What exactly is making home prices in Seattle and the surrounding area?

The problem is no one is selling their homes. The Seattle Times states only “0.4 percent of all homes in the Seattle region were on the market at any given time last year” which is a stark indication of how competitive the real estate market has been. Even though the Seattle area has the 15th-largest housing market in the country, there are 36 markets with more homes for sale – and they are smaller markets, too.

This means our inventory is three times worse than the national market according to the same Seattle Times article. Furthermore, only one market in the U.S. has a tighter housing market right now: the San Francisco Bay Area.

Last month, the number of homes for sale in King County hit an all-time low with only 1,600 houses on the market. With the market heavily favoring sellers, home values in the Seattle area “have soared about 60 percent” in the last five years. However, due to the tight housing market many homeowners are reluctant to take advantage of the increase in home values for fear of trying to purchase another pricey home in the area.

When looking at prices, we see an additional worry for homeowners (and potential buyers). Because supply keeps shrinking, demand continues to rise along with new jobs and a growing population. Renters are facing steep apartment prices and the $1 million home has become normal. The Seattle Times states Seattle only has about 260 homes under $1 million. This is causing frustration and strong competition for first-time homebuyers.

What does this mean for the Eastside?

We are going to continue seeing high prices for the near future as explained by Windermere Real Estate’s Chief Economist Matthew Gardner. As buyers are pushed out of the competition in Seattle, they will begin looking to the Eastside and the surrounding areas.

No matter how you look at it, this is an exciting time for real estate in our region. If you are thinking it is time for your to purchase your first home or sell your home to take advantage of the market, make sure you get in touch with me. I can walk you through the steps you need to take and educate you on the best moves to make in the housing market.

For more information, read the full article from The Seattle Times.

2016 was another stellar year for the Seattle housing market, in which a surplus of buyers and a deficit of sellers drove home prices higher across the board. So, can we expect to see more of the same in 2017? Here are some of my thoughts on the Seattle/King County housing market for the coming year:

1. Our market has benefited greatly from very healthy job growth, driven in no small part by our thriving technology companies. Economic vitality is the backbone of housing demand, so we should continue to see healthy employment growth in 2017; however, not quite as robust as 2016. Migration to Seattle from other states will also continue in the coming year, putting further pressure on our housing market.

2. Are we building too many apartments?  The answer to this question is “maybe”. I believe we are fast approaching oversupply of apartments; however, this glut will only be seen in select sub-markets, such as South Lake Union and Capitol Hill. Developers have been adding apartments downtown at frantic rates with many projects garnering very impressive rents. In the coming year, look for rental rate growth to slow and for concessions to come back into play as we add several thousand more apartments to downtown Seattle.

3. The Millennials are here! And they are ready to buy. 2016 saw a significant increase in the number of Millennial buyers in Seattle, and I expect to see even more in 2017. The only problem will be whether Millennials will be able to find – or afford – anything to buy.

4. Home prices will continue to rise. But price growth will taper somewhat. The market has been on a tear since bottoming out in 2012, with median home prices up by a remarkable 79% from the 2012 low, and 14% above the pre-recession peak seen in 2007. Given the fact that interest rates are now likely to rise at a faster rate than previously forecasted, I believe price appreciation will slow somewhat, but values will still increase at rates that are well above the national average. Look for home prices to increase by an average of 7.5 – 8.5% in 2017.

5. More homes for sale? I am optimistic that inventory levels around Seattle will increase, but it still won’t be enough to meet continued high demand.

6. This is my biggest concern for the Seattle housing market. Home prices – specifically in areas with ready access to our job centers – are pulling way ahead of incomes, placing them out of reach for much of our population. This forces many buyers to move farther away from our job centers, putting additional stress on our limited infrastructure. We need to have an open discussion regarding zoning, as well as whether our state’s Growth Management Act is helping or hindering matters.

7. New Home Starts/Sales. As much as I would love to say that we can expect a substantial increase in new homes in 2017, I am afraid this is not the case. Historically high land prices, combined with ever increasing construction and labor costs, slow housing development, as the price of the end product is increasingly expensive. This applies to single family development as well as condominiums. We should see a couple of towers break ground in 2017, but that’s about all. Vertical construction is still prohibitively expensive and developers are concerned that there will not be sufficient demand for such an expensive end product.

