Local market update.
Shifts in the housing market are changing the narrative on local real estate conditions. In September, King County saw inventory increase and prices decrease month-over-month, but prices were still up compared to this time last year.Find our full market recap here.
News + trends.
[THE STATE OF] REAL ESTATE
Despite the “Great Reversion,” some neighborhoods maintain their swagger
Our real estate market is experiencing dramatic shifts this season, but select communities are keeping up the momentum from earlier in the year.READ MORE
LOCAL ECONOMY
Future light rail propels Eastside development
Anticipation for the East Link light rail is bringing new housing developments and businesses to the region.
READ MORE
[THE STATE OF] REAL ESTATE
Regional rental housing supply set to grow in coming years
Many developers are focused on apartments and the rental niche as a continued source of profit.
READ MORE
LOCAL ECONOMY
Eastside office market could use a crystal ball
The rate of office leases on the Eastside has slowed recently — except for Meta’s brand new campus.
READ MORE
Happenings.
Now – November 6
Pin-spiration.
With the days getting shorter, it’s time to flip the switch — literally. These unique lighting features will brighten up your space and help you keep it lit.
My featured listings & sales.
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Last month’s poll results. Fire pit: 49%. Fireplace: 51%.
When you’re ready to talk real estate.
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W Report – October 2022

Q3 2022 Western Washington Real Estate Market Update


The following analysis of select counties of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.
Regional Economic Overview
The Western Washington labor market continues to expand. The addition of 110,000 jobs over the past 12 months represents an impressive increase of 4.9%. All but seven counties have recovered completely from their pandemic job losses. In total, the region has recovered all the jobs lost and has added an additional 30,000 new positions. The regional unemployment rate in August was 3.8%. This is .2% higher than at the end of the second quarter. That said, county data is not seasonally adjusted, which is likely the reason for the modest increase. The labor force has not expanded at its normal pace, which is starting to impact job growth. Although the likelihood of a recession starting at some point this winter has risen, I am not overly concerned at this point; however, I anticipate businesses may start to taper hiring if they feel demand for their goods and services is softening.
Western Washington Home Sales
❱ In the third quarter, 19,455 homes traded hands, representing a drop of 29.2% from the same period a year ago. Sales were 15.4% lower than in the second quarter of this year.
❱ Listing activity continues to increase, with the average number of homes for sale up 103% from a year ago and 61% higher than in the second quarter of 2022.
❱ Year over year, sales fell across the board, but when compared to second quarter they were higher in Mason, Cowlitz, Jefferson, and Clallam counties.
❱ Pending sales (demand) outpaced listings (supply) by a factor of 1:6. This ratio has been dropping for the past three quarters and indicates a market moving back toward balance. The only question is whether it will overshoot and turn into a buyer’s market.
Western Washington Home Prices
❱ Higher financing costs and more choice in the market continue to impact home prices. Although prices rose an average of 3.6% compared to a year ago, they were down 9.9% from the prior quarter. The current average sale price of a home in Western Washington is $748,569.
❱ The change in list prices is a good leading indicator and we have seen a change in the market. All but two counties (Island and Jefferson) saw median list prices either static or lower than in the second quarter of 2022.
❱ Prices rose in all but two counties, and several counties saw price growth well above their long-term averages.
❱ With the number of homes for sale rising and list prices starting to pull back, it’s not surprising to see price growth falter. We are going through a reversion following the overstimulated market of 2020 and 2021. There will be some ugly numbers in terms of sales and prices as we move through this period of adjustment, but the pain will be temporary.

Mortgage Rates
This remains an uncertain period for mortgage rates. When the Federal Reserve slowed bond purchases in 2013, investors were accused of having a “taper tantrum,” and we are seeing a similar reaction today. The Fed appears to be content to watch the housing market go through a period of pain as they throw all their tools at reducing inflation.
As a result, mortgage rates are out of sync with treasury yields, which not only continues to push rates much higher, but also creates violent swings in both directions. My current forecast calls for rates to peak in the fourth quarter of this year before starting to slowly pull back. That said, they will remain in the 6% range until the end of 2023.

