On May 15th, scores of RSIR real estate brokers convened at the penthouse amenity level of Graystone Condominiums on First Hill to experience Seattle’s latest high-rise condominium offering and learn more about the state of the in-city housing market and the condominium conundrum. A dynamic panel discussion was hosted by RSIR President and CEO Dean Jones, who poised questions to real estate veteran brokers Moira Holley and Laura Halliday, as well as Dehlan Gwo, Vice President of New Developments, and special guest Nevin Low of Sotheby’s International Realty Canada. In addition to learning about demographic, lifestyle and investment trends from top-producing agents, the panel reviewed the current housing cycle and lack of new supply in the pipeline, as well as comparison between Seattle and Vancouver.
Watch Seattle Condominium Conundrum Video.
The following paraphrases the discussion with each panelist.
The in-city condominium market has experienced a noted inflection point, where correcting prices and tepid sales volumes has reversed course, and is exhibiting a residential renaissance.
- Graystone Condominiums is the fastest-selling new condominium project in the city and among the last delivery in the new development cycle. It will be many years before new supply arrives to the market.
- The affordable housing crisis in King County is critical and condominium development is an answer, but the challenges faced by developers is limiting the pipeline.
- Primary buyer demographics include downsizing empty-nesters and retirees and would-be buyers that are currently renting, especially as mortgage interest rates are expected to drop.
- Savvy brokers and buyers are taking advantage of the peak to trough pricing corrections that range from 20-30% for new condominium developments, noting that for new supply to break ground, the resale and new inventory pricing will need to increase by 30-40%.
- Civic leaders are slow to respond to zoning changes and it can take decades to realize significant increases in attainable ownership options, which is a primary reason why the cost of ownership is high and so is the propensity for capital appreciation in the years ahead.
Moira Holley, Senior Global Real Estate Advisor
A year ago, Holley relocated to a downtown Seattle high-rise condominium near Pike Place Market, citing market conditions she described as “the bottom” and sold her larger single-family home in Seward Park. This is a conscious return to the city, both as an investment strategy and for lock-and-leave conveniences. She described a slow but steady improvement of overall dynamics with housing demand, retail, hospitality and most notably, the “heartbeat” of Seattle with vibrancy at one of America’s oldest public markets.
As a local member of Market Leaders, Holley reached out to Gregg Lynn, a top producer for Sotheby’s International Realty in San Francisco, and they discussed a similar renaissance taking shape in the City by the Bay, with impressive lease activity given the boom of artificial intelligence, and attractive lease rates. A repopulation of the city office market is still about half of what it was in both cities, but it’s progressing and bringing with it increased demand for condominiums. Lynn reportedly set new records for price per square foot on a recent sale and witnessed robust sales since the turn of the year, albeit at reset prices.
Holley and Jones discussed the bounce in the market and agreed that savvy consumers can “buy the dip” while it exists, as upward pressure on pricing is likely ahead. In many ways, history is repeating itself as similar conditions were felt after the Great Recession, albeit for different reasons. There was a five-year dearth of new supply in downtown Seattle between 2010 and 2015, when resale and new development pricing spiked and defined a clear investment strategy. She believes that time is now with select resale opportunities and within standing inventory at developer-held product.
Laura Halliday, Senior Global Real Estate Advisor
A “silver tsunami” of would-be buyers for in-city housing is coming as Halliday’s many clients in neighborhoods like Madison Park are planning forward for retirement and downsizing, and single-level living in buildings packed full of amenities is on the agenda. Unfortunately, there are not many options for her clients to stay in their immediate neighborhoods as submarkets like Broadmoor don’t offer condominiums and other options along Lake Washington are either older high-rise product or newer wood frame – it makes sense to look west towards downtown Seattle.
The First Hill neighborhood is like the “Upper Eastside” of downtown Seattle, with historic buildings, tree-lined streets and a decidedly residential feel. Jones complimented Halliday for her expert use of marketing materials provided by RSIR, such as market reports and featured listing syndication, given her ability to spark conversations that lead to real estate demand. Halliday agreed that buying the condominium today makes sense, given the value is being offered well below replacement cost, as waiting to purchase in the years ahead will likely mean less selection, more competition, and high prices. Even if her clients are not seeking to use the new purchase in the near term, the property can be rented out, used by children or simply enjoyed as an in-city crash pad until it makes sense to formally move and sell the primary estate. This sort of move will help harvest significant equity positions earned in the family home and open up the opportunity to buy additional investment properties and lifestyle pursuits like second homes in resort destinations.