8. Are we setting ourselves up for another housing crash? The simple answer to this question is no. While home price appreciation remains above the long-term average, and will continue to be so in 2017, credit requirements, down payments, and a growing economy will all act as protectors from a housing crash in Seattle.

This blog originally appeared on Windermere Seattle Spaces and Places.

According to Veros Real Estate Solutions, the Seattle-Tacoma-Bellevue market is projected to be the fourth hottest real estate market in the U.S. in 2017. The company projects home prices to appreciate 10.2 percent in our region next year, far outpacing the rest of the country.

If you’re thinking about selling, the timing couldn’t be better. With inventory at historic lows, prices at or near record highs, and multiple offers the norm, it’s an exceptional time to get top dollar for your home.

Are you ready to sell your home?

Get in touch with me today to receive a valuation of your home based on current market conditions. I can walk you through the process and answer any questions you may have.

Economic Overview

Annual employment growth in Washington State slowed somewhat in the third quarter of this year, but still remains well above the long-term average. Additionally, the jobs that are being created are primarily quality, high-paying positions, which is important for the health of our economy. Unemployment in the state remains at levels that are somewhat higher than I would like to see, but this continues to be impacted by a growing labor force and modestly slowing job growth. I still expect to see the rate drop a little further as we move through the final quarter of the year.

Home Sales Activity

• There were 24,277 home sales during the third quarter of 2016—up by an impressive 7.9% from the same period in 2015, and 6.8% above the total number of sales seen in the second quarter of this year.

• Skagit County saw sales grow at the fastest rate over the past 12 months, with transactions up by 25.6%. There were also impressive increases in home sales in Thurston, San Juan, Pierce, and Grays Harbor Counties. Sales fell slightly in Jefferson and Kittitas Counties.

• Overall listing activity remains low with the total number of homes for sale at the end of the quarter 11.2% below that seen a year ago. That said, I’m happy to report that listings have been slowly trending higher in 2016.

• I’ve been thinking about how sales can continue to rise while inventory remains so low. I believe this is due to an uptick in first-time buyers. These buyers have no home to sell, so they don’t add to the number of listings; however, they do cause sales to increase when they buy. This is a good trend to see!

Home Prices

• As demand continues to exceed supply, we are continuing to see upward pressure on home prices. In the third quarter, average prices rose by a substantial 10.2% and are 3.2% higher than seen in the second quarter of this year.

• The current rate at which homes are appreciating cannot continue, and I anticipate that we will see a “cooling” start to take place in 2017.

• When compared to the third quarter of 2015, price growth was most pronounced in Lewis County. In total, there were nine counties where annual price growth exceeded 10% and prices were higher across the entire region when compared to a year ago.

• Although supply levels are slowly starting to creep higher, we are still solidly in a seller’s market. Rising inventory levels should start to do a better job of meeting demand next year, which when combined with modestly higher mortgage interest rates, will see the region move closer toward becoming a balanced market.

Days on Market

• The average number of days it took to sell a home dropped by twenty-two days when compared to the third quarter of 2015.

• All the counties that comprise this report saw the length of time it took to sell a home drop.

• In the third quarter of 2016, it took an average of 52 days to sell a home. This is down from the 74 days it took in the third quarter of 2015, and down from the 67 days it took in the second quarter of this year.

• King and Snohomish Counties remain the only two markets where it took less than a month to sell a home. Even though King County saw days on market rise slightly from 18 to 20, it remains the hottest market in the region.

Conclusions

This speedometer reflects the state of the region’s housing market using housing inventory, price gains, sales velocities, interest rates, and larger economics factors. For the third quarter of 2016, I am moving the needle very slightly toward the buyers. This is entirely due to the recent increase in inventory levels that I believe will continue through the rest of the year. That said, the region remains steadfastly a seller’s market.

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.

This blog originally appeared on the Windermere.com blog.