Housing Bubble?

Not so fast. Four reasons why Seattle is not in a bubble.

All Parts and Conclusion


Many in Seattle are nervous that the housing market we’re experiencing is a sign of another bubble about to burst. However, as Windermere’s Chief Economist Matthew Gardner has pointed out, there is little evidence that this is the case. Below are four points you may want to consider when determining if the home values we see are built out of brick or out of straw.



Americans are saving their money again and putting more money down on their homes when compared to pre-2008 levels. The average downpayment for home buyers now sits at 8%, much higher than the risky very small or zero downpayment mortgages that contributed to the bubble we saw a decade ago. The estimated total value of all real estate in the US is $25 Trillion, $15 trillion of which is equity. Equity has risen steadily while debt has remained level. Historical comparisons show our collective housing balance sheet remains manageable and healthy. All this means is that Americans have a more sturdy cushion underneath them. 

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Mortgage lending practices have become a lot more strict due to their role in the crisis a decade ago. The average FICO score of an applicant for a conventional 30-year fixed mortgage is now 753 and for FHA loan applicants it is 683. The average denied credit score is 703. To help put this in context, today, 55% of all approved applicants have credit scores of 760+, between 2004 and 2008 only 20-30% of approved applicants had credit scores that high. The conditions that allowed for the predatory and risky lending that led to the crisis are no longer present. Again, pointing to a more stable future for the housing market.

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Our economic boom in the North West is attracting companies, investors and people in droves. The fact that Seattle leads all American cities in the number of cranes for the second year in a row is evidence of this. Job growth shows no signs of slowing down. We’re seeing the East Coast taking notice and investing  heavily in the North West. Those from San Francisco can move here expecting to make roughly the same salary and buy a comparable home for half the price. We have limited space and underwhelming transportation options.  Don’t let Amazon HQ2 fool you into thinking demand on our market will be eased. Our economy is diverse and robust, from the tech to manufacturing. While foreign investment in the area is a contributing factor it should not overshadow the largely economic foundation of the increase we’re seeing in demand. 

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People aren’t moving and builders are struggling to find opportunity. The lack of inventory means folks who may want to move worry that they won’t have a new home to move into once theirs is sold. The classic chicken and egg dilemma. All the while, here in Seattle, builders are struggling to make projects pencil. The rising cost of land, cost of materials, shortage of labor and increasing regulations make it extremely difficult for builders to create new inventory. Builders simply can’t keep up with the growth of demand. Our local leaders have lots of ideas but few solutions that will make any short term impact. It all comes down to the basics of supply and demand. The medium and small sized builders who contribute to creating the supply that would help alleviate pressure on home prices are struggling. Until we  have more housing the demand will continue to cause existing home prices to climb.

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Well it depends on what you’re scared of. If you’re looking to buy a home in Seattle then expect that it will continue to be a challenge. However, I believe you should go forth feeling pretty good about the future value of your home over the long term. Seattle’s economy is strong and diverse. Many believe it would take something on the national or international level to knock it off course. Even so, Seattle weathered the last recession better than almost anywhere in the country. If you currently own a home in Seattle then I think losing any sleep over the potential of a bubble may be wasted energy for now. Rather, sit back and enjoy the market conditions that are padding your equity. 

As we like to say in the real estate industry, non of us have a crystal ball. However, all the points made by our Chief Economist Matthew Gardner point to the same conclusion. The conclusion is that the home values we see now are most likely built out of brick  as opposed to straw. Its going to take one heck of big bad wolf to blow it over.