Housing prices, interest rates and new construction. In Seattle/King County, everything seems to be going up, up, up. That could be a snap summary of this region for 2018. We haven’t seen a year quite like this.
What’s in store for 2019? I spoke with local real estate, financial and political insiders to take the temperature of current housing and economic conditions in our backyard and learn what may be in store for the next 12 months. We’ll call it the first annual “Living the Dream” blog’s predictions and projections for 2019.
LOCAL HOUSING MARKET
Nothing may top last spring’s frenzied housing market across Puget Sound, particularly in King County. The season of growth saw an eruption of sales activity, the greatest intensity of new listings sold in the first 30 days experienced here in 10 years. In fact, Seattle held the top spot for housing market price appreciation for 21 consecutive months until it was recently surpassed.
There are few indications of a significant slowdown in 2019, according to Lennox Scott, CEO, John L. Scott Real Estate. “Heading into 2019, we anticipate the more affordable and mid-price ranges in all markets will go up one level of hotness … to a ‘surge’ level of sales activity intensity, then transition back down to ‘strong’ for the remainder of the year.” (“Surge” equates to 50%-64% of new listings going to pending/sold in the first 30 days on the market; “Strong” is 35%-49% of that 30-day group. At last check, we are experiencing “strong” activity across most price ranges.)
Since the “spring fling,” single-family home prices across the Seattle area have dropped 1.3% in the August-September period, according to the Case Shiller Index report, after a decline of 1.6% in July-August. For the year, the Northwest MLS report showed a modest 1.4% price increase for single-family homes.
So, where might prices be heading in 2019?
From January to April, according to Scott, affordable and mid-priced homes will see a mild price increase followed by a flattening for the remainder of the year. Homes close to job centers priced between $1 million and $1.5 million will see “strong” sales activity, he added.
RISING RATES
The temperature of the housing market is usually guided by interest rates. The Fed has been busy in 2018 – raising its benchmark rate by a full percentage point (now at 2.25% on Fed funds), which is causing mortgage lenders to take notice and generally follow suit.
“I believe we’re going to be seeing interest rates return to their historical norms, which means a typical 30-year mortgage between 6% and 8%,” Peter Zevenbergen, Area Sales Manager, at Fairway Independent Mortgage Corp., in Kirkland, Wash., said in late November.
“You’re still seeing some 30-year rates below 5%, but the majority of quotes these days you’re seeing in the 5% range,” Zevenbergen noted.
James Young, Director of the Washington Center for Real Estate Research at the University of Washington’s Runstad Department of Real Estate, agreed: “We may actually have a move toward normality – which we haven’t seen in Seattle for a while.”
What might a typical loan look like in about a year? Young offered a cautionary scenario:
“If you have a $400,000 mortgage, using the prevailing rate of 5%, your payment on a 30-year mortgage went up about $240 this past year. Hypothetically, if you were paying $1,900 a year ago, your payment is now about 12% higher. People who are more income-sensitive are going to be stretched to buy a house as interest rates rise, putting significant pressure on new buyers.”
Danielle Hale, Realtor.com’s chief economist, predicts rates will reach around 5.5% by this time next year. She says that means the monthly mortgage payment on a typical home listing will be about 8% higher in December 2019, but the slightly older move-up buyers could reap the benefits of both their home equity and the increased choices in the market. It depends on where you are on the property ladder.
The largest group of buyers will continue to be millennials, which is “going to be more price-conscious than any other generation,” says Ali Wolf, Director of Economic Research at Meyers Research, as quoted by Realtor.com. Millennials are typically still carrying student debt and want to be able to spend on experiences, like travel.
“They want to maintain a certain lifestyle, but they still see the value in owning a home,” Wolf said. That means they could have a longer commute, prioritizing certain amenities or sacrificing on space. A full 70% of millennial homeowners live in a place that’s less than 2,000 square feet, he noted.
JOBS AND THE ECONOMY
We are fortunate to live in an economically vibrant region of the country. We have some of the greatest companies here on our doorstep – Boeing, Starbucks, Costco, T-Mobile, Vulcan and Holland America come to mind. And then you have the massive technology and biotech sectors.
