Signs of a Housing Bubble? Not According to the Daily Journal of Commerce

In an article released by the Daily Journal of Commerce, Matthew Gardner describes his confidence that we are not currently in a housing bubble, ten years after Alan Greenspan first said he had no concerns regarding the housing market just before the recession hit.

Where does Gardner's confidence come from? He breaks down his top four reasons why there is no "national bubble on the horizon":

1. The flippers have left the building - "Data supplied by RealtyTrac suggests that the percentage of homes that were bought with the intent to 'flip' has dropped from a peak of 6.7 percent at the beginning of 2014 to 4 percent today . . . signifying a more normalized market."
2. Lending standards remain very stringent - "there are several components of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provide substantial safeguards when it comes to irresponsible lending practices, such as requiring lenders - through the qualified mortgage rule - to ensure a borrower's ability to repay."
3. Home prices are up, but not to pre-bubble levels - at the national level, the bursting of the housing bubble led to a 27 percent drop in the index. The index has risen but is still 9 percent below the prior peak."
4. Interest rates are (eventually) going to rise and cool the market - "the growth in employment, and the subsequent drop in the unemployment rate, will lead to wage growth, and increasing incomes will take some of the sting out of any rate increase."

Chinese Buyers Surpass Canadians in US Home Purchases

Huge news from the Bloomberg Business, as Prashant Gopal and John Gittelsohn announced that Chinese buyers now outrank Canadians in purchasing homes in the U.S. The article, entitled “Move over; Canadians – Chinese buyers now No. I buyers of U.S. homes,” says that “buyers from China spent US $28.6 billion on U.S. homes and made up 16 per cent of transactions by foreigners in the 12 months through March, according to an annual report released Wednesday by the National Association of Realtors. Canadians, which had led international purchases since 2008, ranked second with US $11.2 billion in spending and a 14 per cent share of sales.”

The article likewise notes the movement of Chinese buyers into the U.S. in recent years, “amid growing affluence by residents of the world’s most populous nation, where the U.S. is viewed as a safe haven for wealth.” And not only is Seattle one of these “safe havens,” it has also become somewhat of a pop culture phenomenon in China, thanks to the wildly successful film, Finding Mr. Right.

As Dean Jones, President & CEO of Realogics Sotheby’s International Realty (RSIR) told The Globe and Mail  in early June, the film was “massive advertising, and there has been a lot of response.” He continued that “it’s not just the high-net-worth people looking for lifestyle or a financial safe harbor. It’s that people want to have their version of the American dream, if you will.”

The Globe and Mail also highlighted RSIR’s “Asia Desk,” which features a collective of agents “fluent in Cantonese, Mandarin and other Asian languages” who “cater to the continuing, broadening influx of buyers.” The team’s most recent endeavor was the release of a documentary entitled East Meets West, which helped explain the meteoric rise in foreign direct investment and immigration in the Puget Sound region.

Skyrocketing Rents Mean Purchasing Can Save You Money

Rob Smith from The Puget Sound Business Journal reports that "the apartment vacancy rate in King and Snohomish counties has dropped to 4.05 percent, the lowest since the Seattle company Apartment Insights Washington began tracking the market 10 years ago. Rents, however, are surging. Average rent rose more than 6 percent to $1,408 per unit when compared to the previous quarter, and "rents have increased 10.4 percent the past year."

Smith's article covers a few highlights from the market analysis:

• The average rent in Bellevue is now slightly more than $2,000 per month.
• At an average of $2,226 per unit, rents in Seattle remain the highest in the region.
• Average rents in Des Moines and Edmonds cracked $1,000 per month for the first time.
• The Ballard neighborhood has the highest vacancy rate, 17.3 percent.

Rising rents vs. low interest loan options mean that buying now could not only help you build your own equity and financial portfolio, but could actually save you money.

Check out our rent vs. buy calculator for more information >>>

Think your neighborhood is crowded? See how it stacks up!

