Comprehensive Real Estate Market Update: 2018 Year in Review and 2019 Trends to Watch
Realogics Sotheby’s International Realty presents the 2018/2019 Market Report, a comprehensive look at the 2018 real estate market and a look ahead at 2019. The report includes a 2018 retrospective which explores the shifting real estate market, including increasing inventory, the fallout from Seattle’s adopted (and subsequently repealed) “head tax” and the outcome of Amazon HQ2, sustained political banter in the U.S. and abroad, the threat of interest rate hikes, a look at Seattle’s performance on the S&P CoreLogic Case-Shiller Home Price Index, and more.
The report then moves into analysis of eight key counties and a review of 31 regional markets with a 2019 home price forecast for each. Finally, the 2019 Look Ahead indicates what key drivers will impact the market most over the course of the coming year, from rising interest rates and Federal Reserve monetary policy, to rental headwinds, a balancing market, and beyond.
Below I have compiled a few key thoughts and trends to watch as a conversation starter.
Changes downtown: the Viaduct and SR-99 tunnel
The end of 2018 was followed on January 11th with the permanent closing of the Alaskan Way Viaduct, the elevated roadway along Elliott Bay first opened in 1952. A landmark to some, an eyesore and catastrophic safety hazard to others, the Viaduct’s demolition began the following day. This was the first step toward opening the SR-99 tunnel downtown, which opened shortly after this publication went to print. It will be followed by grand plans for renovating the Seattle waterfront into a parklike setting that will improve livability downtown, enticing new residents and drawing further condominium investment to the area. Construction is now well underway at NEXUS, SPIRE, and KODA, representing more than $800 million in new condominium supply.
Home prices continue to rise despite doubts
As recounted in this year’s Case-Shiller analysis, Seattle finally dropped out of the top three leading cities in the country for residential home price increases; and the Seattle Times spent the second half of the year portraying the slackening rate of advance as an outright drop in home values. However, median residential prices actually ended the year three percent higher in King, Pierce, and Snohomish counties combined. Although price gains were smallest among the most desirable Eastside markets, median selling prices remained higher year over year in these towns, in the City of Seattle, and throughout most of Puget Sound.
Key Counties and Communities
The number of residential selling transactions gradually started to decline in the third quarter of 2017, and accelerated in the third and fourth quarters of 2018. The year ended with 11.2 percent fewer home sales than in 2017.
For a second consecutive year, both in number and proportion of overall sales, fewer King County condominium units were sold in 2018 (6,885 units, compared with 7,898 in 2017).
After steadily shorter market times since 2015, median cumulative days on market in the fourth quarter of 2018 shot to 26 days—a 16-day year-over-year increase—breaking through the 24-day market time last seen in the fourth quarter of 2014.
Of King County cities with more than 500 residential sales in 2018, those with the highest average (not median) selling prices were, in order of average price:
The 2018 median residential price was $680,000 and the compound annual growth rate from 2014 through 2018 was 11.5 percent.
In the third and fourth quarters of 2018, respectively, Snohomish County residential transactions fell by 0.8 and 0.9 percentage points less than King County sales. For the year, Snohomish County was 10.0 percent fewer home sales in 2018 than in 2017.
Since 2014, condominium sales have annually comprised 18 to 19 percent of all home sales in Snohomish County. Their proportion in 2018 was 18.9 percent.
Just as in King County, Snohomish County median cumulative days on market expanded to 26 in the fourth quarter of 2018. However, this duration did not exceed that of the fourth quarter of 2015 or any preceding quarter in recent years.
Of Snohomish County cities with more than 500 residential sales in 2018, the highest average selling prices were, in order of average price:
The 2018 median residential price was $484,000 with a compound annual growth rate of 10.5 percent from 2014 through 2018.
The fourth quarter of 2018 saw fewer than 100 units sold, the least Belltown/Downtown Seattle condominium units sold quarterly since the first quarter of 2015. For the year, however, two more units were sold than in 2017.
Also in the fourth quarter, market times of units listed for resale lingered for a median 52 cumulative days on market, although these units were competing with recent new construction offerings in pre-sales that have not yet opened for occupancy. To entice buyers away from new projects, sellers of existing units sold in the second half of 2018 were compelled to negotiate lower-than-list prices more frequently than seen in 2016.
Selling prices of re-sold condominium units in Belltown and Downtown have increased at a compound annual growth rate of 12.0 percent annually since 2014. The median selling price in 2018 was $675,000.
The Belltown and Downtown area is also undergoing a “condominium comeback,” with several exciting projects in the new development pipeline that are scheduled to deliver over the next few years. The 389-unit NEXUS Condominium Tower will be the first to completion and is scheduled for occupancy late 2019. KODA has broken ground on a 17-story building with 201 condominium homes in the growing Chinatown-International District and SPIRE will grace the Seattle skyline with occupancy in late 2020 to early 2021. An impressive uptick in presales hit in the fourth quarter of 2018 with the arrival of new projects such as SPIRE and First Light, which combined, outsold resales 2:1 (albeit mostly to international buyers).
2019 Look Ahead
As a record number of apartments get delivered and start leading up, there is now a supply glut of rental units in the city. Landlords are offering six to eight weeks of concessions on 12-month leases, making renting more attractive. Stories have also emerged of landlords offering extraordinary concessions, such as gift cards and free parking. Realogics Sotheby’s International Realty had previously seen the thousands of tenants incubating in these towers as being prime targets for condo pre-sales; but if these trends persist, they may stay put if the apartments look more attractive and interest rates rise. Of course, the opportunity cost of renting is missing a chance to buy a home before prices rise further.
A Balancing Market
A prime consideration that in recent years has driven so many investment dollars into apartment construction has been the Washington State Condominium Act, which imposes heavy liability for construction defects on builders. A bill before the Legislature this year, the Condo Liability Reform bill (SB 5334), offers a chance to reduce the risk to builders by re-defining warrantable defects and by limiting the personal liability borne by condo association board members. Combined with the oversupply of apartments, enactment of the bill could shift more development funds into condominium projects. The bill passed the Washington State Senate on February 25th, 2019.
In King County generally, home selling prices were still higher than in 2017; and although active inventory exceeded 2012 levels from September through November, December saw some moderation. Downtown Seattle saw 468 resale closings in 2018, with a median home price of $675,000 and 39 days on market. That compares to slightly higher resales in 2017 (513), with a median home price of $625,000 and 21 days on market. Downtown Seattle is a thin market and difficult to discern, yet it seems more sellers are feeling optimistic unloading investment properties due to rental competition, and others are buying into new towers. As new product (units) are opened for occupancy, the last-generation products will hit resales.
For more, read the full digital report below or contact me for a complimentary print copy of the magazine.