Fall 2022 Market Update – Why the Bubble is NOT bursting & sellers still have an edge.

Contrary to most Headlines & other ‘Market Experts” I do not believe the US Housing market is a ‘Bubble about to Burst’ or that there will be a crash in home prices. The reason is simple Supply & Demand. While it is true that inventories are rising, homes are sitting longer & raising interest rates have pushed some buyers to the sidelines, there are still more potential buyers reaching average first time home buying age than there have been in 20 years. As shown the the above chart, this influx of buyers peaks next year but the number of 1st time home buyers remains higher than the last few years for 8 to 10 years.

To understand how demographics affect housing, one must go back to the housing crisis in 2007 – 2010. Referring back to the chart, you see US births dropped sharply starting in 1972 through 1976. With an average first time home buyer age of 30 at that time, this meant a shortage of buyers in 2002 through 2006.  Few buyers meant few home loans, so banks started getting creative with mortgages. Lending standards were lowered, loans made & banks made their money by repackaging & selling loans as securities. Loan, package, sell & then do it again. In turn, this encouraged builders to build too many houses. The home ownership rate raised to an all time high of 69.2% in Q2 2004.  But by 2007 loans defaults rose as homeowners could not / did not make their payments. By the fall of 2008 lending froze, no one could buy except with cash, sellers had no equity because of plummeting prices. If you were there, I need explain no more.

Other demand side factors are high immigration, an ever increasing population and household formation rate, and COVID induced migration patterns turning renters into buyers. These we will leave for another day.


The other side of the coin – Supply

The other side of the coin is the inventory of available homes to buy.  Several factors are at work here, but we must again revisit the 2008 to 2012 Housing Crisis to put it in context.  As I mentioned, in the early 2000’s builders reacted to the demand caused by easy mortgages by building an average of 1.75 million homes a year from 200o to 2006, peaking at 1.98 million in 2006.  This created an oversupply of houses to buy that started to show in 2006. Sellers also came out in droves to take advantage of high prices and / or avoid the impending downturn. This increase of supply with no buyers was one of the drivers of the the Housing Crisis.

Most builders were wiped out by the Crisis & an average of just under 1 million homes a year were built between 2007 & 2020, dropping to a low of 585,000 in 2011.  With an average of 1.3 million to 1.6 million new homes are needed each year, depending if you count vacant homes, 2nd / vacation homes, & Built to Rent (BTR) homes, this created a shortage of homes which was compounded by institutional buyers buying to fill increasing rental demand. The resulting shortage accumulated to  3 million homes by 2020, and shown by this chart (click image to enlarge), just barely met demand in 2021 & so far 2022. Adding to the inventory shortage are home owners staying longer as they do not want to give up the low interest rate by selling. The result is an expectation of lower than normal inventory, even going into the next few months & year ahead. 


Fall 2022 & beyond –

Moving forward we are seeing inventories rise across the country. As one would expect, the areas that were once the hottest like Pheonix & Austin have seen inventories go from 3900 to 16,250 & 1461 to 8758, respectively, in August (Per the St Louis FED). Locally, here in the market I advise clients, the 23 county NWMLS has seen inventories nearly double to 14,683 since one year ago, & nearly triple since the end of Q1 2022. But this increasing inventory has resulted in only a 1.8 month supply, showing just how dire the inventory was due to buyer pressure. Prices, although down since the spring / summer highs, are still up year over year. The 4 county Puget sound area has seen prices up from 5.9% to 9.2% in King & Kitsap counties, respectively. (per Northwest MLS September press release). This price resilience, in spite of the pull back from summer highs, shows how strong the market continues to be. While homes are sitting longer & Buyers are no longer begging sellers to empty the buyers bank account, properly priced homes are still selling. As buyers adjust to a new normal in their buying power, & having more choices, I predict they will continue to jump back in, albeit with a little more leverage. But, I am advising clients that Sellers are still in Charge.

