The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist, Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere agent.
Employment in Washington State continues to soften; it is currently at an annual growth rate of 1.7%. I believe that is a temporary slowdown and we will see the pace of employment growth improve as we move further into the new year. It’s clear that businesses are continuing to feel the effects of the trade war with China and this is impacting hiring practices. This is, of course, in addition to the issues that Boeing currently faces regarding the 737 MAX. In the fourth quarter of 2019 the state unemployment rate was 4.4%, marginally lower than the 4.5% level of a year ago. My most recent economic forecast suggests that statewide job growth in 2020 will rise 2.2%, with a total of 76,300 new jobs created.
- There were 18,322 home sales registered during the final quarter of 2019, representing an impressive increase of 4.7% from the same period in 2018.
- Readers may remember that listing activity spiked in the summer of 2018 but could not be sustained, with the average number of listings continuing to fall. Year-over-year, the number of homes for sale in Western Washington dropped 31.7%.
- Compared to the fourth quarter of 2018, sales rose in nine counties and dropped in six. The greatest growth was in Whatcom County. San Juan County had significant declines, but this is a very small market which makes it prone to extreme swings.
- Pending home sales — a barometer for future closings — dropped 31% between the third and fourth quarters of 2019, suggesting that we may well see a dip in the number of closed sales in the first quarter of 2020.
- Home price growth in Western Washington spiked during fourth quarter, with average prices 8.3% higher than a year ago. The average sale price in Western Washington was $526,564, 0.7% higher than in the third quarter of 2019.
- It’s worth noting that above-average price growth is happening in markets some distance from the primary job centers. I strongly feel this is due to affordability issues, which are forcing buyers farther out.
- Compared to the same period a year ago, price growth was strongest in San Juan County, where home prices were up 41.7%. Six additional counties also saw double-digit price increases.
- Home prices were higher in every county contained in this report. I expect this trend to continue in 2020, but we may see a softening in the pace of growth in some of the more expensive urban areas.
DAYS ON MARKET
- The average number of days it took to sell a home dropped four days compared to the third quarter of 2019.
- For the second quarter in a row, Thurston County was the tightest market in Western Washington, with homes taking an average of 29 days to sell. In nine counties, the length of time it took to sell a home dropped compared to the same period a year ago. Market time rose in four counties and two were unchanged.
- Across the entire region, it took an average of 47 days to sell a home in the fourth quarter. This was up nine days over the third quarter of this year.
- Market time remains below the long-term average across the region, a trend that will likely continue until we see more inventory come to market — possibly as we move through the spring.
This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors. The housing market ended the year on a high note, with transactions and prices picking up steam. I believe the uncertainty of 2018 (when we saw significant inventory enter the market) has passed and home buyers are back in the market. Unfortunately, buyers’ desire for more inventory is not being met and I do not see any significant increase in listing activity on the horizon. As such, I have moved the needle more in favor of home sellers. As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K. In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics. This post originally appeared on the Windermere.com Blog.
Thanks to our lending partner Cheryl Gennaios for providing us the great in depth narrative about the NEW 2020 Real Estate Excise tax changes. It still took me a minute to wrap my brain around it….but I think I get it now.
2020 is here, and so are changes to our local tax code. Here’s the highlights:
- We’re moving from a state-wide flat real estate excise tax (REET) of 1.28% to a graduated system.
- STOP TRAFFIC! If the current excise tax is 1.28%, why did my clients just pay 1.78% when they sold their home? That’s because all cities are allowed to levy an additional .25% tax on property sales (REET 1). And cities and counties that are planning under the Growth Management Act are allowed to levy a second quarter percent tax if they want (REET 2). Therefore, King County’s Real Estate Excise Tax in 2019 was 1.28% + .25% + .25% = 1.78%, and not just the 1.28%.
- For the record, counties may also submit a ballot for ANOTHER 1% REET to be used for the acquisition and maintenance of conservation areas. The buyer pays this one though, and the only county that pays this tax is San Juan County (Soooo Oprah just paid $827,500 for conservation of the San Juan Islands natural beauty? YES! Damn, I love her).
- The REET that’s changing is the state level portion. The new rates will be:
- 1.1% on the first $500,000 of the selling price
- 1.28% on the portion of the selling price between $500k and $1.5m
- 2.75% on the portion of the selling price between $1.5m and $3m
- 3% on the portion of the selling price over $3m
- Great! Now that I know the state-level REETs, what’s MY excise tax owed if I decide to sell? Check out your local REET rate HERE
- $600,000 sale price example: 1.1% state REET on the first $500,000 + 1.28% state REET on the remaining $100,000 = blended state REET rate of 1.13% = savings of .15% (or $900) on a $600,000 sale price compared to previous REET rate.
