One early spring morning in March, I sat down at my desk with a big mug of coffee, ready to begin my day. I logged onto the Northwest Multiple Listing Service (NWMLS) website, ready to begin analyzing the latest market activity data.
The 24-hour Matrix Market Watch caused me to do a double-take. The Market Watch is a snapshot of the market for the previous 24 hours. For Seattle, there were just two new listings and six closed sales in the prior 24 hours. Only one expired listing, zero contingent sales and zero cancelled listings. There were 29 new sales citywide.
In my three decades in the Seattle real estate industry, I cannot recall a day when just two properties were listed for the entire city.
According to the NWMLS, sales system-wide surged 18.7 percent in February, compared to one year ago. Those numbers might be even higher if there were a larger inventory of homes to sell. The number of homes for sale in 2015 increased over 2014, but the higher volume of sales has reduced the inventory of homes — 12 percent from one year ago.
“The pent-up demand being unleashed has rocketed pending sales back to the levels of our record year in 2006. Buyers have come off the sidelines,” said Ken Anderson of Coldwell Banker Evergreen Olympic Realty in a press release from the NWMLS. “At the same time, homes for sale are near a 10-year low.”
Not enough equity
As home prices rise, there has been a historic correlation with rising home sales; this time, we’re not seeing the same increase in sales. One reason we’re not seeing more listings is because too many homeowners still lack sufficient equity in their homes to sell. Nearly 50 million homeowners in the United States are “under-equitied,” having less than 20 percent equity in their homes.
Homeowners with equity less than 20 percent are less likely to sell because they may not be able to cover the cost of the transaction, said Mark Fleming, chief economist at First American Financial Corp. to the National Association of Realtors.
In addition, without a surplus of equity leftover from a sale, current homeowners cannot afford the down payment on a new home, which keeps them trapped in their current home.
Besides those who have less than 20-percent equity, there’s another group in a more precarious situation: those with negative equity in their homes. Zillow reports that 15.6 percent of homeowners in the Seattle area have negative equity, or are “underwater.”
Compounding the situation, much of the equity in the housing market is concentrated at the high-end of the market: 94 percent of homes valued at more than $200,000 have equity, compared to 84 percent of homes valued less than $200,000, according to CoreLogic. (In the fourth quarter of 2014 in Seattle, 26 percent of bottom-tier homes were in negative equity, compared to 12 percent of middle-tier homes and 6 percent of top-tier homes.)
In fact, the share of underwater homeowners has declined dramatically from a peak of 31 percent in 2011 to around 17 percent in 2015, according to Zillow. But the decline in underwater homeowners is “now slowing as the housing cycle matures. As price gains moderate, the pace at which we work out negative equity slows down.”
By the end of 2015, the share of homes with negative equity will likely still be above 15 percent, according to Zillow’s Stan Humphries in The New York Times.
Homeowners in the bottom tier of housing are three times as likely to be underwater than homeowners in the top-tier. In addition, the Zillow report found those in the bottom-tier are also far more likely to be deeply underwater, or owing at least twice what their home is worth.
According to CoreLogic, the share of homeowners with negative equity increased during the fourth quarter of 2014, to 59.7 percent. The CoreLogic Housing Price Index fell by 0.7 percent during the same quarter. This highlights the fact that the housing market is a long way from being fully healed. Fortunately, the Seattle housing market is doing better than most other major cities.
Still more needed
For single-family homes, which account for 86 percent of all sales in the Seattle area, the median price system-wide is about 7.4 percent over one year ago. Although the rate appreciation has been slowing, Seattle is forecast to experience about 6-percent home-price appreciation in 2015.
Rising home prices will continue to lift more homeowners out of negative equity this year. But a significant number of Seattle homeowners — those in the most-affordable price ranges — remain trapped in their homes, unable to sell or make a transition during the best housing market in a decade.
RAY AKERS is a licensed Realtor for Lake & Co. Real Estate in Seattle. Send your questions to ray@akerscargill.com or call (206) 722-4444.