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Bye, Bye Bidding Wars in the Puget Sound

As recently as 2018, just over 70% of listings in Seattle were experiencing multiple offers and bidding wars.  This helped lead Seattle to the second-longest streak for home price appreciation as measured by the Case Shiller Index in its 31-year history.  Seattle sat atop the Index as the fastest appreciating market for 21 straight months (Portland has the record at 23 months in the early 90s, and San Francisco is third at 20 straight months during the DotCom boom).  But fast forward 18 months, and Seattle now ranks below the national average for bidding wars. This coincidentally enough has it as the slowest appreciating market on the Case Shiller 20 City Index (0% YoY appreciation in the June report).

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As you can see in the chart above, Seattle’s rate of bidding wars started to decline in Spring of 2018.  Why did this happen?  I have a few key thoughts:

  1. Mortgage interest rates increased throughout 2018 to a high of 5.1% as measured by the Bankrate Interest Rate Survey.  This decreased buyer purchasing power, and put downward pressure on home prices.  For reference, an interest rate increase from 4% to 5% on a $500,000 mortgage results in a monthly payment increase of $297.03.  This meant local buyers lost about $62,220 in purchasing power in 2018 as rates rose (a $62,220 mortgage at 4% equals a $297.05 mortgage payment).
  2. The buyer pool shrank a bit over fears of Amazon halting construction due to the Head Tax and simultaneously generating daily HQ2 headlines.  This combo did not have buyers feeling confident in Seattle’s largest employer of jobs paying over $100,000.
  3. Local inventory levels have increased to highs not seen since the Great Recession.  With more options to buy, comes less incentive for a buyer to get into a bidding war and escalate prices.
Summary

The opportunity to offer on a house uncontested is a luxury Seattle area homebuyers have not been able to experience for years. Furthermore, the ability to offer on a home uncontested means buyers can purchase with their full suite of protections: including keeping their inspection contingency, their appraisal contingency, and the grand-daddy of them all, their financing contingency.  To be clear, every home is “case by case.”  There are still plenty of homes experiencing multiple offers, just not as many as there were before.  Given the ever-expanding tech scene in our region and the current interest rate climate, the breather our housing market is taking creates for a great buyer window.  There’s lots of inventory creating fewer bidding wars, the economy is arguably as strong as it’s ever been, and interest rates are at 2.5-year lows thus making today’s home prices relatively very affordable!

Alex Black Absorption Rates per NWMLS Real-Time Data:

  • SFR Pending Sales in Seattle:  706
  • SFR Active Listings in Seattle:  1,465 homes
    *Absorption Rate for SFR in Seattle:  32.52%
    Absorption rate on July 19th was 31.59%
    Absorption rate on July 12th was 32.85%
    Absorption rate on July 3rd was 34.11%
    Buyer activity slightly increased in relation to seller activity this past week = potential for increasing median house prices
  • Condo Pending Sales in Seattle:  253
  • Condo Active Listings in Seattle:  722
    Absorption Rate for Condos in Seattle:  25.95%
    Absorption rate on July 19th was 26.15%
    Absorption rate on July 12th was 25.70%
    Absorption rate on July 3rd was 25.85%
    Buyer and seller activity remained constant this past week = likely stable median condo prices

Alex Black Absorption Rate is calculated as:  (Pending Sales) / (Active + Pending Sales)

Interest Rates

Per Bankrate.com, the 30 Year Mortgage interest rate fell to 3.93%, with .32 in discount and origination points.

 Rates are still near 31-month lows

 Mortgage rates this week

The benchmark 30-year fixed-rate mortgage fell this week to 3.93 percent from 4.05 percent, according to Bankrate’s weekly survey of large lenders. A year ago, it was 4.71 percent.

For homeowners who haven’t refinanced their mortgage yet, this latest rate decline could make a compelling case to act soon. The Federal Reserve meets next week and is expected to cut the key federal funds rate.

“Mortgage rates fell to the lowest level in nearly three years, making refinancing more compelling for homeowners,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “This can represent substantial savings for someone that purchased their home in 2018 at rates a full percentage point higher.”

Interest rate declines can help ease affordability woes, but rising home prices and considerable inventory shortages in markets across the country are putting roadblocks in the way for potential buyers.

“Low rates haven’t ignited the housing market any more than low unemployment, rising income and better household balance sheets have. The economy is stronger and rates are lower, but we’re seeing fewer home sales than last year,” McBride said.

Four weeks ago, the 30-year fixed rate was 3.94 percent. The 30-year fixed-rate average for this week is 1.17 percentage points below the 52-week high of 5.10 percent and is identical to the 52-week low of 3.93 percent.

The 30-year fixed mortgages in this week’s survey had an average total of 0.32 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 4.55 percent. This week’s rate is 0.62 percentage points lower than the 52-week average.

  • The 15-year fixed-rate mortgage fell to 3.29 percent from 3.34 percent.
  • The 5/1 adjustable-rate mortgage fell to 3.71 percent from 3.89 percent.
  • The 30-year fixed-rate jumbo mortgage fell to 3.84 percent from 3.90 percent.
  • At the current 30-year fixed rate, you’ll pay $473.39 each month for every $100,000 you borrow, down from $480.30 last week.
  • At the current 15-year fixed rate, you’ll pay $704.61 each month for every $100,000 you borrow, down from $707.05 last week.
  • At the current 5/1 ARM rate, you’ll pay $460.85 each month for every $100,000 you borrow, down from $471.10 last week.

Results of Bankrate.com’s weekly national survey of large lenders conducted July 24, 2019 and the effect on monthly payments for a $165,000 loan:

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The “Bankrate.com National Average,” or “national survey of large lenders,” is conducted weekly. The results of this survey are quoted in our weekly articles and national media outlets. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison.  https://www.bankrate.com/mortgages/analysis/

City of Seattle Stats for Single Family Residences – Updated 7.23.19

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These charts are Seattle Specific, but the Puget Sound Real Estate Market mirrors the Seattle market.


Scott Sheridan is a Loan Officer with Primary Residential Mortgage, Inc.  Being in the mortgage industry for three years, Scott brings a fresh millennial flair to the industry. He is well-versed in the most modern, efficient, and convenient ways to get things done. Scott combines these skills with a genuine love of his work and recent experience in what is it like to be a first and second-time home buyer.  You can follow Scott’s weekly market updates on his PRMI 

 

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