Luxury Condos Pop Up All Over

Apparently Puyallup is not alone outside of Seattle in its ability to attract ridiculously lavish condominiums. "Luxury condos" are popping up in all kinds of outlying Seattle neighborhoods:

Luxury condominiums, some priced up to $2 million, are springing up in such unlikely locations as Edmonds and Ruston as developers look to attract empty nesters in search of low-maintenance living.

These are no Belltown boxes, either. The spate of new luxury condo developments boasts spacious units averaging about 2,600 square feet and amenities such as pools, theaters, guest suites, conference centers and multiple parking spaces.
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Developers of such projects have their sights set on aging baby boomers who are more active than their parents' generation, who appreciate the amenities and ease of condo living but aren't willing to downsize to a traditionally sized unit.

Most important, many have amassed large amounts of equity in homes bought decades earlier.
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"The more sophisticated the urban environment, the more likely you're going to see that kind of price point [$1 million]," he said. "We're getting there in Seattle, no doubt about it.

"Would I expect to see more units priced around a million dollars? Yes. In the last 20 years, with the equity we've built up in our single-family houses, a million dollars is really not a lot anymore."

Plus, thanks to the power of appreciation, the $1,000,000 condo is guaranteed to make these smart investors even wealthier as the years go on. But seriously, I guess if you've got the money and that's the way you want to spend it—hey, more power to you. I do wonder what is going to come of these developments if the air comes out of Seattle's bubble before they're completed...

(Deborah Bach, Seattle P-I, 03.22.2006)

Workplace Anecdotes

My coworker that is selling his Northgate-area house still hasn't had any luck. In fact, the home that he originally listed at ~$475,000, then dropped to ~$450,000, has had the price reduced again to ~$425,000. Furthermore, it now shows up as a "new listing," listed in the past seven days. Hmm, interesting.

Also, I just had the pleasure to listen in on a conversation between a few coworkers regarding housing appreciation around Seattle. For reference, these are generally intelligent people (engineers) that do not have any particular "in" regarding real estate. Here are some of the quotes that I was quick enough to type:

"I think in some areas (around the country), the bubble is popping, but I don't think you're going to see a lot of it around here (Seattle area)."

"Microsoft is here forever."

"There's nowhere else to build."

To coworker: "I could see your neighborhood leveling off...maybe. But probably not."

"I think we're not going to see the kind of gains we've seen over the last two years... but I don't think we're going to go down in price. ... I think mine (neighborhood) is going to continue to go up."

It is interesting to hear what average people think about whether there's a bubble or not. Perhaps in the future I can "seed" some conversations to get a regular pulse on general real estate sentiment.

$500,000 Condos In Puyallup

Some parts of the market in the greater Seattle area may be slowing down, but nobody told the condo developers in Puyallup:

After several years of public investment in downtown Puyallup, private money is now pouring into multilevel condominiums around Pioneer Park.

It appears to be money well spent. Some units are expected to sell for around $500,000.

"When we started, we were not predicting prices that high," condo developer Bill Schuur said. "It's clear that there's a strong housing market in downtown Puyallup."

In recent years, Puyallup has brought pedestrians and shoppers back downtown with its new library, farmers market and businesses that have replaced empty storefronts. But some say a sure sign of downtown revitalization is when people choose to live there.

"Seattle, Bellevue, Tacoma – everybody is moving downtown," said Tony Benson, 52, who was having early dinner with his wife, Julie, at a picnic table at Pioneer Park on a recent afternoon. "That's the way to the future."
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Developers say the demand shows no sign of abating.

"Our experience in marketing Pioneer Park Condominiums tells us, anecdotally, that demand will continue to increase, and prices will rise steadily," Cochrane said.

Demand never decreases, and prices never decline. Nope. Not ever.

(Eijiro Kawada, Tacoma News Tribune, 03.23.2006)

Condo Conversions Taking Over Seattle

Apartment to Condo conversions made the front page of today's Seattle P-I in a story titled City's renters lose out as condo switch soars.

Thousands of Seattle renters have been displaced as developers turn to apartment buildings to meet strong appetite for in-city homes. Apartment-to-condominium conversions in Seattle have skyrocketed, from 345 in 2004 to 1,551 last year.

