At least once a week, I get asked if we are in a real estate bubble here in Seattle. It’s a good question with a complex answer. We have some signs that indicate we are in a potentially dangerous housing market. We have seen record low housing inventory, very little new construction and double digit price increases year over year in most of the city. The frantic pace of the market and the extreme lack of choices for buyers are fueling bidding wars and causing our average sold price to be 105% of list price. These are all numbers that cannot continue at the rate they are going. The median single family home price now exceeds the price that is affordable by a family earning the median wage. That was the tipping point at the last housing crash in 2006/2007.
Our environment today is different than it was years ago. The “Bust of ’07” was fueled by many factors, some of which we are seeing today. Rapid price increases, limited inventory and low interest rates are factors that existed then and still exist now. But in ’07, we had two huge forces that were impacting the housing market that we don’t have now, unhealthy lending practices and overall economic decline. We no longer have lenders providing mortgages that are considered “high risk”. We are no longer facing high unemployment.
I believe that Seattle has a very healthy economic future. We continue to have a rise of living-wage jobs, new employers are actively moving to the city, and our old favorite businesses are growing, and choosing to grow in Seattle. The jobs that we are attracting will bring people that continue to add to our housing demands, specifically in Seattle. Our geographic boundaries don’t allow for a lot of urban spread, so I think that more density in neighborhoods will soon be the norm.
To sum it all up, I am not an economist or a psychic, but it is my opinion that within the next 6-12 months, we will see the pace of the market slow down. In contrast to what happened in 2007, I do not predict a decline in home values. I predict a leveling of the market. That will bring increased inventory, stagnant prices (no more 10% increase in value year over year, but not a drop in value) and a more sane pace to the real estate market.