Western Washington Days on Market
❱ It took an average of 24 days for a home to sell in the third quarter of the year. This was seven more days than in the same quarter of 2021, and eight days more than in the second quarter.
❱ King and Kitsap counties were the tightest markets in Western Washington, with homes taking an average of 19 days to sell.
❱ Only one county (San Juan) saw the average time on market drop from the same period a year ago. San Juan was also the only county to see market time drop between the second and third quarters of this year.
❱ The greatest increase in market time compared to a year ago was in Grays Harbor, where it took an average of 13 more days for homes to sell. Compared to the second quarter of 2022, Thurston County saw average market time rise the most (from 9 to 20 days).
Conclusions
This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.
Listings are up, sales are down, and a shift toward buyers has started. After a decade of sellers dominating the market, it is far too early to say that the shift is enough to turn the market in favor of buyers, but the pendulum has started to swing in their direction. A belief that the housing market is on its way to collapsing will keep some buyers sidelined, while others may be waiting for mortgage rates to settle down. Whatever their reasons, I maintain that we will see a brief period where annual price growth will turn negative in several markets, but it is only because the market is normalizing. I certainly don’t see any systemic risk of home values falling like they did in the mid-to-late 2000s.
All things considered, I have moved the needle toward buyers, but it remains, for the time being, a seller’s market.
About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
Windermere Foundation Gala Raises $1.6 Million


In what has already been a banner year for the Windermere Foundation, the inaugural Windermere Foundation Gala took things to new heights. Held on the evening of September 30 at the Sheraton Grand in downtown Seattle, Windermere agents, owners, and staff dressed to the nines for a night of live entertainment and fundraising for low-income and homeless families throughout the Western U.S.
With 2022 being Windermere’s 50th anniversary, the company set its sights on reaching $50 million in total donations for the Windermere Foundation by the end of the year. At the end of 2021, the grand total stood at $46 million raised since the Foundation began in 1989, leaving a roughly $4 million gap to reach the $50 million goal. Through the spring and summer, we saw an outpouring of support as Windermere offices around the network stepped up their fundraising and giving efforts. By the end of July, total year-to-date donations surged past $2 million, pushing the grand total to nearly $48 million.
The Windermere Foundation Gala
Then came the night of the Gala, during which the Windermere Foundation would receive the Excellence Award from the 5th Avenue Theatre. Windermere founder John Jacobi and family accepted the award on behalf of Windermere and expressed their commitment to continue their legacy of giving both personally and through the Windermere Foundation. But the Gala was more than a celebration; it was a massive fundraiser, with proceeds from ticket sales, table purchases, donations, and auction bids going back to communities throughout the Windermere footprint.
Image Source: Panravee Fernando – panraveephotography.com
As the Gala attendees entered the foyer of the Sheraton Grand Ballroom, they bid on silent auction packages displayed throughout the room. Up for auction were locally curated experiences and goods alike, including multiple-night stays at luxury resorts, tickets to a Broadway production, and more. Next was the live auction. Bids went up for 11 special packages, including a skiing adventure at an upscale resort in Park City, a guided fly-fishing excursion in Montana, and others. As part of an exclusive Pearl Jam auction package, their guitarist Mike McCready was in attendance, adding his signature on stage to an electric guitar signed by the band members.
Image Source: Panravee Fernando – panraveephotography.com
Finally, the Gala attendees participated in Raise the Paddle, where they contributed donations at different levels. Windermere founder John Jacobi kickstarted the giving with a $100,000 donation, and from there, auctioneer John Curley guided the audience through descending levels of support, calling out bidder number after bidder number in what was an outpouring of giving from the audience. The Windermere network more than doubled the $250,000 goal of Raise the Paddle, ultimately raising $520,250 in donations.
Image Source: Panravee Fernando – panraveephotography.com
In total, the Windermere Foundation Gala raised $1.6 million, catapulting Windermere towards its goal of reaching $50 million in total donations by the end of 2022.
To learn more about the Windermere Foundation, visit windermerefoundation.com.
Decorating with House Plants to Match Your Décor Style


