If you keep an eye on real estate news in Seattle, you’ve likely seen articles indicating that home prices are dropping in the metro area. A report from Zillow recently found that the average home prices in the Bellevue-Everett-Tacoma area fell by 0.5 percent just from April to May.
The question is, why are housing prices dropping in the metro area, and what does it mean for the future of residential purchases and investments in Seattle?
We’re here to answer some of your burning questions about the current slowdown, as well as to soothe some of your worries about the drop in pricing. Turns out, this is actually a pretty expected trend, and most investors have nothing to worry about if they understand what’s going on.
Is There a Housing Bubble in Seattle?
Up until last year, the Seattle real estate market was considered one of the best in the country. The housing market was experiencing impressive growth, and prices were jumping by huge numbers each quarter.
However, as with any rapidly growing market, things typically slow down and balance out over time. So, we must ask ourselves: is the house bubble popping, or is it just a market adjustment that we’re seeing cause home prices to drop? As you can see in the graph below, the growth has taken a downturn over the past year.
Source: The Seattle Times
According to the Seattle economists interviewed in an article on K5 News, we are not in another housing bubble. It appears as though things are slowing down so that people’s incomes can catch up with the housing prices in the area. In time, the market should become more balanced, making the standards to buy a home a bit lower for the average consumer.
Skylar Olsen, the director of economic research at Zillow, stated that she doesn’t think the housing bubble is popping in an interview with Mansion Global. “Nothing is going to come crashing down,” she commented. “We don’t quite know where the bottom is, but there’s no real reason that we will have a crash as we did in the last downturn.”
In reality, now could be a sweet spot for buyers. It’s possible to stumble across a house that’s been on the market for a while, and with the prices dropping, you may be able to negotiate a better deal. It may not be a buyer’s market, but the buyer has more power today than they did some time ago.
If you remember the craziness of the Seattle housing market in the mid to late 2000s, you might be concerned that we’re facing another crash. This has left some Seattle-based real estate agents, such as Jerry Martin, concerned about where the bottom of this slowdown lies. In an interview with CNBC, he said, “It can’t continue. It just can’t continue, because where will it end?”
Seattle Housing Market Forecast 2019-2020
As we touched on previously, it’s likely that Seattle will become more buyer-friendly in the next few years. Without home prices that are soaring, and with incomes that will hopefully begin to catch up, it’s possible that owning a home in the metro area will become more affordable. Additionally, the slowdown of the housing market leaves more room for negotiations, which makes homes more affordable for many residents.
This reflects the concept known as the “affordability ceiling” among real estate experts. What is the affordability ceiling? Essentially, it refers to situations in which home sellers overestimate the sale price they can achieve considering the area’s inventory, demand, and market. In Seattle, if home sellers think they can get the same price for their house as they could two years ago, they’re likely fooling themselves.
In summary, the affordability ceiling refers to a market in which prices can only rise so far. Eventually, they must level off or decline in order to meet buyer demands.
In Seattle, you may have heard something about a new program referred to as “MHA.” What is Mandatory Housing Affordability?
Well, it’s a new program that ensures that all new commercial and multifamily residential developments can contribute to affordable housing for low-income people. This should provide at least 6,000 new rent-restricted homes in the area, which will certainly have an impact on the 2019-2020 housing market in Seattle.
The bottom line is that right now, homes in Seattle are taking longer to sell, and they’re selling for less. That means that house hunters now have the ability to search for houses that have been on the market for a long time, which leads to better negotiations and a lower selling price.
Is Now a Good Time to Buy a Home in Seattle?
So having read all of that, you’re probably wondering if now is the right time to buy a home in Seattle.
In some cases, it could be. The stable mortgage rates and an increase in inventory have made this market more buyer-friendly than it used to be, and it appears as though the slow in home prices will save you some money on a purchase.
First things first: you’ll need to find a lender and secure financing. With the average home price in the Seattle-Tacoma-Bellevue metro area currently at $490,300, this is certainly not a cheap market, although it is more affordable than it was once. You’ll likely need a loan from a bank in order to make a real estate investment here.
According to Zillow, it’s forecasted that by May 31, 2020, the market will have dropped by another 0.3 percent. As a result, you need to ask yourself: is it worth it to wait to see how prices continue to drop or is now the time to act while other investors are jumping on the bandwagon?
If you haven’t already considered doing so, this may be a great opportunity to invest in a rental property and become a landlord in Seattle. Many are selling their rentals because they’re afraid of what this downturn in the Seattle real estate market could mean for their investment, but with the growing job market, it’s likely that you could turn a high profit off of a rental property.
At this point, you might be asking yourself, “When is the magical time for homebuyers in Seattle?”
Unfortunately, it’s difficult to give you an answer. Although taking advantage of this cooled-down market and low housing prices could be smart, it’s difficult to say when exactly this slowdown will come to an end. Many real estate investors are taking advantage of this opportunity, but is it “magical”? Only time will tell.
Home prices are undoubtedly dropping in the Seattle metro area, but this isn’t a cause for panic amongst investors. In fact, homebuyers should be glad that it appears the housing market is leveling out in correspondence with buyer demand and local income rates. The odds of securing a house at a fair price are higher now than they were a few years ago.
This is certainly a big change for the Seattle real estate community. When will the slowdown end? What will this mean for the future? We can’t be sure, but we do know one thing: we’ll be watching the Seattle housing market closely during the next few years.
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