>> Northwest Now is supported in part by viewers like you.

Thank you.

>> Western Washington home sales are trending down a bit.

But the thinking is, that's only because of short supply, not a weakening market.

Can interest rates cool it off?

The demographics say, maybe not so much.

That's part of the discussion next on Northwest Now.

[ Music ] A lot of people watching this program own homes, and you may be thinking about your kids or grandkids as you watch it.

The headline is that we're moving into a period of time in this country where the American dream may not be attainable for a large chunk of the population, as the distance between the haves and the have-nots continues to expand.

Builders are years behind.

And two of the younger generations are deciding they want to own a home at the same time.

So the low supply, high demand curves add up to only one thing, higher prices.

As Northwest Now contributor Linda Byron tells us, while many buyers are discouraged, others with resources are determined to find the right house, and they will not give up until they do.

>> I have some early buyers.

I was wondering if you can share where you guys landed on price?

>> It's Tuesday morning, and real estate broker Rowena Toguchi is monitoring the limited inventory of houses on the east side.

After the frenzied housing market of 2021, this year didn't bring the relief many were hoping for.

>> I think I wrote an offer early in the year where they had 27 offers, 27, yeah.

And that was how crazy it was.

Because there was so much pent up energy from the holidays, and something popped up and everybody went whew.

>> Long gone are open houses that lasts weeks.

Now most lasts only days.

>> New listings typically come on Wednesday, Thursday of each week, sometimes Friday.

They have open houses on the weekends.

And basically there's a four or five day period where the listing is available for showing.

And then the sellers and listing agents will create a date, usually Monday or Tuesday, where they receive all offers.

>> This is one of those offer review days.

To say it's a sellers market is an understatement.

>> This is typically what a seller is looking at, and I show all my buyers this.

>> She's showing us the typical spreadsheet she keeps on every property she lists.

>> So this was a two bed, one bath condo in Juanita.

We listed for 435, and it sold for 545.

We received eight offers, with one of them that was cash, but multiple that had waived financing and inspection.

>> Just five days on the market, and the condo sold for more than $100,000 over the list price.

It's not unusual.

The housing market here on the east side is red hot, thanks to limited inventory and increased demand.

During COVID, a lot of people realized, to keep their sanity, they need more space.

They're either remodeling or they're moving.

Compared to a year ago, the price increases for an average three to four bedroom single family home are eye-popping.

>> Bellevue, Kirkland, Redmond, those areas have always been popular.

So we are seeing about a 30% year-over-year increase in those specific areas.

And then you're also seeing people move north towards Kenmore, Bothell, Carnation, right.

And those areas are even more staggering, up to 35/40% year-over-year.

>> In March, the average price for a three to four bedroom home in Issaquah, 1.76 million.

Kirkland, 1.96 million.

Redmond, 1.98.

And Bellevue, 2.6 million.

>> Beautiful neighborhood, yeah.

Let's go check it out.

>> Juan Collado and Mercedes Povoon have been looking at houses like this one in Redmond, hoping to buy, even if it means remodeling.

>> With Rambler, you have the opportunity to take all of these ceilings higher too.

There's an opportunity if you go into remodeling to do this outside in the living area as well.

>> For Juan and Mercedes, the priority is location, the right place to raise their daughters, ages seven and 11.

>> I think first of all, is the school district is very good, and security and safety for my family and for my girls is super important.

And yeah, also the communities and the neighborhood around and the people around.

>> Rowena says buyers should not get discouraged.

She's already seeing signs of improvement.

>> And with the new springtime inventory, I do expect much more coming up in the market.

So, you know, the balance starts to flatten out a little bit hopefully, right, where there's just more homes available for buyers to look at.

>> While they're not in a hurry, Juan and Mercedes say they're looking hard and getting everything in line.

>> For us, so the good thing is we have time.

But yeah, it's like continue with no stopping.

>> You have time, but if you find the right house, you're going to be ready to jump quick, right?

>> Totally, totally.

>> For Northwest Now, I'm Linda Byron.

>> Here's a number we look at regularly, the months of supply.

In King, Pierce, Snohomish, and Thurston counties, the number is 0.58 months.

That's a little more than a half a month.

A balanced or normal market usually runs around four to six months of supply.

But these are not normal times.

