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Why the Seattle Housing Market ‘Cooling’ Effect Is a Good Thing

Do an online news search for the Seattle housing market, and you’ll see a lot of words like “cooling” and “slowing” and “turning a corner.” That’s the big story right now. Data, real estate reports, and anecdotal evidence all seem to suggest that the Seattle housing market is cooling in 2018. And that’s probably a good thing.

Seattle Housing Market Shows Signs of Cooling

Lawrence Yun, chief economist for the National Association of REALTORS®, recently stated in a news release:

“Some of the nation’s hottest housing markets – which include cities like Seattle and Denver – are said to be slowing, but drops in homes sales can be connected directly to supply shortages and corresponding price increases.”

On the surface, these reports might sound like bad news. But one could easily argue that they’re a positive development.

Not matter how you measure it, Seattle’s housing market has been overheated during the last few years. From August 2016 until today, home prices in the metro area have climbed by around 45%. That’s a higher rate of appreciation than almost any other city in the nation.

This rapid price growth has created obstacles for a lot of would-be home buyers. It’s not the kind of growth that can continue for long. When house values rise much faster than wages and income, it creates affordability issues for the average buyer. And that’s exactly what we’ve seen in the Seattle-housing market over the past few years.

So these reports about the Seattle real estate market cooling should come as no surprise. It was bound to happen sooner or later. And from an economic standpoint, a slowdown in home-price growth is a good thing at this stage.

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One Factor: Less Demand from Foreign Buyers

The question is, why are home values in Seattle rising more slowly today than in the past? A number of factors are in play, actually.

One reason is that demand from buyers has softened in response to higher home prices. In recent years it has become harder for the “average” buyer to find an affordable home in Seattle. So that takes some of the demand out of the market.

Another factor, according to recent reports, is a slowdown in foreign investment. For years, Seattle has been a hotspot for overseas home buyers looking to purchase a house. Home buyers from China, in particular, have boosted demand within the housing market. But that trend is changing.

As Diana Olick pointed out in an August 2018 CNBC article:

“In the last two years, both Chinese investors and families hoping to send their kids to American universities have fueled demand for housing in Seattle, which has long enjoyed a strong Asian culture. But the Chinese yuan’s recent fall in value against the U.S. dollar has made housing more expensive for Chinese buyers.”

Other sources have reported the same thing. There is less demand from abroad for Seattle properties, which contributes to the cooling trend within the local housing market.

Still a Very Active Real Estate Market

Seattle Housing Market Cooling EffectBut don’t let all of the “cooling” talk fool you. It’s true that annual home-price appreciation has slowed measurably over the last year or so. But Seattle is still one of the most competitive real estate markets in the country right now, due to the shortage of inventory.

While inventory has increased a bit over the past year, there is still a shortage of supply relative to demand. In fact, Seattle’s housing market has been one of the tightest in the nation (in terms of inventory) for the last few years. So home buyers should give themselves plenty of lead time when conducting a housing search.

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Last Updated: May 17, 2019 @ 2:50 am

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