2023 Market Predictions

Christian: [0:00] Hello, hello, and welcome to another episode of the Awesome in Seattle podcast. This is your host Christian Awesome, of the Awesome Awesome Group. And today we are going over one of my favorite episodes of the entire year. This is our 2023 real estate predictions for the Seattle area market. We are going to briefly review some of the national real estate predictions that are out there, dive into some of the local market predictions for 2023, including home prices, supply, interest rates, and more. This is, again, one of our most listened to, one of our most fun podcast episodes of the entire year. So before we get into it, let me introduce everybody. We have Melanie Ghadamy; first-timer Joanne Beecher; Mr. Les Cutting; and Reed Watson. Reed, let's go over kinda nationally what's kinda going on and what's predicted.

Reed: [0:46] Yeah, so let's just mention first a few factors that are playing a part in these national predictions that we're gonna go over. Um, and these are all, I'm gonna say, hangovers from 2022. So just a few things that we do have at play going into 2023 here are, you know, recession, inflation, and these higher interest rates that we've been seeing in the last few months of 2022. So some economists believe that home prices nationally may fall about 4 to 5% in 2023, and this is coming from places like Moody's, Redfin, and Wells Fargo. Zillow believes that home prices will remain flat throughout the year, which is an interesting prediction. And most people don't believe, and this is kind of the big thing to take with you, most experts don't believe that there will be a big crash of any kind, particularly because people have a ton of equity in their homes, and a lot of people have low interest rates on their mortgages. So a large number of defaults, AKA foreclosures, is very unlikely to happen.

Les: [1:46] We are still looking at low inventory. Uh, the crash in 2008 caused new construction to come at a halt and it still hasn't caught up. In recent years, buyers have had to deal with high prices and extremely limited inventory. This lack of inventory is what has sustained these high prices and continues to keep the market supported. There is low demand from buyers at the moment, but low inventory to go with it. Builder confidence is down 12 consecutive months in a row, so we'll have to continue to have low inventory going forward. And additionally, people who would usually be moving up are staying put due to the low mortgage rates they have on their current home.

Joanna: [2:27] Interest rates, guys. We've talked about this a ton of times, but as a quick reminder, mortgage interest rates are high because the Federal Reserve is trying to combat inflation. Rates back in 2021 were in the 2s, and in 2022 got as high as the 7s So rates were all over the place the last few years, as we know. Many are predicting rates will drop to around 5.5% in 2023. Predictions are that we will see them go up and down in the first half of the year, and by the second half, they will be on a downward trend. If you are on the sidelines waiting to buy a house until rates come back to twos or threes, you may be waiting a lifetime. It's highly unlikely we will see rates like that ever again. And on that same note, if you're waiting and you're a renter, here's some not great news either. Typically, we see rents go up during a recession. Rents went way up in 2021 due to the pandemic, 21%, but that growth has slowed, and rents are expected to climb modestly at 3.4% in 2023. Rents in downtown are still dropping, and apartments there continue to offer incentives like one month free, et cetera, to draw in renters.

Christian: [3:42] All right, let's move on to our local Seattle area market. So what are the experts and the media saying about what to expect in the Seattle area in 2023? First off, let's get some perspective here. Seattle's real estate has appreciated over 137% over the last 10 years. That's an average of 9% per year. That's insane. That's literally unprecedented. And the reason why is because inventory has been very, very tight, like Les talked about earlier. And also, population growth has been steady, and we've had an extremely strong economy. Redfin, via The Seattle Times, is predicting that Seattle could see a sharper decline than most places due to prices having grown so much over the last 10 years. They think that prices could decline as much as potentially 10% in 2023. Windermere economists, they believe Seattle prices will drop m- 5.3%, very, uh, precise with their prediction. Meanwhile, Zillow is predicting a half a point growth, so 0.5% growth in the Seattle area market. So what that tells me is no one has any clue, and, uh, they're just throwing darts out there randomly, anywhere from negative 10% to a slight growth. So we will see what happens. Mm-hmm. If you were to look back at previous years, you would also see that no one ever has any idea what's gonna happen, so…

Melanie: [5:07] So the big question on everyone's mind is, will there be a crash? The short answer is no. From what we've seen, people aren't predicting a crash. A crash would be a drop of 20 or 30%. Since 2008, there has been much stricter laws regarding mortgages. Most homeowners have lots of equity right now and have low interest rates, so the odds of lots of people defaulting is highly unlikely. So we still have very, very low supply.

