Friday, July 18, 2014


The housing market is rebounding! First, an analysis in The Seattle Times by reporter Sanjay Bhatt  [July 17, 2014] shows that tight supply, high demand and low rates are sending prices in some neighborhoods above the pre-crash peak set seven years ago.

Home Prices:  In the first six months of 2014, the median sale price of single-family homes in King County was $430,000, about five percent shy of the peak set in 2007.  Half of the county's 30 submarkets have either surpassed their previous price peaks or climbed to within 5 percent of them.  Across King County, 14 submarkets saw average annual home price growth accelerate in the second quarter, with affluent places like Bellevue, Mercer Island and Seattle's Queen Anne and Magnolia neighborhoods posting the highest annual gains, between 19 and 34 percent.

The average price of King County single-family homes sold was $545,886, 10 percent higher than a year ago.  The most expensive areas had the higher gains:  Mercer Island and Bellevue (including Medina, Clyde Hill and Hunts Point) were up 28 percent and 34 percent, respectively.  While the number of homes sold during the second quarter was lower than last year, places where homes are relatively affordable and close to transit saw big jumps in sales activity: Shoreline, Beacon Hill and West Seattle.

The prices in Snohomish County - the state's second county largest by population with an estimated 745,900 citizens - have risen by an average of 10 percent annually, with a couple of submarkets up more than 17 percent.  However, the volume of home sales is down over the year more than in King County.  Second-quarter home sales posted an average price ranging from $329,586 to $467,410, varying between the east and southeast markets.  As more people move here to Washington for the lifestyle (water, mountains, climate) and jobs (Amazon, Boeing, Facebook, Google and a large health care industry,) prices in the Seattle area are souring because of limits in housing supply and geography: an urban growth boundary on its east side and water on its west.  [San Francisco comes to mind, as it also has a limited supply of buildable land.]  Low interest rates help fuel home-price appreciation.

Rentals and Condominiums:The average rent for a one-bedroom apartment in King and Snohomish counties was $1,284, up almost 8 percent annually.  (Anecdotally, in 1980, you could get a nice one-bedroom apartment for less than $500 a month.)  Vacancy rates in urban apartments are low.  Condominium prices aren't doing as well as single-family homes, except in downtown Seattle and Kirkland (where Google is based; condo sales were up 32 percent over the year).  Condos account for about one in five home sales reported by the MLS.  King County condos sold in the first half of this year had a median price of $250,000, 11 percent higher than the same period a year ago, but 13 percent below the peak set in 2007.  Downtown Seattle and the Kirkland area have hit new peaks:   The median condo price in downtown Seattle was almost $450,000, while in the Kirkland area it was $369,000.  In 16 submarkets condo prices remain more than 20 percent below the peak (some due to overbuilding).  In the second quarter, the region's largest condominium submarket, Belltown-Downtown Seattle, saw the average price of units sold increase 18 percent annually to $576,368.

Wages aren't keeping up with home prices*.  See article on July 18, 2014.  It remains to be seen whether the second half of the year will look as good for these areas.

prepared by
Washington Center Real Estate Research / Runstad Center for Real Estate Studies 
College of Built Environments / June 2014


Inventories of homes available for sale totaled 28,219 single-family homes at the end of the quarter - 0.4 percent above the previous quarter (fourth quarter of 2013), though substantially lower than a year ago.  This inventory level represented a 4.1 month supply, a modest shortage of homes on the market relative to demand.  The median price home sold in Washington during the first quarter was $248,900, 4.8 percent above a year earlier.  Existing home sales fell in the first quarter by 12.1 percent to a seasonably adjusted annual rate of 81,450 units, and dropped 7.1 percent below a year earlier. 

The first quarter of 2014 saw an overall weakening of the Washington State Housing Market at the state level.  On a quarter-to-quarter basis, both sales volumes and median sales prices declined.  Comparing the first quarter of 2014 with the first quarter one year prior shows a similar slip in both market activity and prices.  Not all areas fell, however, and results vary across the different regions of the state.  The decline in prices has had a positive impact on housing affordability over the past two quarters.  The consistent gains in employment and general economic growth, especially in the greater Seattle area (King, Pierce and Snohomish counties) suggest that the economy in the state is slowly recovering from the Great Recession.  [Note:  Few underwater homeowners are sharing in the recovery, although some houses have received higher valuations from the county assessor.]

