Today, The Seattle Times published an article entitled "Downtown Condos Filling Up… Finally"
The reporter Eric Pryne cited several leading indicators of a recovering in-city condo market in his summary:
• Some new construction projects are raising prices
• The balance of supply and demand is tipping away from supply
• There are no new projects in the pipeline to add to the supply
• Brokers report a "spring surge" in condo buying downtown
Realogics Sotheby's International Realty was proud to provide some market data for research on this story. Below is a summary of the types of research that we maintain.
Market Snapshot – Downtown Seattle Condominiums (MLS Area #701)
The following graphs and market summary outlines the primary trends within the in-city condominium housing market based on NWMLS stats, title reports and proprietary information. For purposes of estimating the required data points for May 2012, a per diem data trend was extended through the end of the month.
NOTE: Official NWMLS monthly data is typically higher than this per diem approach – likely because many brokers are delayed in in changing the status of their listings and this data is later revised retroactively.
The above graph clearly illustrates the current dearth of new construction inventory being delivered to Seattle’s center city marketplace. In the aftermath of the 2007-2009 economic downturn and the credit crunch that followed, no additional groundbreakings have occurred since the summer of 2007 so there have been no additional unit deliveries in recent years. Of the 21 downtown projects (approx. 3,282 units) built during the development boom (2007-2009), fewer than 175 developer-owned condominiums (approx. 5% of the housing supply built during the period) remain available for purchase at this time, not including resales. Four of the projects, which were planned as condominiums (representing 777 units), converted to an apartment use and the majority of those units have since been sold to REIT’s, reducing their likelihood of reverting back to condominiums. Interestingly, only 32 units – The Volta – were actually foreclosed and have since been auctioned to a new owner, which is expected to operate the building as an apartment community.
New Construction Condominium Pipeline – Charted in Year of Substantial Delivery (2007-2014)
SOURCE: Realogics Sotheby's International Realty
The above data identifies the individual condominium developments and their current status. There are no new (for-sale) developments in the construction pipeline as developers suggest there is no construction financing available for speculative development. That said, there are approximately 3,500 new apartment units being developed in the center city (some using all equity and no construction financing), which will certainly satisfy some of the increasing demand for housing downtown. This new inventory, for the most part, is of smaller square footage and will fall short of meeting all of the market demand. Provided rents continue to rise and interest rates remain low, we expect that the trend for renters to become homeowners will continue to strengthen. Many newcomers to downtown Seattle (including those relocating to open positions at Amazon.com and other expanding businesses) will prefer to rent for a lease term or two. However, it is anticipated that a growing percentage of this demographic will eventually seek homeownership after they are established in their positions and desire to set roots in Seattle. The challenge remains that demand can rise quicker than supply in the center city marketplace, hence these dramatic real estate cycles. It can take several years to construct a new condominium tower, which suggests it could be 2015 or beyond before any significant new supply is added to the marketplace.
A dramatic reduction in new listing activity, which continues to track far below prior-year levels, is illustrated in the above chart. This dynamic is caused, in part, by greatly reduced new construction inventory (not all unsold new construction inventory is listed on the NWMLS) and may also be a product of would-be sellers looking ahead to rising market values and choosing to defer a sale at this time. Fortunately, the strong demand for rental housing affords patient home sellers the option of renting now and waiting for a better day to sell. In downtown Seattle, quality condominiums can fetch $2.50 to $3.00 per square foot per month. Currently, there are only 15 condominiums listed for lease in downtown Seattle ranging from $1,100 to $9,500.
Not surprisingly, the number of condominiums for sale in downtown Seattle is only a fraction of what it was in the past. In addition to a reduced number of resale units being added to the inventory, there has not been a time in the past 15 years when downtown Seattle was not adding new condominium supply. Today 133 units are listed as active on the NWMLS but we estimate the total supply to be 267 available units assuming the 175 new construction units remaining combined with the 92 resale units (removing the new construction listings to avoid double counting).
The volume of pending sales (purchased but not yet closed) surged during the traditional spring sales season but more recently in May 2012, new contracts appear to be trending lower as perhaps, buyers are finding fewer options available. A lack of new listings will most likely slow the absorption in the marketplace.
Tracking closely behind the surge in pending sales from the spring buyer’s season, closed sales have recently outpaced prior years and may soon eclipse the peak in 2010 when the Feds offered first time homebuyers a tax credit, which stimulated buying (or at least pulled forward significant demand from the second half of 2010 into the first half of the year). As median home prices rise, would-be sellers should be more encouraged to list their homes for sale, offering additional supply. And it is possible that apartment converters will reenter the market.
Median home prices in downtown Seattle have clearly been stabilizing since 2011. For the most part, new construction developments have found their market and most are posting increased sales volumes at newly established values. Several developments have been increasing prices. Meanwhile, fewer REO and short sales allow a higher volume of new construction home values to account for a larger share of the market activity. Our research suggests that distressed sales in downtown Seattle account for only 15-20% of the marketplace, which compares favorably with the outlying areas where bank-owned and short sales comprise upwards of 50% of the sales. It appears that current median home values downtown have now passed $450,000 and it seems likely that in-city condo values will trend higher than in prior years.
DISCLAIMER: Information has been obtained from sources deemed reliable but cannot be guaranteed. Viewers are encouraged to perform independent due-diligence before relying on information contained in this report. E&OE.
About Realogics Sotheby’s International Realty: Representing a greater number of new construction and resale condominium closings by total dollar volume among brokerage offices in the Seattle metro markets (according to Trendgraphix for Q1-2012), Realogics Brokerage, LLC (DBA Realogics Sotheby's International Realty) has emerged as a leading sales and marketing company in the Seattle area.
EDITORS NOTE: For high-resolution photography or statistical information, please contact Andrea Savage at 206.448.5752 or Andrea.Savage@SothebysRealty.com