Economist: ‘Don’t give up hope’ on Seattle housing market

While it may not seem like it to prospective home buyers at the moment in the Puget Sound area, there is a slight “cool down” in the housing market. But part of that, Windermere Chief Economist Matthew Gardner explains, is typical for the summer.

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“Generally speaking, you tend to see inventory levels rise in the summer and that’s certainly what we saw,” Gardner said about July. “People are talking about a cooling. … I like to look at months of inventory, as in how long it would take to sell every home in the market based upon the number of pending sales that occurred the previous month. So you look at that and we’re down at 0.6. So basically just over two weeks in King County, about the same in Pierce and Snohomish.”

“That number by right should be somewhere around four months. Not two weeks,” he noted.

Without a doubt, Gardner says, it is still a sellers market, “but with a slight reprieve” that he says will change in the fall.

“So my view towards people looking to buy right now is we have seen a bump in inventory — bit more choice out there. It is still remarkably competitive, but it is a bit better, or was a bit better last month than it was the month before,” he said.

He did admit, however, that it can be tough for people who want to buy to get their foot in the door and have to become what he calls “forced renters.”

“I think a lot of people out there do want to buy because they believe, as I do, mortgage rates are going to rise. Not precipitously, but they are going to go up,” Gardner said. “And people want to take advantage of the lowest rate possible. So without a doubt, more buyers out there than there are sellers, even though we saw more homes on the market for sale.”

There are also a lot of apartments being built as well in King, Pierce, and Snohomish counties.

“A lot of that is a function that they take so long to permit and build, there is almost a residue of activity going on before the pandemic started,” he said. “But it is good to see more for sale product coming out, that’s going to be important. But there’s still a lot of headwinds for builders, not least of which are housing price, material prices. And although we’ve seen significant softening in lumber prices, it is very, very expensive to build. It’s got to be at a price that people can afford.”

“That’s actually what’s holding back a lot of the new construction inventory from coming online,” he continued. “And if there’s not enough new product out there, we’re still creating households, well what does that do? That puts upward price pressure on the existing housing stock, which is what’s causing the rapid run up in prices we’re still experiencing.”

Thankfully, Gardner says housing prices can only go so high.

“There must always be a relationship between home prices and incomes. That is just a fact of life,” he said. “Now, you can change that if mortgage rates are dropping. For every one percentage point decrease in mortgage rates, a buyer can afford, technically, 10% more house. We’re not seeing the rates drop down that precipitously now, so you take that off the table.”

“We are getting certainly very close to that affordability ceiling, and what’s going to happen — and we are already starting to see it — is a bit of softening in list prices,” he added. “And that’s what I find particularly interesting. In King County, for example, year over year, the average list price is actually down by 2%, … I think we’re getting close to it, certainly in King County. We’re not seeing that, however, in Snohomish and Pierce.”

Why is that? Gardner says because of the ability to work from home and move further out.

“Perhaps they’re looking around saying, ‘well, I can sell my central Seattle house for probably millions. And I can go into South Snohomish County, I can go down to Pierce County, get a lot more house for the money.’ Because the perception is still, down there, that housing is cheap, and it is in comparison to here, to King County,” Garnder noted.

Those people may end up having a long commute a couple days each week, but they get more house.

“So that means that people are looking further out where in their perception it’s cheaper,” he said. “We’ve also got those Californians still coming up here as well, and they just think all our housing is cheap.”

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As far as Gardner’s advice for potential home buyers: “Don’t give up hope.”

“You will find a house. I know it is still remarkably competitive, and it’s as competitive now as I’ve probably ever seen it. Although it is, as we talked about, a tad better now than it was a couple of months ago,” he said.

“The last thing I would probably say is other than giving up hope, don’t overextend yourself. It’s very easy to get into this emotional attitude that ‘I’ve got to get it, I’ve got to get it,’ and start pushing your boundaries a bit too far,” he added. “Just be cautious about that. Keep on looking. Don’t quit, but also don’t overextend yourself.”

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