Seattle’s famous Space Needle may as well be a wick on New Year’s Eve as the region’s housing market is sure to explode in 2016 – yet again. That’s the call from numerous sources as 2015 closes out and the real estate community struggles to grasp the meteoric rise of home values and rents. According to the latest S&P/Case-Shiller’s Home Price Index, Seattle is tied for the top position for home price increases across the country. The latest reporting data (October 2015) for the average price of existing single-family homes in King, Snohomish and Pierce Counties in aggregate shows that the index rose by 1.3 percent from the previous month and accelerated to an 8.8 percent gain year-over-year. That means home prices in the broader region are now just 3.4 percent shy of the last cycle peak, during the summer of 2007. In fact, the Seattle housing market recovered more than three times faster than the national average. A report by Zillow states that Seattle area homes are worth a staggering $41 billion more than they were just one year ago.
“There is a historic lack of housing for sale at a time when demand is exponentially growing,” said Dean Jones, President & CEO of Realogics Sotheby’s International Realty (RSIR). “I really don’t see much solace on the horizon either, as developers are playing catch up with their project pipeline and most are unfortunately for rent. The for-sale housing segment overcorrected during the downturn so now we face steep rises in median home prices into 2016 and beyond. ”
Home prices have already peaked above their prior cycle highs in the infill neighborhoods closest to downtown Seattle and in Bellevue. This is most pronounced with the luxury market where executives and overseas buyers have flooded the market with cash.
Above & Below: S&P/Case-Shiller reports that Seattle was late to follow the downturn and was quicker to recover when compared to the 20-city composite, yet is still far more affordable than San Francisco & Los Angeles.
It’s not just the price of for-sale housing that’s jaw-dropping. Seattle rents are now the 8th highest in the country, averaging $1,922 per month across the region compared with the national average of $1,382. It’s understandable that new residents would prefer to rent for a year or two but experts say eventually an increasing percentage of this population will explore homeownership.
“I think we are incubating many prospective homebuyers in those expensive downtown apartment towers,” adds Jones. “Despite the increasing cost of housing in the Seattle area, we are still considered affordable compared with our peer markets – at least for now. Ironically, our affordability is one of the reasons that we have become such a sought after market for launching a small business and recruiting employees within large corporations. Those jobs are creating the housing demand.”
A lot of comparisons are being made between San Francisco and Seattle now that our “Silicon Forest” is comprised of 138,000 tech jobs and is the second fastest-growing in the US, according a New York Times article that highlighted the increased housing costs and traffic challenges while alluding to San Francisco as a harbinger of what’s to come for Seattle.
“Nowhere, though, has there been a more concerted effort to create a San Francisco-like tech scene with fewer downsides than in Seattle, the country’s second-biggest tech hub by some measures,” the Times describes.
Jones says the lack of a state income tax is also a key factor when considering the overall cost of living in the region compared with California, which has among the highest combined tax rates in the country.
By one measurement, Amazon.com certainly is bullish on the future of the local economy. The online retail giant recently announced they are breaking ground on their third office tower in the Denny Triangle area, which was coined by RSIR as the “Ama-zone.”
With so much job growth and rising concerns over snarled traffic in and out of downtown Seattle, it’s no surprise that Forbes named Seattle among the top ten cities building the most multi-family housing. Ranking tenth of fifty-three large US metro areas, the Seattle region built 38,803 new multi-family units from 2011 through 2014. The challenge is that substantially all of this inventory was for rent and not for sale. Meanwhile there are 21,600 rental units under construction with just over half in downtown Seattle, another quarter on the Eastside and the balance spread throughout South King and Snohomish counties as noted by the Puget Sound Business Journal.
In June 2015, RSIR predicted that the in-city condominium market would establish a new benchmark for median home prices as new construction inventory began closing and liquidity returned. The special insert called “The Manhattanization of Seattle” was featured in the Puget Sound Business Journal.
“I believe 2016 will mark a return to for-sale housing preferences as savvy consumers position for their slice of this rising home market, lockin a low mortgage rate while they can and enjoy the income tax benefits as a homeowner,” adds Jones. “We will see an increase in high-profile condominium development downtown as well as more in-fill multi-family for sale in close in neighborhoods and along transportation corridors. Renters signing another year lease will only find ownership getting further away from them ahead.”
For more information on buy vs. rent visit RSIR’s website: www.NoPlaceLikeOwn.com