The area-wide medium price, the March MLS report says it's $638,000.

That's up a whopping 16% in just one year.

Is that sustainable?

Let's talk it over.

Joining us now are James Young, director of the University of Washington's Center for Real Estate Research; James Fisher, president of the Tacoma Pierce Association of Realtors; and longtime returning guest and mortgage guru Robert Lipston with Flagstar Bank.

Thank all of you for coming to Northwest Now for our annual discussion about the real estate market here in western Washington.

I normally start down on the end and work my way in an organized way to Robert.

But Robert, you're the guy with the breaking news this year.

We're going to start with finance and interest rates.

Just set the stage for us, what's going on right now?

>> Well, we're experiencing the largest increase of interest rates since 1994.

I don't think there's an economist or anybody within our industry that could've predicted or speculated what was going to happen this year.

Our interest rates are driven pretty much by the Federal Reserve.

And I believe that they've change the rudder, or I know they've changed the rudder, to slow down the housing market.

So we've seen a major increase in interest rates.

The interest rates today, we're in the high fives, they could even hit 6% by the end of the day.

>> Now, historically -- and I want to stay with you here for a second -- we probably still shouldn't be freaking out though, right?

Because even by historical measures, it's not all that bad, right?

>> Well, so it depends when you got in the business and how long and how old you are.

I can tell you when I got in the business, 18% on a first mortgage and 27 on a second was the going interest rates.

But yes, historically speaking, if you look at the last few decades, we're still way ahead.

It's still a great homebuying marketplace.

It's still affordable from a standpoint of interest rates.

Even at a 6% interest rate, you can still afford a home, and there is products that allow you to get preapproved and buy homes in the marketplace today.

>> James, nothing I like doing better than asking the impossible question.

So you're going to need your crystal balls and tea leaves for this one.

I'm going to mix metaphors.

Interest rates, can they take the air out of this market?

Or is the supply-demand structure this time around so out of whack, so much demand for so little supply, no matter what the interest rates are, prices are going to stay high?

What do you see happening there?

>> Well, I think a lot of it is not interest rate driven, that you have a lot of demographics and social shifts that have been moving the market more toward the suburbs.

People have taken advantage of low interest rates while they could.

But you also have a lot of cash buyers in the marketplace.

And with those cash buyers, they can out-bid a lot of first-time buyers.

And with the demographic situation you've got now, you've got a lot of older people and then a lot of young people coming up, and not much in between.

And they're all going for the smaller houses.

The older people who've had equity in their homes are trading down.

They can go to suburban markets, they can go to a place like Spokane and trade down and also get an investment home, and pay cash for it.

They don't need to get a mortgage.

The first-time buyer out there is having to compete with those guys to get what little supply there is.

And so there's almost no supply available in first-time buyer categories at all.

>> And a couple of generations of first-time buyers.

Because the previous generation had to put it off because of college tuition, and you know, they also wanted to do kind of the urban hip walk to my coffee thing.

And now they're saying, nope, it turns out, I want what mom and dad had too.

>> Yeah.

And they're moving to the suburbs.

And if they can work from home, they're moving to peripheral markets to get value.

And we've seen that over the past two years along the I-5 corridor, all up and down I-5, and anywhere where people can kind of get that value for money.

I don't think that interest rates are going to take the steam out of the market because there's so little supply out there.

So as long as people are trying to trade down, you're still going to have demand in the marketplace.

>> And the rot in the floorboards isn't there like it was last time around with basically fraudulent mortgages -- let's just cut to the chase -- underpinning a lot of those ownership models.

So moving to the suburbs, James, this falls right into your lap down in Pierce County, which is finally having its day after maybe a decade.

Everybody was saying, well, when's this boom going to come down to Pierce County?

Well, here we are.

And guess what?

Places like Parkland and Spanaway, and when I was growing up and going to PLU and places, were not considered awesome places to live.

That's changing a little bit.

The price is right, right?

>> Yeah.

No, it is.

We're seeing a lot of people that are having to drive in order to afford housing.

You know, Tacoma itself as a core, we've run out of places to build in the city limit.

So where do you go out?

You go out Spanaway, Puyallup, Graham, out in those areas.

But like everyone keeps mentioning, there is an inventory shortage.

We have first-time homebuyers entering the marketplace and competing with individuals who are downsizing.

