Believe it or not, Curbed found SIX housing options that those earning Seattle’s now $14/hour minimum wage can afford without being rent-burdened. Some, as you’d expect, are in less-than-central locations such as Kent and Everett, but an International District studio was available for just $705/month! As a point of reference, $728 would be the monthly payment for a $153,900 mortgage at today’s interest rate, not counting mortgage insurance, property taxes, HOA fees, insurance, repairs & maintenance, utilities…
No, not the month. ATTOM Data says that in 2017, there was a 123% increase in home purchases by buyers named April in Washington State. Nationwide, buyers named Dylan, Chelsea, Austin, Alexandra and Taylor snapped up homes, while those named Gerald, Kristin, Stanley, Kurt and Jaime held back. ATTOM thinks this indicates increased millennial home buying as the first group of names spiked in popularity for babies born between 1992 and 1995, and the second group of names were most popular before 1976.
According to Ellie Mae, that’s the average FICO score for closed loans with millennial borrowers in November, 2017. Millennial credit scores for FHA refinance loans were much lower: 669, versus 679 a year ago.
Speaking of millennials, Seattle Times reports that 23-year-old Cary Kuo turned his $4,500 initial investment in cryptocurrency into a 10% down payment for his new house in Tukwila. Guild Mortgage confirmed with Fannie Mae that bitcoin is an acceptable asset for securing a loan. However, neither the seller nor any other party actually received cryptocurrency as part of the transaction. Kuo converted his bitcoin cash to US dollars to complete the sale. I was interested to read that in spite of his profitable investments, Kuo plans to cash out regularly and use the money to buy real estate.
Perhaps Kuo read that over the years between 1870 and 2015, housing was the best investment in the world, providing the steadiest inflation-adjusted return on investment.
Unlike Kuo, 61% of first time home buyers made 6% or lower down payments on their purchases. According to the Federal Reserve Board, average savings among non-homeowners was only $5,200 in 2016. Fannie Mae does allow 100% of a purchaser’s down payment to come from relatives and/or partners. Freddie Mac allows gifts after the borrower puts in 3%. FHA allows those with 620+ credit scores to receive funds from friends, relatives, employers, non-profits and government agencies.
According to the Bureau of Labor Statistics, that’s the number of residential construction jobs added to the US economy in 2017. National Association of Realtors chief economist Lawrence Yun says we still don’t have nearly enough construction labor to meet housing demand. He suggests issuing temporary work visas to make up for inadequate availability of domestic construction workers. (via HousingWire)
In the $1M+ market, though, S&P predicts that the new law could reduce demand: “our initial analysis suggests that the lost tax deductions may affect homeowners’ free cash flow by as much as 0.5%-1% of the property value on an annual basis, depending upon local tax rates. Consequently, we expect that overall long-term home price appreciation for these properties could be dampened by 15 percentage points or more.”
OMG – is it 2018? Happy New Year!
That’s how many US zip codes Amazon says it delivered Instant Pots to in 2017. (Including mine! I’ve found it to be $99 well spent.) Amazon now has 100 million products available for 2-day delivery, and it shipped 5 billion items through Amazon Prime last year. According to Fortune, Amazon had 90 million US-based Prime subscribers as of October 2017. If you divide 5 billion items by 90 million, it seems each subscriber bought more than an item each week from Amazon? I can believe that.
In a survey of 300 home building executives by John Burns Consulting, 40% complained about the rising cost of land, labor and materials. In the Northwest, delays were cited as another concern, including long waits for building permits and inspections. In particular, the survey pointed out that Seattle is understaffed to handle the workflow from escalating new home demand.
9.7% vs 5.7%
CoreLogic has an analysis of year-over-year national home price growth in four price tiers. The lowest tier (75% of median or below) increased 9.7 percent, the low middle (75-100% of median) increased 8.6%, the high middle (100-125% of median) increased 7.1%, and the highest tier increased by 5.7%. Edward Pinto, co-director of American Enterprise Institute’s Center on Housing Markets and Finance, predicts that the cost of lower-priced homes will increase even faster this year, by as much as 11%. He sees first-time buyers taking on increasing leverage to keep up with price gains.
17mm (or 2/3 inch)
That’s how much rain fell in Seattle between 2014 and 2017, the wettest 4-year-period in over 120 years. Seattle PI reports that our 3-month outlook is for colder and wetter weather than usual.
Fannie Mae and Freddie Mac are giving lenders the option to use automated appraisal tools, rather than conduct an in-person professional appraisal, on mortgages with loan-to-value ratios of 80% or below. CoreLogic compared automated versus in-person appraisal results for 190,000 homes appraised between July 2016 and June 2017. Its study showed that most appraisers valued homes at or slightly above contract prices (31.6% and 58.6%, respectively). Less than 10% of appraisals came in under purchase prices. In comparison, 54.6% of automated appraisals valued homes below purchase prices, leading to a higher loan-to-value ratio than buyers initially expected.
