Well, it’s time to put a bow on 2019 and prepare to crack open another January-to-December 12-pack that promises to be just as interesting. The yearend allows us to take a look back and look ahead on a range of topics that impact us in Seattle/King County.
Among the 118 posts published so far this year to my Living the Dream blog, many covered important subjects that take effect in 2020, including new rules for VA loans, a change in state tax rates for home sales and ongoing plans for the Seattle waterfront. Other posts tackled smart-home technology in a multi-part series, as well as shared details on down-payment assistance options and federal loan programs that require little or no down payments.
This writer/Realtor ® pored over dozens of reports and spoke with real estate and government insiders to take a pulse of the present and develop a picture for the future in our region. Here are the insights uncovered in something that we’ll call our “second annual Living the Dream blog’s predictions and projections for 2020 and beyond.”
Local Housing
Signals are strong that the Seattle/King County housing market will remain quite active in 2020. Median prices on single-family homes rose in 2019 but were off from double-digit growth rates earlier in the decade. Single-family prices should continue to appreciate amid a continued shortage of inventory and new construction that is focused more on vertical housing (condos and apartments).
Competition for single-family homes – mostly from first time-buying millennials – remains extremely strong against a backdrop of seller-favorable inventory (less than 3 months). Nearly half of all home sales in Seattle involve millennials and that share should continue to grow.
(See Local Housing – In Depth)
Interest Rates
Trying to predict the direction of mortgage interest rates is like attempting to forecast when and where the next earthquake will hit. We have sufficient data and historical knowledge to offer a strong prediction but never can our forecast be absolutely right.
Mortgage rates hit near-historic lows to about 3.5% nationally in 2019, far better off than anyone expected this time last year. Even though rates are slightly higher now, the window of opportunity for mortgage loans and refinancing is expected to remain open for the foreseeable future.
(See Interest Rates – In Depth)
Jobs and the Economy
Expectations are high across Puget Sound for a stable jobs environment and economy in 2020. Inflation remains in check and salaries are on the rise. Beyond our local bubble, trade tensions between the U.S. and China – although recently eased – remain a back-burner issue that could impact the economy.
(See Jobs and the Economy – In Depth)
City Landscape
There may be fewer cranes towering above Seattle but that doesn’t mean the city is taking a break from building new office, residential and specialty structures. Au contraire!
Look around: The Washington State Convention Center is in massive-expansion mode. The new home of NHL Seattle (the old KeyArena) is undergoing a complete remodel and plans are underway to develop a new hockey-practice facility on the site of Northgate Mall – all for the start of the 2021 season. And a third Google Block – the old Guitar Center site at 520 Westlake Avenue – will help keep construction strong for the next couple of years.
(See City Landscape – In Depth)
City Infrastructure
New residential towers – mostly apartments – are coming soon to areas close to new Link light rail stations in the University District, Roosevelt and Northgate. The city’s revised upzone rules, passed in March, raised maximum heights to 320 feet in the UDistrict as station stops are on track (pun intended) to open in 2021. More stations are planned further north and east to Bellevue for 2024 – and beyond.
(See City Infrastructure – In Depth)
Technology
The old real estate mantra of “location, location, location” is being replaced with “location, experience, analytics” as residential experts blend physical and digital worlds to deliver sharper insights, faster results and customer experiences that are cutting edge and memorable.
Case in point: Selling a home can be made easier when it is staged with just the right amount of furniture. To save time and costs, some real estate agents are using augmented reality (AR) to pull in virtual furniture on personal devices. The ability to walk through furnished spaces with AR allows buyers to reimagine the home. Think Pokémon Go, except using sofas and beds in place of characters such as Blanche and Spark.
Buyers are looking for memorable experiences when shopping for a home. They often come into a sales office or home expecting “wow” moments from smart devices on the wall or entryway, to high-tech remote controls or “smart” appliances. In my visits to condo sales offices this year, I saw the use of keyless door-entry systems at The Emerald, Amazon/Alexa connected tech planned for First Light (2000 3rd Avenue, Belltown) and buzz about a nine-level, below-ground automated vehicle-parking garage (a first for a U.S. residential building) coming to SPIRE (600 Wall Street, Denny Triangle).
We are seeing more and more consumer-direct apps that help homeowners with the chores. Groceries and prepared meals delivered to your door? Check! Lawn and gardening needs? Why, yes, there’s now an app for that! Lawn Love partners with approximately 20,000 pre-screened, lawn-care specialists in more than 120 U.S. cities that allows owners to obtain bids and book skilled professionals in minutes. Company founder and CEO Jeremy Yamaguchi likes to call Lawn Love a technology company; it uses high-resolution satellite imaging, data sets and human assessment to deliver an optimized result to customers. It’s great when preparing a home for sale.
