Featuring the perspectives of:
Luis Borrero, Vice-President of Brand, Daniels Real Estate
Robert Burns, President, Coldwell Banker Bain
Jeremy Collett, Executive Director of Capital Markets, Guaranteed Rate
Matthew Gardner, Chief Economist, Windermere Real Estate
Lysa Griffith, Senior Vice President of Mortgage Lending, OriginPoint
Julie Johnson, Regional Vice President, CrossCountry Mortgage
Andy Lakha, Principal and CEO, Fortress Development
Renee McGahan, Realtor, Keller Williams/DwellSeeker
Rob Walworth, Vice President of Mortgage Sales, BECU
What do you expect for the overall housing market in 2023?
Luis Borrero, Daniels Real Estate: If inflation lingers, we will likely see interest rates fluctuate close to double what they were a year ago, above 7%. This will negatively affect two groups: existing homeowners who need to finance a new home and first-time homebuyers. I doubt that many existing homeowners are going to trade their low-interest mortgage rate for a higher one with larger monthly payments. Unless there is a need to move, many will pause and watch the market. First-time homebuyers, with minimal down payment, are watching what little buying power they had evaporate. The New York Times reported that first-time homebuyers accounted for the smallest share of the market in 41 years, elbowed out by all-cash buyers. Only cash buyers are insulated from the Federal Reserve’s move to tamp down inflation. Historically in Seattle, cash buyers represent approximately 20% of new condominium home sales, but it will get closer to 25% before the year end and higher in 2023. It will be a good time to incentivize a cash buyer.
Seattle condominium construction will continue to stall. Graystone is the only new condominium tower opening in 2023 and likely until 2025. Some proposed condominium projects have converted to apartments, others are paused, and no developer has announced a new project under entitlement. That will lead to a condominium desert because construction in Seattle is a minimum of 5-7 years from design to occupancy. Until housing scarcity pushes prices up and projects begin to pencil again, what you see is what you get.
Robert Burns, Coldwell Banker Bain: The market is shifting to return to historical norms. The shift is not to a 2009 market by any means but will greatly vary from 2021, which was the best market in the history of our country. We are seeing a flattening of unit sales, with modest price appreciation. However, we are experiencing the greatest amount of amassed equity in modern times – it is at a peak in the United States. The unprecedented home equity makes the coming market fundamentally different than those we have experienced in the past, and we are optimistic about the future as a result.
Matthew Gardner, Windermere Real Estate: Along with most of the country, King County experienced remarkable growth in demand for housing during the pandemic, which was mainly stimulated by historically low mortgage rates. However, financing costs rose significantly in 2022, and this has started to put downward pressure on home prices. In 2023, I anticipate that prices will turn negative in King County but given the equity that homeowners have built up over the past few years, I am not concerned about any long-term downward price correction with home prices resuming an upward trend in 2024. I also expect that there will be fewer transactions in 2023 as owners who do not have to sell will stay sidelined until the market stabilizes.
Lysa Griffith, OriginPoint: As we head into 2023, the housing market is likely to continue to face headwinds. A cooling economy, lay-offs and affordability will be a barrier for some homebuyers. As we see the effect of the Fed’s interest rate hikes work their way through the economy, inflation will likely cool, and mortgage rates will likely come down as well. As mortgage rates come down, I think that home sales will regain strength again as we get later into the year. The housing supply will probably remain tight throughout the year and help to maintain home values.
Julie Johnson, CrossCountry Mortgage: We think it’s going to get a lot better toward the end of Q2 because mortgage rates follow inflation. Once inflation goes down, mortgage rates tend to go down. If you look at history, even going back to 1980, when most recessions ended, mortgage rates dropped. We expect 2023 to be filled with refinances and more people will get back into the game of buying a home.
Jeremy Collett, Guaranteed Rate: We can forecast, but nothing is certain. The Mortgage Bankers Association (MBA) believes that housing prices will likely level off, but the higher-rate environment will mean that fewer homes will sell or refinance in 2023.
By buying low in a cooled market, once prices heat up again, the steady build in home equity offers many advantages: dropping PMI (if applicable), taking out a HELOC to invest in home improvements or refinancing with more favorable terms.
No matter what, I think we will see a return to seasonality, with a focus on home sales in spring and summer when people are more inclined to move.
Andy Lakha, Fortress Development: I expect the overall housing market to recover and interest rates (long term) will start to decrease as we move through 2023. Bellevue continues to be a destination for buyers and as housing inventory slowly increases, we will see pricing and values stabilizing, not dropping.
Renee McGahan, Keller Williams/DwellSeeker: I think that we are in a historic marketplace, as we’ve experienced the fastest interest rate increase in our history; a ‘doubling’ of interest rates in a matter of months vs. years in typical changing markets in the past. That said, I think the big adjustment period has already occurred … most areas already having experienced a decline in value of 10-25% depending on the neighborhood. Employment will be a big factor for 2023 … those that feel safe will have great opportunities to purchase in a more balanced market. Those that need to sell, will still need to sell. With new construction building at a halt, sellers that don’t need to sell or don’t want to sell based on holding a super low interest rate, within our already overall limited supply of housing compared to the demand … I see housing supply being a driving force for a balanced market in 2023. The demand will still easily keep up with the supply, and I think people will already have adjusted to the new norms of higher interest rates. In 2023, all buyers and sellers will be serious and will be acting with purpose. Great time to be a purposeful agent.
Rob Walworth, BECU: The industry is seeing a slowdown in the housing market, with total sales and pending sales down, but we’re also seeing median prices continuing to rise. However, that is expected to wane into next year. There is a good supply of homes for sale, and a shift away from a complete seller’s market has happened. We expect this to continue into 2023 as interest rates remain higher to counter inflation.
Do you think any segments of the residential market will be better in 2023? (new construction, rural, luxury, etc.)
Lakha: I do not see a continued exodus to rural properties from those looking to leave the city. People still need to be close to amenities, shops, groceries. Urban living will continue to be desirable. I believe that the luxury market will fare better in 2023 as these buyers are less dependent on mortgage loans and interest rates.
Griffith: I think that 2023 is a particularly great opportunity for first-time homebuyers to purchase a home with less competition, pay less for a home and use a seller credit toward allowable closing costs and prepaids to fund either a permanent or temporary rate buy down to help keep their payment affordable. We are seeing the return of appraisal contingencies. Sellers are more willing now to accept an offer with a lower down payment and to leave an appraisal contingency in place giving first-time homebuyers a better chance to submit a winning offer.
Burns: The luxury sector continues to be a strong segment of the market; this is because it is less dependent on short-term interest rate fluctuations. Baby Boomers have amassed more wealth than any other generation, and many are now reaching the maximum age on their tax deferred retirement accounts and will be forced to take distributions. Real estate has been an historically safe harbor in times of inflation. Funds could come out of Baby Boomers’ retirement accounts and be invested into luxury real estate.
McGahan: Custom or new construction will still be in high demand because plainly, there won’t be much of it.
• Rural market suffers greatly. I think people will be moving back to the urban areas to seek out employment or to be closer to work, go into the office more to prove themselves as a valuable employee and to stay far away from the chopping block.
• I think the uber luxury market will still remain strong as there will (and already has been) a massive amount of money made from the changing market and that, coupled with the lack of inventory of unicorn properties … I think this sector of the market remains strong.
• I think that the $1 million to $1.7 million price point (the overnight tech millionaires) suffers because of their stocks taking a major hit, their compensation changing, the anxiety of job loss and actual job losses – not to mention this is a group that listens AND acts according to what headlines say, and I don’t think the headlines will be offering many warm and fuzzies in 2023.
Gardner: Although home prices and transactions will slow in 2023, I would not be surprised if King County homebuyers start to look at some historically overlooked markets. Particularly, in suburban and ex-urban areas south of Seattle, such as Des Moines, Dash Point, Burien, Kent and Seattle’s Central District.
Collett: It’s hard to predict, and it may vary by market. Remote workplaces have allowed many homebuyers to explore non-urban communities, including smaller towns and even more remote areas. Rising housing demand in Montana and Wyoming is proof of that. Both new and luxury construction will likely remain strong in areas with recession-proof industries. As supply increases and demand wanes, we could see many cities enter buyer’s markets.
The affordable housing market will see some growth with the recent pricing changes instituted by Fannie Mae and Freddie Mac. With home equity so high after the home price increases of the last two-plus years, HELOCs and home equity loans should be popular. Looking at the top end, jumbo and non-qualifying loans, particularly those for real estate investors like debt service coverage ratio (DSCR) programs, will likely continue to grow.
Borerro: While rural areas are still hot, news reports show that homebuyers are pivoting back to urban cities.
If the urban lifestyle lost its charm in 2020, it shall regain its charm in 2023. We are already seeing international retailers opening new stores such as Uniqlo and Pandora in downtown Seattle. And, the Puget Sound Business Journal recently reported that PCC’s Rainier Square location, which opened in January 2022, has been outpacing all others in the 16-store chain in key growth metrics in the last six months.
These signs of recovery will appeal to two segments: the “young and irrepressible” and the “empty nesters.” These two groups value urban homeownership when cities are healthy and safe.
But they will be competing for a limited supply of urban housing as demand will rise much faster than supply. Urban for-sale development will continue to decrease across all housing types because it doesn’t pencil. The only new construction will be multi-family apartments since you can house more people per square foot with uncapped market-rate rents.
What growth, if any, do you expect for your company next year? Do you expect your business to thrive, decline or remain stable? Why?
Collett: The housing market, much like the economy, is cyclical. It never heads in one direction for too long before adjusting. When things slow, opportunities arise to prepare for the next comeback. That way, when the tide does turn — and it will — we are fully prepared to ride the next wave instead of reacting to it in the moment. That’s why we continue to invest in technology to provide the best customer experience possible. We have a strong business plan in place for 2023, which is focused on fully supporting our loan officers. We offer a unique environment to set them up for success, including:
• The CEO Mindset™: When markets cool, winners with the right mindset emerge. The GR philosophy allows loan officers to be the CEO of their business. They have a team they can delegate marketing and administrative tasks to so they can focus on growth.
• FastTrack: While banks can take weeks and months to close, our FastTrack program can get customers a CTC (clear to close) as fast as 24 hours and to the closing table as fast as 10 days.
• PowerBid Approval: This helps customers compete with all-cash offers. This fully underwritten credit approval shows sellers that the buyer is a qualified loan candidate and can close at the same speed as an all-cash offer.
• Pricing flexibility to win: Guaranteed Rate’s loan officers control their pricing and offer the best array of products to customers, such as Lock ‘N’ Roll, which lets buyers lock in today’s mortgage rate for 90 days while they house shop with no commitment to buy.
• Dynamic Marketing. We have the best-practice model to constantly stay in front of your potential customer network.
Walworth: BECU’s purchase lending business is set to remain stable with modest growth built into our 2023 plans. This is due to our team of experienced mortgage professionals and their ability to offer our members value in conventional and jumbo portfolio mortgages. We are also investing $2.5 million in a grant pool for eligible first-time home buyers to request up to $10,000 in assistance that does not need to be paid back.
Borerro: Daniels Real Estate is bullish on two subjects: Seattle and ownership.
We have been developing catalytic projects for over 50 years during every economic cycle, and one thing remains constant: Seattle is home to pioneers, innovators and the creative class. We are always growing.
Our city is the global capital of cloud computing and commercial space travel, a co-leader in AI, the metaverse and gaming and an institution in medicine and biotechnology, to name a few. We remain home to one of the world’s largest forest products companies, the port of entry to a third of all fish consumed in the U.S. and a global delivery of physical goods. We have a strong job market, nationally ranked universities and a natural landscape that allows for many outdoor pursuits. People will continue to move here so our development focus on office and housing is very well shielded for the long-term.
In 2023, we will deliver 271 condominium homes on First Hill, a neighborhood that has been a “century in the making” as Seattle’s first neighborhood. We purchased the site because of its unique location along heritage tree-lined streets, adjacency to St. James Cathedral and landmark amenities, zoning that enabled us to include a waterfall parklet rather than retail and a rooftop designed with views of mountain peaks in all four cardinal directions.
Condominium development is not easy in the state of Washington, but we firmly believe that urban home ownership is essential to the vitality of any city. Communities depend on long term relationships, both residential and commercial, to invest in their neighborhoods and look after each other to create social capital.
And we are convinced that our investment in the First Hill neighborhood will be a success. It has been built with incredible tenacity during a world pandemic and volatile market conditions – to fill a housing gap that many will begin to realize in 2023.
Lakha: We expect to tighten our belts next year and continue to be responsible with our spending as we start to experience a recession, but we are anticipating a more stable environment in the second half of 2023.
Johnson: I think there’s a good possibility we’re going to thrive. Part of the reason is because CrossCountry Mortgage has such a great platform with products and support that a lot of top producers want to be at a company like this. I think there will be a lot of people making moves and coming to CCM.
Griffith: We expect to grow in terms of both transactional volume for individual loan officers and adding additional loan officers to our team. We have a unique value proposition which offers a superior digital platform allowing us to smoothly close in 14 days or less — even on jumbos. We are a division of the No. 1 non-deposit mortgage lender and the No. 2 retail lender giving us the loan programs and pricing we need to deliver a customized mortgage solution to our customers at a great rate and an on-time closing.
