During a recent forum with local real estate agents, the topic of the night was the state of the downtown Seattle condo market amidst the national housing turbulence. The following is a collection of some of the forum’s most frequently asked questions as addressed by Dean Jones, a principal at Seattle-based Realogics, Inc.:
Is there a condo bubble in downtown Seattle?
No. Housing bubbles suggest that property values have ballooned beyond sustainability and are subject to a severe correction (devaluation), which is not the case in the Puget Sound region. Seattle was a late bloomer to the “urban renaissance” trend, so it didn’t experience the same kind of investor exuberance that inflated market values in cities like Miami or San Diego. Having learned from what occurred in these other markets, most Seattle condo developers placed restrictions on investor presales, curbing the potential for future fallout based on shaky speculation. Seattle has strong demand from owner-occupiers and second home buyers. Despite recent slowdowns, property values in Seattle have been consistently rising, and the housing market is deemed the most stable in the U.S.
Won’t the housing slump affecting much of the U.S. reach Seattle, too?
Not in the same way – the law of supply and demand cannot be ignored. Any lull in local sales can be blamed squarely on weakened consumer confidence, thanks to a subprime mortgage meltdown and a barrage of negative headlines that began in the third quarter of 2007. Unlike other markets that are overbuilt, overpriced and now experiencing a housing correction, the greater Seattle area has excellent real estate fundamentals, but it currently does suffer from a consumer psyche issue that will eventually resolve itself. Of the 28 major metropolitan markets across the U.S., Seattle has the lowest rate of overdue loans and defaults, the lowest relative supply of housing and the second-fastest marketplace appreciation rate in the U.S. Provided that job and wage growth continues, Seattle should hold its own against the trends described in the national headlines.
How Seattle condos insulated from the larger economic concerns facing the U.S.?
All real estate is local. The Puget Sound is among the strongest regional economies in the country, consistently posting 25,000 new jobs and 40,000 new residents annually. Many foreign trade-dependent corporations, such as Boeing, thrive when the U.S. dollar is devalued against foreign markets. At the same time, a second boom in the tech sector is seeing rapid expansion in companies like Microsoft, Expedia, Yahoo, Google and Amazon.com. With so many positive indicators, the Seattle area is consistently listed among the top markets for investment nationally and is the fourth-fastest growing metro area in the U.S., with 22.7 percent growth anticipated by 2012.
What is driving the demand for condos in downtown Seattle?
A combination of job growth, lifestyle preferences, improved residential design and new amenities is driving buyers to choose to live downtown rather than in surrounding suburban neighborhoods. According to a recent Harris poll, Seattle is the third most desirable U.S. city to live in, nudging out San Francisco for the first time and trailing behind only Manhattan and San Diego. Like Manhattan, Seattle is the economic and lifestyle center for the region, is surrounded by water and growth management restrictions, and has historically proven to be a prudent investment. With several million square feet of new office development, there will be more than 10,000 new jobs added to the 200,000 already existing jobs downtown. With no viable mass transit solutions available, living in downtown has become a preferred alternative to living in suburban areas and spending hours in commuter traffic.
Won’t downtown Seattle become overbuilt and experience a price correction?
No. Although there has been a significant increase in development in recent years, projections for total new condominiums downtown are relatively nominal compared with the perceived demand. Presales in downtown Seattle are keeping pace with supply as new condominium deliveries for 2007, 2008 and 2009 are posting impressive presales of 88 percent, 66 percent and 28 percent, respectively. Each year, about 2,000 condos are sold downtown, split fairly evenly between existing resale and new-construction inventory. Currently, there’s about a five-to-six-month supply in resale inventory, and already half of the 4,100 new units expected to deliver before 2010 have been pre-sold.
What explains the drop in both sales velocity and median home prices that’s been reported in the media?
A higher percentage of buyers have been choosing new construction properties, which are not always listed and, therefore, are not getting included in the reports that drive these headlines. As more buyers are now choosing in-city condos over the more expensive single-family alternatives, the media home values for the region will lower as condos are typically sold at lower price points. Lastly, with unprecedented media attention regarding the national economy, the mortgage industry and the softening U.S. housing market, many would-be buyers have adopted a “wait and see” investment philosophy. Fortunately, the strong real estate fundamentals in the Seattle marketplace will eventually take hold and repair the consumer psyche.
Why should a qualified buyer choose to purchase right now?
The downtown Seattle condo market is only going to get tighter. The first quarter of 2008 will offer the best convergence of choice, price, incentives and historically low interest rates. Yet, given the relatively low number of additional projects likely to secure financing to move forward, downtown Seattle will eventually revert back to a seller’s market. The current consumer sentiment will correct itself once the strong real estate fundamentals are showcased in the headlines and buyers sense a greater urgency to purchase. The problem with “wait and see” is once sales start increasing, like they already are, sidelined buyers tend to rush back in, hence the cycle repeats itself. Generally speaking, the Seattle area doesn’t suffer from the same symptoms described by the national housing market trends, but it will certainly benefit from the prescribed remedies. It’s a buyer’s market for now but not for long.
For more information on the urban housing market and to explore new communities, visit www.UrbanCondominiums.com.
NOTE: Information was obtained from sources deemed reliable but cannot be guaranteed. Individuals are encouraged to consult with real estate professionals and perform their own market research before relying on any information contained herein. E&OE.