SEATTLE — For a region that had grown accustomed to topping lists of sky-high home prices and crane counts, 2023 brought the Seattle-area real estate market back to earth.
Home prices stagnated, would-be sellers held off on listing their homes, and home shoppers strained under rising mortgage rates. Meanwhile, the commercial real estate market sputtered as higher borrowing costs put new projects on hold and remote work spiked vacancies.
So, what will 2024 bring?
More of the same, most economists say. Home shoppers could get some relief if mortgage rates decline and more homes hit the market for sale. But renters, squeezed between still-high costs and tighter apartment availability, may not be so lucky. Here are five expert projections for next year’s Seattle-area real estate market.
- Home prices are set to tick up
With many would-be buyers still stuck on the sidelines, Seattle-area home prices are unlikely to skyrocket next year. They may not fall much either.
Mason Virant, associate director of the Washington Center for Real Estate Research at the University of Washington, expects home prices to tick up 1% to 2% statewide and 1.5% to 3% in pricier areas like Seattle and Bellevue in 2024 compared with 2023.
Matthew Gardner, former chief economist at Windermere, said his “tentative forecast” is that the price of single-family homes for sale in King County will rise about 3% in 2024. The median home price in King County so far this year is down about 2% from the same time frame last year, according to the Northwest Multiple Listing Service.
On the other hand, Zillow estimates Seattle-area home values will end 2023 up about 1% but will dip 1% by the end of 2024. (Zillow uses an algorithm to estimate home values, rather than analyzing the price of only those homes that recently sold.)
Even if values dip and prices barely increase, the bigger story of housing in Seattle remains: Affording a home is a significant challenge for many.
Zillow estimates the monthly mortgage payment on a typical entry-level house or condo in the Seattle area at about $2,500. The real estate firm prices an entry-level home at about $488,000, and assumes a 20% down payment, 30-year mortgage and 6.7% interest rate.
But finding a home at that price can be difficult. The median single-family home sold for $885,500 in King County and $944,000 in Seattle in November. The median condo sold for $485,000 in King County and $583,000 in Seattle.
Home shoppers could find relief if rates dropped significantly or many more homes hit the market to drive down prices, but experts say neither of those shifts is likely in 2024.
- Mortgage rates may drop slightly
The average rate on a 30-year fixed-rate mortgage was just below 7% in mid-December, down almost a full percentage point from six weeks earlier. That trend may continue next year, real estate economists predict.
But rates are unlikely to plummet dramatically.
Economists at Fannie Mae, the National Association of Realtors, Redfin and others say they expect mortgage rates to stay above 6% in 2024.
Fannie Mae projects the rate on a 30-year fixed mortgage will average 6.7% in 2024 and 6.2% in 2025, as the Fed continues to try to fight inflation. Lawrence Yun, chief economist at the National Association of Realtors, has a similar, but slightly lower, projection that rates will average 6.3% in 2024.
That will help some hopeful buyers secure a house or condo. But without a bigger drop, affording a home will remain a significant challenge and many people will continue to stay put.
“If [rates] don’t drop in a meaningful manner, nothing is going to change,” Virant said.
- Expect more homes for sale — but not many
The so-called “lock-in effect” isn’t going anywhere.
Many homeowners have low interest rates because they bought in recent years or refinanced. In that situation, they have little incentive to sell their house or condo and buy a new home at a higher rate unless absolutely necessary. And without those homes for sale, buyers have less to choose from and that limited inventory keeps prices from falling.
The supply of homes for sale has remained tight throughout 2023, with 29% fewer new listings hitting the market in King County from January through November than during the same period last year.
If mortgage rates hover around 6% in the new year, more homeowners are likely to make a move and list their home for sale. But if rates remain well above 6%, as many economists expect, the number of homeowners deciding to sell may be limited.
“You can’t have more existing-home sales without more existing-home inventory,” First American Chief Economist Mark Fleming wrote in November. “Even though mortgage rates may decline, it’s unlikely that it will be sufficient to end the sellers’ strike in 2024.”
- Apartment rents are poised to climb
The rental market has been on its own roller coaster in recent years. Renters flocked to the suburbs early in the pandemic, driving up costs in those areas and pushing prices down in cities like Seattle.
But as pandemic restrictions eased in 2021, city rents quickly began to climb again. By 2023, rents had leveled off, in part due to an influx of newly constructed apartments. The median rent in Seattle dipped 1% from November 2022 to November 2023, in line with the national trend, according to Apartment List.
With fewer new apartments hitting the market in the coming years, rents are likely to start climbing again, said Elliott Krivenko, an analyst at the commercial real estate tracking firm CoStar. The firm projects apartment rents in the Seattle area will increase about 4% next year, higher than the average of about 2.5% per year over the past two decades.
“We haven’t had a lot of new projects break ground in recent quarters, and that is going to translate into fewer new units delivered going into 2025,” Krivenko said.
As developers struggle to finance construction projects, they applied for permits to build 15% fewer new apartments in Seattle in the third quarter of this year compared with the same time last year, according to city data, signaling that fewer projects will open in the years beyond 2024.
And as high mortgage rates keep people from making the leap to homeownership, more people might stay renters for longer. Apartment List projects that for many renting will make more financial sense than shopping for a home in 2024: “As paths to homeownership fade for many, renting will increasingly be seen as the more practical housing option.”
Zillow researchers recently wrote that with the high costs of homeownership, “the new starter home will be a single-family rental.”
- Office woes are likely to persist
Heading into the fifth year since the start of the COVID-19 pandemic, many of the region’s white-collar workers continue to log in from home. Tech companies like Microsoft and Meta have shed office space, and nearly a quarter of central Seattle office space was vacant in the third quarter of this year.
Vacancy on the tech-heavy Eastside has been a mixed picture, with 8% of office space vacant in central Bellevue and far more, 22%, vacant in Redmond in the third quarter.
Industry insiders don’t expect a turnaround in 2024.
Leah Masson, senior director at Cushman & Wakefield in Seattle, expects office vacancy in downtown Seattle to continue to tick up in early 2024. By 2025, the firm expects most companies will have finished downsizing, and the market will stabilize.
But more space will be empty in older buildings as employers search for newer space with more amenities to try to draw workers back to the office, Masson said.
For many companies, the idea of desk-sharing, or hoteling, “hasn’t really worked well,” said Eric Lonergan, an executive managing director at Savills who works with Seattle-area office tenants. Instead, employers are looking for enough space to give workers assigned desks — keeping demand higher than it would have been if more big companies shifted to shared desks.
Office rents are likely to stay flat next year, said Jeff Chaney, an executive vice president at Kidder Mathews who focuses on Eastside office leasing and sales. Rents could even drop in areas with high vacancies like Bellevue along the I-90 corridor, Chaney added.
To attract tenants, landlords are likely to offer more concessions, such as free rent or increased allowances for tenant improvements to office space. Those offerings will go “probably above and beyond what you’ve seen in the past couple of years,” Chaney said.
Finally, more office buildings could trade hands in 2024 — but not because investors are interested in buying those buildings.
Given the hit to the office market, some investment firms that snapped up office buildings before the pandemic paid more than the buildings are now worth. Some of those buildings will go back to the bank. That could push down costs for companies looking for office space.
“The new owners will have opportunities to do deals at lower rents,” Masson said.