Zillow estimates that the total value of all US homes is 1.5x our national GDP. Home values grew by $1.95 trillion over the past year, or 2x Apple’s market cap (which grew by $250.5 billion, or 40%, over the past year.) Renters paid their landlords $485.6 billion.
The $10K cap on state and local sales/property/income tax deductions is a big deal! Washington Post reports that this Tuesday alone, Fairfax County, VA collected $16 million in 2018 property tax pre-payments and Montgomery County, MD collected $8 mllion on Wednesday. The article drew 3,463 comments in less than 24 hours. Governments in many east coast jurisdictions are convening emergency sessions to assess 2018 property taxes in advance, as the IRS says only taxes that have already been assessed can be deducted on 2017 tax returns. In King County, Assessor John Wilson told Seattle Times that property tax pre-payment is not an option, as 2018 tax bills won’t be ready until next February.
According to a Zillow survey conducted earlier this year, only 51% of respondents felt that they’re subject to unfair property taxes. The other 49% might not be paying close enough attention to their tax bills. In King County, property tax assessments are supposed to reflect fair market value. Over the past few weeks, both 2616 Harvard Ave E and 544 N 67th Street were sold for exactly $800K, which would seem to indicate that they have equivalent fair market value? But their assessments are $1.038M and $504K, respectively. The Assessor’s office says it is your responsibility to bring inaccurate assessments to their attention.
In Fannie Mae’s Q4 2017 Mortgage Lender Sentiment Survey, 46% of 196 participating mortgage executives thought it’s easy to get a home loan, up from 13% in Q4, 2014. Does this indicate lending standards have become less stringent? Or have less qualified borrowers been priced out of the past few year’s competitive housing market?
CoreLogic picked out 16 high risk housing markets and Seattle was not one of them. The selection was made by comparing house price appreciation against growth in income and rental rates (“if home prices deviate too far, then it’s due for a correction sooner or later”). CoreLogic also looks for prevalence of house flipping and mortgage fraud.
According to TransUnion’s data, that’s the total number of mortgage accounts, down from 60.1 million in 2010. Back then, 7.21% were 60+ days past due. Nowadays, it’s 1.91%. TransUnion expects delinquency to further decline to 1.65% by the end of 2018. TransUnion also predicts a HELOC (home equity line of credit) resurgence with 10 million loans between 2018-2022, vs 4.8 million loans between 2012-2016.
746 (749 in Washington State)
CoreLogic’s research shows that the average home buyer’s credit score has increased by 7 points between Q3 2016 and Q3 2017. The share of buyers with sub-640 credit scores was 2%, compared with 25% in 2001. The average debt-to-income (DTI) ratio was 36%. The average loan-to-value (LTV) ratio was 84.9%. Investors took out 4.4% of the loans and condo/coop buyers 11.5%.
Of all the houses that came on the market in 2017, 41% were rated by Redfin’s algorithm as “hot homes”, up from 27.6% in 2014. (Apparently “hot home” means 70%+ likelihood of finding a buyer within two weeks.) In Seattle, where 19 of of Redfin’s 25 most competitive neighborhoods are located, 67% of this year’s listings were hot homes.
As you may have heard, the new tax law passed.
If You’re a Homeowner Who is Staying Put
You can still deduct interest on up to $1 million of mortgage debt. You can also refinance your loan and retain this deduction limit, as long as the new loan amount is lower than your current balance.
You can still deduct home equity loan interest if proceeds are used to substantially improve the property. Otherwise, the deduction is repealed through the end of 2025.
There’s now a $10K cap on sales and property taxes. (Seattle Times reports that no, you can’t prepay your property taxes.)
Casualty losses are only deductible if associated with a presidentially-declared disaster.
Standard deductions have increased to $12K/$24K (for singles/joint filing couples), so many may longer be able to claim the above deductions by itemizing.
If You’re Thinking About Selling Your House
You can still exclude $250K/$500K (for singles/joint filing couples) of home sale profits from taxes if it’s been your primary residence for 2 out of the past 5 years. (Previous versions of the tax bill had proposed lengthening the residency requirement to 5 out of 8 years. This would have been extremely costly to new-ish homeowners needing to relocate.)
1031 exchanges remain in place if you’re an investor.
If you’ll be moving out of town after your sale, your relocation expenses are no longer tax deductible.
If You’re Thinking About Buying A House
You can only deduct interest on up on $750K in mortgage debt, down from $1 million previously. This limit will not be indexed for inflation going forward.
You can still deduct interest on second homes, subject to the $750K limit.
If you’re moving to Seattle from elsewhere for a job, your relocation expenses are no longer tax deductible.
What Will Be the Impact?
