Is Seattle in a Bubble? Part II

This is a continuation of my last video, where we just scratch the surface of what’s going on with our real estate market.

Welcome to Part II of “Are We in a Real Estate Bubble?”. This is a continuation of my last video, where we just scratch the surface of what’s going on with our real estate market. Today, we’re going to dig a little deeper. You’ll have to bear with me for this video- it’s a bit longer. That’s how it is.

Before I really dig deep, I should let you know that my previous caveat still holds true. If you’re looking for “The Answer”, you’re not going to find it. There is no straight answer to this question, and it’s a mistake to believe that there is one. You’re not going to know if and when we’re at a peak in our market. You’re never going to know because it’s not possible to know. The only thing that you can be confident in is that you don’t know- and that you’ll make the best decision for you based on what’s happening right now.

Given that, here’s what I found in regard to whether or not Seattle is in a bubble.

The first thing we’ll do is compare our market to the last real estate bubble. Are there really comparable signs between then and now? When you look at the home-buying industry indexes from 2005, you’ll see that the revisions were pretty even, at 28 and 27, respectively. In 2006, you’ll notice that these real estate experts massively revised their expectations. Only 48 of the indexes were estimating higher numbers, compared to 138 that started estimating lower numbers. Between 2005 and 2006, there was a genuine change in sentiment. In 2017, things remained pretty steady with the much of the industry expecting it to increase.

In terms of consumer debt, you’ll see from my chart that in 2008, household debt service payments have leveled off from 13% of personal income to 10% over the course of four years. While those numbers are steadily increasing, there is absolutely nothing here that indicates a bubble pop.

In Seattle specifically, one of the concerns I often hear is the sudden increase in the median price of homes, from roughly $535,000 to $730,000. Admittedly, that’s quite the increase, but is it really sustainable? Well, there are a couple of things that can point to why that’s happening. First, there’s been a massive influx of jobs. The median income in Seattle was around $80K, which equates to a $3000 housing budget. Today, the median income sits at $109,500, which translates to a $4,000 housing budget. Naturally, more income means you can spend more on housing.

In fact, the Washington Employment Security Department expects 4,600 jobs that make $109,000 a year, to be added this year alone. Of that 4,600, only 500 people are currently living in the state. The 4,100 people moving to Seattle in the next year are going to need a place to live. In 2019, that number will jump to 4,700. Assuming that people will still need homes in 2018, we can expect home prices to increase. Seattle is creating a huge amount of high-paying jobs, which allow people to afford more. When you compare this growth to other majorities, we remain relatively affordable.

In fact, absorption rate in Seattle has been under one month for the last three years. For reference, a “balanced” market sits at five months of available inventory. We’re seeing a seller’s market, but people aren’t selling.

The bottom line is this: as long as we continue to add high-paying jobs, the demand for housing will continue to increase.

Will it end? Sure, but I don’t know when. Nobody does. Any major event can trigger a housing bubble, but it’s all retroactively fitted to explain what happened after the fact.

Seattle is a second Silicon Valley, with a lot of new money. An increase in high-paying jobs means that demand for homes will continue to rise. If anything though, that’s not a sign of impending doom. That’s just how supply and demand works.

I hope that’s helpful! If you have any questions about today’s video, our Seattle market or you’re thinking about buying or selling a home, don’t hesitate to reach out to me. I’d be happy to help!

As always, If you have any questions about real estate, feel free to email me. If I choose to answer your question in an upcoming video, I’ll send you a $25 gift card.