Zillow's Crystal Ball on Seattle Real Estate [March 2017 Breakfast Meeting Recap]
On Wednesday, March 15, breakfast meeting attendees were treated to a lively discussion of the Seattle residential real estate market. The breakfast was sponsored by Moss Adams and Pyatt/Broadmark Management - we sincerely thank them for their continued support. President Kristin Jensen gave the assembly an update on the latest economic impact numbers from the commercial real estate industry in Washington State and across the country, and we also met new members. Additionally, we heard an update on the national board of directors from our local liaisons to that board.
Dr. Skylar Olsen, Senior Economist for Zillow, presented an in-depth overview of the Seattle residential real estate market and compared Seattle’s performance to the rest of the country. As we all know, Seattle is a very hot market.
Nationally, home values have recovered almost to pre-recession levels, while in Seattle, values have surpassed those levels. The rate of growth has started to slow, but prices are still ascending due to the lack of inventory in this market. This has led to more people renting; that demand was reflected in an increase of 8.4% in 2016. With more rental inventory coming on board through new construction, Skylar expects that the rent rate growth will begin to flatten. She presented a cautionary tale from San Francisco who is expecting a drop in rent rates of 8.1% in 2018.
A couple of metrics that speak to the health of residential real estate nationwide is the Affordability Index. Nationwide, the percentage of income represented by mortgages is below the historic norm. In Seattle mortgages represent a 25% share of income while rents represent 32% of income. These numbers are much healthier than prior to the recession.
Not all is rosy however. Lower income folks are having to move further and further away from the center of Seattle to afford housing. This will continue to cause great pressure on our transportation infrastructure. The inventory of houses for sale is low and continuing to fall. Nationally, we have seen a 40% drop in inventory from January to November of 2016. In Seattle, that number dropped 71%. This is most pronounced in the middle to lower tiers of home value. The U.S. home ownership rate is near historic lows. However, Dr. Olsen pointed to the fact that millennials still value home ownership as hope for the future. Another positive is that the percentage of households in a negative equity position has dropped dramatically in the last 7 years.
Skylar spent some time talking about the situation in San Francisco as it is a roughly comparable market. She asked the question, “Are we in a bubble?” Her answer is yes, we are, but it is likely a bubble that will recede rather than burst. Her crystal ball also indicated that mortgage rates will likely hit 5% by the end of this year.
Dr. Olsen made a compelling argument on the health of the Seattle Residential Real Estate market, albeit with some notes of caution. Her presentation was valuable and dynamic. Thanks Skylar!
Download PDF presentations from this meeting:
NAIOP March Breakfast Slides
Read coverage of this meeting:
The Registry Puget Sound: Zillow’s Economist Sees Housing Demand Slowing, But Pricing Growth Will Remain
Hewitt blog: Residential Outlook From NAIOP's March Breakfast Meeting
Did you attend this meeting? Take our post-event survey:
March 2017 Breakfast Meeting Survey
This article was written by NAIOP Washington State and Programs Committee member Edward Scherer, Account Executive, Avidex Industries, LLC.
Image: Seattle Insignia Towers by Mitchell Haindfield via Flickr