Christian: [5:40] All right. It's time for our favorite part of the show, and that is the Awesome Nossum Group predictions for 2023. All right, team, so what percentage do you believe the Seattle area real estate market will either appreciate or depreciate over the next year, 2023? Reed, you can go first.

Reed: [5:58] All right, excellent. Well, honestly, while we've been recording this podcast, I've gone back and forth in my head quite a few times. And I think, as you're gonna see, and have seen a little bit, predictions are a little bit all over the place for this coming year. My prediction is 0%. We're not going up, we're not going down. We're coasting, baby. Mm-hmm. Stick- I never thought I'd say it, but I'm going with Zillow on this one.

Les: [6:19] Yeah,

Christian: [6:20] I know.

Reed: [6:20] Pretty close, too.

Christian: [6:21] All right, Mr. Less Cutting.

Les: [6:22] Well, I've read quite a bit of financial articles and local articles. Um, I still think there's gonna be a lot of appreciation here this year, but I think we're gonna be more around 5 to 7%. So we're still gonna go up, but just not the crazy astronomical double-digit numbers like we've seen these past, what, five years or so.

Christian: [6:45] All right. Joanna, what are your predictions?

Joanna: [6:47] Well, um, I'm kind of in line with Reed and Zillow here, uh, which I also thought I would never say- … that I would agree with them. But, uh, yeah, I just, with what I've seen and what I'm seeing the rates do right now, um, I just really feel like we're gonna coast through on we're not gonna grow, we're not gonna, you know, depreciate.

Christian: [7:10] All right. And Melanie, what are your predictions for 2023?

Melanie: [7:14] I think about a 1 to 2% increase. So very subtle.

Christian: [7:20] Mm-hmm.

Melanie: [7:20] But a slight increase from last year.

Christian: [7:23] Perfect. All right, so my predictions for 2023, somewhat similar. I'm actually predicting anywhere from a negative 1% to a positive 1%, so i- it's really gonna be right around that zero, similar to what you guys are saying. That said, I think there are going to be some steals out there. Um, this is a fantastic time for anyone that is looking to both sell and buy, and move up specifically, um, if prices do go down 5% or 10%. Most of the time, when you're upgrading, you are selling a lower-priced house, so if that goes down by 50 grand- No big deal, because what you're saving on your purchase, um, if that price goes down 5% or 10%, then you're gonna be saving on that higher purchase price by 10%, which is a big saving. So this is what we've already seen from a lot of our clients over this, the last few months, uh, since the shift happened in 2022 in the middle of the year, where they've really… Maybe they didn't get as much as their neighbor sold for when they sold, but they made up for it by a lot by purchasing their next house with a great deal. Plus they're able to keep their inspection contingency in place. They are able to negotiate with the seller on price and terms, get a two-one interest rate buydown, you know, get them to pay for your s- your closing costs. There's so many different ways to get a deal right now, and we're seeing them, um, not everywhere, but here and there we are definitely seeing some deals, and it's, it's actually a lot more fun for us to help our, our buyer clients in this market. So that's my prediction. So next we are gonna go over and predict what parts of the Seattle area we think are going to appreciate the most. So each person's gonna go through and say what area they think will do the best. So Reed, you get to go first.

Reed: [9:09] Thanks, Christian. Mm-hmm. Well, in terms of appreciation, I'm just gonna keep hitting my, what I'm gonna call my pet neighborhood, and I think Georgetown is gonna appreciate quite a bit, and it's just gonna keep becoming a hotter and hotter area because it's, um, you know, it's just not even thought about right now. It might not experience the most appreciation of any neighborhood, but when people ask me, you know, "Where's a great place to buy? Like, what's gonna be up and coming in the next few years?" That's where I would be investing my money.

Christian: [9:36] That's a great pick. I like it. Les?

Les: [9:38] I'm gonna go up north, and I'm gonna say North Everett, 'cause I see a lot of movement happening, um, a lot of those older craftsman houses being renovated and flipped and sold, and, you know, they're just trying to clean up the neighborhood a bit, so I think North Everett's gonna see a nice, nice little boom.

Christian: [10:00] Cool. Well, I can't wait to see if that happens. There are some amazing houses in North Everett, so- Mm … I agree with that. Next up we got Joanna. What are your predictions?

