FROM TOILET PAPER TO HOME LISTINGS, IT’S ABOUT REPLENISHING SUPPLY

A friend on the Eastside told me he’s thinking of buying his first home and asked, “How’s the market?”. If you know me, I can have a dry wit. I thought for a moment and replied: Remember last April when we were all trying to find toilet paper? It’s kind of like that.

The shelves in our housing market are virtually bare and there’s no telling when the stock will be replenished.

Sure, we expect more For Sale signs to appear in early spring, but just like last autumn, new listings will be snapped up in a few short days. What else can we expect this year?

I found my crystal ball the other day under a Ouija board next to my tarot cards and thought I would peer deep into the glassy orb for some 2021 real estate predictions. Here’s what I “found”:

Housing affordability issues will persist – likely for many years to come – but tax credits may help some. About three in every 10 buyers say saving for the down payment is among the greatest challenges to becoming a homeowner. To address these issues, the Biden administration is proposing a down payment tax credit of up to $15,000 for first-time buyers. That’s encouraging, although some are concerned that this will only introduce more buyers to an already crowded market and force prices even higher. Eeek!

Working from home will be permanent for more people than anticipated, as socially conscious businesses work to retain productive employees and help reduce office and commuting costs. Seattle has recovered only 9.2% of office space lost following the Covid crisis, according to one national index. This apparent business shift will allow more people to live virtually anywhere (depending on good internet service) and continue to drive housing demand outside cities.

Mortgage rates will remain low for many months to come. The Federal Reserve has been uncharacteristically transparent in recent announcements. Just two weeks ago, the central bank said it won’t make changes to its Fed funds rate when inflation pressures start to appear. U.S. inflation has been quite low in the past couple of years. These factors, coupled with more people saving while staying home, have accelerated the number of people (many of them renters) looking to buy.

The logjam of supply and demand will loosen as confidence in vaccination distribution improves, businesses slowly reopen and owners start to put their homes on the market in larger numbers. In other words, consumer confidence will inject a booster shot (Did I just write that!?) to home sales activity even after national ownership rates jumped three percentage points in 2020 to 67%, according to U.S. Census data. In addition, the rate of new-home construction is accelerating to about 1.4 million completions annually in the U.S. This should make a dent on the demand side within a couple of years if the pace can be maintained or increased to about 1.6 million homes a year, according to my crystal ball, um, I mean economists at Harvard University.

The number of homes going into foreclosure will rise unless the federal government steps in to support financially struggling owners. The federally ordered moratoria on forbearance – in which, currently, 2.7 million mortgage holders have requested a pause of their payments nationwide – is expected to end in a little more than a month for many of the earliest applicants. The silver lining: most owners are growing so much home equity that they can sell before losing their property to foreclosure (unlike the housing-bubble scenario in 2008-2010). A report from CoreLogic said Washington state mortgage holders enjoyed an average equity gain of $35,800 in the 12 months ending in September. The unfortunate occurrence of foreclosure for some will introduce new housing supply to the market for others.

To sum up: We are seeing, and should continue to experience, a strong financial foundation for many, anchored by a hardened U.S. monetary policy that is supported by a gradually increasing workforce – all helping to drive through the challenges of the pandemic while accelerating the home-buying frenzy we have been seeing since last summer.

I better put away the crystal ball!

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Home prices typically rise when demand outweighs supply, as is the case today. But there is more at play when prices surge beyond the 3%-5% annual norms, particularly when a pandemic and recession are also contributing factors.

Pierce County was one of the hottest markets in the country last year, with prices surging more than 16% for all home sales (single-family, townhouse, manufactured and condo homes combined).

The situation is generally worse for buyers of single-family homes (detached houses and townhouses), with annual increases of 17.1% in Pierce County, 12.1% in Kitsap, 10.5% in Snohomish and 9.6% in King for 2020.

Those other factors driving prices higher are pandemic related, according to experts at Mortgage News Daily:

Mortgage forbearances through the CARES Act allowed those 2.7 million homeowners options for repayment, so far resulting in few foreclosures. Since distressed (or bank-owned) sales are typically sold at below-market value, the lack of foreclosures is exaggerating year-over-year home price increases. The shift in preferences for higher-priced larger homes in a low-inventory market is also helping to boost prices.

There is also anecdotal evidence that the pandemic has accelerated several years’ worth of anticipated second-home purchases (Bend, Ore., hello!) by wealthier households, further creating unexpected demand. This may also be true for near-retirees, hastening their purchase of a retirement home while not giving up their primary residence. It is unclear how long this house-buying bulge will last but it’s certainly placing more pressure on prices.

One Harvard report summed up the current conundrum:

“All of this creates a perfect storm, where long-term pressures are joined by short-term ones to push the prices of houses higher at an unusually rapid pace, easily overwhelming the downward pressures that come from increased unemployment during the pandemic.”

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January was one of the crazier months in recent years, what with the Georgia Senate runoff elections, rioting at the U.S. Capitol and post-holiday rise in Covid infections and hospitalizations. Oh, and there was the record rainfall across our region.

Despite the distractions, buyers were out in force in search of a home during what is typically a quiet month for housing activity. Deals got done and inventory actually increased, if only just a bit.

Seattle saw a 48% increase in active listings in January across all home types, led by a sharp 96% jump in condos for sale. This would suggest condo sellers are either looking to step up from a 1-bedroom unit to something bigger … or, more likely, they are moving out. The Central District, including Capital Hill, saw a 155% climb in active condo listings in January to 125 and Magnolia/Queen Anne rose 126% to 97 condos for sale. If buyers were ever going to reap the benefit of having a variety of Seattle condo homes to choose from, now is the time.

Seattle also experienced a healthy 17% rise in active single-family home listings, to 548, with Pending and Closed sales roughly one-third greater this January compared to last. While year-on-year prices on single-family homes rose 10% for the second consecutive month, the median figure of $791,471 is the lowest since last May ($765,000).

The Eastside market is in a whole different stratosphere. Single-family home prices there rose 29% in January to $1.15 million (you read right!), driven mostly by a 42% year-on-year increase in the section south of I-90 that runs from Factoria and Newport Hills to Issaquah and Upper Preston. Eastside condo prices rose 7.4% YoY to $456,275, despite a 30% decline in median prices in Bellevue east of I-405 (including Medina).

After experiencing the barest of total housing inventory in December across King County – the lowest in at least 4 years – the numbers improved slightly last month. The measure of how long it would take to sell all homes on the market at current demand climbed to 28 days from 19 in December. Inventory for single-family homes in the county inched higher to 0.7 month, or 21 days, from 13 days a month earlier. Seattle saw single-family inventory rise to exactly 1.0 month from 0.8, and Eastside figures more than doubled, though from a paltry 0.3 month (9 days) in December to 0.6 month (19). Condos are in greater supply, with the county having 1.7 months of stock (up from 1.3 in December), Seattle holding 3.5 months (essentially a balanced market and up from 2.9 months) and the Eastside with 0.9 (up from 0.8).

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