The existing home sales market in Washington State was weaker during the first quarter of 2014 than three months earlier.  Overall, sales volume declined by 12.1 percent to a seasonally adjusted annual rate of 81,450 homes sold.  Additionally, this level of volume is 7.1 percent lower than one year ago. 
foreclosures statewide have declined again for the fourth straight month.  Mortgage rates appear to have stabilized and haven't moved much in the past three quarters. 

Quarter-to-quarter sales increased in only 12 of Washington's 39 counties.  On a percentage basis, San Juan County led the way with an increase of 31.8 percent.  Yakima County experienced the largest gain by pure volume with 230 additional sales in the first quarter of 2014 when compared to the last quarter of 2013.  Counties with declining sales counts were more common, with the greatest being a 45 percent drop in the seasonally adjusted annual rate in Skamania County.  In terms of raw numbers, King County saw the steepest drop with 4,860 fewer sales - 18.4 percent than the prior quarter.  Seventeen additional counties had a sales rate at least 10 percent lower than the previous quarter.  Among the 17 metropolitan counties, 12 saw a slower sales rate than during the fourth quarter of last year.  Smaller counties routinely have the greatest swings in housing market activity.  Just those couties with the ten highest levels of sales activities - Benton, Clark, King, Kitsap, Pierce, Snohomist, Spokane, Thurston, Whatcom and Yakima - this range narrows to a low of -20.5 percent and a high of 11.9 percent.

Home sales activity is always concentrated in the urban markets.  Collectively, 17 counties identified by the Federal Office of Management and Budget as part of metropolitan areas accounted for an annual sales rate of 70,420 homes, 86.5 percent of the statewide total.  Last quarter, the metropolitan counties accounted for 88.1 percent of all sales.

The next group, characterized as micropolitan areas (small cities), is nine counties with a sales rate in the fourth quarter of 7,990 units, 9.8 percent of the total, up from 8 percent last quarter.  The remaining 13 counties had a total annual sales rate of 3,040 units, 3.7 percent of the statewide total.  These figures suggest a slight shift of sales activity from metropolitan to micropolitan areas.

Prices:  The rate of home sales can be an important indicator of market strength and larger trends to economic analysts.  For most households and more casual market observers, home prices are the market metric of most concern.  Since the average price of a home sold in a given geographic aea, especially in areas with low volume, can be greatly skewed by a few very expensive home sales, economists tend t prefer to look at statistics on median, not average, home prices . . . indicating that home prices in Washington have been increasing above the inflation rate for several months, although significant variation across markets remains.

King County** had the highest median home price in the state during the first quarter of 2014 at $419,000.  The lowest median price for metropolitan areas occurred in Cowlitz County ($143,000), home to the city of Longview.  This represents a median value approximately $275000 less than prices in King County, highlighting the disparity in housing costs between the State's metropolitan regions.  Sixteen of the State's 39 counties saw a decrease in median price when compared to the first quarter of 2013 . . . Of the five largest counties by sales volume, only Spokane (1.0%) saw an increase in median sales price less than the overall state average of 4.8 percent.

Affordability:  Home prices are important determinants of affordability, though from a household budgeting standpoint, the relationship between the potential mortgage and monthly income may be more crucial.  In other words, those relationships are influenced by lending standards, access to down payments, other recurring financial obligations and their confidence in t he overall economy.  After the unusual home purchase market during the recession and early stages of recovery, these traditional affordability standards are descriptive of the current environment.

Overall, when compared to one year ago, the higher mortgage rates and higher home price (4.8% increase) [as well as low wage growth] have resulted in a decrease of housing affordability statewide.  The Runstad Center calculates two measures of affordability:  the all-buyer index (measures the degree to which a median income family an afford mortgage payments), and the first-time buyer index.  For all-buyers, affordability in the first quarter of 2014 ranged from a low of 88.1 in San Juan County to a high of 406.3 in rural Lincoln County.  (San Juan was the only county to have an affordability index of less than 100.)   For first-time buyers, the housing affordability index in the first quarter was 86.2, an increase from 83.5 in the closing quarter of 2013.  Compared to a year ago, the first time buyer affordability index decreased from 98.3 - a finding mostly attributable to the increase in mortgage rates from the first quarter of 2013.  Since an index value of 80 is generally considered to offer meaningful choice and access to ownership housing for first-time buyers, this current market presents a moderate opportunity for well-qualified first-time buyers to enter the ranks of homeowners.  The biggest problem remains a lack of properties on the market from which to choose.

