A bubble or a balloon?

As home prices continue to escalate at a mind-boggling rate, the big question among real estate professionals these days is whether or not this constitutes another bubble. Leading economists seem united in their response that it is not. Their reasoning has to do with governmental safe guards that have been put in place to further regulate the banking industry. “Liar loans” (i.e. loans based on non-verifiable resources/assets) are a thing of the past, they say, so only people who can actually pay their mortgages are getting loans. Furthermore, the irrefutable law of supply and demand will keep prices on the rise.

As average home buyers get priced out of Seattle’s core, they are trading increased commuting times for lower housing costs by purchasing homes north and south of Seattle. However, it seems obvious that this is not a sustainable solution either. We will eventually reach a tipping point where the trade-off no longer makes sense.

Getting back to the question of whether or not we are heading for another housing bubble, perhaps a better analogy is a balloon. Although a balloon can certainly burst, it has an obvious and controllable source of inflation. If you stop adding air, it simply stops getting bigger. Buyers do not have unlimited amounts of money to spend on home purchases. Once the bidding warriors run out of money, prices will have to stabilize.

While competition for a limited supply of homes will undoubtedly keep prices high, at some point, the rate of increase will have to decelerate and market value will become easier to determine. This may be a long way off, however.

The good news is that the balloon scenario is unlikely to result in the recessionary drop in home values we saw in 2007. Rather than seeing their equity disappear, homeowners will simply see much more modest and reasonable gains.

Once again, real estate proves to be a solid investment over time.

I welcome your questions and comments.

Posted November 2, 2015

Good News in Seattle Real Estate

Good News Header

The Good News In Real Estate courtesy of Prudential Northwest Realty Associates, 2012 ‐ 4th Quarter Quotes, Issue 71

Excerpted from The Seattle Post Intelligencer ‐ December 5, 2012

Seattle‐Area House Prices Surge…King County house prices rose by nearly 20% over the past year, according to a new report. The median price of a King County house that sold in November was $385,000 up 19.7% from a year earlier and 4.1% from this October, the Northwest Multiple Listing Service reported. The median price in Seattle was $425,000, up 18.1% from last November and 1.2% from October. “Incredible,” said Glen Crellin, associate director of the Runstad Center for Real Estate Research at the University of Washington. “I’m surprised by how much they’ve jumped.” Price increases close to 20% sound like the sort of jumps we saw during the bubble years. So is this reason to worry that the market may be bubbling up again? “It would be if it weren’t for the fact that we’reat a point in the housing calendar that is going to lead to slower levels of activity anyway,” Crellin said.

“Once the prime season starts again next spring, an influx of homes for sale should ease the pressure. We may see prices continue to jump significantly between now and next spring.”

Excerpted from The Wall Street Journal ‐ December 14, 2012

Home Prices Could Jump 9.7% in 2013…Homeprice forecasts for 2013 are on the rise. J.P. Morgan Chase & Co. expects U.S. home prices to rise 3.4% in its basecase estimate and up to 9.7% in its most bullish scenario of economic growth. Standard & Poor’s said it expects a 5% rise in 2013. The J.P. Morgan analysts boosted their basecase estimate from 1.5% after a convincing rise in the “net demand” for housing this year has surpassed 2 million homes for the first time since 2006, said John Sim, a strategist at the investment bank. Net demand is the pace of existing home sales minus the inventory of homes available for sale.

Excerpted from Puget Sound Business Journal ‐ December 19, 2012

Seattle‐Area Home Values Keep on Rising…Home values in the Seattle metro area in November posted their largest monthly gain since 2007, according to a report from Seattlebased online real estate listing service, Zillow. November marked the ninth consecutive month that home values have appreciated in the Puget Sound area. Nationwide, home values have risen every month for more than a year. Within the Puget Sound area, several cities posted doubledigit gains in November.

Excerpted from The Washington Post ‐ December 19, 2012

Wall Street Is Betting on a Housing Recovery…The highest return among stocks in the Standard & Poor’s 500 index for the year so far is Pulte Homes, the major homebuilder; as of Wednesday morning it had returned investors 195%. “The quality of the traffic is superb and visitors are very serious about buying,” said Douglas Yearly, the chief executive of major homebuilder Toll Brothers, in a conference call with analysts earlier this month. The question now is not whether housing is coming back; new data shows that November housing starts were up 21.6% from a year earlier. The question is what will the housing recovery look like. Will it be strong enough to pull the rest of the economy with it, even amid potentially tighter fiscal policy and international economic turmoil.

Prudential Northwest Realty: An independently owned and operated broker member of BRER Affiliates Inc. Prudential, the Prudential logo and the Rock symbol are registered service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. Used under license with no other affiliation of Prudential. Equal Housing Opportunity.

Are sellers back in the driver’s seat?

ONE IN FOUR LOCAL HOUSES SOLD FOR OVER LIST PRICE IN APRIL

We’ve been hearing a lot about how much hotter this spring has been than spring in other recent years, and the stories of bidding wars seem to be getting more frequent.   Below is a visual picture of the trend by plotting the percentage of houses that sell for over their list price each month.  This is looking back at sales data for King County from 2008-2012 with April’s number highlighted in each year.