Joanna: [10:09] Well, my predictions, I think, are probably expected, but West Seattle. Mm. Yeah. Just because the bridge is open, and now you can get places. Mm-hmm. And yeah, there's a lot of great little homes over there that people have been working on and, or that are great deals for you to work on. So that's where-

Christian: [10:29] Yeah. I see. And that market's been slightly depressed as well because of the bridge being closed for so long. Yeah. So I, I think that's a, a great pick. All right, Mel, what are your picks?

Melanie: [10:38] Um, so Joanna just stole my pick.

Christian: [10:41] Ah.

Melanie: [10:42] I know. She heard me saying it earlier. Oh, yeah. No pressure. I'm just saying. But yes, I do agree. I think West Seattle's gonna be a game changer now that the bridge is opened, and I personally know a lot of people have been talking about it, so West Seattle.

Christian: [10:58] I think that's a fantastic pick. I think all of your picks are actually spot on, um, and could very easily come true. I'm gonna go with, I know this might sound weird, a little bit, but I think North Seattle, which is always hot, I think you can actually find some better deals right now. I'm always looking in North Seattle, 'cause I live there, and what I've seen over the last few months is that that competition is gone, which we all know. But because of that, we're seeing some better deals on some of the houses that have been priced over a million in that area, which is kinda the average for that, that neighborhood. They've really been closer to that one, 1.2, 1.3 price range. Whereas six months ago, they were at the 1.8, two million price range. And so I think there's going to be some deals here for a short amount of time, uh, and then it's gonna pick right back up towards the end of the year once, once rates are a little bit more stable and lower.

Les: [11:49] All right. With the market shifting, agents, clients, and investors will pivot their methods to accommodate this new market. Here are some things you might see people doing, or you might do as a buyer or a seller in this market. Christian, go ahead and explain.

Christian: [12:03] All right, so I've been a real estate agent since 2005, so I've been through the ups and downs before. And because of that, I have experience that I can share. Some of the things that I saw back then that I think we're going to see moving forward as well is maybe assuming some mortgages. So FHA and VA loans, you can actually assume someone's current mortgage. So if they've been… They bought a house five years ago, and it had a 4% interest rate, you can actually assume the remaining 25 years of that mortgage, if it's a 30-year fixed mortgage. It's five years re-mer- they've paid it down for five years. You can actually assume their mortgage at their interest rate. Um, that's a great way to buy. We're gonna see a lot more 2-1 interest rate buydowns. We have a whole episode about that. Um, so definitely listen to that if you don't know what we're talking about there. We've already started to see some contingent offers, meaning someone that has to sell and buy at the same time. They need to sell their current house before they can afford to buy their next one. You can do that by getting a contingent offer accepted. Yep, we just did numerous in the last couple months. Seller financing, this is when the seller acts as the bank. So s- there's a lot of people that actually have no mortgage on their home. They are sometimes willing to be the bank, per se, where they will, uh, give you a loan for it. So you'll put a down payment down, and they will provide the financing for the rest i- based off the equity that they have in their home. And so maybe you can get a 4 or 5% interest rate, and you don't have to go through a traditional bank I think we're gonna see a lot more off-market deals, and this is what gets me the most excited about this market, 'cause I love an off-market deal. And we're gonna- we've already started to see some of these, where a seller will say, "Hey, I'm willing to sell, I just don't wanna go on the market right now because I don't know what I'm gonna buy next. But hey, if you can find a buyer, I'll sell." And we have, thankfully, quite a few people that we've already been talking to, so we have a little bit of a list building, slowly, of potential sellers that are in that situation. I think we're also gonna see more buying with friends and family. So instead of just a solo buyer, we're gonna see people, like, joining, yeah, joining in together and really, um, buying as a group versus just one-off.

Les: [14:16] I agree with that. I've been hearing a lot of people, um, recently, a lot of my friends talking about just getting together, putting their money together.

Christian: [14:23] And I think lastly, something that we harp on a ton here at the Awesome Nossum group, and that is house hacking. I think that's gonna become more and more popular. Um, it's already somewhat popular, but I think if you haven't already heard, hear- if you haven't already heard of house hacking, this is a year that you're really gonna hear a lot more of it, because it just makes so much more sense, uh, for a lot of people. Not everyone, but for a lot of people.

