Last week's economic news included an encouraging report from the National Association of Home Builders, whose housing market index held steady with a reading of 60 in July. This was the 13th consecutive month for readings over 50, which indicate that more builders are confident about housing markets than those who are not. July's reading was noteworthy as it was the highest since November 2005 prior to the recession.
Summary: Many people may be concerned that Seattle may be in the midst of a housing bubble. Is it? And will it burst any time soon in 2020? The evidence suggests that no bubble exists, especially as prices have been retreating.
Recently, we examined a common question on the minds of some residents across the state of Washington. Is the state experiencing a real estate bubble? While home prices have clearly risen at a pace that’s above average over the past few years – despite having slowed down over the last 12 months – several economists have said it’s not a bubble scenario.
But what about the Seattle metro area, in particular? Is Seattle currently in a housing market bubble? Or will it move toward one further in the year and beyond? Again, the answer is no.
Experts: Seattle Is Not in a Housing Bubble
Several experts have weighed in on this subject, and the general consensus is the same. They say the Seattle-area real estate market is not in a bubble.
That’s largely due to strong economics fundamentals that were lacking during the last housing boom (fundamentals like high employment and sound lending practices.)
The national Case-Shiller housing price index recently showed that the Greater Seattle Area experienced a rather cool housing market over the past few months compared to other markets across the country.
The index shows that home prices in Seattle peaked in June 2018, but have steadily retreated until late 2019. According to real estate database company Zillow, prices in Seattle have plummeted from a whopping $752,000 in June 2018 to $728,000 by October 2019. That said, prices have started on a very slight ascent again.
And while that price is still rather hefty, especially when compared to most other centers across the US, it’s a far cry from where things were just a year ago.
While many may have assumed that a bubble was building and was doomed to burst over the past few years, such is not the case.
The negative factors that contributed to the previous housing crisis are no longer present today. Mortgage rates are still very low and have declined throughout the past year. Demand may still be strong, but not as much as it was in 2018, and while inventory is still tight, it’s slightly better today than where it was a year and a half ago.
James Young of the Runstad Center for Real Estate Studies at UW says:
“A bubble is usually when prices get ahead of the fundamentals that influence the marketplace. For the Seattle area, we still have very high inward migration, extraordinary levels of job growth within high paying economic sectors, and record low interest rates.”
Supply May Have Improved, But Prices Still High in Seattle
So it seems there is general agreement that Seattle is not in a real estate bubble in 2020, and that one does not appear likely. Sure, we’ve seen rapidly rising home prices in the area from 2012 to mid-2018. But that alone does not signify that a housing bubble is taking place.
Prices did not rise because of speculation. They rose because a lot of people want to live in the Seattle area, due to its strong economy and job market, its outdoor beauty, and other attractive features. And those who are using mortgage loans to buy a home are better qualified than in the past.
That being said, there are clearly some issues within the Seattle real estate market. Affordability is one of them. But a lack of housing supply – while once a major issue – may no longer be as much of a problem today as it once was. Expanding housing inventory is helping to ease prices in the Seattle area. According to the Northwest Multiple Listing Service (NMLS), there has been a marked increase in properties available for sale in King County.
The supply-and-demand situation is a story of extremes, particularly on the supply side. Strong demand and chronically low inventory have put tremendous upward pressure on home prices in recent years. That’s why the metro area has experienced double-digit increase in house values — per year – over the past few years (excluding June 2018 to July 2019).
But even though price appreciation has slowed a bit, other challenges remain for home buyers in the Seattle area. Even though prices have decreased over the last 12 months, they’re still pretty expensive for the average homebuyer, especially when compared to the national average price of a home.
But at least it’s not a bubble!
Need a Mortgage Loan?
If you’re in need of a home loan to finance a home purchase in Seattle, Sammamish Mortgage can help. We are a local, family-owned company based in Bellevue, Washington. We serve the entire Seattle metro area, along with the rest of the state and the broader Pacific Northwest and provide a variety of mortgage programs. Please contact us if you have mortgage-related questions, or if you’d like to receive a quote.