Following three years of “steroid markets” around the Puget Sound area, what is in stock for this year? Alarming media news talking about recession… Let’s look at what local experts have to say. The predictions below were taken from Denise Lones’ “State of the market – Tomorrow’s market based on Historical Perspectives” and Matthew Gardner‘s (Chief economist at Windermere Real Estate) forecast.
2018 biggest issues
- Steroid market with peak prices in May
- Seller’s greed
- Homeownership rate declining due to affordability
- Inventory increasing
- Pending sales declining
- Local panic: upcoming recession?
2018 Seattle median sales prices rose 8.5% year over year to $765,000 for the year. Bellevue median sales prices reached $1.273 million. King County residential median price went from $630,000 in 2017 to $680,000 in 2018. Eastside residential price went from $865,000 in 2017 to $936,500 in 2018. (NWMLS Market Stats)
Sellers are having a tougher time to readjust to a more balanced market where overpricing a home doesn’t work anymore and results in “Freezer Burned Listings” as Denise would put it. In King County, as of 1/4/2019, 60.1% of all active listings had been on the market for over 61+ days while homes on the market for less than 14 days represented only 10.4% of the market share.
The home ownership rate has declined to 63.4% in 2018 due to affordability and the shortage of new constructions and distressed properties. A growing number of properties being purchased by investors who rent them out.
2019 real estate market: what to expect?
- Severe shortage of new constructions to continue
- Increase in land prices & labor costs
- Potential increase of loan interest rates to 5.5%
- New profile of buyers: Millennials & Baby Boomers
Millennials (born between 1981 & 1997) have surpassed Baby Boomers representing 75.5 million of people. Both generations seem to be looking for similar properties however. Baby Boomers are attracted by active lifestyles close to urban centers and areas with great walkability. As such, they are competing with millennials. 35% of millennials live with their parents and are getting married later in life due to high student debts.
Washington State and Seattle: strong economy
- Washington State ranks first in the U.S for exports per capita.
- Seattle is a leading trade partner with Japan and China.
- Flights from SeaTac Airport reach Asia 1-2 hours faster than from Los Angeles or San Diego
- Seattle is the Gateway to Asia (deepwater ports and international air hub). The Seattle-Tacoma-Everett port region is the Third largest container complex in the United States.
- Seattle is experiencing an aggressive population growth with an educated workforce, steady migration and investors flooding to the Pacific Northwest. Seattle is expected to gain 29,000 new residences per year for the next 4 years.
- Concerns: Washington state is the most vulnerable trade state because of its proximity to China. Trade wars? Drop in state exports to China were off nearly $600 million following back and forth tariffs with China.
What to expect?
- Homes are still in HIGH demand. Backlog of buyers is to return in the Spring.
- Better opportunity for buyers with more selections and better pricing yet higher interest rates
- Sellers have to finally sell at “market value”. We have hit the high point of the house appreciation run
- House prices will decelerate in certain markets
- Rents are high making investors happy to continue to invest
Why not to fear a housing crash?
- Foreclosures hit a 11 year low
- New construction not keeping up with the demand
- Homeowners have high equity in their homes
- Lending standards are tougher