This article, including minor edits for brevity or emphasis here, was originally published by David Haggith in Seeking Alpha – Real Estate / Market Outlook 5/23/2019
Existing home sales were down again nationally (4.4%) in April (fourteenth month in a row of declining sales year on year).
Prices are now down 3.5% in Seattle YoY. Another hot market in Washington State has been the tri-cities area in Eastern Washington where the median price is now 12% lower than a year ago. Redmond, WA, home of Microsoft, prices down 18%. Pricey Mountain View, CA, (between Palo Alto and Santa Clara), prices down 2.2% YoY. Portland, OR, prices down 1.2%.
Existing home sales were down again nationally (4.4%) in April (fourteenth month in a row of declining sales year on year). That is the longest stretch without a single positive month since the housing-market collapse that brought on the Great Recession.
So far as I am aware, I was the first to state that what we had seen by the start of July 2018, was clear evidence that the housing market was going into another decline. I pointed to the Seattle/King County market as the bellwether at the time because it had been the strongest and last market to collapse during the last housing crisis, so trouble in that robust market is trouble, indeed.
Sampling of the data shows that prices are now down 3.5% in Seattle YoY. Another hot market in Washington State has been the tri-cities area in Eastern Washington where the median price is now 12% lower than a year ago. Redmond, WA, home of Microsoft (NASDAQ:MSFT), prices down 18%. Pricey Mountain View, CA, (between Palo Alto and Santa Clara), prices down 2.2% YoY. Portland, OR, prices down 1.2%.
For several months, it was mostly just sales that were down. As I said at the time, it would take a while for prices to follow because sellers are highly resistant to dropping the value of their number one asset; so, the squeeze needs to be on for a while for median prices or average prices to fall. Well, the squeeze has been on long enough, and sellers are starting to capitulate to the long drop in demand. Prices are falling.
There are other parts of the country where prices are going up, of course, but overall, the trend is down for sales and starting to move down now for prices. Prices had risen in most parts of the country to the same housing bubble heights of the last time around and exceeding them in others. Declining affordability is increasingly becoming a price softening driver in many markets.
Everything Bubble comments – I don’t think prices will probably fall as hard this time because the Federal Reserve probably will jump in sooner if it can, but there is not a long ways the Fed can go to lower interest or ease credit terms either in order to stimulate the market. Credit terms are already pretty slack. I also don’t think the housing market will be the primary cause of the overall economic collapse we are slowly going into this time around, as it was last time, but it will be a contributing cause to the bursting of the everything bubble, along with Carmageddon, the Retail Apocalypse, the trade war, the bursting of the bond bubble and the credit bubble and student loans, and a deeper stock market crash, the fall of China’s economy and Europe’s – all the things that I have been saying for the last couple of years will be the major forces to watch that will determine the trajectory of our economy.
A review of the year ahead – All of these things that are consistently continuing to get worse and exert their own gravity on the US economy were on my January list titled “2019 Economic Headwinds Look Like Storm of the Century,” which was my first Premium Post. All of these things and the rest of the items that I covered extensively in that list are playing out this year as I said they would, with the exception so far of repatriated tax money, which is still more in play in stock buybacks than I thought it would be, and GDP, which took what I believe will prove to be a temporary bump back up. I remain as certain now as I was then that everything on that list will continue to build negative pressure against the economy, and with five months now to judge by, the list stands on its own merits.
Let me share my one statement on housing in that list so you can see how each point gets exploded in detail:
Housing over the hump: We all know the American economy has long been designed for housing growth to be its major driver. Nearly two years ago, I said the Fed’s balance-sheet unwind, which primarily impacts long-term interest rates, would drive down the housing market. I’ll have a full article on housing soon, but suffice it to say in this headwinds overview that we saw a housing decline begin in 2018, and it will grow worse in 2019 as mortgage rates rise even further. New housing feeds real-estate agents, mortgage brokers, bankers, developers, road crews, carpenters, landscapers, drywall installers, painters, plumbers, electricians, furniture salesman, cabinetmakers, glazers, appliance manufacturers, furnace manufacturers, lumber mills and loggers, the grocery stores, restaurants and gas stations that supply them all. You get the point, and that is why we build our economy around it. It’s why so many people want immigrants (partly for cheap labor and partly because they will need more housing). That is a minuscule part of the total list of people who make money off of new housing and off of remodeling old housing. So, with housing now clearly going down, the economic impact comes down to simple math: higher interest equals higher payments in a land of flat wages, which means fewer buyers and/or lower prices to get the payments back down. Housing sales and prices are falling now in Australia and Canada, too.