Dehlan Gwo, Vice President of New Developments
Gwo welcomed RSIR agents and remarked that Graystone Condominiums represents about 70% of the available new construction product priced below $800,000, and reported it is among the last high-rise condominiums to be delivered in Seattle for near future. Given that demand can rise much quicker than supply and that no new groundbreakings have occurred since the start of the pandemic, he points to a likely supply and demand imbalance and what’s clearly becoming a bottom-up recovery in the in-city housing market.
Graystone has welcomed more than two dozen new sales year-to-date and is the best-selling new condominium tower in the region. In a conversation with Jones, the two thought leaders opined that more than 35,000 multi-family housing units have been built in downtown Seattle since 2010, but 95% of that was built for rent and not for sale. Currently, there are only about 600 unsold new condominiums available in Seattle, so for perspective, if less than 2% of the recently occupied renter population decided to buy, the market would be unable to accommodate the demand. That pivot to ownership is increasingly likely as would-be buyers anticipate lower mortgage rates ahead and as the inflection point of price corrections reverses course and prices start rising again.
To be clear, Gwo noted that the average pricing of new condominiums is selling for less than $1,000 per square foot, but developers would require more than $1,400 per square foot to pencil a new condominium tower, so that becomes the runway for future capital appreciation as the market has little choice but to appreciate until values support new supply. Jones said that history is repeating itself, as the same dearth of new supply happened after the Great Recession, when the last in a cycle of new buildings was delivered in 2010, but the next new condominium tower didn’t arrive until 2015 after a five-year supply shutdown. During this period, prices climbed significantly, and eventually, a new condominium cycle was born, and 14 new buildings were delivered comprising 2,243 units, of which about 73% of the supply was sold.
Gwo confirmed that developers who delivered during the pandemic had typically been required to “mark to market” with price corrections of 20-30% depending on the building. This helped these large projects reach their Fannie Mae mortgage conformance requirements (when most units sold must be to owner-occupied residents to sell a mortgage on the secondary market). However, now that these buildings have stimulated sufficient sales, prices are firming up.
That said, Gwo notes that some developers are being creative and allowing early occupancy, such as with Infinity Shore Club, allowing a would-be buyer to move in to the new beachfront condominiums before selling their prior home. This approach allows the new resident to make the necessary improvements to market their home, depersonalize the model home, and, when it sells, complete the future purchase at Infinity Shore Club.
Nevin Low, Sotheby’s International Realty Canada
As a special guest panelist from Vancouver, BC, Low was able to contrast the difference between condominium development in Canada vs. Washington State, which helped explain why developers are so active up north but condominiums are so anemic in Puget Sound. For one thing, earnest money deposits in Vancouver typically range from 20-30% and can be released directly to the developer during construction, which greatly helps the capital stack required to build the tower.
Conversely, the WA State Condominium Act limits non-refundable earnest money deposits to just 5%, and these funds must be held in escrow until the building is delivered. So essentially, the developer must come up with 100% of the capital with equity and debt to build the project, and in the event that a buyer wants to back out of the purchase, there is no requirement to close.
Low and Jones discussed the many policies in land planning and densification that Vancouver has observed, which are generally 10-20 years ahead of those policies in the Seattle metro area – for instance, the tall and slender building design and tower spacing, which the city of Seattle adopted in the Center City Plan in 2006. Now, most of the major arterials in Vancouver are upzoned to permit townhomes and multi-family flats instead of single-family zoning, and virtually all of the rapid transit lines, known as Sky Train, are today urban centers with high-rise residential and mixed uses. This may be a harbinger of what’s to come with Sound Transit 3 as more than 100 miles of light rail lines are opening up, as will likely upzones near transit centers. To be sure, legislators in Washington have imposed House Bill 1110, which will soon program the opportunity for infill auxiliary dwelling units to be built on single-family lots throughout the state, but market pundits doubt this density will deliver the much-needed affordable housing supply to address the housing crisis in the region.
Representatives of new developments presented their projects including:
The Graystone
Infinity Shore Club
First Light
Ederra Living
Skyline Ridge
Read more as featured in Seattle Agents Magazine: https://seattleagentmagazine.com/2024/05/24/inside-king-countys-housing-inventory-crisis/
For more information, visit https://www.rsir.com/homes-for-sale/new-developments/.