I'm seeing a lot of individuals come from out of state.

And I have worked with quite a few individuals coming from King County, down from Pierce County, in the last year, in the last few years actually.

So yeah, we are seeing those markets that are starting to overheat, even markets that you wouldn't consider being overheated because of higher price points, maybe like at Gig Harbor.

It is brutally competitive out in Gig Harbor to find a home right now.

>> Which is amazing because the price point there has got to be significantly higher than it is in some of the other places we mentioned.

>> Yeah.

The median in Gig Harbor I believe is about 735.

Whereas you look in Pierce County as a whole, we're looking at about 545.

So, you know, there's a little bit more higher-priced homes out in Gig Harbor.

But people are moving out in east Pierce as well.

You know, we're seeing Graham and Eatonville see new home builds that are priced up there on the higher tier.

>> I always thought that Eatonville was a bridge too far for a Seattle commute.

When they built Dubuque out there, I said to myself, okay, that's the end.

That's peak suburbia.

That's peak sprawl.

We've experienced it.

Here comes the GMA, that'll never happen again.

Maybe not.

>> Yeah.

You can get everything you need in Eatonville without having to leave now.

So I think there's a demographic difference too, right.

I mean, COVID came along.

We taught companies how to work remote.

So people can live anywhere now.

So Eatonville, Cle Elum, wherever it may be, people will buy because they can be housed there.

They can get a bigger house.

Their lifestyle is different now.

And I think we see more and more people moving to suburbia, number one, driving to affordability.

Number two, getting a bigger house, because they're living at home more now because they can work from home.

And we as industries have taught them how to work from home and be remote.

Even as we go back, there's a lot of people that will never go back to the same lifestyle they were before.

>> All right, I'm going to throw one at you.

San Francisco Bay Area, people started commuting out of Tracy and Stockton over the hills and into the Bay Area.

I remember that phenomena.

I worked in northern California for quite a while and just have family there and stayed in touch.

Are we going to get to the point do you think where Cle Elum, Easton, or Ellensburg, or -- I'm trying to think somewhere up in the North Cascades -- is going to be part of the Seattle commute?

Is that possible?

>> I think it will.

I mean, you're already seeing pressure for public transit to go to Smoky Point and everything else, with direct bus rides down to Seattle every morning.

You're seeing all that kind of stuff.

It's already here, it's already here.

And for the people that only have to go in two or three days a week, it's already here.

You were mentioning southeast Pierce County, I mean, you're seeing a lot of people from Seattle that are commuting from there the two or three days a week they have to go in, because it's better value and they have a lifestyle that's a little bit more relaxed than living, say, in Ballard or Green Lake or something like that.

>> It's happening today.

I have three employees that live in Suncadia today, and they come in three days a week.

>> Okay.

>> Yeah.

It's commutable.

>> Also, I know, James, how much researchers with numbers love anecdotal stories, but I'm going to do it to you anyway.

You know, that's the big story, one of the big stories, as well.

People in western Washington, Seattle, they are punching out.

They're going to the Tri-Cities and Moses Lake and Spokane and Boise and maybe even insane people out to Montana.

>> Who would do that?

>> Yeah, I don't know.

So, you know, is that a rarity?

I want to hear from each one of you.

Are people telling you they're actually doing that?

Are those weirdos?

Or no, that's a thing?

Anybody.

>> It's happening every day.

I talk to realtors in Bozeman, and 62% of the offers that were made were done sight unseen.

I think everybody's running.

I don't want to get political, but.

>> There's a piece of it.

>> Yeah.

At my Spokane office, out of eight loan officers, five of them moved across the border into Idaho to escape Washington in the last year.

>> Okay.

Go ahead, James.

>> You look at some of the data of where people are coming from from drivers licenses and so forth, a lot of people from out of state.

A lot of people are coming from out of state.

Like Spokane, in particular, they're coming from California.

They're coming from, you know, the expensive markets that you would see in the Bay Area and southern California, and they're moving to a place like Coeur d'Alene and Spokane.

They're buying a house, paying cash, buying an investment property to support their income, and working less or working remotely.

And they're usually, I hate to say, people closer to our age here.

Sorry, James.

But they're people closer to our age that are buying those houses and they can make their work arrangements work for them in that way.

And so they don't mind that commute.

