A survey from 2017 found that the majority of residents in Washington (71%) felt that the state was approaching a housing bubble. That was a higher percentage than any other state in the nation. On top of that, recent forecasts issued in 2018 have predicted another hot year in the real estate market.
So let’s get to the heart of the matter. Is Washington State experiencing a housing market bubble in 2018? Or will it enter one in 2019? The short answer, according to most experts, is no. The state is not experiencing a real estate bubble in the traditional sense of the word.
What Is a Housing Bubble, Exactly?
Let’s first define what a housing market bubble is, exactly. Only then can we see how Washington measures up to it.
So, is that what’s happening across Washington State? Not exactly.
There are some pieces missing from the standard model of a housing bubble. For one thing, the state is currently experiencing low levels of construction, relative to demand. That’s partly why we keep hearing about a housing shortage in Washington. New home construction dropped off sharply following the last housing crisis. And while it has rebounded, it is still falling short of buyer demand in many cities.
When you think about a real estate or housing bubble, you probably think of new neighborhoods going up everywhere. This kind of construction “boom” is one of common characteristics of a real estate bubble. But in Washington State, we just aren’t seeing that kind of development.
Economist: Washington State Is Not in a Bubble
Matthew Gardner, chief economist for Windermere Real Estate (headquartered in Seattle), told a local news affiliate that bubble concerns are unwarranted at present.
“It’s not [a bubble],” Gardner said. “There are several reasons why. I wish there was one reason, I am an economist so there is always a dozen.”
Among other factors, Gardner pointed to the fact that mortgage borrowers are generally better qualified than they were during the last housing boom. He added that home values across Washington State will eventually slow down once interest rates creep up.
Will home prices in Washington rise more slowly over the coming months? Probably. In fact, we’re seeing a few signs of this right now. Recent forecasts are calling for smaller gains than what we’ve seen in the past couple of years. So perhaps we are now witnessing a market correction that will lead to more sustainable growth and prevent a bubble from forming.
Affordability and Inventory Are Still a Concern
Most of the economists and analysts we’ve read seem to agree that Washington State is not in a housing bubble, as of 2018. This general consensus applies to the Seattle area as well, where prices have skyrocketed in recent years. But there are some legitimate concerns in the state’s housing market.
Affordability and inventory top the list of issues within the real estate market. In some parts of the state (we’re looking at you, metro Seattle), home values have risen to the point that residents with median income for the area can hardly afford to buy a median-priced home.
So there are clearly some affordable housing concerns, and these are being addressed in state legislatures and city councils.
Lack of inventory is another issue in the Washington real estate market. There aren’t enough homes for sale in many cities to meet the demand from buyers. Actually, this is a problem for the nation as a whole right now. But it’s particularly pronounced in western housing markets like those in Oregon and Washington, where supply is especially tight.