Market Pundits Believe an Inflection Point is in Play for In-City Condominiums
Urban centers across the nation faced the strongest of headwinds caused by COVID-19 in 2020. Downtown Seattle was not insulated, despite the Seattle metro area commanding the greatest aggregate median home price gains in the U.S. for much of the year, according to S&P/Case-Shiller data.
Early analysis by Realogics Sotheby’s International Realty (RSIR) through yearend 2020 suggests resale condominium listings in downtown Seattle (NWMLS #701) will post a 15 percent decline in unit sales for the year, including a nearly 50 percent decline in closed sales for December 2020 compared with 2019. However, pending sales (new buyer contacts for purchase) in December 2020 are now trending 32 percent higher compared with the prior month and surprisingly, condominium resales managed to hold values, which are effectively flat—year-to-date 2020 the median price is $650,000 or an average of $756 per square foot compared with a median price of $639,000 or $765 per square foot for 2019, an uptick of 2 percent and a slight decline of 1 percent, respectively. What is more notable, however, is inventory levels have climbed in 2020 to a 10-year high, peaking in September 2020 with 292 active listings, albeit a seasonal pullback (combined with increased sales absorption) has current inventory levels below 200 units as of yearend 2020. Interestingly, the total time for average listings to stay on the market is about the same as December 2019 at 75 days and the value delta between the original asking price to closed sales price is also holding even with a 9-10 percent discount, on average.
“It’s a buyer’s market now downtown but perhaps not for long, at least not for the most preferred inventory,” says Dean Jones, President and CEO of RSIR. “Not all condominiums are created equal and it stands to reason that savvy buyers will purchase the best first, while the section is good, the prices are the sharpest and interest rates are at historic lows.”
A recent surge in sales is a response to historically low interest rates as many wait-and-see buyers finally step out following the U.S. Presidential elections, and as consumers are feeling more confident to set roots as new COVID vaccines ease pandemic concerns into 2021. Meanwhile, the U.S. stock markets are setting new benchmark highs with local tech stocks, creating a wealth effect and liquidity that is trickling into housing demand. Another booster is the recently approved Fed Stimulus Bill, adding much needed confidence to consumer spending.
Jones notes new construction presales have also picked up in December, now that several high-rise projects are nearing completion and hard hat tours are being offered. At one project, the 343-unit SPIRE condominiums located at 600 Wall Street in Belltown, four new presales were achieved so far in December and another four offers are on the table, according to Ami Bumia, Sales Director for SPIRE. The 39-story high-rise has occupancy scheduled for April 2021.
“It’s making a significant difference to showcase the level of quality in the new construction in person and of course, experience those incredible views firsthand,” adds Bumia. “I think we’ll see a flight to quality in early 2021 as sophisticated buyers target the top-shelf listings—but we’ll also see a real movement of renters choosing to become homeowners now that mortgage rates have brought more inventory within reach. I think a lot of renters that moved out during COVID will come back as owners.”
It helps that developers are negotiating and offering some additional incentives to brokers and buyers, according to Bumia. At SPIRE, for instance, she says the developer is offering no HOA dues in 2021 and confirmed buyers and sellers are finding more alignment on pricing after months of testing the waters.
“The reality is we’ll see these buyer advantages deplete as the inventory does, especially for the most desirable homes,” says Bumia. “My buyers have reconciled the market conditions and are planning ahead—they know downtown Seattle is poised for a recovery and so, they know timing the market means making a move sooner than later.”
Such an urban revival trend is playing out elsewhere. Recently Mansion Global published an article about the New York City condominium market and interviewed Nikki Field, a Global Real Estate Advisor with Sotheby’s International Realty. (The Field team annually ranks as the no. 1 team across the country). While the Manhattan housing market has been notoriously overbuilt for years, Field believes the bottom of the market may already be in the rearview mirror and she suggested luxury buyers are buying up in a down market.
Jones agrees: “Deals beget deals”.
He notes an influx of opportunistic buyers such as parents helping their children buy their first home or future empty-nesters securing their eventual retirement home. He also sees more California buyers seeking to escape their state income tax, which is likely to increase further. And, while 2020 may witness more people leaving the city of Seattle than moving in, experts feel that trajectory could easily reverse course once employees and consumers feel safe amidst a new vaccine. In fact, GeekWire reports Seattle added 2.2 tech workers for every one that left from March to October of this year, based on “inflow-outflow ratio” data provided by LinkedIn profiles.
“It’s understandable that some urban tech employees would explore an alternate address during COVID given the convenience of walking to work didn’t apply with most folks working from home—no wonder the exurban markets saw such a boon of rental and purchase activity,” suggests Jones. “But those urban tech campuses are not going anywhere, and most will be welcoming back employees by mid-2021, so I think the demand to live in the city center will increase with this population return, which will support retailers, restaurants, and the like—it’s an urban reboot.”
Jones thinks the City of Seattle will also benefit from new civic leadership with a new mayor and several new seats on Seattle City Council to be voted on in 2021. This provides “hope and healing” he said, after such a difficult year of social, political, and economic challenges in the city.
RSIR’s resale brokers confirm significant increases in broker and buyer tours in December. Similar trends are also being experienced at apartment towers too, where move-in offers are attracting tenants to sign-up now and receive a few weeks or a few months of free rent on a 12-month lease.
Overall project starts, meanwhile are scaling back, according to Jones. He says some condominium projects that were scheduled to commence with presales have deferred and others may revert to apartment uses. The construction debt has tightened significantly while construction costs continue to climb, making it more difficult to pencil new projects in the pipeline.
“My sense is what you see on the market is we what we get for the next few years,” adds Jones. “We saw this same pullback in 2010 after the credit crisis and resulting recession—it took five years to get new inventory delivered. When it comes to high-rise construction, demand can rise much quicker than supply.”
For more information, contact a RSIR broker today or visit www.RSIR.com.