First, lets’s look at the data. The graph below shows the sudden increase in inventory. As of June, we entered a period where the number of homes for sale suddenly and dramatically increased over the number of homes sold. This followed a period where, since January, the number of homes going pending was far above the number of homes sold, which indicates that the inventory was being eaten up.

This graph looks scary enough to write a sensational headline, right? Now check out this graph of the inventory spike.

Also a pretty horrifying spike, there. This is a graph for King County as a whole. Specifically in Seattle, this is the first time that we have had over 1 month of inventory in 3 YEARS!

But, this is only part of the picture. The fact is, even this spike is WAY below what is considered a “balanced market.” Ideally, a market that puts buyers and sellers on an even footing would be around 5 months of inventory. As you can see, we’ve got a way to go before we hit that mark.

So why all the sensational headlines? Relatively speaking, this market feels incredibly slow. Until recently, sellers could list anything at a vaguely realistic number and expect to get at least one offer within a week. More often than not, property would be listed at a somewhat reasonable price, but would attract a hoard of buyers like moths to a flame. The competition would be fierce and the escalations in price would be extreme. My personal record was a home that I sold for $133,000 over my list price. No appraiser in their right mind would have let that slide, but the buyer paid all cash and had no contingencies, so the deal went forward. When this sort of thing happens every day, we all get used to it, and home values as a whole start rapidly increasing. Sellers started expecting that they could sell anything for a massive escalation, by simply listing it, regardless of price.

So what happened? Among my colleagues, we’ve discussed many possible reasons for the sudden change. It’s a combination of rising interest rates putting the squeeze on buyer budgets, the sudden increase in inventory that is apparent in the graphs from above, and a healthy dose of Buyer’s fatigue. I also believe that market timing has contributed.

From January until May, sellers were watching prices skyrocket and were ready to get in on the action. Knowing that the hottest season for buyers historically starts when school ends, they took their time to prepare for their home sale, and tried to time it for a June listing. In this period, sellers were ready to go, but were sitting on their property until they could capture the most buyers and win one of those hefty escalations. Inventory stagnates at an extremely low point for these few months, further frustrating buyers with a lack of listings to choose from, and an excess of competition for the ones that are available. June rolls around, and the market is “flooded” with more listings, which would hopefully be a boon to the market activity. Unfortunately, right around that time, the Fed raised interest rates for the third time this year. Buyers that were struggling with what little inventory was available up until that point, now had a harder time qualifying for the homes that were suddenly available. Assuming that they were knocked out of the competition, or feeling like they simply didn’t want to deal with the hot season buying frenzy, the buyers backed off. More inventory floods in, but the buyer fatigue is still in the air.

For June, it felt like the floor had fallen out on sellers, but the market had really just cooled off a bit. Buyers that were still out there were suddenly winning offers with inspection contingencies and no escalations! Some sellers increased their list prices because they had tried listing below market value to attract attention, only to get one offer at their list price. The old strategies weren’t working as well anymore.

Currently, the buyers that are still actively looking, are snagging some deals that feel incredible compared to what they were expecting leading up to the “hot season.” I have encouraged a few of my own buyers to get off the bench for this moment.

Competition and escalations are still out there. Sellers are still selling for high prices. It’s just that buyers can afford to be a little more picky right now. Personally, it’s been a welcome reprieve to my business. I get to do more data analysis and strategizing with my sellers, and I get more negotiating room for my buyers.

So, while it’s true that we are in a slower period, we still have a long ways to go before we can call it a crash. Housing shouldn’t be looked at as a commodity, either. Real estate is historically a very stable investment that, at its absolute worst, will still beat inflation over the long-term. Maybe the flippers and speculators are backing off due to the uncertainty month-to-month, but the smart buyers looking for long-term stability and the smart sellers sitting on a mountain of equity are still out there making the deals happen. As long as we have both, the market is still going to keep moving.