Yet, compared with some other areas with hot housing markets, Washington state law gives tenants far less time to vacate their apartments. Relocation assistance for low-income residents displaced by condo conversions is set at $500.
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For the first time last year, the region also lost more apartments than were built, according to Dupre + Scott Apartment Advisors. Though that trend should change as the market adjusts, it's stoking concerns about Seattle's supply of moderately priced housing.
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Condo conversions can offer relatively affordable options for those looking to buy, with most units in her building expected to sell for between $240,000 and $370,000. That's cheaper than many of the neighborhood's single-family homes or new downtown condos.

"There's a true, true problem with affordable housing in this city," said Robert Hardy, a developer who's undertaken six condo conversions, including the Arboretum View Apartments where Orso lives. "I'm one of the only guys around that's creating any supply of affordable new condos, and that's pretty scary."

But the wave is also displacing thousands of renters who can't afford those prices, with some longtime tenants facing distressingly abrupt evictions.

What's scary to me is that $240,000 is considered an "affordable" condo. Attention: Common Sense has left the building.

(Jennifer Langston, Seattle P-I, 03.20.2006)

The Increasing Expense Of Living In Seattle

It's getting more and more expensive—twice as fast as the national average—to live around the Puget Sound:

Consumer prices in the Puget Sound area increased 1.3 percent over January and February – almost double the rate of inflation nationally.

Housing prices, up 2.4 percent, led the increases in the Tacoma-Bremerton-Seattle area, the Labor Department reported Thursday. Grocery prices were up 1 percent in the two-month period, while alcoholic beverages poured a 3 percent increase.

If only our wages were going up twice as fast as the national average, too. Heck, I think we'd be in okay shape if our wages were going up at all.

(News Tribune Staff, Tacoma News Tribune, 03.17.2006)

Downtown Everett Condo Conversion

Most of the stories I post on here are about trends and big-picture type things, but it's good once in a while to look at individual examples of how the housing craze is affecting people and places around the Puget Sound. In that vein, here's a story about "downtown Everett's biggest apartment building," its impending sale and likely conversion into condos.

In Mastro Properties' sales flier about the Nautica, it boasts that the complex is "ready for conversion to condos." All around the Puget Sound area, apartment complexes are being bought and transformed into condo blocks to meet demand for such housing.

"Developing condos from the ground up on raw land is becoming a very risky proposition for most developers. So the alternative is looking at apartments that are already constructed ... and convert what is here," Hoban said.

Living at the whim of the property owner is certainly one of the downsides of renting, but for my money it's still better than being a slave to a ridiculously high mortgage.

(Eric Fetters, Everett Herald, 03.16.2006)

Boilerplate House Poor Advice

In a column in yesterday's Olympian, an investment advisor gave some advice that I suspect is followed by very few people in the Seattle area: Avoid being 'house poor' due to high payments

While there are some rules of thumb by which lenders gauge the reasonableness of your housing costs, the valuation of your property and the size of your mortgage payment are only parts of the picture.

You're considered house poor if your housing costs prevent you from:

• Saving the equivalent of 3 to 6 months income in an emergency cash reserve account.
• Setting money aside for your retirement.
• Accumulating a diversified investment portfolio.
• Budgeting for other life events, such as paying for your child's education
• Buying the furniture you need for your new home, or eating anywhere other than in your new kitchen.

Do you know anyone with the equivalent of 3 to 6 months income tucked away? I don't think I do. Maybe my parents, but that's pretty much it. Also, most people's idea of a "diversified investment portfolio" is a small contribution to the company 401(k) plan and their house. And as far as junior's schooling, hey that's what federal student loans are for, right? It's one thing if you don't make very much money and you really can't afford these financial luxuries. It's another thing entirely when you can't afford them because you willingly threw yourself into a money pit of a house.