They don't mind commuting by air.

>> And you're missing out on Arizona, because a lot of people are moving to Arizona right now.

>> Which is booming.

>> Yes, booming market.

>> With no water.

Yeah, exciting.

>> And fun summers.

>> James, is some of the inventory that you sell in Pierce County, is your perception that some of those folks are punching out to Idaho and Montana and other places?

Are those some of the homes you're selling?

>> Those are some of the homes that we are selling, yeah.

A lot of people in just the last month, three individuals I helped move moved to Florida, you know.

I am seeing a lot of people come from out of state as well.

But, you know, I do have individuals who are actually still migrating into Seattle, you know.

You got a promotion, you got a great job, you need to be in the city.

You don't want to make the one-and-a-half hour commute each way from Tacoma to Seattle, you know.

I am still seeing individuals move up to the city as well as kind of go back and forth.

>> Yeah, yeah, interesting.

I hope I didn't step on my own question here by presenting my ideas about the mortgages that support current homeownership, but I'm going to ask this question anyway.

Just go down the line.

James, do you have any sense at all that this price spike we're seeing is what we would traditionally call a bubble?

>> Not in the traditional sense, simply because you don't have the supplies being able to keep up with demand.

Not only that, in terms of the overall economics that you have right now, most markets are driven by interest rates and finance and Fed policy.

And so that drives a lot of the housing market.

This time what you have in terms of the driving factors on the economy is the lack of labor.

Which is where in America that you have this shrinking labor force, and people that aren't participating in the labor market -- such as people retiring early -- and just deciding to cash out and trade down.

That's a rarity in the US.

So to that extent, you don't have the bad behavior from banks -- sorry -- and the sort of things that were driving the market from an interest rate point of view before.

Now what you have is a change in demographic and lifestyle choices.

That's changing how economy works and it's changing people's preferences in the housing market.

And with the lack of supply generally, it also creates a problem with supply on what people want for their lifestyle.

And so it's a supply issue.

>> And James, I know when I ask a realtor this question, the answer is always, now is a good time to buy.

I'm going to concede that.

With that said, do you get the feeling that this is all toppy or a bubble?

Are you advising people, listen, whatever you can put together, dive in and buy it because it's only going up?

>> yeah.

No, definitely, no signs of a bubble from everything that we can see as well.

You have individuals who are buying their first home and who are just eager to get into the marketplace.

There was I believe for the next eight years consecutively, there's a millennial age group, which if you consider 34 being your average age of buying your first home.

For the next eight years, the largest segment of the population will be 34 years of age.

Getting out of college, you know, having debt, getting a stable income and a great job now.

Now, what's next, you know, purchase our first home.

And there are a lot of people out there that are trying to get in their first home.

And, you know, you are right, I think the time to buy is when it's right for you, right.

But we're not seeing anything having the rug pulled out from under us.

I can't see anything.

>> Robert, one of the things I worry about is that -- I can see prices not going down, but I can also see somebody buying a 1500 square-foot starter house built in 1955 for $700,000 and having to keep it for the next 15 years, not deciding to keep it.

But they're pulling forward here.

So they got in.

It may not go down, but they aren't moving anytime soon.

They're not going to resell that thing for 750.

So what's your advice, you know, when it comes to tapped-out parents who've paid high college tuitions?

I mean, I can see you being in a little bit of a box here trying to advise people how to manage themselves into a very high priced first home.

What's your advice?

What do you tell people?

>> Well, the show's only a little while.

This is such a big subject right now.

And the demographics of a bubble -- we don't have one of those pillars, right.

I mean, our employment data.

The average FICA score of our borrowers over the last century or any qualifying standards, none of that's there.

So when you talk about the investment in real estate, I'll just say there is a cost to waiting.

And if you were sitting on the fence in October and you said, I'm just going to wait a little while longer, you might have waited yourself out the dream of homeownership.

And when interest rates are stable or increasing at the rate that they are today, and the appreciation factors are out there, by waiting, you may lose your opportunity.

And for the first-time homebuyers, it's your first segue into wealth.

>> Yes, wealth building.

>> And if we miss that opportunity by the baby boomers and the first-time homebuyers crashing the boards of low-priced homes and we miss that opportunity, we create an unstable industry and real estate market, because of the fact we won't create wealth.