Heads Up! This is not going to be the most happy post you read today, but I feel like it’s a necessary bulletin at this point. I have numerous clients that feel like they can’t afford Seattle prices and have simply given up. This is mainly for them.

The Bad

This is the current map of available residential homes for sale in the Seattle area that are listed below $350,000. It looks much the same at $400,000.

Before you look at that map and take the wrong lesson from it, that one listing in Ravenna is a bankruptcy short sale with over $20,000 in fees that must be paid in cash. It’s been on the market for over 300 days. It is not a sign of activity in this price range.

To my many demoralized clients that are looking in that big empty space for a residential property in this price range, this post is not meant to depress your further. I just want to illustrate the hard fact that Seattle home prices in these areas have surpassed your budget. I’m still trying to find places for you, but the hard truth is that it’s time to consider alternatives. Prices will not be dropping any time soon.

The Good

Real estate prices in the entire region are on the rise. The world is much bigger than Seattle. If you can afford to borrow $350,000, then I can find you a property. Interest rates are low right now. Once you’ve locked in an investment, you will likely start realizing instant equity growth.

This is an excellent way to build wealth. Waiting for prices to come down is not a winning strategy. Before homes become affordable, rents will increase and squeeze out people that can’t afford them. Eventually it will put the squeeze on you. People will be moving further and further from the city trying to chase cheap and unstable rent.

Now, imagine you own a property just outside of Seattle. Flash forward to a likely scenario of next year, when rent and home prices have increased even more than today, and interest rates have possibly increased just a little bit, making it slightly more difficult to purchase a home. More people are going to be moving out of the city and trying to find something more affordable nearby. You, the homeowner, stand to profit off of this squeeze. Not only will the equity in your home increase, but you will likely be able to rent your home for a price that pays your mortgage and gives you a little bit of spending money on top of that. Maybe that little extra bit of cash is enough to help you afford to rent in Seattle. Either way, your investment is paying for itself and equity is building. Down the road, you may be able to refinance or sell your property at a high enough profit that you can now afford a home in Seattle. This is fundamental Real Estate investing.

The Alternative

You don’t even need to set your sights that far from North Seattle. Look at that map again. Notice that just below Downtown Seattle, we start seeing some listings in the $350k price range. South Seattle has better transit options that North Seattle, and they are getting better all the time. If you want to live in a home you own, and you still want Seattle, consider where the Light Rail runs.

Take it from me; everything that you like about North Seattle can be found in South Seattle. I lived in Ballard for 5 years, and have lived in South Seattle for the last two.

So, why isn’t it more expensive? Often, people cite more crime as a reason to avoid South Seattle, but this is a stigma. South Seattle today is very different from the South Seattle of two decades ago. Capital Hill, one of the most desirable neighborhoods in the city, has much more property and personal crime, on average, than say… Beacon Hill. Overall, though, Seattle crime is low when compared to other cities, so you can’t really go wrong. You can usually tell if an area is bad by how it makes you feel to stand in it. Trust your instincts.

Anyway, South Seattle is just one of many options. If you’re looking for an investment property to get your foot in the door of the real estate world, consider where the jobs are. Consider the paths that commuters take to get to those jobs. Have you considered Des Moines? Renton? Shoreline? Lake Forest Park? Where do people need to live to be near what they want?

Conclusion

I know it’s frustrating trying to buy property in Seattle, especially if you can’t afford the area that you want. If it’s important to you, it’s not a good idea to wait for market conditions to get better. Market conditions are as good as they are going to get for buyers for the foreseeable future. Interest rates are not going down, and prices are only going up, so it’s important to strike while you’re willing and able.

I’m here to help. If you’re curious about buying here, you want the knowledge of somebody that’s been living in the trenches of this crazy market for the last few years. I know how it works and I know how to make it work for you. Give me a call, shoot me an email, or invite me to happy hour, and I promise I can help set you on the right path.

Finally, I know that I didn’t really discuss the condo market, which is very different from the residential property market. I may post something about condos in the future, but most of my current clients are looking for residential homes, so that’s where my mind is at the moment.