(The Center Square) – The latest report from the Seattle Office of Economic and Revenue Forecasts indicates that the city’s real estate market is slowing down this year.
The office revealed that projected revenue generated from the Washington state real estate excise tax has gone from $55,020 in April, to $50,680 in its August forecast. That is a 44% drop from $91,420 collected last year.
The real estate excise tax is a tax on the sale of real property. Any sales of real property in the state are subject to the tax unless a specific exemption is claimed. In most cases, the seller of a property typically pays the real estate excise tax, but the buyer is liable for the tax if it is not paid. Most of the generated revenue goes to the Washington’s general fund, but a portion is also deposited into certain accounts that are distributed to local governments.
The state tax rate used to be a flat 1.3% of the purchase price, but since 2020, the state implemented a graduated tax scale based on the selling price of the property. The scale goes from 1.1% on the portion of the selling price that is $500,000 and less, up to 3% on the portion of the selling price for a property that is greater than $3 million.
Director of the Seattle Office of Economic and Revenue Forecasts Ben Noble said the drop in revenue is a result of higher interest rates and a low supply of available properties for sale.
“Higher interest rates generally mean lower housing prices, and a lot of folks who own homes and are enjoying low mortgage rates are not anxious to sell, because they would have to be giving up their mortgage,” Noble said at Thursday’s Seattle Economic and Revenue Forecast Council meeting. “There’s almost no volume on the residential side.”
On the commercial side of the drop in real estate excise tax revenue, Noble said there is too much uncertainty about the value of an office space. There is a significant drop in transactions of large commercial office towers, which make up a “significant share of [real estate excise tax] revenue.”
“Bottomline: real estate markets are moving very slowly and this is a tax on real estate transactions,” Noble concluded.
The Seattle Revenue Stabilization Work Group recently released a report proposing more taxes to address a $221 million budget deficit facing the city. This includes an additional tax increment on sales of property over a certain price. The proposed real estate excise tax would be considered progressive if imposed only on high-value properties, with the gross revenue potential estimated to be between $7 million and $14 million annually, assuming a tax on properties valued higher than $5 million.
