According to Lennox Scott, in Washington, John L. Scott is selling virtually all new listings; many with multiple offers in all the market areas of King, Snohomish, Pierce and Kitsap counties in the price range where 90% of the sales activity is happening. The number of homes selling within the first 30 days is double what a normal, healthy, market would look like. In King County, inventories are down 30% this year from last year. In the $750-$1M price range the months of existing inventory this year is 1.1 months compared to 1.9 months in 2015. In the $1M and above ranges inventories are currently 3.3 months compared to 4.2 months last year. The absorption rate is calculated by the number of homes on the market to pending sales if no other homes were to come on the market, it’s the number of months it would take to sell the existing inventory; anything that is 5 months or less is a sellers market with upward trending prices, 3-4 months is a balanced market. The big question? How long will this last?
I wrote last time about the stability of local real estate but that nothing goes up forever. I am going to repeat my cautionary tone suggesting that Global trends can affect us here at home; at some point.
China: The China Stock market is down substantially and the Renminbi is down 5.5 percent this year. China’s growth is off to sub 5% (from 7-9%) as they transition to a consumer economy from an export economy. This slowdown has triggered third world currency and commodity crashes globally. America is only now feeling the effect , when it shows in earning reports of US multi nationals, the stock market will continue its downward trend to a lower number than we have seen in years.
Oil: The worldwide oil glut will continue. Gas is about $2 per gallon or less, “Happy Days!”. Wall Street doesn’t think so, when oil goes down the stock market goes down, a third pressure on the stock market. The low oil prices are destabilizing oil producing economies and their debt and that is hurting our own employment related to oil exports which ultimately, over time, will affect our national economy.
Interest Rates: With other areas of the world slowing, the US Fed is in a bind trying to raise interest rates (from zero). We’ve had a 1/4 point increase and it could be 6 months before the next, or never. The FED has polled banks on using negative interest rates (less than zero). The Bank of Japan has just tried negative rates, those rates are not appearing to help Japan. So central banks don’t seem to have any more tools to speed up global economies. Rates are expected to stay low for the foreseeable future.
Technology: Last but not least the tech sector, the lifeblood of our local economy. Good news Microsoft and Amazon have their acts together on the Cloud. This one sector could drive them profitably for the next 5 years and perhaps beyond. The negatives on tech could come from the not profitable short Runway Startups (out of VC Money). Many Unicorns could lose their horns over the next 6 to 9 months.
Conclusion: The stock market is going lower, oil and interest rates are staying low for the foreseeable future. Because of the crash in China more money is trying to get out of the country and buy residential real estate in the US and elsewhere. Home prices are increasing due to low interest rates which is exacerbating the buying frenzy brought on by low inventory and bustling employment here locally. Home prices are going up coupled with a continued downward stock market, along with low interest rates; I fear a hangover coming, we’ve seen it before in 06-07. The question is when does the music stop or slow down. Sellers who can, should reap a profit now. These hot markets don’t last forever, the unknown is how long and how sharp the slowdown will be.
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