7/25/99

Short-term housing market cycles

Dear Clients & Friends,

In this letter we'll discuss short-term cycles in the Greater Seattle housing market. Please, also see the commentary on long-term cycles (from a previous letter).

Our short-term cycles tend to divide the calendar year into thirds. The strongest market for sellers typically occurs between January and April. This is followed by the slowest period of the year, the May to August stretch, which is usually most favorable for buyers since there is often less competition for available listings. With the exception of the long-term-peak years, market activity during the last 1/3rd of the calendar year tends to be more brisk than the middle third but with less pressure than the first third.

Please note that many people labor under the misconception that the best time to bring a property to market is the Spring. However, experience shows that by May and June selling activity in this region's single-family housing market has begun to slow. After Labor Day is when activity tends to pick up, again.

These 1/3rd year performance characteristics do not preclude a prudent purchase during the periods that favor sellers, nor do they guarantee any "good deals" for buyers during the slower periods. The market is made up of hundreds of sub-markets that experience their own dynamics. This area has a history of long-term health in the housing market. Barring periods of hyper-volatility, the Puget Sound region's housing market can be a relatively safe location for owner-occupant home investments.

The graph below shows changes in the number of new, pending transactions reported by member-brokers and agents of the Northwest Multiple Listing Service (NWMLS) for the urban Seattle market between November, 1992 and December, 1996. I use this market data as an example for two primary reasons. First, with the exception of a few scatter-site, new construction projects, the housing stock remains fairly stable in urban residential neighborhoods. Using neighborhoods with higher levels of new construction activity would inherently skew the data with ever-increasing sale volumes. Second, the time frame reflects a period of lower volatility in terms of the long-term housing market cycles (discussed in a previously posted letter).

The graph shows peaks in newly reported pending transactions typically occurring in March-April and September-October. Also, see the pages on this site covering the Strand™ Index for similarly relevant data.

Regards,
Robert E. Rothstein