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Sunday, May 07, 2006

What's Behind Seattle's Low Inventory?

Here's an email I received from a reader last week:

Clearly Seattle (and many other cities) are lagging the hottest markets in the housing bubble burst and in Seattle at least one thing that's perpetuating the bubble and keeping prices up is a remarkably low inventory. So the question is: why is inventory so low? The bulls would say it's high demand (new jobs, inflow from CA, etc) combined with low new listings ("Seattle is such a great place to live people don't leave") All this doesn't pass the smell test. I wonder if new listings aren't low because increasingly, more and more people aren't becoming "trapped" in their houses. I'm not just talking of those with exotic mortgages and negative equity or adjustable loans on the verge of resetting here. Normally, in a healthy market, besides those forced to sell (divorce, job loss, etc) there is a lot of "discretionary" selling for many reasons.

I wonder if the discretionary selling isn't now falling because:
  1. Rising interest rates reduces discretionary selling since it would force people to buy a new home at newly higher interest rates. Since so many people are maxed out on their current mortgage there's not way they could afford to move without a major "step down".
  2. The rapid increase in property values and the concomitant meteoric rise in property taxes means that anyone moving now will immediately "reset" to the current higher tax bill.
It would be interesting to hear why inventory is low from other readers perspectives.
Also, if you refer to the basic math I tried explain to Ardell the RE Agent, you can see that even at a low interest rate, a family with a house that has appreciated will be facing a huge jump in monthly payments if they want to "upgrade" to a slightly nicer house. This is the kind of thing that the local reporters should be looking into and writing the big stories about. So what is the deal with the low inventory—what do you think is the real reason behind it?


Anonymous said...

Is it really THAT low?

Any figures on years past- like 90's through now?

I'd love to see the yearly figures. Every April or May 1990-2006.

It doesn't SEEM any lower than usual.

meshugy said...

Hi folks....I've been keeping track of inventory every day for the last week or so. It's climbing everyday...are we starting to see the conditions for a slow down in Seattle (i.e., higher inventory and less sales?). Won't know for sure until the #s come out next month. If sales go up in tandem with inventory then prices will hold...but if not then we could see some price reductions.

Here's the data:

Date King County/Seattle
Apr.27 6,841/1,967
Apr.28 6,916/1,989
Apr.29 6,992/2,003
Apr.30 6,995/2,008
May 1 6,977/2,010
May 2 6,969/2,014
May 3 6,984/2,051
May 4 6,995/2,047
May 5 7,091/2,065
May 6 7,213/2,113
May 7 7,249/2,127

So there's a clear upward trend in inventory. That's normal for this time of year. Here are some #s from previous years:

May 2005 6,782/1,827
May 2004 9,792/2,454
May 2003 12,422/3,169
May 2002 11,034/2,711
May 2001 10,484/2,719

So it seems pretty clear that despite rising inventory, King County and Seattle are currently well below historical norms for inventory. But it could build up fast, and if sales slow then prices drop.


Anonymous said...

It's not lower than usual. It's higher than last year at this time.

From the chart on this blog:


Pending Sales:

Closed Sales:

Inventory is up, sales are down. Were they complaining of "tight inventory" the last few years? This is the first I've heard it and I hear it all the time now since Fall. Yet it looks like inventory is not any tighter than it ever was and is in fact LESS tight than previous.

I think you've been duped by one of the new favorite Seattle area RE booster schemes, ie. scream about how tight inventory is to scare people.

Hello??! There ARE more houses on the market than last year this time.

If there were LESS, then yeah I'd say inventory is tight. But there aren't , there are MORE.

meshugy said...

Hi Anon,

See my previous post....

Inventory this year has lagged behind last year until this April. However keep in mind that last year had by far the lowest inventory of the last four years. And this year has been even lower then that until April....

Today there are 2,127 houses for sale in Seattle. In May 2003 there were about 50% more: 3,169!

We definitely have historically low inventory right now...but it's growing fast so that might change this month.


Anonymous said...

meshugy, looking at your figures, the current inventory is still more than 30% below a level at which the price will retreat. It will take at least 1.5-2 years and the Fed will have to continue to raise rates each and every time they meet.

mpiyugz said...

People who don't have to sell are trying to see if the market has one more year to go...

Remember, the average Joe who bought a home on speculation (and actually live in it), doesn't know much about the real estate trends except what their friends (incl. the friendly realtor) and neighbors tell them...

They still think Seattle is immune to the bubble bug... why? because it just is... stop asking why already...

It won't be until the street is riddled with For Sale signs that Average Joe realizes the game is up and he has to jump in or lose out... (remember as long as prices don't drop he is getting shelter value from the home)

It's that ARM that's going to force him out eventually... and that may take a while to hit (2007)

What will drive the market down are speculators/investors who don't live in the home and have a carrying cost that eats away at profits on a monthly basis...

they can't afford to wait a year... and they are the "smarter" ones since they monitor their investments more than Average Joe... once they smell the death in the air, they will dump inventory... and that's when the feast begins...