- $3,250,000 sale price example: 1.1% state REET on the first $500,000 + 1.28% state REET on the portion between $500,000 and $1.5m + 2.75% state REET on the portion between $1.5m and $3m + 3% on the last $250,000 = blended state REET rate of 2.063% = additional tax of .783% (or $25,447.50) on a $3.25m sale price compared to previous REET rate.
- So that’s a lot of additional tax revenue on more expensive homes… What does this money go towards anyway?
- State Level: 1.3% of the state tax collected by counties is retained to cover administration costs. Of the net proceeds to the state, 2% goes into the public works assistance account, 4.1% to the education legacy account, with remaining amounts going the general fund.
- City Level: In Seattle (for example), the additional REET 1 and REET 2 funds discussed above go towards: Parks/Trails, Streets/Highways, Sidewalks, Street Lighting, Traffic Signals, Bridges, Water Systems, Sewer Systems, Judicial Facilities, Administrative Facilities, Law Enforcement Facilities, Fire Protection Facilities, Recreational Facilities, Libraries
- I heard there’s a Controlling Interest thing too? What’s that? Under current law, REET is imposed on the transfer or acquisition of a controlling interest (50% or more) in an entity that owned real property in Washington within any 12-month period. The new REET legislation expands the period for measuring whether a controlling interest has been transferred or acquired to 36 months. I don’t understand… Fear Not! Perkins Coie can explain:
- For example, in January 2020, Member A sells her 25% interest in an LLC that owns $10 million of real property in Seattle to Member C for $2.5 million. No REET applies because Member A has not sold 50%+ and Member C has not purchased 50%+ of said LLC. Two years later, Member B sells his 25% interest in the LLC to Member C for $2.5 million. UH OH! Now REET applies because Member C acquired a combined 50% of LLC within a 36-month period (25% from Member A in 2020, and another 25% from Member B in 2022). Members A and B would be liable for $319,050 in REET— 6.39% of the consideration received for their membership interests.
It now costs slightly less to sell a cheaper home, and quite a bit more to sell an expensive home. But because the REET is marginally dependent on the sale price, and moving up the graduated scale doesn’t change the effective tax rate for the entire sale, sellers will still try to maximize their sale price; which means I don’t see any downward pressure on prices. If anything, higher end list prices could increase ~$20,000 – $30,000 to accommodate the higher excise tax they pay. Sorta like how soda simply got more expensive at McDonalds when we enacted the soda tax.
Favorable interest rates and soaring rents boosted activity in the housing market in November. More buyers competing for less inventory kept home prices strong. With the supply of homes far short of demand, sellers can expect well-priced properties to sell quickly this winter.
With just over a month of available inventory, demand on Eastside remains very strong. Sales are brisk, with 45% of single-family homes selling in 15 days or less and 20% of homes selling for over list price. The median single-family home price in November rose 2% from a year ago to $900,000 and was unchanged from October.
With more buyers vying for fewer homes, King County remains a solid seller’s market. While inventory traditionally shrinks in the winter, this November saw the number of new listings at historic lows. Demand was strong, with the number of closed sales up 12% over the same time last year. The median home price ticked up 3% over the prior year to $661,000 and was unchanged from October. The strong market sent prices higher in the more affordable price ranges, with some areas in South King County seeing double-digit increases.
Activity in Seattle was very strong in November. The number of closed sales was up 29% over the same time last year. With just over one month of homes available for sale, the city is starved for inventory. Seattle homes prices have ebbed and flowed slightly from month to month for much of this year. The median price of a single-family home sold in November was off 3% from a year ago to $735,000.
With an increasing number of buyers driving to affordability, the Snohomish County housing market remains robust. Inventory is very tight and continues to fall. The county finished November with just over one month of supply. The median price of a single-family home rose 5% over a year ago to $495,000. That figure is unchanged from October.
This post originally appeared on GetTheWReport.com
It’s that time of year when Windermere’s Chief Economist, Matthew Gardner, dusts off his crystal ball and peers into the future to give us his predictions for the 2020 economy and housing market.
Whether you have recently purchased a new home or want to update your current avoid spending too much on furniture and decor with these strategies. Provided by Interior Design Experts at First & Main….here are the top 10 things you should consider.
- Prevent Expensive Mistakes: A well designed home requires careful thought and planning.
- Create a color palate for your home: Update a room in 2 hours, and under $50 with a fresh coat of paint.
- Don’t for get blinds and window treatments: Do you really want your neighbors to know that you sleep naked?
- Think traffic patterns and conversation groups: Draw out a floor-plan based on how you actually LIVE in your home.
- Balance, Scale, and Size can make or break any room: Mix shiny with matte, pattern with solids, and always add texture.
