Seattle Housing Market Hotter Than Ever in 2015

I’d like to introduce a new chart. The “Residential Real Estate Heat Index” is an index I’ve been calculating for a few years, that originally was part of the now-defunct Sound Housing Quarterly newsletter. It rolls changes in the median price, new listings, total inventory, pending sales and closed sales all into a single number to measure the relative “heat” of the market.

Here’s what it looks like for King County single-family homes and condos.

King County Residential Real Estate Heat Index

The last two quarters (April through September) of this year have seen the hottest local real estate market as far back as I have reliable data.

At 81.8, the latest King County heat index is nearly double the average during the last bubble (42.6). As with the last bubble, the condo heat index is even more out of control, coming in at 115.6 in the third quarter (88 percent higher than the 61.4 average during the last bubble).

Based on this measure, we are well into another bubble at this point. That said, there are still many factors that are very different from last time, so the only thing I know for sure is that this one won’t end the same way the last one did.

If there’s enough interest, I can compile this chart for other counties as well. Also: If you’re a Seattle Bubble Member, check the shared spreadsheet folder for the full data behind this chart.

[P.S. – I apologize for the light posting recently. It’s been very busy for me personally lately. Plus my dog died, so there’s that.]

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

45 comments:

  1. 1
    Tommy Unger says:

    Is the condo spike partially (or even mostly) due to new construction?

  2. 2
    The Tim says:

    RE: Tommy Unger @ 1 – Condo prices are surging faster than single-family, sales are up more than single-family, and listings are down more than single-family. It’s just a tighter market across the board.

  3. 3
    Iancredible says:

    “we are well into another bubble at this point”

    None of the data that is given supports this. It’s almost as if “there was a peak on year X when there was a bubble and we have a similar trend on year Y so we are in a bubble as well”.

    Trends do help, but they do not tell the story of everything. It gets old to see people constantly debating on this site whether or not we are in a bubble. Will price increases slow down… absolutely, but will they decrease in the next 5 years… i highly doubt it.

    We have increase people looking for their first homes.
    +
    Businesses and employees flocking to seattle
    +
    Very restrictive geography that limits the ability to grow
    +
    Out of Control Rents
    +
    Horrible Public transportation

    = high housing prices.

    I agree that there could crazy factors like earthquakes, boeing leaving, that decreases prices down the road… but that would have happened if housing was going up at 3% a year. This is not a bubble, it’s high demand and it’s going to stay this way regardless of what the year the graphs mimic.

  4. 4
    The Tim says:

    RE: Iancredible @ 3 – Real estate salespeople and other market boosters made all of those exact same arguments 2005-2008. Things can and do change.

  5. 5
    redmondjp says:

    So here’s a smart young guy who has figured out how to beat today’s high housing costs: he’s living in an old U-haul van in Google’s parking lot. Now that’s what I call inside-the-box thinking!

    http://www.bbc.co.uk/newsbeat/article/34589969/google-worker-23-living-in-van-in-staff-car-park-to-save-money

    I witnessed this myself at a local storage unit, where somebody was staying inside their RV that was ‘stored’ there. I’m not sure how long they got away with it as I didn’t go to my unit very often.

  6. 6
    Blurtman says:

    Amazon is hiring 100,000 staff for the holidays. And at $15/hour, I believe. If so, in your face luddite minimum wage increase naysayers. Bullish!

  7. 7
    district says:

    By The Tim @ 4:

    RE: Iancredible @ 3 – Real estate salespeople and other market boosters made all of those exact same arguments 2005-2008. Things can and do change.

    At the risk of sounding glib, aren’t you the one predicting that things will be the same? — i.e. that the 05-08 pattern is repeating itself?

    The big warning-signs we are seeing, high prices, low days on market, bidding wars, etc are symptoms, but the diagnosis isn’t necessarily “bubble.” For it to be a bubble, these seller-friendly market conditions have to be misaligned with fundamentals. That misalignment always becomes clear in hindsight (e.g. the overvaluation of tech firms around the turn of the millennium). It’s always harder to see that misalignment at the time — “from the inside.”

    Right now, I don’t see it. All the fundamentals seem to point to an accelerating market, but not an unhealthy one. Iancredible gave a good list of real market factors contributing to the market conditions we see.

    Bottom line: citing similarities with the last bubble is one step towards diagnosing the next one, but someone needs to make the case that prices and other market conditions don’t reflect fundamentals.

