Matthew Gardner is the Chief Economist for Windermere Real Estate. His forecast predicts that number of home sales and prices will continue to rise nationally, that interest rates will slowly rise, and that more millenials will enter the housing market.
Read the full report: Matthew Gardner 2018 Forecast (1 page pdf)
For what it’s worth, he is of the opinion that we are not experiencing a housing bubble. I get asked fairly frequently if we are seeing a new housing bubble, and my stock answer is: 1) some individual markets are experiencing significant froth and some markets may be in bubble territory, even if nationally we are not in a bubble; and 2) what we are experiencing in the Seattle area is driven much more by the tech boom that it is by real estate. In other words, our rapidly rising real estate prices are a symptom of a booming economy, not the cause of it, as was the case in 2005-2007.
Average home price hits $500K in Edmonds (Edmonds Beacon)
If you are an average homeowner in Edmonds, living in an average home, your average home is now worth half a million dollars. Actually, about $501,000, although, of course, yours could be lower (not by much) or higher (a lot higher).
Looking at some of the year-over-year gains in several of the largest metro areas underscores just how drastic the ongoing supply shortage really is. Cities with strong job growth but not enough inventory continue to see swift price increases that far exceed incomes.
So Who’s Pumping Up this “New Normal” Housing Market? (Wolf Street)
So when the industry tells us about low inventories and strong demand in the housing market, it’s good to remember where a record 37% of that demand in 2016 came from: investors, most of them smaller investors. And when the financial equation no longer works for them, they’ll pull back, just like institutional investors have already done.
The West is the culprit in January’s data, with contract signings down 9.8 percent in the month for year-on-year contraction of 0.4 percent. The Midwest is also weak, down 5.0 percent in the month for 3.8 percent on-year contraction. The South and the West both show no better than low single digit monthly and yearly gains.
Is housing market correction on the horizon? (Orange County Register)
Last Sunday, one of my neighbors stopped me to comment on my last column on the return of loans for riskier borrowers.
“So, subprime is back,” my neighbor said.
“Pretty much,” I answered.
I remember widely originated subprime loans being the topper inflection point of the last mortgage meltdown. Haunting.
Did you know that if disaster strikes, you can get water from your hot water tank?
Learn step-by-step instructions in the latest in a series of “ReadyTogether” video tips, part of a campaign launched by Snohomish County Fire District 1
Study: Seattle rent is 5th most expensive in U.S. (Curbed Seattle)
Nested’s 2017 Rental Affordability Index ranked Seattle fifth in a nationwide survey of cities and ninth worldwide, with a cost per square foot of $3.07. Monthly rent for a single person, according to the survey, is $1,288.76—so a single person needs to earn around $53,000 a year to afford living in the city. The numbers jump up for a family of four: $2,445.34 in rent, with a $101,186.48 salary to afford it.
Of the 120 global cities researched by online property service Nested, the top three most expensive rental markets are San Francisco, New York City, and Boston. They easily blow away other global hot spots such as Hong Kong, London, Tokyo, Paris, Vancouver, and Toronto. After years of soaring rents in the US, eight US cities are among the 15 most expensive rental markets.
From 2006 to 2015, millennial homeownership rates fell from 40 percent to 32 percent. And a majority of today’s millennials don’t meet the median credit score requirements to get a mortgage from Fannie Mae, one of the biggest lenders in the country. Is it still shocking that nearly a third of millennials still live with mom and dad?
Philadelphia Fed Survey Strongest Since 1984 (Mish Talk)
The Philadelphia Fed February 2017 Manufacturing Business Outlook Index jumped from 23.6 in January to 43.3 in February. Bloomberg Econoday notes this is the strongest reading since 1984.
The Latest: Boeing workers reject efforts to unionize plant (The News Tribune)
Workers at a Boeing plant in South Carolina have rejected an effort by the Machinists to unionize a plant.
Spokane Senator Proposes Rollbacks of New State Minimum Wage (Seattle Weekly)
State Sen. Michael Baumgartner (R-Spokane) is taking aim at statewide labor rights with three bills that would roll back the minimum wage and sick leave for three groups: minors, employees at nonprofits, and every resident of Washington who lives outside King County. All three were voted out of the senate’s Commerce, Labor and Sports committee yesterday evening.
Seattle Regional News
Multiple landslides block Seattle-area highways (Seattle PI)
Paine Field opponents ask appeals court to reconsider (Edmonds Beacon)
The city of Mukilteo and the citizens’ group Save Our Communities (SOC) had argued that an option-to-lease agreement between Snohomish County and an East Coast developer to move forward on plans for building the passenger terminal should be held up pending results of an Environmental Impact Statement (EIS).
