I don’t know about you, but some days I feel as if change is happening too fast. Seattle’s housing market is undergoing rapid change, and Seattle was recently recognized as the fastest-growing city in the United States. It’s not just the price of housing: Seattle is undergoing cultural, social and economic changes, as well.
Almost overnight, Seattle’s painfully slow housing recovery morphed into a red-hot housing shortage. Apartment rents increased 6 percent in 2014, and rents are up just more than 8 percent this year and still rising. Seattle home prices rose 18.9 percent year-over-year in April, according to the Northwest Multiple Listing Association.
Can these increases be sustained? Not likely. Every housing market is cyclical, and change is inevitable. More on that later.
Land use, foreign investors
A key factor in the price of all types of housing is the availability of land. By implementing the Growth Management Act (intended to protect rural areas from development sprawl), Washington, California, Oregon and other states have created a shortage of land for development over time.
According to Brookings Institution economist Anthony Downs, the housing affordability problem is rooted in the failure to maintain a “competitive land supply.” Downs notes that more urban growth boundaries can convey monopolistic pricing power on sellers of land if sufficient supply is not available, which, all things being equal, is likely to raise the price of land and housing that is built on it.”
While no one is suggesting that we build more of the classic suburbs of the past, there must be better planning for more density, located closer to job centers. Next-tier cities surrounding Seattle must plan for the increased density that is coming. Already, Bellevue, Kent, Bothell and other cities are feeling the pressure from growth, according to July 2013 story in Forbes magazine.
A less talked-about trend that is influencing the Seattle housing market is foreign investment, according to a December 2014 story in U.S. News & World Report. Many foreign investors find high-end U.S. real estate appealing. U.S. housing is a safer and more stable investment than other countries with turbulent governments and currency fluctuations. Investors from outside the United States are often cash buyers, making it more difficult for people with regular jobs and 20-percent down payments to compete in the market.
The experts predict investors will step back from the real estate market in 2015, and we’ll see fewer bidding wars and more inventory — although, I’m not so sure Seattle will see much relief from investor-buying pressure. Compared to cities like Vancouver, B.C., and San Francisco, Seattle real estate is still a bargain, and that will continue to attract foreign investors.
Moving out?
Millennials are another trend to watch. Millennials are expected to strain the housing market with renewed demand. Those who aren’t living in their parents’ basement have chosen to rent instead of buy, forever altering the future of home sales, or so we have been told.
Well, that’s not quite true. In fact, Millennials want to own homes just like their parents, says a September 2014 report by The Demand Institute. Right now, they’re saddled with student loan debt; at some point, when they are financially able, they will buy homes, too. Sixty percent of Millennials surveyed said they would eventually own a home, and 24 percent said they already do.
“Based on stated aspirations, there is no indication that this generation will be any less likely than previous generations to own their [own] homes,” the report says. “According to U.S. Census Bureau data [recently released], 529,000 Americans ages 25 to 29 moved from cities out to the suburbs in 2014; only 426,000 moved in the other direction. Among younger Millennials, those in their early 20s, the trend was even starker: 721,000 moved out of the city, compared with 554,000 who moved in. Somewhat more people in both age groups currently live in the suburbs than in the city.”
Increasingly, it’s looking like the “new urbanism” trend about young hipsters creating new urban communities has been overhyped. The data shows that Millennials are delaying their move to the ‘burbs, not foregoing it, because of financial constraints. When they can afford to, Millennials will head for the suburbs and better schools.
Then there’s the myth about baby boomers retiring and moving into big cities or moving south. Baby boomers are retiring at a rate of 10,000 per day, according to AARP. While some boomers are selling their homes and downsizing, a majority are staying put and adapting their homes so that they can “age in place.”
The great exodus from the suburbs isn’t happening as some had predicted. When boomers do sell, not all are moving to a condo in Florida or to the big city. Rather, an emerging trend for boomers is relocation to small towns. Affordability concerns are driving boomers to move to towns where the cost of living is lower, according to the Pew Research Center.
Finally, the National Association of Home Builders (NAHB) in its latest study of mobility tendencies in homeowners that the move-out rate in the United States is gradually falling. A new study from the NAHB found that the typical buyer of a single-family home will stay in the property for 13 years before moving out. (Bad news for Realtors who expect homeowners to sell and move every five to seven years.)
In summary, Seattle has a housing shortage, a growing population, increasing foreign investment, looming pressure from Millennial buyers and people who are staying put longer. So, what’s the next housing trend for Seattle? My crystal ball is in the shop for repairs, check back later.
RAY AKERS is a licensed Realtor for Lake & Co. Real Estate in Seattle. Send your questions to ray@akerscargill.com or call (206) 722-4444.