While buyers have been getting their finances ready to make a move, they have yet to find an acceptable selection of properties in the Greater Seattle area. When they find a good listing they are more often than not (1) late to the party or (2) outbid by an outrageously aggressive cash buyer. This is not normal. While Diana and I are in the business of selling homes we do not believe anyone should be subjected to such conditions. It is not possible to make a sound buying decision under such pressure. What should you do? Wait.
The first question then becomes, “aren’t interest rates going up?” Answer: Not enough to make a difference in affordability.
The second question becomes, “won’t prices keep rising?” Answer: Possibly…but not much more over the next 6 months.
EXPLANATIONS: One thing at a time here. Interest rates cannot rise while the stock market is faltering, oil is soft, and the China economy is slowing down. Worldwide, there is not enough demand for capital to drive up the cost of money, which is really what interest rates are all about. I could be wrong, but I think it is really that simple, so stop worrying about interest rates, at least for the next 12 months.
Next is housing supply. If you are looking at a super hot area e.g., Ballard, Capitol Hill, Madison Park, Clyde Hill, Medina, Mercer Island, etc., you are facing formidable foes. The worst is the cash buyer that doesn’t care if property even appraises for what they are willing to pay. How do you compete with that? You don’t. Take a seat on the sideline and wait for this anomaly to pass. These buyers are almost exclusively from China. There is no place in the world that is producing and exporting the type of cash that we are seeing here, and the government of China is aware of what is going on. I expect the tap on that flow of cash to be slowed down significantly over the next 3 to 6 months. That is when things will begin to return to normal, but not before.
Housing prices. As long as cash buyers are foregoing the appraisal process we should expect prices to go up. However, I don’t believer the “funny money” will be long lived. Once it has run it’s course the market will return to the relative normalcy that requires most home-buyers to obtain a mortgage, and with that mortgage comes an appraisal. The appraisal process should do its job of flattening the steep value increases. We may even see some areas come down in value slightly. The appraisal process is entirely dependent on “sales withing the last 90 days”. You may have to wait until the craziness stops…+ 90 days…in the really hot micro markets described here in order to allow time for some “normal” mortgage based sales to take place.
Here’s another angle to consider. It is inevitable that with the alarmist weekly headlines trumpeting the ever increasing value of real estate (largely overstated when you read the entire article in most cases) that homeowners think it’s time to hit a home run. “If Bob & Ethel’s house got that much than we can surely get that plus another $250,000!” This happens a lot, usually not with front line, full time brokers however. The overpriced listings are on their way, trust me. And there are plenty of non-Realtor, marginally trained, part-time, XYZ brokers out there ready to help folks with their respective delusions of grandeur.
We’ve actually been on listing appointments where Mr. and Mrs. Seller are adding up all the things they are going to do with their “winnings”: Trip to Europe, go on a cruise, see Alaska, new cars, pay off the summer home, etc., etc., etc. It is up to us, and any other self-respecting, Realtor Code of Ethics based working broker to tell these folks, “that’s not going to happen, but we have definitive research of comparable sales which shows that you have very good equity in your well cared-for home and it will sell at a fair market price, about $250,000 less than you may have anticipated”.
Enough anecdotes. The point is that even as the market cools a bit there are going to be unrealistic sellers asking way too much for what they are offering. A short cut through this maze of unwanted properties is to note the sign in the front yard. If you’ve never heard of the company you will want to be cautious about investing your time, never mind your money, investigating whether or not this property is a viable candidate for your consideration.
In the meantime, there are reasonable values to be found in many other areas of King County. Property with large lots are generally unappealing to international buyers, so values in the suburbs are more realistic, and the buyers far less competitive. If you’re killing yourself to buy in Seattle because it’s cool, it’s where your friends live, and you commute to work on the Eastside, you may want to think a little farther into your future. If you’re close to starting a family you’re already thinking about schools. I hope to gosh Seattle Public Schools get it together someday, but it doesn’t appear that is going to happen in my lifetime. Consider buying closer to work…and great schools. With all the commute time you’ll save, you’ll have plenty of free time to visit your Seattle friends when the urge hits you.
Sorry to drone on for so long, but it’s been nearly a year since my last post. Once I got started, well……..
Share this Post