Next hot market...think Washington
Above average job and population growth are driving strong home-price gains.
NEW YORK (CNNMoney.com) - As forecasts for housing price growth have cooled for most of the country, they are calling for booming values in the state of Washington.
For the June issue of MONEY Magazine, Fiserv Lending Solutions and Moody's Economy.com provided forecasts for the coming 12 months for 380 metro areas - they predict that five of the top 10 fastest growers will be in Washington. Ten of the top 17 will be. (see the rankings)
The median home price in Wenatchee, a small city in central Washington, is set to grow at 16.7 percent from June 2006 to June 2007. Other bright spots: Mount Vernon (14.5 percent), Olympia (13.1 percent) and Yakima (12.8 percent).
For the United States overall, forecasters expect just 5 percent growth.
"Although price growth has been steady in Washington, it has not been outstripping the economic fundamentals," says Celia Chen, Director of Housing Economics for Economy.com.
The real estate markets have been pretty much balanced in the Northwest while many others have been sellers-markets for years.
Lennox Scott, who runs John L. Scott real estate, one of the biggest brokers in the Northwest, attributes much of the future market strength in Washington to job growth. "Microsoft announced it's hiring 10,000 more people," he says. "Boeing is hiring. The anomaly of historic low mortgage rates drove prices for the past few years. Job growth will drive them for the next few."
Job growth in the area was 3 percent last year, double the rate for the United States as a whole, according to ChangMook Sohn, executive director of the Economic and Revenue Forecast Council of the State of Washington. "We expect that to slow a little this year but to still be strong."
Glenn Crellin, the director of the Washington Center for Real Estate Research at Washington State University, attributes some of the effect to a bit of lag before trends reach Washington.
"Our markets took off after California and the East Coast did," says Crellin.
In addition, home ownership in Washington trails the rest of the country; a strenghtening job market could lead renters to start buying. The home-ownership rate is 64 percent, versus 70 pecent in the rest of the country, according to Barb Lally, of the Washington Realtors Association.
Demand will also come from population growth, now 1.8 percent according to Sohn, nearly twice the national average.
Much of the population growth consists of people with means, according to Richard Davis, president of the Washington Research Council. "Researchers find that those moving to our state tend to be well-educated, higher-income professionals ... these folks add to market pressures by bidding up the price of available housing," Davis wrote in a recent report.
Washington is among the top 10 of states in attracting more domestic migration than they lose to other states. "About 30 percent of the in-migration comes from California," says Sohn. "For them, housing is a bargain. They come with cash and buy houses twice as large as they left behind."
In Seattle, for example, Washington's most expensive city, the median home price in the fourth quarter of 2005 had reached $360,000. But Los Angeles prices were at $525,000 and San Francisco's were a whopping $825,000. Seattle prices are forecasted to growth 10.5 percent during the next four quarters.
Other Washington areas with high projected growth are coming off a lower base -- the median home price in Olympia, for example, was $199,000 at the end of 2005. In Wenatchee, it was $185,000.
Crellin also attributes some of the market strength to a growth management act passed in 1990. It established boundaries for individual cities; they had to focus their development efforts within those limits. That helps preserve farmland and open space and increases the density of populated areas so service delivery, such as water supply, garbage collection and highway construction, can be done more efficiently.
Although that may have a salutary impact on Washingtonians' quality of life, it also curtails the land available for development and so drives up prices.
There is a movement among builders and developers to try to ease these restrictions so as to increase the stock of affordable housing. But until that happens and if Washington's fundamentals remain robust, the housing market should continue to outperform most of the rest of the country.