Thanks to historically low interest rates and strong job growth, the real estate market still is humming with activity. In their latest earnings reports, JPMorgan Chase, Wells Fargo, Bank of America, and Citigroup announced a cumulative $115 billion in new mortgages nationwide. The national trend is playing out in Washington. In June, Northwest Multiple Listing Service members reported 12,759 new listings and 11,995 sales closed, making it the busiest month on record.
The Eastside experienced a similar high rate of activity. In June, 1,631 homes and condominiums were listed for sale, and 1,412 were sold. The median price of a single-family home was $746,500, up 11.42 percent from last year.
With inventory this tight, home prices continue to increase across the state. Property analytics firm CoreLogic reported Washington home prices increased by 10.6 percent in April compared to a year ago. It was the biggest jump in the nation for the third month in a row.
“To have very strong job growth and historically low interest rates at the same time is historic. Normally you would have one or the other, but when you have both so positive for housing, that’s what’s creating the conditions for the market today,” said J. Lennox Scott, CEO of John L. Scott Real Estate in Bellevue.
With barely more than one month of inventory on the market, each new listing continues to draw multiple offers, some well over asking price. Approximately 80 percent of new listings are selling within the first 30 days. In a healthy market, only 30 percent would sell that quickly.
There may be some relief in sight for buyers, according to Scott. He said the single-family home market tends to run on 10-year cycles, and corrections often occur at the end of a decade. “In the year 2018 or 2019, maybe as interest rates go up or job growth slows down a little bit, that’s what usually will moderate a market,” he said. “It can only stay at this pace so long before you out price the local homebuyers.”
For a period of about nine months, Scott predicts, the market will absorb some of the premium pricing and establish a new base from which the next 10-year cycle begins.
“On one hand, the market is a fabulous investment and a way to secure monthly housing costs,” said George Moorhead, the designated broker at Bentley Properties in Bothell. “On the other side, prices and scarce inventory are getting out of hand. For the first time, we’re hearing a common theme.”
Part of what is crunching the current market is a severe shortage of condominiums near the job centers. Investors currently are focused on apartment buildings, which are bringing good returns for builders. But Lennox said apartments and condos run on a 20-year cycle, and we’re right where we should be for the market, even if it is causing stress in the system.
“There should be condos everywhere, the distance for new housing is pretty far outside the city,” Scott said. “Condos should be half of new construction close to the job centers, but it’s not at this time.”
Sellers in the U.S. are benefiting from global factors. Economic wild cards like the United Kingdom’s decision to leave the European Union has the Federal Reserve wary of increasing interest rates, which would in turn make mortgages more expensive. “Uncertain economic times almost always lead to a flight to safety, which means global capital pouring into the United States bond market at an aggressive rate,” said Windermere President OB Jacobi. “This ultimately drives down mortgage rates and makes it cheaper for home buyers to borrow money.”
This also means Puget Sound housing could take another hit in the affordability corner. “Lower interest rates will likely draw more buyers into the market, compounding already competitive conditions, and driving up home prices even further,” Jacobi said.
As illustrated by the $115 billion in new mortgage lending, buyers are flooding the market. Since more homes are listed in the summer than any other season, new buyers are cashing in their hand and taking advantage of low interest rates in the pursuit of home ownership.
“The best selection for buyers at these historically low rates will be the next three and a half months, and then it will get very competitive once again to get a house through the winter. We won’t catch up until next summer,” Scott said. “Because of the seasonality, and where we are today with the shortage of inventory, continued job growth, and historically low rates, all the conditions are positive for continued surge-level sales activity.” @marjiebc