  8. 8
    Eastsider says:

    It’s very difficult to know when/if we are in a bubble. That said, when you start seeing incentives such as free Tesla or overseas vacation, you know the tide has turned.

  9. 9
    ronp says:

    This is a great chart, thanks for updating it.

    I predict the next time we have two consecutive quarters of negative economic growth in the Seattle area we will see home prices decline 5% year over year, then when economic growth returns home prices will climb 5% annually for the following six years.

    The next housing bubble equivalent to 2007-2011 will not be for 25 or more years.

  10. 10
    whatsmyname says:

    “At 81.8, the latest King County heat index is nearly double the average during the last bubble (42.6). ” “Based on this measure, we are well into another bubble at this point. ”

    So when does your house hit the market?

  11. 11

    RE: Blurtman @ 6
    Pre-qualified Loans to $15/hr New Hires [Christmas Temps?] for Seattle Real Estate?
    Or moot point impact on real estate sales?

  12. 12

    RE: district @ 7
    At Least Microsoft is Now Offering Windows10 Free
    And Boeing is transferring excess {?} 737 work to China, with mostly outsourced 787s sales finally profitable by 2020…..these are good economic indicators?

  13. 13
    Blurtman says:

    RE: softwarengineer @ 11 – Well, they’d have to have two other jobs of course.

  14. 14
    GoHawks says:

    RE: The Tim @ 4 – Why is everyone so certain that this is a bubble? The comment is made often with absolute certainty. Just because demand outpaces supply does not mean something is a bubble.

  15. 15
    Someone says:

    Seattle’s (specially Eastside) tech driven housing market is very different from Bay Area.

    The Bay Area market has been driven by IPO millionaires. Affordability is less of a concern there since moolah is at scale.

    Seattle (specially Eastside) market is driven by coming of age Indian and Chinese software engineers. Not IPO millionaires but solid upper middle class.

    So expect Eastside housing to remain very strong in the 650 – 900K range but anything over that and the demand dips.

  16. 16
    Azucar says:

    By district @ 7:

    By The Tim @ 4:

    RE: Iancredible @ 3 – Real estate salespeople and other market boosters made all of those exact same arguments 2005-2008. Things can and do change.

    At the risk of sounding glib, aren’t you the one predicting that things will be the same? — i.e. that the 05-08 pattern is repeating itself?

    The big warning-signs we are seeing, high prices, low days on market, bidding wars, etc are symptoms, but the diagnosis isn’t necessarily “bubble.” For it to be a bubble, these seller-friendly market conditions have to be misaligned with fundamentals. That misalignment always becomes clear in hindsight (e.g. the overvaluation of tech firms around the turn of the millennium). It’s always harder to see that misalignment at the time — “from the inside.”

    Right now, I don’t see it. All the fundamentals seem to point to an accelerating market, but not an unhealthy one. Iancredible gave a good list of real market factors contributing to the market conditions we see.

    Bottom line: citing similarities with the last bubble is one step towards diagnosing the next one, but someone needs to make the case that prices and other market conditions don’t reflect fundamentals.

    Actually, he said, “That said, there are still many factors that are very different from last time, so the only thing I know for sure is that this one won’t end the same way the last one did.” so it is obvious that he is not predicting that things will be the same.

    It’s funny how people who do not think we are in a bubble have disagreed with Tim’s post have mostly been selectively editing his post and disagreeing with quotes that have been taken out of context.

    In my opinion, there are a LOT of things going on right now that are very similar to the last bubble… but the two or three biggest differences are:
    1 – Rents have been climbing just as fast or even faster than sale prices, so the ratio of sale prices to rental rates for comparable places hasn’t gone way high like it did in the last bubble.
    2 – The “quality of buyers” seems to be better now, with less people using “creative financing” like ARM’s, low/zero down payment, and ‘interest only’ mortgages that make it more likely that they will end up walking away from a place if/when the prices stabilize or drop slightly. I think that this is mostly due to tightened lending standards, but also due to buyer restraint (next item)…
    3 – The experience of the bubble only a few years ago I think has tempered people’s enthusiasm to overextend as much in order to get into a place that is more expensive than they can affford… I think that buyer’s are a little more restrained this time.

  17. 17

    By Blurtman @ 6:

    Amazon is hiring 100,000 staff for the holidays. And at $15/hour, I believe. If so, in your face luddite minimum wage increase naysayers. Bullish!