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Local Housing – In Depth
The Northwest Multiple Listing Service reported median prices for single-family homes in King County appreciated 3.5%, January to November, to $661,500 and were fractionally lower in Seattle, to $735,000. King County condos appreciated 2.6% this year (through November), to $415,000, but Seattle condos experienced an 8.0% correction, down to $460,000.
Speaking at an industry event this autumn, Lennox Scott, chairman and CEO of John L. Scott Real Estate, said he anticipates even greater appreciation across the price spectrum in 2020, topping out at 8% or possibly more for single-family homes priced below $500,000 in parts of South King County, as well as in areas of Kitsap, Pierce, Snohomish and Thurston counties.
Scott believes homes in the $500,000-$750,000 range in Southeast King and Snohomish counties will appreciate 6-plus percent, while he anticipates a 5% bump for those price points in Pierce County.
Homes in Seattle and on the Eastside worth up to $1 million will likely increase 6% in 2020, Scott said. Above that amount, prices will rise about 5%. For Eastside luxury homes at the highest end of the price spectrum, Scott predicts gains of around 3%.
Housing permits, meantime, continue to decline, from a high mark of 18,169 in 2017 to about 17,400 this year and roughly 14,700 in 2020. A lack of affordable housing – a high priority for lawmakers, consumers and Realtors ® alike – is pushing buyers further away from job centers in downtown Seattle.
Seattle/King County has the third-largest homeless population in the U.S., with more than 11,000 people counted in early 2019, an 8.3% decrease over the previous year. Even “60 Minutes” recently touched on the topic.
To help address issues of affordability and homelessness, Seattle Mayor Jenny Durkan this year unveiled initiatives that will invest more than $150 million in housing. The highlight came last week when the mayor unveiled plans to invest $110 million to create 1,944 new affordable homes in neighborhoods across the city– the largest investment and the largest number of affordable homes created in the city’s history.
The 2019 funds invested through the city’s Office of Housing will support the construction of 13 new buildings in Seattle. These buildings will be inclusive for a range of citizens, including seniors, LGBTQ+, low-income workers and families, and those experiencing homelessness. Several of these housing buildings will include spaces for childcare and healthcare centers for seniors.
Durkan said she’s hoping to see construction start in the next two years. Earlier in the year, she lauded new and updated policies that help create more housing, including:
- The Mandatory Housing Affordability law, which covers Seattle’s 27 urban villages and other commercial and multifamily residential areas.
- Plans for the redevelopment at Fort Lawton Army Reserve in Magnolia, which will add about 240 units of mixed-income affordable dwellings, including supportive housing for seniors and veterans, plus apartments for low-income households on a portion of the 34-acre grounds next to Discovery Park – subject to legal challenges.
- Approval for the creation of more backyard cottages – Detached Accessory Dwelling Units (DADUs) and in-law apartments, or Accessory Dwelling Units (ADUs). The mayor also called on the simplification of financial and permitting barriers to constructing these types of dwellings. (My blog post from July covered the subject.)
Also, Seattle City Council revised legislation that requires sellers of multifamily properties with at least one affordable unit to provide 90 days’ notice (from 60 days) to tenants and the city of the owners’ intent to sell. The revision aims to give tenants, local housing authorities and nonprofits a right of first refusal before the property hits the market to the public.
In addition, the city and local developers are building small-efficiency dwelling units (or micro-housing) in Lower Queen Anne, Wallingford and Capitol Hill. Another new initiative in Seattle is the BLOCK Project, a nonprofit endeavor that matches new microhomes for homeless with welcoming homeowners’ backyards. BLOCK hopes to build 6-12 units on approved properties in 2020.
Our region has a widening middle-income housing gap that isn’t helped by an increase in short-term house rentals and the legal purchase of homes as “wealth-storage units” in luxury condos (as covered in my November newsletter).
“There is still so much to do,” Durkan said. “We have so much catching up to do.”
For its part, the state also responded in 2019 by adopting condominium liability reforms that create the promise of many more middle-market housing options. The new law maintains consumer protections and removes barriers that made condo construction risky for developers. We expect this will help spur housing entrepreneurs to get back to the business of building more mid-priced condos. (Return to top)
Interest Rates – In Depth
A survey of real estate experts predicts mortgage rates below 4.0% through the next 12 months. Lawrence Yun, chief economist for the National Association of Realtors ® (NAR) forecasts a 30-year fixed mortgage at about 3.75% nationally through the coming year. Another forecast, from realtor.com, sees the average figure at 3.85%. Yun warned that rates could be influenced by changes in U.S. trade relations with China and by the impact of a rising U.S. Federal budget deficit.
