The Seattle condo market has definitely gone through a lot in the last few years. Looking at 2010 as a whole, it did not preform as well as 2009 but it wasn't too far behind.
During the first 6 months of 2010, we saw a higher number of closed sales compared to first half of 2009. This may have been due to the extension of the tax credit from October 2009 to April 30, 2010 which gave the market a boost in activity. In addition to the original $8,000 first time home buyers' credit, a $6,500 tax credit was passed for repeat buyers as well. Buyers had to be under contract by end of April, 2010 and closed by June 30 (the closing date was later extended to September 30, 2010) in order to qualify for this tax credit.
The strongest month was April; probably due to many buyers trying to meet the tax credit deadline closing date.
We had our worst month in October with year over year pending sales down by 50.37%, closed sales down by 32.61% and median prices down by 16.67%. The year ended with slightly lower total active listings versus the prior year (by 1.79%). Year-over-year pending and closed sales were down by 17.45% and 13.67%. Median price only took a small dip of 3.46% compared to a year ago.
On the lending side, interest rates were still at historic lows. We started the year at ~5.25% on average for a 30 year fixed rate loans and ended at around 4.5%. This spurred refinancing activity. Most of the mortgage brokers that I spoke with are optimistic that rates for 2011 will continue to stay low but will be moving upwards more than likely in a side stepping pattern.
Here are some events that are worth noting in 2010:
Escala and Four Seasons Hotel/condo dropped their prices in the first quarter of 2010. In March, TeamBuilder JLS, a new broker, took over Escala and sold 25% (as of November 2010) of the homes. Four Seasons Hotel/condo dropped prices by 8-47% on their 13 remaining homes and sold two last year. One of the homes was a two story penthouse unit, 5,256 square feet sold for $7,198,000!
The construction liens filed against Molser Lofts due to a legal dispute between the developer and the general contractors were released in April. Since then twelve homes were sold. Newer project sales were doing well. Enso in South Lake Union and Gallery in Belltown are 80% sold. Fifteen Twenty-One in downtown is over 70% sold.
Two major auction events occurred in 2010 in downtown Seattle. They were 5th and Madison and Olive 8. 5th and Madison was held on March 28th. Thirteen out of the sixteen homes closed with an average of $440/square foot. The Olive 8 auction was held on September 19th. Thirty out of the thirty-two homes were closed with an average of $450/square foot, only a little higher than 5th and Madison auction homes, considering that it is a hotel/condo building. Olive 8 is 50% sold and 5th and Madison still has 3 homes left.
Other than using the auction method to sell their condos, some developers had decided to go with a more creative way to sell their inventory. Florera (Green Lake), Hjarta (Ballard), the Decatur (First Hill) and Eleven Eleven East Pike (Pike/ Pine District) were reintroduced through the bulk buy approach. Under this approach, the developers were willing to give a higher discount on the homes if there were more sales for the project. This approach met with some success.
In 2010, we saw increasing number of buyers obtaining FHA insured loans. This type of financing has become increasingly popular for buyers as the qualification guidelines are less stringent than conventional loans and required only a low down payment of 3.5%. Since buyers obtaining this type of loan can only purchase a FHA approved condo, many developers and condo associations applied for FHA approval for their buildings to increase appeal to buyers. Condos that received FHA approval will need to get recertification every two years.
What were buyers doing in 2010?
- First time and repeat buyers took advantage of the tax credit and were busy trying to meet the April 30 deadline
- Investors were slowly crawling back but were still very cautious about the market
- Foreign investors seemed to be more optimistic than local buyers about the US market and thought that it was a good time to buy, however, they found it hard to obtain financing unless they had a huge down payment
- Buyers with no time urgency were more willing to look at purchasing short sale properties
- More buyers were obtaining FHA insured loans.
- Asking for longer closings
- Asking for higher price reductions
- Many decided to rent instead of buy
What were condo developers/sellers doing in 2010?
- Refinancing their homes or modifying their loans
- Holding on to their condos and renting them out
- Condo developers were offering more incentives (closing costs, interest buy down, upgrades, smart car)
- Making bigger more realistic price adjustments
- Auctioning their homes
- Bulk selling
- Short selling their condos
What about the rental market? According to Dupre + Scott Apartment Advisors October report, the market vacancy rate was 5.0%. It was 6.3% in March, and 7.2% a year ago. “The vacancy rate has fallen faster than we have expected because renters are not buying homes or condos," according to Mike Scott of Dupre + Scott Apartment Advisors. The average rent is $1,033, this is up from $1,017 in March 2010, although unchanged from a year ago.
How about 2011? Their baseline forecast expects 17,400 new units over the next five years. They expect developers opening up just 2,246 new apartments units in 2011. That's not the lowest level of production that they have seen, but it's close. Development will pick up in 2012, when they expect 3,400 units to open. Their forecast model also shows that rents climbing a modest 2.3% in 2011. As the rent market tightens, rents will climb faster. He expects them to rise to 4.6% in 2012 and 5.1% in 2013. The big question will be if rents continue to rise, will buyers start looking at homeownership and if so, how soon?
Before we go into the outlook for 2011, we should take another quick look at 2010. It was a year with a bag of mixed results. We had a strong first half with higher closing sales than the previous year that was largely spurred by the tax credit incentive. Sales activity slowed post tax credit, however, year over year median prices did not drop drastically over the second half of the year. All and all, 2010 did not perform better than 2009 but we saw prices stabilizing, especially on the lower price range homes.
In 2011, I'm gonna take a stab and make some predictions:
- Seattle resale condo inventory in 2011 will probably be about the same as 2010. Prices will stabilize but we are probably not going to see it go up anytime soon. Sellers who would like to move but do not have any time urgency will most likely wait for the market to recover before putting the condo on the market.
- Since no new condo developments are in sight for the next few years, new condo inventory will start dropping this year as sales are been made at the last few new construction projects left on the market.
- Currently, we have ~16% of short sale homes on the market in Seattle. I suspect this number will go up by a few percent as some additional investors are not longer able to hold on to their condos.
- We had 1,768 condo sales on the MLS last year. With no more tax credit incentive this year, I think sale volume will drop by ~10%. If interest rates stay below 5%, I think buyers will still continue to look to buy although taking longer than they used to close.