Seattle area housing market shifts amid recession predictions: Today So Far
From Redfin to Zillow, real estate experts and economists are predicting a few changes in the housing market for 2023. Such predictions come as some expect a recession in the months ahead.
This post originally appeared in KUOW's Today So Far newsletter for January 9, 2023.
How close are you with friends and family? Would you buy a house with them? It's questions like these that a lot of homebuyers in the Seattle area are considering, according to one real estate company. Such measures may become more common as the region's housing and rental market go through major shifts in 2023, amid concerns of a looming recession.
Seattle real estate company Zillow made a series of 2023 predictions recently, and among them is this: "Buying with friends and family will gain momentum."
"Ultimately, this prediction comes down to affordability, which we think will be the main driver of the market in 2023," said Zillow senior economist Nicole Bachaud. "Mortgage payments for a typical U.S. home rose from needing 27% of median household income in January, to 30% in March, to 37% in October. That’s far beyond the 30% line where housing becomes a financial burden. People want to own homes, but many need help to get across that threshold. We expect more people will take uncommon measures to buy a house and start building equity, including buying with friends and family."
Bachaud further points to Zillow survey data which states that 18% of recent buyers made the purchase with a friend or relative, and 19% of prospective buyers currently intend to invest in a home with a friend or relative over the next year. Also, roughly "40% of buyers with a mortgage used a gift or loan from friends or family to help with their down payment."
Using the "Bank of Mom and Dad" isn't unheard of, but the bank of "My old pal Joe from college" or "Maybe Deborah will go in on this condo with us" is perhaps not so common. I've always said that becoming roommates with friends will either make you really good friends, or make you never want to speak to them again. Investing in a home has to take that to a whole new level. But this is the level our region seems to be at. As Bachaud mentions above, a lot of this is being driven by affordability. Zillow notes that home prices shot up in recent years. On top of that, mortgage rates recently rose considerably.
"This year, we are expecting affordability to stabilize," Bachaud said. "Home values should remain mostly flat in 2023, and may even continue to fall a bit ... While affordability will remain a major hurdle, households will at least have a much better idea of what a future home purchase will cost as they plan their budgets and savings goals."
Higher mortgage rates is a factor that has set off alarms over at Redfin, too, another major Seattle-area real estate company. Redfin chief economist Daryl Fairweather told KUOW that they're seeing the region's housing market react to the higher rates. Folks are sitting out the market, or looking for some other, more affordable, region to balance out the costs. Also, housing inventory is up, but it's not that more homes are being put up for sale, rather homes are sitting on the market for much longer. As long as the rates are high, Fairweather says the region's housing market is going to keep cooling off in the months ahead.
"Also, as the overall economy looks a little bit to be on shaky ground, a lot of economists, myself included, are expecting a recession this year," Fairweather said. "So it's not exactly good news for anybody in the economy, but if you happen to be in a position where you are ready to buy a home and are able to do so, then you are in the driver's seat. You can ask for concessions, you can have the home on your terms, at your pace. This is pretty unusual. There hasn't been a housing market like this in Seattle for at least four years, maybe even longer."
"The economy may be heading for a recession, and your personal income or employment may be put at risk. I think people underestimate that risk; they think that their job is safe if they've had it for a long time, but we've seen a lot of companies do layoffs. I think it's always something to be prepared for. Make sure you have an emergency fund. Don't stretch your budget with your housing budget and not have any money left over for saving for a rainy day."
*Note: There are a range of predictions about a potential recession in 2023. Exactly what that will look like is unknown. Some say it will be a softer experience, some say otherwise, and others say the economy it doing OK enough to weather a downturn.
Redfin further notes that rent prices won't rise as much in 2023 and that a lot of homebuyers continue to stick around the rental market, waiting for a better time to buy. Check out Fairweather's full conversation with KUOW here.
Back to Zillow. The friends-and-family prediction isn't the only big takeaway from what it expects this year. While many potential buyers may be waiting for better days, a lot of other people were able to buy over the past few years, benefiting from low rates. That has led to a lot of people out there with second homes, and Zillow's prediction of a "surge in first-time landlords in 2023." So if you are waiting to buy, and renting instead, you can potentially rent somebody's second home. And if you are the landlord renting out that second home, well, it seems like a great time to cash in.
"Many people bought second homes in 2020 and 2021 when mortgage rates were near record lows. As inflation and worrisome signs for the economy causes some to tighten their belts, and demand for home buying eases off, it will make financial sense in many cases to put those second homes up for rent," Bachaud said. "Those who bought or refinanced when mortgage rates were low will have relatively low monthly payments. Asking rents have grown considerably, despite recent cooling in rent growth, so the potential to yield regular rental income above the monthly cost of a mortgage is strong."
Of course, just because you can hike up rents for a nice profit, doesn't mean you should. There is an ongoing housing shortage, plus layoffs at local companies, and recession predictions going around. So unless you don't mind being visited by three ghosts next Christmas Eve, confronting your personal greed, I'd give folks a break.
AS SEEN ON KUOW
Lead image from the Urban Institute's new report, "Making Room for Housing near Transit: Zoning’s Promise and Barriers, An Examination of Policy and Outcomes in the Puget Sound." Dense housing around transit are being pushed by advocates from CEOs to nonprofits as a solution to Washington's housing woes. KUOW's Joshua McNichols digs through a two sets of housing recommendations from Seattle's top CEOs and area nonprofits. (The Urban Institute)
DID YOU KNOW?
The other week, I mentioned that the Scottish holiday Hogmanay was a Viking holiday. In retrospect, that sounds a bit odd since there are no Vikings running amok these days, aside from that clan out in Poulsbo. TSF reader Barbara pointed this out. Hogmanay is essentially a New Year's eve celebration, with traditions going back at least hundreds of years, incorporating traditions spanning Norse, Gaelic, and other Germanic cultures. One source states that Vikings are most likely the group that brought Hogmanay to Scotland. It's also unknown where the word "Hogmanay" exactly came from. Best guesses are from French, Gaelic, Flemish, or Ancient English.
Here's the thing about Vikings — they got around. Vikings were various, closely linked groups that originated around the region we would call Scandinavia and Denmark today. But just because people lived in those areas during the Viking Age, doesn't mean they were "Vikings." The people who ventured out, raided, colonized, settled, traded and engaged in piracy are where we get this concept. "Viking" originally just meant "pirate" or "raider." Viking groups reached as far as Africa, North America, and the Middle East. They also got to Scotland. Over years of doing this, Vikings often founded new groups, such as the medieval Rus' people who became modern day Russia, Ukraine, and Belarus. They also sort of blended into existing cultures, such as the Norse–Gaels in Ireland. This is all just to say that Vikings got around to a lot of places, crosspollinated a lot of traditions and culture, which gave rise to modern day countries and cultures.
Another thing about Vikings, they didn't call themselves "Vikings." We, in the modern age, gave them that name.
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