Six weeks after the first death in the country attributed to COVID-19, ordinary activity in western Washington State as in much of the nation has ground to a halt. This has been due partly to the virus itself, but in greater proportion to the varied assortment of state and local policy responses to the threat the virus presented. In the Central Puget Sound region inclusive of King, Snohomish, and Pierce Counties, the result has been an unprecedented drop in new listings, while selling prices and the numbers of selling transactions appeared stubbornly resilient. In the more rural corners of the state, the effects are likely to be deeper, and could last for a generation. RSIR looks at how market participants are hedging against uncertainty as they face these never-before-seen events.
The Governor’s office responds
Behind the scenes, with senior federal government advisors warning that COVID-19 deaths could mount into the hundreds of thousands, state and local officials in Washington acted quickly. A measured response was the first resort, and Governor Jay Inslee closed schools and banned large public gatherings in King, Pierce, and Snohomish Counties in mid-March. Yet within a week, those orders were escalated into a statewide stay-at-home decree for all non-essential workers. Definitions of “essential work” were improvised from a list published by the Federal Emergency Management Agency. In the ensuing weeks, the real estate industry (among other business interests) prevailed upon the Governor to allow standard real estate marketing activities such as buyer viewings, home staging, and photography to proceed; yet residential construction remained prohibited as of 9 April.
Industry observers react
The year had begun strongly, continuing the recovery in Seattle’s residential price growth reported by the CoreLogic Case Shiller Home Price Index since prices bottomed during the preceding summer. Yet fear set in with the virus’s outbreak in Seattle and two consecutive stock market crashes early in March. The Northwest Multiple Listings Service (NWMLS) described that month’s real estate activity as “mixed” due to “disruption and uncertainty” regarding interpretation and enforcement of the Governor’s order. Mike Grady, president and COO at Coldwell Banker Bain, predicted that “all numbers [would] decline in April and May.” Windermere Chief Economist Matthew Gardner dismissed the March NWMLS numbers as “essentially irrelevant,” and advised that April’s numbers as well would “not be an accurate representation of the market.”
Quoted in the Seattle Times, Dean Jones, owner and CEO of Realogics Sotheby’s International Realty said that his brokers expect moderate price declines until the second half of 2020. Jones surveyed nearly 150 agents in his firm.
For the most part, our brokers are confident in the government leadership addressing the pandemic and in the [federal stimulus package], but it seems most anticipate at least the next 90–120 days being some measure of market correction,” he said. “We know there are fewer buyers and fewer listings for the foreseeable future, but transactions are still taking place.
What the data currently show
Rather than wait for the NWMLS’s April press release, we at RSIR immediately began tracking the real estate market impacts of the Governor’s “Stay Home, Stay Healthy” order. We sought to look beyond the monthly data, and so delved into the daily posted listings and sales. We had questions regarding the extent to which sales were or were not tracking with new listings; and whether at different levels, the prices of the homes sold were higher than, lower than, or comparatively equal to the prices at which new listings were offered.
In King, Pierce, and Snohomish Counties, the answers to those questions appear to be that sales kept up with the new listings through the first week of April, although most of these were contracted from late February through mid-March. In the twenty days after the stay-at-home order was announced, new listings were substantially reduced from the averages for those weekdays during the previous three years (2017-19). While hundreds of new sales continued to be contracted, most of those sales remain pending.
Meanwhile, selling prices of closed sales have broadly matched their listing prices, and in some areas, have sold above seller’s offers for homes priced below the 75th percentile of listing prices. Therefore, from an Econ 101 viewpoint, the effect of the recent events and the policy response appears to be a reset to a lower equilibrium, with the quantity of homes demanded and supplied having been reduced with little adverse impact on prices to date. However, this effect is likely to be contingent on the duration of the stay-at-home order, and the benign results seen to-date may persist for longer in the Central Puget Sound than among the outlying counties.
New listings slide, then rebound
With brokers initially barred from showing homes, and sellers uncertain how to bring their homes to market otherwise, the effects of the Governor’s 25 March stay-at-home order included a sharp and immediate downturn in the number of listings across western Washington. The dearth of listings persisted even when brokers were permitted to resume their work. From 26 March through 8 April, in comparison with the average daily numbers of new listings posted on matching weekdays in the prior three years (2017 through 2019), King County saw 44.7 percent fewer listings in 2020, 39.9 percent fewer were posted in Pierce County, and 33.9 percent fewer in Snohomish County. By comparison, as the effects of the financial crisis of a decade ago hit the Puget Sound region, the sharpest analogous decline in new listings was a 30-percent drop in King County from April to May 2010.
