The new year is upon us, and many home buyers and sellers may be wondering how the housing market will perform in 2013. The pace of housing sales in the Seattle area increased dramatically in 2012, and if our recent experience is any indicator, 2013 is going to brisk with continuing improvements in sale prices and very quick sale times. Let’s take a look at some of the big factors driving the Seattle housing market in 2013.
Mortgage interest rates have declined dramatically in 2011 and 2012 and are still hovering at all-time record lows. It is certainly a good time to be borrowing mortgage money, as the current rates are lower than we may ever see again. The government has continued it’s policy of low interest rates.
I’ve long given up on predicting exactly what will happen with interest rates, as global economic events can cause wild and unexpected gyrations. That said, the Federal Reserve is on record that it will continue to support super-low interest rates until certain unemployment targets are met or inflation kicks in. I think rates will remain extremely attractive through the first part of the year, but could start to tick upwards on positive economic news.
Inventory of homes for sale
2012 was a remarkable year for housing inventory in the Seattle area. We started off the year with 4 months of supply, which quickly dwindled to only 2 months of supply for most of the year in Seattle. Popular neighborhoods like Ballard, Queen Anne, etc, dipped even lower.
The inventory of homes on the market is down a whopping 30-40% from where it was during the housing bust of 2008-2009. I just ran the numbers for the last 10 years, and inventory is at a decade-long low. You read that right, there are less houses on the market at the moment than during the boom years of 2004-2006.
I think there are two factors contributing to low inventory. Many sellers are unhappy with the current market value of their home and are holding off on trying to sell it. I think it is fair to say that prices are on the rise, and sellers will hold off a bit until prices recover to more palatable levels. Sellers may also be hesitant about their prospects of finding a home to buy, since homes are selling so quickly.
Given our recent experience, we don’t see any coming improvements in inventory. The fact of the matter is that there are very few homes for sale and plenty of buyers out there who want them, so be prepared for fast and competitive sales in 2013.
Competing offers rose with a vengeance in 2012 and show no signs of subsiding anytime soon. An increasing number of buyers and very few homes on the market means more competition. We’ve seen the pace of competing offers accelerate through 2012, and have been making many offers lately where pre-inspection and waiving of contingencies is the norm. Bidding wars are also extremely common at the moment. We’ve seen some nice homes get bid up 5-10% above list price lately, and are predicting that price competition will continue.
Not every house is going to incite a bidding war. In fact, the one big difference in today’s market versus the real estate boom is that buyers remain brutal about their perception of fair market value. If the home is priced fairly, a swarm of buyers is likely, but for sellers trying to stretch to unreasonable prices, the homes will sit idle and languish on the market, sometimes for months, without offers.
More buyers in the market
2012 saw a significant influx of buyers into the market. The number of closed home sales in King County increased 20-30% over 2011, depending on where in the county you are looking.
I have a variety of theories about what is driving home buyers these days. I think there are many folks who have waited for prices to bottom out before buying a home. With prices clearly moving upwards, many folks are looking to buy.
Also, the rental market remains tight in the Seattle area with rents continuing to rise. With interest rates where they are today, the comparison of rent vs. buy has become more and more attractive and is encouraging more folks to buy.
Increased competition for homes in the Seattle area did drive up prices in 2012. The Zillow Home Value Index rose 5-10% in most neighborhoods this past year, and given the continued low inventory and competition for homes, I don’t think it’s a stretch to see a similar result in 2013, particularly if the inventory of homes for sale remains low.
What to expect in 2013
Whether you are a real estate buyer or a seller in 2013, you will have wildly different experiences. For the near term, it appears that the market will continue being very kind to sellers. If your house is in nice condition and fairly-priced, lots of buyer activity and a quick sale is pretty likely. You may even get a little more than you ask for.
Being a home buyer in 2013 is likely to be filled with frustration. Choosing from a small supply of homes for sale and getting outbid a number of times before succeeding will grate on even patient buyers.
Overall, we do think there will be a continued housing recovery in 2013, which is some much needed positive news, but it comes with a more challenging buying environment than we’ve seen in awhile.