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Rising Rents = More Home Buyers | WMU 4.12.21

Apartment buildings in a city
Apr 9, 2021 02:58 PM

By: Kyle Bergquist

The Puget Sound Real Estate Market

Puget Sound Real Estate:  Rising Rents = More Buyers

In ECON, pricing is all about the substitutes.  For example, Coca Cola is going to have a hard time rising the price of a Coke if Pepsi doesn’t also do the same; and Chevron is going to have a hard time rising the price of a gallon of gas if Shell or Arco don’t also raise their prices.  When it comes to housing, the correlation is a little looser, but as rents rise, housing prices get a little boost to their ceiling as well. 

Sometimes these relationships are little easier to explain with an anecdote:  Bart and Suzi Simpson are tech employees in their 20s who moved to Seattle from out of state in 2018.  Bart got a job at Amazon, and Suzi at Facebook.  Since they were both new to Seattle, they opted to rent before buying anything.  But now a couple years later, their stock signing bonuses have vested, they enjoy the city, they love their jobs, and all of a sudden they’re thinking of putting down roots in the Puget Sound by buying their first home.  However, apartment life is pretty convenient so homeownership has been more of a concept than a plan over the last year or two, but after getting notified by their landlord that their rent will be increasing by $200 per month, the concept is becoming more of a plan with every passing day.  Eventually, the person in the apartment above gets a Peloton and rocks it hard every morning at 6am, and Bart and Suzi’s concept of homeownership all of a sudden becomes a rock solid plan to buy a home before their lease is up. 

I made this story up, but it’s a pretty applicable story to QUITE A FEW of our first time homebuyers.  FTHBs are reading every day about how much housing prices are rising, how much wealth is being earned by homeowners through increasing equity, and it only takes a few punches to push an apartment dweller who knows they want to stay in Puget Sound into an active homebuyer.

Summary

Rents in Seattle decreased about 14% during the pandemic.  Overall rents are still down, but as the economy gets going again and people move back into the city centers, we’re going to see rents slowly increase and the story above play out more and more.  Moreover, as the end of the eviction moratorium gets closer with every passing day, landlords are going to start doing what they can to recoup losses due to missed rent payments during the pandemic.  Currently about 112,900 renters across Seattle-Tacoma-Bellevue are not caught up on rent, so as moratoriums are lifted and people move back to the city centers, it should be no surprise that rents will start to increase – Thus, the Seattle Times Headline:  Rents rise again in Seattle after pandemic plunge…and with every little rent increase, expect to see more current renters jumping into the Puget Sound Home-Buyer Pool.

Rent rates across Seattle Washington

 

Interest Rates

Per Bankrate’s survey of large lenders, the 30 year mortgage interest rate on purchases fell slightly this past week to 3.32%, with .34 in discount and origination points.

According to Bankrate, rates have fallen .26% since their 52 week high of 3.58%

(That’s a savings of $72.32 per month on a $500,000 loan!)

Mortgage Interest Rates breakdown graph

Kyle’s Quick Take – Mortgage Market Week in Review

The funny thing about markets is that they don’t exactly trade on the “What’s Happening Now” data…they trade on investors hypothesis’ of what WILL happen later.  This past week was a perfect example of that.  Conventional wisdom would tell you that if inflation is higher than estimates, and more jobs were created than expected, and manufacturing indexes are setting all time record highs, that money would be flowing into the stock market and not the mortgage bond market.  Well, money flowed into the stock market on all this great economic news:  The S&P 500 Index is literally at an all-time record high as I write this at 7:07am on April 9th, 2021…but it didn’t come at the expense of the mortgage bond market!  I’m happy to report that the mortgage bond market, despite a flood of fantastic economic news, actually had a pretty good week! 

HOW CAN THIS BE?!?! 

Well, because for the past 50 days investors were selling mortgage bonds and TBills in anticipation of great economic data.  Problem was, they didn’t know how great the data was going to be, so we find ourselves in a spot where the data is coming out great, but not SO GREAT that it warrants current pricing on mortgage backed securities and 10 year Treasury Bills.  Thus, we find investors ALSO buying back into the lower risk/lower reward bond markets ON TOP OF buying into the stock market!  This has 401Ks riding high, and mortgage interest rates trending ever-so-slightly lower for the first week since mid-February. 

Yes.  I would like my cake AND I’m going to eat it too, thank you very much. 

 

Puget Sound Real Estate:  Charts and Data

Alex Black Absorption Rates per NWMLS Real Time Data

Absorption Rate is calculated as:  (Pending Sales) / (Active + Pending Sales)

SFR in Seattle

  • SFR Pending Sales in Seattle:  1,054 homes
  • SFR Active Listings in Seattle:  595 homes  
  • Absorption Rate for SFR in Seattle:  63.92%
    • Competition is driving prices higher…already about $60,000 higher since our winter low.  So long as the absorption rate can stay high, escalation clauses will likely keep pushing prices even higher than where we’re at today in the weeks to come. 

Absorption Rate for SFR graph

Condos in Seattle

  • Condo Pending Sales in Seattle:  363 condos
  • Condo Active Listings in Seattle:  605 condos
  • Absorption Rate for Condos in Seattle:  37.50%  
    • A relatively high absorption rate gave us a strong floor for median condo prices to jump higher.  So long as the absorption rate can stay strong, escalation clauses will likely keep pushing prices even higher than where we’re at today in the weeks to come.  

Absorption Rate for Condos graph

Seattle SFR Stats breakdown  Seattle Condo Stats breakdown 

 

Median List Price graph

Price Per Square foot graph

Inventory graph

Average Days on Market graph

 

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