No Bubble for Seattle Real Estate Market

With median sales prices continuing to rise (median sales prices for Seattle residential in February were 26.3% over February 2015 and 38.9% over February 2014). There is speculation about a bubble developing in the real estate market with over-inflated prices that are going to pop.

While prices are rising at a pace that is difficult to adjust to – for both buyers who are competing with multiple offers, dealing with higher prices, and having to make quick buying decisions, the reasons that we are experiencing the current historic housing shortage are different from the reasons ten years ago.

First, there is population. Seattle’s economy is in a boom, attracting employees from not only across the country, but across the world. This rate of population increase is not enough to keep up with the incremental new housing units that are being added to our inventory. According to Seattle.gov, between 2010 and 2015 (estimated figures for 2015), Seattle added 53,740 people – which equates to an average of 207 people per week. We haven’t added enough housing for all of these new people. We weren’t having this type of economic boom in 2006. This is basic supply and demand.

Second, many people were buying homes ten+ years ago due to the easy availability of money, which lead to the subprime mortgage crises and the ensuing housing crisis. Money is much tighter now. In fact, according to Keeping Current Matters, a real estate data compilation company, the monthly mortgage payment for a median priced home in the United States in 2006 was $1,305. In 2015 it was $858 which is an indication that today’s average home buyer is not overextending themselves to make their mortgage payment, partially due to the near-historic mortgage interest rates.

In 2006, according to FreddieMac, the mortgage interest rates averaged 6.41%. Compare that to 2015’s 3.85%. In Seattle, according to the NWMLS the median residential home price was $439,500 in 2006 which would have meant a monthly payment of $2,751.98. In 2015, the median home price for residential was $550,000 which means a monthly payment of $2,578.45 – that is a saving of $173.53 per month for a mortgage that is well over $100,000 more!

Now, this is not guarantee that home prices won’t adjust back down in the future. No matter what your investment strategy, there is an element of risk and a possibility that supply and demand may change. But rarely do you get to enjoy your investment every day of your life as you do when owning a home. And that enjoyment is valued in terms that transcend dollars and cents.

The bottom line? I expect Seattle will continue to be a great investment and when we look back one year, five years, and even ten years from now, I expect to see Seattle as a vibrant bright spot in the country.

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