What Exactly is Happening in Our Real Estate Market and The 5 Reasons WHY It's So Different Than
As an industry, the real estate professionals of King County, Washington have been experiencing a shift in the dynamic. Why aren't the houses selling? We've noticed in the outlying cities first - and rather quickly - this change has creeped into the hotter markets.
WHAT HAVE WE BEEN SEEING?
Increase in properties going past their offer review date
Typical industry standard is to put a review date for the seller to review contracts a week after the listing goes live.
Not a day goes by that I see a marketing email from a listing agent that talks about REDUCTION in Price on their listing
Increase in reverse prospecting (a tool that allows the listing broker to view a list of brokers with potential buyers for that listing and then reconnect with buyer's agents that shared the listing with their buyer)
I'm getting these on a daily basis as well
Decrease in multiple offers and the number of buyers participating in multiple offers
INVENTORY IS UP AND DEMAND IS DOWN.
It's simple economics (BUT...there's really more to the story besides the numbers....read below for the WHY).
New Listings are about the same.
Total Active (single family homes and condos that are currently on the market and not under contract) are very different than last year. There are 1500 more homes on the market than the same time last year.
Pending Sales (homes and condos that are under contract) are down about 500 from last year.
Closings (homes that have successfully closed and transferred ownership to the buyer) are down by about 150 year over year.
Average Price (average price across all single family homes and condos in King County) is up $80,000 year over year.
Months of Inventory (Definition: a measure of how fast all the existing homes on the market would last assuming a) no more listings are added, and b) the rate at which homes sell is a constant figure based on the average of the last 12 months of sales). Months of inventory is up.
2018: 1.29 months of inventory
2017: . 84 last year months of inventory
Note: Anything below 6 months of inventory is a Seller's market
SO, WHY IS THIS HAPPENING?
Sure, there is cyclical slowing. We are actually a very predicable real estate market. I wrote a blog last year explainging HERE.
But - WHY is this year SO DIFFERENT than last year? We have the highest level of inventory since September 2016 when there was 1.37 months supply.
5 REASONS WHY THIS YEAR IS DIFFERENT THAN LAST YEAR
LAST YEAR, we had a particularly high influx of Chinese buyers purchasing homes with cash. This made it VERY difficult for buyers with loans to compete. Did you know of a recent change that limits foreign Chinese buyers? - China has imposed a $50,000 per person limit, but there are proposals of $10,000 per person per year for real estate investments in the US. Additionally, Chinese banks are making it increasingly difficult for money to be moved out of the country. (I CAN'T PROVE THIS, but what I'm being told is that Chinese banks are making up excuses to decline the exchanges for their customers. The real world effect on the Chinese banks dis-approving of money leaving China, means less money is coming to the US for investment.) This change, along with some other US foreign policy changes, have decreased Chinese foreign spending in the United States 92% - that translates to BILLIONS of dollars. Locally - that means the Chinese foreign buyer has DECREASED dramatically.
IMPACT OF CHINESE BUYERS: So last year, when we had this huge influx of Chinese buyers, we had more offers on desirable areas, creating many multiple offers and increased pricing. The result, is that it created a domino effect in our real estate market. Meaning, as people kept getting outbid in their most desirable real estate location, they had to move further and further out to be able to afford a home.
THIS YEAR, we had fewer Chinese cash buyers. With fewer buyers, we had fewer escalations. With fewer buyers, not as many people had to drive out to further cities to get a home. The cities further from the central location hot spots were hit first by the lag (homes sitting on market, sellers having to decrease pricing, etc).
INTEREST RATE INCREASE. For those that have to get a loan to purchase a home, when the interest rates increased, it decreased the buyer's spending power, and certain areas, it priced buyers out of certain areas.
PRICE EXHAUSTION So, last year - when the market got CRAZY - we created a new expection for both the buyer and seller. Buyer always feels like they have to outbid their competition and sellers expect a lot for their homes. Let me remind you abou the stats from above. $80,000 more on average per home. Not everyone can keep up with that. Cash buyers may be able to, but we lost a big chunk of our cash buyers this year.
BUYER FATIGUE This ties into price exhaustion. Buyers got tired of putting bid after bid in without getting mutual acceptance. In other, more mutual markets or buyers markets, a buyer can pick out exactly what they want. In our market, buyers were making compromises left and right just to be a homeowner. They kept getting outbid. They needed a place to live. So they decided to stay where they were at.
MUNICIPALITY This is more for our Seattle market buyers and investors than our other King County cities. The City of Seattle sure makes it hard to want to invest money there. With talks of head taxes to the government telling you who you have to accept if you rent out your home (thankfully listed as unconstitutional) - well - it's enough to make any home buyer weary and invest their money elsewhere.
Interestingly, there are still OPPORTUNITIES.
It's a great time for buyers to purchase.
You'll often get the home for a lower price
There's actually room for negotiation
Agents can include contingencies in your contract - can you imagine? You can actually do an inspection now? Buyers will not have to waive everything to secure a winning bid.
What does this mean for sellers?
It’s still a “seller’s market” - the pricing of homes has still gone up - and comparable to a buyers market - there is not much inventory...
...but sellers need to reset expectations. Just because your neighbor sold their home for a certain number, doesn't mean that will happen for you. If you price your home correctly, the home will sell. If you overprice your home, you may not be on the buyer's radar at all.
Don’t overprice or you will be overlooked.
Kristin Bushnell is Designated Broker of Bushnell Real Estate Solutions and Co-owner of Bushnell Craft Brewing Company in Redmond, WA. Check out my profile here.
If you are ever interested in chatting about real estate, contact me at firstname.lastname@example.org or call me at 425-559-1355. I'll buy you a beer (or non-alcoholic beverage, if you prefer!), and we can chat about real estate until your heart's content.