Home prices in the Seattle metro area are soaring. Low inventory, pent-up demand and a thriving local economy have created unprecedented conditions for buyers and sellers in King County. Homes are selling quickly with multiple offers and buyers are bringing cash to offset the difference between appraisal value and selling price.
Naturally, the logical question is: How long until this whole thing crashes and we are left with the same disastrous situation we had in 2008?
My answer may surprise you, but the current real estate market is nothing like the one that led to the 2008 demise!!
Let me explain:
All markets are based on supply and demand. The 2008 market was a result of increased demand from loose lending practices. People were enticed to purchase homes they couldn’t really afford based on speculation that home values would continually rise. It was an irresponsible, flawed theory that had catastrophic consequences for the entire country. We all know the results at this point and there is justified fear of a repeat. When you see the “insane” prices being paid for homes as a result of bidding wars, one can’t help but think we are headed for a similar outcome. I understand the fear, I just think it’s completely unjustified.
This current market is a reaction to a completely different set of economic drivers: One that’s built on real market forces, backed up by real money.
First and foremost, the lending community has settled in to create an environment where qualified buyers are able to get loans at reasonable rates. Just as importantly, they are not giving loans to those who shouldn’t have them in the first place. There will not be a repeat of the disaster that occurred with the subprime mortgage crisis. The buyers are real, the money is real.
For us locally (Real Estate is ALWAYS local), the economy in King County is in excellent condition. With many Fortune 500 companies based in the Seattle area (Microsoft, Boeing, Amazon, Costco, Starbucks etc.), job growth and economic stability appear to be of low concern. We never saw unemployment rates like the rest of the country and certain areas of our economy actually grew. We are well-positioned to continually grow in population which increases demand. As they say about buying land: “God isn’t making any more of it”.
Another driving factor for the current real estate market is what John L. Scott Real Estate refers to as the “backlog of buyers”. People stopped buying homes at unprecedented rates during the recession. The usual factors (tightened credit, unemployment and FEAR) contributed to this but it was always temporary. Eventually, these people were going to need to purchase homes and the current environment is making that possible. We now have large numbers of qualified buyers who are “chomping at the bit” to buy homes.
Lastly, the recession placed many homeowners in a position where they were unable to sell because they owed more than their home was worth. Foreclosures and short sales decimated neighborhood home values and people were forced into stagnation. The market has corrected itself and home values have increased enough to give those people opportunities they haven’t had in many years. These people now have the ability to either upgrade their homes or to downsize their homes or they can invest in second and investment properties for the first time in a long while. This factor will play the biggest role in determining where housing goes over the next decade and beyond.
Where does this all lead us in the future?
Like all things, no one can predict exactly and time will tell. But you must know it’s nothing like 2008.
Thomas R. Foy