5 SEATTLE AREA REAL ESTATE TRENDS
SEATTLE REAL ESTATE TRENDS TO WATCH FOR THE REST OF 2018
1. THE CONDO COMEBACK
94% OF 27,000 MULTI-FAMILY UNITS DELIVERED IN CURRENT DECADE WILL BE OFFERED FOR RENT & NOT FOR SALE...
Condominium launches will blossom as new presale efforts ramp up, now that condo values are rising. Indications are that new residents in Seattle are increasingly arriving from cities nationwide and abroad where comparatively mature transit systems and urban amenities prevail, and these new arrivals are comfortable with higher density.
Meanwhile, apartment projects are meeting steep headwinds, with lenders citing a slowdown in rent growth. Luxury two bedroom units in downtown Seattle are already facing a six-to-eight week rent concession on a year-long lease, as affordability in leasing is facing consumer push back.
The median home price of condominium rose by 19 percent last year, and rents have grown by 50 percent since 2010. Ultimately, this is an imbalance of supply and demand, as 1,100 persons move into the metro area every week, with many jobs located in the urban centers (most notably at Amazon). The only sustainable way to introduce more affordable housing is to remove impediments to building more. The City of Seattle enacted the Housing Affordability and Livability Agenda (HALA) which allows for bonus density in exchange for units or cash contributions towards affordable housing. This requires more construction to work. The affordability crisis is acute in Seattle, which as described in this report has led the nation median home price growth for 16 months.
2. RISING INTEREST RATES
Rising rates together with rising housing costs will put homeownership out of reach for some, yet motivate even greater numbers of tenants to seek out purchasing options.
Federal Reserve Chief Jerome Powell replaced Janet Yellen in February 2018, and has since expressed confidence that the nation’s economy is strong enough to warrant higher interest rates. The first step in that direction was a quarter-point rate hike on March 21, the sixth since the onset of the financial crisis. In regard to asset prices including real estate, Powell said of inflation that day, “You can think of some equity prices. You can think of commercial real estate prices in certain markets. But we don’t see it in housing, which is key.”
The U.S. central bank indicated that two more rate increases are in the wings for 2018. This path will hit the most highly leveraged homebuyers the hardest, especially in the Puget Sound region where prices have risen so far, so fast.
3. VANCOUVER B.C. FOILS FOREIGN BUYERS
Pressure is intensifying on provincial authorities in British Columbia to further restrict what media reports allege to be parking of offshore funds and money laundering by foreign nationals using real estate in the province. Responding first only to the question of outsized market influence by foreign buyers, the B.C. government imposed a 15-percent foreign-buyer transfer tax in August 2016, which it raised to 20 percent in February 2018. No longer applying only to property in the Lower Mainland, the augmented tax will now apply in Victoria and other parts of B.C. as well.
The tax and the animus that drives it are causing inbound buyers from China to explore alternative markets like Seattle. Chinese nationals are familiar with mercurial policy-making-indeed, one reason for overseas real estate purchases is safe haven from confiscation. This has spurred many to seek diversification in U.S. real estate, which is protected by state and federal constitutions from tax or seizure by authorities acting impetuously or unilaterally.
RSIR has observed a decline in Chinese nationals investing in the Seattle area, some of whom cite PRC capital controls. Local brokers are increasingly concerned about the ability of Chinese national to perform on a purchase agreement, even with extended closing dates, due to the slow process of transferring funds. Local lenders have created mortgage products to help Chinese nationals purchase property with less cash and more debt. Others report that Chinese are still buying, but smaller, less expensive homes. It appears that China’s agenda is working, as is Vancouver’s agenda to curb foreign buyer activity spiking home prices in that market.
Access to nationally ranked public and private schools in the Puget Sound is one of the top forces drawing immigration and investors to the area.
Washington State is home to a large number of private preparatory schools, colleges, and universities participating in the Student and Exchange Visitor Program (SEVP). Only these SEVP-certified schools can provide a student with an I-20 form required to obtain an F-1 student visa.
4. CONTINUED TECH EXPANSION
Threats of Amazon’s HQ2 are not yet crimping growth in the tech community, as leases are measured by entire buildings, and even residential building applications are being converted to office uses. The broader question regards the technology industry’s resilience under more challenging economic conditions.
Past booms have seen speculation arise as to whether tech has become recession-proof. Certainly, the region’s local tech leaders, Amazon and Microsoft, and key participants Google, Facebook, and others, have in the past decade become more closely integrated with the media and policy-making communities, which may at least partly inoculate them to cyclical business conditions. Widening wage-to-rent gaps tell a different story, however, as does the aforementioned Federal Reserve interest-rate policy, so it remains to be seen to what extent the tech industry and their employees can hedge against an economic downturn. For now at least, these companies continue to hire, drawing new workers and home buyers to the region’s residential markets.
5. DOWN SIZERS AND EMPTY NESTERS
The aging Baby Boomer cohort is an old story, and their conversion from larger homes to smaller quarters has been long anticipated. Buyers who haven’t already taken advantage of soaring prices will eventually place their close-in single-family homes on the market. Some will find condo living most appealing, and these will take a bite at new presale opportunities. The more aged will move into retirement centers or assisted living, while those who are physically fit may prefer to move out to exurban towns with reliable local healthcare and leisure amenities.
Whatever the motive, these phase-of-life sales will continue to add much needed inventory for new families, while others exchange familiar environs for comfort and security. Some of their homes will feed yet another market trend: the demand among younger families and downtown employees for affordability and urban conveniences. This parallel trend will benefit “Main Street” neighborhoods like Ballard, Green Lake, Madison Park, Columbia City, Juanita Village and others that offer a sense of community but lower costs than their in-city peers.
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