Bellingham, Washington
The “City of Subdued Excitement” Could Turn a Corner in 2023
By Carole VanSickle Ellis
Although Washington state remains the third-most expensive state in the country in which to buy a home, many analysts believe prices in the Bellingham, Washington, area might ease in 2023.
Bellingham, known to locals as the restrained “City of Subdued Excitement,” has been anything but subdued when it comes to home values in recent years. With a growing population that has skyrocketed by more than 30% in the last two decades and a median home sales price that rose nearly 13% between January 2022 and January 2023, Bellingham has made headlines thanks to struggles with housing affordability rather than weakness in the market. However, although year-over-year values are still firmly situated in positive territory, monthly home sales prices have eased off since last fall.
At that time, CoreLogic listed Bellingham as the market third-most-likely to face price declines, and the company reiterated that stance in its December 2022 “US. Home Price Insights” report.
“The CoreLogic Market Risk Indicator (MRI)…predicts that Bellingham, Washington, is at a very high risk (70%-plus probability) of a decline in home prices over the next 12 months,” the CoreLogic economy team wrote at that time. They credited “low inventory due to seller preferences to keep affordable mortgage rates that they already have locked in, homebuyer loss of purchase power, and economic uncertainty” for slowing appreciation in Bellingham and elsewhere. Three of the top five markets in that report are located in Washington.
Selma Hepp, CoreLogic’s deputy chief economist, said consumer confidence and mortgage-rate increases tend to have an outsized effect on the Pacific Census region, of which Washington state is a part. On a more positive note, she added, “Regions in the Pacific Northwest are…less [sensitive] to overvaluation of the local housing markets,” which could be good news for Bellingham. Hepp explained, “In other words, low consumer confidence and a surge in interest rates have historically been more important to the [Pacific Census] region in determining potential of home price decline.”
Local Derek Buse, founding broker at Compass Bellingham, is not particularly concerned about predicted declines. He noted that although there are certain factors that have historically driven prices down in the area, such as when prices fell 18% between 2008 and 2012 in the aftermath of the 2008 housing crash, it only took the area three years to fully recover. Furthermore, those factors that were present in 2008 — rampant speculation, unqualified buyers and homeowners, and weakly collateralized mortgage loans — are not present in today’s market.
“Whatcom County [where Bellingham is located] rebounded much faster than almost all the other counties in the state,” Buse observed. He added, “Our real estate market has been historically resilient when it comes to the ebbs and flows of the ever-changing U.S. economy,” citing the recession-resistant mix of “refineries, universities, [and] medical corporations that show…insulation to recession forces.”
For now, as in many markets around the country, the Bellingham market is more likely to remain steady, even if appreciation rates slow or even reverse slightly, rather than experiencing a sudden drop in values. Although homes may remain on market longer and may no longer sell at peak pandemic-era values, inventory is still at a premium.
In Bellingham in particular, homeowners appear reluctant to sell and, by extension, expand available inventory. At the end of Q4 2022, ATTOM Data reported that Bellingham homeowners are the longest-tenured in the country, opting to remain in their homes for nearly 10 years compared to the national average of 5.85.
“Historic Insulation” Across Industry Sectors
Whatcom County made its first foray into industry in the 1850s, when European settlers began mining for coal and cutting and processing lumber in the area. Toward the end of the decade, a short-lived gold rush created a population boom that did not make very many people rich but did cement the community since many would-be claim-stakers remained in the area even if they did not strike gold.
By the end of the century, three railroad lines would arrive in the area, connecting the city to the national construction market. Two decades later, the Port of Bellingham was established to increase shipping at the Bellingham waterfront and create economic opportunities for the area. Although the first docks in the area had been built in the 1880s, the port brought in new shipping-related opportunities as well as tourism and, during World War II, war-related industries.
The local airport grew in size and importance during this time as well.