- Designer Pet Peve #1: Art should be hung at eye level for maximum enjoyment.
- Focus on focal points: TV or a view, draw their focus then give the eyes a place to rest.
- It’s literally worth every penny: Remodeling a kitchen or bath will always pay off in the end.
- Make every day feel like a staycation: The right bedding can make your room feel like a luxury hotel.
- You should have an interior designer: Having a trained Interior Design Professional who understands that YOUR home should reflect YOUR lifestyle.
First & Main Design Market is a great place to explore and find the perfect pieces for your home at any stage of your home decorating journey. Located in recently refreshed downtown Bothell and offering an eclectic combination of beautiful new designer furniture, unique, one of a kind vintage and reinspired salvage pieces and variety of housewares and gifts. It’s not your typical furniture store — with Interior Designers on staff they can help you choose a piece of furniture and then help finish off the room — paint, accessories, rugs, etc.
Want an excuse to come visit — Join us for our First Thursday events — the first Thursday of every month. Each event offers a different home décor theme or topic — along with wine, snacks and the chance to win prizes and gift certificates to the store.
Washington State employment has softened slightly to an annual growth rate of 2%, which is still a respectable number compared to other West Coast states and the country as a whole. In all, I expect that Washington will continue to add jobs at a reasonable rate though it is clear that businesses are starting to feel the effects of the trade war with China and this is impacting hiring practices. The state unemployment rate was 4.6%, marginally higher than the 4.4% level of a year ago. My most recent economic forecast suggests that statewide job growth in 2019 will rise by 2.2%, with a total of 88,400 new jobs created.
- There were 22,685 home sales during the third quarter of 2019, representing a slight increase of 0.8% from the same period in 2018 and essentially at the same level as in the second quarter.
- Listing activity — which rose substantially from the middle of last year — appears to have settled down. This is likely to slow sales as there is less choice in the market.
- Compared to the third quarter of 2018, sales rose in five counties, remained static in one, and dropped in nine. The greatest growth was in Skagit and Clallam counties. Jefferson, Kitsap, and Cowlitz counties experienced significant declines.
- The average number of homes for sale rose 11% between the second and third quarters. However, inventory is 14% lower than in the same quarter of 2018. In fact, no county contained in this report had more homes for sale in the third quarter than a year ago.
- Home price growth in Western Washington notched a little higher in the third quarter, with average prices 4.2% higher than a year ago. The average sales price in Western Washington was $523,016. It is worth noting, though, that prices were down 3.3% compared to the second quarter of this year.
- Home prices were higher in every county except Island, though the decline there was very small.
- When compared to the same period a year ago, price growth was strongest in Grays Harbor County, where home prices were up 22%. San Juan, Jefferson, and Cowlitz counties also saw double-digit price increases.
- Affordability issues are driving buyers further out which is resulting in above-average price growth in outlying markets. I expect home prices to continue appreciating as we move through 2020, but the pace of growth will continue to slow.
DAYS ON MARKET
- The average number of days it took to sell a home dropped one day when compared to the third quarter of 2018.
- Thurston County was the tightest market in Western Washington, with homes taking an average of only 20 days to sell. There were six counties where the length of time it took to sell a home dropped compared to the same period a year ago. Market time rose in six counties, while two counties were unchanged.
- Across the entire region, it took an average of 38 days to sell a home in the third quarter. This was down 3 days compared to the second quarter of this year.
- Market time remains below the long-term average across the region and this trend is likely to continue until more inventory comes to market, which I do not expect will happen until next spring.
This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors. I am leaving the needle in the same position as the first and second quarters, as demand appears to still be strong.
The market continues to benefit from low mortgage rates. The average 30-year fixed rates is currently around 3.6% and is unlikely to rise significantly anytime soon. Even as borrowing costs remain very competitive, it’s clear buyers are not necessarily jumping at any home that comes on the market. Although it’s still a sellers’ market, buyers have become increasingly price-conscious which is reflected in slowing home price growth.
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
This post originally appeared on the Windermere.com Blog.
No — the sky is not falling! Signs may be pointing toward a recession but let’s look at some past stats re: home prices and appreciation.
- There is plenty of talk in the media about a pending economic slowdown.
- The good news is, home values actually increased in 3 of the last 5 U.S. recessions, and decreased by less than 2% in the 4th.
- Many experts predict a potential recession is on the horizon. However, housing will not be the trigger, and home values will still continue to appreciate. It will not be a repeat of the crash in the 2008 housing market
Source: Keeping Current Matters.
Another really important thing to take into consideration is our area. This infographic is national data. Our area is still flourishing with employment, companies hiring and out of the area folks moving in. Another great person to ask about this is Windermere’s own Matthew Gardener.