“When you look around this area at what Facebook, Amazon, Google, Microsoft and others around them in the tech space, and their commitment for office real estate – in Seattle, Bellevue and Redmond – it’s massive,” Zevenbergen said. “Future commitments over the next five years, these companies are grabbing hundreds of thousands of additional square feet space. They have more growth in mind in King County, which means more high-paying jobs coming to the market to support these property values.”
Unemployment in the city and county is around 3.2%, below state (4.3%) and national (3.7%) figures. Could low unemployment in Seattle/King County signal a dire need for more workers to keep fueling the economy?
“A tight labor market might stunt economic growth if you can’t get people to move here,” Young said. “Ironically, the rental housing situation [where inventory expanded] has made it easier to get people here and it facilitates the migration of people to the market.”
BRACING FOR TAX CHANGES
Homeowners may be in for a shock when preparing their 2018 Federal tax returns. Under new U.S. law, filers will be limited to a $10,000 deduction on all taxes (property, income, sales – but Washington state doesn’t have an income tax). Previously there was no deduction limit.
“I think that’s going to put a lot of pressure on people who are empty-nesters in Seattle in terms of their tax bills,” Young cautioned. “If you own a house that is valued at just under $1 million in Seattle, then your tax bill is going to be close to $10,000. When you get over that figure, you’re not going to be able to deduct anymore. Older couples may not want to stay in that house when they’re on a fixed income and looking at rising tax bills.”
On a bright note, everyone will be able to use a higher standard deduction ($12,000 for single filers and $24,000 for married jointly filing) to help offset the other changes. But filers who itemize their deductions will now have a cap on mortgage interest of $750,000 of home debt.
OLYMPIA: ADDRESSING HOUSING ISSUES
In their 2019 Legislative session (Jan. 14-April 28), state lawmakers are expected to address methods to support new resources for subsidized affordable housing, as well as provide greater flexibility to existing programs. They are also planning to address the housing shortage across Puget Sound, where demand is outstripping inventory.
“Many people assume this problem exists only in the Seattle area, but the lack of affordable and available housing is evident in many other communities across the state,” State Sen. Randi Becker (R-Eatonville) told The Cheney (Wash.) Free Press. A draft 2019 proposal from Republican Senators calls for reforms to allow more building density with a focus on increased tiny housing, reduced taxes for seniors and the disabled, and connecting the homeless to services. There are more than 22,000 homeless people at any point in time in Washington, according to state figures.
In the new session, lawmakers will also attempt to reduce construction defect lawsuits against condo developers. The 1989 State Condominium Act led to a spate of lawsuits and made developers reluctant to build condos. Developers shielded themselves from the risk by building apartments and the result has been a severe shortage of new, affordable condos.
“You didn’t have home ownership options available to people in the suburbs and they were forced into the rental market,” noted Young, of UW’s Washington Center for Real Estate Research. He said this has led to “the mismatch between the supply of real housing coming forward and the demand for rental property, which has seen rents decline quite significantly.”
A proposal by State Rep. Tana Senn (D-Mercer Island) may address this matter. In an email, she said the bill would, among other things, attempt to:
– Clarify HOA board members’ responsibilities, to ensure they are not liable for damages if they decide against suing developers;
– Clarify the definition of damages to be only actual damages;
– Narrow when a developer’s warranty can be applied – for building defects, not “deviations.”
A separate bill may be introduced, Rep. Senn said, to seek a majority vote from homeowners of non-developer owned condos to file defect lawsuits. She is working with Sen. Jamie Pedersen (D-Seattle) to draft versions of the bills. If either measure passes, developers may begin to earnestly build condos in the city. Stay tuned.
A CHANGING SEATTLE LANDSCAPE
The population of Seattle proper is estimated at 730,400, a whopping 20% jump from 2010, according to the state. And a report from the Urban Land Institute said the region is expected to see 2019 population growth at twice the national rate of 0.7%.