For Ten Gun Design, Edmonds is the place (Edmonds Beacon)
“We’ve attracted many employees who lived in Edmonds already,” Milodragovich said. “Really stellar people. They say, wait. You guys are down the street? I wouldn’t have to commute, and I could do what I’m already doing? Done. There’s another group of younger designers who make good money, but not Seattle house money. They’re either single or with young families. They can’t afford to buy in Seattle, but can afford to buy in Edmonds or south Snohomish County.”
The draft plan identifies the constraints and opportunities for land use, transportation and economic development, and provides an overview of three alternative scenarios for developing the Edmonds stretch of Highway 99. It also includes implementation strategies, policy recommendations and action steps.
More Homes Sold In Cheaper South King Neighborhoods (Seattle Bubble)
Sit above Suncadia in $1.7M of modernity (Curbed Seattle)
Update: “Scariest jobs chart ever” (Calculated Risk)
As Eastside population grows, so do commute times (Curbed Seattle)
In sickness and health: Seattle neighborhoods ranked (Seattle PI)
Coming to Edmonds: Lavender store to open in the spring (My Edmonds News)
No yolk! Chickens are Seattle’s hot new apartment amenity (Puget Sound Business Journal)
Around the Sound: Even Far From Seattle, No Relief For Buyers (Seattle Bubble)
Tour the most expensive condo ever listed in Seattle (Seattle PI)
A map of Seattle built for pedestrians (Curbed Seattle)
Seattle homeowners just ‘flat out’ don’t want to sell (My Northwest)
Texas-based firm plans condos on Rainier (Daily Journal of Commerce)
The Most Expensive Office Market in the US Fizzles (Wolf Street)
Edmonds Local News
Cascadia Art Museum has open house for prospective volunteers (Edmonds Beacon)
Proposed multi-use development aims to revitalize Westgate (My Edmonds News)
The chart above shows median home sale prices for Edmonds over the past five years. In the past five years, annual appreciation rates for this area have been in the range of 6-10%. Many real estate agents regard this level of appreciation as a very good thing, and for homeowners, it has been good. Being something of a contrarian, I see what has happened to home prices over the past five years as, at best, a mixed blessing. It is clear from looking at our regional market that most of the surge in home prices is being driven by the mismatch between population growth and construction of new housing.
For those not fortunate enough to be a homeowner, the rising prices of real estate are a major burden, as population growth has driven rents up at rates comparable to or exceeding sale prices. This burden is carried mostly by the poor (some portion of whom are driven into homelessness, creating a blight for our entire metro area) and younger people who may be trying buy a first home, and who have found that even “starter homes” have become unaffordable. The tight market and rapidly rising prices have also made life more difficult for those who are trying to sell their current home and move into a different type of housing, as the competitiveness of the market has made the process of trying to coordinate a purchase and a sale unpredictable, at best. Even for those who are in a financial position to try and purchase a home, the competition engendered by the low inventory has resulted in buyers taking on levels of risk (such as waived inspections, non-refundable earnest money, and inadequate time to make considered decisions) that would be seen as insane in more normal market conditions.
So what is there to do about this? As I mentioned, most of this is driven by the mismatch between supply (new construction) and demand (driven by population growth), and the factors that can correct that mismatch mostly fall into the realm of public policy. Since I can sometimes be a bit of a policy wonk, here are some ideas as to what might be done.
- The most urgent priority is to make the challenges faced by lower income people more manageable in order to minimize the number of them who are pushed into homelessness. The City of Seattle has been doing quite a bit of work to address homelessness. This work extends into many different areas, many of which are relatively unconnected to real estate, but housing affordability is an important piece. One example of a public policy initiative that can make housing affordability somewhat less of a problem is move-in fee reform legislation.*
- The amount of new construction in our region since 2007 has been inadequate to meet the demand. One major factor holding back new construction is the fact that builders, developers, and the institutions that provide financing for them are all very gun-shy because of their experiences during the housing bust. State, county, and city governments should try to find policies that will provide increased confidence to the construction industry so that we can get the housing built that is needed.
- One thing that is not helpful is the opposition to additional densification of existing neighborhoods. A recent example of this opposition is the effort by the Queen Anne Community Council to block legislation* allowing for increased use of mother-in-law apartments and backyard cottages. If done properly, densification can increase the housing supply without degrading property values, increasing crime, or reducing quality of life.
- The other factor driving home price escalation, population growth, is even more difficult to address. Clearly, most people are in favor of the creation of good jobs in our region, but since many of those good jobs end up going to new arrivals, they do drive population growth. How we can preserve economic vitality while slowing the rate of population growth somewhat is an open question.
One thing that some will propose is simply letting the markets take their course and find their own balance. Although I support free, competitive markets, I am not a free-market fundamentalist, and I believe that markets (of all types) need to be appropriately regulated to prevent those markets from causing undue social disruption and problems. Letting the markets just do their thing in our current situation is a recipe for a great deal of difficulty, hassle, and declining quality of life for the average citizen in our region. Prudent government action is both warranted and necessary.
