AS HOME-BUYING TRENDS SHIFT NATIONWIDE, SEATTLE FORGES AHEAD

Written by William Hillis, Research Editor, RSIR

For May 2018, the S&P CoreLogic Case Shiller Index registered a 21st month with Seattle leading nationwide home prices. While competing Pacific Coast gateway cities Los Angeles and San Francisco saw year-over-year home price increases of 7.64 percent and 10.87 percent, respectively, Seattle’s 12-month advance widened to 13.59 percent. The monthly increases on the Index were 2.23 percent for Seattle, 1.08 percent for San Francisco, and 0.48 percent for Los Angeles.

The official analysis accompanying Case Shiller’s July 31 release describes the relentless and widespread continuance of residential home price gains. However, the editors signal some unease with an attendant decline in the number of home price purchases which has been escalating since last fall. David Blitzer of S&P Dow Jones Indices writes, “Continuing price increases appear to be affecting other housing statistics. Sales of existing single family homes—the market covered by the S&P CoreLogic Case-Shiller Indices—peaked last November and have declined for three months in a row. The number of pending home sales is drifting lower as is the number of existing homes for sale. Sales of new homes are also down and housing starts are flattening.”

The conditions across the country that Blitzer describes are far from prevalent in central Puget Sound. Sales are down modestly in some cities and areas of the region, but there Seattle parts ways with the nationwide trend. The supply of homes for sale spiked in May and June; and cumulative days on market, a key indicator of how quickly homes are selling, shows a median of about one week on the market in most urban areas. (See local market inventory trends in the charts below, followed by the median CDOM trends for these communities in charts “Seattle Monthly Market Times” and “Eastside Monthly Market Times.”)

The sharp increase in home inventories most likely does not presage a market decline or a slowdown in home purchases. Listings commonly increase into the summer, and it simply appears that some of that supply has been pulled forward. This might reflect that sellers, having observed trends elsewhere, have put homes on the market to make the most of the current record-setting prices. If the years-long market times hold, these homes will appear as sold within a month or two.

For Seattle’s comparative performance on the Case-Shiller Index, see our chart of the Index trends below; and for more details, download the S&P Dow Jones Case-Shiller summary report. For details on the implications for homes in your neighborhood, contact a local RSIR broker for their latest analysis.

SOURCE: RSIR

THE SEATTLE PIVOT

Condominium demand and homeownership levels in Seattle are making a comeback, but will developers pivot and keep up with the trends?

The second half of 2017 evidences what may be a paradigm shift in consumer trending from rent to buy. According to research by O’Connor Consulting Group, annual apartment demand in 2017 fell by 4,500 units (unexpectedly) throughout King and Snohomish counties and this decrease was concentrated into the second half of the year. Meanwhile, sales of single-family and condos in the same area swelled by more than 5,000 units—rising from 40,825 homes closed in 2016 to 45,949 in 2017. It would seem that renters are increasingly positioning themselves for capital appreciation, mortgage interest deductions and attainable ownership options for fear of being priced out with rising home prices compounded by interest rate hikes.

As of March 2018, the median home price in the Seattle metro area rose by 13% year-over-year, according to the closely watched S&P/Case-Shiller Home Price Index. In fact, Seattle has consistently led the nation in home price growth for 19 months in a row. Meanwhile, the Fed has bumped mortgage rates 6 times in the trailing 18 months, so rates now average 4.5-4.75% for a 30-year mortgage, according to Caliber Home Loans. They say several more rate increases are anticipated this year and by 2020, the average fixed rate mortgage could top 5.5%.

Throughout metro Seattle, the hunt for affordable homes has literally drained the city of single-family options, especially those priced below $700,000. That’s a popular price point because the conforming high balance loan limit in King, Pierce and Snohomish counties is $667,000, allowing homebuyers to purchase with just 5% down payment (3.5% FHA) and qualify with lower FICO scores and preferred interest rates vs. the jumbo mortgage market.

RSIR analysis of NWMLS data suggests that during Q1-2016 there were 1,454 sales of condominiums and single-family homes sold below $700,000 in the City of Seattle, but two years later during Q1-2018, that number fell to just 951 units—that’s a 35% reduction of opportunity as prices rose and supply dwindled. This is a challenging price point for developers to hit with new construction—certainly no single-family homes will pencil as land costs alone demand $700,000 or more. Townhomes offer some relief but just barely, as only two dozen newly built properties throughout Seattle are active in the NWMLS and they average 1,289 square feet at $529 per square foot, so the median asking price is still $667,000. Many more are already pending with most new listings snapped up in just a few days on the market.

Condominiums more easily hit this price point as efficiently-scaled, single-level homes offer the greatest density of housing, oftentimes with building amenities that expand the lifestyle of living in a studio or one-bedroom home. Currently in downtown Seattle, there are just 46 resale condominiums offered below $700,000 and just three in new construction inventory until 2020. Demand for new, attainably-priced condominiums was on full display on February 24th, 2018 when Da Li Development USA introduced 203 homes at KODA drawing long lines with 95% of the homes garnering reservations with another 80 second and third positions.