    I was making $12.64 an hour working part-time at United Parcel in college back in 1980. $15 an hour in 2015 dollars is not really that high of a wage, so it’s not surprising that a large corporation would pay that amount. But that they are willing to pay that amount doesn’t mean that a $15 minimum wage wouldn’t have huge adverse impacts on other employers and other employees.

  18. 18

    Tim has become the new Case-Shiller! What would be interesting would be to expand the data to the same counties as Case-Shiller uses for the Seattle area and then overlay the charts.

  19. 19
    Kip Wallbanger says:

    Are the rates of change, for items combined in your index, weighted the same?

  20. 20

    RE: Blurtman @ 13
    Assuming the Temp Jobs Ever Become Permanent?

    Otherwise the job or jobs they work won’t help with bank credit approval.

  21. 21
    ess says:

    In the last bubble, rents didn’t support the prices. This time around, it appears that rents are leading the way.

  22. 22
    jojo says:

    Chart says breakout – prices going higher…red line is just back testing the previous highs

  23. 23
    Tommy Unger says:

    Looks like AMZN and MSFT just created another few thousand down payments (or more) on homes in Seattle with their latest stock jumps after earnings. I do lament the cultural and transportation(al?) shifts of Seattle (that I admittedly am a part of), but economically, Seattle is the envy of the country, and even the world right now.

  24. 24
    GoHawks says:

    RE: Tommy Unger @ 23 – Literally billions of local wealth created in the last two hours. It also highlights that these are not flash in the pan companies. They are kicking butt and the jobs appear to be stable for the next 2-3 years.

  25. 25
    Jonah says:

    Hello Tim:

    The article is great !
    Can I translate it to cchinese and published it in my website,my website is http://www.gpsfang.com,thank you :)

  26. 26
    Dog Lover says:

    I’m sorry your dog died. It is sad to lose a member of the family.

  27. 27
    BellevueTheLivable says:

    RE: ess @ 21 – I’m looking to move up because of a growing family, and what I’m seeing is that rents aren’t high enough to justify trying to buy in this market. Buying at the top of a “real estate cycle” is just throwing your money away!

  28. 28
    GoHawks says:

    RE: BellevueTheLivable @ 25 – Given the current local economic fundamentals, are you sure this is the top? What if this goes for another 2-3 years then just corrects by going sideways?

  29. 29
    Erik says:

    Sorry to hear about your dog Tim.

  30. 30
    The Tim says:

    RE: Jonah @ 25 – Sure, feel free. Please link here for credit.

  31. 31
    Steve A says:

    One thing that seems to be dramatically different than in 2007 is the amount of foreign nationals (mostly Chinese citizens), who are buying expensive properties in Seattle. According to the New York Times/Seattle times, for two years now, up to 40% of $1-million-plus luxury homes in the Puget Sound area are being snapped up by Chinese buyers – and most of them *are paying cash.*

    The affluent of China see the real-estate market of Seattle as more affordable than in British Columbia, and they’re hedging their bets that the US dollar will hold its value much better than the Chinese Yuan. Then throw in the fact that one of China’s most popular romantic movies is “Beijing Meets Seattle” and you have a recipe for hype.

    That alone will cause prolonged demand in the upper end of the market, and will further drive up the median price paid for housing in Seattle.

  32. 32
    GoHawks says:

    RE: Steve A @ 31 – Steve A, makes some good points. Two things I think the “this is another bubble” crowd are missing is:
    -The quality of the average buyer is so much higher. Cash buyers, 20% down buyers, much more stringent loan underwriting procedures. This is not funny money.
    -Inventory is so low it is shocking. Down almost 75% from our peak number of actives.

    Any commodity that has a decline in supply of 75%, an increase in buyer activity, is going to go up.

    Seems like the Bubble crowd is still fighting the 2008-2010 battle, which those like The Tim were correct in their calls.

  33. 33
    ess says:

    By BellevueTheLivable @ 27:

    RE: ess @ 21 – I’m looking to move up because of a growing family, and what I’m seeing is that rents aren’t high enough to justify trying to buy in this market. Buying at the top of a “real estate cycle” is just throwing your money away!

    I understand your concerns. However, as my wife and I own a few rental properties, I tend to keep a close view of what is going on in the rental vs home buying arena. And pre bubble – housing prices didn’t make any sense, as principle/interest/taxes were about double as to renting a comparable place. These days that isn’t the case, as with these low interest rates and high rents, a buyer can end up with the same payments as renting ( not counting tax write offs).

