Seattle market softening? Indicators are almost all there....

24 Replies | Seattle, Washington

Rents went down this year. Vacancy is up. New supply is coming on the market and there is less competition. Interest rates have risen slowly but surely.

Most of the indicators of at least a small correction are there. I don't see the indicator of a big correction yet, but the data I've read recently shows the above indicators, which are all signs of a correction looming, even if it is small.

Thoughts?

for the landlords you mean ???  not for home builders or folks buying a primary residence ???

one thing I find in our markets is the larger multi family new developments just don't pop up one day.

they are 3 to 4 years in the making and its a little like stopping a cruise ship once it gets going .

so what we are working on today in planning and permitting we wont built for another 2 years or so.

whats coming on line today folks bought and started in 2015 and 2016.. so that can lead to over supply for sure in the rental realm. 

Along with the mass movement of the general public who are jumping into landlording and who 20 years ago would have been content with the 

stock market.

We saw similar trends in SF. Rents went down in 2017 and pretty much stayed flat. Home prices have however risen during this time by almost 20%.

I think the former was due to supply of new rental condo units and renter fatigue with high prices and people choosing not to live in the city but explore other options in neighboring Oakland etc. where rents are relatively cheaper.

The latter is due to the wealth effect as we have seen a tight job market in tech, more IPOs and acquisitions of startups plus record highs in stocks of local tech companies. Of course not to mention investors (large and foreign).

In 2018 alone average home prices in SF have risen by 200k reaching 1.6million, crazy when you think of how fast interest rates have risen during the same time.

I was talking with my dad about this a month ago. Seems like things are flattening out. They need to and should. It is unsustainable for them to be in an upward trajectory forever. I hope it is flat but even a correction would be fine with me. It has made it really hard to find value.

As a Seattle Real Estate Agent, I feel the market shift in a very visceral way.  I’m absolutely feeling a cool down this last month or so.  May brought a record-breaking amount of inventory (over 14,000 homes on market).  The most since 2008.  Then June topped May.  My last 3 out of 4 transactions had no bidding wars. This would have been unheard of a few months earlier.  For the first time in years, I’m seeing a lot of good homes sitting on the market for 20-30 days.  I find it to be a combination of Seller over-confidence and Buyer absorption from the inventory influx.  Not sure how long this trend will last, but if you’ve experienced buyer fatigue, this is a good time to get back out there!  Feel free to message me if you’d like to see anything. Lastly, here’s a Seattle Times article that just came out about the shift:

https://www.seattletimes.com/business/real-estate/...

Yup. Also a part-time RE agent. 

Another indicator is shifts in list price - I've seen many sellers put an aggressive / 'greedy' list price out there, only to realize market demand isn't quite what it used to be and lower the list price by 5-10% (just helped my buyer put an offer in on a place that went from $450K -> $400K). This time last year, prices were going the OTHER way. 

It was bound to happen sooner or later...

Also, it seems like there is overbuilding of condo/apt. inventory in Seattle. Lots of cranes still downtown.

Bob Malecki, YES on the overbuilding of apartments.  Not necessarily on condos though.  Vulcan, for instance, won't touch condo projects with a 10 foot pole anymore.  All of their residential or mixed use projects are Apartments due to liability for condo builders (Washington State Law is pretty stringent).  I attended a Commercial Brokers Real Estate Breakfast a few months back and Ada Healey, Vice President of Real Estate at Vulcan shared that they've only built three condo projects in their history, and they lost money on all three of them.  Matthew Gardner, Chief Economist at Windermere, also spoke.  He shared that his predictions for 2019-2020 are that rents will go down because of the over-building of apartment buildings.  He was begging the developers in the audience to start shifting over to condo builds instead.

Is this slow down limited to Seattle or is the assumption that this is the harbinger of a national slow down?

Even during 2010-13 there were areas of the country that held up very well.

Just wondering how much stock to put into this because this was headline on CNBC today.

There are articles about RE slowdowns. For example, the condo market in NYC, the broader housing market in London and price compression in Toronto. Not sure if that indicates to a start of a broader slowdown or just a peak.

I can tell you for certain there has been a rental slow down here. I’ve gotten half the usual number of applicants on two of my rentals for 2018 as in the previous 5 years on average.

So much for our “emergency housing crisis”

My question is are you talking about price deflation and static inventory, or just a backing-off of the bonkers high growth rates? After 5-plus (if I recall correctly) years of 10%+ increases in price and single-digit days on market a drop to 5% price inflation and average 30 days on market would feel like a dip. It wouldn't be, but it would feel that way. 

Just because the market is growing at 50% (or some other arbitrary rate) of last year's growth numbers doesn't make it a correction in my opinion. It's just not as forgiving a market. 

Originally posted by @Matt K. :

This is why all of my rentals are equally if not more attractive to first time home buyers... not just investors.

Not sure if you actually understood the post. The slow down is due to increased supply, it's not limited to rentals....That means more inventory in the market in general. As in your house isn't going to sell like a bottle of water in the Mojave.

