By June Griffiths, Managing Broker
Windermere Real Estate/East, Inc.
Windermere recently hosted our Eastside Kick-off meeting for 2016 at the Hyatt Regency Bellevue.
Matthew Gardner, Windermere’s Chief Economist and Skylar Olson, a Senior Economist with Zillow, presented their thoughts about our local economy and real estate market in an interesting panel discussion. This is a summary of their conversation.
Are we in a housing bubble and are home prices going to drop?
King, Snohomish and Pierce Counties can expect a modest appreciation of approximately 6% this year contrasted with last year’s rise of 9%. The Bellevue area appreciated around 10% last year.
The last crash we experienced was caused by aggressive lending practices, which have been curtailed. Our current market is being driven by supply and demand.
Is this a good time to buy?
It’s so expensive to rent now that buying makes sense if you’re going to be there for a little while.”
What’s the needle that can burst a bubble?
Before it was the lending policies. Matthew is not concerned about the Seattle market being in a bubble. He is worried about the markets in San Francisco, Los Angeles, New York and Miami.
Unemployment rates are below 4% and we can expect 2% job growth with 2,900 new jobs being created. These jobs are in the:
Tech Sector – Java programmers are in high demand
We may be overly concentrating on Amazon and other companies. Diversification is important.
We can expect wage growth over the next five years. A lot of our new jobs are higher paying jobs and that’s good for Seattle. Kids don’t have to live in their parent’s basements after graduation and can live on their own. Incomes are declining slightly without a college degree. We should see 4% wage growth in Seattle compared with 3% nationwide.
Rest assured that the $15 minimum wage is coming to Bellevue sooner or later.
What’s going to happen with interest rates?
They will go up and the 30 – year conventional rates may get up to 4.5 – 5%. Not a huge increase but anything above 4% has a psychological barrier. This rise in interest rates this year will not be enough to impact demand.
Foreign buyers still see value for their money in our market and will continue to invest here.
What about the Millennials? (those born between the early 1980’s – 2000)
Millennials are renting for longer periods of time. They are not getting married and starting families as early as their predecessors. The search for a life partner is taking longer.
Home ownership is not diminishing for two income families. For single people, it’s harder to save up for the down payment because rents are very high. They often need help from Mom and Dad for their downpayment.
Student loans are at historic levels and that has some effect but higher rents are the bigger factor.
Older Millennials are getting more stable and are getting there.
Do they want to buy? YES!
They feel that home ownership is the most astute financial investment they can make but are very concerned about qualifying. There is concern about finding something that they’d want to live in.
Important factors for Millennials are:
They love townhomes in urban settings. We will see more urban pockets in residential areas.
What about land availability?
Matthew asked the question, “Do we need to modify our own urban growth boundaries.”
Land will still be in short supply. This is hugely problematic for our region and will continue to push prices up.
We are not adding a lot of new homes. We need more density in the single-family neighborhoods and we need better mass transit.
King County affordability is a problem and will continue to be so until density is addressed. Most of our new residents are coming from:
The high prices are creating huge bedroom communities like Marysville. The commutes can be hours long.
What about China?
Their financial security will smooth itself out. They feel investing here is an astute financial decision and will continue to buy here. They may slow down on their commercial investing but not on the residential side.
Condominiums vs Apartment Construction
Condominium growth continues to diminish largely due to construction defect laws. Developers can count on being sued by the homeowners after the seven-year timeline runs out.
Why develop condos when you can build apartments, get out two years sooner and avoid being sued? Condos are very expensive to build so costs to buy are very high.