The residential real estate market in the Pacific Northwest is presently going through a shift. The seller’s market that has dominated the past four years is now becoming more of a balanced market. At the time of this writing, I pulled the numbers from King County, and a back of napkin calculation has the market (SFR and Condo) holding 1.89 months of inventory (Current Actives / Closed Sales in last 31 days). If the trend holds, I could see the August end of month totals closer to 2.0 months inventory.
What is the importance of that number?
In June 2017 the amount of inventory in King County was 0.84 months. If you take out seasonal swings, I recall the King County inventory consistently hovering around that 0.80 months mark for several years in this past market upswing. By May 2018 that inventory number was 0.94 months and I took notice because it was creeping toward 1.0. By June 2018 that same King county number had crept up to 1.29 months. By July 2018 that number had climbed to 1.57 months.
In July, I had told everyone in my close circle of real estate professionals that I thought King County inventory would hit 1.7 months by the end of month. I was a bit high, but close.
At the end of July, both Pierce and Snohomish were also hovering around the 1.5 months inventory mark. Snohomish was at 1.45 months and Pierce at 1.50. When I dive into the numbers at the time of this writing – I show Snohomish closer to 1.66 months and Pierce at 1.68 months.
In short, inventory is rising in our region. The trend started in the core of King County and is then radiating out. Pierce and Snohomish Counties seem to be following the same trend, but perhaps lag a month or two behind. If you study little pockets and neighborhoods, you can see price weakness from the peak in April/May 2018. Median prices in entire counties may stabilize or remain flat when the monthly report is published in the Seattle Times, but if you drill down into the actual neighborhoods and houses – a trained eye can see that in certain pockets – a similar house trading in April 2018 is now trading 5-9% lower.
From my vantage point, I am confident that there was a peak of the market in April 2018 (the deals went under contract in April and closed in May). What I am not sure of is if April/May 2018 was 6 month peak or a 6 year peak.
Buyers are still going to buy, and sellers are still going to sell as 2018 winds down through the Fall selling season and into the Winter. Investors are still going to invest. Builders are still going to build and break ground. But the psychology has changed. Agents are not going to put listings on the MLS with complete confidence that all their listings will sell. Sellers are going to have to adjust their expectations. Some sellers are going to sell because they don’t see big appreciation in the next 12 months and they see no need to hold on to it. Conversely, other sellers are going to avoid selling because their confidence has taken a hit, and they are unsure of their house value. Those sellers will sit on the sidelines, do more research, and watch.
Some buyers are going to wait it out, believing the market will continue to come down and that even better deals lie ahead. I do know that a few people in my office (Veristone) are looking at homes to buy right now, and are excited because they feel the houses they are looking at now are available at a better value than the inventory they were examining four months ago. One couple is looking at a 1800 sq ft house in Snohomish that they can likely buy in the the mid to high $300,000’s. It would be perfect for this young family. Another couple would classify as empty nestors, they are looking to move closer toward the core and would consider something in North Kirkland area for $1.4M.
The Greater Seattle area is becoming more of a balanced market. Years ago, I was taught that a balanced market was defined as 4-6 months inventory. In the age of phones, mobile everything, Uber-on-demand, Uber-Eats-on-demand, and Amazon instant delivery – sellers expect everything to happen instantly. 4-6 months inventory in this current age would probably feel like a strong BUYER’S market. A true balanced market in the modern age may be closer to 3-5 months. A seller may have to wait 30 days to sell a house instead of 3 days or 3 hours. A little patience will be needed. Millenials who are buying their first house will enjoy a better buying experience with less frenzy and competition. Millenials who are selling their first property may have to wait a little longer than they expected. Sellers who have owned real estate over several decades will have to recall more balanced markets from memory, not just the burgeoning heat of the past few years.
Next month, I want to share some thoughts on the changing landscape of real estate brokerage in the Pacific Northwest market. Stay tuned!
ABOUT ME: Davis Hsu is the Director of Real Estate Valuation for Veristone Capital. Veristone Capital is private lender focusing on residential, land and commercial real estate in the Pacific Northwest region and beyond. Veristone’s core expertise involves lending in bridge situations, fix and flip products, land acquisition financing, and new construction loans.