by Dr. Patrick Jones
The American dream usually has a home in it. Whether that element becomes reality for a family rests on a few factors, but certainly price looms large. Trends indicator 5.1.1, “Median Home Resale Value,” tracks this metric for Walla Walla County. As we can observe from the graph, since the 4th quarter of 2015 prices have risen steadily. Then the median stood at $178,700. Now (first quarter of this year), it sits at $241,700.
That’s a gain of 35% over three and half years. Incomes, for sure, have not risen by 35% over the same period, although income data aren’t yet available for 2019. (Census is releasing 2018 estimates this month.) So those Walla Walla residents wanting to participate in this dimension of the American dream are facing a more daunting challenge than a few years ago.
When we scan the entirety of the “Median Home Resale Value” graph, it’s easy to spot two distinct components. Prior to the end of 2015, and with the exception of what is likely an error for the first quarter of 2015, the County’s residential real estate market experienced very little price appreciation. So what’s changed?
As Trends indicator 5.1.4 makes clear, supply has diminished since late 2015 and early 2016 – by half to two thirds. This metric, also provided by the University of Washington’s Runstad Center, shows the number of months’ supply, under current sales rates for four different price levels. Those online can clearly see that the inventory currently ranges from 1.9 months for the lowest-price houses to 4.4 months for the highest. Most residential real estate analysts look at a supply of 6 months, by price range, as one of a market in balance. Contrast this to the snapshot from late 2015, where supply ranged from 3.5 to 21.3 months, lowest- to highest-priced home, respectively.
What has happened in the interval? On the demand site, population has increased by about 1,500, or about 2.5%. Incomes, as proxied by average annual wage, have increased at a bit higher rate, about 8%. While we haven’t undertaken a statistical exploration of these factors, it seems apparent that slow population growth and modest wage growth can’t explain the tightness of the residential home market.
The only other demand-side factor might be the number of buyers who are purchasing homes here as second, or vacation dwellings. Certainly there is some anecdotal evidence of this trend. To this observer, however, it seems unlikely to be a large factor.
It is likely that the supply side is more responsible. Consider the Trends indicator, 1.5.3, “Residential Building Permits.” The graph shows a steep decline in 2017, lowest since 2010, that undoubtedly impacted inventory for that year and 2018. The latter year does show a permit total that might be considered more or less normal since 2013, or the end of the aftershocks of the Great Recession.
The lines in the graph express building permits on a per capita basis. It is easy to conclude that this metric has lagged both the U.S. and Washington state averages, sometimes by a lot.
Why has the pulse of residential building been relatively week over the many years covered by this measure? Walla Walla is not unique in this respect. Analysts of the U.S. housing market have pointed to several factors: constraints on the supply of land, difficulty in securing a workforce, and a diminished numbers of builder after the Great Recession. It is likely that all of these apply here, to varying degrees.
What are the consequences of the fairly rapid rate of home prices appreciation? Obviously, affordability suffers. See Trends indicator 5.1.2, “Housing Affordability Index for All-Buyers.” The measure is essentially a ratio of median household income to median home price; consequently, highest is better. The value of 100 or above signals affordability. But the trend over the past few years has not headed higher. After recently peaking in the 4th quarter of 2015 (ignore the spike in the first quarter of that year), the index (ratio) has declined from 183 to 132.
With some consolation, we note that the same index has fallen for the state as a whole. And that compared to the state, Walla Walla real estate is still a better bargain than overall. But for those trying to grab a piece of the American dream, the trend here is not a happy one.