Today, the Port of Bellingham plays an integral part in the city’s Comprehensive Economic Development Strategy (CEDS) and is credited with generating $1.4 billion in annual business revenue and directly sustaining more than 8,700 jobs. In fact, 11% of the local economy’s jobs are directly or indirectly linked to the Port of Bellingham.
Port leadership plays an active, forward-looking role with local economic development and has, over the past two decades, been involved in economic development projects including a waterfront office- and retail-space development and improvements and expansions to the Bellingham International Airport (BLI).
Bellingham industries run the gamut from public education via the Western Washington University and two local colleges, manufacturing, including the BP Cherry Point Refinery, the first and currently only refinery in the Pacific Northwest capable of manufacturing diesel from biomass-based feedstocks, and information technology (IT), which accounts for roughly 1,200 jobs in Whatcom County according to the Bellingham Chamber of Commerce.
Faithlife, a leading publisher of Bible study software, is one of the area’s largest employers, and BP announced in late 2021 that it would invest $269 million in three projects at Cherry Point intended to improve the refinery’s efficiency, reduce carbon dioxide emissions, and increase production capability.
That investment is expected to create an additional 300 direct, local jobs by the end of 2023 as well as more than 200 construction jobs and several dozen engineering and “support role” jobs.
Bellingham also continues to attract visitors to the area with local events and attractions like professional mountain biker Hannah Bergemann’s annual worldwide invitational event for women riders and the annual Ski to Sea event, billed as the “original multisport relay race,” which involves teams of racers competing in cross country skiing, downhill skiing/snowboarding, running, road biking, canoeing, cyclocross biking, and sea kayaking followed by an all-day festival and street party. The Bellingham Chamber of Commerce estimates the latter event alone brings in $5.3 million over the race weekend.
All of this added to a population that swelled with tech and IT workers during the pandemic, when many Seattle companies shifted to remote work policies that still have not been wholly rescinded likely means that Bellingham could start to see some stabilization in the market but is unlikely to experience a true market inversion.
“If you work in a tech company downtown [in Seattle] and somebody said you now only have to commute two days a week and you can work from home the rest of the time, that changes the definition of a suburb or a bedroom community of Seattle,” said Hart Hodges, co-director of the Western Washington University Center for Economic and Business Research.
In 2020, Hodges predicted that much of the Seattle population moving outward and buying homes would be financially resilient during the pandemic and after. This group is likely to keep Bellingham on stable footing even if home prices do begin to decline. However, investors should keep a close eye on homeowners’ reactions to slowing value gains or even losses, since these may incentivize some property owners to prioritize a quick sale more than they have in recent years.
“Plenty of People” Still Want to Buy in Whatcom
Although Bellingham’s real estate market may fit the methodology for an “at risk” market list in 2023, the city appears far from facing a serious real estate crisis. Local professionals tend to agree. Peter Ahn, a local broker, wrote in his January report on the local market, “The median house price in Whatcom County increased…to $600,000 in 2022, a good increase in any year except in comparison to 2021, when it soared 24.3%.” Naturally, he added, rising interest rates have and could continue to have a “dramatic effect” on monthly home payments, which slowed the market down mid-year.
“We still have plenty of people wanting to live in Whatcom County. There is more housing inventory and the 30-year mortgage rate has dipped somewhat…so we now have a more balanced market,” Ahn concluded.
Bellingham could be heading for a correction, but it appears unlikely that it will mean a major shift in 2023 even as comparable markets face a potential slide downward.
SIDEBAR 1
By the Numbers
Economic Impact of Bellingham’s Waterfront District Redevelopment
110,000 // number of cubic tons of contaminated soil and sediment removed via the $60 million environmental cleanup efforts
75 // number of direct, skilled, full-time trade jobs brought by All-American Marine
100 // number of clean-energy jobs brought to Bellingham by the Waterfront District
39 // cumulative number of acres of upland parks and public beach that make up Waypoint Park in the Waterfront District
237 // total waterfront acreage of the Waterfront District
Top 10 Employers
According to the Center for Economic and Business Research at Western Washington University, these are the top 10 employers (by employee numbers) in Bellingham.