It's no secret that Seattle is experiencing record breaking growth. For anyone who has driven, taken the bus, or even tried walking anywhere during rush hour (or any time of the day, for that matter) can attest to the very noticeable density of people in any given area.

But just how does each neighborhood stack against one another? The Seattle Times has compiled a very detailed set of data that shows neighborhood census tracts throughout King County. Thinking that South Lake Union would be densifying the quickest?—the real answer may surprise you!

Read more>>

2015 Real Estate Predictions

2014 was an exciting year for the housing market with price appreciation and growing consumer confidence leading into a more stable and new economic normal. Let’s see what 2015 has in store with the ever-growing international trend in U.S. real estate.

2015 Predictions

1. Rates will remain within a .25% close range in the next year  – The Federal Reserve will closely monitor the economy and raise rates only when the indicators signal that the move would not adversely affect the housing market recovery. A weak economic recovery still looms and it has been said this is the weakest recovery after a recession since the Depression. People are not feeling the recovery and wages are lower. The domestic economy is still struggling to create meaningful lift off. Employment, GDP and foreign relations will all play significant roles in the continued economic recovery and future of interest rates.

2. Lending standards will loosen – First-time home buyers may be the biggest beneficiaries. Lenders have a handle on their risk and have adjusted guidelines accordingly. Fannie Mae has announced the comeback of 3% down payment programs, FHA just reduced monthly mortgage insurance, and special down payment assistance programs are affording buyers additional opportunities to buy homes.

3. Home prices will rise more slowly – The price appreciation over the past few years will allow more and more people to sell their homes next year, leading to more supply and easing inventory causing a more balanced market. The December 2013 10.8% year-over-year increase can be compared with September 2014 4.8% year-over-year change illustrating how much has changed with the past year.

4. Affordability will decline – Although price appreciation has slowed, this doesn’t mean that housing will be more affordable. Price appreciation may still outpace wages. Accordingly to Trulia, 2013 incomes rose just 1.8% in nominal terms. Realtor.com predicts 5%-10% decline in affordability. Rising rates can further erode affordability.

5. Millennials will overtake Gen Xers as home buyers.  Millennials have been faced with some financial challenges not faced by previous generations due to the great recession. Approximately 42% of Millennials claim they want to buy a home in the next one to five years, compared to just 31% of Generation X. The Millennials are late bloomers to the housing scene and their lack of homeownership is not because they are not interested in owning, but this generation has been delaying getting married and having kids, which are two key drivers to buying a home. They have also faced mounding student debt and a challenging permanent job market.

6. Rent increases will outpace home value growth – Seattle ranked 5th nationally for annual rent growth in 2014. Strong job growth and an increasing population combined with limited housing supply will push rents higher. Rising rents combined with low interest rates and a more stable housing market will lure more renters into the housing market.

7. Second homes make a comeback – Vacation home sales surged 29.7% and accounted for 13% of all transactions in 2013 according to Realtor.com. A strengthened economy, affordable interest rates, and a stable real estate environment are all contributing factors to this rebound. Recent growth in the equity markets has increased wealth and confidence and given way for investors to purchase recreational properties.

8.  Landlords reign – Rising rents make owing rental property an attractive investment. Multi-family will continue to thrive and drive investors into the market due to the opportunity. Consumers forming their own households will need to rent a home as they save up for down payment.

9. Foreclosures and short sales will fall  – 2014 foreclosure filings were down 17.2% from the prior year and are expected to reach pre-recession levels. A stronger job market, price appreciation, and consumer confidence have contributed to the economic recovery and it is expected to continue in 2015.

10. Global citizenship and international real estate investment will soar – There is a growing trend of international buyers hedging their home currency and investing in United States real estate.  The strength of the US Dollar, a thriving tech community, and recent extended VISA terms will continue to attract international buyers to purchase properties for vacation and investment. Many buyers are purchasing these properties sight unseen purely based on the economic opportunity.

Information obtained from Forbes, Realtor.com and The Seattle Times. ​