April is here, anyone in real estate knows that means we are due for a spring surge. The market begins to pick up as the holidays have passed, the Super Bowl is over and the weather begins to warm. However, according to the National Association of Realtors, there is not quite the same amount of activity as last spring – in fact, there is a 9% drop in sales activity nationwide from last year at this time. Three current conditions help explain this:
- Inventory: there just are not enough homes on the market. New homes are needed to entice homeowners to buy up and sell their current homes.
- Affordability: last year prices climbed substantially and buyers are now slower to act.
- Mortgage requirements: while rates are rising, the criteria for qualifying are still stringent.
Despite this, prices are still predicted to rise and the level of activity on the market will still “surge” in the months to come – just not at the same speed we saw last year. Nationally, California, Alaska, Hawaii and Florida are expected to have greater than 5-7% appreciation, the majority of the west and east 3-5% and the remainder of the central states less than 3% appreciation.
Locally in the Seattle/King County area, we started out the year with 28% fewer homes for sale than last year and inventories have been climbing over the last few weeks; at month’s end they were 6.7% above year ago levels but brisk sales meant there were still not enough good homes for sale to meet buyer demand. In King county we have on average about 1.8 months of supply of inventory (3.8 months in the $750-$1,000,000 price range) which is continuing to put pressure on prices. In general, industry analysts say four-to-six months is the supply needed for a balanced market. If this trend lasts, it will continue to put upward pressure on prices.
However we could have a repeat performance of what we saw happen last year. Last spring, more homes continued to come on the market in May and June (which is typical) just as interest rates began to rise and because prices had shot up so quickly, many buyers pulled back which left homes lingering on the market longer which lead to inventory increasing taking the frenzy out of the market. Heading into the summer months and into fall, we started to see price reductions and prices actually roll back a few percentage points. It seems all bets are off this year as even though prices have risen once again (and more than the forecast), interest rates remain low (although a percentage point above last year), inventories have surpassed last years, and we continue to see brisk sales resulting in multiple offers and bidding wars.
How long can this continue? That’s the $64,000 question and I don’t believe anyone has the answer. All of the forecasts are based on criteria that we have no control over and it can change on a dime. The number of people coming to work in our local tech centers (and that’s just one segment of the relocation buyers) is staggering. Amazon along has gone from 30,000 to over 100,000 people, Google is here and expanding, Microsoft is hiring and changing their game plan and Boeing while moving people around the net effect is a positive influx to the Seattle area. But how long will they put up with double digit price growth before they get priced out? If you look at the Northern California tech markets, it seems the sky’s the limit.
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John L Scott