The Wall Street Journal says 23 million fewer households will be incentivized to buy houses. It cites Zillow’s estimate that only 14% of homeowners will now be able to take advantage of mortgage interest deduction (versus 44% previously), as well as Moody’s projection that US home prices will drop by 4% nationally and as much as 10% in pricier areas.
Curbed says this is because because mortgage interest and property tax deductions are baked into home prices. Reducing these benefits will inherently lower the values of affected homes.
The National Association of Realtors has an even grimmer view: only 5-8% of taxpayers will now be able to claim mortgage interest and property tax deductions. “There will be no tax differential between renting and owning for more than 90% of taxpayers”.
Update 12/22: Tim at Seattle Bubble does the math for two hypothetical couples, one near the cutoff point of the new standard deduction and the other whose home loan is just over the $750K mortgage interest deduction limit. He concludes that while those purchasing homes costing less than $500K or over $1.25M may see some tax impact, it’s doubtful that potential buyers will walk away in droves over a couple thousand dollars of lost tax savings.
I’m not sure I agree, because in addition to these lost savings, interest rates and property taxes are both rising. Faced with this triple whammy, the same $500K or $1.25M house will cost the same buyer much more next year, forcing many to reduce their home shopping price range. I think price growth will slow, but by how much I don’t know.
(Via C is for Crank) According to Seattle Department of Transportation, average daily traffic volume barely changed between 2015 (1,019,044) and 2016 (1,019,295) despite population growth of 19,901. However, collision rate increased by 6.3% and fatal/serious collisions increased by 16.5%. 2.6% more pedestrians were run over. Be careful out there!
Mayer Durkin announced investments to build 896 affordable housing units, renovate 535 existing affordable housing units and develop 26 homes for low-income first-time home buyers. The Urbanist points out this more than doubles Seattle Office of Housing’s 2016 budget of $47 million. These projects will be funded by the 2016 housing levy as well as the $29 million affordable housing bond approved by city council last year.
1 in 12
Sooo much interesting data in the 2017 Rental Housing Report from Harvard’s Joint Center for Housing Studies. For instance, 1 in 12 homeowners age 55–64, 1 in 8 owners age 65–74, and 1 in 5 owners age 75+ made own-to-rent transitions between 2005 and 2015. Unfortunately, less than 3% of rental units offer adequate accessibility features (no-step entry, bed/bath on entry level and wide hallways/doorways).
CNBC also reports that between 2009 and 2015, the number of renters aged 55 + rose 28 percent, while those aged 34 or younger only increased 3 percent. Meanwhile, 5 million+ baby boomers are expected to rent their next home by 2020, says Freddie Mac.
Harvard research also shows that the number of rental households has increased by almost a million a year since 2010. The current 43 million total is 25% higher compared to a decade ago. But there’s been a sharp slowdown in rental household growth. Construction of multifamily rental units, too, has leveled off. After almost quadrupling between 2009 and 2015, activity slowed in 2016 and fell by 9% in 2017. (But not in Seattle.)
Update on 12/19: 5.3%
In contrast with multifamily rental construction, single-family housing starts leaped to a 10-year-high in November, going from an annualized rate of 883,000 in October to 930,000. But that’s still significantly below the 50-year average of 1.5 million units per year.
The amount of revenue that the City of Seattle expects to raise by taxing short-term rentals. Starting in 2019, hosts on AirBnB and other platforms will be charged $8 per night for renting out a room or $14 for an entire home. Each host will also be limited to operating two short-term rental unit and a permit will be required for each unit. Citing data from AirDNA, the Stranger reports that over 6,500 Seattle homes are currently listed on AirBnB. AirDNA’s data shows that these listings come from 3,748 active hosts, 55% of whom operate multiple properties.
Curbed reports that Mayor Durkin signed off on a plan for bringing Light Rail to Ballard 18 years from now. According to Sound Transit, the Ballard Extension, connecting Market Street to Downtown Seattle via an elevated guideway through Interbay and a new rail-only bridge across the canal, will have 9 stations.
That’s Redfin’s estimate on the increase in roommate households over the past decade, due to declining affordability. According to census data, 8.33M (6.6%) of households consisted of roommates in 2017, versus 6.479M (5.6%) 10 years ago. Redfin also points out that with both house prices and interest rates on the rise, US homeowners’ monthly principal + interest payments increased 13% in 2017. Redfin expects an even higher increase (15-20%) in 2018.
Seattle Time says Seattle’s condo inventory falls far short compared to Boston and Miami, where two-thirds of home available for ownership are condos. In New York and Chicago, the proportions are about half and half. Our condo liability laws are to blame. Looking forward, out of the 75 projects currently under construction, only 3 are condos.
Update on 12/20: The 2-year residency requirement for excluding $250K/$500K of home sale capital gains from taxes was NOT changed in the new legislation. Sigh of relief for new-ish homeowners needing to relocate. On the downside, moving expenses are no longer tax deductible.