Seattle is one of 12 major metro areas in a “slowing” housing cycle, according to an analysis by John Burns Real Estate Consulting. Researchers at that consulting firm classified 14 cities as “falling” and seven areas as “plateauing.”
“While all markets have slowed, the dynamics are not the same,” a researcher at the firm commented, noting in spring 2022 nearly all the markets in its Regional Analysis and Forecast report were in the “growing” or “plateauing” phase of their long-term housing cycle.
In an earlier newsletter, CEO John Burns said his company’s assessment of 20 housing bubble signs concluded 16 indicators are “now flashing red.” Only two of 10 qualitative signs (luxury cars for the staff and creative mortgages) and two quantitative signs (very high supply along with mortgage defaults and ARMS) were determined to be “green,” meaning they are not widespread and point to no bubble.
“We can all agree we are in some sort of a bubble,” Burns stated at a webinar.
In a follow-up to the webinar, John Macke, a research analyst with Burns, drilled deeper into different market dynamics “to refresh where the housing markets stand in today’s backdrop.”
Looking at data from May 2020 to May 2022, Macke described demand as unquenchable, and found home prices increased 1%-to-2% per month almost everywhere, with supply being “low or non-existent.” He also noted builders were recording the strongest margins in history. Rental demand during this period also boomed.
Researchers at Burns reported housing demand “significantly cooled” starting in spring 2022, initially in markets that are heavily dependent on employment in disruptive tech industry investment, and then rippling downward nationwide. Sharply rising mortgage rates resulted in deteriorating consumer sentiment and a massive reduction in home buyers’ ability to qualify for mortgages.
As a “slowing” market, Seattle joins Boston, Dallas, Nashville, Portland, and San Diego and six other metros that face “alarming affordability levels, decelerating (or even declining) home price appreciation, and rapidly slowing sales.” These areas are also distinguished by diminished attractiveness to capital.
Markets in the “plateauing” cycle are facing limited volume growth, decelerating home price appreciation, and shrinking capital returns, with buyers dropping out of the buyer pool or pausing their home search. Some cities, including Miami and New York, are also facing physical supply constraints to further limit housing market growth. Atlanta, Charlotte, Indianapolis, Orlando, and Tampa are also listed as “plateauing.”
The largest category in the long-term housing cycle (defined as a 1-to-3-year outlook) is labeled “falling.” Characteristics shared by these cities include flat or declining prices, limited capital investment, and shrinking housing demand.
Commenting on markets in the “falling” category, researchers singled out Chicago and Minneapolis as areas whose economies continue to underperform. “We worry about significant out-migration and sustained population loss,” stated Macke.
Also in the “falling” cycle according to Macke are Austin, Phoenix, Riverside-San Bernardino, Sacramento and Salt Lake City. “Sales are dropping, and resale supply is skyrocketing, driving home price appreciation down fast, with home values now falling month over month.”
In his report on the current housing cycle landscape, Macke identified three other categories:
- Recovering: markets where demand is stabilizing with low returns on capital.
- Growing: markets with rising volumes and prices and that are attracting capital.
- Bottoming:markets with low volumes and good affordability, but with distressed capital investing.
No cities in the Burns analysis appeared on these lists.
John Burns Real Estate Consulting provides independent research and consulting services related to the US housing industry. Founded in 2001, it creates and obtains data from multiple industry sources and uses proprietary tools for some of its analysis, indices, and insights.