Interior design solutions come in all shapes and sizes. After all your furniture items, art, and other physical items are all in their right place, decorating with house plants can provide the perfect final touch. The best plants for your home are the ones that will thrive in your local climate while complementing your existing décor. Here are a few common house plants and their corresponding interior design styles to aid your decorating efforts.
Decorating with House Plants to Match Your Décor Style
Mid-Century Modern
Mid-century modern interior design is ubiquitous, and for good reason. Its simple concepts, open spacing, and emphasis on natural elements make it one of the premier interior design styles for homeowners and design experts alike. A Split-Leaf Philodendron, or “Swiss cheese plant,” is ideally suited for these interior spaces, and its signature leaf holes make it a visual focal point. Swiss cheese plants will thrive in open spaces with access to natural light, climbing toward the ceiling as space allows. For the same reasons, Fiddle-Leaf Figs feel at home in a mid-century modern aesthetic.

Image Source: Getty Images – Image Credit: funebre
Industrial
There’s an inherent give and take with industrial interior design in that it foregoes traditional elements that we associate with comfort for stylistic choices that create a strict-yet-visually appealing environment. Decorating with house plants can add vibrance to an industrial backdrop of wood, steel, brick, stone, and copper without compromising the edginess of the style. Both Snake Plants and Cast Iron Plants will harmonize with an Industrial space. Both are low-maintenance plants that mesh well with materials that evoke toughness and durability.
Minimalist
The combination of minimalism and house plants is a match made in heaven. Given minimalism’s focus on the reduction of waste and clutter and the importance of bringing the outdoors in, all signs point toward decorating with house plants. Being selective about which plants you include will keep everything in line with the fundamental concepts of minimalism—too many plants and things would easily feel off balance. Large-leaf plants are a perfect solution for minimalist decorators, such as Rubber Plants, Bird of Paradise, and Silver Evergreen.

Image Source: Getty Images – Image Credit: Liudmila Chernetska
Farmhouse
The Farmhouse interior style prioritizes cleanliness and an inviting spirit. Its white-washed backdrop of whites, grays, and beiges makes it a fitting canvas for the lush green additions that a selection of house plants can provide. Spider Plants work well to fill shelf space, which come in both solid green and white-striped varieties. These plants are easy to take care of and thrive in partial sun or shade. Aloe Vera plants in the kitchen can refresh the look of your shelving or counter space.

Image Source: Getty Images – Image Credit: xavierarnau
Traditional
Homeowners with traditionally styled interiors have a whole host of options to choose from. Any classic plant species will complement its traditional surroundings, but more specific choices can bring out the uniqueness in your home. If your decorations are rife with patterns and geometric shapes, perhaps a fern or Amazon Lily would help to balance the room. Bamboo may be a natural fit for your home depending on your existing décor. If you’re looking for a hanging display to fill empty wall space, consider Devil’s Ivy.
As always, research the watering and sunlight needs of a house plant before bringing it into your home.
Are We in a Housing Recession?