3 Awesome Closings -One awesome broker!

This last month I had the privilege of working with 3 sellers on three different listings and they all closed in the last few days. All 3 had multiple offers and all 3 went over the original list price. So what does this mean for you. As a seller you need to know that your home or investment property is in high demand right now. Two of these sales were duplexes and each went at least 12% over asking with few contingencies. The residential condominium in Kirkland went over asking as well, showing a recovery in the prices of condominiums in Kirkland (SEE Previous blog on condo price’s HERE). As a buyer you may consider starting your search now, as prices will hold steady for a long time to come, in my opinion.

Here are the three listings:

Housing Bubble? NO ! Here is the Missing Link – Demographics

Why home prices will not Crash anytime soon

As a broker, I regularly get asked “Are we in a bubble?” or “are prices going to crash like 2008?”. Or a buyer will make the statement “I’ll wait till prices crash”. The answer is a resounding “NO, prices will not crash!” Let me tell you why- 

Most everyone agrees that low inventory, high buyer demand, & low interest rates are the main drivers to higher & higher housing prices. While it is true that available inventory for buyers is at historic lows, & low interest rates give buyers more buying power, most writers are missing one very important factor that will perhaps be the biggest driver of price increase’s going forward – DEMOGRAPHICS– the coming wave of First Time Home Buyers.

I’ll explain this coming wave in a minute but first lets go back in history to see how Demographics can affect housing Prices. Most people call The Crash of 2008 through 2014 ‘The Housing Crisis’ but it’s roots were not in housing. It was a bank induced financial meltdown that in the end affected home prices.  Banks made bad loans, homeowners had little or no equity, and builders built too much inventory.  Then, because of this bank corruption, no one could get a mortgage and few could sell because they had no equity. In short, too many houses, no buyers (unless they had cash) and no mortgages; the exact reverse of what is happening today. But there was a silent factor in this Perfect Storm that few recognize:  fewer First Time Home Buyers. You see, in 2006 the average age of first time home buyer was 30 to 32 years old, so they were born in 1974 to 1976. Birth rates had been dropping since 1970 and continued for 6 or 7 years, resulting in fewer first time home buyers 30 years later. Couple this with builders over-building leading up to 2008 and homeowners with no equity trying to sell and what happened is now history. See chart below

Chart showing Home buyer Demograohics
When were Average Home Buyers Born?

Now, lets fast forward to 2021, the average age of the first time home buyer has increased to 33 (National Association of Realtors®). Looking at the chart again, we see that an average of 3.8 million people were born in 1987 -1988. (That’s over 700,000 more than the 3.1 million average in 1974-1976). And, as the chart shows, the number of buyers will increase for the next 3 years, peaking in 2023 (Born in1990), just barely return to today’s levels by 2028 to 2030 and then peak again in 2040. So, as many &/or many more average age first time home buyers for the next 20 +years! And, this generation of home buyers has more wealth than first time buyers in the past!.

So what is going to happen? The silver lining is that in 2020, US home-builders were just beginning to deliver enough homes to satisfy an average years demand. The Mortgage crisis of 2008 – 2004 wiped so many builders out that we were almost 3 million homes behind by 2020. And except for the speed bump of COVID in spring quarter 2020, builders are now set to finally deliver at least enough homes to keep up with demand. If builders are able to keep up the pace and build what today’s post-COVID buyer desires, we may see some of the pressure on prices lessen. If you are a buyer, one can only hope.  If you are a seller, rest assured, in my opinion, your value is safe for the foreseeable future.

Two more awesome listings with Multiple offers and Pending Quickly!

The market continues to be hot and I was so busy with listings and offers that I could not get this post out for you to see. Hopefully you all received the separate emails for each listing, as I hope you are on the mail-out list! If not, reach out & I will get you on the list!! Hey, reach out even if you are on the list, I would love to hear how things are with you!

320 35th St SE Auburn, WA 2018 S 233rd St Des Moines, WA 12700 NE 116th St Kirkland, WA #C-5

Continue reading “Two more awesome listings with Multiple offers and Pending Quickly!”

