I am sure by now you are aware of the home buying frenzy that is happening in Seattle right now. Your neighbor may have sold their home with 10 or more multiple offers with the final sales price 15% above what was asked for it. Buyers who need or want to buy have to be prepared to be very competitive with their offers if they want the house.
But why? What is leading this home buying frenzy?
Real estate is a supply and demand-driven market. When there is an abundance of supply (such as at the low point of the recession) with low demand, prices have to come down to the point where people will buy those homes. However, the market that we are seeing right now is driven by very high demand and historically low supply – both of these factors are hard at work.
In the two graphs below, I show inventory of residential homes (in gold) and the number of homes under contract, known as pendings (in black) for each March going back 10 years with the line being the median number of homes available. You can see that our supply is well below even what it was at the height of the last fast market in 2004-2006:
The current demand can be contributed to many factors, one being the increase in population in the Seattle area. Technology companies such as Amazon have gone on a big hiring spree in the last few years, encouraging workers to move here. Many of these employees are young and prefer to live in hip downtown areas (such as South Lake Union, Capitol Hill, Queen Anne, Beacon Hill, etc). In fact, The CoStar Group which provides commercial real estate information indicated in a special report, “Amazon Remaking Seattle in Its Own Image”, between 2000-2012 Seattle’s downtown population increased by more than 26% as compared to Seattle as a whole (17%) with the 25-44 age group dominating that growth.
Because there is a shortage of rental spaces in the urban centers, the price for rentals has increased, leaving many looking at buying their own home as a solution. Since a percentage of these renters are becoming property purchasers, this has been one of the recent drivers of demand.
According to the Seattle PI, Amazon has amassed 3.4 million square feet of office space and employs 18,000 workers locally. The CoStar Group indicates that in the next few years, Amazon may hire 22,000 additional workers and hold 8 million square feet of office space.
Amazon is certainly not the only big employer in the area and not the only tech company in town. However, as long as there continues to be growth in these industries in the Seattle area, there will be a demand for housing that needs to be met.