I especially had a good chuckle about this bit of advice:

Be very cautious about using creative financing arrangements, such as interest-only mortgages or optional ARMs, to buy more house than you can otherwise afford. If home valuation increases cool off and interest rates heat up, you could find yourself caught between the rock of making the mortgage payment each month and the hard place of not being able to sell the house for enough to cover repaying the loan that secures it. You don't want to lose your home to foreclosure because you bit off more than you can chew later.

"Creative financing arrangements" are about the only way first-time buyers could ever hope to afford something around here. I'm not sure what "be very cautious" means, but I would venture to guess that signing your life away on an interest-only, no down payment, adjustable-rate mortgage doesn't quite fit the bill.

(Patricia Bliss, The Olympian, 03.15.2006)

More Personal Anecdotes

Here are a few real estate related anecdotes I have come across in the last few weeks. I'm not relating them to make any particular point, they're just all of the real estate happenings that I've personally encountered recently.

A coworker of mine recently moved from the Northgate area up to Bothell. Commuting across the 520 bridge every day just finally got to be too much for him. So of course he's selling his 2-story, 4-bedroom, 2.75 bath house (on ~1/5 acre) in Northgate. His original asking price on this home that he purchased in 1997 for $170,000 was $475,000. After a few weeks with no bites he has lowered the asking price to just under $450,000. As far as I know he still has no serious offers on the table.

Other friends of mine bought a house up in Lynnwood in early 2004 for around $240,000 using a good helping of creative financing—no money down, one loan for 80%, another (interest-only adjustable) for 20%, that sort of thing. Since interest rates have been going up and the interest-only period is rapidly drawing to a close, they have decided that now is a good time to refinance. Now, I haven't claimed to be anything other than mostly ignorant when it comes to all the ins and outs of home financing and crazy mortgage rules, but their strategy still surprised me. According to my friend, since the home has "appreciated nearly $100,000" they are now able to find a mortgage lender that will roll their two loans into one and give them a good rate, since the amount of the loan (~$240,000) is now less than 80% of the "value" of the house. For all I know this is a common tactic, but it was new to me.

Lastly, remember the condo complex down the street from me, where one unit sold in October for $280,000 and another in December for $300,000? Well yet another neighbor decided it was a good time to cash out, and they listed their unit a few weeks ago for $285,000. I picked up one of the fliers a week ago, and the sign is still posted on the street (sans any "pending" or "sold" slap-ons), but oddly I can't find it listed on Windermere's (or anyone else's) site. Have they given up on selling it already?

Dead Monorail Lands Softly On Seattle Bubble

If you live in Seattle and don't own a home, you probably think that the real estate bubble is nothing but trouble. Well it's about time that the bubble did something for you.

A hot real-estate market is going to help Seattle residents cut their losses as the city shakes off the collapse of the Seattle Monorail Project.

Odds are good that this month's sell-off of 33 of 34 unused lots — which the SMP purchased for stations, a maintenance base and some tight corners along the track route — will recover at least the $62 million spent to buy them. If so, the monorail's citywide car-tab tax, which began in 2003, would be repealed by early fall.
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The liquidation of the monorail dream couldn't happen at a better time, at least for making money. Commercial property values in King County have increased 14 percent since 2004.

"What the monorail has going for it is a real-estate market in the city of Seattle like we've never seen," said Art Wahl, managing director of the commercial real-estate firm CB Richard Ellis. "There's never been anything close to this. There's a high demand for real estate, and in truth, not a lot of product." Wahl's firm was one of several that vied to serve as SMP's broker for the land sell-off. GVA Kidder Matthews was selected to handle the land sales.

Of course, if you don't own a house or a car, or if you live near to but outside of Seattle, the bubble really is nothing but trouble.

(Mike Lindblom, Seattle Times, 03.12.2006)

Flipping Fosso Of Seattle

The Seattle P-I shares the tale of a local flipper who does more than the buy, sit, flip that has become popular with the real estate explosion. "Buy, fix, flip" actually sounds like an understatement for this guy:

The living room of the old Ballard house is redolent with the scent of freshly laid oak floors, but as Brent Fosso will tell you, just a few weeks ago, it was a much different scene.

