’s more supply — go back to Econ 101 — more supply and a finite amount of demand, that impacts prices on the downside,” Gardner explained.

He says the expectation for a complete demise of the urban condo market is just not happening yet.

For now, Gardner thinks a ceiling needs to be reached on home prices, but he says there is a buying opportunity.

“There always must be a relationship between home prices and incomes. We broke that relationship a while ago, and we saw a very significant increase in sale prices, quite frankly, because over the course of the last year mortgage rates dropped by a full percentage point,” he said. “But they are going up now, and that’s going to act as a bit of a headwind. But in terms of are there opportunities? Well, we’re certainly seeing a lot more interest now in the suburbs, and less in the urban markets.”

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Gardner says that interest seems to be related mainly to the potential to work from home being extended into the future, and he thinks that move out will continue.

“Therefore, from a relative standpoint, people will look at home prices that are cheaper than where they’re currently living,” he added. “So I think that there are some options, but we’re going to start seeing, hopefully, a slowing down in the appreciation of home values through the course of this year. And quite frankly, I’m looking forward to it. Markets aren’t sustainable when values are going up by double digits every year.”

Listen to Seattle’s Morning News weekday mornings from 5 – 9 a.m. on KIRO Radio, 97.3 FM. Subscribe to the podcast here.

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