Housing prices seem to be at the forefront of most owners’ and tenants’ minds these days. And why not? The market is as active has it has ever been — for both brokerage and rental.
Zillow gives housing owners an estimate of what they think the market will do over the next year. They update their estimate monthly. While Zillow’s “black box” algorithm is nothing special, it is better than nothing, and gives us a peek into at least what they are thinking.
Their prediction algorithm is based on zip code, and takes into account the following characteristics of a property:
- # bedrooms
- # bathrooms
- Year built
- Square footage of living area
- Square footage of lot
- Amenities and upgrades (when known and/or provided by owner)
Their algorithm takes into account a lot more than the above, but it is, after all, a black box. No one knows exactly what is inside that box besides Zillow.
In January, 2021 Zillow predicted housing prices would increase by 12% across nearly all of the housing sub-markets that comprise the Seattle metropolitan area. At Full Service Property Management, our CEO, Peter Nelson, predicted a 20-25% increase based on what he was seeing in the market after 37 years of real estate experience.
12% is a hefty increase by any measure. If you watched video #8 in our Video Center then you learned that for many investors,12% appreciation translates into a 60% return on investment (ROI). Not too shabby when you compare it to the 18.7% gain the Dow Jones Industrial Average (DJIA) experienced, or the 21.4% the Nasdaq Composite increased!!
It gets better!!
In January of this year we went back and spot checked a few properties to see what kind of gains they experienced in 2021 (according to Zillow estimates). We’d like to tell you we were shocked, but really it was more like “We told you so!”
That is because across all of the sub-markets we checked, properties increased right in the range we predicted they would: 20-25%!! If we apply what we learned in video #8, that translates to a 100-150% ROI!
But wait! It gets even better!!
We checked in on Zillow early in 2022, and this time I can tell you I was shocked! The Seattle metro region has been in a 10+ year bull market. Year after year the Seattle real estate market has registered gains — some more; some less. But this year, on the back of all those gains, Zillow is predicting a 22% gain in property values over the next 12 months! That, dear friends, is almost unheard of!
If a bank or a stock broker or some other investment offered you a 22% return on your investment, would you take it? In a heartbeat!! Who knows what the actual returns will be?! But if the prediction for 2021 was 12% and the reality came in around twice that, then what can we expect for 2022? It is highly unlikely we will see twice that, or 44% return! Any double-digit return is fantastic!!
Our prediction? Unlike 2021, we do not have as firm of a guesstimate. We think there is still a long way to go in this market. Some people are thinking we are at or near a top. We disagree. We still see 25-50% mid-term (2-5 years.) For that reason we are issuing a ‘buy’ recommendation for Seattle area real estate.
Our prediction: we believe the Seattle metro area will see a 20-30% appreciation this year alone! Again, refer to video #8 in our Video Center to get your mind totally blown away!
Peter Nelson, CEO of Full Service Property Management, has been investing in rental real estate since 1985. He has seen multiple bull and bear markets. He currently owns a rental portfolio that includes single family homes, duplexes, and apartments. (BTW, he is NOT selling!)