I know…tax season is over (hopefully you got yours done already!!) But this question about CAPTIAL GAINS TAX is a question I get on a regular basis from my clients — about what it is and does it apply to me? This was an article I recently sent out in my monthly ‘paper’ newsletter (I know so old school) to my mailing list. It was super helpful for me to understand what it actually is and how it works — I hope you find it as informative.
What is capital gains tax? This is a prime question that might creep up when you sell your home for more than you paid for it. That’s good news for you, but the downside is, you may have to pay taxes on those profits in the form of capital gains tax. Yep, just as you pay income tax and sales tax, home sale profits are subject to taxation, too.
Complicating matters is the new Tax Cuts and Jobs Act, which is changing the rules. So if there’s ever a time to brush up on all things capital gains, it’s right now. Here’s what you need to know.
What is capital gains tax—and who pays it?
In a nutshell, capital gains tax is a duty levied on property and possessions you’ve held onto for more than a year that you sell for a profit—including your home.
The IRS gives each person, no matter how much the person earns, a $250,000 tax-free exemption for a primary residence.
“So if you and your spouse buy your home for $100,000, and years later sell for up to $600,000, you won’t owe any capital gains tax,” says New York attorney Anthony S. Park. However, you do have to meet specific requirements to claim this exclusion:
- The home must be your primary residence.
- You must have owned the home for at least two years.
- You must have lived in the home for at least two of the past five years.
If you don’t meet all these requirements, you may be able to take a partial exclusion for capital gains tax. For more information, consult a tax adviser or IRS Publication 523.
How much capital gains tax will you have to pay?
For capital gains over that $250,000-per-person exemption, just how much of a bite will Uncle Sam take out of your real estate sale? In the past, that depended on your tax bracket. Under the new tax law, capital gains rates are now based on your income, explains Park. Let’s break it down.
Married Filing Jointly
|Head of Household||Capitol Gains Tax Percentage|
|Earning Less Than||$39,375||$78,750||$52,750||0%|
|Earning Between||$39,376 – $434,550||$78,751 – $488,850||$52,751 – $461,700||15%|
|Earning More Than||$434,550+||$488,850+||$461,700+||20%|
Don’t forget, your state may have its own capital gains tax. And very high earners may owe an additional 3.8% net investment income tax.
Do home improvements reduce capital gains tax?
How much capital gains tax you’ll pay may also be reduced because of home
improvements you’ve made. The money you spent on any home improvements—such as replacing the roof, building a deck, replacing the flooring, or
finishing a basement—can be added to the initial price of your home to give you the adjusted cost basis of your home.
For example, if you purchased your home for $200,000 in 1990 and sold it for $550,000, but over the past 29 years have spent $100,000 on home improvements, that $100,000 would be subtracted from the sales price of your home this year. Instead of owing capital gains taxes on the $350,000 profit from the sale, you would owe taxes on $250,000. In that case, you’d meet the requirements for a capital gains tax exclusion and owe nothing.
Make sure to save receipts of any renovations and repairs, since they can save you big-time come tax filing season.
How capital gains tax works on inherited homes
What if you’re selling a home you’ve inherited from family members who’ve passed away? The IRS also gives a “free step-up in basis” when you inherit a family house. But what does that mean?
Let’s say Mom and Dad bought the family home years ago for $100,000, and it’s worth $1 million when they die and leave it to you. When you sell, your purchase price (or “basis”) is not the $100,000 your folks paid, but instead the $1 million it’s worth on their date of death.
How to avoid capital gains tax as a real estate investor
If the home you’re selling is a second home (i.e., vacation home) rather than your primary residence, avoiding capital gains tax is a bit more complicated. But it’s still possible. The best way to
avoid a capital gains tax if you’re an investor is by doing a 1031
exchange. This allows you to sell your property and buy another one without recognizing any potential gain.
“In essence, you’re swapping one investment asset for another,” White says. He cautions, however, that there are very strict rules regarding timelines and guidelines with this transaction, so be sure to check them with an accountant.
If you’re opting out of the rental property investment business and putting your money in another venture, then you’ll owe the capital gains taxes on the profit.
Many potential sellers believe that waiting until Spring is in their best interest. Traditionally, they would have been right.
Buyer demand has seasonality to it. Usually, this falls off in the winter months, especially in areas of the country impacted by arctic conditions, although that has not been the case this year!
Demand for housing has remained strong as mortgage rates have remained near historic lows. Even with an increase in rates forecasted for 2019, buyers are still able to lock in an affordable monthly payment. Buyers are increasingly jumping off the fence and into the market to secure a lower rate.
Those who act quickly and list now, before a flood of increased competition, will benefit from additional exposure to buyers.
Bottom Line: If you are planning on selling your home in 2019, contact me and we can evaluate the opportunities in your market.