Confirming this expected stability, a survey of economists released in November by investment bank Goldman Sachs said it expects the Federal funds rate to remain unchanged in 2020 after three cuts this year, now in a range of 1.5%-1.75%.
Freddie Mac forecasts a “continuation of the current surge in refinancing activity in 2020, as homeowners take advantage of low interest rates and increased equity.” Meantime, U.S. consumer sentiment for November was at a four-month high and manufacturing orders are on the rise in recent months – both favorable signs.
What a difference six months make. In a survey from mid-2019, about 35% of U.S. economists projected a recession for 2020. However, the Goldman Sachs survey predicted the recently announced U.S.-China trade truce that will reduce the odds of a recession to 20% next year. And Yun, from NAR, recently told a conference of Realtors: “We will not have a recession” in 2020.
Todd Britsch, Pacific Northwest regional director of Metrostudy, a provider of market data to the housing industry, believes a recession is inevitable. “We’re going to get sucked into a global recession,” Britsch said in early autumn. But thanks to robust growth in the tech sector, he expects the Seattle region to be “relatively insulated” from it.
Oddly enough, housing values actually increased in three of the last five recessions. They deceased by less than 2% in another recession. Unlike the economic tumult of 2008, housing will not be a trigger for the next recession.
“We expect that the housing market will keep on a pretty solid footing, even if we were to see a recession,” said Danielle Hale, chief economist for realtor.com. “There are plenty of buyers in the market [nationally] – in large part because of demographic reasons with millennials aging at the peak household-formation years.”
Data from November showed that foreclosures in the U.S. are at a 13-year low, a signal that the broader economy remains strong. The low foreclosure rate can also be credited to the increased underwriting scrutiny we have seen since 2008. (Return to top)
Jobs and the Economy – In Depth
Seattle’s explosive population growth – up 22.8% since 2010 – has begun to slow. The city has an estimated 747,300 residents, as of mid-year, up 2.3% from mid-2018. King County’s population grew 1.6% in that span to 2.23 million and is forecast to rise about 1.2% with an additional 15,000-20,000 people living in the county in each of 2020 and 2021. By comparison, U.S. population growth is consistently in the 0.6%-1.0% range annually.
Despite the slower population growth, the number of new jobs created is expected to end 2019 up around 2.6% in King County and is forecast for 2.0% growth in 2020. Unemployment in the county is at a staggeringly low 2.7%, as of November, compared with 3.5% nationally, and is forecast for 3.1% next year in King. (Fast fact: King County had an unemployment rate of 9.5% in early 2010, compared with 9.8% nationally.)
The local employment bright spots today include:
- Amazon has about 11,100 jobs posted in the Seattle area
- Some 47,300 jobs are posted on Indeed.com within 25 miles of Seattle
Bright spots further on the horizon:
- Anticipated growth of 30% in software developers by 2026 (255,000 jobs)
- Total job growth in Seattle’s core urban areas estimated at 66,500 in the 20-year period ending 2035 (The same span ending in 2015 attracted 71,300 new jobs to Seattle’s urban areas.)
Inflation has eased to 2.6% in King County (from 3.2% in 2018), reflected by a slowdown in rising consumer prices. Economic growth in Seattle is projected for 2.2% and a modest 1.6% nationally in 2020. The Consumer Price Index (CPI) for our county is at an annual growth rate of 2.5% (through August) and is forecast for only a 1.7% increase in 2020. The CPI for Seattle/Tacoma rose only 2.2% year-on-year (through October) – a figure not seen since a 2.1% increase in August 2016.
We are getting younger. Well, you and I are getting older (sorry!) but the county’s median age is dropping, now at 36.9 years, from 37.1 in 2010. (The U.S. median age is 38.2.) A 27.7% surge in millennial-aged residents since 2010 sent King County’s age downward. There are now about 600,000 county residents aged 25-39, accounting for 26% of King’s residents.
The median household income in Seattle is $93,481, according to 2018 data from a Census Bureau report issued this year. That puts us third among all major U.S. cities for highest household incomes, behind San Jose and San Francisco. (Sammamish leads cities of all sizes in our state with a median income of $183,038.)
