Our Greater Seattle Real Estate market has slowed and slowed dramatically. Why? Where are we headed? What should we do? How does it compare with prior market shifts?
There is an interesting blend of causes that have led us to this point. Below is the third of a three-part series. Part I talked through our regional market history and the lessons learned. Part II is what led us to the current adjustment, and Part III will focus on what to do if you have a home you are looking to sell and what to consider if buying.
There are two agent comments that stick in my mind. The first is a local agent that said; “Get used to it, we now have a San Francisco styled market.” By that she meant that our prices were not going to come down to what we had, we were now an expensive city to live in and that market cycles will be more pronounced. The other comment came from a Boulder, Colorado agent (also a hot market the last few years). He told me of a client that had sold a home outside Boulder in the mid-$600k a few years back and bought a similarly priced home in Sammamish. He sold the Sammamish home in April of this year for $1.2 million. He looked to move back to the Boulder area and his old house was up for sale for just under $900k. His move to the Northwest had gained him nearly $300k in equity. The agent told me about it to highlight how fast we’d been rising relative to other good markets. I highlight it now to point out that even if feel you missed the top of the market you truly are still in a great position relative to where you would have been in most other areas of the country.
Every year I meet with my financial planner. The last two years, their analysts were predicting a significant slowdown for the second half of 2018. Those same analysts were saying that after the adjustment that the economy and markets would then continue in their growth phase. At the time it didn’t ring true to me, but in hindsight, not only were they correct on the slowdown it appears they may be correct on the uptick as well.
For those waiting for a big crash you may be waiting a long time. One of the key factors in 2007/2008 was the dramatic increase in inventory as people walked away from homes that were worth less than the loans they had on them; they were “underwater.” This resulted in significantly more inventory. The larger down-payment amounts, the equity built from double-digit appreciation, the stronger job market, the stronger national economy, and the more conservative banking rules have us in a position that we won’t see short-sales and foreclosures flooding our market. Thus, inventory will be far more stable, the market less tumultuous. We are going through a market adjustment, not a crash.
We’ve talked about the fact that the market values have fallen significantly (6-15%). That the inventory is now leveling off and we appear to be statistically in a market with a slight seller advantage, but emotionally a market with a distinct buyer advantage. We talked about the “phantom” inventory with roughly double number of listings having cancelled in the last six months, than in the same six months period last year. We also talked about the seasonal cycle, and that the market naturally tends to slow in the winter. But how do all these pieces fit together to form 2019?
Where are we headed?
Right now in King County, we are working through our current inventory via a mix of sales and cancellations that is outpacing new listings coming on the market. We are already slightly skewed to a seller market, but with less and less inventory available, we’re going to start 2019 with an inventory shortage. This points to it likely being a very busy early spring, with the potential for a slight increase in sales prices in Q1 of 2019 versus Q4 of 2018 (Supply and Demand curve).
Based on the client inquiries, I think you will find quite a bit of inventory coming online over the next few years. Many home owners are nearing retirement age and with the high values plateauing it makes sense for them to cash out of the homes they’ve outgrown. They also will have inventory that they can move into as there are going to be more active homes on the market. I think it is safe to say that if you didn’t sell in April of 2018, you likely missed the near-term peak in values.
It is hard to predict the future when you only have the past to reference. It is much easier to look at the short term, first quarter of 2019 and watch the market trends that are leading us to a shortage and realize that shortage should bolster the market. After that first quarter, does too much supply come on and slow the market setting it up for another significant drop?
My advice to clients is to list in the early spring if they are concerned. I do feel that we will follow our old “traditional” Northwest market cycle of gains in the spring, flat in the summer, down in the winter. Whether the winter drops below the gains from the spring I don’t know, but I’d be shocked if our interest rates weren’t higher in the winter of 2019 than they are now. I’d also be surprised if house values in December of 2019 was more than a few percent different than the values in December of 2018. I have no data to support that position, just my perspective after years in the market and watching the trends.
There will be great opportunities for buyers, better options than they’ve had in years, for many agents that’s exciting. A balanced market is a healthy market – the pace with which we are getting there isn’t fun, but the net effect is good.
Thoughts specific to each market position-
You are in a great market, best market you’ve seen in six years. Prices are down, interest rates are still very low. My advice would be if you can find the right fit grab it now, and don’t wait until the spring. It is a fun time to be a buyer, you have quite a bit of leverage. That said, you will have far more choices in the Spring, but I do think you may have to pay a little more, and interest rates may have trended up slightly.
Wait until the early spring, but don’t wait too long. I fully expect inventory to come on the market from those that were scared by this market adjustment. In addition, some of the expired and cancelled listings will come back on the market. I would recommend listing by early April. I’m advising my clients to get their homes listed by early March if possible. Don’t get greedy, price fairly for the market you are in now, not the market you had. Get your home ready. You will be in a price war and a beauty contest – you will have competition. Remember given a choice people won’t want to acquire unfinished projects, they want a clean, move in ready home. You only have one chance for a first impression. Preparation, marketing and representation are more critical now than they’ve been in years. You don’t need to remodel, but look at carpet, paint, landscaping – keep your work list simple and get sound advice from an experienced Realtor.
Buying and Selling:
The challenge in the past is you couldn’t sell because you didn’t have a home to buy – there is now going to be inventory to buy.
Until recently, if you sold and didn’t get into something right away then you’d watch the prices rise and it would make it harder to get into the home – that has calmed. No longer do you need to feel like you have to rush to buy the first option (that said the best values many times still go fast, but there is also great options that have been on the market for an extended period “market worn”).
You couldn’t buy contingent. In many cases you can now. It depends on what you are selling and how long the home you are looking at buying has been on the market, but it is no longer a given that they won’t take a contingent offer. There are now also Cross-Collateral loans, which are cheaper than bridge loans and allow you to buy prior to selling.
You have far more flexibility to buy and sell than you did at any time over the last six years. Also, if you are buying and selling in the same market then whether the market is up or down is not as relevant in most cases because you will largely balance out any market affect by being on both sides of a transaction. That is to say, if prices are up, then you sell for more, but also buy for more. If they are down you sell and buy for less. The net difference isn’t dramatic. It is worth noting that our tri-county region does affect the entire state, thus if you are moving out of Pierce, King or Snohomish to Gig Harbor or Sequim then you can expect that if our market slows theirs will as well (which we have seen).
My thoughts and advice:
Keep perspective. We’ve had a great run, it had to slow down at some point. We’ve lost our gains from 2018, but not much from before that. Our gains far exceeded the gains from most other areas of the country – so if you own now you did well. Our area is still growing, so the wheels aren’t falling off the bus, but the market will have its challenges.
We are in a market where pricing, preparation, and presentation are far more critical. Price competitively, prepare diligently, and present professionally. Negotiation skills are once again critical, not just on the initial price and terms but at every phase of the contract. Experience, education, and reputation of who you hire matter more now than at any time over the past six years. If you are listing or buying, I would strongly encourage you to hire someone who has been through a down market, someone who knows the market, and someone who works in Real Estate full time. For those selling, keep in mind you only have one chance to make a first impression – price and presentation. And remember this is no longer a sprint, it is a marathon, so hire someone you trust and that communicates well with you.
About the Author
Cory Brandt is consistently among the top 3 for RE/MAX agents in Washington State, with 18 years of experience and over 700 transactions. He runs the Cory Brandt Group, a high-tech, high-touch residential Real Estate business in King County. His professional team focuses on exemplary service, honest and ethical guidance, and the use of technology to maximize their clients return. Cory is a frequent presenter and speaker on Real Estate trends, with presentations to agents and companies around the world.