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I attended a market forecast event with famed economist Matthew Gardner where he made some observations and pulled out his “crystal ball”. You may have seen him on CNBC, or even at one of my annual events! I took some notes that I thought you might also find interesting, see below. On February 4th Matthew will be speaking at my own event in downtown Bellevue on February 4th. Please look for an invitation in January by email.
- Building: Building is very, very expensive in our area. Regulatory expenses make up .25 cents of every dollar spent on homebuilding. One example given was a $45,000 city permit. Land, materials, and labor all cost more than ever before. There is a shortage of 340,000 construction workers in the US. Builders struggle to make money building smaller, more affordable homes that so many are looking for. They are generally building luxury homes with more square footage to be able to make a profit. A $300,000 lot in Bothell will need to result in a 1.2+ million house for the builders to have a solid margin.
- Interest Rates and quality of mortgages: They are “stupidly cheap” and helping the housing market. Only 5% of all loan originated are ARM (Adjustable Rate). Most buyers are choosing fixed rate products, and guidelines remain very stringent. Buyers are very well qualified and have larger down payments without the creative financing of the early 2000’s that led to the housing crisis. Rates are expected to remain very low in 2020, but may go up slightly. Americans are sitting on a ton of equity in their houses, and not using them as ATM’s like before the last recession. 25% of homeowners have 50% or more equity in their home in the US.
- Millennials: Biggest generation, largest workforce, and they are eager to buy more homes. Millennials want to be close to work and not pushed too far out into the suburbs. They want safe locations, amenities, sand quality schools that are “one foot in town and one foot out”. Builders have a challenge in finding ways to add more affordable housing close to the urban centers. Millennials are very well qualified with an average FICO score of 741. Many continue to rent because they cannot find anything they want to purchase. Parents of millennials continue to help with down payments.
- Multi-family housing trends: 65% of multi-family construction is apartments, versus condominium. Interest rates are low for developers which makes holding apartments lucrative with our strong workforce and continued growth. Developers need to price new condos over $1,200/ft to make money (concrete and steel high rise). They also face potential warranty litigation and challenges that are obstacles for them after the sale.
- Seattle is Smart!: We are “wickedly smart” with the highest percentage of college graduates than any other city in the US.
- Tacoma is a hot market: In the past Snohomish County for those seeking an alternative to high-priced King County, but the trend today is moving South. Pierce County is 100k less, on average than Snohomish County. He expects Kitsap County to have future growth if the ferry system improves.
- Foreign Buyers: There will continue to be foreign buyers investing in Seattle area real estate but the trend downward continues. In China, for example, only 50k per year can be sent to the US each year. The President of China would like to reduce the limit to just 10k per year. Many find workarounds through Hong Kong and do continue to get large quantities transferred to the US.
- 2020 Projection: Local housing values are expected to increase about 4% in 2020. The economy expected to expand in the US with about 2% growth. Still very strong, but not as strong as 2019. There is a 30-40% chance of recession in 2020, but if it occurs he expects a modest contraction that will not impact housing (as it is not going to be led by housing – like ten years ago). The housing market is trending back to “normal” This means there is more balance between buyers and sellers.
- Seattle area notes: Gardner believes Seattle is the best place to be for a future recession. We are not reliant on Boeing like the 1970’s, but now very diverse with immense growth occurring both in the city and on the Eastside. Seattle has just as many cranes as Los Angeles but is a much smaller city. Amazon is adding as much as 5 million square feet in downtown Bellevue alone. Facebook has big growth occurring both in Seattle and on the Eastside……among others. 50,000 new jobs likely in 2020 around Seattle. Most will be high paying, high tech related. We have full employment and this is expected to continue in 2020.
As always, if you have questions about anything real estate related please consider me as a resource. I am always here to help.