Note the post by the realtor who is a first hand account of the slow down....

"As a Seattle Real Estate Agent, I feel the market shift in a very visceral way. I’m absolutely feeling a cool down this last month or so. May brought a record-breaking amount of inventory (over 14,000 homes on market). The most since 2008. Then June topped May. My last 3 out of 4 transactions had no bidding wars. This would have been unheard of a few months earlier. For the first time in years, I’m seeing a lot of good homes sitting on the market for 20-30 days. I find it to be a combination of Seller over-confidence and Buyer absorption from the inventory influx. Not sure how long this trend will last, but if you’ve experienced buyer fatigue, this is a good time to get back out there! Feel free to message me if you’d like to see anything. Lastly, here’s a Seattle Times article that just came out about the shift:"

Originally posted by @Shawn Q. :

My question is are you talking about price deflation and static inventory, or just a backing-off of the bonkers high growth rates? After 5-plus (if I recall correctly) years of 10%+ increases in price and single-digit days on market a drop to 5% price inflation and average 30 days on market would feel like a dip. It wouldn't be, but it would feel that way. 

Just because the market is growing at 50% (or some other arbitrary rate) of last year's growth numbers doesn't make it a correction in my opinion. It's just not as forgiving a market. 

I think this is the beginning of a slightly larger slow down. The indicators are there. We are still a few months from a recession that we are due for. But it's not going to be like the last one. We still have some upside after this recession. There will be a slow down in the coming year or so but stay the course, this isn't the big one yet. The indicator for that is not quite there yet.

Originally posted by @Sam Josh :

There are articles about RE slowdowns. For example, the condo market in NYC, the broader housing market in London and price compression in Toronto. Not sure if that indicates to a start of a broader slowdown or just a peak.

 Make no mistake. This isn't the peak. It's a slow down. It will pick back up again after.

I wanted to bring this one back.  2 months after the last post, what do people think now about the climate of the greater Seattle market?  

For me personally I have a flip house in Bellevue on the market thats been sitting for too long and I am about to make another price reduction.  I'm still in the black by a good margin but I don't want to maintain the property all winter and there's no sure thing of selling in spring.

On the other hand, my Greenlake rental flew.  

Jeremy,

I think in a few weeks to a month we will have a better grasp on where the market is headed. It’s been significantly slow for most people this summer, starting around late May / early June. On the flip side I’ve been more busy than usual, which is a good thing. Where’s your flip in Bellevue located? Curious, I’m a local broker. 

- Jake

I would be very careful about interpreting data, especially with real estate.  That Seattle Times article so many are citing is loaded with holes.  They cite lower prices in single month numbers over the past 3 months which is not a trend.  Real estate, like any other security or commodity has a range of prices, and while there has been a drop, it's not outside the range of prices Seattle has seen in the past 7 years.  Quite frankly, it's possibly a good time to buy.
I would only get worried about the market if we see a significant change in multiple data points, including days on market, list price to sold price ratio, number of new pending sales, number of new active sales, etc.  


Although it's impossible to tell, I would be curious to know who the buyers have been.  First-times homeowners vs. investors have a very different outlook and affect prices differently.  Perhaps a way to do so is to look at the total number of homes that were sold in remodeled condition.  That might give some insight into what investors are doing.  A serious decline in that number would tell me there's trouble ahead.   

@Jeremy Benezra - I agree with @Patrick Britton . It's tough to just make a blanket statement about the Greater Seattle real estate market. It's varies by submarket, price point, property type, etc. Make no mistake, there is still a shortage of affordable housing in Western Washington. Inventory is low (less than 2 months for residential houses) and there are still multiples offer situations on well priced properties. Stuff that is priced right is selling fast. Stuff that is not priced right is sitting. 

I recently listed two SFRs - one in Auburn, one in Tacoma. Both had offers and were pending within a week. 

I can tell you about a triplex that I secured for one of my investor buyers where we escalated to $50K above asking price and the appraisal came in $40K OVER our contract price

I can tell you about a 4-plex that I secured for another of my investors where the Seller did multiple price drops totaling roughly$75K and my buyers and I negotiated ANOTHER $40K off the price to get the deal done. 

The people who know their stuff (or team up with those who know their stuff) will do well in this market. The people who don't won't.  For the record, I am not at all implying that anyone on this thread lacks knowledge, I am simply relaying that it is not all "doom and gloom" like some others try to make it out to be. 

@Aaron Nelson : 50k over asking price on one, 115k off the list price on another.  No trend there!  It probably is sub-market specific as you guys are saying.  And the high end probably is feeling the largest cooling off, and thats where this flip is.

Hmmmm.... buy at auction for 2.1M. Try to sell for 3.6M. No takers at 3M. The interest costs on that have to be getting expensive... the juice on those hard money loans is 12 - 20%. That's $300k/year.

And as rates rise, the hard money guys start to pull back. It's going to be an interesting spring and summer. We have a lot of people on here who've never really seen the bad side of cheap money monster.