I often hear from buyers that they feel our market is inflated, but they feel that they don’t have much support for their assertion—other than the fact that homes are expensive.
I’m asked all the time if I think home prices are going to continue this astonishing rise. Some would-be homebuyers are beginning to think that this is a bubble, and that waiting might to buy might be a good idea.
Over the last 5 years, I’ve had many clients act on that impulse to devastating consequence. One couple I was helping 2 years ago decided, against my objections, that they’d wait to buy as they felt home prices would come down. They returned to me this year to find they could no longer afford to buy a house in Seattle. in 2015 with a budget of $750K or less you could easily find a townhouse to purchase in Capitol Hill. 2016… not so much.
It would be helpful for would-be shoppers to understand what a bubble is. There are five aspects to any market that drive price: Supply and demand (of course), buyer behavior or trends, affordability, and market growth.
Let’s look at these as they relate to Seattle:
Seattle, like the rest of the U.S., came out of the worst recession since the Great Depression. We basically had a 5-year building moratorium. What developer in their right mind would be creating new housing stock when home prices had been falling like a rock? There was no demand and so, no building.
Suddenly in 2012, Seattle began to grow with new high-paying tech jobs. From 2010 to 2016, we have added 100,000 new residences to our fine city. People need houses to live, and Seattle had not been building for nearly 5 years. A setback if you ask me! Home prices began to rise. DPD states that with current zoning, Seattle has the ability to build another 10,000 housing units. Unfortunately, we need another 76,000 units to stem the tide of demand.
Seattle hasn’t been adding tens of thousands of retail jobs to its ranks. No, we have a flood of high-paying, white collar jobs all located in the core of our city. These people are also typically younger millennial buyers who want NOTHING to do with the suburbs. They want to work in Seattle and live in Seattle. Another fact: Each one of these tech jobs created 2.8 other jobs in Seattle. These could be in support, retail, real estate, you name it. This is creating more demand on our housing stock.
Then we also have the empty nesters or retiring folks that want to move back to the city to have fun. Baby boomers are a HUGE demographic, and as The Seattle Times pointed out, they want to move back to the convenience of city living.
Lastly, do you think the hiring is over? Amazon is constructing several new towers. The Stranger was able to ascertain that Amazon is only halfway though their total available capacity. In other words, Amazon may be hiring as many people as they already have. Expedia is also moving to Seattle and all the silicon companies who’ve moved to Seattle are expanding. We have a long way to go before our job market levels out.
Two factors influence this: Interest rates and income. Interest rates are LOW. They are low with the FED’s quantitative easing having ended last year. Then you have income. Seattle ranks as the third wealthiest city per person in the U.S. Yet our housing prices are nowhere near the most expensive. We are half the price of San Francisco, but our income is only slightly less.
This is why I’ve been calling Seattle the NW-Francisco. We can use the historical data of San Francisco’s rise to map out a theory on what Seattle might do in the coming years.
City life is in and suburban life is out. We are seeing this trend nationwide as traffic becomes unbearable, our work weeks are getting longer and longer, and people do not want to waste their time driving to activity, work, and to see friends. People are moving back to the city. Millennials—who are quickly becoming the largest buying pool—want NOTHING to do with the suburbs. In this, we find a migration back to Seattle, creating even more demand on a stressed housing inventory. Seattle is cool city, and why wouldn’t everyone want to live here?
5.) MARKET GROWTH.
Every year, those in the market to buy a home in Seattle increases. For every one tech job created, 2.8 other jobs follow. We have companies moving to Seattle every month. Commercial leasing agents have many Fortune 500 names looking for commercial space in Seattle. Expedia is building out a new campus in the Interbay neighborhood, Weyerhaeuser is moving to Sodo, Tableau is expanding in Fremont, as is Google. Apple, Facebook, Twitter, F5 networks, Cisco, you name it and they are growing. Less talked about is Seattle’s bio-tech and medical industry and the meteoric rise that industry has also been on. Not as flashy perhaps, but just as robust.
What does it all mean?
In 10 years, it is my prediction that Seattle will look a lot more like San Francisco and a lot less like Portland. Sure, that might make some of you sad, but it should also make you see that things can get a lot more expensive.
I have a saying with my buyers: You should buy now because the grass gets more brown for everyone, every month.
Home prices in some neighborhoods exceeded 20% increases in median home price from 2014-2015. That is 1.67% per month. On a $700,000 home, you’re looking at a $11,690 increase per month. Most Seattle neighborhoods exceeded 14%. None of this growth was due to terrible lending practices or hyper-inflated demand. This growth is real and sustainable for the next several years. Then prices will level off as we reach the upper limit affordability. At this moment we are a ways away from that. Of course, our tech sector could completely collapse, but in the last 30 years, San Francisco’s has not and I find it unlikely ours will either.