By Scott Richter & Dr. Patrick Jones
Since the bubble burst in 2008, state housing inventories have shown strong swings. The same swings haven’t spared Walla Walla. For several years now however, the state housing market has been hot. Not just in places like King County and the Spokane area, but in many places across the state, such as Walla Walla.
According to the Housing Heat Index, Washington State ranked 3rd overall out of 51 (50 states and the District of Columbia) during the third quarter of 2021 for the strongest housing markets.
The Housing Heat Index uses six criteria . With third quarter 2021 rankings for Washington State in parentheses, they are: annual home price appreciation (13th), share of mortgages past due (2nd), unemployment (29th), annual job growth (4th), statewide cost of living index (38th), and state-by-state tax burdens (16th). Annual home price appreciation is heavily weighted in the analysis because increasing home values generally signal a market where homes are in high demand.
The City of Walla Walla website keeps a running list of awards and recognition the region has been received. A few examples of the accolades are: Top 50 Most Searched Destinations Under 65,000 Population; a rank of 33rd out of more than 1,300 places as Best Small City in the U.S.; one of the 24 Best Places to Live and Work; 7th of Best Cities to Live in Washington; Top 5 Places to Retire; and most recently America's Best Wine Region.
With these accolades set against a very robust state housing market, it is no surprise that the local market is showing some heat as well. The indicator Walla Walla Trend 5.1.4 “Monthly Supply of Homes Listed by Price Level,” captures both quarterly current supply and the immediate past demand. The time period reveals a dramatic change between the first and second halves.
During the first observation period, 16Q1 (the first quarter of 2016), there was more than 40 months’ supply of homes. Four categories are tracked: homes below $80,000; those between $80,000 and $159,000, those between $160,000 and $249,000, and those between $250,0009 and $499,000. Homes with price listings greater than $500,000 are not a part of this indicator.
This indicator is sourced from the Washington Center for Real Estate Research (WCRER), College of Built Environments at the University of Washington. WCRER calculates the estimated month’s supply of homes on the market by comparing “the number of total [Multiple Listing Service] listings at the end of the quarter to the seasonally-adjusted annual rate (SAAR) sales for that county.” Or, WCRER defines month’s supply of homes on the market as “how long the current inventory available for sale would be able to meet current demand if no additional homes were listed for sale.”
In early 2016, homes valued between $250K to $500K made up the largest segment of supply, at 21.3 months. Most recently, in the July through September period of last year, that same category accounted for only 1.3 months of supply. (Fourth quarter results of 2021 are not yet available.)
This indicator is a bit different than most on Walla Walla Trends due to a set of missing values in the middle of the time period covered. But if we focus on the starting and current values, the story is quite clear.
How much of a recovery in the housing market, that is for existing home sales, was noticeable in 2021? WCRER numbers point to a modest uptick: 540 vs. 510 through the first three quarters of each year. On an annual basis for the past several years, the number of sales of existing homes has risen and declined over a tight range – from 710 in 2014 to 900 in 2016 to 740 in in 2020.
This pattern stands in contract to the overall path in Washington State, which has shown increases in every year.
The safest takeaway from this trend is that supply is low, regardless of price range in Walla Walla County. Why supply is constrained is beyond the scope of this article, but nationally several factors have been identified: lot prices, materials cost, unavailability of labor and some zoning restrictions. These are likely to be at play in the county’s housing market as well.
For the foreseeable future, housing inventories will certainly not approach the levels observed most recently in 2016. Demand is relatively strong and permitting relatively modest (see Trends indicator 1.5.3). With interest rates set to rise this year, local demand will likely soften a bit. But quite a few new homes will need to be built to bring supply back to values resembling more reasonable level, such as six months. Until then, expect continued rising prices and declining affordability (see the accompanying article in this issue on affordability).