The typical sale price of an existing single-family home in our area is about 5.7 times greater than the median household income, according to the Harvard Joint Center for Housing Studies. Without two high-paying salaries, it’s a real challenge to afford a home in Seattle, Bellevue, Redmond and many other parts of the county. (Return to top)
City Landscape – In Depth
To see how our cityscape is changing, one may first look at the evolving profile of a homeowner and buyer. While married couples have always possessed a majority of the housing market, approximately 63% of all sales in the U.S. (according to NAR), singles are now taking a greater share. The U.S. Census claims 120 million Americans – 48% of adults, 18 years and older – are divorced, widowed or have never married (as of 2017), up from 39 million adults and 29% in 1970, and professional services giant Deloitte predicts 41.4 million households will be headed by singles by 2030. Locally, NAR statistics show 70% of the newest Seattleites are millennials, with the city’s total population nearly 29% comprised of this growingly influential generation.
“Seattle real estate remains in expansionary mode,” according to a report released in September by the Urban Land Institute. The report notes some 8.8 million square feet of office space is under construction (the equivalent of about six Columbia Center towers, the tallest building in the city), with about half of the space developing in South Lake Union.
Moreover, a report released by the state indicates 80,000 housing units have come online since 1995 collectively in Seattle’s urban centers (downtown, Belltown, Denny Triangle, South Lake Union, Capitol Hill, First Hill, Lower Queen Anne, University District and Northgate) and another 35,000 units are projected for the area by 2035.
While figures show fewer apartments under construction in Seattle – down about 20% from a year ago – there are pockets of development worth noting. RealPage, a data-analytics provider to the real estate industry, reports that about 20% of all apartment construction in the city – or 3,800 units – is taking place in downtown. Most of those homes – about 2,300 – will come on the market in late 2021. This compares to a five-year average of 1,400 new apartment units annually in downtown.
With fewer cranes in the sky, Seattle’s tax revenue from new construction is slowing and the Budget Office expects the trend to continue. That’s a concern since more than half of the city’s sales tax revenue comes from retail sales and construction activity. The Budget Office not only sees “a modest construction downturn” in 2020 but projects “a more severe downturn … if there is a national recession.”
The next big condo projects to open here:
NEXUS – 1808 Minor Avenue, Denny Triangle (41-story, 382-unit luxury condo; expected occupancy “winter 2019/2020.”)
The Emerald – 121 Stewart Street, downtown Seattle (40-story, 262-unit luxury condo; target open “July 2020.”)
KODA – 450 South Main Street, International District (17-story, 201-unit condo flats; expected occupancy “December 2020.”) (Return to top)
City Infrastructure – In Depth
Speaking of the Link light rail stations coming soon, a new study concluded that neighborhoods located within a half-mile of mass transit saw a potentially major benefit. In the areas studied, including Seattle, sales prices were up, average transportation savings could be as high as $4,000 a year for families, and 25% of homes in that area didn’t even own a car. Attraction to this more convenient lifestyle helps to drive interest in buyers, especially those who are looking for high walk scores for their homes – because we expect driving is only going to get worse.
Even with expanded public-transit options, the state estimates that by 2035 there will be a 30% rise in miles travelled in our region every day. That includes a 30% jump of morning commuters arriving to Seattle from the north and a 27% gain in vehicles arriving weekdays from both the south and east.
We will watch how the November voter-approved tax cut known as Initiative 976 impacts local infrastructure projects. I-976 establishes far lower vehicle-registration fees (about $42 for a standard car from about $200) while also putting in jeopardy the projects that relied on the millions of dollars of car-tab tax revenue collected by the state. The Washington State court system is hearing a case on the matter and there are already signs that road and bridge work – and likely transport initiatives – will be delayed until the funding issue is resolved.
We covered last year at this time plans by the city to have property owners in Belltown and downtown help pay for the city’s renovation of the Seattle waterfront through a local improvement district (commonly known as the “LID”) assessment. City Council will hold a public hearing on Feb. 4 and the final assessment for each owner is expected to be determined by the end of 2020. Plans for the waterfront are quite ambitious and on track to be finished by 2024. (Return to top)
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The 2020 national elections will be closely watched by consumers. Housing trends, though, are not typically affected by the outcome of elections. Employment, wages, interest rates, along with housing inventory and prices help to determine whether people will search for a new home. However, business optimism and investments do influence the economy and can also impact housing activity. For these reasons we will pay attention to the national races – for president, 35 seats in the Senate and all 435 spots in the House.
This blog will continue to cover all of these topics in 2020. Also, my monthly newsletter will keep you apprised of Seattle/King County real estate news and insights. Sign up to receive the newsletter and please tell your friends and co-workers.
Here’s to a Happy New Year!