January 2021 market Update

A recap of an anything but ordinary year

2020 started off as any ordinary year.  We had made our New Years resolutions (& broken at least one!). We had pondered our goals and travels for the next year.  Real estate was no different.  The previous year had been strong, a slight sellers advantage due to low inventory and low interest rates.  A slight seasonal dip with the promise of a strong spring market.  Then WHAM!  COVID took us all by surprise.  The initial lock downs created havoc everywhere; work, school & home.  In the real estate world,  sales cancelled or stalled, open houses went away, potential buyers and sellers spooked. But after a short month or so the market changed. Buyers, eager for deals came out. People were now able to work remotely & needed space.  Commute time was no longer as big an issue.  The result was an exodus from the urban areas to the suburbs and beyond. Multiple offers, waived inspections, and other buyer concessions became not just normal but ‘required’ if you wanted the deal. This market change has lasted throughout the holiday season into January as buyers had no travel plans and little else to distract them. And no change is expected in the near future.
According to a recent press release by the 23 county NWMLS, house & condo prices increased by 12.2% to $488,000 from December 2019 to December 2020. Single family homes set the pace with a 12.9% jump with condo’s far behind at 1.8%. This is no surprise as houses with more space are suddenly more in favor than their smaller counterparts. See below for more detail on your area, or reach out and we can chat more specifically about your area or home style.

AreaMedian Priceyear over Year change
23 County MLS$488,000+12.2%
King County$675,000+8.9%
Pierce County$430,000+16.4%
Snohomish County$530,000+7.2%
Seattle$720,000+9.1%
Bellevue$1,080,000+9.6%
Issaquah$765,000+13.4%
Kirkland$934,900+27.2%
Source NWMLS – info deemed reliable but not guaranteed

Giving Thanks in 2020

Ok, lets admit, 2020 has been a weird year. It started out like any other year; year end planning was done, trips were planned, goals were set. Then BOOM!

First came political wrestling, then COVID & shut downs, then George Floyd and the subsequent unrest, then more COVID, then fires just a little too close, then the election, then a Supreme Court judge dying, then more election upheaval and now more COVID & lock downs. Definitely a year of change and depending on how you are wired, either chaos or full of blessings.

As we enter the end of this tumultuous year, I encourage you to count your blessings and share them with those close to you at Thanksgiving. Here are some of mine:

  1. My God & my country -I hope you love your God & our country as much as I do
  2. My family – Starting with my wife Katherine & my 91 year old parents to our 4 kids & two grand kids, to brothers / sisters / nieces and nephews, I feel blessed to be part of their lives and grateful
  3. Our friends – Both near and far; close or barely know each other; client, business associate or competitor, Katherine and I cherish each and every one of you. You are the reason we move forward in spite of the year, worry a bit and smile alot ! 🙂

So as we all celebrate Thanksgiving, from a safe distance of course, lets all reflect for a moment and let those who are important to us know it!

STAY HOME -STAY SAFE!

Real estate market goes over the top in September.

After taking a COVID induced break this spring, the local real estate market has heated up and in September it seems to have gone over the top. As reported in earlier market updates, buyers have come out in droves and sellers have hunkered down. This created the ‘perfect storm’ for both price appreciation and market time. Buyers came out looking for deals and were armed with more buying power due to low interest rates. Looking for more space, they are paying more and reducing contingencies. Those few sellers who dare to sell, are getting more for their home.

As shown below, all local areas have seen double digit 12 month price increases and continue to show low time on market. As I look at these stats weekly, I will report that a good share of the gain has come since the lows reached in April and May 2020 due to COVID uncertainty.

Don’t see your city or want a more specific area? Reach out!

What the future holds is anyone’s guess, but if you are a buyer, statistically, it will only get worse. Demographics show a wave of house hungry younger folks reaching the average first home purchase age and new home builders were just beginning to meet the annual demand before COVID. The shortfall that started in 2008 – 2009 will continue to move prices up. Sellers, on the other hand, have a bright future. Those fortunate enough to not need to buy a replacement home, or moving to more affordable digs, will benefit from sustained price increases for the near future.