"It was filled with garbage. There were rats. We caught a big one," said Fosso, holding his hands about 10 inches apart to demonstrate the size.
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As Seattle's housing prices continue to skyrocket and home improvement becomes an increasingly popular hobby, people are trying their hands at the "rapid reselling" game. Some are relative amateurs, people with enough skill — or enough audacity — to make run-down homes more presentable and flip them.
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He'll add fireplaces, reconfigure floor plans and make other changes so drastic that the house is barely recognizable from its former self. Homes should have certain features for maximum appeal, he says — a fireplace, dining room, gas furnace, rec room and, ideally, three bedrooms.

"Three is the magic number," Fosso says. "You don't want to wind up with two, because then you're limiting larger families. Whenever I wind up buying a two-bedroom house, I try to figure out how I can get a third bedroom in it. Maybe it's finishing off the basement. Maybe it's dividing up the first floor a little differently."

Considering what the word "flip" has come to mean in real estate, it almost seems like an insult to call people like Mr. Fosso "flippers." I don't really have a problem with "flipping" when it involves real improvements, not just granite countertops and a more colorful sales flier. When the recent housing madness finally subsides, those like Mr. Fosso who work hard to put real value into junky homes will be the only "flippers" to survive.

(Deborah Bach, Seattle P-I, 03.09.2006)

Condo Fever Just Warming Up

Although the home market may be finally cooling around here, condo fever in downtown Bellevue and Seattle are just getting started, according to the King County Journal:

Overwhelming demand for condominiums in downtown Bellevue has prompted one developer to hold a lottery to determine who gets first dibs on buying units ranging in price from $375,000 to more than $1 million.
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While the red-hot market for single-family homes is showing signs of cooling this year, a new "in-town housing boom" is taking hold on the Eastside and in Seattle.

This growing demand for condo units in downtown settings is happening across the country, according to Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

"Take downtown Seattle for example, where there seems to be condo projects springing out of the ground everywhere," Crellin said. "The same thing's happening in downtown Spokane," where several large condo projects are in the works.

Crellin said the "in-town housing boom" is being driven by growing numbers of "young professionals ... who want to be where the action is" as well as aging Baby Boomers who have become "empty nesters."

Personally I don't really care what's going on with downtown condos, since I have no intention of living in downtown Bellevue or Seattle, but if the claims in this article are true, is this a trend that will continue once housing really slows down?

(Clayton Park, King County Journal, 03.06.2006)

Olympics To Blame For "Balanced" Market

Here's a media report on February's numbers from the Seattle Times, who says that "prices remain buoyant."

The housing market around Puget Sound has slowed from its blistering pace of a year ago, meaning some sellers don't get multiple offers and some have to lower their prices.

But prices remain buoyant, with the median sales price for a single-family home in King County last month climbing to $392,950, up 14.7 percent from February 2005, according to numbers released Monday by the Northwest Multiple Listing Service.
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Sellers can no longer count on numerous offers for properties with high price tags, but buyers are not calling the shots either.

"It's more balanced than it was last year, but it's not a buyer's market by any stretch of the imagination," said Mike Grady, president of Coldwell Banker Bain, which has 19 offices around Central Puget Sound.

The market is taking longer to ramp up this year, Grady said. People are slower to put homes on the market, partly because of bad weather and distractions from the Super Bowl and the Olympics.

Of course! In January it was football, now it's the Olympics! Perfectly logical explanations for why the home sales are "taking longer to ramp up." Right.

(Melissa Allison, Seattle Times, 03.07.2006)

February Sees Continued Slowdown

Perhaps I've somehow overlooked the stories in the news outlets, but February's numbers are available (pdf file), and from what I can tell, the slowdown in Seattle continues.

Combined home sales in King County dropped for the second straight month, and the fourth time in the last six months. Sitting at $344,950, the combined price is lower than it was in August. Year to year increase for homes and condos combined has dropped below 12% for the first time since April of last year, while homes alone were at 14.73%, comparable to levels last July. New listings were down 7%, total active listings were down just 2%, while pending sales were up 15%. Check out the pdf for the full numbers. There's some interesting stuff in there. Betting is now open on how the local news outlets are going to spin this.

Here's a few graphs I've been using to keep track of things. Notice the distinctive leveling off in both.