    Buying is a very personal thing based upon both financial and emotional factors. Yes this may be the top of the market, and it may not be. I can only make an intelligent guess based upon a host of factors. Housing in Seattle is inexpensive compared to west coast cities such as Vancouver BC, and the cities in California such as SF, LA, San Jose and San Diego. Check out some of the housing around Silicon Valley, prices are 3-4 times the amount for a similar house in that area as compared to Seattle. And because of the popularity of Seattle, geographic limitations and the Urban Growth Management Act, new housing is both expensive and hard to come by.

    And as Steve indicated above, the affluent Chinese buyer is a factor not considered the last time. Having relatives in the Vancouver area, I have often witnessed first hand the amazing impact on housing in the Vancouver area. And I always inform my in laws “send em down here – our housing prices are half the price of yours, and we have the same lousy winters as you do up here”. Apparently they have taken my advice!

    Thus it is exciting times in Seattle for both homeowners and renters. Will homeowners continue to see dramatic increases in the value of their homes, or will the housing market cool off? Will renters have to obtain a third job just to reside in the trendier parts of Seattle? Will the voters keep on voting for all sorts of property tax increases that will only increase rents, which will in turn have everyone complain about evil landlords raising rents to cover those new expenses? Tune in, and we will all find out. At least life isn’t dull around here when it comes to housing.

  34. 34
    Irrational Exhuberance says:

    I am just curious how much of the low inventory and bidding-wars on a home prices have contributed to price increases in the market in Seattle. Since the low inventory had been going for a few years now along with bidding wars, the only way to maintain the high home prices is to maintain the demand, that means keep low inventory. The question remains, what happens if inventory were to increase? How many people bought real estate to invest in the rising market vs. buying homes to live in? How many people bail if the market falters?

    If say 20% of real estate purchases are investors, they’ll want to bail at a peak or just after a peak pops with no clear sign of returning only to chase after better returns elsewhere. Will there be enough demand to snap up the properties and keep prices high?

    I don’t think anyone knows the direction this market is really going — lots of speculation, the same kind of speculation that drives up any asset price.

    Real Estate is more sensational these days as we have it in your face with Zillow, Trulia and more — but what if Zillow added features to let buyers put a downward pressure on the market?

    Something will give and only a few will have guessed specifically what is coming.

    It’s too hot to buy a home here — I still get good in other investments and it is less risky. Risk is increasing in Seattle.

    Funny that the same people commenting that if Boeing/Amazon moved out, house prices won’t be effected and then turn around and say their stock price increase increases real estate prices. I sense bias.

    This market is irrational because people cannot get higher returns elsewhere and that WILL change when the Fed starts to change directions or if another system pertebation arises.

  35. 35

    A Beautiful Front Door Entrance

    The rustic look is in, this baby is only $408K! Check out the expensive sedan with a bit of rust to make it look nicer, parked out front. Now Erik knows the next flipper to grab up when shopping San Francisco. Think of the money he’ll make, when you buy it from him…

    http://www.dailymail.co.uk/news/article-3287274/Only-America-s-expensive-city-Rickety-old-San-Francisco-shack-falling-apart-sells-WAY-market-value-408-000.html#readerCommentsCommand-message-field

  36. 36
    Gabe Sanders says:

    Thanks for this chart. Looking at it as an outsider, it certainly looks like a scary situation. And another bubble could be coming.

  37. 37
    whatsmyname says:

    RE: softwarengineer @ 34
    “The average cost for a one-bedroom apartment reached a record $3,530 in the city in August, compared with $3,160 in New York, $2,270 in Boston and $2,110 in Washington DC.
    To rent a one-bedroom home in Los Angeles will set you back an average $1,830 a month, while in Seattle, it is $1,650. ”

    Great article! It is reassuring to read that Seattle housing may be less than half of SF costs, about half of NY costs and that Boston and DC are about 30-40% higher.

  38. 38
    wreckingbull says:

    By ess @ 33:

    By BellevueTheLivable @ 27:

    RE: ess @ 21 – I’m looking to move up because of a growing family, and what I’m seeing is that rents aren’t high enough to justify trying to buy in this market. Buying at the top of a “real estate cycle” is just throwing your money away!

