Bolstered by three years of low interest rates, the housing market has been an extraordinarily bright light in an otherwise dreary economy. Real estate, which is typically driven by employment, has been compensated by some of the lowest interest rates in over 40 years. Locally we’ve had our own challenges, struggling with one of the worst unemployment rates in the nation, the decline of our high-tech sector, the departure of Boeing’s headquarters, as well as the uncertainty of their future in the Northwest. But despite these factors, the housing market has continued to persevere, setting sales records month after month in 2003.

According to David Lereah, chief economist for the National Association of Realtors, existing-home sales are anticipated to be up 9.1 percent in 2003 compared to last year’s record sales. Home sales are expected to grow by 9.7 percent and the national median home price for 2003 will rise 9.1 percent to $172,600.

According to the Northwest Multiple Listing Service, the current median home price in the Puget Sound area is $223,950, which is a 9.24 percent increase compared to a year ago. Pending sales in the Puget Sound were up in the month of November, and December was another strong month.

2003 kicked-off with continued record home sales in the more-affordable price ranges (affordable = homes priced at or below the median home price for a geographic area). This activity carried over from 2002, which saw first time homebuyers coming into the market in record numbers. This flurry of activity in the more-affordable market caused a chain reaction of sales that was felt up the prince points in 2003.

We began to see higher numbers of move-up buyers, which caused increased activity in the mid-priced markets. And then, as sales increased in the mid-priced markets, the effects started to be felt in the high-end housing market as well. Although the different sectors reported various levels of sales activity, each was directly or indirectly impacted by low interest rates in 2003.

Forecast For 2004 – First Quarter Will Be a Frenzy Market

2004 will be another great year in residential real estate. NAR is forecasting a seven percent decline in sales compared to 2003, but both low interest rates and an improving economy will continue to support an active housing market. The 30-year fixed-rate mortgage is projected to average at about 6.4 percent in 2004, up modestly from an average of 5.8 percent in 2003. The slight rise is not expected to damper sales, but instead will extend the favorable housing market conditions and continue to promote strong sales activity in 2004.

Locally, the Puget Sound housing market is experiencing significantly lower-than-usual inventory levels in the more-affordable price ranges, which is predicted to lead to a multiple-offer market during the first quarter of 2004.

Three years of historically low interest rates and record numbers of homebuyers have resulted in high absorption of inventory in many markets throughout the Pacific Northwest. In the Puget Sound area, defect liability lawsuits are virtually bringing condominium construction to a grinding halt, reducing the amount of new, affordable inventory that is available to buyers. Traffic also plays its part in the Puget Sound because buyers want to live close to the job centers to avoid gridlock and lengthy commutes; this has caused an epidemic of affordable housing shortages throughout the area.

All of these factors are building up to a frenzy market in which buyers will be vigorously competing with each other for the limited supply of more-affordable homes that are on the market. And the new inventory that traditionally comes on the market in the early part of the year simply will not be able to keep up with the numbers of buyers in the market place. Compounding this situation is the continuation of low interest rates and the threat that they will rise. And when they do begin to rise, we will undoubtedly experience another surge of anxious buyers entering the market.

First quarter of 2004 is going to be a “quick action market” and it’s going to require preparation and knowledgeable on how to deal with multiple-offer situations for both buyers and sellers. As inventory levels rise later in the year, along with interest rates, the market should even itself out again, continuing a strong housing market in 2004.

(Editor’s Note: REALTOR® J. Lennox Scott is the Chairman and CEO of John L. Scott Real Estate. You can visit his Web site at www.johnlscott.com.).