Finally, another sobering note – this decline was triggered by only a minor nudge upward in mortgage rates because the Fed quickly reversed course on all of its tightening plans, bringing mortgage rates back down. Yet, the damage is done as shown by the fact that housing continues to decline, even though interest rates have stabilized barely higher than they were.
The following analysis of the Eastern Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere agent.
The Washington State economy continues to add jobs at an above-average rate, though the pace of growth is starting to slow as the business cycle matures. Over the past 12 months, the state added 96,600 new jobs, representing an annual growth rate of 2.9%—well above the national rate of 1.7%. Private sector employment gains continue to be quite strong, increasing at an annual rate of 3.6%. Public sector employment was down 0.3%. The strongest growth sectors were Real Estate Brokerage and Leasing (+11.4%), Employment Services (+10.3%), and Residential Construction (+10.2%). During fourth quarter, the state’s unemployment rate was 4.3%, down from 4.7% a year ago.
Eastern Washington added 4,984 jobs over the past 12 months, representing an annual growth rate of 1.1%. Although the region added jobs at a fairly healthy clip, the unemployment rate matched that seen a year ago at 5%.
HOME SALES ACTIVITY
Home sales throughout Eastern Washington slowed in the final quarter of the year, with total sales down 8.7% over the same quarter in 2017 to 3,211 units.
Sales rose fastest in the small Lincoln County area, which increased by a significant 42.1%. For perspective, that translates to only eight additional sales. Walla Walla County was again a laggard, with a drop of 21.8%. But it, too, is a small market that can be prone to significant swings.
Year-over-year, home sales rose in just two counties, with the balance of the market seeing some fairly significant drops.
Interestingly, the number of homes for sale dropped by 15.2% from the fourth quarter of 2017. Many Pacific Northwest markets saw significant increases in inventory levels last fall, but that was not the case in Eastern Washington. That said, I anticipate we will see more homes for sale as we move into the spring selling season.
Year-over-year, the average home price in Eastern Washington rose 9.5% to $264,231. However, price growth slowed somewhat between third and fourth quarter, reporting a 2.6% drop in the average sales price.
Low inventory in the region continues to be a significant hurdle to many home buyers. I had hoped more homes would come onto the market in the fall, but that was not the case. The spring market should provide more choice for buyers.
All the counties in this report saw prices rise compared to the fourth quarter of 2017. Whitman County took over the number one spot, with an annual price increase of 28.9%.
The takeaway here is that home-price growth has cooled a little but remains well above the long-term average.
DAYS ON MARKET
The average time it took to sell a home in Eastern Washington in the fourth quarter of 2018 was 63 days.
The average amount of time it took to sell a home in Eastern Washington dropped nine days compared to the fourth quarter of 2017.
Every county other that Lincoln (+2days) saw the time it took to sell a home drop compared to the same quarter in 2017.
Notably, it took 17 more days to sell a home in the fourth quarter than it did in the third quarter of last year, but I attribute that to seasonality.
The speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.
The number of homes for sale dropped off in recent months and housing markets throughout Eastern Washington remain very tight. The overall trend continues to favor home sellers, so I am moving the needle slightly more in their favor.
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K. In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governor’s Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
Eastern Washington Real Estate Market Report – Q4 2016: by Matthew Gardner, Chief Economist, Windermere Real Estate
For insight into the entire eastern Washington region’s real estate data for the last quarter of 2016, you can go there by clicking the permalink above.
This is the quarterly report published by Matthew Gardner, Chief Economist of Windermere Real Estate. Originally posted online January 31, 2017. Reposted here March 3, 2017. It is an excellent source of information for the Spokane market, but with the added benefit of including comparative data for all the other eastern Washington markets outside of the Spokane region.
Future quarterly reports will be re-posted here as they become available. Click the permalinked title above for the report, or copy and paste the URL below.