Real Estate: Condo Conundrum

FROM THE PRINT EDITION |
 
 

Amid the daily drama of the nation’s housing woes, Seattle’s emerging high-rises, such as Olive 8 and Escala, raise a new water-cooler question: Who, in a time like this, is going condo?

With luxury condo prices running into the multimillions, it seems incredible that Seattleites would pony up that kind of cash in these post-subprime days. But the widely publicized collapse of the national real estate bubble has obscured what’s actually happening here at home.
“The media spectacle makes it difficult for the average consumer to understand that Seattle is significantly different from the rest of the country,” says Dean Jones, president and CEO of Seattle-based real estate research firm Realogics. “Real estate is hyperlocal.”
According to Jones and other industry insiders, the condo market in downtown Seattle is doing amazingly well. Demand is high, and it’s going to stay that way, Jones says. According to Realogics, 93 percent of new-construction condos delivered in 2007 have sold, and 73 percent of 2008’s new inventory has already found buyers. While many people are buying, a lot of others are not selling. Despite a nationwide panic to offload property, Seattle has experienced a decrease in new listings; just 99 in June 2008, compared to 150 in June 2007. What’s even more intriguing is that almost 1,000 new units were added to the market in 2007. If the trend continues, the downtown condo sales absorption rate will soon eclipse that of last year.

Much depends on the wait-and-see buyers who are eager but wary. “We know there are hundreds who want to buy but are trying to time the market,” Jones says. These people are either waiting for a drop in prices to score a deal, or hoping to avoid a devastating price correction, much like the rest of the nation experienced, he adds.

But the price cuts plaguing overheated markets like Miami and Phoenix aren’t happening here. Downtown median home prices this year to date are 8 percent higher than the same period in 2007. “Given the number of luxury-condo presales set to close over the next year,” Jones notes, “I wouldn’t be surprised if the median home price increased more than 20 percent in 2009.”

There are several “hyperlocal” reasons for strong Seattle condo demand. Our late entry to the speculative housing boom minimized damage, allowing the industry to take preventive measures, such as a more thorough screening process for potential buyers. There is also the virile Seattle job market, which, according to Forbes magazine, is the strongest on the West Coast. Because of Seattle’s ongoing struggles with traffic, living downtown is an increasingly popular lifestyle option among the generally fit and eco-conscious population.
But, for now, according to Realogics’ projections, no new buildings will break ground before mid-2009. Nervous lenders, Jones says, have temporarily closed off the money pipeline for speculative developments.

In some ways, this funding cut-off has helped certain current projects, Jones says. For example, the Escala condo tower was one of the last buildings to be approved before the credit crunch hit. Because of the present “flat line of new inventory” until 2010, Escala was able to raise prices while many experts were declaring Seattle a buyer’s market, he says.

“And guess what? They’ve actually sold more units than any other new construction project before and after doing so,” Jones adds. “My read on that is people sense the confidence that prices are not going to go down so they aren’t waiting for a better deal. They are more concerned with selection for this very differentiated project that’s not likely to ever get built again.”

Savvy developers know that demand isn’t going anywhere; they’re just waiting out the credit storm. “Once those wait-and-see customers realize the bottom never dropped,” Jones explains, “they’ll be back to that sense of urgency.”


Photo by Kevin Knight