Originally posted on Windermere Blog.
75 million Baby Boomers control nearly 80% of all U.S. wealth, and as this generation ages, retires, and inevitably downsizes, they will have a significant impact on the housing market. Windermere’s Chief Economist, Matthew Gardner, explains when we can expect to see Boomers start to sell, opening much-needed inventory and making home ownership available to younger generations.
Matthew Gardner, chief economist for Windermere Real Estate, was one of the presenters at this year’s Eastside Windermere Real Estate Kick Off I attended. I eagerly look forward to his forecast, because it is always so packed with useful information. And I love sharing it with you!
He covered our local economy – which is experiencing remarkable growth. The economies of the metros located in the western United States have been strong, and Washington State metro areas are currently at the top of this group. Mr. Gardner expects this economic trend to continue in 2017, along with low unemployment. The Seattle region should maintain a robust influx of people relocating here during 2017 to fill jobs in the tech sector, and escape higher priced real estate in California, especially the Bay area.
Mr. Gardner showed an interesting chart detailing the most successful spin-off companies that derived from Microsoft. He expects the same thing to occur from the talent being hired by Amazon. He said that Amazon hires more MBAs than any other company in the world, which translates into positive economic implications for our regional business environment.
Any slowdowns reported on the employment front have been due to everyone who wants a job are already employed, a trend that will continue this year with the projected generation of new jobs. Post-recession sectors in our area seeing noteworthy growth, in addition to the tech industry, are retail and leisure. With our low unemployment numbers, Mr. Gardner said that when unemployment drops under 4% (King County’s unemployment rate in November 2016 was at 3.9%), we start seeing pay increase to retain employees. He projected a 4.5% growth in income during 2017.
Two sectors he noted as slower growing are manufacturing and construction. We’re seeing that trend play out in lower numbers of single family residential permits being issued. The lack of new construction places pressure on our regional resale market, which will contribute to our housing market’s continued low inventory in 2017.
Western Washington home prices will experience continued growth this year. Mr. Gardner did stress that housing affordability is an issue that needs to be addressed. King County homes are not affordable for many first time home buyers, which is driving homebuyers to purchase outside of larger King Country cities. He mentioned the trend of people communting from bedroom communities like Marysville and Cle Elum to their jobs in Seattle and Bellevue. Some commuters are even opting to purchase homes in Spokane, where real estate is much more affordable than in Western Washington, and then bulk buying airplane tickets to fly back and forth weekly from their jobs on the west side of the mountains to their homes in Spokane.
The change in the presidential administration was also discussed. Mr. Gardner forecast that this change won’t affect our housing market in 2017. He stated it takes time for rhetoric to become policy. In the Seattle area we should see a seller’s market persist this year, increases in home prices, and continual job growth in the next 12 months.
Photo credit: Frances Gaul
With the continued low inventory around Seattle and the Greater Eastside, how do our regional housing sales continue to grow? In his recently released 3rd quarter report, Windermere Real Estate’s chief economist, Matthew Gardner, pointed out that there has been an uptick in the number of 1st time home buyers purchasing homes. Svenja Gudell, Zillow’s chief economist, stated in her 3rd quarter report that during 2016 almost half of all U.S. buyers were first time home buyers.
However, we’re also seeing the prices of starter homes skyrocket in our area. The recently released S&P Case-Shiller Home Price Index pinpointed that the Seattle area has the 2nd fastest-rising home prices in the nation. In fact, since 2012 the starter home prices have jumped 75% compared the overall housing market increases at 59% for the same time period. Millennial home buyers are ready to purchase their first homes, but starter homes are not what they used to be.
Additionally, homes in the luxury price points are seeing a slowing in their price gain in our region. According to the Case-Shiller Home Price Index report Seattle area luxury homes had a price gain of 10.9%, compared to the least expensive homes that experienced a 12.9% gain during the same report time period.
With so many differing factors working to shape our regional housing market conditions, it can be confusing to keep track of what is going on in your neighborhood, or how to make comparisons between communities that you may want to call home. I work diligently to maintain a pulse on the workings of our real estate market, to be an educated resource for you to utilize. Please give me a call with any questions you may have regarding home pricing, real estate investment, or making your first home purchase.
The decision of the British public to leave the European Union is a historic one for many reasons, not least of which was the almost uniform belief that there was absolutely no way that the public would vote to dissolve a partnership that had been in existence since the UK became a member nation back in 1973. However, rightly or not, the people decided that it was time to leave.
As both an economist, and native of the UK, I’ve been bombarded with questions from people about what impact Brexit will have on the global economy and U.S. housing market. I’ll start with the economy.
Since last Thursday’s announcement, there have been exceptional ripples around the global economy that were felt here in the U.S. too. This isn’t all that surprising given that the vast majority of us believed that the UK would vote to remain in the EU; however, I believe things will start to settle down as soon as the smoke clears. The only problem is that the smoke remains remarkably dense.
