My predictions for the New Year

It’s always fun to try to read the crystal ball as we face the dawning of a new year, especially one where there will undoubtedly be much commotion in our industry.  And it’s a question I get all the time:  “What’s gonna happen in the market?”  Although the question has been laced with much more anxiety since the slowdown started in August, I always try to give an honest answer based on what I see in the trenches each week.  With 60 agents, and an office transaction volume of around $160m each year, going back over 16 years, at least I have history to help me predict. 

 So, without any warranty as to whether our past will give us an idea of what the future holds…

1. Housing Prices: Prices won’t fall much more than they have already. At least for condos and townhomes in north Seattle, we’re down 10-15% from the peak of spring 2007 (e.g. our Ballard projects which may have sold in $470’s early this year are now SELLING — not priced — in the $420’s.) It’s getting to the point where in the lower end townhomes and converted condos, a developer can refinance, rent, and carry the product. In most projects which are SELLING (not sitting, but selling), the builder is selling close to, and in some cases, below cost. For SF homes, we continue to see sales happening for our listings where the homes are priced competitively with the rest of the active inventory. This doesn’t mean that if your neighbors house sold in 2/07 for $700,000 that yours will too. It likely won’t. But search recent sold comps, and check out the available competition. If your home is well priced compared to those properties, and you don’t have any adverse issues (e.g. on an arterial or with a moldy basement), you should sell in < 45 days.

2. Rents: Will continue to rise, 8-12% this year in Greater Seattle. Many landlords are just waking up to the fact that demand has increased for apartments and houses so much in the past two years. Which is only saying that instead of a steady 3-4% gain in rental rates since 1999, we had a jump in 2000, then a decline, then nothing for five years. So that 32% gain in rents is going to be realized in three years instead of eight. And an interesting twist is that for flippers and developers, a strong rental market presents an alternative to selling at a fire sale price. This simply isn’t normally an option for property owners in a generally crappy market, where no one wants to live – like Seattle in 1972, where you couldn’t rent or sell your properties. Judy Nicastro will move back to Seattle and run for City Council on tenants’ rights but won’t get much traction.

3. Interest Rates: Rates are so good for conforming (up to $417k) loans. And they will get a bit better through the first two quarters. Refinancing will become an actual revenue source for the brokers and banks that are still left out there doing loans.

4. Lending: Speaking of loans, there will continue to be lots of news in this industry. Bank of America, which recently cut off its wholesale brokerage relationships to do only “in house” lending (http://www.msnbc.msn.com/id/21477224/), will buy Countrywide in order to control CFC’s best asset: Its excellent retail distribution network. WaMu will recover both its reputation and its stock price. It will trade back in the mid 20’s by Fall. And other strong lenders will be plucking assets from the carnage. Americans still need mortgages, and there are still going to be millions of transactions in 2008, even it volume doesn’t approach the levels of recent years.

5. Foreclosures: While there will be lots of talk about PERCENTAGE increases being HUGE in our region, the real numbers will still be underwhelming. There were 33,000 notices of default issued in L.A. County in 2007, with 8000 of those making it all the way through the process to foreclosure. There were 680 in King County. I know, I know, there’s a population delta there. But still. I just don’t see foreclosures having a big impact in King County. And the builders that are suffering in Pierce, Thurston, and Snohomish County – their land costs are generally very low, and they can likely figure a way out of this and live to fight another day. One property manager that we just hired came from Auburn, where his firm had 50 new homes from a builder that they had just taken into their portfolio to manage as rentals. As longs are there are jobs and positive migration into our area, there will be demand for housing – whether it be to own or to rent. And speaking of foreclosures, the government needs to get out of the business of subsidizing these losses. No income tax for refinance proceeds that don’t need to be paid back? I can see allowing a capital loss when you sell your primary residence at a loss, but please. Let the market reign.

6. Blogging: As much as industry blogs have exploded in the past two years, I think they’ve peaked. One can only read so many of these things and after a while the content seems a bit redundant. So do the comments, as interesting as they can be. So like anything else, there will be blogs – but better ones, and fewer. Sort of like car companies in the 20’s or tech companies in 2001. Plus I think participation in blogs is skewed – relatively few people reading and contributing 95% of the content. Ardell is famous, but only to a relatively small community of readers.

7. Seattle: The economy will continue to boom. Boeing’s 787 delivers this year, and from what I’ve heard and read, it’s going to be a great plane. Paccar is still selling lots of trucks. And of course the other great companies – Microsoft, Costco, Amazon, Starbucks, WaMu, Weyerhaeuser, Nordy’s, Safeco. All have their issues, Starbucks and WaMu notably of late, but it’s been a long time since we were just a Boeing town. And with a booming economy will come continued income/job growth, more net positive migration, and yes, increased demand for housing.

8. UW: I’m not really a big follower anymore, despite being a third generation Seattleite and a big fan as a kid. But I like the Dawgs, and I really like Tyrone. He’ll finally pull it together and will go 7-5; but they’ll lose to Stanford in Palo Alto in September.

9. Seahawks: Will lose in the second round of the playoffs to Brett Favre’s Packers. The Pack will advance to the Super Bowl and will lose in a tight game to New England, which will finish the season undefeated. Favre will retire.

10. Sonics: I hate to say it, but I think they’re gone. Unless, and it’s a long shot, someone steps in and pays Clay Bennett $400m+ to leave the team alone AND the city plays ball with some renovation plans for the Key. Maybe there’s some local ownership that will make this happen. I’d put $100 on it given the right odds. Maybe 100 to one.

2 thoughts on “My predictions for the New Year

  1. Great post. I agree with you on most points, though I think the economy is in for much more trouble than you’re predicting in #7. Hopefully Seattle will be spared the worst, but I think we’re going to see a real national slowdown in consumer spending which will cause a recession. Sorry to be a downer.

  2. It will be interesting to see it play out. No question the real estate markets in the obvious areas will be dismal for a while. As far as consumer spending and the other metrics, maybe it’s just blind optimism, but I don’t think it’s going to snowball into all areas of the economy. And I do think Seattle is “special” for a variety of reasons.

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