Thinking of Buying or Selling?? Reach out and we can schedule a chat about your specific needs.

The Power of Negotiation

As a Certified Negotiation Expert (CNE), I often get asked exactly what that means and how much do agents really negotiate in a typical deal. It simply means that I have had extensive training in negotiation techniques and earned the CNE designation. It also includes many years of transactions, both for my own real estate and on behalf of others, where each time I put different strategies into play. And each time I learned something. I learned that negotiations start before I even list a house, in how I write my agent remarks and public description. I learned when representing a buyer, the negotiation starts before I write the offer and start when I call the agent asking questions. And, I learned (the hard way!) how to check each line, blank and box on an offer.

As an agent representing both buyers and sellers, I negotiate every step of the way, but truthfully, many agents do not. I get very upset and feel bad for clients on the other side when their agent drops the ball or fails to even try to negotiate.

For those of you still reading, a few examples: #1 – earlier this year I represented the buyer in a newer home purchase and knew that homes of that age in that county usually have an extra sewer assessment, paid over many years. So I checked the box that has seller pay it at closing, expecting it to be a negotiation point. My buyer would have accepted paying it, its only about $25 a month extra, but the agent did not know it existed till closing and they signed the offer as is. $5,000 + on my buyers side of the table. He also did not even try to counter my buyers offer of $565,000 on a house originally listed at $615,000, even though we’d have gone to $580,000 – another $15,000 still in buyers pocket ( and not in sellers pocket!)

Example #2 – My most recent closing (See previous Just Sold by Kurt post on this page) is another great example. As I mentioned in that post, we had multiple buyers. One needed to sell a house, my seller did not want to wait, so we used the two offers to move them both from the $650’s to $671,000. we accepted the offer that was closing sooner and agreed to pay some closing costs. Then Buyer 1’s earnest money bounced and the agent did not take it seriously (she said ‘it happens all the time!’). Not on my watch! She knew we had another offer, did not return my calls, so I negotiated a full price ($676,247) from Buyer 2, with no closing costs, & a few inspection items. A $13,000 swing into my buyers pocket, because I recognized the opportunity her fumble created. I later found out from Buyer #1’s new agent, that they actually were more qualified than I thought and would have paid full price once they realized the were in jeopardy. But the first agents lack of representation, inability to present her clients as strong and refusal to negotiate cost her clients a very nice, almost irreplaceable home. Sad!

If you’d like someone who negotiates every step of they way to negotiate your buying or selling, shoot me an email ( kurt@kurtkreager.com ) and we’ll schedule a Virtual meeting.

Sellers add inventory – prices notch up

Sellers added the most inventory since May 2019 to the 23 county NWMLS system in July, but buyers continued to show up & buy. This pent up buyer demand has lead to continued tight inventory in most markets. Major population centers in King, Snohomish, Pierce & Kitsap counties have little more than 3 weeks supply. Prices on the other hand, are rising, with residential prices (single family & condo) prices up 12.8%. Median prices in King county continue to lead the way, up 7.2% YOY (Year over Year) to $670,000.

As one would expect, COVID-19 induced remote work practices are beginning to show, with median price increases in outlying counties such Lewis, Grays Harbor, Okanogan & Cowlitz being around 20% or more. Workers are no longer constrained to being close to work & coupled with more buying power due to record low interest rates, rural areas are expected to continue to be in demand.

Sellers are cautioned to not overprice, todays buyers are armed with too much information & are too savy to over pay. I still see numerous price reductions, sometimes from over pricing, sometimes from poor presentation, that ultimately hurt the seller. Buyers on the other hand, are urged to act quickly if they see something they like. Todays buyer, now accustomed to virtual tours & remote signings, are actin quicker than ever.

Adapted from North West Multiple Listing Service August 2020 press release. See the full press release and 23 county report here: http://members.nwmls.com/library/content/PressReleases/2020/NWMLS%20NR_August%202020.pdf