Backlog of buyers compete for scarce inventory
KIRKLAND, Washington (January 6, 2016) - Home prices have "clearly recovered" in King County and a few other areas served by Northwest Multiple Listing Service. Many member-brokers say prices are likely to keep rising as a backlog of buyers competes for depleted inventory.
Those were among reactions from brokers upon reviewing the December statistics from the MLS. The latest report shows the year ended on a mostly positive note with pending sales, closed sales and prices all showing year-over-year increases. Not surprisingly, listing activity dropped, in part because some sellers are balking at listing their home for fear of not finding a replacement.
Selling prices for single family homes and condominiums that sold across the Northwest MLS 23-county service area surged 8.6 percent from a year ago, rising from $290,000 to $315,000. The price of a single family home (excluding condos) that sold in King County during December jumped nearly 15.5 percent, from $440,000 to $508,000, prompting OB Jacobi, president of Windermere Real Estate to comment, "If December told us one thing, it's that home prices have clearly recovered in King County. Last month the median price for single family homes broke the pre-recession record of $481,000 that was set in July 2007."
Another industry leader, J. Lennox Scott, chairman and CEO of John L. Scott, noted the 9.2 percent drop in King County's pending sales during December, saying "The only reason pending sales dropped in King County was due to a lack of inventory." MLS figures show active listings in King County were down 39 percent (about 1,400 fewer properties) from 12 months ago.
Area-wide, inventory was off 29 percent from a year ago, plunging from 17,659 active listings to 12,522. That total includes 4,041 new listings the MLS brokers added during December, which was down from 4,367 the members added during the same month a year ago.
Inventory levels fell well below the threshold many industry experts use to gauge a balanced market.
Area-wide there was just under 1.8 months of supply, with four-to-six months generally considered to be a "balanced" level. In King County, inventory dropped to less than one month (0.84). It was slightly better in the adjacent counties, with Snohomish at 1.13 months and Pierce at 1.76 months. Kitsap County also reported less than two months of supply. Only five of the 23 counties in the MLS report had more than six months of supply.
"The lack of inventory makes buyers twitch when a new listing hits the market," observed Dick Beeson, a member of the Northwest MLS board of directors. "These buyers and their brokers are ready, willing and able to pounce on well-priced, well-located properties," added Beeson, the principal managing broker at RE/MAX Professionals in Tacoma. These prepared buyers helped propel last month's 15 percent increase in pending sales in Pierce County compared to a year ago.
Pending sales system-wide, which totaled 5,970 during December, clearly outpaced the brokers' ability to replenish inventory. The sales volume was up 3 percent from a year ago when members reported 5,794 mutually accepted offers. Measured another way, last month's pending sales outnumbered new listings by a wide margin - a differential of 1,929 units.
"With the backlog of buyers waiting in the wings, any new inventory that comes on the market will be snapped up immediately," predicts Northwest MLS director Frank Wilson. He expects 2016 may be "very stressful" for some buyers, citing low inventory, increasing prices, rising interest rates, plus a growing pipeline of qualified buyers as sources of house-hunter anxiety.
Other factors could also come into play to squeeze inventory, according to Wilson. They include buyers whose credit has been repaired after foreclosures or short sales, investors who see real estate as an alternative to the stock market, escalating rents that prompt renters to consider home ownership, and buyers from outside the U.S.
Wilson, the branch managing broker at John L. Scott's Poulsbo office, said the limited selection means "buyers are going to find themselves settling on a house because they need one instead of leisurely shopping for the home of their dreams."
Lennox Scott also foresees a fast-paced, "intense" market, with prices escalating in areas where inventory is low. "The lack of inventory near job centers persists," he remarked. Buyers come out in big numbers beginning January 1, he noted, but new listings come later, typically toward the end of February.
"The low inventory in the Seattle area market will send many first-time homebuyers looking at suburbs and put additional pressure on multifamily properties," said John Deely, principal managing broker at Coldwell Banker Bain n Seattle. He points to the formation of new households due to the strong job market as a factor in the imbalanced market. "Our economy is being charged by a multi-faceted job base and this is driving employment to new all-time highs," he observed.
Deely, a director with Northwest MLS, said both long-time homeowners and new homebuyers are feeling the impact of rising prices and interest rates.
One consequence Deely noted is decreased buying power. "For buyers, every 1 percentage point increase in interest rates decreases buying power by about 10 percent," he explained. He believes the diminished power coupled with rising prices will push buyers who are on the fence to make their move. "The same two factors will also motivate long-time homeowners to jump into the market as they looking to maximize their profit and find suitable replacement properties," he remarked.
Gary O'Leyar, a former chairman of the Northwest MLS board, also commented on interest rates. "There's been a lot of buzz about the recent increase in rates. It has been nearly 10 years since the Fed raised its benchmark rate. Many current homeowners and would-be homeowners may not have been born, and/or may not recall the days when long-term mortgage rates were 10 percent or higher."
Some brokers say rising prices are more worrisome than upticks in interest rates.
Noting differences in the tri-county area where pending sales declined by 9.2 percent in King County but increased by double digits in both Snohomish and Pierce counties, Jacobi thinks price hikes in King County are "clearly pricing many buyers out and into the adjacent areas."
MLS figures show wide differences in prices within the four counties in Central Puget Sound region. Pierce County had the lowest median price for December's sales at $249,950, while King County had the highest at $450,000. Homes and condos that sold in Kitsap County last month had a median price of $266,500; in Snohomish County the median sales price was $335,500.
The median price on December's sales increased 8.6 percent area-wide compared to a year ago. Ten counties reported double-digit gains; four counties had year-over-year decreases in median sales prices.
Condo prices increased about 6.7 percent, from $239,000 to $255,000. In King County, which accounted for about 55 percent of the sales, the median sales price was $279,975. That's up about 7.7 percent from a year ago.
Despite rising prices in most areas, closed sales ended the year on a strong note. Brokers reported 7,091 closings during December, outgaining the total of 6,284 for the same month a year ago (an increase of 12.8 percent). For the year, Northwest MLS members logged 88,831 closed sales, up from 2014's total of 77,276 for a 14.3 percent gain.
Commenting on prices, Beeson said, "Although prices have risen year over year throughout the NWMLS region, it has not been a phenomenal rise as seen in the mid-2000s."
Beeson also dismissed speculation of a housing bubble - unless "lenders get greedy again."
"The housing bubble created in 2005-2008 does not appear evident at this time," Beeson stated, adding, "Today's buyers are generally very well qualified and they are using real money as down payments -- their own money. They are not relying on creating a second mortgage as their down payment, thereby disguising the fact that they had no real money of their own for a down payment." Beeson remains wary of some lenders, however. "Watch out for lenders if they begin allowing buyers with lower credit scores to qualify to buy homes as interest rates tick up. Those days are to be feared."
Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership of nearly 2,100 member offices includes more than 25,000 real estate professionals. The organization, based in Kirkland, Wash., currently serves 23 counties in Washington state.