Cash is king: Seattle’s housing market is demoralizing, but not irrational

Seattle’s housing market has been called many things — “berserk,” “insane,” “unhealthy,” “demoralizing” — and yet there’s one moniker everyone can agree upon: The Seattle housing market is red hot.

Transactions and sales volumes are down, but competition is soaring to the point that nearly one-in-five sales is an all-cash deal in King, Pierce and Snohomish counties. At the market’s epicenter in Seattle, the median sales price for single-family homes hit $722,000 in April. The Eastside reached $880,000.

For buyers looking to settle down in the area, the price of admission is increasingly steep.

While Seattle’s median base pay is up 2 percent year-over-year and in-line with the national rate, the median wage in Seattle is $59,246, according to a May report by Glassdoor. This is the population that’s “being priced out of the home market within six to seven miles of the downtown cores of Seattle, Bellevue, Redmond, Kirkland and Edmonds,” said John Deely, principal managing broker of Coldwell Banker Bain Seattle.

Deely said the rising home prices and the prevalence of cash offers are contributing to the disappearance of the city’s middle class.

New data from Corelogic, a California-based analytics and business intelligence company, shows about 23 percent of King County home sales from November to January were cash deals. Pierce and Snohomish counties were at 21 and 18 percent, respectively.

It’s not unusual for the cash share to rise in January, or for it to be high relative to other months of the year. In the case of King County, it hasn’t dipped below 20 percent since 2010, according to Corelogic data.

All-cash deals are more common than a decade ago as the residential real estate market in King, Pierce and Snohomish counties shows no sign of slowing. Here’s a year-over-year look at the percentage of home sales in November through January that were all-cash deals, according to Corelogic.

Diedre Haines, principal managing broker of Coldwell Banker Bain of Lynnwood and Edmonds, recalled a cash deal for a West Seattle home that sold for $150,000 over the list price of $549,900. The 1945 house needed new windows, a new roof, plumbing and updated electrical.

“One of my buyers found themselves in a situation liking a home and making an offer along with 27 other potential buyers,” said John Deely, Coldwell Banker Bain of Lake Union principal managing broker. “This is one of those homes we see that was reasonably priced at market value $695,000 for a 1950s two-bedroom home over an open basement. It sold for a stupid-high price of $945,000. That was enough that I convinced this couple to look at homes the rest of the market had missed: those on the market 14 days or longer. They found what they wanted and were able to make an offer with no other competitive offers.”

Still, the narratives about all-cash offers beating out traditionally financed bids are not the standard, said Skylar Olsen, a senior economist at Zillow.

“It is demoralizing and it becomes this incredibly strong anecdotal story that still captures this frustrating and incredible competition, but I don’t think it’s as prevalent as it’s made out to be,” Olsen said. “With Seattle’s continued competitiveness … I’d say it’s getting harder and harder to put down all cash on these homes when prices keep moving.”

Kyle Moss, a broker with Seattle-based Redfin, said what’s occurring in Seattle is a reasonable response to the market. Part of it, he said, are well-qualified buyers employed at technology companies who have hefty paychecks and stock options.

Even when an all-cash offer is made, buyers haven’t necessarily accepted it over higher financed offers.

“I’ve represented cash offers and we lost to higher offers because someone is willing to wait another two weeks for another $50,000 from a financed offer,” Moss said.

Financed or not, Haines, at Coldwell Banker Bain, said prices are increasing at “unhealthy levels,” and her fears of a newly developing bubble “have not diminished.”

At Redfin, Moss isn’t ready to deem it a bubble, but said it’s “the most insane market Seattle has ever seen.”

“It’s not a gold rush and it’s not because we have all these speculators,” he said. “It’s a rational reaction to the lack of homes for sale and the sheer number of qualified buyers.”