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When Dai Ichikawa and his wife found themselves in a bidding war last summer for a three-bedroom house in Seattle’s Wallingford neighborhood, the couple were willing to do just about anything so their two kids could continue attending the local John Stanford International School.

The family had looked at more than 40 houses over the previous year, taking their time while the 30-year mortgage rate was at historic lows. But in late May the rate jumped, catching many by surprise and pushing buyers, including the Ichikawas, to get off the fence.

The family closed the deal by paying $30,000 over the home’s list price. In the frenzied housing market of 2013, such bidding wars were common, stoked by the tightest inventory in King County in at least a decade amid expectations of higher mortgage rates.

“Buyers are scared to death about interest rates going up,” said Seattle broker Paul Cantu, the Ichikawas’ real-estate agent. “I think that the market will be hot in 2014 but not quite as crazy.”

Here’s the consensus among experts on what 2014 holds for housing:

• Home values in the Greater Seattle area will rise again, but we’re unlikely to see double-digit appreciation as we did in 2013.

• For many prospective buyers, homes will become less affordable, largely because of the higher cost of borrowing money.

• The supply of homes for sale will be greater, partly because fewer homeowners are now underwater; rising prices have lifted their home’s value above their mortgage debt.

At least two wild cards could dramatically change the outlook, however: One is the tech industry, which has been on a hiring spree since early 2010.

“If the tech market keeps on booming strongly, you can see two years in a row of double-digit growth,” said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University’s business school. But if tech stocks suffer and employment contracts, “you could have more of a problem in the Puget Sound.”

The other wild card is whether Boeing decides to build its 777X outside Washington State — a decision that would dramatically shrink its Everett widebody plant, which employs nearly 40,000 people, by the end of this decade.

“That has the potential to have a pretty large impact on the housing market,” even in the short-term, said Tim Ellis, publisher of Seattle Bubble, a real-estate blog. Some homeowners in Snohomish County might recognize that and sell rather than wait for prices to fall, he said.


If there’s one word to describe this year’s housing market, it’s rebound.

After years of depressed prices, the housing market nationally and in the Puget Sound area soared in 2013.

Prices in September for Seattle-area single-family homes were up 13.2 percent over the past 12 months, according to the S&P/Case-Shiller 20-city home-price index. That was the highest increase since the bubble years of 2005 and 2006.

Seattle’s run-up is mild compared with ones in Las Vegas and California’s major urban markets, where home values rose 20 to 30 percent over the year.

In King County, the median price of single-family homes was $414,000 in November, up 7.5 percent from a year ago, according to the Northwest Multiple Listing Service.

That’s still far from the peak median price of $455,000 in 2007 but well above 2011’s median price of $340,000.

The prolonged spell of low mortgage rates has made homes more affordable for families, helping to push home values in some markets — notably big cities in California — to potentially unsustainable levels, said Svenja Gudell, director of economic research at Seattle-based Zillow, the online real-estate marketplace.

If incomes can’t keep up with rising home values, it’s likely that those markets’ home values in the coming years will stagnate or decline to remain affordable, she said.

But the Seattle area’s strong job and population growth translates into home price gains that are sustainable, Gudell said. That’s why Zillow ranks the Seattle area as the nation’s second “hottest housing market” in 2014, just behind Salt Lake City.

Zillow forecasts home prices in the Seattle metro area to rise 5.9 percent in the 12 months ending in November 2014, compared with 4.6 percent nationally.

Lawrence Yun, chief economist for the National Association of Realtors, said home-price appreciation in the Seattle market in 2014 will be “maybe in the high single digits,” driven by job growth and a stubbornly tight inventory of homes for sale.

Affordability and inventory

Home shoppers in 2014 will face rising interest rates and, potentially, more hoops in getting a loan.

Let’s start with interest rates: Every 1 percentage point increase in mortgage rates shrinks the amount homebuyers can pay by 10 percent, said Matthew Gardner, a Seattle-based land-use economist.

For example, a household that now can borrow $500,000 at 4.5 percent interest would only be able to borrow $450,000 at 5.5 percent interest, assuming nothing else changes, he said.

While rate hikes will erode buyers’ purchasing power, that, in turn, should slow home-price growth, Gardner said.

The psychological impact of a much bigger mortgage payment could be daunting for some buyers, said Dick Conway, publisher of the Puget Sound Economic Forecaster.

But other buyers won’t care even if mortgage rates climb above 5 percent, returning to levels before the 2008 financial crisis — as long as their incomes keep growing.

In 2014, the Puget Sound region should see average household incomes rise by almost 6 percent, Conway said.

His advice for those who can afford it: “You’re a little bit late, but if you want to buy a home, don’t wait.”

Getting a loan is still a hurdle: The average credit scores of loans approved by Fannie Mae and Freddie Mac has hovered around 760 in recent years, Gardner said. Loans backed by the Federal Housing Administration have been easier to get, as average credit scores have dropped below 700

Some borrowers may find it even harder to get a loan when new federal mortgage rules mandated by the 2010 Dodd-Frank Act go into effect on Jan. 10. Lenders will be required to verify and document borrowers’ ability to repay mortgages — the no-doc and low-doc loans that helped inflate the last housing bubble have been restricted.

The bottom line is that buying a home will be more challenging for many in 2014, but still affordable by historical norms. From 1985 to 2000, the mortgage payment — principal and interest — for a median house in the Seattle metro area made up roughly a quarter of the monthly median household income, according to Zillow.

That ratio peaked at about 37 percent in 2006 during the bubble and fell as low as 17 percent a year ago, Zillow estimates, but as the interest rate rises to 5 percent it will revert to the historical norm for affordability.

Still, first-time buyers are being pinched: The huge hike in rents in King and Snohomish counties — 6.5 percent over the past 12 months, according to Apartment Insights Washington — has made it harder to save for a down payment.

Rising interest rates will add another hurdle for them, forcing some to keep renting and others to buy in bedroom communities outside the Seattle metro area.

“The ones who were marginally qualified six to nine months ago are not going to be viable candidates to purchase in the immediate future,” said Glenn Crellin, associate director for research at the University of Washington’s Runstad Center for Real Estate Studies.

Letter to seller

The Ichikawas had rented for seven years in and around Wallingford, a popular Seattle neighborhood on the north side of Lake Union, before they decided it was time to buy their first house. They wanted a house that was close to their children’s school and was move-in ready, Dai Ichikawa said.

The family had been looking at houses for more than a year, he said, when they saw a Wallingford house in early June that seemed just right: The listing online showed the 1,680-square-foot home, built in 1951, had been extensively remodeled and came with a large fenced yard.

After two visits, the Ichikawas put in an aggressive offer: It included a nonrefundable earnest-money deposit that Ichikawa said was “a lot higher than the average,” and an escalator clause that allowed them to raise their bid incrementally to compete against other offers. The family also wrote a letter to the seller, explaining why they wanted the house.

And, on their agent’s advice, they waived inspection on the house, a decision Ichikawa described as “a leap of faith.” The seller gave them a third-party inspection report.

Ultimately, the Ichikawas won against four competing bidders, but they paid more than they had budgeted: $655,000, or nearly 5 percent
over the list price. They closed in August.

While the spring’s jump in interest rates was a deciding factor in the family’s one-and-only bid, Ichikawa said, home shoppers shouldn’t feel pressured into buying before they’re ready.

“My best advice would be to just be patient,” he said. “It’s a big decision.”

Sanjay Bhatt: 206-464-3103 or On Twitter @sbhatt