Anyone watching the real estate in King County, Washington, has noticed a subtle shift in the residential housing market.
Last year, in the month of September, there were only 297 new construction homes sold in King County. As of September 21, 2018, there are 919 new construction active listings in King County, WA, and this number doesn’t even include all new construction homes available for sale, as many new home developments only list one or two homes, out of many, in the MLS. New construction projects are pushing the boundaries of affordability and the surplus of $2M plus homes is impacting the rest of the housing market.
New construction seeks double digit price increases over prior year sales. Again.
The last two years were certainly exciting - with double digit year-over-year growth. But how long can we reasonably expect a continued compound growth rate in excess of population and total income growth?
New home construction can take anywhere from 1 to 5 years, depending on the complexity of project. When a new construction project begins, the builder must estimate future market pricing. And who doesn’t want to build, and sell, a $3M home? The trouble is, there is a limit to the number of buyers who are willing and able to purchase a home at that price.
The median new construction home in King County, Washington, is priced at nearly 11% higher today than the 2017 new construction sold home. The median price-per-square-foot for new construction residential increased over 50% as builders focused on high end construction in more affluent neighborhoods.
The price gap between new construction homes and newer resales increased in Q3 2018
The list price for new construction residential homes in King County, Washington, outpaced the list price of newer resales. Home buyers typically expect to pay a premium for new construction, within reason.
Lack of affordable inventory for most buyers and a surplus of inventory for the top 4% of buyers.
Assuming that recent closed real estate transactions represents market affordability and willingness-to-pay, the imbalance of supply across buyer segments is startling. Nearly 30% of the new construction homes in King County exceed a list price of $1.25M, yet only 13% of available buyers are able and willing to purchase at that price.
New Construction pushes boundaries of affordability
The table below shows the distribution of final home sales for 2013 to 2018. The jump between 2017 and 2018 represents the greatest year-over-year increase for new construction in the last 5 years.
New Construction - Median Increase > $100k from prior year
Total Market - Median Increase < $25k
Rapid price increases, along with increase supply, results in price adjustments and longer days on market
When seller expectations exceed market willingness to pay, the result is a trend of price adjustments. Price reductions are more common than they were a year ago, but there are still many transactions that exceed the original list price. The majority of the price reductions occur for homes priced above $1.2M - where supply exceeds demand. Leaving many sellers with the choice - wait for demand to increase or sell for current market value.
The recent softening of the real estate market is a result of overly ambitious price expectations of sellers, reduced affordability (compounded by rising interest rates), and lack of total number of able and willing buyers in the core metropolitan areas. We have found the current ceiling of affordability, which could change as population continues to increase.
Want more? Elizabeth Walsh is a data scientist and holds a real estate license at Windermere Real Estate, East Inc. and can be reached at email@example.com. The thoughts and opinions listed here are hers alone and do not represent those of Windermere Real Estate. Data was obtained from the NWMLS and is deemed reliable but is not guaranteed and is subject to change. Author assumes no responsibility for typographical errors, misprints or misinformation.