What will it take to help increase the U.S. homeownership rate, stuck at about 65% for a half-century?
Owning a home is the primary mechanism for typical households – whether comprised of single/married, gay/straight people – to build wealth for retirement. A typical homeowner has roughly 40 times the net worth of a non-owner. Ownership also brings stability to a community when people are no longer under the thumb of a landlord’s actions (or inactions).
Efforts over many decades to steadily increase homeownership have failed. The rate today is the same as in the late 1960s, except during the housing bubble of 2008-2010 when ownership rose – and we know how that ended up!
The pandemic has made attaining ownership more difficult, particularly in housing-starved Seattle (pictured) and across King County where the number of homes on the market (Active listings) has trended lower for most of the past decade-plus.
With scarcity comes price appreciation. The unprecedented housing price increases in our region – up 39% in King for all home types since May 2019 – will possibly stunt homeownership rates going forward. A decline in ownership is a loss of financial stability in our lives and for our communities.
What is the answer? Well, I am only a single real estate professional with one opinion but, for me, the solution includes enacting a blend of corporate and federal dollars toward incentivizing the development of affordable for-purchase housing that targets under-served communities whose residents would otherwise find homeownership difficult to achieve.
Writing policy that lifts families out of rental cycles and into their own homes could be one direct action. Calling upon Fannie Mae, Freddie Mac and other secondary-market mortgage holders to lower the bar to ownership through tax credits, larger deductions on mortgage interest and greater options for down payment assistance can also help.
Beyond the affordability issue, much more needs to be done to address the housing shortage, which is estimated at 5.5 million homes nationally. You cannot easily buy a home when selection is slim and out of reach financially.
There are roadblocks – or at least speed bumps – on the journey to homeownership. They include shortages caused by restrictive zoning that limit the number and type of housing units built on a given parcel, a “not in my backyard” resistance to new construction in traditionally single-family-home neighborhoods, and layers of regulations, processes and fees that dissuade developers from building in certain areas.
Just this month, Portland City Council voted to approve higher density housing options – including six-unit structures on what was previously zoned for single-family use. The change follows Oregon’s lifting in 2019 of zoning restrictions on housing to help address the housing shortage.
Acknowledging a nationwide housing crisis, the Biden Administration last month unveiled an action plan that aims to close the supply gap within five years. The multi-pronged effort includes legislative and administrative actions to increase the number of affordable units and overall inventory.
Earlier in the year Housing & Urban Development Secretary Marcia Fudge called for more “out-of-the-box” solutions to address the scarcity of affordable housing, saying that traditional building practices simply were not working fast enough. Fudge noted that supporting the construction of manufactured and 3-D printed homes were avenues “being discussed” at HUD.
“The house you own and live in will look very different than the house that your grandparents and your parents lived in,” said Fudge, addressing Harvard students earlier this year. “Every single mayor is going to have to see that there is a problem. We’re at a tipping point now.”
While America marks June as National Homeownership Month, it’s heartening to see many ideas on the table – but they need to turn into tangible results soon.
UNMARRIED AND BUYING TOGETHER
For the third consecutive year, a report from the National Association of Realtors® (NAR) noted an increase in unmarried couples purchasing a home. In a survey covering the 12 months ending mid-2021, 9% of all home sales were bought by couples who have not exchanged marriage vows.
As home prices surge and people delay – or forgo – nuptials, buyers are pooling their finances with unmarried partners, roommates or friends to purchase a place. Co-buying allows both parties to share in the responsibility of homeownership – for better or for worse.
Advantages of joint ownership are obvious. Combining finances to buy something increases purchasing power, ends rent obligations, builds equity and is generally a welcoming living arrangement amid lingering effects of the pandemic.
The disadvantages, however, are serious and can sour not only the relationship with a roomy but also potentially damage a person’s financial standing for years. Co-buying comes with marriage-like considerations, such as how to split mortgage payments and domestic concerns.
