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Year in Review and Predictions for 2019

There were three themes that drove the real estate market in 2018—Supply, Demand, and Affordability. Although these are always at play, the increased pressure from all three were intense in 2018 and will continue throughout 2019. Let’s look at what makes up each of these areas and how they will impact the market in 2019. Our market did cool down in 2018, but not to the extreme that you may have heard in the media. In fact, as we look at year over year statistics from 2017 to 2018, prices were up 8.1% in King County and 10.1% in Snohomish County.

The big change we saw was an increase in inventory, yet we are still solidly in a sellers’ market with inventory at 1.7 months in King County and 1.5 months in Snohomish. A sellers’ market has less than 4-6 month in inventory.

As we look at Supply, Demand, and Affordability with these statistics in mind, we see that affordability is the most significant factor at play.

Supply – There are only three ways we get new inventory – existing resale homes, new homes, and foreclosures. The number of years we are staying in our homes has reached an all-time high of 10 years which is one of the main contributors to the inventory shortage (plugging up the resale pipeline). However, another contributor – and this is a big one – is the continued lack of new construction. We also don’t have many foreclosures to add to our inventory levels. Therefore, all three inventory supply sources are drying up instead of flowing.

Demand – Our economy is humming along. Unemployment is at almost historic lows, GDP is up, Consumer Confidence is up and Millennials are ready to buy. Therefore, demand has been high and will continue to be so. If it wasn’t for the affordability issues we are experiencing, Millennials would be buying up a storm.

Affordability – High demand for housing is causing prices to soar out of a comfortable price range for buyers. The cost for builders to build (land, labor, materials, and regulatory demands) are all rising at a pace that makes new construction less affordable. Interest rates are on the rise. All of these factors affect affordability and home sales.

These three factors are in a push-pull relationship which was very evident this past year when home prices peaked in May. The market then quickly reacted with an adjustment in inventory. There was an initial surge of new listings concurrent with a moment in which buyers had had enough and affordability reached a tipping point. That surge caused buyers to step back and assess the situation instead of moving forward, which caused another moment in which sellers were ready to sell but buyers were no longer willing to pay the inflated prices. Buyers figured out quickly that the market had hit its peak and they did not want to buy at the peak of the market. This led to even more inventory coming on the market with demand pausing as supply surged. Now that surge is receding – sellers who couldn’t get the price they wanted are taking their properties off the market and savvy buyers are working with sellers, allowing both parties to make their next move.

What can we expect in 2019?:

Housing Inventory – I believe the inventory surge that we will begin the year with will be absorbed as sellers get realistic about their prices or take their homes off the market. We will then see the spring and summer return to a more reduced inventory market. I expect buyers to also hop back into the market, trying to capitalize on interest rates that are expected to rise throughout 2019.

Housing Starts/New Construction – Our builders have not been able to keep up with the demand for new construction. Historically, we have needed 1.5 million units each year. That has recently increased to 1.62 million units. However, we are only on target to build 1.25 million units this year and next which means we are continuing to add to our deficit. Local issues in many areas such as zoning and water rights are also capping new construction opportunity. The cost of building supplies, labor, land, and regulation are causing problems for our builders and I expect these problems to worsen in 2019.

Home Price Growth – In Western Washington, we saw year-over-year median sales price grow 9.1% to $409,752, according to the Northwest Multiple Listing Service (NWMLS), and you can see from the charts on page 1 and this page how prices changed in King and Snohomish Counties as well as Seattle and Edmonds. Since I expect the pace of our market to downshift after the spring (with more balanced inventory than last year), I predict that median sales prices will continue to grow but at a smaller pace.

Interest Rates – The Federal Reserve has been trying to return the country to neutral for interest rates. The Fed raised interest rates in December but said they are not sure what they will do in 2019. I do expect that rates may rise as high as 5.75% by year-end. Rates had been as high as 4.94% last November for a 30-year fixed rate mortgage, but the rate slid back and as of December it was at 4.63%.

There are several “wild card” issues in 2019 which could affect the real estate market in a way that cannot be foreseen. Issues such as immigration reform, political uncertainty, the national debt, global issues such as Brexit, possible trade wars, and even the true impact of the tax reform changes may cause shifts in the real estate market that are unpredictable. That being said, I am excited for what 2019 has in store!

For additional information and how these issues may affect you, please call or text: (206) 790-0081 or send an email to Jamie@JamieFlaxman.com.




Happy New Year!

Here’s to a happy and healthy New Year!
May all your dreams and wishes be realized.

Stay Tuned in 2015 for:

  • 2014 Seattle market update (January)
  • Fabulous Seattle homes for sale
  • Monthly videos created by me
  • And much more

And to Start the Year Out Right, here are my predictions for the 2015 Real Estate Market:

Each year I review what has happened during the year, research what the experts say for next year, and share my thoughts on what will happen in the market in 2015.

Median Sold Prices – Home prices will continue to increase nationally by single digit numbers, between 5-6% whereas Washington State home prices will increase around 7%. Urban metro areas (such as Seattle) in high demand by millennials will see an increase probably in the double digits. Home prices in October 2014 were up by 6.4% year-over-year, after climbing 10.6% in 2013. There are still areas of very high demand and low inventory which will continue to push prices upward. However, many homeowners surveyed suggest they will sell their homes next year, increasing potential inventory and putting downward pressure on prices.

Inventory – It is a good thing that more homeowners are expected to sell their homes next year as I predict that more buyers will be entering the market for a home. Improved job markets and lower unemployment rates, along with stabilizing home prices and fewer bidding wars, will bring more buyers into the market. Buyers who left the market in 2014 due to disappointment over lost offers will return. Increased inventory and slower market time gives buyers the time they need to get financing and look at more homes. The bottom line is inventory will increase due to more sellers in the market, but I expect that buyers will be purchasing that inventory, so there won’t be big fluctuations either way.

Interest Rates & Mortgage Availability – The improving economy is a sure sign that interest rates will increase in 2015. The new rates will balance job growth and higher inflation rates. The Federal Reserve indicated it will increase the federal funds rate in 2015 (the federal fund rate has a significant effect on mortgage rates). I expect the 30 year fixed rate mortgage rate will reach 5% by the end of 2015. Government officials have also indicated that mortgage credit should become more available in the foreseeable future, which will allow more buyers to qualify for a mortgage and will allow some people to qualify for a lower-rate mortgage. The FHA is raising its loan limits for King, Snohomish and Pierce counties to adjust for rising median home prices; the loan limit in 2015 for a single-family home is $517,500, up 2.3% from $506,000 this year. Additionally, the FHA is bringing back loans with only a 3% downpayment.

Foreclosures – The foreclosure crisis is near its end. 2014 saw foreclosures down 30%. We will see a further decline in 2015 with a return to low levels.

These are just a few of the things I predict 2015 will bring us. For further information, please don’t hesitate to give me a call at (206) 790-0081 or emailJamie@JamieFlaxman.com. I would be happy to share what my 2015 predictions mean for your real estate holdings.