Seattle PI Explores the Meteoric Median Home Price Gains, Experts Pipe In
In an provocative article published by the Seattle PI on August 15th, the question of soaring rents and skyrocketing home prices has caused 71-percent of homeowners in Washington to worry about a housing bubble, according to a recent survey by ValueInsured. To be sure, this company sells down payment insurance and creates revenue by offsetting homeowner’s concerns about corrections in home values. And reportedly, only about 21 people that participated in the survey were from Washington state, so the sample size from our region was limited to say the least. Still, it’s easy to see why the question looms. Median home prices jumped $100,000 in King County last month, according to NWMLS reports, and affordability has become an increasing concern for many, especially those that don’t currently own or have purchased in presales at new developments such as NEXUS. The last time the market generated this kind of meteoric growth was 2007 and we all know how that turned out.
So, are we due to repeat history with an impending housing correction? Not likely if you talk to Dean Jones, President and CEO of Realogics Sotheby’s International Realty, especially in downtown Seattle he says.
“I had a front row seat for the correction in 2008/09 and those market dynamics simply aren’t present today,” said Jones. “Back then, buyers of presales were optioning multiple properties, in multiple buildings and trusting that both loose credit and rising home prices would persist. The demand was dominated by speculation and condo builders had a dozen towers and thousands of units under construction. I’d say, compared to ten years ago, we’re at the opposite end of that spectrum and our boom today is caused by different factors.”
What Jones is referring to are solid market fundamentals that are driving today’s housing demand. Growth in jobs, population and income are all positive indicators, while demographic and lifestyle trends are further bolstering demand for in-city living. The largest problem, according to Jones, is a now obvious lack of for-sale product to purchase, which is driving up the prices of housing throughout the Seattle area. In fact, he says, 94-percent of the housing built in downtown Seattle since 2010 has been offered for rent and two-thirds of what’s available for presale is already sold.
Brian O’Connor, a trusted economist and appraiser with O’Connor Consulting Group, suggests that housing demand for apartments (rental) and condos (ownership) typically offset each other but sometimes, like now, both can rise.
“These are unique times,” adds O’Connor. “The sheer number of new residents vying to be close to the unprecedented job growth in downtown Seattle is supporting a record number of housing units being built. Most new recruits will rent for a year or more, but what’s going to happen when some percentage of them want to purchase – will we have enough attainably priced housing to satisfy the demand? That’s the real question.”
Above: A graph by O’Connor Consulting Group highlights the past housing cycles and predicts a steady increase in demand for homeownership in King and Snohomish counties.
Savvy consumers that see this supply and demand imbalance approaching are taking advantage of presales, according to Michael Cannon, a Sales Director with NEXUS Condominiums. He says more than 300 buyers have laid down 5-percent deposits to lock in their preferred home and purchase price since the project debuted on the market March 18th, 2017. Occupancy is expected to begin mid-2019.
“Unlike the last boom, our buyers are substantially comprised of principle residents and second home buyers,” said Cannon. “Investors will always be a part of presales but they are the substantial minority in this case.”
Now, can those presale buyers close? Mortgage experts believe so, especially if the median home prices of surrounding property values continue expanding at an average of 1-percent per month.
“Our buyers today are very qualified and many enjoy significant equity in their current homes,” said Carese Busby, Senior Mortgage Loan Consultant with Caliber Home Loans and the preferred lender at NEXUS. “The lax underwriting standards and euphoric investor conditions that led to the credit crunch in the last correction are simply not present now. Some would even say our mortgage standards overcorrected, so I can report with confidence that homebuyers can afford the homes they are buying and thanks to the liquid housing market and booming tech industry, many are paying with cash.”
As for new developments, Jones admits that more condos are on the horizon but notes they will be delivered later and require higher sales prices than current developments. That’s not just because of rising land and construction prices, but because developers know buyers will pay higher prices given the anemic inventory.
“If the people keep coming, we’ll need more housing of all types,” concludes O’Connor. “That’s as basic as it gets. Our challenge has been predicting this because major employers, especially tech titans, have been adding jobs in downtown Seattle at a rate that nobody could have dreamed of.”
In a sign of the times, Seattle now has the fastest growth rate of open tech jobs in the country, surpassing the Bay Area, according to the Puget Sound Business Journal. High salaries, relatively affordable housing (for now) and no state income tax are among the top reasons that employees are attracted to the region.
Information was obtained from sources deemed reliable but cannot be guaranteed. Viewers are encouraged to perform independent due-diligence before acting upon data contained in this report. E&OE.