We’re in for another crazy spring real estate market! KIRKLAND, Washington (March 7, 2016) – Home prices in King County hit new highs in February as buyers tried to outbid each other for the sparse inventory in much of Western Washington.
Current levels of inventory translate to 2.4 months of supply, well below the four-to-six months that industry experts use to indicate a balanced market. In the four-county Puget Sound region, supply is hovering near or below two months, with King County having the lowest level at only 1.3 months of supply. Snohomish County reported about 1.5 months, Pierce had slightly more than 2.1 months, and Kitsap County was at about 2.3 months.
With the number of single family homes for sale in King County down nearly 30 percent from a year ago, prices on last month’s sales surged 19.8 percent, jumping from $429,900 to $514,975.
The current increase in home values can be easily explained by the theory of supply and demand. Right now, the number of families looking to purchase a home is greater than the supply of homes on the market.
Here is a chart that explains how the months’ supply of housing inventory impacts home values:
According to the latest Existing Home Sales Report, there is currently a 1.3 month supply of inventory in King County. That puts us in the blue section of the above graphic. Home prices should be appreciating and are at an almost unprecedented rate.
The difference in 2006…
A decade ago, the demand for housing was artificially boosted by lending standards that were far too lenient. Today, the strength of the demand for housing is legitimate, as lending standards are nowhere near what they were a decade ago.
For proof of this, let’s look at a graph of the Mortgage Bankers’ Association’s Mortgage Credit Availability Index:
The higher the number, the easier it was to get a mortgage. We can see that from June 2005 to June 2007, mortgage standards were much more lenient than they have been over the last nine years.
“There’s a decade of pent-up demand,” Bob Walters, chief economist of Quicken Loans, told The Wall Street Journal.
One piece of good news for home buyers this spring: Mortgage rates are expected to stay low, with the 30-year fixed-rate mortgage not likely to rise above 4 percent before May, says Keith Gumbinger, vice president of HSH.com.
As such, lenders are predicting that the spring season will be a busy one. To avoid closing delays, buyers need to get into the market sooner rather than later, says Paul Anastos, president of Mortgage Master in Walpole, Mass., a division of loanDepot.
Like a traffic jam, “every minute later you leave costs you 10 minutes,” he notes. “Every day, the audience looking for houses increases exponentially.”
Anastos also urges home buyers to get preapproved for a loan prior to home-shopping -- a step above pre-qualification. He says that alone could save home shoppers up to 10 days in the closing period.
Bottom Line
Today’s price increases, unlike those a decade ago, are the result of qualified buyer demand exceeding the current inventory of homes available for sale. Once the supply increases, prices will level out.
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