It's official King County, we've recovered.
The Great Recession has been replaced by what seems like the Great Inflation, as year-over-year home prices in King County increased 10.3% in June 2015. Median home prices are now pegged at $500,000, according to a recent report by the Northwest Multiple Listing Service. This new peak surpasses the previous record set in 2007, which topped out at $481,000 before correcting. The difference this time around, however, is that we have a more robust and sustainable economy and only a fraction of the inventory for sale – down 23.2% in just one year, which drops our total supply to just 1.18 months. The larger looming issue is that new construction of for-sale housing, especially in the downtown Seattle and downtown Bellevue areas, is anemic at best. Greater still is the fact that thousands of would-be buyers are likely incubating in those shiny new apartment towers.
Dean Jones, President and CEO of Realogics Sotheby’s International Realty (RSIR), a top producing brokerage firm in downtown Seattle, points to a lack of supply, rising demand and the threat of increasing interest rates, which means a reduction in homebuyer’s purchasing power lies ahead. As the market moves away from renters who seek to purchase someday, Jones says that sudden realization will prompt many into action. Concurrently, other discretional buyer profiles are also entering the market, including downsizers, second homes, student housing, investors, and the like.
“It’s creating a perfect storm,” says Jones. “As the hurricane of the Great Recession passed through Seattle between 2008 and 2012 many consumers chose to rent apartments. We’ve been in the eye of that storm for a few years and now the winds are blowing in the other direction with equal force and influence. Buyers are back. We see this new storm wall approaching and there will be a steep climb in home prices before we find some smoother air and market stabilization.”
While it’s true that homeownership levels in the U.S. are at 25-year lows, hovering around 64%, that doesn’t explain the logic of building virtually all apartment buildings in downtown Seattle.
“Demand for new for-sale housing units hasn’t corrected by 95% but the construction of for-sale housing certainly has,” adds Jones. “That’s creating a supply and demand problem and buyers are feeling the pressure.”
According to RSIR research, only 5% of the new housing stock recently delivered or under construction is for sale. What’s going to happen when, statistically speaking, 64% or even 30% of current rental demand decides they want to buy? Will there be housing for them? Will they be able to afford it by then?
Jones and other real estate opinion leaders recently attended a round table discussion with The Puget Sound Business Journal, which published a feature section entitled “The Manhattanization of Seattle.” The think tank considered the market fundamentals, ultimately projecting that rising demand, dwindling supply and increasing home prices across Seattle will become omnipresent by mid-2015.
The buyer boom has dominated headlines in recent weeks in part because Seattle is now the top destination for techies fleeing California. Thus it’s no surprise that half of the most influential tech giants are setting up shop in the Seattle area. Many of these companies are competing for recruits by promising an enviable downtown “live, work, play” lifestyle to complement higher salaries. The other promise is wage growth, which is rising in 2015 faster than it has since 2007. Consider that Washington State witnessed annual average increases of 4.2%, but in the tech industry, it was more than 10%. Seattle is also the second best place to be a landlord and the third tightest housing market because many of these relocating workers are going to rent for a few years before buying.
It helps too that Washington has no state income tax. In fact, a study by the Bureau of Labor Statistics, the Council for Community and Economic Research and the Tax Foundation concluded that the State of Washington is the second best state in the U.S. to make a living.
More and more national media publications, including Bloomberg News, are citing the fundamentals and impact on the housing market and will likely continue to do so as we shift into a bull market for housing of all types. But as the tower cranes rise so will the cost to live in those towers.
Move over San Francisco and Vancouver, Seattle is on the map.