I’d like to begin this post with a disclaimer. The information I’m sharing here is anecdotal in nature, and my opinions are based largely on my own personal experience investing in and selling residential real estate since 1993. I know that quite a few Realtors may disagree with me, but I’m having a distinct feeling of “déjà vu” with respect to the local housing market, a feeling that reminds me of the months just before the market peaked in August of 2007. Median home prices in Pierce County are currently well above that 2007 peak (see the chart below) and well above the levels we would expect to see with normal appreciation (the red line). While the numbers differ by county in the Western Washington area, the overall trends remain the same.
FIRST SIGNS OF A CHANGE? Watching what new home builders and developers are doing is never a bad idea. I was recently showing homes to relocation clients interested in new construction in Puyallup, and what I saw gave me pause. Builders were working their crews around the clock to finish houses that were already under construction, but there seemed to be little to no new ground being broken for additional homes. Builders’ agents were also offering heavy, unadvertised incentives (in some cases 10-15% of a home’s total value) to buyers willing to purchase in June. The MLS data below shows a recent decline in pending new construction home sales in Pierce County (the red line), consistent with a decrease in new housing starts. Of note, Time Magazine has pointed to this decrease in new housing starts as an early warning sign of a broader recession (SEE THE FULL ARTICLE HERE).
IS A RECESSION AROUND THE CORNER? For seven leading economists interviewed by Forbes Magazine in May of this year, the answer is yes. Predictions for the start of that recession range from late 2018 to 2022. SEE THE FULL ARTICLE HERE. A lot will depend on the fiscal policies of the current administration, but rising interest rates in combination with a recession will almost certainly have a negative impact on our local housing market.
SHOULD YOU PANIC? The answer here is no. I’m not expecting a market drop like we experienced in 2007 because the fundamentals of home mortgage lending are significantly different than they were back then, but I do anticipate a decline in real estate values within the next year. Is now a good time to buy? It depends on how long you’re planning to own the house and how much equity you’ll have in the house at the time of purchase. We’re advising clients who expect to have their house for at least five years and who have the capacity to hold on to the property through a market downturn to buy at a price they feel is reasonable. If buyer clients tell us they might have to resell a house within the next two to three years and/or if they don’t have a lot of equity to put into a house, purchasing now may be riskier. Is it a good time to sell? Absolutely. For seller clients thinking of selling “in the next few years”, we’re recommending that they do it sooner rather than later. While today’s sellers could be missing out on additional appreciation, timing the housing market for maximum gain can be difficult. If selling now fits with your larger life plans, sell now and avoid the risk of a loss in value if and when the market shifts.
In response to increasing buyer demand for housing in Pierce County and a persistent shortage of inventory, developers have been building new homes in Gig Harbor at a rapid rate. The Gig Harbor City Council recently responded to this development boom by passing a building moratorium on new residential development applications, forcing developers to put upcoming projects on hold.
I’ve had questions from several clients about what this moratorium means and whether or not they should be concerned about what that does to their plans to buy and sell property in Gig Harbor. As a result, I’ve decided to share the information here that I’ve recently been discussing with them.
Why did GHCC use a moratorium and what does it entail?
In a recent Tacoma News Tribune article, Gig Harbor council member Michael Perrow said the council had instituted the moratorium because they felt the “rapid pace of development has created vast concern” among community members and that vesting of certain permit applications would be “detrimental to public health”. The ordinance imposes a six month moratorium upon the receipt and processing of subdivision applications and applications for building permits and other land use development approvals associated with residential development. Click here for the full article.
What does this mean?
The city council is concerned that current zoning regulations may no longer be appropriate and/or sufficient in light of recent growth. Applications for new developments are coming in so rapidly that the city wants to take some time (6 months) to figure out what changes might need to be made to ensure that the infrastructure can handle this explosion of new residential development, and to determine how to slow down growth if necessary.
You already bought land and have submitted your applications. Now what?
There are exceptions to the moratorium:
- Any valid permits that were filed before the moratorium passed and simply need to be processed.
- Permits for repair, remodeling, restoration or additions to existing single-family dwellings.
- Replacement of any existing single-family dwellings.
