Seattle's real estate market has been getting less and less affordable for the better part of a decade.
Since the housing bubble burst in 2008, one headline after another has trumpeted the skyrocketing housing costs. Fortunately, that's changing. The latest headlines are showing Seattle is leading the country in declining home prices.
That's not to say it's affordable but things are definitely looking up for buyers in the Seattle area. Let's look at what you can expect from Seattle home prices for the rest of 2019.
Home Prices are Forecast to Drop
Zillow Group, an online real estate tracking company, expects the median home price to drop by 2.6% from March 2019 to March 2020. That's may not seem like a big drop but compared to Seattle home pricing trends over the last few years, which have been in the double-digits, it's significant.
Home prices reached the "affordability ceiling" when they peaked in Spring, 2018. This ceiling is the point at which someone earning a median income for the region can no longer afford a home at the median selling price.
Home prices are declining in most parts of the country but according to the Case-Swiller home price index, Seattle home prices have fallen twice as fast as other regions since the peak. From June 2018 to January 2019, prices saw a 6% drop. Compare this to a 3% drop in San Francisco and San Diego and a 1% drop in Portland and Chicago.
The median number of days on the market is a gauge of how a particular real estate market is trending. Seattle's median days on the market was 47 days for the four-week period ending January 27, 2019. This is a 15-day increase from the same period a year prior.
Reasons for the Decline in Seattle Prices
There are several factors that have helped contribute to the falling prices in Seattle. For one, there is more inventory available. In 2015, King County had a 1.3 month supply and Seattle proper had a 1 month supply. A healthy supply is considered roughly 5 months. From January 2018 to January 2019, there was a 36.9% increase in available inventory.
Another thing that has contributed to the declining prices is the City of Seattle's Mandatory Housing Affordability (MHA) law. The MHA provides rent-restricted and income-restricted homes for people with low incomes. The city ran a trial in six neighborhoods in 2017 but expanded the program to all Seattle city neighborhoods in early 2019.
Seattle's goal is to create 50,000 homes by 2025 — 20,000 of which will fall into the affordable category. This law requires developers to either build affordable housing units or contribute funds towards the city's efforts when they are constructing new developments.
City Prices vs Suburban Areas
While the home prices in Seattle itself are declining, the high home costs over the last several years have pushed many buyers further out into the surrounding communities, like Tacoma and Lynnwood.
In fact, Tacoma is considered the nation's hottest housing market at the moment. Over half the homes sold in Tacoma did so in less than two weeks, with a median time on market of about 8 days.
And prices are on the rise in these areas as well, particularly at the lower end of the market. According to the Case-Swiller index, home selling for less than $380,000 (the cheapest category in the index) are up 8% in the Tacoma area.
The rising prices on the outskirts of Seattle are a good news/bad news situation.
The good news is that homes within Seattle itself are seeing declining prices so it is becoming more affordable to live in the city proper. But the bad news is that Seattle prices are still higher than many of the outlying areas so if you need to look there to find something in your price range, you might find yourself faced with the same kind of bidding wars you would have seen in Seattle a year or two ago.
Why Are Prices Dropping in the Seattle Area?
There are a lot of rumors floating around about Seattle. Things like Amazon is abandoning Seattle for other cities, traffic has become unmanageable, and homelessness and crime are getting worse all the time. Some people seem to think everyone's leaving Seattle as fast as they can.
If you look closely at these things, you'll find that they aren't the problem many people think they are.
Amazon is still adding more jobs in Seattle, along with Google, Facebook, Apple, and many other large companies. In fact, the growth in Seattle's tech sector is one of the things that helped to drive the prices up in the first place. The high income levels of many tech workers help them afford a higher cost of living, which helped contribute to the quick rise in prices.
According to LinkedIn, the hiring rate in Seattle is actually a little higher than it was a year ago. The number of jobs isn't the reason for the decline. The affordability ceiling we mentioned has more to do with it. The fact is, the cost of real estate in Seattle even outpaced the higher-earning tech sector.
People Aren't Leaving Seattle in Droves
People aren't leaving Seattle in droves either. Drivers' license registrations show roughly the same number of people coming into the area as a year ago. There has been a big increase in rental inventory in Seattle over the last couple of years though, and some of those people moving into the area are renting instead of buying.
The increase in rental units has also helped contribute to the downturn in Seattle home prices. A shortage of rental units drives rental costs up, which leads some renters to consider buying when the rents become unaffordable. Rental costs in Seattle have been relatively stable for the last year, easing some of the pressure on home prices.
Is Now a Good Time to Buy?
If home prices are dropping, does that make now a good time to buy?
It depends. Buyers are in a much stronger position today than a year ago. At the peak, it wasn't unusual to have 20 or 30 bids on a home within a couple of days of the listing going live, with bids well above the asking price. And you would often have to waive any and all contingency clauses to have any chance of a successful bid.
Whatever you had saved for a down payment could easily end up falling short once the bidding started.
Today, bidding wars are much less common and the market has returned to a bit of sanity as far as subjects on a sale. An inspection contingency or any other standard clauses are not likely to tank the deal and offers below asking price are much more likely to be accepted.
You've also got more inventory to choose from today. At the peak, you likely would have had to settle for a home that wasn't ideal, or you might have missed the opportunity. Because there is more inventory to choose from and the time on market is longer, you have more time to consider your options and find exactly what you're looking for.
Longer market times aren't the only reason for more inventory, either. More people are putting their homes up for sale, which has helped increase the inventory. The end result is more choice for buyers.
Potential Pitfalls to Buying in 2019
The fact that Seattle is becoming more of a buyers' market doesn't necessarily mean it's the right time to buy, mind you. The market is currently in a state of depreciation, which means that prices are falling. The question is, how long will they continue to fall?
If you're planning to buy for the long-term, say five to ten years, that's not as much of a concern. Over time, real estate has always trended up. But shorter-term purchases of a year or two could result in stagnant appreciate.
So What's the Bottom Line?
Generally, the expectation is for home prices in Seattle to stay level or even drop further over the rest of 2019. If you're planning to buy in the area, you'll get more for your money than you would have any time in the last few years.
This is also a good sign for the general cost of living in Seattle. Lower home prices could also lead to lower property taxes, reducing the cost to live in the area. Property taxes in King County, where Seattle is located, are among the highest in the country so any relief would be welcome.
If you're in the market for real estate in Seattle, Seattle's Mortgage Broker can help you get your new home financing in place. We've been helping people with financing in the Seattle area for 15 years so we've been through the ups and downs and know the market's unique needs.
Get in touch today and we'll help you find the best mortgage deal possible!