The British government does not appear to be in any hurry to invoke Article 50 of the Lisbon Treaty, which allows a member country to leave the conglomerate. Additionally, nobody appears able to provide any definitive data as to what the effect of the UK leaving will really have on the European or global economies.
As a result, you have those who suggest that it will lead to a “modest” recession in the UK, as well as extremists who are forecasting a return of the 4-horsemen of the apocalypse. But in reality, no one really knows, and it is that type of uncertainty that feeds on itself and can cause wild fluctuations in the market.
It’s important to understand that last Thursday’s vote does not confirm an actual exit from the European Union. There is a prolonged process of leaving that is set out in the EU Treaty which requires a “cooling off” period. And during this time, even confident political leaders, such as Boris Johnson who championed the exit campaign, might be tempted by reforms that would see Great Britain actually remaining in the EU.
The EU itself has been shaken by the vote, and there are already signs that many of its leaders are talking about moving away from the Federal structure of the Union in favor of a looser, intergovernmental agreement, that would allow greater sovereignty for its member states.
This is clearly an obvious attempt to accommodate what is already a groundswell of opposition to the Union that is much wider than just Britain, and now includes France, Spain, Greece and Portugal, all of whom are considering their own exits.
So what does this mean for the U.S.?
As far as any direct impact of the Brexit on the U.S. economy is concerned, I foresee a continued period of volatility given the aforementioned uncertainty. That said, any predictable effects on the U.S. will be limited to a “headwind” to growth, but not enough to drive us into a recession. Our financial system is solid and U.S. exposure to European debt is still limited. I wouldn’t be surprised to see a slowdown in U.S. exports as the dollar continues to gain strength against European currencies, but those effects will be fairly modest.
As for the impact on housing, U.S. real estate markets could actually benefit. Uncertain economic times almost always lead to a “flight to safety”, which means global capital could pour into the United States bond market at an aggressive rate. With this capital injection, the interest rate on bonds would be driven down, resulting in a drop on mortgage rates. And a drop in mortgage rates makes it cheaper to borrow money to buy a home.
On the flip side, one thing that concerns me about lower interest rates is that it could draw more buyers into the market, compounding already competitive conditions, and driving up home prices. And housing affordability would inevitably take yet another hit.
Let’s not fool ourselves; what we’re seeing is a divorce between the UK and a majority of Europe. And like most divorces, there are no good decisions that will make everybody happy. We need to be prepared for the fact that it is going to be a very ugly, nasty, brutal, lawyer-riddled, expensive divorce.
My biggest concern for the U.S. is that the Federal Reserve must now pause in its desire to raise interest rates (I now believe that we will not see another increase this year as a result of Brexit). This is troubling because we need to normalize rates in preparation for a recession that is surely on the way in the next couple of years. The longer we put that off, the less prepared we will be when our economy eventually turns down.
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.
Originally posted on Windermere Blog
The housing market is performing remarkably well, with the exception of incredibly low inventory levels in many areas throughout the country. Why is this happening? Windermere’s Chief Economist, Matthew Gardner, explains why and offers his predictions for what we can expect in the future.
I recently attended two highly informative events where Windermere’s Chief Economist, Matthew Gardner, covered the economic and housing outlook for our region. Mr. Gardner shared that the economic landscape for the greater Seattle area is quite good. Our unemployment and rate of inflation are both low. He stated that we need to see more diversification in the job offerings in our region – we’re a bit too reliant on Amazon, which is the leading company creating jobs and our need for more housing inventory. Wage discrepancy and the level of part time employees searching for full time work is also an issue. Add in the current home pricing in King County plus the rapid rise of rents, and there is a segment of Seattle Metro buyers who are priced out the market and are looking in other counties for housing. The Tacoma area is increasingly where buyers are choosing to make home purchases. Home pricing and local economics are also affecting the number of 1st time move-up buyers. They are opting to remain in place for now, which has definitely made an impact on the number of homes being listed for sale.
The flip side of the current price of homes is the positive equity being generated for today’s Seattle Metro homeowners. This positive equity should motivate more sellers to enter the housing market, and give us the desperately needed housing inventory our market needs. Fixed rate mortgages will remain low during 2016, although there is a misconception among 1st time home buyers that a 4% 30 year fixed mortgage rate is too high. Think back to 1982 when buyers faced an 18% mortgage rate! 4% is a dream in comparison.
Supply in the high end real estate market is tight in our region and will remain so during 2016. Luxury real estate buyers are able to take advantage of fantastic jumbo loan options currently, as long as they can find the home of their dreams to purchase. There is definitely some good news in the horizon that may increase the inventory of luxury real estate in the greater Seattle area. It is projected more high end spec builders will experience improved access to financing options from lenders this year.
With 2016 being an election year, Mr. Gardner projected no large surprises in housing or economics looming. Typically, election years are fairly benign and 2016 promises to follow in a similar vein. If you have any questions on our regional housing market, or about your home’s current value, please give me a call at 206-412-0038 or send me an email at email@example.com so I can answer your questions.