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April 25, 2008
Puget Sound Business Journal
Seattle’s condo pipeline expected to dry up
by Jeanne Lang Jones and Kirsten Grind Staff Writers
With 40 condominium projects in the pipeline for downtown Seattle one might expect a glut of new units on the market. But tight-fisted lenders and hesitant buyers, both reacting to the nationwide credit crunch, have severely hobbled the once high-stepping market.
The pace of development has slowed so sharply that local experts predict a shortage in 2010 that could drive prices up. One consultant forecasts delivery of just 189 new units that year - down from an average of 1,100 anticipated in each of the prior three years.
Behind the prediction: No new condo project has broken ground downtown since the last two buildings - 275-unit Escala and 204-unit Equinox - got under way last summer, said the consultant, Dean Jones, president of Realogics Inc., a Seattle-based condo research and marketing firm.
Since it can take as long as two years to build a high-rise condominium tower, the dearth of new construction is pushing delivery into 2011 - assuming those projects, which represent more than half of the 40 in the pipeline, can find financing.
Buyers, too, face credit constraints but are still expected to outstrip the reduced supply. By 2010, Jones expects about 1,000 buyers will be looking for new condos in downtown Seattle, an increase from current levels and five times the expected supply.
The credit market is at the root of the problem. Condo experts say that if a project hasn't broken ground yet, obtaining financing could prove troublesome.
"If you are trying to finance a substantial project right now, that is terribly, terribly difficult from both a debt and equity standpoint," said Matthew Gardner, a real estate consultant and principal of Gardner Johnson.
"Banks aren't lending money - at least larger banks aren't."
A few projects already have been sidelined:
§ 1 Hotel + Residences condo/hotel project at Second Avenue and Pine Street. Construction stalled late last year - initially to avoid disrupting holiday shopping, more recently to rework the residential portion of the condo/hotel project. Prospective buyers snapped up the project's traditional condos but snubbed its hybrid condo/hotel units, which owners could rent out when they were not in use. As rival condo project 1521 Second Ave. slowly rises above Second Avenue, 1 Hotel + Residences remains a big hole by Macy's garage. Owners Avalon Holdings and Starwood Capital Group did not return calls seeking comment.
§ Expo62 tower in the lower Queen Anne neighborhood. Former owner Intracorp said it converted the project to apartments this year after slow sales. The project has since been sold.
§ Aspira tower at Stewart Street and Terry Avenue. Once slated for condos, the project was shifted to apartments in 2006 because the developer saw worrying trends in Florida. "We didn't realize how smart we really were," said Julie Benezet, managing director of developer Urban Partners' Seattle office.
Developers are mulling what to do with other projects. Intracorp will wait until it completes its Domaine multifamily project at 2500 Aurora Ave. N. before deciding whether the units will be for sale or for rent.
"This slowdown in sales has caused every builder to re-evaluate its business plan," said Mike Lierman, Intracorp Seattle president, in an e-mail.
Buyers are having trouble getting mortgages, which is crimping local sales. According to the Northwest Multiple Listing Service, pending sales of downtown condos dropped 11 percent in March from a year ago. Total listings are up 52 percent, to 344 units, not counting new construction. Jones of Realogics notes that pre-sales for new buildings show a stronger market than pure MLS figures. But he agrees the market is slowing.
"What a difference a year makes," Jones said. "It's surprising to me how many projects I thought would be going by now aren't. Developers would like to be going forward but fewer lenders want to play that role."
Because of the credit crunch, lenders are now requiring developers to put more of their own money into a project and are increasingly asking developers to personally guarantee their loans.
The spread on construction loans is up a half to 1 percentage point, according to Mark Capeloto, a director in the Seattle office of CBRE/Melody, a commercial lending brokerage. Many large banks have a sizable number of loans out on condominium projects and don't want to increase their exposure.
"They are very disinclined to do any more condo-construction loans anywhere in the country, even though our market is healthy here, although it is softening," Capeloto said.
Others are still making loans but are reducing the amount they will loan on a project and requiring unit presales of 50 percent or more. Lenders also want a wider profit margin. Previously they might have asked for a 13 percent to 15 percent profit margin - now they prefer 15 percent to 20 percent, Capeloto said.
Some developers are looking to smaller banks for funds. But those lenders are growing cautious, even about backing a small part of a project in conjunction with other lenders.
The president of the Western Washington region for Washington Trust Bank, Scott Luttinen, said the bank is increasingly selective when it works with real estate developers and chooses only to work with established customers who are well-capitalized.
Most of the bank's existing real estate lending has been toward smaller, infill projects rather than larger condo high rises. Luttinen said the market as a whole for larger, high-end residential project financing has tightened - not just on the condo end.
"We're getting more requests on anything real estate," said Luttinen. "Clearly that's because they're seeing resistance from other institutions."
Luttinen points toward other regional banks that have had to increase their loan-loss provisions because of bad real estate loans as a chief reason why Washington Trust is being more selective. Cascade Financial, Frontier Financial and Sterling Savings Bank, among Washington's largest community banks, have all increased their loan loss provisions in the first quarter as a result of bad real estate loans.
While developers struggle with financing, so do buyers. Which only worsens the developers' plight. Just as their counterparts shopping for single family houses in the suburbs, condo buyers' confidence is eroding despite a strong regional economy that has made the Puget Sound area one of the top real estate markets in the country.
"It used to be you could open a project and sell out 75 percent of the building in two weeks," said Mike Miller of Miller Condominium Marketing in Seattle. "Those days are gone ... You have to work every deal really hard."
In response to the crunch, some condo projects are converting to apartments to stay on track, with an eye to converting units back into condominiums when the market improves. Developers can cut costs this way because they can use less expensive fixtures and carpeting. But the strategy works only for projects that have smaller units. Larger, luxury units are typically too expensive to build to then rent.
