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 housing demand is palpable. Seattle is the fastest-growing large city in the US, expanding by 114,000 persons since 2010. In fact, the urban population density in downtown Seattle has tripled since 2000—now estimated at approximately 80,000 residents. In the current decade approximately 30,000 multifamily housing units will be delivered in the urban core of Seattle, but 91% of that added supply will be for rent and not available for individual ownership. The dearth of new condominium supply is only further exacerbating the stress levels of eager buyers.
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