In 23 of the 39 counties, the first-time buyer affordability index exceeded 100 during the first quarter (compared to 30 counties a year ago).  Accordingly, achieving homeownership is still a significant challenge in many areas, especially as rent increases remain high in many communities, especially in greater Seattle, making it particularly difficult to accumulate a downpayment.  Among the metropolitan counties, the greatest affordability for first-time buyers was in Skamania County (130.0) and was least in King County (62.6).  The most affordable for current renters in metropolitan areas to move to home ownership was Grays Harbor County, while Kittitas County presented the greatest hurdle.

Availability:  Rather than rely on a single measure of housing affordability, it is helpful to examine home affordability for several income levels and compare this with the available housing inventory.  The four income/asset groups considered are:  1)  $30,000 income, 5% downpayment; 2) $60,000 income, 10% downpayment; 3) $90,000 income, 20% downpayment, and 4) $150,000 income, 35% downpayment.

In each case it is assumed that the household is willing to spend 25 percent of gross income on principal and interest payments [Note:  insurance and taxes were not mentioned] and overall debt levels are average.  It is also assumed that these buyers could find mortgages at an interest rate of 4.5 percent, which is marginally above the prevailing rate during the quarter.  Based upon this income level, downpayment, and debt-service assumptions, we can estimate the purchase price of an affordable home for these income groups.  Of the four income/asset categories, the maximum  home purchase price would be estimated to be:  $129,843, $274,113, $462,565 and $948,852, respectively.  These figures illustrate how income growth, coupled with ownership of homes with generally increasing values, can move a household up the ladder of home ownership (providing they retain the equity in their existing home and avoid home equity loans or second mortgages).  [Note:  This scenario reminds us, of course, of the almost 10 million underwater homeowners currently in the U.S. who have yet to climb out of their situations.]

The question remains as to how much opportunity there is to buy a home within the affordable price range.
In many parts of the state, modest income households, especially those looking for their first home, still face very limited access to the ownership house market.  [Note:  Again,  this blogger wants to remind the reader that for those with modest incomes who might want to "move up" to a house with a second bathroom or second or third bedroom, the lending criteria or formula would most likely be an obstacle, despite your confidence that you could afford to upgrade.  It's the arbitrariness and stringent guidelines that are so frustrating and difficult to overcome.]

In conclusion, mortgage interest rates have not been a risk factor for quite a while, but the continued expectation for 2014 is for gradually increasing rates.  Some potential buyers will need to be reminded that even with  the increases, the prevailing rates in the mortgage market are substantially below the averages of the last 40 years, making the interest side of home purchases a veritable bargain.

* Washington state average annual wage rose by 2 percent last year t $52,635, according to data released by the state Employment Security Department.  The average weekly wage rose to $1,012 from $992.  Both were pushed higher by a 6.5 percent increase in the number of workers earning more than $75,000.

The article in The Olympian stated that a rise in wages also means that jobless benefits will increase.  The minimum weekly jobless benefit will rise $3 to $151, while the maximum benefit will rise by $13 to $637.  The increase applies to unemployment claims opened on or after July 6, 2014.

** King County demographics and a brief history:  King County is the 13th most populous county,and 86th highest-income county in the U.S.  It has twice the land area (2,115 square miles of land and 191 square miles of water) as the state of Rhode Island.  The population of King County (as of the 2010 census) was 1,931,249; with 789,232 households and 461,510 families.  Of  the households, 27% were with children under 18, 45% were married couples. 9.1% were female with no husband in household, and ____  % were non-families (presumably, individuals, not related, living together in the same household).  Almost a third of the population reside in King County.

* * * * *

Sources:  The Seattle Times, July 17, 2014
               Northwest Multiple Listing Service
               Washington Center Real Estate Research, University of Washington,
                   Runstad Center for Real Estate Studies, June 2014
July 18, 2014

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