This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.
Hello there, I’m Windermere’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. A little while ago, a housing analyst was being interviewed about the current state of the residential market and they suggested that the country is in a “housing recession.” Well, needless to say, this got a lot of attention from the media and the public at large—for obvious reasons.
Any time the word “recession” is mentioned we almost subliminally cast our minds back to 2007. And when the word “recession” is combined with the word “housing,” then panic starts to set in with flashbacks of headlines about burgeoning housing supply, plummeting home prices, and surging foreclosures.
As this is a topic being discussed by many across the country right now, I wanted to share with you my opinion as to whether the phrase “housing recession” is an appropriate one when describing today’s market.
So, what is a recession? To answer this, I will turn to my trusted Oxford English Dictionary, and this is how they describe that word.
Definition of a Recession
Image Source: Matthew Gardner
Recession:
- a difficult time for the economy of a country, when there is less trade and industrial activity than usual, and more people are unemployed
- the movement backward of something from a previous position
Well, how do we use these definitions when it comes to the ownership housing market?
I guess that “less trade” could mean lower sales and we have certainly seen sales pull back. “Movement backward” could be how someone might describe the fact that sale prices have been pulling back in many markets across the country.
But although some may say that we really are in a housing recession given the definition of the word, is it really accurate? Are we are inextricably headed down a road that leads to the bursting of some sort of bubble as we all remember from 2007? I don’t believe we are. To explain my thinking let’s start out by looking at housing supply.
Inventory of Homes for Sale
Image Source: Matthew Gardner
Yes, listing activity is up—can’t argue with that—with the number of resale homes for sale jumping by more than a third from the start of this year. But there’s more to it than that. You see, we have to look a little further back to better understand what’s really going on.
And to do this, let’s check out the number of homes for sale during the first seven months of this year and compare those numbers to the same periods in 2018 through 2021.
Active Listings By Month
Image Source: Matthew Gardner
I don’t know about you, but this doesn’t look like a chart showing a massively oversupplied market! The number of homes for sale in July of this year was almost exactly the same as we saw last July and is still well below the levels seen in 2018, 2019, or 2020.
Sure, listings are up. But are we at levels that will cause prices to tumble? Remember that it was a massive increase in the number of homes for sale that led to the housing bubble bursting back in 2007. Listings peaked at almost 3.9 million units in 2006; but today there are 2.6 million fewer units on the market than we saw back then. Now that we’ve seen that supply isn’t at concerning levels, let’s look at demand.
Existing Home Sales
Image Source: Matthew Gardner
This chart doesn’t look too good. On an annualized basis, sales have been pulling back since the start of the year but that’s not the full story. Let’s look at this in a slightly different way.
Year-to-Date Sales
Image Source: Matthew Gardner
The bars here show year-to-date sales through July—both adjusted and unadjusted for seasonality—and although unadjusted sales so far this year are lower than we saw during the first seven months of 2021, they are at about the same level as we saw in 2018 and are higher than in 2019 or 2020.
But when we adjust the monthly sales data for seasonality, year-to-date sales in 2022 were higher than all years shown here other than 2021.
So, although sales have fallen, it appears to me that we are heading back to a more realistic market rather than one that is hemorrhaging. Yet another indicator we need to consider when examining the market for evidence of some sort of recession are months of inventory , which shows how long it would take to sell every home for sale using the current monthly sales pace.
Months of Inventory
Image Source: Matthew Gardner
This graph shows that it would take three months to sell every home on the market given the sales we saw in July. That is quite a jump from the January pace but, again, perspective is everything.
Months of Inventory: Seller’s Market
Image Source: Matthew Gardner
At three months, it is still a seller’s market. It’s generally accepted that the definition of a seller’s market is any number below four months; a balanced market is four to six months of inventory, and a buyer’s market is when the month of inventory is above six.
And a simple bit of math shows us that, for the market to shift from favoring sellers to favoring buyers, the number of homes for sale must break above two million—which we haven’t seen since 2015—and monthly sales would have to drop to below 300,000. We’ve only seen that happen three times in history: November 2008, and again in July and August of 2010.
Yes, listings are up, and sales are down. There’s no denying it. But, again, does the data justify the term recession? My answer would be no. But, if you’re still not convinced, let’s turn our attention to sale prices. I think that might help make things even clearer.
Median U.S. Existing Home Price
