It’s official. Our Seattle metro area boasts the fastest-growing house prices in the US, according to the S&P/Case-Shiller Home Price Index. As of November 2016, the median home price in the tri-county region rose 10.4-% year-over-year – that’s nearly double the US national index. Demand is high and inventory is historically low, especially in close-in neighborhoods like Capitol Hill, Madison Park, Denny Blaine and Madrona near urban employment centers. In fact, the cost of single-family housing here set a new benchmark value in 2016, rising to $905,000 in zip code 98102; $1,075,000 in 98112; and $748,000 in 98122.
Price escalation generally means it’s a good time to sell, especially for those whom patiently waited out value recovery in the wake of the Great Recession. Yet buyers complain of slim pickings because would-be sellers are staying put for fear of not finding adequate replacement homes. So this vicious cycle persists. Still others dream about a new home, but grimace at the prospect of competing with multiple offers or taking on a renovation while treading water in a rental home.
Astute shoppers are taking advantage luxury high-rise condominiums that offer presales before construction starts. New developments like NEXUS, a 41-story condominium at 1200 Howell Street, will allow buyers to lock in a purchase price when the homes are released for sale in March 2017. Developers are willing to offer introductory pricing, preferred selection and opportunities for personalization options in exchange for reducing their market risk and satisfying financing requirements. Securing a presale at NEXUS requires an initial 5% earnest money deposit held in escrow, but the closing won’t occur until mid-2019, about thirty months from now. A presale buyer doesn’t need to think about the move for another two years and there’s no fear of price escalation or renovations. Current home owners will also enjoy another two years of appreciation while their new condominium is being built. It’s even possible that the value of one’s future home could be buoyed by the same rising tides – a scenario we call double equity.
Investing with confidence in downtown Seattle requires understanding the market fundamentals. Job growth, traffic congestion, construction costs and comparative housing rates between renting and owning – all factors in the balance supply and demand.
Robust housing demand stems mostly from a booming job market, led by tech titans that have made downtown Seattle a major urban campus and/or their corporate headquarters. New employees are attracted not only by the job offer but by the relative affordability of our region, an enviable “lock and leave” lifestyle that’s walkable for work and play, and a lack of a state income tax. That’s compelling and it shows in population growth. The Department of Licensing reports that for December 2016, King County witnessed 5,453 new residents – that’s up 20% from a year ago, with nearly 25% of this migration is coming from California. Most of this housing demand is focused on urban centers close to lifestyle offerings and free of commuting times.
Developers are certainly paying attention. Currently, there are 62 construction tower cranes erected in Downtown Seattle, more than any other city in the US. Much of this growth is residential; however, most of this supply is for rent, not home-ownership. This record level of construction is driving up development costs, spiking more than 35% in the past five years on top of higher land values. Simply put, the cost of buying or renting in these new buildings is getting more expensive and the only way to fix that cost is to own it. But only if inventory is available.
For perspective, since 2011 more than 12,000 new apartments have been delivered in downtown Seattle compared to only 866 new condominiums (only two of which remain unsold). This market inversion has more to do with developer preference than consumer demand. High rents and low capitalization rates have made building apartments profitable without the risks of condominium development. That’s good for investors, but leaves buyers frustrated with few options in a market that’s already suffering from anemic supply of for-sale housing. Meanwhile, rent growth in downtown Seattle has averaged more than 10% per year for the past four years, with some buildings now commanding lease payments of $4.00 to even $5.00 per square foot per month. It can actually be more expensive to rent than own, especially at price points below $600,000 where owners can purchase with as little as a 3% down payment while enjoying low interest rates and income tax deductions. The reality is these apartment towers are incubating thousands of future home buyers, many of which will explore purchasing after getting settled in their new job and choosing to lay roots. Condominiums are obviously under-supplied and the challenge with high-rise construction is demand can rise more quickly than supply. A new offering could take four years from concept to closing.
Fortunately, new condominium towers like NEXUS are in the pipeline. They will offer world-class design and amenities that befit a move-down buyer from the nearby communities of Capitol Hill and other close-in neighborhoods. Planning ahead with a presale and waiting to sell your existing home within a rising market is one of the best strategies for those wanting to make a move without leaving equity gains on the table.