I am asked all the time if our Seattle market is getting too frothy. Before I address that question, we should first take a look at what is happening nationally, within the greater Seattle market and in on our individual community of Madison Park.
According to the latest Case-Shiller U. S. National Home Price Index, the market saw a 5 percent gain in April, which is down a bit from 5.1 percent the previous month. Seattle-area single-family home values increased 10.7 percent in April — more than double the national average — trailing only Portland (12.3 percent) in terms of home price growth. For the first time, Seattle-area home values have also surpassed the summer 2007 peak, as regional home prices have risen more than 50 percent since 2012’s low point.
Nationally, nine cities out of 20 reported greater price increases in the year ending April 2016 versus the year ending March 2016. Overall, the national housing sector continues to turn in strong price performance reflecting the low unemployment rate, low interest rates, and consumers’ generally positive outlook.
The outlook going forward, however, is not without risk as markets will face the uncertainty of the United Kingdom’s “Brexit” vote, our national elections and the constant threat of terrorism.
So why has the Seattle market fared so well? Naturally, cities with a strong economy and high quality of life attract more people who want to live there. Increased demand for housing leads to lower affordability as bidding wars drive up selling prices.
The opposite is true as well. Regions with underperforming economies and a lower quality of life have better affordability. Good news-bad news, I guess!
High quality of life in Seattle is a given, but what has made the real estate market so hot here is the sheer number of people with high-paying jobs who are moving to the city and need a home. Just take a look at what has been happening in South Lake Union with Amazon.
Very soon, Google will be coming in a big way too, with 607,000 square feet of office space in four buildings that will house 3,000 to 4,000 new employees. Google will move into its new digs just after travel website Expedia completes the transfer of 4,500 employees from Bellevue to its new campus just west of South Lake Union.
Facebook has also signed a lease for another 274,000 square feet in the area… all those new employees need somewhere to live!
My firm’s owner, Dean Jones, calls it the “Manhattan-ization of Seattle.” Not only does Jones posit that we are going to have one of the most fundamentally dense markets in North America — like New York, Vancouver, and San Francisco — he also believes that we will see inflation and appreciation across the board: from land and construction costs to single-family home and condominium values. Consumers will need to decide if they want to take an equity stake now or watch it from the sidelines.
As far as our treasured neighborhood goes, it has been and continues to be a story of low inventory — more demand than supply. Though we may see ups and downs going forward, I continue to believe that a real estate purchase in these sought-after, in-city neighborhoods is a solid investment for the reasons I mentioned above. We had 15 closed sales in July [See chart on B1], with the highest price per square foot ever paid for a home in Broadmoor that wasn’t known for its view and didn’t sit on the waterfront.
So are we in a bubble, or is our neighborhood simply becoming painfully expensive? In my view, it’s the latter.
LAURA HALLIDAY is the senior global adviser of Reologics Sotheby’s and a founding member of the broker’s Madison Park office. Send comments or suggestions for future articles to laura.halliday@rsir.com or by calling 206-399-5842.