The spurt has long caused pressure on housing supply and on the people trying to live here. The Housing Affordability Index indicates 48% of Seattle renters and 38% of city homeowners with mortgages spend 30% or more of their income to cover home expenses. Typically, housing costs should not exceed 30% of a household’s total income. And the household income gap between Seattle‘s equity-building homeowners and renters has swelled to $65,000, according to U.S. Census data.
To help address the widening housing-affordability gap, city leadership has set a goal of creating at least 6,000 income-restricted homes by 2025. And to accomplish this, a plan has been crafted to increase housing density that would permit taller, wider and multiple structures in smaller spaces. This form of inclusionary zoning will ask developers to earmark roughly 5%-11% of new units to people making less than 60% of the median income, otherwise developers would pay a fee of between $5 and $32.75 per square foot.
Depending on who you ask, 57% of Seattle is zoned exclusively for single-family homes. That figure will slowly drop – by about six percentage points – once (or if) the rezoning plan is enacted by City Council and new homes are sold.
Rezoning is underway in six high-density areas, including downtown Seattle and South Lake Union, and after public hearings the council is expected to vote as early as March to expand the plan. An additional 27 neighborhoods could be affected, including Beacon Hill, Fremont, Ravenna, Wallingford and West Seattle.
In theory, as the city grows so too will Seattle’s inclusiveness to people with all incomes.
CITY INFRASTRUCTURE
The evolution of the city waterfront will continue in 2019. February will mark the opening of the two-mile, tolled SR-99 downtown tunnel, followed by the demolition of the Alaskan Way Viaduct. With the viaduct’s demise, also gone will be northbound off-ramps to Seneca Street and Western Avenue and southbound on-ramps from Elliott Avenue and Columbia Street. The city will work to improve surface streets and pedestrian bridges near the waterfront but a fully completed Alaskan Way is still another two years away. (There’s an interactive map to see how you may be affected.) And don’t forget: the viaduct shuts down for good on Jan. 11.
Residents and businesses near the waterfront are some of the beneficiaries of the redesigned cityscape (think higher home values, perhaps), and City Council is looking to those owners to help cover a portion of the $717 million price tag. Locals call it the LID (Local Improvement District) tax, a special assessment that is expected to hit in 2019.
The assessed area is roughly bordered by Wall Street and Denny Way along the north; I-5 on the east, the stadiums to the south and waterfront to the west. Anyone owning commercial or residential property within that area are subject to the assessment.
The city estimates a condo owner in the LID area would pay a one-time charge of about $2,400 – but figures vary widely depending on the size of the home. Some low-income homeowners will be permitted to delay paying the assessment for up to 20 years. Apartments in the area would face a median one-time charge of about $1,300 per unit, with landlords having the option to pass on the fee to tenants. (The city offers a tool to search on estimated assessment fees.) City Council is expected to announce a timeline and final assessment details by end of the month, and it has already committed to keeping the total cost for residents and businesses to $200 million.
REAL ESTATE TECH
Real estate related technology is empowering brokers, buyers, sellers and others to connect more efficiently, meaning better outcomes for all. We all know the benefits of home-search engines – including the John L. Scott app – but there is so much more.
You may want to look over your shoulder to see if a robot is preparing to take over a part of your job. The automation of jobs is expected to accelerate in coming years across a variety of industries. One analysis of data from the University of Oxford interpreted by Governing says up to 55% of all Seattle/Tacoma/Bellevue area jobs are considered potentially automatable and that could include the real estate market.
The ways real estate professionals list homes are also improving. That includes the use of Matterport – a means of sharing a home listing through 3D and Virtual Reality – and video with 360-degree viewing capability that parachutes you into the home without stepping foot on the property.
It’s important to note, of course, that a vast majority of people ask real estate pros for help with the offer and negotiating process, as well as with marketing their homes to ensure they are getting the best deal. Realtor.com reported in October that 87% of buyers purchased their home through an agent – up from 69% in 2001.
In any year, the advantage of having a Realtor ® help with your home buying and selling experience is still invaluable.
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