A fall-off in homes listed for sale might appear to imply less selling as well, but at least initially, this was not the case in King County. To trace the trend in selling transactions, we summed weekly closed sales from Sundays through Saturdays, both for 2020 and for the preceding two years (2018 and 2019). In comparison with matching weeks from those years, King County residential and condominium selling transactions rebounded to their previous higher position in the week following the Governor’s order, even as new listings plummeted.
The immediate and significant decline in new listings is apparent. Most markets experienced less than half the historical number of new listings during the first week, but a gradual trend back to more normal listing activity has returned. While inventory has posted, buyers have lagged behind with between a third to half as many pending sales as typically expected during the peak spring sales season. With most consumers staying home until early May, the next 60–90 days are likely to see notable declines in closed sales volumes compared with prior years.
Meanwhile, we will know within another two or three weeks whether closings were held back by the slowdown in inspections, appraisals, and other activities that may have been delayed by the initial stringency of the stay-at-home order.
In rural counties, dissension among locals and refugees from the city
Rural counties in western Washington have seen a similar plunge in new listings since residents were ordered to stay at home, yet the effects here are likely to be different. While inventories in these areas were already proportionally tighter than inventories in the aforementioned three urban counties, many communities within these rural counties are more heavily dependent on seasonal tourism. For small business owners in these communities, the Governor’s order was remarkably if unavoidably ill-timed, and to some seemed to reflect a callous disregard of their local economies. With the order currently in effect for 40 days, many of these businesses will exhaust their cash and be forced to close their doors permanently. As the availability of local services and employment are essential to attracting new residents, the Governor’s order will leave an enduring adverse impact on these rural real estate markets.
One place a direct effect of the stay-at-home order can be seen is in the San Juan Islands, where a 25 March ban on non-essential ferry boardings reduced the options for out-of-area home buyers to travel for viewings. Due to the consequent declines in ridership, Washington State Ferries cut service to their terminals in the San Juans with effect from 10 April.
The severity of the Governor’s order was matched by that of the local government, as demonstrated in remarks by Rick Hughes, Chair of the San Juan County Council in a press release issued on 3 April: “First off, we want to very strongly discourage anyone from thinking about coming to the islands as an ‘escape.’ Don’t willfully break the Governor’s order in order to come here. We also want to urge all islanders to rethink plans to go off island unless it is vital and necessary. Please reschedule appointments and stay home.” Note that as of this writing, out of 319 tests performed, San Juan County had 12 cases test positive for COVID-19, with no resulting fatalities. The county’s population is 17,582.
The economic angle: the U.S. government and the Federal Reserve weigh in
Nationally, the Federal Reserve has been fighting to sustain the markets while the U.S. federal government combats the spread of COVID-19. Since the Fed cut rates to zero on 16 March, both battles have required unconventional weapons and approaches. While upwards of half a million jobs have been lost so far in Washington State, nationally, jobless claims have reached 16 million, comprising 10 percent of the nation’s workforce.
The Federal Reserve plans to respond with trillions of dollars in Main Street lending programs. “Under provisions outlined for the first time, the loans would be geared toward businesses with up to 10,000 employees and less than $2.5 billion in revenues for 2019. Principal and interest payments will be deferred for a year … The Fed said the programs would total up to $2.3 trillion and include the Payroll Protection Program and other measures aimed at getting money to small businesses and bolstering municipal finances with a $500 billion lending program.”
Fed Chair Jerome Powell struck a hopeful tone that a recovery following the virus’s containment might be “robust,” yet he hesitated to offer unreserved assurance of a turnaround later this year:
“‘When the virus does run its course and it’s safe to go back to work and it’s safe for businesses to open, then we would expect there to be a fairly quick rebound,’ [Powell] said. ‘I think most people expect that to happen in the second half of this year after the second quarter. To try to be precise about where that will be, I don’t think that would be appropriate.’”
The prospects for a turnaround may vary by place and local governance
One lesson that already can be learned from the COVID-19 pandemic is that the power and influence of local governments in our economy have been routinely underappreciated. Over the past six weeks—and for better or worse—state and municipal governments have taken the lead in shaping the response to the virus, deploying local resources and restricting their residents’ behaviors as they deemed necessary in a public health emergency.