    Thus it is exciting times in Seattle for both homeowners and renters.

    I don’t think many renters, especially those just starting out in life and those not in high-tech, would use the word ‘exciting’ to describe the rental market. Maybe temper the pom-pom routine with a sliver of empathy?

  39. 39
    ess says:

    RE: wreckingbull @ 37

    If we are in a real estate bubble, then empathy should be reserved for those who are buying both personal residential property as well as investment residential property as they are making a terrible mistake, and paying too much before the big crash. And if that is so, then renters will be just fine.

  40. 40
    OutsideView says:

    What happens when the government bumps interest rates up? We all know that low interest rates were an attempt to spur the market and get things going, it wasn’t meant to be a long term solution. Even with low volume of available housing, when interest rates kick in affordability will dip. I would love to see the cost difference for houses that were bought & placed back on the market within the last 3 years.

  41. 41
    whatsmyname says:

    RE: OutsideView @ 40
    2004-2006: Fed raised rates 17 times. What happened then?

  42. 42
    Kevin K says:

    http://www.wsj.com/articles/sam-zell-edges-out-of-apartments-1445832247

    PE & Hedge funds are slowly getting out of the market…Starwood is paying about $230,600 per unit for the Equity Residential portfolio. That price represents a so-called capitalization rate—a measure of yield—of 5.5%, roughly on par with recent deals. Mr. Sternlicht said he expects the Equity Residential portfolio to deliver “solid double-digit returns.”

    Don’t be the last guy holding on to the bag. Chinese buyers are done because they need to cover margins in their stock market.

  43. 43
    greg says:

    By Irrational Exhuberance @ 34:

    This market is irrational because people cannot get higher returns elsewhere and that WILL change when the Fed starts to change directions or if another system pertebation arises.

    Some posters here are ignoring that reality because it does not fit their narrative .
    If alternative investments start to provide better risk/return we will see a lot of monies exit RE.

  44. 44
    Irrational Exhuberance says:

    By greg @ 43:

    By Irrational Exhuberance @ 34:

    This market is irrational because people cannot get higher returns elsewhere and that WILL change when the Fed starts to change directions or if another system pertebation arises.

    Some posters here are ignoring that reality because it does not fit their narrative .
    If alternative investments start to provide better risk/return we will see a lot of monies exit RE.

    Exactly — two major strategies for wealth management. Safety and Managed Returns. Real Estate is NOT a safe asset — US Treasuries and precious metals are (drives me crazy, but it is reality). When loans finally start to deliver results, real estate will cool and cool fast because a loan can be used for more than just buying property — the money will exit fast if not managed well by the Fed.

    The next time a bubble appears and pops, I am pretty confident that QE will be replaced by something else. QE inflicts material harm on the economy and society by taxing those that do not own a sufficient amount of capital and instead rewards those that already have it. This will be remembered by those that are being fleeced and seeing their parents forced to move and forced to liquidate capital to survive — rising property taxes are an example.

    We need a tool to give younger generations the ability to build capital for a future and for retirement — that is, unless a welfare state is more manageable. Then it is fine to consolidate capital to less than 1% and have the rest on welfare after they cannot work. I find this disguisting.

    We need a better system for capital — the current structure is failing and failing gloriously right before our own eyes. We need deflation and there is NOTHING anyone can say to convince me otherwise; the arguments only held water in short term financial scenarios and just don’t hold water on global and long term scenarios.

    Seattle rents higher than Manhattan proper? I think the Internet has provided a vehicle to sensationalize and promote/hype real estate around centers where tech workers are. It’s not any one persons fault — it is the result of a phenomena where downward pressure does not get amplified because the tools to amplify it do not exist.

    Again — irrational exuberance, inflation is hyped, people get scared and want in before it’s too late. It’s marketing, not reality.

  45. 45
    whatsmyname says:

    RE: Irrational Exhuberance @ 44
    Precious metals are a safe asset?
    Gold is down 31% from where it was this week in 2012.
    Silver is down 50% over the same period.
    Neither of these numbers reflect the full damage from the top.

    Deflation is a product of recession; hardly a friend to the working man or enterprise, but great for holders of cash and idle capital.

    NYC rents are much higher than Seattle’s. I’ve seen nothing that claims Seattle’s are higher, and I don’t think you have either.

    I too believe NOTHING can change your mind, but please don’t double-handicap the uninformed by making them misinformed instead.

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