The data is still early and a little sketchy but there are reliable indications that the residential market is entering a period of decline – probably a soft landing. Since last summer, sellers have rushed houses onto the market to take advantage of high prices. At the same time, buyers have been backing away from the market because houses are unaffordable.
Recently released April data (50-market composite) by National Association of Realtors (NAR), show national supply increased 1.4% over March and 5.8% above the same time a year ago. Buyers have been waiting for more houses to come onto the market for several years. But buyers aren’t grabbing up the increase in supply in any big hurry. NAR’s numbers show month on month sales of existing homes declined 0.4% from March to April. Year on year sales declined 4.4%. April marks the 14th straight month of annual declines.
Slowing sales in April is a reality despite a sizable drop in mortgage interest rates. However, for accuracy, the lower end (entry) market continues having a tight supply of houses. As the trend rolls out, the decline is most likely to flow from high-end homes to mid-range homes. The smallest short-term impact will be on entry level homes until (and if) the low-end supply increases.
Consider the latest numbers from the Seattle market, which has consistently been among the top five hottest markets for the past several years.
Seattle is a massive metropolitan area that overall is referred to as the Seattle-Bellevue-Tacoma metro area. But in fact, the suburbs of available housing sprawls well beyond those three cities. However, it’s within the Seattle city limits that the most dramatic price increases have occurred. Today, the median home value in Seattle is $717,800 (Zillow.com). As high as that is, values have declined -4.5% over the past year and Zillow predicts they will fall -3.8% within the next year.
Even as prices decline, Seattle now has 2,370 more homes on the market than at the same point last year - an increase of 24%. Based on declining prices and increasing inventory, Zillow now rates Seattle as a buyer’s market. But buyers aren’t in a hurry to lay down massive down payments just yet.
That’s where the significance of the sprawling suburbs comes in. Also according to Zillow, the median home value in Seattle-Tacoma-Bellevue Metro is $490,300. That’s a 1.2% increase over the past year. Where do you think the buyers are going? However, Zillow’s forecast for these same areas is for a -0.3% price decline within the next year. Although these prices are more than $225,000 less than the core of Seattle, the close in suburbs still remain prohibitively expensive for most buyers. Either prices will have to continue decreasing or the outward sprawl will grow.
The stagnant and declining home values in the Seattle metro area appear to be leading a national trend. Other Zillow data shows average home prices are increasing more slowly than at any time during the past seven years.
Still, Seattle could be an abnormality. A sudden change in local economics can change everything in a real estate market. A very recent announcement may reverse Seattle’s downward price slide. Seattle housing prices are driven by high tech jobs. Amazon and Microsoft are the most well-known. However, there are many smaller tech companies and major company headquarters (Starbucks, Zillow, Costco, and many more.) paying very high salaries that drive up home prices. In June of this year, Apple Computer announced they will be adding a key engineering hub for the company. These high tech engineering positions include hardware, software technologies, and services. Apple is already leasing space in two 12-story buildings nearing completion one block from the core Amazon campus. Google is also known to be planning employment increases in the Seattle area.
It’s entirely possible that Seattle’s home price decline is an exception rather than a leader of a national trend. But there are other strong indicators. NAR reports the top four cooling markets compared to last February are: San Jose, Portland, San Francisco, and Los Angeles. The overall average housing supply in these major cities is up 40.2% year on year.
Where do you think the housing market is going? Please share by leaving a comment. Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].