“What happens when two people in a relationship and living together get into a fight?” asks Maxim Lissak, a Bellevue, Wash., attorney who often represents clients for this form of homeownership. “One person is excluded from the home or chooses no longer to be in the home. What happens then? Who has the right to buy the home? If you don’t have a legally signed agreement, you’re in trouble.”
Lissak, who I spoke to in 2019 for a blog post on this topic, says both parties should have their own attorney jointly develop a binding exit strategy before buying the home. This typically involves determining how long the two (or more) people intend to live in the property and how they want to approach selling or renting it when ready to move.
In the absence of a clearly drafted agreement, co-owners may end up fighting for their rights through a legal process that can last for years and cost them dearly.
BY THE NUMBERS
>> Homeowners are open to space-saving tradeoffs in new construction, with 85% willing to consider island seating over a separate dining space in the kitchen. That’s according to insights from 12,000 consumers and over 300 architectural designers surveyed by John Burns Real Estate Consulting, which also noted 51% of homeowners say the kitchen is the most important space that home design “gets right.”
>> About 40% of our country’s occupied rental homes, or more than 17M units, are in areas that will experience substantial annual losses from increasingly common environmental hazards. Harvard researchers cited natural disasters – wildfires, flooding, earthquakes and hurricanes – as events that will “jeopardize the health and safety of renters and threaten to damage or destroy rental units.”
>> Seattle homeowners pay a median $4580 in property taxes, based on data collected by LendingTree.com. That ranks the Emerald City seventh among the top 50 most expensive metros for real estate taxes. New York City is No. 1 ($8602), followed by San Jose, Calif. ($7471), with Birmingham, Ala., being 50th ($909). By a different measure, property taxes on only King County single-family homes in 2021 averaged $7608.
>> The median monthly payment for a new mortgage in Washington hit $2798 in April, according to the Mortgage Bankers Association, the third-highest figure after California and Hawaii. That’s $811 higher than the same time last year. The median payment in April across the U.S. was $1889.
>> Since 1980, cash buyers paid about 11% less on a home than those using a mortgage, according to a study from researchers at the University of California-San Diego. On a $400,000 residential property, the median-priced home sold today in the U.S., that’s a difference of $44,000.
>> About 78,200 foreclosure filings were initiated in the U.S. in Q1, up 132% from a year ago, according to ATTOM Data Solutions. While that may appear significant, the U.S. paused most foreclosure proceedings during the height of the pandemic. The quarterly figure pales in comparison to most years; more than 125,000 foreclosure filings occurred in Q1 of 2016. Our state reported 645 filings last quarter, ranking Washington 42nd in the nation, with Illinois No. 1 (6861).
>> Forty-five percent of residential mortgages in the U.S. were considered “equity-rich” in Q1, as defined by ATTOM. That figure is up from 42% in the previous quarter. Idaho was the most equity-rich state, with 69% of mortgaged households having at least 50% equity in their homes, while Washington was fourth in the nation (61%). The report shows that 3% of mortgaged homes are “seriously underwater” in the same period.
JUNE HOUSING UPDATE
The number of homes sitting on the market jumped in May while median sales prices turned mixed – signs that the two-year, red-hot housing environment has finally broken its fever.
Welcome to the Great Deceleration!
King County experienced a 28% jump in Active listings (homes on the market on June 1) compared with the start of May. The 2708 single-family and condo homes for sale are a 36% improvement from this time last year and the highest figure for the county since October 2020. Snohomish County’s Active listings more than doubled – to 1182 – from 500 from a year ago. Yes, finally buyers can pore over more home options before making a bid.
What is hard to fathom is that while the number of homes on the market increases, the overall pool of homes for sale remains quite low. King, Pierce and Kitsap counties each have 0.8 months of total supply while Snohomish has 0.9. Condominiums, traditionally a viable option for first-time buyers and people seeking to downsize, are suffering from low supply as well, with King and Kitsap counties at 0.9 months, Pierce at 0.8 and Snohomish at 0.6.
There are still only half as many homes available for sale in King compared with the middle of 2019 – before the pandemic.
