Seattle’s skyrocketing rents are a hot topic these days. In 2014, Seattle was the fastest-growing city in the United States, and in-migration of new residents has created a supply-demand crisis for available housing units.
Seattle has the lowest vacancy rate since 1980, at only 3.6 percent, and year-over-year, rents have increased 7.6 percent, according to Dupre & Scott and the Puget Sound Business Journal. Although rents are still climbing, there are indications that the pace of rent increases is beginning to slow down.
The only thing rising faster than Seattle’s rents is the number of new apartments under construction. The supply of apartments in Seattle has increased 25 percent in three years, according to The Seattle Times. To further complicate the rental market, there are at least 56 new apartments under construction in Downtown Seattle now, and more to follow.
At some point, the supply of rental units will catch up to demand. That may already be happening in Ballard, for example. Ballard has approximately 2,500 rental units and 423 are vacant. That makes Ballard’s vacancy rate the highest in the region at 17.3 percent, according to Seattle real estate broker Candice Oftebro’s website, BrokerCandice.
At the same time, the Puget Sound region is experiencing a record-low inventory of homes available for purchase. Industry experts consider a four- to six-month supply of homes to be balanced, or a normal housing market. At the end of June, King County’s housing supply was down to less than 1.2 months’ supply, according to the Northwest Multiple Listing Service (NWMLS). The shortage of listings means it’s a seller’s market.
Renting out your home
Basically, if you’re a homeowner, you have the upper-hand in negotiations if you choose to sell or if you opt to rent the home. Recognizing how rare this situation is, should you rent or should you sell?
That depends on a number of factors, including your age, your income and the home’s location. Does your home have a mortgage, or do you own it free and clear? How does this property fit into your long-term (and short-term) financial plans?
Here is a list of questions to ask before renting your home:
•How will you respond if your tenants say they can’t afford to pay the rent this month?
•If you have a mortgage payment, how long can you afford to pay it without rental income?
•Have you interviewed experienced eviction attorneys, in case there is a problem tenant?
•Have you investigated the cost of insurance premiums for a non-owner-occupied home?
•Will you allow pets? Cats? Dogs? How big a dog? Who mows the grass — you or the tenant?
•How will you actually collect the rent — by mail, in person or by property manager?
•Repairs are part of being a landlord. What is your repair budget? Who will the tenant call? Do you have a list of craftspeople readily available to handle these repairs?
•How often will you do a physical inspection of the property?
•Will you alert your current neighbors that you are renting the house?
The first call you should make is to your accountant. Converting your owner-occupied home to an investment property has financial implications. You can’t make a good decision about whether to sell or rent without understanding the tax consequences. (For example, if you sell, do you know about 1031 (tax-deferred exchanges)?
The second call should be to your Realtor or appraiser. You need to know the market value of your home and the cost to sell your home. Your Realtor can provide you with a market analysis of the value of your home, a breakdown of the selling costs and the net proceeds you’ll receive at closing.
At the end of 2014, Zillow forecast Seattle real estate prices would increase just 3.9 percent in 2015. Since January, area-wide prices are up 13.6 percent, according NWMLS.
That’s great news, but I caution you about expecting this rate of appreciation to continue. Double-digit appreciation is rare and is usually followed by a correction in the market.
Peaking market
According to the 2015 June National Housing Survey by Fannie Mae, those who say it is a good time to sell increased to 52 percent, a new survey high; those who think home prices will continue to rise fell to 47 percent. The share of respondents who say mortgage rates will go up rose 3 percentage points to 50 percent.
Together, the data from Fannie Mae is signaling that we may be at or approaching a peak in the market. (Anecdotally, other agents I chat with feel the Seattle market has already peaked in the last 30 days.)
At the end of the day, and without knowing your personal financial picture or the location of your home, it would be difficult to advise you whether it’s better to sell or to rent your home.
Personally, I’d lean toward selling. That’s because a glut of new apartments will hit the market in the next 24 months, putting downward pressure on rents, and at the same time, rising interest rates are likely to cool Seattle’s overheated housing market. Now looks like a good time to sell.
Also, according to Housewire, on July 22: “Thanks to rising demand and shrinking supply, the median existing-home price for all housing types reached an all-time high in June, according to the latest data from the National Association of Realtors. That marked the 39th consecutive month of year-over-year price gains, making June the 40th straight month of year-over-year price gains.”
Remember, what goes up must come down. This news reinforces my recommendation that selling now is a wise strategy.
RAY AKERS is a licensed Realtor for Lake & Co. Real Estate. Send your questions to ray@akerscargill.com or call (206) 722-4444.