Image Source: Matthew Gardner
The solid line represents the median sale prices of homes over time and the dotted line shows the trend. You can clearly see that we started breaking away from the trend line in early 2021 and that’s not at all surprising as it started the month after mortgage rates hit their historic all-time low.
But today’s financing costs are significantly higher, and prices have started to slide. Although I certainly expect that we will see sale prices fall further, it appears to me as if they are simply moving back to the long-term trend, and not collapsing.
Mortgage Rate Forecasts
Image Source: Matthew Gardner
With mortgage rates doubling from their 2021 lows, downward pressure on sale price was to be expected. But will they—as some think—rise to a level that will cause home prices to plummet? To answer that, here are the forecasts of several associations. You’ll see that all, bar the National Association of Realtors and Freddie Mac, see rates pulling back—albeit modestly—in 2023.
Of course, all these are annual averages and today’s rates are higher with the latest Freddie Mac data showing the average 30-year fixed rate above 6%—a level we haven’t seen since 2008.
However, economists including myself find it unlikely that rates will continue rising significantly from where they are today. The mortgage market is certainly in a bit of disarray right now with the yield curve inverting, but that should correct itself by early next year and that’s why we generally expect rates to start pulling back from their current levels by the start of 2023.
But if rising rates are triggering memories of 2008, you wouldn’t be alone. There are some expecting that the spike in rates will trigger a surge in foreclosures and that will doom the market. But as you see here, although foreclosure filings have certainly risen, they are still remarkably low compared to historic standards.
U.S. Foreclosure Filings
Image Source: Matthew Gardner
In the second quarter, newly delinquent mortgages represented just 1.9% of all mortgages outstanding1 and that’s the lowest share the market has seen since 2006. Although I do expect the number of homes being foreclosed on will rise as we move into 2023, I just don’t see it getting to the levels necessary to materially impact the market. And a big part of the reasoning behind my thinking is this:
Equity Rich Households (Q2 2022)
Image Source: Matthew Gardner
In the second quarter of 2022, over 48% of homeowners with a mortgage were sitting on more than 50% equity.
Simply put, for enough homeowners to be put in a negative equity situation that would lead them to enter foreclosure and materially damage the market, home prices across the country would have to fall by a percentage greater than we saw during the market crash. And I just don’t see this happening.
The word “recession” has many connotations, and when it’s used to describe the housing market, it can engender a significant level of panic. So, I will ask you all. Given the data I have showed you today, do you think that we are in a housing recession?
Yes, supply levels have risen. But they are still relatively low when compared to historic averages and with builders slowing construction activity to a crawl, it’s unlikely that housing supply will grow much organically. Over the longer term, I believe that the supply of resale homes for sale will remain below historic averages. I say this for one simple reason: mortgage rates.
In 2020, a record number of households refinanced their homes to take advantage of the mortgage rates that had been plummeting. And in 2021, over six million home buyers got mortgages with rates averaging below 3%.
I would suggest to you that we will not see the number of homes for sale even get back to normalized levels in the mid-term, as many potential sellers will decide not to sell, because if they did, they would lose the never seen before and likely never to be seen again mortgage rate that they currently have.
Of course, there will be sellers who have to move because of factors such as job relocation, death, or divorce, but I would contend that listing activity may well be tight for a long time. And if supply remains below the level of demand, the market is further protected.
And as far as demand goes, let’s not forget that the age makeup of the country suggests that we will see a lot more potential buyers as Millennials and Generation Z mature, with current numbers suggesting significant buyer demand for the next two decades.
As for sale prices, I still believe (as do almost all economists) that the median home price next year will be higher than we will see this year, but a very significant drop in the pace of sales growth is likely as we trend down to historic averages.
Of course, all real estate is local and there are markets across the country that will see prices drop in absolute terms. But even in the most highly susceptible markets, it will be a temporary phenomenon. By 2024, homeowners in these markets will see the value of their homes start to rise again.
I’m going to leave you with my quote to describe today’s market today and it’s that we are in a “housing reversion,” NOT a housing recession.
As always, I’d love to hear your comments on my thoughts so feel free to reach out. In the meantime, stay safe out there and I’ll see you all again next month.
1: New York Fed Quarterly Report on Household Debt and Credit
About Matthew Gardner
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
Windermere Partners with Seattle Seahawks for 7th Season of #TackleHomelessness