On the level of the individual buyer or seller of real estate, there is not much to be done about our current market conditions, but that does not mean that there is nothing an individual can do. Individuals can organize politically with their fellow citizens to push for appropriate government action. If the problems I detailed above concern you, then I would urge you to get involved in the political process and try to create some positive change.
*This is not intended to be an endorsement of either of these particular pieces of legislation, as I have not examined either of them in depth; I merely cite them as examples of the types of proposals that could help address the problems.
As reported in numerous sources, as one of its very first official acts, the Trump administration suspends mortgage premium rate cut for FHA mortgages.
The freshly-inaugurated Trump administration has halted a cut to the FHA mortgage insurance premium that Obama’s team announced during his final days in office.
The Department of Housing and Urban Development said Friday that the reduction to the annual mortgage insurance premiums borrowers pay when taking out government-backed home loans has been “suspended indefinitely.”
This is creating a predictable political outcry, but I think the actual impact of this will be pretty limited, and generally will not hurt buyers. This policy only applies to FHA loans, not conventional loans. So who is affected and how?
- Buyers who are in a sound financial situation will not be directly affected, as there are generally better financing programs available for buyers with solid finances.
- Marginal buyers (i.e., those with only a small downpayment saved, and less than good credit) who are relying on FHA financing will face moderately higher fees associated with the premium increase. In our market, these buyers are already not very competitive, and in my opinion will be better served by saving up a down payment and improving their credit scores so that they can qualify for conventional financing, rather than worrying about cuts (or not) to the FHA mortgage insurance premiums.
- Sellers might see a little less frenzy when they go to sell their home, as the pool of potential buyers might be slightly smaller. As hot as the housing market in the Seattle area has been, I expect this effect will be negligible here, though in other parts of the U.S. it may make a difference.
I tend to generally be of the opinion that the extensive involvement of the federal government in subsidizing and guaranteeing mortgage financing has, over time, heavily distorted the real estate market, to the detriment of buyers in general. Therefore, seeing a bit of this being unwound doesn’t really upset me.
Another year of real estate statistics is in the books! The following charts capture what has happened in the Edmonds single-family home market. Like in much of the Puget Sound region, inventory in Edmonds continues to stay at record low levels, while demand has continued unabated.
Weather forecasters say that we are still experiencing La Niña conditions this winter, which are typically associated with colder, wetter weather conditions in the Pacific Northwest. Take steps now to prepare your home and family before the next big storm or cold snap hits so that you can enjoy the winter season in security and comfort.
Some suggested preparations for winter:
- Create an emergency preparedness kit with a three- to five-day supply of non-perishable food and water for your home. Stock it with flashlights, fresh batteries, blankets, a battery-powered radio, first-aid supplies, extra prescription medicines, and other essential items. For complete lists of suggested items for your emergency kit, visit Snohomish County Public Utility District (PUD) or the American Red Cross.
- Protect your water pipes. Fortunately, freezing pipes are not usually a significant problem in western Washington, but there are still a few precautions you should take. First, cover exterior faucets with an insulating cover; this is the most likely spot for freezing temperatures get into your piping system and cause freezing which can result in damaged pipes. Additionally, make sure that pipes in unheated spaces (such as crawlspaces) are insulated. Finally, make sure garden hoses are drained and stored in a location which is not likely to freeze.
- Your family may not be together when a major storm or emergency strikes. Make a communication plan on how to contact one another and places to reunite. Review what you will do in different situations and practice it.
- If you have special medical needs, consider purchasing a portable generator, and designate another place to go that’s safe and comfortable.
- Always remember to stay far away from fallen power lines. They may look harmless on the ground, but can still be carrying enough electricity to electrocute you. In Snohomish County, call the PUD to report them at 425-783-1001; elsewhere, call your local electric utility company.
Clean out gutters. Increased rain and fall leaves almost inevitably lead to clogged gutters and downspouts. Gutters that aren’t draining properly can lead to damage of roofs, ceiling and walls as water infiltrates into the home.
- Service and clean your heating system. Central heating systems should be inspected and serviced annually. Also, clean heating vents and baseboard heaters to enjoy that they are working at maximum efficiency.
- Inspect/clean your fireplace and chimney. A nice fire in the fireplace or woodstove is a great thing to have on a cold winter night, but you want to make sure you don’t have a chimney fire! An annual inspection and cleaning by a qualified chimney sweep is an excellent investment in safety.
- Make your home more energy efficient. There are numerous small projects that can be done that will yield big dividends in the form of reduced heating bills for just a little effort. These include: inspect and replace weather stripping around doors; seal off unused rooms so that you aren’t wasting money by heating them; install a programmable thermostat (or check that you have it programmed properly, if you already have one); and install insulation gaskets behind outlets on exterior walls.
Vist the following sites to learn more about emergency preparedness: