By Erica C. Barnett
On the latest episode of Seattle Nice, we talked to Redfin’s chief economist, Daryl Fairweather, about the recent slowdown of Seattle’s housing market and what it means for the future of our economy.
When we talk about a “decline” in the housing market, that refers to a slowdown or reversal of housing price increases because more people are selling than buying—in other words, it’s bad news for people who already own houses that they are trying to sell, but potential good news for those trying to buy or rent here.
That’s an important distinction I tried to keep in focus as we talked about what a “slowdown” means for the city. Renters, who make up more than half of Seattle residents, bear the brunt of an increasingly expensive housing market; although buying a home in Seattle has become much more expensive than renting, anyone who does manage to buy a house has their monthly housing costs more or less locked in place, apart from annual tax increases, while rent generally increases unpredictably every year.
For those who already own houses, it’s true that the equity they gain through monthly mortgage payments only comes to fruition when they sell, which may not make sense if they plan to stay in Seattle, since they would have to buy a new place in the same expensive market. However, longer-term Seattle house owners whose mortgage is, say, $3,000 a month are exponentially better off than renters who would have to pay thousands more for the same house, since rent goes up so much faster than property taxes.
All of which is to say: If the pace of job growth continues to stall, as Fairweather predicts it will, affordability will improve somewhat. But, Fairweather noted, “we’ve already gotten to this place where affordability has gotten so bad that I don’t know if people will really feel like things are getting better for them” even if housing prices decline a bit. For renters, “if you’re going from $2,000 a month rent to $3,000 a month rent, and then I’m telling you, ‘Oh, but next month or next year it’s going to be $2,995, it doesn’t really feel like things are getting meaningfully better,” Fairweather said.
Fairweather also threw some cold water on David’s belief that AI could be a tool to meaningfully lower the cost of housing. Both she and David are more techno-optimistic than I am, but Fairweather noted that most of the factors that have increased the cost of housing development have nothing to do with brainstorming or permit times (two things David and Fairweather said AI might help with) but construction materials and human physical labor, which can’t be digitized.
Sandeep also brought up his “heretical view” that the region should expand its growth boundaries to allow much more housing outside current growth limits, which already allow significant amounts of suburban sprawl. The argument against sprawl isn’t so much an anti-housing argument, in my view; it’s that sprawl is energy-intensive and destroys natural resources (in our region, forests) and farmland while requiring huge investments in infrastructure that contributes to climate change, like the freeways and feeder roads to move people from the suburbs to their jobs in Seattle by car.
In addition, Fairweather said, moving the urban growth boundary outward “results in longer commute times … and if they’re paying for gas on top of their mortgage, then maybe they’re not actually doing any better, or maybe their quality of life isn’t any better” than it would be if they paid for a more expensive house closer to the city.
Yes of course the GMA boundaries need to be extended. It’s not heretical thinking, it’s simple logic. And the boundaries absolutely will be extended someday because people aren’t going to vote for forests over housing forever.
Yes, housing prices in Seattle are inflated well beyond demand. This gross inflation is based on collusion between realtors, property owners, appraisers, banks, and developers. Realtors are always telling sellers to keep your house off the market unless you absolutely have to sell (e.g., moving out of state), which artificially reduces supply to keep prices inflated. Banks and the appraisers they hire play along with this because the banks fear substantial losses if property owners walk away from mortgages rather than sell at a loss.
To put this in perspective, my parents bought there 3 bdr house with full basement in the Mt. Baker neighborhood in Seattle in the early 1960s for $16,000. The population of Seattle in 1964 was 550,000, and now it i s 800,000, which is a 45% increase. The selling price of the same house is now $1,400,000, which is an 8,650% increase in price from the $16,000 price my parents paid in the 60s. Even after adjusting for inflation, this is still several thousand percent MORE than actual demand based on the increase in population during that time.
This is not sustainable. No one in the real estate business will tell you this, they are just hoping the inflated values continue indefinitely so they don’t lose any money. These same people decry ‘socialism’ and pretend they are free-market capitalists, but anyone who has studied economics knows that in a truly free market, prices go up and down with demand, and do not always go up.
The softening of demand in the real estate market has more to do with AI job losses (not the millionaire’s tax) and ‘fear’ of more AI job losses, which discourages workers from taking on significant fixed debt. If you think you might lose your job in the next two years due to AI, you would be crazy to buy a house right now, and this is what we are seeing reflected in the residential real estate market. In the commercial real estate market, companies are considering doing more with ‘less’ space using AI agents instead of workers, so there is a softening of prices in commercial office space as well.
So let’s not allow the small (15% of voters) but vocal right-wing in Seattle convince us that it is the new taxes that are softening the real estate market. The softening is directly related to the emergence of AI in the workplace, and the fear of job losses and need for less office space created by AI. This means the softening will continue for some time, and it is best to wait it out if you are a potential buyer.
I misspoke in the post above, the “inflation adjusted” increase in the price of my boyhood home from 1964 to 2026 is 714%, which is still grossly inflated and well beyond the 45% increase in population in Seattle during this time.
As far as pushing back the suburban sprawl boundaries, I wonder if we will be limited by water resources. At some point our reservoirs can only supply so much water.
Disagree with your premise that rents increase faster than property tax. Our property taxes have increased well over 10% year over year for the past several years, and promise to again given that the library levy has been increased so much & the mayor wants to create a special tax district for the fire dept. Rents are capped.
@Karen, the base for homeowners increases are much smaller, though. Median priced home pays about $800/mo in taxes, median priced rent is $2500+/mo. A 10% increase for homeowner is $80/mo but for renters it is $250/mo.
The library levy will increase the median home monthly tax bill by about $15/mo.
but how much of the property tax increase is actually shouldered by the renter?
Great opportunity to get a bunch of multifamily housing built if there is a slowdown and the HALA requirements are relaxed or eliminated.
Problem is not enough parts of Seattle proper are zoned for that. If we allowed apartments in all neighborhoods, on every block using corners like San Francisco is doing, we would ramp up supply quick.
The areas that the developers told the city to rezone (Corridors, meekly expanded village boundaries, etc) are long gone and by design that supply will be gradually built to goose demand and control supply.
The developers/builders will scale back single family construction if these trends continue but if we made shifting to multifamily attractive then a rush to construct those would occur.
Would much rather see apartments get built during a slowdown than the usual fewer but more expensive SFR getting built. Banks love lending on those and in the end they pick the tune the developers dance to.
Why would any “rush to construct” during a market turndown occur? When interest rates may be on their way up, the economic engine of tech slows its roll, and most are feeling very uncertain about the future? There are plenty zoned, ready to go land parcels (look at Roosevelt, or the empty block next to City Hall) sitting empty for years when the market was red hot.
Not sure if you think this multifamily building spree would be for renters or buyers, but conditions look ripe for rents and home prices to fall. That’s a good thing, but not something that gets builders pumped.