Home prices are way up. Yeah, yeah, yeah…tell me something I don’t know. OK, how about this? Did you know many houses “earned” more money in appreciation than many people earned in their annual salaries?
WHAT? Yes, you heard that correctly. Home prices have gone up SO much in the Greater Seattle Area, that in many cases, homes actually earned more in appreciation last year, than homeowners made in their yearly salary. That’s CRAZY!
The Seattle Times published an article (which was originally published in the Washington Post) titled “Did your house earn more than you did in 2021?” (https://wapo.st/38eu5bO). The article states the following, “Soaring home values are thrilling for homeowners who can watch their wealth increase without lifting a finger. A new study by Zillow found that home price appreciation in 25 metro areas last year exceeded the median salary in those locations.”
The article goes on to say “The amount of price appreciation was highest in high-cost housing markets like the Seattle-Tacoma region, where the median home price grew $131,129 between December 2020 and December 2021. The median salary was $65,000, meaning, according to Zillow’s analysis, the median home made $66,129 MORE than the median resident in 2021.”
If you think this is normal, think again. This is historic price appreciation. Seattle is used to higher-than-average price appreciation, but this is next level. And it wasn’t just Seattle. The article says, “Nationally, the median house appreciation was $52,667 in 2021, which is $2,667 more than the median salary of $50,000.”
Along with this, the article goes on to say that “Rents rose 16% across the United States in 2021, so ALL you renters are feeling the financial pressure as well. And Since down payments are typically a percentage of the purchase price, the amount needed for a down payment has increased along with home values, putting homeownership further out of reach for some renters.”
For many of us, one obvious question is, “how can people afford a home?” The answer is 2-fold. One simple, cold-hard fact is that many people can no longer afford the type of home they were hoping and planning to purchase in 2022. Prices are up, interest rates are up, and the supply of homes is still way down. The 2nd important thing to point out is that we have some really high wage earners. This graph shows that roughly 1/3rd of Seattle households earn more than $150,000 annually (https://bit.ly/36E3ioZ). Keep in mind, this is household income, so often this means 2 income earners.
Thanks mostly to our robust tech sector, a lot of households will earn significantly more than $150,000. When a household earns $250,000, $300,000, $400,000 or more in annual income, the insanity in the real estate market actually starts to make sense. Some Seattle Area home buyers can bid a home up so much that this has resulted in the enormous and unusual appreciation we’ve seen over the past 2 years. Let’s talk about what this means for both buyers and sellers.
Let’s start with the buyers:
· On behalf of all of you discouraged and wounded buyers, we know it has been brutal. If you have been shopping for a home over the past few months or year, we understand you may have scars and war-wounds. If home values are far outpacing your income, then it could be time for you to adjust your expectations and search criteria. BUT, don’t throw the baby out with the bathwater. There are SO many benefits to homeownership, and as the article clearly points out, owning real estate is a BIG part of building wealth. If you are thinking about whether or not now is the right time to buy, then you need to check out this video (https://youtu.be/zT0ZRnIP76M).
· On a slightly positive note for buyers, we are currently seeing fewer offers being submitted on listings. From our own experience and from talking with other full-time brokers, last year we saw many homes receive 15 – 20, or possibly more, offers. In comparison, these same types of homes might receive only 3 – 6 offers now. That’s a big difference. But keep in mind that the homes are much higher in price and the interest rates have increased significantly. There are still more buyers than sellers, and most homes are selling above the asking price. But the fact that we are seeing fewer offers submitted, could very well be an early indication of the market beginning to soften. The verdict is still out on this.
· Here is an example to make the comparison. We listed and sold a home in November of 2020. The list price was $879,000. We received 11 offers and after negotiations it sold for $1,047,500. The buyer put 20% down, which is around $210,000. The buyer secured an interest rate at 2.75% with total monthly payments of $4,167. This includes principal, interest, taxes and insurance. Now, let’s look at what a buyer would be paying today, just 18 months later on the same house. After running a comparable market analysis, the home is valued at around $1.4 million today. If a buyer put down 20% that would be $280,000. Today’s interest rates are around 5%, so a buyer’s monthly payment would be about $6,762. This is a difference of $2,595 per month!, on the same house, just 18 months later!
Now for the sellers:
· We often get the question from sellers, “how long will this steroid market last?” Well, nobody knows for certain. The consensus amongst market experts at the beginning of this year was that we would see a continuation of the frenzied 2021 market, still heavily favoring sellers, just a little bit tamer. So far, these predictions have been correct. The fundamentals of low supply and high demand continue to be the case across our region. However, some experts are calling for a shift in the market later this year or in 2023. With interest rates now hovering around 5% and prices having gone up anywhere between 25 – 50% over the past 2 years, this dramatic price appreciation isn’t sustainable.
· We don’t foresee any major shifts happening over the next 3 to 6 months. But at some point, this market will change. It is not going to last forever. If rates go up to 6% in the near future, we believe this will make a big impact on the housing market. According to a recent article from CNBC, “Surging interest rates push mortgage demand down more than 40% from a year ago.” (https://bit.ly/3klIBSd) For those of you trying to time the market and sell at the high point, there are never any guarantees where and when that is. Often, we only recognize the height of the market after it has peaked as we look back. Yet, many experts believe that we could be peaking in the near future.
· If you are considering a move, you will want to meet with a skilled real estate professional sooner vs later. That way you can come up with a plan that is going to benefit you based on your needs and timeline. What preparations will profit you the most? How can you best navigate selling and buying simultaneously? With all the moving parts and amount of money at stake, it’s important to create a plan that is going to serve you. We’ve created a whole series on the home selling process linked here (https://youtube.com/playlist?list=PLBN8dBcNd-XQud6it7OUs-3ctM3nScph-).
The market is dynamic and constantly changing. We post monthly market updates with the latest numbers and information (https://youtube.com/playlist?list=PLBN8dBcNd-XRgl-hiepyWieEGJp8rRb5T).