Amazon is among those of the nation’s leading employers that have been sustaining the economy through this crisis. The company plans 100,000 new hires to manage the increased workload from orders for delivery to homebound customers. Their enormous stature in the marketplace can only be further enhanced by their dynamic response and the need for such services. Officers and employees of Amazon and other leading employers in the Puget Sound Region derive benefits from the ability of these companies to spread risk through their participation in the international capital markets. Among those benefits are comparatively higher compensation and regular income streams that qualify these individuals as home buyers.
With a technology-adept workforce already equipped for remote collaboration, the Seattle metropolitan region remains better positioned than most urban regions nationwide for dusting ourselves off after the crisis passes. The sustained interest of buyers even after the governor issued his order attests to that resilience. Many residents have been able to continue business without interruption. Among them, for reasons of convenience and uncertainty, other buyers and sellers await the lifting of the order. We may then see a surge of new inventory, and new sales.
Yet elsewhere, smaller communities are probably in for a long struggle after the crisis has passed. The low-margin small businesses in tourism and agriculture that fuel these communities need steady operations, and the cash that comes with them. They are neither helped by the debt-based solutions offered by the Fed and Congress, nor by the weaker dollar that is likely to follow. By April’s end, many will be permanently shuttered. For examples of what can happen to such areas under conditions of economic malaise, we need look no further than southwestern Washington State. Local economies there have remained moribund for decades since the timber industry’s divestiture from those counties.
Some communities, and some industry sectors, are chafing under the restrictions.
Governor Inslee has been persistently pressured by the residential construction industry to reclassify their work as essential. But the hardy Dutch residents of Lynden appear to be taking matters into their own hands according to a letter from the City Administrator:
“With this letter I ask any official seeking to stop work on a construction site in the City of Lynden to contact me first, directly, at the numbers below. Until that conversation has taken place, it is the City’s policy that work continue, uninterrupted.”
On 9 April, Bloomberg reported that Anthony Fauci of the White House Coronavirus Task Force had revised expectations for COVID-19 fatalities as a result of “mitigation things” (such as social distancing). “I believe we are going to see a downturn in that, and it looks more like the 60,000, than the 100,000 to 200,000 (deaths).” While this is welcome news to at-risk persons and their families, many of the nation’s small business owners will wonder whether the cost of their livelihoods was too high a price to pay to avert a far lesser threat than what was presented a month before.
While the Inslee government has its critics, others are grateful that the State responded quickly to the original cases in late February. Both by stepping up the restrictions as needed, and relenting when the burden has proven too great, the Inslee government has shown that it has been paying attention as the crisis unfolded. All observers are hopeful that this approach will cause Seattle to emerge from the pandemic with minimal loss of life and only temporary interruptions to essential industries. This message was also made clearer by The Wall Street Journal on April 13, noting the influence of tech titans like Amazon, which continue to grow (and hire) notwithstanding the economic headwinds and just established a new stock price record. Jones, along with several other RSIR brokers, was quoted, “The market is still very active,” says Dean Jones, principal and owner of Realogics Sotheby’s International, adding that tech clients are making up a lot of the business for his agents. “While there’s plenty of concern, there’s a ‘this too shall pass’ perspective.”
One test of consumer confidence in these trying circumstances is seen at NEXUS in Downtown Seattle, where as of this writing, 200 of 361 presales have closed with substantially all buyers moving forward with their purchases.
Check the RSIR website for notice of upcoming publication of our 2019/2020 Market Report, due in April. For details on the market implications of our reports for homes in your neighborhood, contact a local RSIR broker.
 Northwest Multiple Listing Service, “Northwest MLS report for March shows initial disruptions from coronavirus pandemic,” 6 April 2020.
 San Juan County, “San Juan County Leaders URGE Residents to Restrict Off-Island Travel
and Follow Strict Health Guidelines Upon Returning,” 3 April 2020.
 Jeff Cox, “US weekly jobless claims jump by 6.6 million and we’ve now lost 10% of workforce in three weeks,’ CNBC, 9 April 2020.
 Jeff Cox, “Federal Reserve unveils details of $2.3 trillion in programs to help support the economy,” CNBC, 9 April 2020.
 Jeff Cox, “Powell says the economic recovery can be ‘robust’ after the coronavirus is contained,” CNBC, 9 April 2020.
 Kathleen Miller and Jennifer Jacobs, “Fauci Slashes U.S. Death Projection, Raising Hope for Reopening,” Bloomberg, 9 April 2020.