Will our Greater Seattle housing market crash?
This is a question we are hearing more often. So, buckle up and let’s get right into it.
There are 2 schools of thought about this subject. Let’s discuss both. On one hand, many housing experts and economists do not think we will have a major dump in home values anytime soon. And these experts’ main reason is hard to argue with. They point to the overwhelming shortage in the supply of homes (link to article; https://n.pr/3PtJEgj). This is a fact.
We’ve mentioned this in previous videos but here is the summary. We currently have around 142 million housing units in the US. This includes single family homes, condos, apartments, mobile homes -- Basically, any type of home.
But here is the clencher. We are around 3 - 5 million housing units short to meet demand. This is because over the past decade, home builders have not been able to keep up with the demand for new homes. When looking at both the national and local supply, we just don’t have enough.
Another reason why experts are saying we will not have a big housing crash is due to inflation. When inflation occurs, the prices of goods and services increase. This often includes housing. Yes, your home can be a great hedge during times of inflation.
This is one key reason why so many people enjoy the financial benefits of owning real estate. And I personally feel better about owning real estate and rental property versus having money in the bank. Because money in the bank loses purchasing power and value over time. Whereas real estate values usually go up over time.
The last reason we’ll mention why many people think our housing market will not decline dramatically is because of a disincentive to move. Think about this, so many homeowners now have interest rates in the 4’s, 3’s and even in the 2% ranges. Financially, it will be a huge burden for people to sell their current home and then purchase another with a rate that is twice as high.
Because of this affordability conundrum, we have had clients decide to push off moving until it’s absolutely necessary. Ultimately, this continues to suppress the supply of homes for sale and keep home values propped up. Now let’s talk about the other side of the equation, because some experts are saying we will have a crash.
The first reason is because of the looming recession. There are significant signs of a recession either this year or next year. And of course, during a recession the economy struggles, layoffs occur, and when this happens, it could affect the housing market negatively. Obviously, our Seattle/Bellevue economy is largely affected by tech companies. And we’ve recently seen a lot of tech companies stock prices plummet.
While we have not had any significant layoffs, we have had some, and concerns are warranted. When companies don’t have revenue or sales, they lay off employees. And when people are laid off and don’t find a job soon, they may not be able to pay their mortgage, property taxes and home upkeep. So, under these circumstances they can be forced to sell their home in distress.
Another reason why some are saying the housing market will fall is due to unaffordability. With rates double what they were just a few months ago, it is no surprise that many buyers can no longer afford the home they could have earlier this year.
When you have a seller, who is motivated to sell, but no buyers who are willing or able to pay the asking price, the seller often has to lower the price. When this happens across the board, this is what moves the market down.
The third explanation for a possible housing dip is because some believe homes are overvalued. It is not uncommon around the Seattle region to see homes that sold for $X price, say 10 years ago, sell for 3 times that just within the past 6 months. This is not normal growth or appreciation.
A word you may have heard is “frothy”. And if not, you can now use this in conversation to sound cool. So instead of prices being in line with fundamentals, and based on actual value, a frothy housing market is based on inflated exuberance and speculation.
What do we think will happen with the housing market? Glad you asked! Based on the data, we do not think either school of thought is 100% right. Both have merit. Our current professional opinion is that the greater Seattle housing market will continue to cool and prices will decline some. That being said, we do not think there is a major crash currently on the horizon.
Nobody knows what the future has in store. And predictions are like the weather forecasts. Sometimes they are right, sometimes slightly off, or even way off. The best thing to do is stay informed and evaluate your individual needs. One great way to stay informed is to subscribe to our channel. So, tell us, what do you think? Will our housing market stay strong, or are we headed for a Crash?