With the dawn of a new football season comes the opportunity to give back to our community. As the “Official Real Estate Company of the Seattle Seahawks,” all of us at Windermere look forward to partnering with the team for the seventh season of #TackleHomelessness. For every defensive tackle made in a home game this season, we’ll donate $100 to Mary’s Place, a Seattle-based non-profit dedicated to helping local children and families on their journey out of homelessness.
The Windermere Foundation and Mary’s Place share a common mission to end homelessness, and it’s partnerships like #TackleHomelessness that help to further that mission in our communities. Last year, the Seahawks’ defensive efforts raised $35,800 for Mary’s Place, pushing the #TackleHomelessness six-season total to $196,100.
Since 1989, the Windermere Foundation has raised over $47 million for homeless children and families in our communities. We’ve set our sights on reaching $50 million in total donations this year in honor of our company’s 50th anniversary, and we look forward to cheering on the Seahawks this year as we work toward our goal. Keep up with our progress this season by following us on Facebook, Twitter, LinkedIn, and Instagram.

Image Source: Windermere Services Company
To learn more about the Windermere Foundation or to make a donation, please visit windermerefoundation.com.
Understanding the Value of Your Home: Market Value vs. Assessed Value and More


The math of a home sale is relatively straightforward. Sellers list their home at a certain price, a buyer makes an offer, and eventually the two parties reach a final, agreed-upon price. However, between these two points in the selling process, there are several other figures that go into to setting a home’s value that you should be aware of. Your real estate agent will be your best resource in interpreting the different values associated with your home and what they mean as you prepare to sell.
Understanding the Value of Your Home
Listed Price (Asking Price)
Also known as an asking price, the listing price of a home is the price at which a seller lists their property when it goes on the market. The listing price is a gross price, meaning the costs associated with selling the home are not included. A real estate agent’s Comparative Market Analysis (CMA) will accurately set your home’s listing price, accounting for the various factors that influence home prices including location, condition, seasonality, local market conditions, and more.
The listing price is a starting point for negotiations with buyers. You may receive an offer that matches your asking price, but it’s common for buyers to make offers at other price points. You can either accept, reject, or make a counteroffer in response until you and the buyer reach an agreement.
Whether you’re selling in a buyer’s market or a seller’s market may determine you and your agent’s approach to the listing price of your home. There may be certain pricing tactics you can employ to either drive buyer attention or increase competition, but if your home’s listing price strays too far from its market value (see below), it could stay on the market for longer than you expected.
Market Value
As a seller, you’re interested in what buyers are willing to pay for your home. By taking into account a home’s condition, size, curb appeal, and features, as well as local market conditions and what comparable homes are selling for, a home’s market value reflects the price buyers will pay for a property.
Image Source: Getty Images – Image Credit: damircudic
Appraised Value
A home’s appraised value is determined by a professional appraiser to ensure that the lender is loaning the correct amount of money for the home. Appraisers assess the home’s layout and features, square footage, gross living area (GLA), overall condition inside and out, home updates and remodels, and more. If the appraised value comes in too low or too high, the buyer and seller must renegotiate for the deal to go through. In competitive markets, buyers may include an appraisal gap guarantee in their offer, which states that the buyer will cover the difference between the price of the home and the appraised value.
Sale Price (Purchase Price)
Also known as the purchase price, your home’s sale price is what it ultimately ends up selling for. Once you and the buyer have reached an agreement on the terms of the transaction, the buyer will have the home inspected and final negotiations may occur based on the findings of the inspection. Familiarize yourself with the Common Real Estate Contingencies buyers may include in their offer and what they mean when selling your home.
Net Proceeds
So, how much do you actually make on the sale of your home? After subtracting the total costs of selling from your home’s sale price, you’ll arrive at your net proceeds. This is the amount you walk away with from the transaction.
Assessed Value
Your agent’s CMA is a reliable method of determining your home’s value for its eventual sale, but its assessed value is used for taxation purposes. Employed by local municipal or county entities, an assessor will conduct a review of your property to determine its assessed value. The assessor’s findings are passed to local tax officials, who use that number to calculate the home’s property taxes.
The Continued Decline of the Housing Market Index