Burns: In times of uncertainty, our real estate professionals offer expertise, stability and competence as trusted advisors to their clients. Coldwell Banker has a 116-year history of navigating every type of real estate market and when times get tough – or times just change – real estate professionals look to us for the safe harbor of competence, support and leadership. Coldwell Banker offers some of the best tools in the industry to enable real estate professionals to best serve their clients. We expect our business to thrive because both consumers and real estate professionals will be looking to Coldwell Banker as their North Star in a changing real estate market. In short, competence is cool again.
What will be the biggest challenges for agents in 2023?
Burns: Agents will need to have the discipline to do the basic and effective hard work every day. This means having daily conversations with members of their sphere of influence, knowing and understanding the inventory, exhibiting good communication and negotiation skills, as well as keeping an eye on the day-to-day fluctuations of the market. They will need to be plugged into their business every day. No more cruising – it’s time for agents to put their foot on the gas.
McGahan: Mindset, hands down. There are a ton of agents who have only experienced one market and will be paralyzed by this change. Many agents will be too busy thinking about all of the negatives out in headlines, the changes in the market and the overall water cooler talk … to not realize that even in a changing market, they have one of the best jobs in the world, a job where the action you take has a direct impact on your pay, probably one of the highest ROI professions out there. If you can master your mindset, create a plan, take action, 2023 could be the best year yet.
What can agents do to succeed in 2023?
Burns: Brokers should partner with experienced, competent professionals to build their business. Who they associate themselves with will reflect greatly on them, now more than ever. From the brokerage they choose to be affiliated with to mortgage lenders, photographers, stagers and inspectors. The flight to quality is real, and consumers will notice the difference.
Is the work-from-home trend still changing the way people are shopping for homes?
McGahan: I think working from home will continue to impact real estate, as it’s pretty hard to go back after already experiencing the joy of shutting out the whole world (but especially the noisy kids) behind the shut door of your own office area.
Gardner: The pandemic’s impact on what buyers look for in a home continues to be felt, with many favoring ones with dedicated work-from-home spaces and substantial, well appointed, outdoor areas.
Burns: Yes, but not in the way you think. There is a return to the office afoot. With work from home policies, our housing patterns shifted during the pandemic. People are changing their housing needs again with a shift back to a commutable distance. Even if they’re only spending two to three days a week in the office vs. five.
What does the landscape of your company look like post-COVID? (Are agents coming back to the office? Do you have more tech? etc.)
Burns: Agents have learned they can be productive working remotely, especially given the platforms Coldwell Banker has created for them to be successful. They are coming back to the office when we create a reason for them to be there, either with an event or networking opportunity. Our offices are very collaborative and, leaning into that, we will continue to create and schedule specific reasons for agents to come back in. We have also invested heavily in tech so those who are unable to physically participate in that environment can still benefit from all we have to offer.
Do you expect the Seattle-area to make a full shift from a sellers’ market to either a balanced market or buyers’ market in 2023?
Gardner: I don’t believe there will be a systemic correction in home prices in 2023, nor will the market become oversupplied with inventory. As such, it’s very unlikely that we will shift to a buyers’ market; however, it will be far closer to a balanced market than we’ve seen in over a decade.
Burns: With less than six months’ worth of inventory, we are still very much in a sellers’ market. Driving that is our decades-long under-building problem paired with inbound migration to the Puget Sound region. However, we are moving toward a more normal and healthy market. It’s now possible to show a client a home on Saturday then allow them to think about it overnight, submit an offer on a Sunday and have a normal two- to three-day negotiation with the seller. We are seeing the return to rational decision-making with buyers and sellers. The impact to the real estate professional is that the quality of service will have a much larger impact on the transaction than has been the case in recent history. Service levels and access to a broker’s expertise will make all the difference.
After years of extremely limited housing inventory, what is the inventory outlook in the Puget Sound region in 2023?
Gardner: Although inventory levels rose in 2022, they are still well below their long-term average. In 2023, I don’t expect a significant increase in the number of homes for sale, as many homeowners do not want to lose their low mortgage rate. Of course, homes will be listed for sale for the usual reasons of career changes, death and divorce, but the 2023 market will not have the normal turnover in housing that we have seen in recent years.
Burns: The inventory shortage will not be solved overnight. There is a continued pinch in the market – it will take a long time to catch up, given our decades-long under building, inbound migration to the Puget Sound region and new household creation.