Buying a condo in Seattle. NO inventory and HUGE demand.
The lack of available condominiums in downtown Seattle continues, especially at affordable price points. Currently, there are just 7 resale homes listed for sale on the NWMLS priced below $700,000, which is now the new median home price for resales after increasing a staggering 37.3% in November 2017 compared to the prior year. Though market conditions may seem daunting to potential buyers, market pundits say unit reservations and presales can offer much needed relief for those willing to plan ahead.
“There’s a clear supply and demand imbalance driving up home prices in downtown Seattle,” said Dean Jones, President and CEO of Realogics Sotheby’s International Realty. “Several new condominium buildings are on the horizon but they’ll take several years to deliver. Despite this new inventory, I fear home values will continue ascending given the job and population growth, not to mention an increasing number of renters seeking homeownership.”
In a feature on December 1st, reporter Marc Stiles of the Puget Sound Business Journal projected Seattle’s condominium supply in the city. As outlined, there are 1,383 condominiums scheduled for completion between 2018 and 2020 (notably zero new condominiums were delivered in 2017). A closer look at the pipeline reveals that only 60 of the 496 units currently under construction (for occupancy by 2019) remain available to purchase.
To be sure, condominium presales provide an attractive alternative to competing in a heated resale market. That’s especially true for those whom already own a home and need time to organize for the move and sell an existing property. In a presale, a buyer typically invests a 5-percent non-refundable deposit to lock in a purchase price but will not close for another year or two during the construction process. This provides plenty of runway to organize financing and also ride up the additional equity gains (in both homes) as it would seem, prices continue to rise. Furthermore, some developers are willing to accept reservations for future presales, which is essentially a presale of a presale. In this scenario, a prospective buyer makes a fully refundable $5,000 deposit to open escrow on a new home that’s still in planning, awaiting final entitlements and not yet ready to finalize the specifications or pricing.
“It’s basically a first-right of opportunity,” adds Jones. “The benefit for developers is it organizes the demand and for buyers, it’s a way to be in the know before the show. As we’ve learned in recent projects, public sales events can draw long lines and may reduce the selection.”
Rising median home prices may have a silver lining with higher appraisals and mortgage financing, according to mortgage experts. As Carese Busby, Loan Consultant with Caliber Home Loans (NMLS #619429) reports, recent changes to the loan limits can create new opportunities for prospective borrowers. Beginning January 1, 2018 the conforming loan limit for King, Snohomish and Pierce County will be $435,100 and the high balance loan limits will be $667,000. The 2017 limits were $424,100 and $592,250, respectively.
This means that a borrower can put just 3% down on a conforming loan of up to $453,100, which Busby translates to a $467,100 purchase price with a 3% down payment, while a borrower could put a 5% down payment on a high balance loan of $667,000, which affords a $702,000 purchase price. The FHA loan limit also increased to $667,000 and borrowers can put just 3.5% down for a $691,100 purchase price.
“This increased loan limit is a game changer for buyers because it allows buyers to qualify under Fannie Mae, Freddie Mac and FHA guidelines as opposed jumbo guidelines at today’s higher price points – so it helps consumers keep up with this rising market,” says Busby. “Fannie Mae and Freddie Mae guidelines are more flexible than a jumbo.”
Busby outlines the following key advantages:
- Buyers that have limited credit history are eligible for high loan amounts through conforming/conforming high balance loans
- More flexibility on debt to income ratio guidelines
- More flexibility on job history guidelines
- Lower down payment options – 3% and 5% on conforming and conforming high balance and 3.5% with FHA
- More flexibility on past adverse credit events
The preference for presales were on full display last month at NEXUS during the developer’s Encore Sales Event. Prospective buyers lined up hours in advance for the opportunity to secure one of 28 attainably priced City Suites that were released.
Jones later proclaimed, “It felt like Black Friday, except it was a Saturday and we were selling condos.” He noted all of the City Suites sold out before the weekend came to a close. NEXUS is now 90-percent presold with remaining two and three-bedroom homes priced from $1.2 to $3.5 million. For more information, visit NEXUSseattle.com.