Market Update: The Sequel

Hi Everyone,

I hope that you are having a great March! 7:00 pm sunsets have finally arrived and Spring Training is well underway. We all know that the Mariners and spring northwest weather would never let us down!? ?

We begin the 2025 real estate "season" in a similar place as we ended 2024. Quality inventory options remain low, mortgage rates remain stubbornly high, and buyers are still frustrated by record high housing costs. Just as the Mariners are rolling out virtually the?same roster in 2025 as in 2024 (unlike the Seahawks....), I think our local housing market will also remind us in 2025 of the 2024 market. Until something changes, like mortgage rates falling to or below 6%, or a substantial increase in quality inventory?options occurs, it is hard to see this year being anything other than a repeat of last year. Higher prices, but lower inventory and sales volumes. Locally, homes that are compelling are still selling in two weeks or less, a brisk pace no matter what metric you are using. What do I mean by compelling? Well Mom, I'm glad you asked. Compelling can be one of or a combination?of the following: sought after neighborhood/location, desirable floor plan, turnkey condition, fairly priced, or having a unique feature like a view or a large yard. Homes that have one or more compelling?factors are selling quickly, sometimes with multiple offers despite stubbornly high mortgage rates. What is different in today's market when compared to the chaotic 2020-spring 2022 market, is that homes that are not compelling are not selling in 30 days or less. Buyers are more selective than in the previous cycle.??

Locally, quality entry level inventory remains very hard to come by. Now entry level prices can vary greatly, depending on location. The price of an entry level home on Mercer Island is much higher than say Bothell. However, the frustration levels for buyers in both locations are just the same. We will continue to have a lack of supply until we either experience some form of negative economic event that causes a number of people to need to sell their homes to access home equity, or until local municipalities?come up with ways to increase housing supply in a meaningful way. Until supply picks up, home sellers with a "compelling" home, will have the upper hand over home buyers locally.??

Nationally, the housing market is more mixed, with regions of strength?and regions that are showing signs of weakness. Inventory?shortages and excess inventory are the root cause. The charts below illustrate this theme.?

Inventory levels continue to normalize in much of the country compared to pre-Covid levels. Texas and Florida, the states that had the largest population growth during Covid, are now seeing inventory levels rise above 2019 levels. In stark contrast, the northeast continues to see significant inventory shortages across the region. The old saying of "All real estate is local" still rings true today.??

When comparing the two regions directly?against one another, the inventory levels stand out even more. Northeast inventory remains at or near record lows while Florida and Texas have seen inventory rise sharply. These two states now account for 40% of all active listings nationwide.??

Redfin (which was acquired this week) continues to produce some outstanding?data and information. I thought this chart was fascinating, highlighting?why inventory dropped so sharply in 2020-2022, particularly in the Covid boom states. There was a significant increase in second home buying activity as the first chart highlights. This corresponds directly with a sharp reduction in available inventory for sale. Now that second home buyers have gone away, inventory is rising.

Builders in the south have now been caught with an excess number of homes for sale. As you can see from the chart below, the number of new construction homes for sale typically tracks domestic migration pretty closely. The dramatic rise in migration and demand (2020-2022) caused builders to build at a rapid pace, anticipating a second round of domestic migration, which didn't materialize. Now those builders are left with a record number of homes to sell, primarily to local buyers.??

To put the inventory gaps into perspective, look at these two statistics:?

• Connecticut: 3,675,069 population statewide??
• Punta Gorda, FL metro: 206,134 population??

• Connecticut: 3,140 homes for sale statewide?
• Punta Gorda, FL metro: 4,585 homes for sale

-Lance Lambert?

• Austin total inventory for rent (Feb 2023) - 2,242?
• Austin total inventory for rent (today) - 21,775?

-Zillow? (Includes single family, by owner, apartments, condos, town homes)?

The regional inventory picture can be seen clearly in the appreciation map below.? Prices are rising in the north and specifically the northeast while prices are falling and will continue to fall in Florida.??

So what all does this mean? I view the current regional performance of the national market as very healthy. Markets that rose the highest during Covid are now correcting the sharpest. Those same markets are also delivering badly needed supply which currently is putting downward pressure on home prices but in time will help attract first time homebuyers and younger tenants who are getting squeezed out of other markets (more on this in a future market update). Price softness in markets as large as Florida and Texas may also do?their part in helping to reduce housing inflation, which would be welcomed for the overall housing market and general economy. Increasing supply and price corrections after sharp runups are not something to be feared, but instead welcomed.??

As always, please let me know if you have any Mariners or real estate related questions.? Yes they will make the playoffs!

All the best,

Steve??