- Permits and applications for “accessory uses and structures associated with existing residential dwellings units.”
- Applications for final plats or short plats.
- Any site improvements or utility extensions that are necessary to obtain approval for final plats, final short plats or preliminary plat applications submitted before the moratorium was imposed.
If you were thinking about purchasing land for construction in Gig Harbor, should you forget about it?
In my opinion, it’s safe to continue looking for vacant land in Gig Harbor if you are considering single-family new construction. According to The City of Gig Harbor, permits for a single-family home on an existing recorded lot will still be processed. If you are thinking about developing a subdivision, that is a different story. I would recommend taking a pause, because zoning and density regulations may end up changing in the near future. If the moratorium continues beyond the six months, we could see the prices for existing homes in Gig Harbor inflate more rapidly than they would without the building stop, which could be good for current home-owners. For full details on the Gig Harbor moratorium in the City’s own words click here.
How long will this moratorium last?
Mayor Kit Kuhn said that the city will need to entertain official public comment on the moratorium at the March 26th regular city council meeting before any timing decisions are finalized. Though temporary in nature, this moratorium is expected to last for at least six months.
Miles Eaton is a top-producing Realtor with Windermere in Tacoma specializing in the purchase and sale of historic and luxury homes. Click here to e-mail Miles or feel free to give him a call at (253) 355-5862.
Jeff Williams and Mark Pinto were recently interviewed by Kate Martin of the Tacoma News Tribune to explore the current trends for the over million dollar housing market in Pierce County. As the listing agents for three of the over million dollar listings that are currently pending sale in Pierce County, they shared insight about buyers for these luxury properties and their experience in the luxury market.
In recent months, dozens of million-dollar abodes have sold or are in the process of closing. If the pace keeps up, sales of homes worth a million dollars or more could eclipse the record of 86 sales set in 2007.
Where are these buyers coming from? Many fly in from other parts of the country, said Jeff Williams, a real estate broker for South Sound Property Group, part of Windermere Professional Partners. He works with fellow broker Mark Pinto.
“They could be coming for a job or lifestyle change,” Williams said. “It could be a second home for people who live in California.”
One historic home in Tacoma’s North End is listed by Williams and Pinto at nearly $1.3 million. Its sweeping views of Commencement Bay, and the Olympic and Cascade mountains drew 25 showings in three weeks — a pace unheard of just a few years ago, Williams said. The final sale price was not available.
Williams and Pinto work together to sell luxury and historic properties in Tacoma, Lakewood and Gig Harbor. They said the luxury or “trophy home” market has heated up in the county in the past six months to a year.
“I think it speaks to the confidence that people have in the market and the broader economy,” Pinto said. “They probably have been sitting on the sidelines in a house that they like, but they want to buy up to that aspirational house.”
The number of buyers searching for homes in Tacoma’s North End far exceeds the number of homes for sale, which often results in multiple offer situations that require buyers to compete for the house of their dreams. For buyers who plan to finance their home purchase, obtaining loan pre-approval before submitting an offer is critical. We actually encourage our clients to obtain loan pre-approval before they even begin house hunting in earnest to avoid scrambling when the right house comes along. Getting your financing squared away before starting to look at houses can also give you a more accurate understanding of exactly how much home you can afford. Sometimes buyers can afford more than they thought, sometimes less. Sometimes issues arise during the pre-approval process that buyers need to resolve before moving forward. Whatever the circumstances, it’s always helpful to have your ducks in a row and to know your true capacity to purchase before you begin looking at homes.
One of the many advantages of working with a local real estate professional is that we have relationships with (and can recommend) lenders who can help you with the pre-approval process, many times over the phone. Then, once you’ve selected a lender, you’ll simply need to provide them with documentation of your assets, your debts, your credit history, your employment history. Many potential buyers overestimate the down payment and credit score needed to qualify for a mortgage today. You may be pleasantly surprised at what you can afford.
Mark Pinto is a top-producing Realtor with Windermere in Tacoma specializing in the purchase and sale of historic and luxury homes. Click here to e-mail Mark or feel free to give him a call at (253) 318-0923.