“Even though we’re seeing inventory grow, it remains quite low,” notes Danielle Hale, chief economist at realtor.com. “This is one of the reasons that we are still seeing home prices go up.”
As demand continues to outweigh supply, prices will continue to rise. However, the combination of price appreciation and elevated mortgage rates – now at about 5.5% locally for a 30-year fixed rate – means fewer people will be able to afford to buy.
“Higher home prices and sharply higher mortgage rates [up more than 2 percentage points since the start of the year] have reduced buyer activity,” said Lawrence Yun, NAR’s chief economist. “It looks like more declines are imminent in the upcoming months, and we’ll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years.”
The Northwest Multiple Listing Service reported a median price on all sold homes in May across its 26-county reporting area of $660,000. That is up 13% from this time last year, marking the smallest year-on-year (YoY) increase since December 2020 (12%).
King County home prices were unchanged from April to May at $880,000. However, prices on the Eastside actually declined, by 8.3% for the month to $1.4M but are still up 27% over the past year. Prices in Seattle gained 1.3% to $899,475 and 7.9% YoY.
Prices for single-family homes were all over the map. While virtually unchanged in King ($998,888) from the previous month, prices dipped 7.7% on the Eastside ($1.59M), led by a 19% decline in Kirkland and a 15% drop across Redmond and east. Eastside single-family-home prices are up 22% YoY, including 35% in Bellevue east of I-405. Seattle single-family prices, on the other hand, were up 1% in the past month ($1,025,500) and 12% YoY.
Price intensity has dropped a notch. Home prices for single-family and condos combined across King are now selling at a median 6.3% above the list price, down from 12% just two months ago. Bellevue homes are selling 7.1% above list, down from a peak of 17% over the asking price in January and 14% in March.
The market gyrations are most pronounced on the Eastside amid significant increases in available single-family homes for sale, rising 40% in the past month (745) and 212% YoY. Bellevue east of I-405 started June with 82 single-family homes on the market compared with just 12 this time last year, a 583% increase. The area east of Lake Sammamish has 205 active listings, up from 48 last year, or a 327% gain. Overall, the county has 73% more listings today (2073) than on June 1, 2021 (1200).
This boost in inventory, coupled with higher mortgage rates, inevitably will apply downward pressure on the unprecedented price growth we have experienced in recent years. The number of mortgage applications, a leading housing indicator, is at its lowest levels nationally since late 2018.
Four in five homeowners have a mortgage with an interest rate of 5% or less, according to a report in The New York Times this month, while half enjoy a rate of 4% or less. That is in large part due to historically low rates since the start of the pandemic and a large wave of refinanced mortgages. The result: Many happy homeowners are unwilling to move amid higher cost burdens to purchase today.
Median condo prices added 2.5% in King ($530,750) and 16% YoY, led by an 8.8% month-to-month surge in Seattle ($557,475) that was boosted by a 12% median price gain in downtown/Belltown ($734,000). Prices on the Eastside, however, fell 2.3% for the month ($659,000) but are 16% higher YoY.
Median prices across Puget Sound were mixed in May. Pierce County experienced the only price appreciation, up 2% to $575,000. Prices fell 2.2% in Snohomish ($782,800) and 1.5% in Kitsap ($550,000), while they were unchanged in King ($880,000). Single-family home prices were virtually unchanged from April to May in King ($998,888) and Pierce ($582,000) while dropping 2.9% in Snohomish ($815,000) in a month and 1.8% in Kitsap ($554,550). Year-to-year, single-family median prices are higher but at levels much lower than in 2021, led by a 17% jump in Snohomish, 15% in King, 14% in Pierce and 11% in Kitsap.
Click here for the full monthly report.
CONDO NEWS
The Seattle condo market is at an interesting crossroads.
There are signs of another slowdown as interest rates and inflation take a firmer grip on buying power. After a continued rise in sales activity through March, the number of Seattle listings under contract and new listings have eased. Pending condo sales in May fell 10% (326) from April and 13% from this time last year, while new listings were down 3.8% month to month (436) and 6.1% YoY.