And there won't be move-up buyers.

And there won't be people to buy that next house.

>> That's me segueing though into the question that you said, not just an unstable industry.

James, how about an unstable society where we end up with the haves and the have-nots, and that's even further aggravated, where homeownership and perpetually renting from Blackrock is one of your two futures?

There is no middle way.

>> Well, yeah, you're going to live somewhere.

So you're either going to own it or you're going to rent it.

And so with the lack of first-time buyer housing supply to the marketplace -- this is almost everywhere in this region -- that you're not going to have homeownership available to a lot of first-time buyers.

All the areas that have been gentrified and they move out for value, they've disappeared in the past few years with the low interest rate environment.

Just for an example.

If you look at Pierce County, where we are, in 2017, I mean, you were looking at affordability pretty good for a first-time buyer.

Now, assuming 70% income, looking at 85% of the median house price, 5% down, FHA sort of minimum guidelines to get a house, right.

Pierce County was still unaffordable but not that unaffordable.

It wasn't like King County or anywhere else.

You could still get value, but it represented something like 40% of the market.

So 40% of the houses sold in 2016 and was affordable to first-time buyers.

Last year, it was under 10%.

So under 10% of the entire housing base that was sold last year, all the houses that were sold, weren't affordable to first-time buyers under FHA criteria.

So you've got 10% of the transactions out there, and all the first-time buyers trying to chase them.

So yeah it creates a lot of problems.

It creates problems for the rental market.

I could just go on about this forever.

>> So, James, we've got first-time homebuyers looking at $600,000 house.

60 times two is 120 is the down payment they need on an 80/20 LTV loan.

How are you advising them to come up with 120 grand?

What do you say?

>> You know, that is one of the largest challenges, because there are going to be individuals in the marketplace that can tap into let's say the equity of a parent's home.

There are some individuals who have that safety net who can help them obtain the first home.

And there are individuals who are using down payment assistance to obtain a first home.

And, unfortunately, what we're seeing are the ones who are, you know, able to tap into wealth and housing to grab their own first home.

The individuals with down payment assistance are continuing to make offer after offer after offer, you know, sometimes upwards of 30.

I have one personal client that is on number 36.

>> Oh my gosh.

Robert?

>> Well, there's two things I want to say.

I want to go back to the beginning on interest rates.

>> Okay.

>> The Fed controls the rudder, okay.

In 2017, they said, we're going to buy $100 billion a month of mortgage-backed securities, okay.

And when COVID hit, they stepped in and dropped the Fed rate to zero, right.

They watched the housing market and appreciation and inflation.

So what did they do?

They put their foot in it.

It surprised them.

And they put their foot in it hard.

>> Yeah.

>> They're putting their foot in this to slow down the housing market.

This is their attempt to do that.

That's the first thing.

The second thing is what I talked about two years ago, and I'll try and make it fast.

What happens when the housing market slows or what happens when the mortgage industry slows down?

The shareholders and the board room doesn't say, you're going to make less profit.

What you do is you become creative.

I guarantee you they're not -- they can't let it happen.

And the Fed will not let this train get off its tracks again.

They're going to keep it on its rails.

And I really believe you'll find a product mix that you haven't seen ever before.

And we're starting to see.

>> So creative financing?

>> Higher loan to values again for people that qualify that have the ability to make their payments.

Remember, employment is not a factor right now.

We have a huge employment marketplace.

So that was a big problem before.

I believe you're going to see more products, higher loan to values, less down payments, and more product mix to get people in homes.

>> Great conversation.

Thanks to all of you for coming to Northwest Now.

The bubble burst last time because the housing market was a fraudulent house of cards built by the mortgage industry, the Feds, the rating agencies, and the financialization of toxic mortgage debt.

The bottom line, this time around, loans are sound, jobs are plentiful, and there are millions of people ready to buy homes the moment they're built or go on the market.

It's going to be interesting to see how homeownership, one of America's greatest engines of generational wealth, holds up under the strain.

I hope this program got you thinking and talking.

To watch this program again or to share it with others, Northwest Now cab be found on the web at kbtc.org.

And be sure to follow us on Twitter at Northwest Now.

Thanks for taking a closer look on this edition of Northwest Now.

Until next time, I'm Tom Layson, thanks for watching.

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