The federal government also has made an effort to push life back into the market by lowering key interest rates and offering new loan products that make it easier for buyers to borrow larger amounts of money.
But tighter lending requirements could undermine those efforts, and that could prevent middle-income buyers from getting a loan, said Jeff Bell, a certified mortgage planner at Cobalt Mortgage.
Lenders also have increased risk-based pricing, requiring higher credit scores, even with a higher down payment. Some lenders are also looking at high-rise condos as a higher risk and slapping on as much as half an interest percentage point more on jumbo mortgages, Bell said.
Some large mortgage insurance companies such as Genworth Financial also are tightening their guidelines, requiring at least 10 percent down to receive mortgage insurance on a condo. Mortage insurance is generally required if you have one mortgage loan for over 80 percent of the cost of the condo.
"Nationally, (lenders) are probably seeing more defaults on high-rise condos," Bell said.
Some developers see an opportunity in the predicted shortage of new condos. John Midby, whose Lexas Companies is building Escala, is so sure of the pending sharp decline in the number of condos available that he's placing his bets on an undisclosed second condo project in South Lake Union.
Midby said the drop-off in the number of condos available will drive up the price, penalizing the picky buyer.
"The ones that are milling around are going to have to grab a seat or they're not going to get the product they want," he said. "We know there's going to be a lot of scarcity between now and then."
Similarly, Dan Ivanoff, managing principal of Schnitzer West LLC, said the subprime meltdown and ensuing credit crunch have been good for the market by eliminating unqualified buyers and speculators, and have stopped poorly sponsored projects. Schnitzer, with three condo projects in Seattle, hasn't been hobbled by the credit crunch, because most of its construction loans were negotiated before it hit. Additionally, the firm typically puts up the 30 percent equity many lenders are now demanding.
Borrowing "more money is not necessarily good for you," Ivanoff said. "Someday you'll have to pay it back ... When you wind the clock back a year, anyone who could fog a mirror could get a loan."
Ironically, the slowing market just might protect condominium prices, by reining in supply at a time there is uncertain demand from buyers, said Jones.
Phil Pinkstaff, a market analyst and valuation specialist for Miller Condominium Marketing affiliate MCM Group, expects the Puget Sound area will do better than most other large U.S. cities in terms of real estate values.
Over the past 17 years, condo prices have dropped just three times, in 1993, 2001 and 2003. The biggest price decline was in 2001 and was less than one percent.
Pinkstaff thinks rising rents will help push buyers back into the condo market. He does not anticipate price decreases but expects little upside in the short term, but strong price appreciation several years out.
Meanwhile, some developers are on the sidelines patiently waiting for the right moment get back in the game. That means the shortage itself could be short-lived.
Ryan Bosa, owner and president of Embassy Development in Vancouver, British Columbia, is waiting to build 643 condominiums in two towers at 5th Avenue and Battery Street. He thinks the Seattle market is undervalued, and was just hitting its stride when the subprime crisis swept across the country.
At "the first signs that there is some confidence in the market, we will get going," Bosa said. "It could be by the end of summer or by the beginning of next year."
April 2008
According to Forbes, the best place to get a bargain on a home is an area where there is healthy job growth and more houses available than people to buy them. Forbes selected what it considers the 10 best cities for house hunters based on markets where the damage from risky lending hasn’t been as dramatic as in some parts of the country and where employment growth will burn off an over-abundance of inventory quickly. Those 10 best cities, according to Forbes, for bargain house hunters are: #1 – Salt Lake City, #2 – Raleigh, #3 – Orlando, #4 – Charlotte, #5 – Phoenix, #6 – Seattle, #7 – Las Vegas, #8 – Jacksonville, #9 – Richmond (VA), and #10 – Houston.
April 2008
NW Reporter
Metro Areas Show Greatly Mixed Home Price Performance; Half Show Gains
All five metropolitan areas in Washington that are included in a national survey of home prices showed gains in the fourth quarter of 2007. Roughly half of all metro areas continued to show price increases when compared to the previous year, according to the latest quarterly survey by the National Association of Realtors®.
In the fourth quarter, 73 out of 150 metropolitan statistical areas show increases in median existing single family home prices from a year earlier, including 11 areas with double-digit annual gains – two of which are in Washington state. The survey found 77 areas with price declines, including 16 with double-digit drops.
In the fourth quarter, Yakima claimed the second largest single family home price increase where the median price of $170,600 rose 18 percent from the fourth quarter of 2006. After Yakima, the strongest metro price increase in the West was in the Kennewick-Richland-Pasco area, at $172,400, up 14 percent from a year ago.
Lawrence Yun, NAR chief economist, said disruptions in the mortgage market have played a role. "The continuing crunch in the jumbo market that began in August has disproportionately reduced the number of transactions in higher price ranges," he said. "For buyers who need loans of more than $417,000, mortgage interest rates have been running more than a percentage point higher, and that has been having an obvious impact. Higher ratios of sales for more moderately priced homes are naturally dampening the national median price as well as the data for some of the more expensive markets."
NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said he is encouraged with plans to increase conventional loan limits. "Higher limits for FHA loans, which go into effect March 14, will be a big help to first-time buyers in high-cost markets. Higher limits for conventional loans purchased by Freddie Mac and Fannie Mae will take a bit longer – when they become available, high-income, borrowers in high-cost areas will have access to affordable and safer financing, and that will help unleash pent-up demand," he said.
Editor's note: A March 1 survey of single-family inventory in the Northwest MLS database shows more than half (51.2 percent) of current listings in the tri-county region (King, Pierce and Snohomish counties) have asking prices of more than $417,000. In King County, more than two-thirds (67.5 percent) of single family homes offered for sale are priced above $417,000.
"With the market in a state of flux, it's especially important for consumers to stay abreast of widely varying and changing market conditions. We encourage them to have a traditional long-term view, which means taking the time to thoughtfully research the market. More than ever, the best resource is a Realtor® who can put local conditions in perspective, provide advice and negotiate the transaction."
Despite the annual decline in the fourth quarter median home price, the typical seller who purchased their home six years ago still saw a very healthy gain, according to NAR research. The median increase in value for sellers who purchased that home in the fourth quarter of 2001 is 31.2 percent, and the median home equity accumulation is $49,000.
March 2008
NW Reporter
(February market update)
NWMLS Reports Pending Sales Increase 23% from Month Ago
February housing activity around western Washington signaled signs of an emerging spring market with a noticeable increase in open house traffic, reports of multiple offers and a big jump in pending sales from the previous month.
New figures from Northwest Multiple Listing Service show a 23.6 percent increase in pending sales (offers made and accepted, but not yet closed) compared to January. Prices for last month's closed sales of single family homes and condominiums (combined) were up in 12 of the 19 counties in the MLS service area.
"In March, the real estate market is set to get its mojo back," remarked J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. "We're already seeing the momentum build as more and more buyers realize what a great time it is to buy a home thanks to low interest rates, healthy inventory, and a strong local economy," he added.
Area-wide, the MLS reported 5,563 pending sales of single family homes and condominiums for February, up from January's total of 4,499. Last month's total still lagged the busier market of a year ago when there were 8,043 pending sales of single family homes (a decline of nearly 31 percent).
While encouraged by last month's jump in pending sales from January, brokers also acknowledge hesitancy still exists among some buyers. However, among sellers, one broker said "they're motivated like never before and willing to listen to reasonable offers much more readily today."
The fluctuation in interest rates has confused some buyers, according to NWMLS director Dick Beeson, broker/owner of Windermere Commencement Associates in Tacoma. "Buyers need stability to trust that all is well and that they'll be able to obtain financing," he suggested.
One certainty house hunters have is ample selection. Inventory is up almost 39 percent from a year ago. At the end of February there were 43,927 active listings of single family homes and condominiums in the Northwest MLS system, which covers most of western Washington.
The selection of homes in King County is about two-thirds larger than a year ago, boosted in part by nearly twice the number of condominiums offered for sale. At the end of February, MLS brokers reported 3,478 condos for sale countywide, up from 1,784 listings a year ago. The inventory of single family homes in King County is up about 61 percent from a year ago, rising from 6,124 listings twelve months ago to 9,875 at the end of last month.
Brokers added 12,104 new listings of single family homes and condominiums to inventory during February, bringing the system-wide total to 43,927. That compares to figures of 11,333 new listings during February 2007, for a year-ago total inventory of 31,658 residences (up nearly 39 percent). Compared to January, inventory increased about 6 percent.
Even with a bigger selection, some brokers are reporting multiple offer situations. MLS director Diedre Haines, broker at Coldwell Banker Bain in Lynnwood, said she assisted agents with negotiations on 10 multiple offers during the past month.
"The atmosphere is definitely changing, Haines commented, noting agents reported more than 100 visitors to an open house a few weekends ago at a new housing development in Mill Creek. Reflecting on her 32 years in the business, she said - somewhat in jest - that she's tempted to going back to selling rather than being a managing broker. "There's an opportunity to really have a lot of business," she commented.
Selling prices for all residential sales across all counties dipped slightly (about 2 percent) from a year ago, even though 12 of the 19 counties reported gains.
In the four-county Puget Sound region, prices for single family homes and condos that sold in King County last month were essentially unchanged from a year ago, rising about one-half percentage point, from $393,250 to $395,000. Snohomish, Pierce and Kitsap reported modest price declines from a year ago.
Despite the plentiful selection of condominiums, prices still increased from a year ago. For last month's completed transactions, the median selling price of a condo was $257,075, up 2 percent from the year-ago figure of $252,000. In King County, where six of every 10 condo sales occurred, the median selling price was $289,000, up 1.3 percent from the year-ago figure of $285,250.
Brokers say uncertainty about financing is prompting some buyers to stay on the sidelines. "No down payment loans are pretty much a thing of the past and FHA loans are becoming more attractive because of low down payment and reasonable qualifying standards," Tacoma broker Beeson said. Low FHA loan limits are making a difference in King County, but are not a deterrent in Pierce County, he noted. Worries about the subprime mortgage debacle and adjustable rate mortgages are apparent, he said, adding, "But there are solutions for every real estate problem. We'll handle them all," he proclaimed.
March 2008
NW Reporter
NWMLS Brokers Report
Members of Northwest Multiple Listing Service tallied more than $33.3 billion in sales of single family homes and condominiums during 2007. The MLS also reported 18 of the 19 counties in its market area experienced increases in median prices compared to 2006, with one county matching the 2006 price.
In its year-end summary report, Northwest MLS, whose service area covers about 80 percent of the state’s population, logged more than 82,000 closed sales during 2007. Single family homes accounted for nearly 82 percent of the number of sales and about 86 percent of the dollar volume, with condominiums making up the balance.
Last year’s volume, measured by number of units, amounted to a drop of about 14.5 percent from 2006. The dollar volume, compared to the previous year, was down about 8.7 percent. Underscoring the “real estate is local” mantra, median price gains among the counties ranged from zero to nearly 16.1 percent.
Among highlights the broker-owned service noted for 2007:
- The median price for single family homes that sold last year area-wide was $342,000, up 5.9 percent from the previous year.
- Among the counties, the median selling price of a single family home (half sold for more, half for less) ranged from $154,500 in Grant County to $563,250 in San Juan County.
- Five counties reported double-digit price gains for sales of single family homes compared to 2006, topped by Lewis County at 15.9 percent.
- Condominium prices jumped 10.6 percent from 2006 to 2007. The area-wide median price rose from $235,000 to $260,000.
- Kitsap County topped the charts in price gains for condos. Last year’s median sales price of $337,400 was 82.4 percent higher than the 2006 figure of $185,000. Several new developments contributed to the price jump.
- 2,311 residences fetched more than $1 million, a 10.1 percent jump from the previous year. Of the million-dollar-plus sales, 2,186 were single family residences.
- The MLS area covering Bellevue/West of 405, including the “Gold Coast” district encompassing Clyde Hill, Hunts Point, Medina, and Yarrow Point, had the highest number of million dollar-plus sales with 240.
- 1,115 condominiums sold for $500,000 or more (including 125 condos that sold for more than $1 million). Seattle’s Belltown area claimed the highest number of condos that sold for a half-million dollars or more, with 201.
- In the four-county Puget Sound region (King, Snohomish, Pierce and Kitsap), less than 5 percent (4.68 percent) of single family homes sold for under $200,000. Nearly three of every 10 homes (28.9 percent) sold for $500,000 or more.
- Brokers added nearly 153,000 new listings of single family homes and condominiums to the inventory during 2007 (up from 140,449 the previous year).
- NWMLS members sold more than 15,000 condominiums, about the same number as the previous year (15,038 in 2007 compared to 15,318 in 2006). About 63 percent of all condos that sold were in King County.
- Single family homes accounted for about 83 percent of all residential sales. Of these transactions, more than half (52 percent) had three bedrooms.
- The second quarter was the most active for pending sales, with 31.4 percent of those transactions being written during April, May or June. The last quarter, reflecting the usual seasonal slowdown plus turbulence in the mortgage market, was the slowest, with only 17 percent of pending sales taking place during that timeframe.
- Counties within the MLS service area have wide variation of prices for 3-bedroom homes. For pre-owned homes (built 2005 or earlier) the median sales price ranged from $145,000 in Grant County to $500,000 in San Juan County. In King County it was $408,000.
- For new homes (built in 2006 or 2007), the most expensive homes are found in San Juan County, where the median selling price was $685,000. In Grant County the median price on new homes was $182,059, earning it the distinction of being the only county in the NWMLS service area with a median selling price under $200,000 for a newly built single family home.
- Mercer Island had the highest priced homes when comparing median prices by school district. Single family homes that sold in that district during 2007 had a median selling price of $1,081,250, followed by the Bellevue School District at $720,000.
- Measured by “month’s supply” last year’s average was 5.57 months (meaning it would take that long to exhaust inventory at the current sales pace). The national average is 10.3 months, according to the latest report from the National Association of RealtorsÒ,
- Northwest MLS members maintained a high ratio of cross sales: about eight of every 10 sales (79 percent) were listed by one office and sold by a different office.
- In King County, the average price of a residence (single family home and condo combined) that sold in 2007 was $497,855, more than twice the price paid a decade ago (1997 - $213,821). For single family homes (excluding condos) that sold in King County last year, the average price was $564,468; in 1997 it was $230,345 and in 1990, the average sales price was $178,187.
February 6, 2008
Puget Sound Business Journal
January home sale prices edge up slightly
The average home sale price in King County rose slightly in January compared with a month earlier, rising to $479,993 from December's $477,087 mark.
The median sale price (half higher, half lower) in King County was $395,000 last month, compared with $389,500 in December and $380,000 in January 2007.
The number of home sales pending in King County plummeted to 1,681 last month from 2,492 in January 2007, a drop of 32.5 percent in one year. The number of active home listings rose to 12,370 from 7,596 in January 2007, up more than 62 percent.
Real estate brokers were putting a positive spin on the latest Northwest Multiple Listing Service (NWMLS) report, as well as recent interest rate cuts and a rise in open house foot traffic.
"I have heard several reports of a dramatic increase in buyer activity ... In Seattle, well priced and well positioned properties are getting multiple offers," said Pat Grimm, owner/broker of Windermere Real Estate/Capitol Hill, Inc. and Multiple Listing Service director, in a statement.
January 7, 2008
NW Reporter
Homes Sold in 13 of 19 Counties During December in Northwest MLS System Notch Price Gains from Year Ago
December brought few surprises in housing activity around Western Washington, with above-normal precipitation and floods contributing to the expected seasonal slowdown, according to officials from Northwest Multiple Listing Service.
As December came to its soggy close (marked by a month with 25 days of precipitation for Seattle), brokers had an optimistic outlook, citing pent-up demand, positive job growth, stable prices, brisk activity at open houses, and other indications of an improving market.
"Traffic at open houses between Christmas and New Year's was the heaviest we've seen in a long time," reported NWMLS director Dick Beeson, broker/owner of Windermere/Commencement Associates in Tacoma. "Buyers were very upbeat and ready to act," he added.
Brokers reported 3,950 pending sales (offers made and accepted but not yet closed) system-wide during December, lagging November's total of 5,194 transactions. When compared to the same month a year ago, the number of pending sales dropped by about 31 percent (5,744 versus 3,950).
Prices overall were comparable to twelve months ago, with 13 of the 19 counties in the MLS market area reporting increases (including seven counties with double-digit gains). During the month, there were 4,634 closed sales of single family homes and condominiums with an area-wide median selling price of $313,325. That's down slightly (0.53 percent) from the year-ago median sales price of $315,000.
Comparing counties in the Northwest MLS market area, the median sales price ranged from a low of $146,500 in Grant County to a high of $594,500 in San Juan County. For the four-county Puget Sound region, the median sales price for last month's closed sales of single family homes and condominiums was $342,000.
For single family homes (excluding condominiums), prices slipped less than a percentage point, from the year-ago figure of $330,000 to last month's price of $326,950 (down 0.92 percent). In King County, the median sales price of $435,000 matched November.
For 2007, the median price for all homes and condos sold and closed by members of Northwest MLS was $325,000, a gain of 5.8 percent compared to closed sales for 2006.
Condominium prices continued trending upward, registering a 5.4 percent increase from year-ago figures. Area-wide, last month's condos had a median sales price of $252,900, which compares to a year-ago figure of $240,000. In King County, which accounted for 65 percent of the volume, the median sales price for December's closed sales of condominiums was $290,000, up more than 7.4 percent from a year ago when the median price was $269,950.
"The market conditions are positioned for increased sales activity," said J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. "Interest rates are down, sellers have adjusted their prices, apartments are full, job growth is strong, and there is a pent-up demand of buyers coming into the market," he added.
MLS members added 5,543 new listings to the inventory during December, slightly more than a year ago when they added 5,357 new listings. With those additions, the number of active listings of single family homes and condos at month end totaled 38,440. That's down from November's inventory of 44,399 active listings, but up almost 36 percent from a year ago when there were 28,307 residences offered for sale.
"I believe the bottom has arrived in the Puget Sound market place and from here on prices will stay level or advance slightly in 2008," Beeson remarked, adding, "My agents tell me their recent conversations with buyers indicate pent-up demand that should start showing up in the marketplace this month and next."
Beeson acknowledged uncertainty about new federal programs on subprime loans and foreclosures could restrain activity. Despite that caveat, he expects improving numbers this year over last. Sellers are finally "getting it" and pricing their properties closer to where they should be. "Nothing substitutes for correct pricing and excellent condition for obtaining the best offer in the least amount of time," he remarked, adding, "With interest rates remaining low, we could see some instant success with sales."
For the first week of January, the 30-year fixed rate mortgage rate was 6.14 percent, according to the Bankrate.com national survey of large lenders. One year ago, the mortgage index was 6.24 percent.
"Given the positive job growth, strong regional economic outlook and the fact that buildable land is still scarce, the return of a reasonably hot market is likely, making this an optimum time to buy," said Ron Sparks, a vice president at Coldwell Banker Bain in Bellevue.
Citing a report about declining home sales from a May 2001 Seattle daily newspaper, Sparks quoted a question posed to readers: "Does it signal the end of a four year boom market that's seen the average price of King County single family homes climb to a breath-taking $310,000?" With the average price of a single family home that sold last month in King County nearly $535,000 (median price = $435,000), "We know the answer," Sparks commented.
December 14, 2007
Puget Sound Business Journal
Sound opportunities lurk within a tough market
Report shows strong outlook for Seattle, with heavy demand for office space and green buildings
Across the country, the last half of 2007 has been tough for the commercial real estate market.
In Seattle, however, there is reason to believe that we will retain our status as a strong real estate market compared to others across the country. Recently, Forbes magazine and TV financial pundits as diverse as Jim Cramer and Suze Orman all have the same advice: "Invest in Seattle real estate."
Further reinforcing Seattle's unique reputation as a strong real estate market, an influential industry report created and issued by the Urban Land Institute and PricewaterhouseCoopers states that the Seattle region is the top real estate market in the country, and the city of Seattle is the second best commercial real estate market, second only to New York City.
This report, "Emerging Trends in Real Estate 2008," is the most highly regarded annual outlook for the real estate and land use industry. The report reflects surveys of more than 600 of the industry's leading real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants.
While the local market is showing some strain, the continued outlook in the city is better than the national picture. Given the long-term potential for growth, the current slowdown can be interpreted as a call to action.
Markets to move
For the buy/sell/hold market, smart developers are looking at properties with cash flows.
Year over year, traditionally, two sectors battle it out for top opportunity honors. Over the years, distribution/warehouse space has been in the first position. In 2006, apartments were the top sector, but this year industrial was back on top.
In Seattle, distribution/warehouse holds many advantages. Seattle is a gateway city and a global trading hub. Goods arriving here from Asia need to be stored while in transition from arrival by sea and setting out for final distribution via rail or truck. At the same time, Seattle is also - thanks to Microsoft, Costco and many retail businesses - an export city.
As a major import/export hub, we will continue to grow. If the dollar stays weak, our exports pick up; if it rises, imports will increase.
In the residential category, think rental. The report suggests that multifamily residential is still strong in Seattle, but there is an edge for those building rental units, as opposed to condominium units. With tightening credit markets, ownership could be problematic for some. In such a climate, renting is going to increase.
Office space continues to be in demand. In the near term, in-city office space is going to continue to be a strong market. Seattle's strategic relationship with Asia will continue to attract companies to either develop headquarters office space or satellite office space in our region. But the report recommends building in central city locations close to the action.
Think green: Development of state-of-the-art green buildings will continue to fill increasing demand. Investors and developers should weigh obsolescence issues carefully. According to the report: "If it's brown vs. green, green has the competitive advantage."
Seattle is in a good position because we are ahead of the curve in building green.
Cautions
The report cautions against building hotel and retail space.
A hotel building boom has given the city a good base of hotel rooms that serve Seattle's increasing prominence as a tourist destination, particularly as an embarkation city for a burgeoning cruise business. However, Seattle has yet to capture a strong presence in the convention industry.
Retail is in a state of evolution. This year's "Cyber-Monday," the Monday following the Thanksgiving holiday, was a rousing, record success. Online sales totaled $733 million, according to comScore, an internet research company. It's hard to know if this signals an increase in online shopping, but it stands to reason that these purchases will affect the growth in demand for bricks-and-mortar retailers.
The "Emerging Trends" report argues for a closer look at a market that has few peers among major American cities. Seattle is unique, and it's very good to be unique.
However, this is only an attribute for those with the wisdom to take advantage of it. There are sound opportunities out there for the wise and prepared commercial real estate developer.
December 6, 2007
NW Reporter
Housing Activity Shows Seasonal Slowdown, Stable Prices
A "typical holiday market," "the start of an optimum buy zone," "a good time to beat the spring rush," and a "wonderful time to be a home buyer" are among reactions by directors of Northwest Multiple Listing Service upon viewing the activity summary for November.
The latest recap report issued by Northwest MLS shows little price fluctuation from a year ago, ample inventory (about 31 percent more listings than a year ago, but 6.3 percent fewer than the previous month), the expected seasonal slowdown of sales activity, along with reports of "busy agents" who are working with motivated buyers and sellers.
For its 19-county market area, MLS members reported 5,194 pending sales of single family homes and condos (combined) last month, down from 7,022 for the same month a year ago, a drop of 26 percent.
An analysis of the falloff in activity in the four-county Puget Sound region from October to November shows this year's decline, at 12.4 percent, is the third lowest of the past eight years. Since 2000, pending sales from October to November have dropped from a low of 5.3 percent (in 2001) to a high of 25 percent in 2003.
Prices on completed sales of single family homes and condos dipped slightly - 1.35 percent area-wide - from a year ago. For November's closed sales, the median price was $315,000, which compares to the year-ago figure of $319,300.
For the four-county Puget Sound region (King, Kitsap, Pierce and Snohomish counties), the median selling price for last month's closed sales of single family homes and condominiums was $340,000, down about 1.2 percent from the same month a year ago when the price was $344,000. For single family homes only (excluding condos), the median price for the four-county area rose about 1 percent, from $363,500 to $367,352. For condos, the median price increased more than 3.9 percent, from $255,000 to $265,000.
In King County, the median price declined 2.9 percent for the "blended" property types (single family homes and condominiums); the price declined from $397,500 to $385,990. The price for single family homes only (excluding condos) was unchanged at $435,000. The median selling price for condos that sold in King County last month was $284,450, an increase of 4.2 percent from twelve months ago when the median price was $272,950. One factor contributing to the price dip is the growing popularity of condos, which tend to have lower prices. A year ago, condos accounted for 25.3 percent of closed sales in King County; last month, condos made up 30.3 percent of sales countywide.
NWMLS director Kathy Estey, managing broker at John L. Scott's downtown Bellevue office also attributes the price dip to the broader selection. "From my perspective we are seeing a great deal more activity in the lower price ranges because there is more inventory in those ranges now," she remarked, explaining an increased volume of sales at the lower end of the spectrum means the median price (half sell for more, half for less) will adjust downward.
"Most homes have not lost value – and good properties are still attracting more than one buyer," Estey stated, while noting premium pricing is rarely in effect. Last week, her office had four different multiple offer situations for homes priced under $700,000. She also reports two different multiple offer situations in the past few weeks for homes priced over a million dollars. Pent up demand is starting to show signs of moving buyers from the sidelines into the market, she noted. "Our agents are busy," she reports, adding, "It is a good time to beat the spring rush."
Selection is plentiful, with 44,399 active listings offered for sale at the end of November. That's up about 31 percent from a year ago when there were 33,817 active listings. The inventory includes 8,805 new listings that were added during the month.
"Welcome back to normal," commented MLS director Ken Bacon, the broker at Windermere's Redmond office. He characterized the market as "a typical holiday market," and while different that the past few years, it's similar to markets in the prior decade with appreciation of about 3 percent per year, a great job environment and buyers driven by a need and desire for homeownership. Bacon expects buyer interest to build after the holidays, with single digit appreciation likely to continue. "What a wonderful time to be a homebuyer," he exclaimed.
J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, described conditions as "the start of the optimum buy zone."
"We're slowly beginning to rebound from the effects of the turbulent mortgage market," Scott said, adding, "Interest rates are back down to pre-mortgage meltdown levels, prices are holding steady, and there is ample inventory for buyers."
MLS director Dick Beeson, broker/owner of Windermere Real Estate/Commencement Associates, reports less volatility in the market. "The market seems to have leveled out," he commented, with buyers resuming their search as interest rates continue to fall and inventory starts to shrink.
"Some sellers have finally reduced their price or come on the market at the right price" to facilitate a quicker sale" according to Beeson. "Correct pricing gets the most money in the quickest time," he emphasized. Open house traffic has been "up and down" and there are still many non-committal buyers undergoing prolonged searches as they seek a perfect blend of neighborhood, price and amenities, Beeson noted. He anticipates a "great first quarter," with lower inventory and lower rates brewing up a slight rebound in spring and summer.
Although traffic is down, Steve Little, an associate broker at Windermere Real Estate/Northwest, reports having a noticeably higher percentage of serious buyers at his open houses. "The 'just lookings' and 'maybe in the future' or 'looking for remodeling ideas' visitors have decreased, according to Little. Buyers don't seem to have the sense of urgency they had a few months ago, he remarked, adding, "Wait until spring when they will think, 'I should have bought when the market was not as hot.' "
November 17, 2007
Seattle Times
By Elizabeth Rhoades
Condos a bright spot in housing market
Overlooked for years as a significant housing source, condominiums are now a rapidly growing presence providing a ray of sunshine in an otherwise gray local housing-sales scene.
The condo market is healthier than the detached-house market, and prices are holding their own. Those are the key findings from an analysis released Friday of the Seattle-area condominium market by Glenn Crellin, director of Washington State University's Center for Real Estate Research. Compared with a year ago, single-family home sales are down about 25 percent in King and Snohomish counties, while condo sales are down a more modest 15 percent, Crellin noted.
He also found that median prices for King County condos increased slightly faster than county house prices between September 2000 and September 2007 — a 77.8 percent increase for condos compared with 77.2 percent for houses.
"People think single-family homes appreciate better than condos do, and we're not seeing that in King County," Crellin said.
"Crystal balls in real estate are typically very cloudy and imprecise, but it appears the condominium markets, both resale and new development, should outperform their single-family competition in Greater Seattle, with the possible exception of the high-end market."
He surmised that sales in that segment may suffer if buyers, who typically are not first-time homeowners, have difficulty selling their current houses.
Housing analysts for many years paid scant attention to condominiums because data about them were incomplete. But in the past few years that has changed, giving a clearer picture of their growing prominence and importance.
In 2002 condominiums made up 22 percent of King County's home sales. By 2006, that had grown to 26 percent, according to the Northwest Multiple Listing Service.
Most local condo purchasers are either first-timers buying entry-level units or older empty-nesters with enough equity from previous homeownership to buy premium-price units.
The MLS' numbers demonstrate condominiums' importance in providing a solution to the housing-affordability problem.
The median price of condos sold in King County this year is $286,000. That's 37 percent less than the median for single-family houses, $459,500.
Buyers who purchased at those median prices, making a 10 percent down payment and paying the current 6.63 percent interest rate, would have a $1,649 monthly condo mortgage payment compared with a $2,649 house payment.
The mortgage payment does not include monthly dues for condo owners of several hundred dollars.
"In King County the typical first-time home buyer has only 37 percent of the income required to purchase the starter family home," Crellin observed. "Since the median price condominium sold in September was one-third less than the median home price home, condos remain a very attractive option for first-time buyers."
Single women, in particular, are strong buyers of attached housing, a recent National Association of Realtors study found. They chose some form of it, including condos and town houses, almost 40 percent of the time.
"The superluxury condo market of downtown Seattle has stolen the headlines, while converted rental units and more modest new construction throughout the market is more representative of what potential buyers will encounter in the marketplace," Crellin said.
One nagging concern among industry watchers has been the role of investors. In some parts of the country, they snapped up 40 percent of new condominiums. When real estate in those areas soured, many investors walked away from their purchases. That sent values spiraling down.
Leslie Williams, owner of a condominium-marketing company in Seattle bearing her name, said investors have made up about 20 percent of local purchasers.
That's why "we didn't have the same fallout that some of the other areas have, like Nevada, California, Florida," said Williams, who's marketing $525,000-and-up condos in downtown Seattle's new 5th and Madison condo tower.
"I've had three sales this week at 5th and Madison, all full price," she said. "That tells you the market is pretty healthy."
Mike Scott, whose firm, Dupre+Scott Apartment Advisors, tracks the multifamily market, says it's inevitable that condos' market share will increase — and understandable that it has already done so.
"If you look at new multifamily construction, so much of it is urban multifamily mixed use, and I don't mean just in downtown Seattle. It's in Renton, Kent, all the suburban markets," Scott said. "That was one of the major points of the Growth Management Act — higher density, more infill and urban-type construction, and it's materializing now."
Even in the face of a housing slowdown, there's been no halt to investors' desire to purchase apartment buildings for conversion to condominiums, he added.
"Generally speaking, higher density multifamily housing is going to be a much more common component to our market than it's been historically," Scott concluded.
November 14, 2007
Seattle Times
By Elizabeth Rhoades
The housing boom? It’s over, Realtors told
LAS VEGAS — The National Association of Realtors' annual convention started with a bang — literally — Tuesday morning when the nearby Frontier hotel imploded, sending up a huge plume of dust and making the ground shake.
It was a decent metaphor for the current state of the real-estate industry. The boom is over and the dust is now settling, Lawrence Yun, the group's chief economist, told the thousands of real-estate professionals meeting here.
This is the first year since the Great Depression to register a nationwide decline in median home prices, Yun said. His latest numbers put the drop at 1.7 percent. "We're in a time of fear," he said.
For 2008, Yun is predicting prices nationally will be flat, as buyers react to gloomy housing-industry news by sitting this one out.
But, as Yun said repeatedly, real estate is intensely local. National trends mean about as much to buyers and sellers in any one city as a national weather forecast would mean to them.
That's why things will be bad in some areas, such as Ohio, which has experienced significant job losses, and good in others.
Yun suggested Seattle will continue as one of the bright lights, which it's been this year. Median year-over-year home prices have risen every month save October, when they were down slightly.
But Seattle's strength may go beyond the usual reasons: a strong local economy and good job growth propelling housing demand.
Yun suggested that Seattle may be joining such cities as New York and San Francisco as "superstar cities" whose desirability attracts affluent newcomers who bring the buying power to continue pumping up housing prices.
In Washington, the group issued its ninth-straight downwardly revised monthly forecast, saying nationally existing home sales will fall 12.7 percent this year to 5.66 million, down from 6.48 million last year and the lowest level since 2002.
The group forecast sales will rise slightly next year to 5.69 million, but that is down from last month's prediction of 6.12 million.
Yun's forecast shows existing home sales bottoming out in the current quarter, then rebounding by mid-2008.
However, many other economists are far less optimistic. They predict weak sales, sinking new home construction and falling prices through next year and emphasize that those problems could worsen if the economy sinks into a recession.
The Realtors group said the median price for U.S. existing homes — the point at which half sold for more and half for less — will sink to $218,200 this year and remain basically flat next year at $218,300. In October, the median price for single-family homes in King County was $443,950. In Snohomish County last month, the median was $374,334.
If median prices on the national level fall this year, it will be the first price decline in the nearly 40 years that the trade group has tracked median prices.
Other ways to measure national housing prices, such as the S&P/Case-Shiller index, have already shown price declines.The Associated Press contributed to this report.
November 6, 2007
NW Reporter
Housing Activity Still Slower Than Year Ago, But Showing Some Signs of Reviving
Pending sales perked up around Western Washington in October, reversing four months of month-to-month declines, according to new figures from Northwest Multiple Listing Service (NWMLS). The report also shows some slowing in both listing activity and price appreciation.
Brokers reported 6,127 pending sales (offers made and accepted, but not yet closed) across the 19 counties served by Northwest MLS. That total includes 379 more transactions than September (a 6.6 percent gain), but still lagged activity of a year ago. Compared to the same month a year ago, October's pending sales were down about 28 percent.
MLS members added 11,785 new listings to inventory – the fewest number since February when they added 11,333 new listings. With those additions, there were 47,381 active listings of single family homes and condominiums in the MLS system, about 31 percent more than a year ago.
The current selection includes 40,252 single family homes with an area-wide median asking price of $375,000 and 7,129 condominiums, listed at a median price of $289,900.
Prices for sales that were completed during October were essentially unchanged from a year ago, but closer examination shows wide variation among the 19 counties. Seven counties had slight drops (most less than 2 percent) and five counties had double-digit price gains compared to 12 months ago. For the four-county Puget Sound region, prices for last month's closed sales of single family homes and condominiums combined rose about 1.3 percent from a year ago, increasing to $344,250 from $339,950.
NWMLS director Joe Spencer, president of John L. Scott, Inc. described current conditions as the "Buy Zone" and "the perfect buyer's market." Looking at the housing market graphically over the past 25 years, it's evident there are periods when conditions make it the perfect time to buy a home, he explained. "The numbers show the housing market typically has a six to seven year boom, followed by a two year decline. This decline represents an ideal opportunity to buy because homes can be purchased at a premium value – and that's exactly what we're experiencing in the Puget Sound region," Spencer stated. Combine this with low interest rates and a healthy supply of homes to choose from and you have yourself the perfect buyer's market," he added.
Mike Welty of Liberty Financial Group in Bellevue said he is seeing the return of the jumbo product, better pricing and greater flexibility. (In general, jumbo loans are for $417,000 or more.) Rates are still very good, he noted, even as the industry has returned to more prudent underwriting and scrutiny. "Equity, income and good credit are still necessary to get the most favorable terms for a mortgage," Welty added. Acknowledging some industry associates are complaining about the lack of available mortgage products, he said "We have greater flexibility and a broader range of mortgage products" than he has seen in his first 20 years in the business. "A qualified buyer can get a great deal today," he emphasized.
Despite slower activity, brokers remain optimistic, citing steady population growth, job creation and a demand for median-priced homes near job centers that outstrips supplies as factors that are contributing to the area's relatively strong and stable real estate market.
"The market is stabilizing in South Sound and buyer confidence is shoring up," said NWMLS director Dick Beeson, broker/owner of Windermere Real Estate/Commencement Associates in Tacoma. He reports brisk traffic at open houses as more buyers are realizing the bottom of the market may be here and not likely to continue much longer.
NWMLS figures show pending sales in Pierce County increased 8.2 percent last month compared to September. During the same timeframe, the selection shrunk, with 242 fewer listings offered for sale (a drop of about 2.8 percent) at month-end compared to September. "Buyers need to take advantage of the market right now," Beeson suggests, adding he believes it is poised for a rebound.
Mike Skahen, owner/broker of Lake & Co. Real Estate in Seattle, also detected improving activity. "The past couple of months we've noticed a definite slowing in buyer activity," he observed, attributing the slowdown to negative press, fallout from the subprime mortgage crisis and difficulty in obtaining jumbo loans. However, he remarked, "In just the past two weeks there's been a noticeable increase in sales and several listings that have been on the market for months have sold, so I think buyers are realizing they've waited long enough and are trying to take advantage of negotiable sellers and buy before the holidays."
Skahen, a member of the NWMLS board of directors, also noted people need to buy and sell houses due to life changes so they can only wait so long. "The current sales statistics really reflect a return to a more normal market," he commented, adding, " Seattle's economy is too strong for this [slowdown] to last long."
Another MLS director, Kathy Estey, echoed that optimism. "This is a time of opportunity. There is an abundant selection so instead of having to ‘settle' for a home buyers can actually find homes that meet most of their requirements," she believes.
Estey, the broker at the Bellevue Downtown office of John L. Scott Real Estate, also urged sellers to seriously consider the first offer they receive, suggesting waiting may only result in lower offers. "Testing" the market may not be a viable option with so many competing homes on the market, she said. Only serious, motivated sellers should put their homes on the market, according to Estey who suggests those who aren't serious could risk economic damage by being rejected by the marketplace and creating a negative stigma for their home.
Northwest Multiple Listing Service, based in Kirkland, is the largest full-service MLS in the Northwest. The MLS is owned by its member brokers and currently encompasses nearly 2,100 companies with more than 26,000 sales associates. Together, they serve 19 counties, mostly in western Washington, plus Grant, Kittitas and Okanogan counties in the central part of the state.
Oct 1st, 2007
Forbes.com
America’s Most Stable Housing Markets
By Matt Woolsey
Nationwide, home prices are falling, sales are sluggish and the number of foreclosures is mounting. Ask any economist and you'll hear that things are bad, and likely to get worse.
Unless you live in Seattle, where the market is slowing but fundamentals remain strong.
The Emerald City has experienced strong price appreciation over the last six quarters, and that's expected to continue in the new year, though at a slower pace. In addition to a very low housing inventory and a strong sales rate, there are few non-conforming and high-risk loans on the books than in other cities, which means the area will likely see fewer defaults in the coming months than the rest of the country's markets.
Also primed for a stable year are Pittsburgh, Columbus, Ohio, and Dallas. They follow Seattle in our ranking of the country's 10 most stable markets. All are projected to have median home sale price increases next year, thanks to a combination of factors including lower-than-average inventory levels, little price volatility and high job growth.
To arrive at our list, we teamed with Moody's Economy.com to develop three prediction models based on a range of factors that affect how prices move. These include, among other things, the state of local economies, new construction contracts, foreclosure rates, local credit markets, sales rates, affordability and inventory. Each of America's 40 biggest cities was ranked on all three models, with price appreciation counting one half and sales rates and credit models accounting for the other half. Data were drawn from the U.S. Census Bureau, National Association of Realtors, Equifax, a credit-market tracking firm and Moody's Economy.com.
Behind The Numbers
The first model looks at projected median existing home price growth from fourth-quarter 2007 to fourth-quarter 2008. Factors influencing this data include the market's inventory of unsold homes and the amount of new construction underway, both of which have obvious effects on supply. Housing affordability and local construction costs also play a role, acting as indicators of the market's ability to accommodate first-time buyers and new construction. Next is job growth, which attracts people to the area and increases their ability to buy a home.
Expensive markets like