Two-thirds of last month’s Seattle condo listings remained for sale when including an offer/review date (in which sellers seek all bids within a defined period, typically about 6 days after hitting the market). In April, 53% of Seattle condos with a seller deadline reached mutual acceptance within the short timeframe.
Condos – along with townhomes – tend to be a good option for first-time buyers, particularly for those ditching the car to save on costs and who can enjoy an inner-city commute. And it’s not like there will be a wave of brand-new homes on the horizon.
Only three condo projects, with 767 homes, are under construction across Seattle after four buildings and 1195 units came online the previous two years. Another two condos, comprising about 1100 residences, broke ground this year for projected 2026 openings. Located in or near downtown, most of these homes are priced well above the citywide median condo price of $557,475.
For condo developers to profit from their efforts, industry insiders suggest the cost of these homes in downtown Seattle (and Bellevue) must rise further – probably to about $1200-$1500/sq. ft. in the next few years to cover inflation. That’s a forecast markup of about 33% from today’s luxury condo prices.
For that reason (and others), many builders are constructing apartments or smaller projects whereby the race to profit for them is faster and less risky. That can help explain why about 90% of all downtown Seattle residential construction in the past decade has been apartments.
All the signs point to continuing price appreciation for city condos. Waiting for a correction is a fruitless exercise.
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Among the condos under construction is Graystone on First Hill. The gleaming 31-story structure offers amazing views and even greater amenities for the discerning homeowner.
I was fortunate to tour the Graystone sales gallery and learn more about how the condo developer team is intentionally weaving the past into the future. It’s a great story that I am sharing with you here today. Plus, check out this video of the planned 271-residence luxury condo:
LUXURY LIVING
A mid-century modern classic designed and lived in by architect Einar Anderson (Swedish Club) is on the market with 40 feet of Burien beachfront. The 3-bed, 2-bath, 2290 sq. ft., 1 ½-story home offers timeless design from the boardwalk deck entry to the massive water-facing windows that offer incredible views and an Asian-inspired garden designed by Al Kubota (Kubota Garden). Special touches: slate floors, Shoji screens and original (well-maintained) teak cabinets. Anderson’s grown children, Todd and Sue, are now selling this family mainstay. List: $2.995M ($1308/sq. ft.), down from the original asking price of $3.395M.
If waterfront isn’t a requirement, then perhaps a 3-bed, 5-bath, 4690 sq. ft., 2-story home on 1.8 acres in the Union Hill neighborhood of Redmond will do the trick. This Zen-contemporary stunner offers exposed concrete walls, two-story ceilings across the length of the living area, massive windows, heated pool with fountains, gym, reflection pool and eight-vehicle garage. List: $6.4999M ($1386/sq. ft.), down from the original price of $7.2M.
Looking for something brand new? Check out this 6-bed, 5.75-bath, 6109 sq. ft., 1-story home on the Bellevue/Clyde Hill line. Congrats to Bylington Developments for producing a contemporary jewel. Every inch looks immaculate, from the white oak floors to custom closets. Big families will like the laundry room with two pairs of washer/dryers. Four of the bedrooms are in the finished basement. The backyard is well landscaped and big. List: $9.28M ($1519/sq. ft.). Update: A buyer has been found and the listing is now Pending.
Up the road to Juanita Point in Kirkland, here’s a 3-bed, 4.25-bath, 5123 sq. ft., 2-story with basement. Uniquely designed, the home looks south toward Mt. Rainier. Possessing clean and contemporary lines, the interiors offer both form and function. You’ll love the sun-splashed main bathroom with soaking tub and great (but private) views. What a wonderful listing video! List: $4.18M ($816/sq. ft.).
Want to get away? Try this 4-bed, 2.5-bath, 3648 sq. ft., expansive, 1-story Rambler with separate cottage on 15 acres of Shaw Island. The mid-century wood structure exudes Northwest design. There are piers ready to accept your seaplane, yacht or fishing boat. You must see it to believe it! The owners are selling after more than 60 years in the family. List: $5.75M ($1575/sq. ft.) Update: This listing is now under contact.