Just how much money are you losing by renting?
Today is Tax Day—a day most Americans dread more than just about any other. But today, we’re not going to talk about your tax returns (well, not exactly). Instead, we’re going to talk about all the money you’ve missed out on over the past decade.
Yes, you read that right. Executives of Realogics Sotheby’s International Realty (RSIR), Caliber Home Loans, and O’Connor Consulting Group recently published reports that put in stark relief the amount of money Seattle and King County renters have lost out on over the last 10 years by not owning their own homes.
According to the Downtown Seattle Association (DSA), 88,000 residents now live in Seattle’s city center, and the number of children residing there has doubled over the past decade. With so many people of all walks of life looking to call downtown Seattle home, and only 10 new condominium buildings—or 1,727 new units—of housing delivered during the same time period, demand is soaring.
“No other city has witnessed such population growth and increases in both household prices and rent growth,” said Dean Jones, President and CEO of RSIR. “An unfortunate result of so many residents opting to lease an apartment instead of owning a condominium is that they missed out on both capital appreciation and annual mortgage interest deductions on Tax Day.”
To illustrate just how much money new apartment renters have parted with over the last decade, the collective’s report provides some telling statistics. The average sales price for a condominium back in 2010 was $524,842, but that skyrocketed to $849,481 in 2019. To put it another way, during this time period, typical condominiums appreciated 62 percent, or an average of 6.2 percent per year. Tenants of new construction apartment buildings, on the other hand, have also seen drastic increases in monthly rents for smaller and smaller apartments, without getting similar value back in return. Typical rents in 2010 averaged $1,241, but that number rose by an astonishing 84 percent to $2,230 in 2019.
What do all these numbers mean for Seattle renters? Essentially, renters of new apartment units have typically paid out about $218,983 over this 10-year period, while condo owners of similarly sized units have gained about $324,839 in capital appreciation. Add to that these homeowners’ annual income tax savings—approximately $9,228 (2019 tax year estimates) for those with a median household income of $114,000—and it’s clear just how much more costly it is to rent new apartment units in downtown Seattle.
So, given that information, it’s not surprising that there has been a recent rush to buy in the city of Seattle and throughout King County, and that the local real estate market has proven to be incredibly resilient, despite the effects of the COVID-19 pandemic.
To be sure, pending resales of downtown Seattle condominiums in July 2020 are trending more than three-and-a-half times the volumes since bottoming in April 2020, immediately following the COVID-19 “stay-home” decree. Likewise, throughout the city of Seattle, pending sales of new and resale single-family homes have skyrocketed 48 percent in July 2020 compared with the prior month. Year-to-date sold volumes are just 3.2 percent below 2019 despite the COVID-19 pandemic. However, inventory levels citywide are nearly 38 percent lower than this time last year. That’s putting upward pressure on prices, especially at price points in conforming loan limits (mortgages below $741,750) where purchases can be made with just 5 percent down payments.
While the dip in inventory may make home buyers’ shopping experience more difficult, it is giving many residents an even greater incentive to consider purchasing a home. “Prospective home buyers are experiencing FOMO (fear of missing out)—they need to make a move soon to enjoy preferred selection, lock down today’s record-low interest rates and start benefiting from both price appreciation and tax advantages,” said Tadashi Shiga, Executive Director of RSIR’s Land Development. “With the rising cost of land and construction, it’s an ongoing challenge to deliver new, quality housing at affordable price points.”
Numbers from the DSA reveal that the median age of a downtown Seattle resident is just 37 years old. Contrary to the belief that millennials prefer to rent, they actually represent the largest cohort of home buyers in the United States, according to data from the National Association of Realtors. Given the more affordable price points of condominiums, future housing demand to own in downtown Seattle is likely to continue to rise quicker than supply.
Many would-be buyers seem to recognize that waiting on the sidelines may cost them big in the long-term, and that now is the time to purchase. With today’s historically low interest rates (currently hovering just below 3 percent), there’s never been a better time to buy and start benefiting from price appreciation.
“Long term, homeownership is a compelling investment and the only way to control housing costs in upswing markets like Seattle,” adds Luke Easterly, Area Sales Manager for Caliber Home Loans. “Tax Day is a good reminder of these advantages as only owners receive the benefits while renters will miss out.”
*Information was obtained from sources deemed reliable but cannot be guaranteed. Reader is encouraged to perform independent due-diligence on data prior to acting upon information. E&OE.