Again, in the end, Average Joe is the last one left holding the empty bag...

Anonymous said...

Over the last three years, inventory has been bought up at a good clip.

Your first premise has truth. To add, for many homeowers, if they have to sell into a rising interest rate and rising home price environment, there is further pressure to stay put. Job change, personal or family changes (financial difficulties too) only of utmost gravity would force some to sell.

Rob Dawg said...

I was wondering about private listings. Office exclusive if you will.

JohnS said...

Seattle (like Dallas and San Antonio and Portland) was a late haven for equity built up during the California bubble.

I see about a 12-month lag behind places like San Diego, Miami and Boston as they started to really cook a good year or more before Seattle took off. You're still hearing stories of towns around the country that are attracting investors - I think Seattle has benefited from that recently.

Anecdotally we seem to have good job growth (Boeing, Microsoft, Starbucks etc...) but I don't really know how the number play out. The fact of the matter is that they are building new houses and condos like crazy and at some point that inventory won't have buyers any more. I would expect to see in 2007 what is happening in 2006 with the original bubble markets.

The fact of the matter is, the price/rent ratio in King County is still very high and must revert back.

Anonymous said...

Part of the data that is useful in determining the strength of the market is the number of days a listing is on the market. Does anyone know how to find that data?

The last time I saw it was in the "MLS (consolidated)statistical recap: month of Aug 2005". For some reason the MLS stop including it in their statistical recap after Aug. 2005.

This data is a leading indicator of market trends. Why did the MLS stop providing this date in the Statistical Recap.?

I would appreciate any information on how to find this data for WA.

Mikhail said...

I don't think the argument (that people aren't selling because they are "trapped") holds up well. This logic would equally apply to other over-priced regions in the country, but we are seeing definite weakness in those bubbly areas.

I think there must be some other reason for the relative strength of the Seattle area market. Maybe it is simply a factor of "lag" as some on this message board suggest? Or maybe the construction rates have just been very low in the Puget Sound, and we haven't been generating as much new supply as places like Los Angeles, Santa Barbara, San Diego, San Francisco, and the like.

Dukes said...

One factor that keeps inventory from exploding IMO is the exodus out of CA.

Look around you ladies/gentlemen when you are driving, or at parked cars in malls will see a # of CA plates.

Also, do a U-Haul check online, I haven't done this yet but I would bet that a U-Haul going from San Diego, or somewhere in SoCal to Seattle would be more expensive than going from Seattle to San Diego because of the demand. Just a thought.

meshugy said...

Inventory is slightly down today:

King County: 7,214

Seattle: 2,107


King County: 7,249

Seattle: 2,127

Not by much....but it's been trending upward for about two weeks. Is it on it's way back down again, or just a little rest in the overal climb?

sara said...

Anon 8:00

Go to to see DOM's.

However, recently many properties have been taken off market and relisted with new MLS numbers and DOM rolled back to zero for a fresh start.

IMO, pretty good sign of a weakening market when DOM needs to be hidden like that.

Nick said...

Re reason #1: Why can't they just rent after they sell?

Rob Dawg said...

SoCal to Seattle would be more expensive than going from Seattle to San Diego because of the demand.

Not a big difference amazingly. However LA to LV is 3x more expensive than the reverse.

edw said...

There is TONS of stuff that never even shows up on the MLS.

Downtown condos, look at the numbers off of CBB list:

April 23> 91 condos

May6> 97 condos

Have you all been reading the Sunday Seattle Times? The past couple weeks, adverts for condo complexes exploding. Do they show up in the Realty lists? NO.

Six new condos on the market in the past 3 weeks downtown? What a LAUGH.

Stop taking what the realty complex tells you as the God's honest truth.

You people are very naive.

Anonymous said...

Meshugy (or anyone else) -
Where do you get daily or weekly MLS statistics such as inventory levels, DOM, etc online?

meshugy said...

Hi anon,

Tim posted links to the monthly records here:


You can current data from the MLS by just doing a search for any county, city, or neighborhood.

good luck!


Anonymous said...

That link above does not give DOM. You need to go to and get a free account.

Great for price reduction and DOM. BUT, beware, lately things are de-listed and brought back as "new". So DOM's and price reductions get washed back to zero.

Still bettter than any other place though for a more balanced picture.

Anonymous said...

A couple of things:

Why is and why has Seattle's inventory been low? Thank the King County Growth Management Act.

Click here for an interesting research report on the effect the Growth Management Act has had in King County.

So, what do we have? King County limits inventory below their own projections to curb "urban sprawl" (thanks, developers, *wink wink*) and prices skyrocket. King County property tax revenues also skyrocket. Joe Homeowner is not happy about higher property tax bill, but doesn't care because he can just take out an equity loan on the amazing and seemingly limitless increase in property value. Everyone is making money out of thin air! Hooray!