Market Update: Is Our Market Bulletproof?

Hi Everyone,

I hope that you are safe and well during this time. These recent market updates have been the most challenging of my career to write, not only because we are in uncharted economic waters, but also because I am trying to find the appropriate tone to optimistically discuss the real estate market without sounding insensitive to the ongoing health crisis. I recognize that some of you reading this are grieving for a loved one, the loss of a job or your business, while others currently find their net worth at an all-time high.

I want to thank each of you who took the time to reach out to either say hello or give feedback on my previous update (The Sun Will Rise Again). This includes several of you that strongly disagreed with my positive outlook in the face of maximum economic uncertainty. I respect and value your opinion and look forward to being able to grab a beer and plate of nachos, and have a friendly discussion or debate in person! The irony is, even though my update was bullish on our local market, I was not bullish enough. Given the gale force headwinds currently facing not only our local housing market, but the local and national economy, the performance by the Puget Sound housing market over the past 5 weeks has been incredibly resilient. Our market initially paused as we were heading into the shutdown and the days following its implementation. It is important to note that in those early days, it was first questioned if showings were possible (legal?) or even ethical given the health uncertainties, particularly when showing homes occupied by the homeowner. After an extremely quiet 8-10 days, slowly market participants began to return, though with extreme caution from both a health and financial standpoint. Brokers adjusted to new showing restrictions: broker plus one buyer inside the home at a time while wearing PPE and no open houses. In each week since, the market has continued to find its footing and confidence is building on itself.  

So why has our market held up so well? For the same two main reasons our market was performing so well prior to the shutdown: our strong tech economy and low inventory. I have stated in this space repeatedly over the years that we are very fortunate to have the diversified tech workforce that we do. This has never been more relevant than it is today as tens of thousands of our local residents have been able to continue with their jobs while working from home. Amazon and Microsoft are thriving notably in the current economic environment. When I wrote my end of the year update, I referenced that the combined stock market cap value of the two tech giants had just eclipsed $2 trillion. As I currently type, that figure has risen to a combined all-time high of $2.647 trillion. The strength of the tech economy--as well as record low interest rates--has increased not only buyers' purchasing power, but also their confidence in their financial outlook. This is especially notable given the record amount of uncertainty and pain in other areas of the economy. Sadly, one of the truths that is more evident than ever is that many of those most impacted by a job loss or financial hardship were already getting priced out of the Seattle real estate market prior to Covid-19. The widening economic gap is sure to be discussed and debated with more frequency as we approach November.   

Low inventory, which has been a theme in our market over the past 7 years, continues to be a dominant factor. While pending sales in Western Washington have almost fully recovered from where they were heading into the shutdown (please see both charts below from the Seattle Times and Redfin), inventory remains 36% below last year's levels. Yes, the Redfin demand index looks just like a chart of the Nasdaq, and that is not a coincidence. We have also seen a unique byproduct of so many people being cooped up in their homes. After being stuck inside for weeks on end, a number of current buyers have decided that they are now missing important interior spaces: such as another room for a home office, gym, or school, or exterior spaces: large yards, swimming pools, and outdoor living spaces have never been more popular. This trend has been notable both in buyer's searches online and during in-person showings.  

These market trends helped lead to the subject line of this email. I recently texted with one of the most well-respected brokers in our area and the following question was posed to me as we were discussing two recent sales: "Is our market bulletproof?" A very fair question given the recent market performance. Short term, it certainly feels that way. A pandemic, record high unemployment, closed businesses and schools, yet the real estate market has shrugged off each of these Mt. St. Helen's sized hurdles to march forward. It feels like this current wave of optimism will continue in the near-term. Looking through a murky crystal ball out toward the fall, significant headwinds still remain. As has become my cliche answer when asked by clients where I think the value of their home will be in 6-12 months, "Tell me where the share price of Amazon and Microsoft are at first and then I'll give you my answer." While I anticipate local home prices to appreciate modestly due to the reasons discussed above, the overall economic uncertainty may prevent dramatic price increases.

Wishing you a safe and wonderful Memorial Day weekend. 

All the best,

Steve Curran