Realogics Sotheby’s International Realty’s acclaimed Research Editor and Data Analyst, William Hillis, has assembled a year-over-year review of eight key counties and 29 regional markets around the Puget Sound. In addition to in-depth market analysis, the report includes the “Condominium Conundrum,” Seattle’s stellar performance on the S&P CoreLogic Case-Shiller Home Price Index, the effects of Chinese capital controls and Canada’s restrictions on foreign buyers, landmark sales on the Eastside, and more. I have compiled a selection of key highlights including trends to watch, to spark a conversation so we may outline the implication for homes in your city.
There were $20.37 billion in single-family home sales in King County in 2017 – 14.9 percent more than the $17.73 billion sold in 2016 – at a median price of $630,000. The median price grew at a slightly lesser rate than selling volume, up by 14.6 percent from the 2017 price of $550,000. There was little difference in the number of transactions in 2017: just 0.7 percent more, to 27,379 from 27,182 in 2016. The slow growth was attributable to a lack of inventory, which has been tightening since last year. The median cumulative days on market in King County reached seven in the second quarter, and never rose higher than ten.
The effects of Chinese capital controls and Canada’s restrictions on foreign buyers
On New Year’s Eve 2016, China’s State Administration of Foreign Exchange (SAFE) was prompted by a weakening yuan to “introduce” capital controls. What they did in effect was to resume enforcement of longstanding regulations prohibiting both the use of foreign currency exchange to purchase property overseas, and the bundling of forex transactions for that purpose through the practice of mayi banjia (or “ants moving”).
China President Xi’s subsequent concentration of governmental power underscores RSIR’s expectation that China’s restrictions on overseas investment will remain in place. Nevertheless, Chinese buyers in Washington State and elsewhere have continued to invest with funds held in trust overseas and through other means, such as cryptocurrencies.
Late in the year, tempers flared as grassroots campaigning against foreign buyers in British Columbia resumed in earnest, the effects of the first foreign buyer tax having been absorbed by the market with few lasting effects. It is anticipated that these moves will accelerate with added impact upon foreign real estate investors, leading some to look south to Washington State as an alternative destination for their purchases.
Local government activism: the influence of restrictions on Mercer Island
Rising prices have locked many longtime residents into their current environs, provoking dissatisfaction with new development that has spurred steps to protect the quality of life. In the fall, residents’ complaints compelled action by the City Council of Mercer Island to preserve views and neighborhood character by restricting buildable footprints on lots, lowering height restrictions, increasing setbacks, and regulating tree removal on developed lots.
RSIR will be monitoring the region to see whether Mercer Island’s example will be imitated by outlying communities, such as those in the San Juan Islands and Kitsap County, or whether such ordinances will be confined to certain enclaves of Central Puget Sound.
Trends to Watch
The Condo Comeback
Condominium launches will blossom as new presale efforts ramp up, now that condo values are rising. Indications are that new residents in Seattle are increasingly arriving from cities nationwide and abroad where comparatively mature transit systems and urban amenities prevail, and these new arrivals are comfortable with higher density.
Meanwhile, apartment projects are meeting steep headwinds, with lenders citing a slowdown in rent growth. Luxury two bedroom units in downtown Seattle are already facing a six-to-eight week rent concession on a year-long lease, as affordability in leasing is facing consumer pushback.
The median home price of a condominium rose by 19 percent last year, and rents have grown by 50 percent since 2010. Ultimately, this is an imbalance of supply and demand, as 1,100 persons move into the metro area every week, with many jobs located in the urban centers (most notably Amazon). The only sustainable way to introduce more affordable housing is to remove impediments to building more. The City of Seattle enacted the Housing Affordability and Livability Agenda (HALA) which allows for bonus density in exchange for units or cash contributions toward affordable housing. This requires more construction to work. The affordability crisis is acute in Seattle, which as described in this report has led the nation in median home price growth for 16 months.
Rising Interest Rates
Rising rates together with rising housing costs will put homeownership out of reach for some, yet motivate even greater numbers of tenants to seek out purchasing options.
Federal Reserve Chief Jerome Powell replaced Janet Yellen in February 2018, and has since expressed confidence that the nation’s economy is strong enough to warrant higher interest rates. the first step in that direction was a quarter-point rate hike on March 21, the sixth since the onset of the financial crisis. In regard to asset prices including real estate, Powell said of inflation that day, “You can think of some equity prices. You can think of commercial real estate prices in certain markets. But we don’t see it in housing, which is key.”
The U.S. central bank indicated that two more rate increases are in the wings for 2018. This path will hit the most highly leveraged homebuyers the hardest, especially in the Puget Sound region where prices have risen so far, so fast.
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2018 Market Trends
As we look to 2018 market trends, the region has already been marked by ample growth as Seattle has now led the nation in home price growth on the S&P CoreLogic Case-Shiller Home Price Index for 18 months in a row. Turning to quarterly statistics, home prices in Seattle continued their upward trend, as the median sales price reached $917,000, up over $30,000 from the final quarter of 2017 and 14.2% year-over-year. Condominiums in Seattle continue to attract buyers as the average days on market in Q1-2018 was 15 days, down a staggering 34.8% compared to the first quarter of 2017. Read RSIR’s special report on Q1 Condo Stats here.