A Brief Analysis on Washington's Housing Market.

I have a Tuesday Edition this week for us Real Estate Nerds.? Come join me for a numbers and facts forward discussion of the different forces that define the Washington real estate market...since that's where I call home.

I pulled together a few slides from the NWMLS that specifically show the path Washington Real Estate has taken over the years to get to where we are now.? I'll attempt to briefly discuss these slides and relate them to what you may already be hearing from the friends, family and professionals in your life.

(TLDR: Supply and Demand, it always comes back to how many homes are available and how many people want and need those homes.? Washington (for the NWMLS Territories at least) is trending to have Demand outstrip Supply in just a few years.? This intersection is why we are seeing the beginning of sharp increases in sales price for homes on the market.)

First, take a quick look at the slides included (courtesy of the NWMLS).? I've focused in on Residential Homes (i.e. not condos), in all WA counties serviced by the NWMLS, and respective trends over the years

I've included 6 different slides to help provide a complete picture of the real estate market over the last 10 years.? All data has been provided from the NWMLS directly.

1. New Listings by Year

- How many homes were brought to market during the year.

2. Active Listings by Year

- Different than New Listings since "Active" only includes homes that remain active on the market for long enough between data pulls to realize.

3. Closed Sales by Year

- How many of the listings actually made it through the sales process successfully

4. Closed Sales by Year overlaid by the number of New Listings by Year

- I had to hack this one together to get them on the same page, but I think it is the most important slide for us to discuss. (Sorry about the quality in advance.)

5. Months of Inventory by Year

- Generally considered among professionals to be the key indicator of the market health.? For instance, economists generally agree that a number less than 3 is a Seller's Market and we've been there since 2015.

6. Closed Sale Price by Year

- Notice here the rate of increases in Sales Price over time, especially the last 3 years.

Now that we've looked at the facts, I want to attempt to interpret those facts to answer the "Why" has the market been increasing so sharply as of recent.? Additionally, I think it's also important to address where some of these market forces could put us in the next few years.?

First, the "Why".? Simply put, the number of homes coming on the market has not kept pace with the increases in the number of homes that are closing each year.? Take a look at slide 4 again. If we trend those lines a bit further we can see that there is an intersection point in the not too far off future.? More Millennials are approaching the point in life where owning a home is a stronger need.? Aging populations are also joining in and looking to "downsize".? Construction and labor costs for new homes are higher than ever.? Additionally, the zoning regulatory rules in the Puget Sound have been slow to adjust to the growth we have seen which limits builder options due to density restrictions on new housing projects.

So, what might happen at that intersection point?

Let's just say it's a weird place to be, but I would expect to see Sales Price increase sharply for homes, which will have a tempering effect on demand.? Those who get left out of the affordability game are going to struggle finding affordable rentals as well given that the excess demand will be forced to rent increasing competition in an already competitive space.?

To help solidify my interpretation, I believe that the increase in Closed Sales Price by Year shows the beginning of the sharp increase curve we will likely see play out over the next few years.

Buyers: Be careful in your investment for your next home or first home.? Set realistic budget goals and see if compromising on location/condition/etc. for that home can save you big dollars.?Some of the supply/demand forces can be alleviated through different means (i.e. new zoning regulations increasing housing density, increases in mortgage rates, etc.). When these happen, expect to see strong pressure pushing down on the market value of homes.? One of the worst things any owner can tell you is when you have a property you owe more on than you can sell it for.

Homeowners: You will enjoy seeing equity soar, so take advantage of getting any PMI you might be paying as a part of your mortgage re-evaluated to remove it as your ownership interest grows.

Sellers: Make sure you have a plan for what's next.? As we can see the market shows that your house will likely sell for more than asking, and faster than you thought possible.?

Things are always changing and it's hard to keep your head clear of the noise.? That's where knowing the facts and seeing the big picture can keep you on track for what's next in life.? We are all in this together, so remember that Winchester (my cat) and I are rooting for you!?