New Construction Struggles to Deliver Inventory Below Median Home Prices
The heat of summer is being felt across the Seattle metro area, especially in housing. The region continues to post new benchmark values for median home prices while a mounting supply and demand imbalance in downtown Seattle is exasperating homebuyers. There are plenty of buyers. The problem is it can take up to four years to migrate a new high-rise from conception to closing. Until then, the result is higher prices, less selection and dwindling prospects for attainable ownership into the next decade.
“I don’t see how prices downtown will moderate if developers keep preferring to build rentals instead of condos,” said Dean Jones, President and CEO of Realogics Sotheby’s International Realty. “The only cure is more supply, especially at the entry level. The cost of owning will only increase. Renting is a solution but the actual cost is far more than the lease payment because re-entering the market a year from now to purchase only means paying more.”
At first glance, closings for the first half of 2017 were down by 45-percent over last year, but that’s only because there have been no new construction deliveries of recent. This is a problem. Resale absorption is relatively flat, rising just 2-percent year-over year but median home prices of those resale properties rose by more than 8-percent. Even more significant was the dramatic drop in affordable price points and an equally shocking increase in the luxury segment. Home sales priced below $500,000 dropped 33-percent so far in 2017 compared with the prior year while homes priced above $2 million soared by 38-percent as a rising tide washes over the city.
This trend appears to be radiating from the center city. According to Seattle Bubble, a popular housing blog founded in 2005 amidst the pre-recession market peak, all price points in the Seattle metro area are performing well above their prior peaks in 2007, with the low, middle and high tiers expanding at 5.5-percent, 12.8-percent and 19.5-percent, respectively.
“The reality is it’s difficult to deliver new construction at affordable price points and developers understand that luxury is elastic – it’s easier to command higher prices in the affluent market segments where the incremental cost for consumers isn’t material and innovative designs command a premium,” said Jones. “At the opposite end of the spectrum, delivering lower price points is becoming increasingly difficult given the cost of land, construction and competitive alternatives such as renting or renovating an older condo.”
Currently in downtown Seattle, there are just 43 resale condominiums available with a median asking price of $1.188 million at an average of $1,009 per sq. ft. Rising values bode well for new construction, however the equally rising cost of development, coupled with the protracted schedules means consumers will be waiting years and paying more to own. More than two-thirds of the 485 new construction units currently being developed for sale are still available and just like the resale market, inventory below $1 million is anemic.
Have a look at how the 2017 numbers stack up:
