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Home Values, Can you believe ……?
Every week, often daily, I’m asked, “Paul, can you believe how much ……, home prices are rising, over asking price bids are climbing too, quantity of people came thru an open house, submitted offers on a home……. On and on it goes. The simple and short answer is “No, I cant believe it.” I can rationalize it, but in many cases I can’t support the rises. They are just too crazy to believe. But is it real and can “it” continue—it appears so.
Pricing is always a matter of supply and demand and we are in a time of exceptional demand. Rents are continuing to rise and we are seeing 1,000+ people a week moving in to the central Puget Sound area of Seattle and the Eastside. With interest rates still in the excellent range of just over 4%, it’s easy to see why people want to buy vs. rent. People who have been renting want to buy. People who lost their homes in the recession want to buy. Seniors aren’t leaving the area like they did 10 & 20 years ago when they retired, so they want to sell and buy. Millennials are buying and all kinds of “lateral” buyers want to sell and buy–changing locations, shortening commutes, increasing or decreasing their home sizes in their current areas, etc. These are all huge buyer groups and they all want to buy. We aren’t even talking about the investor buyers, who, as most agents and active buyers in the market see, are out shopping and buying in huge quantities.
So when will we find homes for all these people? It is doubtful to be any time soon. Builders are building as fast as they can but often not in areas where more buyers want to be. Those that are willing to accept longer commutes can find options but in the overall, still at very low overall availability. Prices on new construction homes in the major urban areas can be found but not commonly under the $1M mark. We are rapidly pricing many buyers out of the market and this may lead to some exodus or reduction in the quantity of people moving here. Still with our region being home to Amazon, Microsoft, Google, Boeing, Costco, Expedia and a myriad of technology, medical research and Bio-tech companies, it’s not realistic to think this inward flow will be stalling out too soon.
This means that home prices should continue to rise over the next several years. Will there be a top? Undoubtedly. When and where is only a guess for anyone. Some analysts point to expected business cycle patterns to say 2018 will see a slow down but that’s a relative term, slow down. With our region now topping the highest home value appreciation for 6 straight months, what will a slow down really mean? Rents are among the highest in the world, and still rising at some of the fastest paces; so what does a slow down really mean.
What I see is a major shift in the Seattle area home values that isn’t a bubble, but a giant ballooning expansion. Yes, the expansion will decline at some point; yes we could have some home values be somewhat in a bubble, but the general economic factors for these home values to stay up are much more likely than we’ve ever had in this region. Geo-political events can affect us; certainly; but this gigantic increase in our population seems likely to keep our housing in high demand for the foreseeable future, even if ripples appear that create some breaks in the speed.
What does this mean for you? If you are a home owner, your home has never been worth more than it is today. It will likely continue to rise in value over the coming years. If you are thinking about selling, you are in the strongest possible negotiation position. If selling and leaving the area is in your “near future” plans, you may want to expedite those plans to capture this market. Yes, your home is likely worth more next year, but you may not want to tempt a ripple in the market that may cause a short term stop to your prized position.
If you are a buyer, be diligent and vigilant. Find ways to get any extra monies you can so you can be in the strongest possible position for a buyer in this market. Don’t be timid about stretching on a house–paying $465K for a house listed at $435K may seem nuts but with home prices rising 10, 15, 20% in many cases over the last year and expected to be around 10% this year, getting the home you want, at a price you can afford should be “the” critical factor, not what price you paid vs. what the seller might have been asking. Obviously there are limits but a good agent can help you establish those. The point is your frame of reference and focus needs to be on your ability to find and buy what you want. The rising values will soon reward you for your boldness.
Rental Rates Rising
A good article on the reality of rental rates rising in our area but also on caution for the future trend. The new or newer construction options aren't the same in different locations so the forecast for rents declining or strengths of any given market area need to be looked at specifically to decide if buying an investment property makes sense. As well, this focuses on apartments only which tend to be smaller in size and turn over is higher. Still, good information for comparision of rental rates and trends.Good information for both landlords and tenants to be aware of.
Rents surge, but a record number of new units may slow future hikes
The average rent for newly leased apartments in King and Snohomish counties jumped 8 percent over the past year, but that pace could ease in 2015 as an unprecedented 12,273 new apartments open up.
Seattle Times business reporter
Average rents in region’s biggest cities
The asking monthly rents in November for a one-bedroom, one-bath apartment (before rental incentives):
Seattle: $1,513
Bellevue: $1,475
Kirkland: $1,372
Redmond: $1,326
Renton: $1,084
Everett: $943
Kent: $893
Federal Way: $863
Source: Apartment Insights Washington
The region’s runaway rent growth could ease somewhat in 2015, as developers open thousands of new apartments, according to a new report.
The average rent for new leases in apartments in King and Snohomish counties during the fourth quarter was $1,313, an annual jump of 8 percent, according to Apartment Insights Washington, a Seattle market-research firm that tracks asking rents at properties with at least 50 units.
That increase, about four times the rate of inflation, was steeper than the 6.5 percent rise in 2013 — an acceleration that’s giving ammunition to activists who want Seattle to pursue some form of rent control. Overall, the two-county region’s vacancy rate was 4.5 percent, barely down from a year ago.
But in 2015, the firm expects the market to soften as developers open an estimated 12,273 apartment units in the two-county region, breaking the record set in 1989. Most of the new apartments are going up in Seattle — neighborhoods near downtown, plus Ballard and West Seattle and in Bellevue.
“All things being equal, if there are more units, there’s going to be more competition to rent these,” said Tom Cain, the Seattle firm’s principal.
He expects the boom in supply will slow the growth of rents, lead to more vacancies and spur more properties to offer more move-in incentives.
But greater supply doesn’t necessarily support affordable rents for the working class, said Jonathan Grant, executive director of the Tenants Union of Washington State.
Given high construction costs, the new apartments charge higher rents than existing buildings.
Even more damaging, Grant said, is speculation by developers who buy older affordable properties, like the Panorama House on First Hill, make improvements and hike the rents. And that has a ripple effect on properties nearby, Grant said.
“Until there’s some sort of rent-stabilization ordinance like they have in Los Angeles or San Francisco, we will continue to lose and hemorrhage these (affordable) units at an accelerated rate,” he said.
Ballard, a popular Seattle neighborhood that has seen the city’s biggest growth in new apartments, may offer a glimpse of the broader market’s future direction — higher vacancies.
In the fourth quarter, Ballard had the city’s highest vacancy rate, at 10.5 percent, compared to 4.2 percent a year ago.
A market-vacancy rate above 5 percent generally favors renters, as landlords offer free rent and other incentives to fill up their buildings.
Vacancy rates may actually be even higher because market researchers don’t count the inventory of new apartments leasing to their first tenants.
For example, in Ballard, Apartment Insights says there are nearly 600 new units in the process of being leased. If these units were included in the market, the vacancy rate would be 21 percent.
With the boom in new apartments, even with higher vacancy rates, Ballard’s average rent has gone up: It was $1,603 in the fourth quarter, up almost 14 percent over the year, according to Apartment Insights.
The newer apartments push the market’s average rent higher: Monthly rents at properties built since 2010 in Ballard average $1,731, whereas those built in the 1950s charge an average $1,110.
As long as the local economy keeps adding new jobs, that can push rents higher in popular neighborhoods, despite a boom in the apartment supply, Cain said.
King and Snohomish counties gained more than 45,000 jobs over the past 12 months, according to the latest available state statistics.
Downtown Seattle’s apartments were the region’s most expensive, with monthly rent for a one-bedroom at $1,785, according to Apartment Insights. Seattle’s Belltown neighborhood was in second, at $1,627, followed by West Bellevue at $1,627.
The most affordable rents for a one-bedroom apartment were in Burien and SeaTac, both at $832 a month. Not surprisingly, Burien had the region’s lowest vacancy rate, at 2.7 percent.
Across the region, one out of four properties surveyed offered move-in incentives in the fourth quarter, 70 percent more than the previous quarter. The average incentive of a $17 discount a month was double the amount in the third quarter, Cain said.
Some properties are simply lowering their asking rents. Properties in downtown Seattle, the region’s most pricey submarket, reduced their rent by an average 8 percent over the quarter. The biggest jump in rent over the quarter was in West Seattle, where rents climbed almost 6 percent to $1,236.
Renters shouldn’t expect their rents to go down next year, however, given pressure from population growth.
Since 2012, King and Snohomish counties have gained more than 78,000 people, according to the state’s estimates. Housing hasn’t kept up: The housing inventory added 24,845 units over the same period.
Even during recessions, rents have fallen only slightly, according to an analysis by Seattle-based Dupre+Scott Apartment Advisors, which surveys actual rents paid in apartments with 20 or more units.
When vacancy rates in the Puget Sound region last peaked at 7.2 percent in September 2009, average rents fell 3.7 percent over the year, Dupre+Scott reports. About 60 percent of properties offered move-in incentives.
The following March, average rents at properties surveyed by Dupre+Scott had fallen 4.4 percent, the biggest annual drop in more than a decade. The month before, the unemployment rate in King and Snohomish counties reached a record 10.1 percent.
Dupre+Scott says its annual surveys show that landlords in King County aren’t reaping a windfall: From 2000 to 2013 collected revenue rose 3.7 percent annually, while operating expenses — driven by tax and utility-rate increases — climbed more than 4 percent.
Read the whole article at: http://seattletimes.com/html/businesstechnology/2025341798_rentsq4xml.html