This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.
Hello there, I’m Windermere’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. Today we are going to take a look at the new home market where headwinds are certainly growing. And the reason this particular subject piqued my interest was that the National Association of Home Builders just released their Housing Market Index for August, and the numbers were certainly eye-opening.
Now, for those of you who may not be particularly familiar with this index, it is based on a survey of home builders which asks them to give their opinions on the single-family home market and asks them to rate current market conditions for the sale of homes today as well as in six months’ time. It also asks their opinion regarding foot traffic of prospective buyers to their new home communities.
NAHB Housing Market Index
And as you can see, the headline index level fell six points to 49. The drop in August marked the eighth consecutive monthly decline for the Housing Market Index. It was also notable because it was the first time since May of 2020 that the index has dropped below the key 50 breakeven level. This is significant, as it tells us that today more home builders currently rate sales conditions as poor than good.
Now, while the August number was certainly lower than some economists had forecast, I was actually not too surprised as builders have been reporting a spike in cancelled contracts recently. In fact, a report I just read that was put out by John Burns Consulting suggested that the cancellations have more than doubled since April with 17.6% of buyers pulling out of their purchases in July. That compares to 8% in April and 7 ½% a year ago.
Housing Market Index Components
This chart shows a breakdown of three components of the Housing Market Index which are all at their lowest levels since May of 2020, which was just before housing activity rebounded following the lockdown due to COVID-19.
- The present sales index fell seven points to 57 but is still above the breakeven point
- The future sales series fell two points to 47
- Prospective buyer traffic fell five points to 32 which, if we exclude the pandemic, represents the lowest index level since April of 2014
I find this index has a very strong correlation with new home sales, but I also use it as a pretty reliable leading indicator when it comes to single-family housing starts. I’ll get to that shortly. The survey also stated that one in five builders had reduced prices in August. That might help to explain the 10-point spread between builders’ perception of current versus future sales. But there are limits on home builders’ ability to keep cutting prices in order to support sales. This has become a significant issue because many of them are currently holding a large stock of inventory.
New Homes for Sale
Here is what current inventory levels look like. Although you might think that it’s not that bad given that only 9% of available homes are finished are ready to move into, I would tell you that builders incur costs every day that a home is not sold, even if that home has yet to be built. And with inventory at a level not seen since 2008, I’m sure there are a lot of builders not sleeping too well right now.
I would add that by the time the above video is released, the July new home sales report will have been published. I can almost guarantee that the number of homes for sale will have grown further.
New Home Sales
Higher inventory levels are due to slower sales activity, which is continuing to decline. Sales are 17% lower than a year ago. With more homes for sale and lower transactions, it would now take more than nine months to absorb all available homes using the current sales pace. I would also tell you that the last time months of supply broke above nine was all the way back in 2010.
- It’s my forecast that sales in July will have dropped from the annualized rate of 590,000 shown in the chart above to somewhere between 570,000 and 580,000.
U.S. Single-Family Housing Starts
With high supply levels and lower sales, it’s not at all surprising to see builders hitting the brakes, with new home starts falling by 10.1% between June and July of this year. Starts are down by 18 ½% from a year ago. Starts have dropped on a sequential basis for five consecutive months now, and I am afraid that they will drop further before finding a bottom.
So, what’s the bottom line here? Well, there are several issues I see, the first of which is affordability. Home prices have been spiraling upward since the start of the pandemic not only because mortgage rates dropped, but construction costs started jumping and builders had to charge more for a home.
Builders saw prices rise by almost 18% last year. This had already taken a significant toll on affordability even before the mortgage rates spike we saw earlier this year. The upshot, as I see it, is that tighter monetary policy from the Fed, in concert with construction costs that remain well above normal levels, has hit builders and hit them hard. Of course, they are doing their best to address the situation by slowing construction activity significantly, but I think that they are going to have a pretty rough time for the next several months.
Ultimately, I see little option for home builders other than lowering prices further, especially now that they are competing with rising inventories in the resale market. I also believe that there are buyers out there waiting patiently on the sidelines for prices to drop in the coming months as they know that builders at some point have to solve the current supply demand imbalance and lowering prices is the easiest way of doing this. Last month the average price drop was 5%, but this is very likely to increase as we move toward the fall.
Will builders get through the situation they find themselves in? I believe that they will. And there are some glimmers of light out there with inflation appearing to be peaking, interest rates are, if not dropping, then certainly stabilizing, and this will help.
Builders also understand that the country has a significant housing shortage. In fact, a recent report published by “Up For Growth” suggested that we have a housing shortage today of around 3.8 million homes. Although this includes rental and ownership housing, some basic math tells me that there is a need today for around 2.5 million new owner-occupied homes. So, light is definitely at the end of the tunnel, but there is a way to go before they get out of it.
And there you have it. I hope that you’ve found my thoughts on this topic of interest. As always, if you have any questions or comments about the current new home environment, please do reach out to me. In the meantime, stay safe out there and I look forward to visiting with you all again next month.
Bye now.
About Matthew Gardner
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.