Recent forecasts for the Seattle real estate market suggest that home prices will drop over the next year (into 2020), as they did during the previous 12 months. Seattle is a good example of a housing market that has reached a price peak, and is now coming down the other side.
Seattle Housing Market Forecast: Prices Dropping Into 2020?
This month, the real estate research team at Zillow predicted that the median home value in Seattle would decline by -2.6% over the next 12 months. That particular forecast extends into March 2020.
In March 2019, the company wrote: “Seattle home values have declined -2.4% over the past year and Zillow predicts they will fall -2.6% within the next year.”
They also labeled this market as being “cold,” based on the number of price cuts, the amount of time homes are staying on the market, and other factors.
Related: Seattle becoming more buyer-friendly
This is a big change from where the Seattle real estate market was two or three years ago. Back then, home prices in the area were rising faster than just about any other city in the country — and posting double-digit gains from one year to the next.
The chart below, provided by Zillow, shows home value trends for Seattle, Washington going back a decade. The green shaded area shows the company’s forecast for the next 12 months or so. (Notice the price peak set during 2018.)
How it Reached This Point
So what happened? Why has the Seattle real estate market gone from double-digit price gains to a state of depreciation in such a short span of time?
One possible answer is that this market has reached a price plateau, and is now descending from it. You could also call it an “affordability ceiling,” or half a dozen other names. Regardless of how you label it, the concept is the same. Home prices can only rise so far before they are forced to level off — or even decline.
There is no exact formula that tells us when this kind of reversal will occur. They’re hard to predict in advance. But there are some general indicators, at least when it comes to real estate markets:
When home values rise to the point that a person with a median income level for a particular area cannot afford to buy a median-priced home in that area, a market correction is near.
In Seattle, home prices began to climb steadily in 2012, following a drop that occurred during the nationwide housing collapse. Then they leveled off. And then they began to drop.
But affordability is the bigger issue here, and it has taken center stage over the past few years. In fact, Seattle’s City Council is scheduled to vote on a “Mandatory Housing Affordability” (MHA) law later this month.
According to city officials, the MHA would require “some new [real estate] developments either to provide affordable housing, or developers must pay into a fund that supports housing affordability.” It would also “provide at least 6,000 new rent- restricted, income-restricted homes for low-income people.”
So there are two things happening here:
- The Seattle real estate market is “self-correcting” in response to a rapid rise in home prices that has created affordability issues for many residents and would-be buyers.
- Meanwhile, city officials are actively pursuing legislation that would increase the number of affordable housing units in the area.
Big Changes in the Inventory Situation
The Seattle housing market is also undergoing some changes on the inventory front. To understand them, we have to go back in time. So let’s jump into the time machine and travel back four years.
In April of 2015, the Seattle Times reported the following:
“Multiple offers have become commonplace across the region because of the shortage of homes for sale. In March, King County had 1.3 months’ supply of homes, while Seattle had less than a one-month supply. Housing inventory is considered healthy when the supply of listings is equal to about five months’ worth of sales…”
Now, back to the present. In 2019, there is more inventory available within the Seattle real estate market. This is one of the key reasons why home-price growth has slowed over the past year or so. Inventory has begun to increase.
In February 2019, Zillow reported that cities like Seattle, Wash. and San Jose, Calif. were experiencing significant gains in real estate supply levels.
To quote that report:
“inventory did rise year-over-year in 28 of those 35 large markets, and many are adding inventory at a rapid pace, especially a handful of previously red-hot West Coast markets. On an annual basis, January inventory grew 42.9 percent in San Jose, Calif. (904 more homes available for sale in January 2019 from January 2018), 36.9 percent in Seattle (3,324 more homes)…”
Homes in Seattle Are Taking Longer to Sell
For more evidence of a slowdown in the Seattle real estate market, we can look at the “median days on market.” This metric gives us some insight into how quickly homes are selling within a particular area (with the median being the midpoint).
In February 2019, the real estate brokerage Redfin reported that homes are taking longer to sell in much of the U.S. But that trend is more pronounced in the western markets.
During the four-week period ending on January 27, 2019, the median days on market for homes sold in Seattle was 47 days. That was up from 15 days just one year earlier.
A March 2019 Bloomberg article also cited this trend. They reported that, for the first time in years, the nation is approaching the spring house-hunting “season” with buyers holding the upper hand. And they too pointed to Seattle as a prominent example:
“Nowhere is the shift more pronounced than in once-hot areas such as Seattle, San Francisco and Denver, where bidding wars are vanishing, time-on-market is climbing and prices are flattening, or even falling.”
All of which begs the question: Is now a good time to buy a home in Seattle? There are both pros and cons to consider here.
Is Now a Good Time to Buy?
On the upside, buyers entering the market in 2019 will have less competition to deal with, compared to years past. Homes are sitting on the market longer, and price reductions are more common. There’s also more inventory to choose from, which increases the buyer’s chance of finding a suitable property.
On the other hand, we have the home-price situation. By most measurements, the Seattle real estate market is currently in a state of depreciation. Prices are falling. How much farther they fall is anyone’s guess (see Zillow’s forecast above). But it’s something to consider.
For home buyers who are planning a long-term stay, now might be a good time to buy in the Seattle real estate market. In addition to having more leverage than in years past, buyers today can still benefit from historically low mortgage rates. The average rate for a 30-year fixed mortgage was down to 4.31%, as of March 14, 2019 — its lowest since February of last year.
Disclaimer: This article includes predictions for the Seattle, Washington real estate market in 2019 and 2020. Those forward-looking views were provided by third parties not associated with the Home Buying Institute. Housing forecasts are the equivalent of an educated guess and should be treated as such.