(Northwest Multiple Listing Service, 03.07.2006)

More Fuzzy "Affordable" Math

Yet another government-subsidized "affordable housing" project is going up downtown, with the Mayor and other high-rollers attending the big kick-off ceremony last week.

Built to help address the city's shortage of affordable homes, most of the building's 19 new condominiums will be affordable to households earning less than 80 percent of the area median income.

The building will be three stories, with units ranging in size and price from studios (beginning at $165,000) to three-bedrooms units (beginning at $300,000).

Yet again I'm finding the definition of "affordable" to be pretty questionable. Assuming you managed to come up with the $60,000 down payment, the monthly payment on the $240,000 loan for that "affordable" $300,000 three-bedroom condo would be nearly $1,600. Given the standard for "affordable" as 30% of gross income, someone a family would have to be making $64,000 to "afford" that kind of payment. Considering that the median income in King County is around $55,000, that "affordable to households earning less than 80 percent of the area median income" bit must be using some kind of fuzzy math. The way I figure, eighty percent of $55,000 is $44,000, and thirty percent of that (per month) is $1,100, which would be the monthly payment on a $165,000 loan (or a $206,000 home if you had the 20% down).

So $165,000 = affordable. $300,000 = I could maybe barely afford that if I could pull $60,000 out of my... hat—but someone making 80% of the "area median income"? Yeah right.

(P-I Staff, Seattle P-I, 03.03.2006)

HouseValues' Value Drops

Despite Seattle's resilience so far, the deflating bubble elsewhere around the country continues to affect businesses based in the Seattle area. The latest victim—HouseValues—took a hit last week.

Last year's booming housing market helped pump up 2005 profits at Kirkland-based HouseValues, but the company's forecast for the current year led to a 28 percent stock-market pummeling Wednesday.

HouseValues said Tuesday, after the markets had closed, that slower growth in its business from real-estate agents and heavy investment in new businesses would keep its 2006 results well below Wall Street's expectations.

Wall Street was quick to respond. HouseValues shares, already trading 33 percent below their July 2005 peak, dropped $3.79, or 28.1 percent, on Wednesday, closing at $9.71. That's the stock's lowest close since HouseValues went public in December 2004.

This could be our area's first of many negative effects of the impending drop, or it could be all we see of the downturn. Since I seem to have misplaced my time machine, I'm not able to make that call. Of course that doesn't mean I can't wildly speculate anyway. My call? Well let's just say that I'm glad I didn't buy a house in the last year or two.

(Drew DeSilver, Seattle Times, 03.02.2006)

Government-Funded "Affordability"

What's the solution to ridiculously high home prices in Seattle? Why, government programs, of course!

Some programs available here max out annually but others remain untapped, leaving thousands of dollars in assistance available to people earning as much as 80 percent of the $72,000 median household income in the Seattle metropolitan area. That currently translates to $40,600 a year for an individual and $58,000 for a family of four. Most programs offer deferred payments with low interest rates, and frequently provide up to $45,000 to help with a down payment.
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Washington state ranks near the bottom — 43rd out of 50 — in home-ownership rates nationwide, according to the 2004 Census. Sixty-six percent of households in the state are homeowners. Analysts attribute the low numbers not only to soaring home values in the Seattle area, but also to the state's numerous military communities, which tend to have lower numbers of homeowners.

The Washington Homeownership Center wants to improve those rates by reaching out to the estimated 300,000 renter households statewide making at least half the median income. Those include many people under age 35, as well as teachers, police officers, firefighters and skilled laborers — the people that Jeffrey Caden refers to as "the glue that kind of holds our state together."

Things like these programs really seem like spitting into the wind when average to below-average houses cost $300,000-$400,000. Even if you get $45,000 for a down payment, you're still $15,000-$35,000 short, which most people don't have laying around, even if they make $72,000. And I won't even begin to get into how unaffordable the monthly payment would be even if you came up with a down payment. It's really just ridiculous right now, and I don't see how these programs do anything other than encourage people to get into a situation that they can't reasonably financially sustain.

(Deborah Bach, Seattle P-I, 02.28.2006)