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MARKET OVERVIEW AND 2015 FORECAST

By: Skylar Olsen, PhD

Senior Economist

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About Zillow Real Estate Research

VISIT ZILLOW RESEARCH: www.zillow.com/research

In-depth research, monthly reports and interactive visuals

• Home Values

• For-sale Inventory

• Home Sales

• Forecasts

• And much more……

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HOUSING MARKET OVERVIEW

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The housing market is still recovering……..

Peak to trough

Peak to current

Year-over-year

-22.5% -9.6% 6.0%

Zillow Home Value Index – U.S. Median Home Value

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Although the recovery is slowing down to “normal”

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Many metro areas are seeing high appreciation, but at half the rates seen in 2013

5%

11%

2%

6%

9%8%

5%

5%

8%

11%

5%

7%

3%

5%

13%

5%

14%

7%

13%

-1%

12%

11%

7%

7%

3%6% 5%

3%

11%14%

11%

6%

5%6%

5%

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Home values in Seattle still down 11% from peak

2000 2002 2004 2006 2008 2010 2012 2014

$200,000

$220,000

$240,000

$260,000

$280,000

$300,000

$320,000

$340,000

$360,000

$380,000

ZHVI

$379,000

$258,900

$336,400

Peak to trough

Peak to current

Year-over-year

-31.7% -11.2% 6.3%

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The slowdown phenomenon is present in Seattle

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Eastside and South King County saw large gains

City Annual home value change

Seattle 6.1%

Tacoma 5.9%

Renton 7.6%

Bellevue 8.7%

Everett 5.6%

Seattle

Everett

Tacoma

-3% 13%

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HEADWINDS FOR HOMEBUYERS

Three trends affecting the housing market

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1. For-sale inventory has increased nationwide, but remains flat in the Seattle metro

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2. Nationally, new and existing home sales are low

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3. One in six homeowners is underwaterNegative equity remains widespread, 17% nationally

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Nationally, 35% of homeowners lack equity to sell

Washington37%

Tampa38%

Seattle35%

San Francisco16%

San Diego24%

Sacramento32%

Riverside34%

Pittsburgh26%

Phoenix40%

Philadelphia37%

Orlando38%

New York27%

Minneapolis-St Paul36%

Los Angeles21%

Las Vegas45%

Kansas City45%

Houston24%

Detroit36%

Dallas-Fort Worth31%

Cleveland39%

Chicago42%

Boston25%

Baltimore40%St. Louis

44%

San Antonio36%

Portland31%

Miami-Fort Lauderdale32%

Denver27%

Cincinnati41%

Atlanta47%

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Today, underwater homes are less common, but still a problem

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Where are underwater homeowners in Seattle?

0% 42%

City Negative equity

Tacoma 29%

Spanaway 34%

Lakewood 26%

Auburn 24%

Everett 24%

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Most underwater homes are entry level homes, less homes are available for first-time buyers

0% 20% 40%Bottom Value Tier

0% 20% 40%

Middle Value Tier

0% 20% 40%

Top Value Tier

Atlanta

DetroitChicagoSt. Louis

TampaMiami-Fort Lauderdale

BaltimorePhiladelphia

PhoenixWashington

Seattle

United StatesMinneapolis-St Paul

Riverside

New YorkBoston

San DiegoDallas-Fort Worth

Los Angeles

San FranciscoHouston 11%

14%

15%

15%

15%

17%

25%

27%

27%

27%

28%

31%

32%

33%

33%

35%

40%

41%

41%

49%

51%

7%

4%

7%

8%

9%

7%

10%

17%

12%

16%

13%

16%

20%

17%

20%

18%

21%

23%

24%

22%

24%

5%

2%

4%

6%

5%

4%

5%

11%

8%

9%

6%

7%

13%

7%

10%

8%

11%

10%

10%

8%

11%

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AFFORDABILITY AND FUTURE BUYERS

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Currently, interest rates are very low, but expected to rise eventually

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How will rising rate affect affordability?

1990 1995 2000 2005 2010 2015

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

32%

Affordability

30%

22%

20%

17%

15%

Average Rent Affordability

Average Mortgage Affordabilty

Mortgage AffordabilityForecasted at 5% Rates

Forecasted at 6% RatesForecasted at 7% Rates

Rent Affordability

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Low rates = affordability on buyers’ side in Seattle

1990 1995 2000 2005 2010 2015

18%

20%

22%

24%

26%

28%

30%

32%

34%

36%

38%

40%

Affordability

32%

29%

26%

22%Average Rent Affordability

Average Mortgage Affordabilty

Mortgage AffordabilityForecasted at 5% Rates

Forecasted at 6% RatesForecasted at 7% Rates

Rent Affordability

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High rents: a barrier to savings?

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Influx of rental demand

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Growth in rental households by structure type

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Coping strategy for expensive rents

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WHO ARE THE FUTURE HOMEBUYERS?

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Young renters optimistic about future ownership

83 percent of millennial renters are “confident” or “somewhat confident” that they will eventually buy a home.

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Millennials want to own homes……..

Owning a home is necessary to bea respected member of society

Owning a home is necessary to liveThe Good Life and The American

Dream

Owning a home is the bestlong-term investment

Owning a home provides a personmore freedom

18-34 35-49 50-64 65+ 18-34 35-49 50-64 65+ 18-34 35-49 50-64 65+ 18-34 35-49 50-64 65+

46%39%

30% 31%

65%

56% 55%62%

65%59% 61%

68%74%

60% 59%63%

Percent of repondents by generational age group

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But aren’t quite ready to start buying right now

Over the next year, millennials will emerge as the majority of new homebuyers, surpassing Generation X.

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Millennials delayed

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Millennials with full-time employment are already homeowners

1980 1985 1990 1995 2000 2005 2010

0%

10%

20%

30%

40%

50%

60%

70%

80%(a) Married

1980 1985 1990 1995 2000 2005 2010

(b) Single

Homeownership Rate of Young Adults (Age 23-34) by Marital Status and Labor Force

1 full-time and 1 part-time worker1 full-time and 1 non-worker2 full-time workersAll young adults age 23-34

Full-time workerNon-workerPart-time workerAll young adults age 23-34

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Labor market for millennials

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WHAT TO EXPECT IN 2015

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Home values forecasted rise, at slower rates in 2015

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One-year forecast for 2015 Seattle metro area

CityAnnual home value change

Seattle 4.8%

Tacoma 4.7%

Renton 5.5%

Bellevue 6.0%

Everett 5.0%

Seattle

Tacoma

Everett

0% 7%

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Bold Housing Predictions for 2015• Homebuyers will have more negotiation power in 2015

– A less frothy housing market means a more balanced market. Slowing appreciation, more inventory and the return of price cuts mean that buyers will have more choices and won’t have to move as fast.

• Millennials will overtake Generation X as the largest group of homebuyers– Millennials have been delaying marriage and having children, but that doesn’t

mean they don’t have a desire to buy.

• Builders will begin constructing more, less expensive homes– Builders will stop concentrating on the upper tier of the market and will begin to

build more entry level homes.

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Bold Housing Predictions for 2015

• Homebuyers will have more negotiation power in 2015– A less frothy housing market means a more balanced market. Slowing

appreciation, more inventory and the return of price cuts mean that buyers will have more choices and won’t have to move as fast.

• Millennials will overtake Generation X as the largest group of homebuyers– Millennials have been delaying marriage and having children, but that doesn’t

mean they don’t have a desire to buy.

• Builders will begin constructing more, less expensive homes– Builders will stop concentrating on the upper tier of the market and will begin to

build more entry level homes.

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Find data for your local area on Zillow.com

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Thanks To For Providing This Presentation

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