By Matthew Gardner, Chief Economist, Windermere Real Estate
2016 was another stellar year for the Seattle housing market, in which a surplus of buyers and a deficit of sellers drove home prices higher across the board. So, can we expect to see more of the same in 2017? Here are some of my thoughts on the Seattle/King County housing market for the coming year:
- Our market has benefited greatly from very healthy job growth, driven in no small part by our thriving technology companies. Economic vitality is the backbone of housing demand, so we should continue to see healthy employment growth in 2017; however, not quite as robust as 2016. Migration to Seattle from other states will also continue in the coming year, putting further pressure on our housing market.
- Are we building too many apartments? The answer to this question is “maybe”. I believe we are fast approaching oversupply of apartments; however, this glut will only be seen in select sub-markets, such as South Lake Union and Capitol Hill. Developers have been adding apartments downtown at frantic rates with many projects garnering very impressive rents. In the coming year, look for rental rate growth to slow and for concessions to come back into play as we add several thousand more apartments to downtown Seattle.
- The Millennials are here! And they are ready to buy. 2016 saw a significant increase in the number of Millennial buyers in Seattle, and I expect to see even more in 2017. The only problem will be whether Millennials will be able to find – or afford – anything to buy.
- Home prices will continue to rise. But price growth will taper somewhat. The market has been on a tear since bottoming out in 2012, with median home prices up by a remarkable 79% from the 2012 low, and 14% above the pre-recession peak seen in 2007. Given the fact that interest rates are now likely to rise at a faster rate than previously forecasted, I believe price appreciation will slow somewhat, but values will still increase at rates that are well above the national average. Look for home prices to increase by an average of 7.5 – 8.5% in 2017.
- More homes for sale? I am optimistic that inventory levels around Seattle will increase, but it still won’t be enough to meet continued high demand.
- This is my biggest concern for the Seattle housing market. Home prices – specifically in areas with ready access to our job centers – are pulling way ahead of incomes, placing them out of reach for much of our population. This forces many buyers to move farther away from our job centers, putting additional stress on our limited infrastructure. We need to have an open discussion regarding zoning, as well as whether our state’s Growth Management Act is helping or hindering matters.
- New Home Starts/Sales. As much as I would love to say that we can expect a substantial increase in new homes in 2017, I am afraid this is not the case. Historically high land prices, combined with ever increasing construction and labor costs, slow housing development, as the price of the end product is increasingly expensive. This applies to single family development as well as condominiums. We should see a couple of towers break ground in 2017, but that’s about all. Vertical construction is still prohibitively expensive and developers are concerned that there will not be sufficient demand for such an expensive end product.
- Are we setting ourselves up for another housing crash? The simple answer to this question is no. While home price appreciation remains above the long-term average, and will continue to be so in 2017, credit requirements, down payments, and a growing economy will all act as protectors from a housing crash in Seattle.