Market overview: Relief on horizon for housing shortage as prices skyrocket
The Tri-City construction market continues to add millions of dollars in new projects as home and commercial lease prices skyrocket.
The average Tri-City home sale price did not dip below $300,000 for the first eight months of 2019.
But area real estate experts say prices could begin to level off in 2020.
“I think we’re in a really good spot for at least the next couple of years,” said Lola Franklin, chief executive officer of the Tri-City Association of Realtors.
The commercial real estate market also remains strong, with more new buildings planned and lease rates rising across Benton and Franklin counties.
As home prices stabilize, the persistent short supply of homes for sale likely will improve as property in new developments becomes available for sale within the next year.
“Our members tell us there are 30-plus developments set to hit within the next six to 10 months. So that will help inventory by a lot,” Franklin said.
With the added inventory, Franklin doesn’t expect home prices to continue their steady rise.
The highest active home listings on a single day in August 2019 was 645, the most it had been all year. The inventory of active listings, not including homes with a pending sale, has climbed steadily each month since March 2019’s low of 411. Still, the number of homes for sale in August 2019 was fewer than the three previous years at the same time. This tight market is what’s caused a squeeze as builders struggle to keep up with incessant demand.
The Home Builders Association of Tri-Cities tallied 1,109 permits for single-family homes issued in the first eight months of 2019, up nearly 100 from the same period the previous year and nearly 400 more from the same period five years ago.
The total value for single-family home permits issued in the first eight months of 2019 reached nearly $328 million for properties in Kennewick, Pasco, Richland, West Richland, Benton City, Prosser and unincorporated Benton and Franklin counties.
The lion’s share of permits issued were in Pasco with 408, or about 77 percent more permits than in Kennewick and Richland, which each approved about 230 permits for the first eight months of 2019.
Pasco’s building permits are pricier than the other two cities’, partly due to a nearly $5,000 fee tacked on to each one to offset the new homes’ possible impact on the Pasco School District. After all, more homes mean more students.
Despite an initial outcry from builders, the increased cost hasn’t affected the pace of building, with 150 percent more home permits issued for the first eight months of 2019, compared to the same period five years ago.
The average price for a Tri-City home sold in August 2019 was $333,500, according to the Tri-City Association of Realtors.
The average Tri-City home sale price reached the $300,000 mark for the first time in July 2018.
“I moved here eight years ago and $200,000 was considered mid-range. Now $300,000 is kind of the mid-range,” Franklin said.
Homes considered to be on the low-end are now starting in the $200,000s, she said.
First-time buyers are finding home ownership more accessible, thanks to interest rates for mortgages remaining low.
The ever-increasing home sale list prices have prompted homeowners to consider selling, Franklin said.
“Anecdotally, sellers see the increase in prices, which has been a nice increase, and go, ‘I want to price my house at the top of the range, or even above, because I hear that there are bidding wars.’ Well, the bidding wars have slowed down,” Franklin said. This could indicate a “flattening out” of prices. Franklin said this has led to more price reductions.
Without tracked data on bidding wars, Franklin can only rely on her association members to relay their experiences in the market, which include the most competition for homes in the $250,000 to $300,000 range.
“If you list anything at $205,000, $208,000 or $210,000, it’s gone, with multiple offers,” she said.
Even if prices are higher than they were a decade ago, the Tri-Cities is still affordable compared to markets across the state, including nearby Walla Walla, Franklin said.
Plus, “the quality of life is exceptional and it’s a relatively low cost of living,” pointed out Michael Novakovich, president of Visit Tri-Cities.
Others, including U.S. Department of Energy employees who come to work at the Hanford nuclear reservation from out of state, have different markets to compare the Tri-Cities to.
“Some of the people coming here have done the tour of DOE sites. They know what kind of place this is. Not only our economy, but the pace of life and cost of living; it’s a real appealing place,” said Rob Ellsworth, senior advisor with SVN | Retter & Co. in Kennewick.
Novakovich said his team frequently hears common themes from those relocating to the area.
“Often they’re moving here for jobs, but also because their kids or their grandkids are here. For people who moved here from the west side, they enjoy the weather, the lack of traffic, and we have a lower tax base,” he said.
Added employment in construction, covering both residential and commercial building, also has continued to affect the Tri-City economy.
Estimates from Ajsa Suljic, regional labor economist for the state Employment Security Department, show 10,000 employees in the metro region at work in construction. This is an increase of about 6.4 percent year over year, which was down from a recent high of 16 percent two years ago. That number was an outlier compared to nearly 15 years of data tracking, which saw the last previous high of 13 percent in 2007.
The most recent level of similar growth in construction was between 2014-15, when the number of jobs rose 6.6 percent year over year.
Overall, the employment rate in construction continues an upward trajectory, outpacing Employment Security Department projections in recent years. In 2018, total non-farm employment for Benton and Franklin counties was 124,512.
“Our area experienced virtually no recession,” said Franklin, which has helped lure people to the Tri-Cities even years later.
Estimates from the state’s Office of Financial Management put the Tri-City metro population just a few thousand people shy of 300,000 in 2019, with two-thirds of those residents concentrated in Benton County.
Franklin County was the state’s fastest growing county between 2018-19, with an estimated increase of 2.31 percent, followed closely behind by Benton County at 2.22 percent. These two counties were among the three fastest-growing counties in the state between 2018-19.
In the next year, Franklin expects “flattening” home sales to be a good thing and the area to remain a seller’s market.
“Two years ago, brokers were feeling unsure about what was going on. Now they’re comfortable. I think the way that they’ve adapted, and the way the public has adapted, I think things are positive now. I don’t think anybody wants to see our prices continue to go up. And we don’t want a glut of homes on the market,” Franklin said.