Buyers Repopulate Urban Centers Post COVID-Era Slowdown and Drive Boom of Demand for Resale, New Construction Condominiums and Waterfront Homes
It’s happening at both ends of the price spectrum—and brokers predict further escalation.
Executives of Realogics Sotheby’s International Realty (RSIR) witnessed a meteoric rise in buyer demand as inventory plummeted during the first half of 2021 compared with the prior year. This propelled at trend at both the region’s most affordable price points with in-city condominiums, as well as at the top end with waterfront estates, which are setting new benchmark prices. According to Trendgraphix research, new construction home sales of condominiums in downtown Seattle have skyrocketed in 2021 by more than 600% so far, while resales have also soared by 67% (and active resale listings fell by nearly 46%). Meanwhile, waterfront home sales in the popular Eastside submarkets have swelled more than 50% higher year-to-date in 2021, while inventory levels have dropped by 60%. Not surprisingly, the volume of off-market sales has also increased substantially, including record-setting sales brokered by RSIR.
“High tech and likely, higher taxes ahead, are motivating savvy buyers to make their moves sooner rather than later in the Seattle/Bellevue metro area,” said Dean Jones, President and CEO of RSIR. “There’s a lot of job growth amongst tech titans and a repopulation of urban campuses has rebooted demand of in-city lifestyles.”
Jones believes the recent proclamation that Washington State will impose a 7% capital gains tax in 2022 has motivated those with significant stock portfolios to consider selling equities and focusing on real estate, which will be exempt from such additional taxation. It helps, too, that record stock prices are being enjoyed at Amazon, Microsoft, Facebook and Alphabet (Google) to name just a few top employers in the region. Industry experts say that restricted stock units (RSU) or stock grants can comprise 60% or more of tech worker compensation, much higher in more senior level positions. So, a bullish stock market and the corresponding wealth effect has found its way into local real estate trends.
Michael Kropp is a 35-year veteran in the local tech industry and he and his wife, Susan, have become empty nesters. They recently decided to list their waterfront home in Medina, timed with demand for summer lifestyles but also in anticipation of impending changes to both the state level and federal level tax climate. The move-in ready and refreshed 3,000-square-foot home with 70 feet of no-bank waterfront comprises just over a half-acre of land and is listed for $6,638,000 as-is. Or conversely, for $14,000,000, the Kropps are offering preliminary plans for an 8,000-square-foot new construction estate (pending plans and permits) on the property.
Kropp regards the Seattle/Bellevue area as “Silicon Valley North” and proclaims the region is the “cloud computing capital of the world,” which he says will sustain wealth generation and increase demand for luxury lifestyles and especially for waterfront properties, which are inherently limited. Others agree that the tech market is booming. Recently, Commercial Real Estate firm CBRE stated that Seattle had the fastest-growing tech job marketplace in the U.S. Meanwhile, the Q2 Venture Monitor reports a record-setting volume of startup capital raised during the first half of 2021 across 205 deals and $3.1 billion in funding, which more than doubled what was raised by this time in 2020.
“Both local and relocating buyers are seeing the relative value in residential properties, even as prices continue to escalate,” said Becky Gray, a Founding Member of RSIR’s Bellevue branch office and the listing broker for the Kropp property. “Those inbound buyers from pricier markets with higher taxes, like California, view our market as having a long runway of appreciation ahead. As affluence builds, so will sensitivity to income taxes and that bodes well for increased demand for Washington State residency.”
Gray further points to an imbalanced ratio of median household income and median home prices of the Seattle/Bellevue region compared to other West Coast gateways like the Bay Area, or Southern California. Some buyers are acquiring homes in the Seattle area as a primary residence with plans to live here during a majority of the year, but maintaining their prior home in California as a secondary residence, she said, to deflect income taxes in the Golden State.
“We’re primed to rise further,” adds Gray. “When factoring the tax considerations looming, I think we’ll see an even stronger second half to 2021. Consumers are settling into a post COVID-era reality and there’s a lot of liquidity and equal amounts of desire to live our best lives with the challenges of this pandemic now hopefully behind us.”
Jones agrees and muses that Washington is proving to earn its moniker as the Evergreen State.
“Our region’s economy and favorable tax climate is helping to propel higher incomes and allow residents to keep more of it,” concludes Jones. “While the new capital gains tax is significant, at least it’s only triggered by the sale of capital assets, rather than income, and real estate is excluded. As a result, I think we’ll see a surge in property ownership, especially amongst Millennial tech workers that are currently renting and will be seeking tax advantages and capital appreciation ahead.”
Other considerations that are weighing on savvy consumers include historically low, but rising, mortgage interest rates; general inflation of construction costs (including supply chain impediments for replacement housing) and scarcity of land – all fundamentals that are driving median home prices higher in the Pacific Northwest region.