» St. Joseph Hospital // 2,126
» Lummi Nation // 1,780
» Western Washington University // 1,499
» Bellingham Public Schools // 987
» Whatcom County // 881
» BP Cherry Point // 820
» City of Bellingham // 788
» Fred Meyer // 778
» Haggen // 751
» Zodiac Interiors // 607
SIDEBAR 2
Waterfront District Redevelopment
In 2008, the Port of Bellingham entered into a long-term capital lease with a local builder in order to build the Bellwether Gate project, four buildings intended to add 137,000 square feet of office, residential, and mixed-use property on the waterfront. Environmental remediation and cleanup both were public-private partnership initiatives, and by 2015, the city had completed the New Waterfront Trail, which offers views of Bellingham Bay and the San Juan Islands. The next year, the Port of Bellingham concluded its $35 million cleanup of the Whatcom Waterway, working with the Lummi Nation to restore salmon habitats and remove historic contamination.
At that point, local businesses began offering various development proposals to the city that would, in many cases, showcase adaptive reuse options for older buildings on the waterfront. For example, Harcourt Developments initially offered an 18.8-acre plan that would grant it exclusivity on the waterfront project but, in 2022, shrank that plan to 7.7 acres due to “inadequate progress.” The city sought plans that included a hotel and convention center, and developers brought forth plans including these elements and others including an aquatic center, an “upper upscale boutique hotel,” and a soccer stadium.
Over the past decade, the Port has used the ongoing waterfront development to bring in attractive employers, such as Itek, a solar paneling manufacturer, and local boat builder All American Marine.
In 2021, the Port partnered with the Whatcom Mountain Bike Coalition to add a “skills area” and jump course to the waterfront bike park, began constructing a pop-up container village from repurposed shipping containers to help local businesses enter the space, and installed a community theater. The area also features waterfront condominiums and emphasizes “reuse of historic industrial icons,” such as repurposing steel rollers originally used to rotate logs as a bike rack.
The city’s current master plan for the Waterfront District extends nearly 50 years ahead and includes the redevelopment of a former pulp and tissue mill.
SIDEBAR 3
Bellingham and the Lummi Nation
According to data provided by the Center for Economic and Business Research at Western Washington University, the Lummi Nation, or Lhaq’temish, the original inhabitants of the northern coast of Washington and parts of British Columbia, is the second-largest employer in the Bellingham area with 1,780 full-time, direct employees. The tribe is among nationally recognized leaders in tribal self-governance and education, it notes on its official website, and has made headlines for initiatives such as its Tribal Broadband Connectivity Program, which provided fast internet to thousands of Lummi residences in the area, and the receipt of millions of dollars in state and federal awards to accelerate development and expand employment opportunities inside and outside of the Lummi Nation.
Earlier this year, for example, the tribe received $416,000 for the Lummi Indian Business Park to analyze and develop a 118-acre side for solar manufacturing, among other uses. Sean Lawrence, director of the Office of Economic Policy at the Lummi Nation, said the funding would “bring our 118-acre industrial site project closer to its realized potential.”
His office has also participated in projects partnering with the city of Bellingham to develop plans for fish-passage barriers to help meet fishery goals and correct salmon habitats and to implement strategic use of renewable power sources.
SIDEBAR 4
Ye Olde City of Subdued Excitement
As far as nicknames go, Bellingham’s is, well, somewhat restrained. Its origin is also something of a mystery. The city slogan is part of a “welcome mural” painted by a local antiques dealer in 1995. He reportedly told his mother he selected the alternative nomenclature because “the ‘s’ words flowed well with the ‘c’ in city.” Oddly, the slogan stuck and the mural became a municipal icon.