Reed: [14:45] All right, so let's talk a little bit about whether or not you should be buying and/or selling in 2023. If you're looking to upgrade, this is a really good opportunity to do so, since you will get a deal on the purchase, and you can use contingent offers to your advantage while competition is really low. And by that, I mean a offer contingent on selling your current house. In the competitive market, it wasn't a good idea to submit an offer while you still had to sell your house, but now that things favor buyers a little bit more, you can put in a contingent offer and really use that to your advantage. If you keep the current house and buy another, and use your current first home as an investment property, that's also a really fantastic option that we all would advocate for.

Christian: [15:29] I would totally agree. So I think this is a year where if you can keep your current home without selling it and still buy that next home, I think you are going to really appreciate it in two or three years, when that price on all houses have come back up. If you could keep it, definitely try. Even if you're breaking even on your rent, or even losing a little bit on what rent comes in and what your, your payments are, it might be worth it in the long run.

Reed: [15:53] So if you are thinking about becoming a first-time home buyer in 2023, I think this year is actually gonna be a great opportunity for you, as Les just touched on. It will be a much better market for buyers in 2023 than it was in 2022, and I see things potentially becoming competitive again in 2024. So you can get a good deal in 2023, why not go for it, right? And by a good deal, I mean not only a great price, but better terms, which is really important as a buyer. And I think a lot of buyers, before they actually, you know, co- dip their feet into the market, they think only about price, but terms are extremely important, um, as well, both for, you know, your happiness as well as your finances.

Christian: [16:35] So yeah, one thing that we're really advocating for our clients and recommending is getting into the market sooner than later this year because interest rates, like we said earlier, by the second half of the year, are predicted to go back down. When interest rates do go back down, a lot of people are predicting that the market will heat back up again, and it could potentially get competitive again. You wanna get ahead of that. You want to buy before it gets competitive, even if the interest rate is a little bit higher. What we're having people do right now is make an offer and have the seller pay for what we call a 2-1 interest rate buydown. Listen to that podcast episode. That is the strategy to get the best of both worlds. So buy at today's lower price, even if ur- interest rates are a little bit higher. Use the 2-1 interest rate buydown to drop your payment and your interest rate for the next two years. And then when interest rates do drop in the second half of the year, or even continue to drop in 2024, you can refinance and keep your low price, get that lower interest rate, and have the best of both worlds.

Melanie: [17:36] That's a good point, Christian. Just keep in mind, as you've heard us say in the past, we do advise people to own their home for at least five years. And part of this reason is because the market really can go up and down a bit, and you can't play the market. But if you have a long strategy, then you'll most likely come out on top investment-wise. Investors, large and small, are buying up properties left and right. They're very much in the acquisition phase, and they are getting great deals.

Christian: [18:05] Yeah, I mean, Chase Bank just announced they were buying I don't know how many billions worth- Billions … of property, real estate right now. Like, they have that money set aside, billions of dollars just to buy residential real estate because they see that this is a time to buy. Homes are on sale right now. All right. Great work, team. You guys made some awesome predictions. I can't wait to look back at this next January in 2024 and see how well we did and how, who fared well. Are we going with Zillow or are we not? What's gonna happen?

Les: [18:36] Red Bell.

Christian: [18:38] So for a- Complete picture of what happened in 2022, listen to our last episode where we did the 2022 year-end review. You can kinda see what happened in 2022 and, and really understand what we are in right now and how we're moving forward with this episode. If you are thinking of buying in 2023, please come to our completely free, no pressure Beers and Home Buying classes. That's at beersandhomebuying.com (opens in a new tab). We have at least one class every single month. All of them are free. It's only one hour. There's no timeshare presentation or anything like that. It's super laid back and fun, and you really walk away learning how to buy a house, if buying even makes sense for you. And after that, we will teach you, does this even make sense for you? Does buying make sense at all? So our next few classes, we have one on January 18th at the Brew Lab on Capitol Hill, January 25th in Bothell at McMenamins, and February 8th at Stoup Brewing in Ballard. So we are hopping all around. That's how we do it all year long. So if you are thinking of buying in 2023, check out beersandhomebuying.com (opens in a new tab). We have taught thousands and thousands of people how to buy a house at this specific class. We've helped hundreds of people directly from this class who attended buy houses successfully. So it is the place in the Seattle area to learn how to buy a house. Super laid back and fun, and you get free beer, so you can't really beat that. Thanks, team. Thanks for listening, and we'll see you in two weeks.