The KODA Condominium development generated a line of prospective buyers that eagerly awaited the release of 203 homes for reservation on February 24th, 2018. 

Read the full article on Realogics.com

THE SEATTLE CITY COUNCIL: BACK TO YOUR NETS

If you were raised before the Game Boy generation, you’ll probably recall the story of “The Fisherman’s Wife” from Grimm’s Fairy Tales. This familiar fable is that of a fisherman who spares the life of a wish-granting fish. The poor troller is then brow-beaten by his wife into calling upon the fish for progressive improvements to the family hovel and his wife’s social position. When the wife’s demands reach the point of blasphemy, the fish renounces all the upgrades, returning the aspiring couple to their humble beginnings.

And that may be what will soon happen to the Seattle City Council.

We seek to tone down political bias and don’t often make predictions on these matters, but what happened earlier this week is a strategic blunder that is sure to arouse dismay among current Council supporters and to drive changes at the ballot box later next year (2019). It was an overambitious move by the Trotskyite faction on the Council that is likely to strengthen the hands of local businesses on local government tax, housing, and development policy.

Here are several reasons why:

1. The head tax will ensnare smaller fish, with little effect on big ones. Despite the near-universal focus on Amazon, the head tax will impact 585 businesses in Seattle. Those hardest hit will be high-volume, low-wage businesses like Dick’s Drive-In, as CEO Saul Spady explained to KING5 News.[1] The fact that low-wage workers will end up on the short end of the head tax is entirely consistent with other recent Council initiatives, such as the $15 minimum wage, that perversely reduce the employment of those they are intended to help. The Council’s 2017 effort to impose a constitutionally prohibited income tax on high earners was overturned by the Washington State Supreme Court.
2. Head tax revenues will not deliver new housing soon, if ever. Little attention has been given by the press as to how the proceeds from the tax will be used. The original compromise plan proposed by Mayor Jenny Durkan would first allocate revenues to fill budgetary deficits in existing shelter and “vehicular living” programs. Durkan aims to get the homeless into shelters immediately, while Council members speak of long-term solutions. Yet the spending plan adopted by the Council will not fund even 600 units of housing; while a year ago, there were already more than 8,500 homeless on the streets of Seattle.[2] The tax has therefore set the table for interrupted hiring by high-volume businesses before any new affordable housing opens to residents.[3]
3. The tax is the latest in a series of Council measures out-of-sync with the region. In proceeding from one ill-considered act after another, the Seattle City Council has gone their own way, scarcely bothering to consult with other municipal governments in the region other than King County. While this may appear to enhance the competitive positions of cities nearby, it also muddies the water for prospects. The mayor of neighboring Bellevue said, “Businesses make their decisions on where to locate based on lots of different data points,” adding that “One of those is the tax system, but they make that decision based on a number of different data points. From my perspective, if there is someone who wants to move within the region, our doors are certainly open to them in Bellevue but … we want to make sure that we show that the Puget Sound region has a really strong economic climate.”[4]
4. The head tax ignores the most obvious and least costly solution. The one fix that would actually resolve Seattle’s housing shortage—upzoning some of the city’s single-family neighborhoods to multifamily densities—would spur condominium investment to meet burgeoning demand. Yet residential zoning remains politically contentious and untouched by the Council.

Dean Jones, President of Realogics Inc., says that what is most needed for more affordable housing is more housing generally, delivered by the private sector. “Supply is king. The Council should absolutely offer greater incentives for developers to play their role and contribute to a fund to build housing and subsidized communities for homeless in transition.” Instead, the City has settled upon a distraction that embitters employers, further threatens entry-level employment, and adds insufficient new housing.

So current and would-be homeowners, take heart. If the city’s voters haven’t already been brought to their senses, a failure of the head tax to produce meaningful results might finally convince them.

Sources

[1] Greg Copeland, “’How is that a compromise?’: Iconic Dick’s Drive-In slams Seattle head tax,” KING5 News, 15 May 2018.

[2] All Home, Count Us In: Report Release, http://allhomekc.org/wp-content/uploads/2016/11/COUNT-US-IN-Presentation-_-May-31-2017.pdf

[3] Erica Barnett, “Six Things to Consider about the Head Tax,” South Seattle Emerald, 16 May 2018, https://southseattleemerald.com/2018/05/16/six-things-to-consider-about-the-head-tax/; https://thecisforcrank.com/category/city-council-2/.

[4] Monica Nickelsburg, “After Seattle passes ‘Amazon tax,’ mayor of neighboring city says ‘Bellevue is open for business’,” Geekwire, 15 May 2018, https://www.geekwire.com/2018/seattle-passes-amazon-tax-mayor-neighboring-city-says-bellevue-open-business/.

Source: RSIR