Expectations for 2024 in Seattle/King County Real Estate
The region’s real estate scene in 2023 will be remembered for rising home prices and scant new listings. Buyers and sellers tiptoed through caution. As the year dims, all eyes fixate on 2024’s potential: a hopeful dance fueled by dreams of lower rates and a wave of new homes for sale.
Welcome to our sixth annual look back at the year that was and to predictions and projections for the coming 12 months in real estate for Seattle/King County and beyond.
We experienced yet another unusual year for residential real estate – high interest rates, leading to affordability challenges amid low inventory. Sprinkle in global uncertainty – in the Middle East, Ukraine, China and elsewhere – as well as the threat of U.S. job losses and we have another odd year now in our rear-view mirror. Um, bye-bye!
Prospective buyers and sellers watched this one out from the sidelines, leading to King County sales activity hitting lows not seen since 2010 at the heart of the housing crises. Affordability kept consumers in their current residences. More than 75% of homes on the market are deemed too expensive for middle-class buyers, according to a study from the National Association of Realtors® (NAR) and realtor.com.
Here are some of the big questions to ponder in 2024.
We asked this question in last year’s blog post and, perhaps not surprisingly, the answer is about the same today: It depends. Many economists are more optimistic than in 2023 that we will avoid a serious recession and some are of the belief we will land the inflation/interest rate balance softly without much pain.
There are several concerns that people smarter than me are watching as potential flashpoints that could send America into a recession.
“In the current market, there is a lengthy list with inflation, high interest rates, bank stress and tightening liquidity, among others,” it was noted in a recent report from The Counselors of Real Estate. “Any one of those risks could cascade into other parts of the market and tip the economy into recession.”
The effects on consumers of a recession could include decreased personal spending, job losses and greater scrutiny by lenders. In an economic downturn, the housing market typically experiences slower sales and lower prices.
Economists and investors have been upbeat about how the employment picture has remained mostly resilient in the wake of economic headwinds. The U.S. jobless rate is in its eighth consecutive quarter below 4.0%, with the latest figure at 3.7%. Many businesses – save some in the tech sector – continue to bolster their workforces, admittedly at a slower pace than a year ago. All this, coupled with a taming of the inflation rate, is leaving experts optimistic about the direction of our economy.
If a recession does occur in 2024, economists believe it would be short and have relatively minor impacts. Households generally are in much better circumstances than in a typical recession since many still have elevated savings from the Covid shutdowns and jobs remain plentiful.
Local experts forecast employment growth of 1.4% in King County for the 12 months ending Dec. 31 and another 1.2% increase by the end of 2024, according to data from the Western Washington University (WWU) economic forecast team. The unemployment rate in King will end this year at 3.2%, low despite layoffs at some tech companies, and the rate is expected to climb to about 3.7% by December 2024. The experts at WWU also see personal income growing by 4.9% annualized for 2023 but only 3.4% by the end of 2024.
While employment totals have now surpassed pre-Covid levels, King County job sectors remain uneven. Leisure & hospitality is the one still seeking backfill jobs lost from the pandemic, however, in 2023 it is said to have surpassed the information/tech sector for the most number of jobs in the county. New restaurants and bars are calling upon more help, as well, workers continue to benefit from both a healthy 280-plus cruise sailings, this year’s addition of Summit and its 1.5M sq. ft. to the expanded Seattle Convention Center, and a workforce of about 500 full- and part-time people for live events at Climate Pledge Arena.
Overall, many economists and real estate watchers feel the housing market will be less painful for buyers in 2024 after grappling with the worst affordability challenges since the early 1980s.
We experienced a whipsaw year for home prices, falling to as low as $603K in April, or down 8.6% Year-on-Year (YoY), before rebounding by the end of 2023 to up about 7% – a 15-plus-percentage-point swing in less than a year. The limited supply of homes for sale pushed prices higher despite fewer buyers in the market.
While still a high figure, the 7% increase is a break from the double-digit, percentage-price increases seen in recent years. A median priced home in King County today runs about $800K, or 32% more than in 2018 and a whopping 111% more than a decade ago.
Barring a major economic or employment setback, prices in Seattle/King County should continue to increase – though we believe the rise will be modest in 2024. Prices may rise even higher if unemployment remains quite low and local businesses expand at a greater pace than today.
Consumer prices are the key economic data under the microscope. If Americans feel they can spend less and save more, then consumer confidence improves and buying accelerates. The U.S. Consumer Price Index (CPI) rose 3.1% over the 12 months ending in November. That’s a slight improvement from October’s 3.2% reading and a sharp slide from 7.1% a year ago. Fannie Mae economists are forecasting CPI to end 2024 at about 2.5% – a potential trigger for lower financing costs and higher real estate sales as affordability improves.
In King County, where the 20-year inflation average is 2.7%, we are expected to end 2023 with a CPI of about 5.3% and it is forecast to conclude next year at roughly 2.8%, according to an economic forecast in mid-2023 from the county. WWU offers a Puget Sound regional CPI estimate of 3.4% by the end of December and forecasts an index of 3.0% at year-end 2024. (The university does not produce a CPI report for King.)
Our region often focuses on gas prices, which are historically above national figures. The average price for a gallon of regular unleaded gas in Seattle/King County today is roughly $4.50 and it is expected to sell in a range of $4.25 and $5.25 during 2024. (Gas prices peaked at $5.69/gallon in the spring.)
Supply and demand often dictate the direction of prices, whether it’s the cost of hummus or homes. And there is enough evidence – increased searching for homes online and a growing number of mortgage applications – to anticipate stronger demand in 2024 and through the rest of the decade.
How can we forecast years out? Historically, people “leave the nest” at age 26 and spend about a decade renting while accumulating savings. That slice of the U.S. population – younger Millennials and a growing portion of Gen Z Americans – comprise about 45.5M people who should be preparing to buy a home. It’s the largest group of potential buyers in U.S. history.