Seattle City Buzz

The Housing Affordability Index (HAI), as calculated by WSU’s Washington Center for Real Estate Research, continues it’s downward spiral. Figures for 2nd quarter 2006 show the HAI for King County is 70.4, down from 1st quarter’s 77.1. It’s even tougher on first-time home buyers who have an HAI of 39.4.

Housing Affordability Index measures the ability of middle income family to carry the mortgage payments on a median price home. When the index is 100 there is a balance between the family’s ability to pay and the cost. Higher indexes indicate housing is more affordable.

The Seattle PI posted an article today about the lack of family-friendly living in the downtown core. Parents cite lack of larger units, developers cite lack of schools and schools cite lack of demand; an unenviable catch-22. Yet, I’m not sure there is an easy solution.

Certainly, bringing schools to the area will provide a foundation for families to consider urban living. But, should the city invest into a new school that currently would have very little demand, especially at a time when other schools are closing? Will building larger units, as some parents claim, bring them to the downtown area? Considering that 2-bedroom units at Rollin Street Flats & Escala start at $800,000, it reasons that only uber-wealthy families could afford a 3-bedroom “family-sized” condo. And, would children who live in million-dollar condos attend public rather than private schools?

The PI had an accompanying article about how downtown family living works in Vancouver, BC. The article cited downtown schools and the fact that many of those families came from areas where high-rise family living is common and that’s why it works. Which may certainly be true. But, Vancouver’s downtown area, and I’m talking about the West End (between the financial district & Stanley Park), is essentially residential with a mixture of low and high-rise residential buildings, single-family homes, parks, schools and quiet tree-lined streets. Families lived in this part of downtown long before the explosion of high-rises along False Creek and Burrard Inlet.

The fact of the matter is Seattle isn’t Vancouver and never will be.  Plus, Vancouver has something Seattle doesn’t, a long-established downtown residential neighborhood with infrastructure and community services to support it. Rather than compare ourselves to Vancouver, Seattle (the city) needs to look inward to determine if the downtown area can truly support urban family living for all classes. And, if so, the city needs to develop solutions rather than rely on developers or the wait endlessly before the demographics change.

It’s not surprising as many have been anticipating a rise in foreclosures, but now it’s upon us. King5, reported that foreclosures are up 30% over the past year. And, for “most of them suffering the loss of their home, there are several investors waiting in the wings to buy them up.”

The Seattle Times recently reported that condos in King County has surpassed single family homes in appreciation. Part of the reason is due to a new mentality about condo living, that it’s no longer for people who can’t afford single family homes. As new condos are being built in downtown areas, it’s becoming a lifestyle choice.

In the first six months of this year, condos in King County have appreciated 21.9 percent a square foot compared with the same period in 2005. That’s slightly faster than the 19.7 percent that single-family homes appreciated in the first half of this year.

According to CNNMoney.com, Seattle is a fair value market -

After years of local home markets getting more and more overvalued, the trend has reversed, according to an analyis published this week.

Each quarter, Local Market Monitor, which provides research to the real estate industry, assesses 100 markets, comparing selling prices to “equilibrium” values. Company president Ingo Winzer bases those values on local economic and population growth, construction costs, vacancy rates, household income in the area and interest rates.

Since there’s no significant signs that the market has cooled in Seattle, does this mean prices are where they should be? Hard to believe considering the number of years of double-digit appreciation rates we’ve experienced.

Seattle’s strong housing demand & lack of adequate supply for units under $400,000 has seen a rise in condo conversions. To meet the demand, developers have found it less expensive and more profitable to convert apartments into condos. Some of the conversions this year include:

• Asia
• Harwood
• Epic
• Mezzo
• Residence at 5th Avenue
• Urban Terrace
• Plaza del Sol
• The Morgan
• Onyx
• Cooper Square
• La Toscane
• Maison
• Biscayne
• francisFremont
• Taylor Anne
• Residence at 500 Elliott
• Site 17
• Pacific Rim and more.

The Seattle Times wrote about the other side, the tenants who are being displaced and the inconvienence and cost of moving. For every silver lining (another homeowner) there is a dark cloud (someone being forced to move out of their home). Owners only need provide 90 days notice, and for low-income tenants, $500 toward moving.

Will the real Seattle please stand up.

Recent developments have got me thinking…it seems Seattle is in an identity flux. For generations, Seattle was content being the big fish in the small backwater Northwest pond, overshadowing Portland and Vancouver, BC. Somewhere along the timeline the politicos and business hawks dreamed of the big time. Hey, Seattle had a symphony, ballet, three professional sport teams, Boeing and Microsoft afterall. Grand civic projects were built - a new symphony hall, a sparkling award-winning library, a new city hall and two world-class stadiums. Chicago West? Boston North? New New Amsterdam?

In our not too distant past, politicians envisioned “Cascadia” - a mega metropolitan trifecta consisting of Seattle, Portland and Vancouver with Seattle at the helm.

In the late 1990’s the little city that could got it’s big chance to shine on the world stage. But something went horribly wrong. For a few days in 1999, Seattle became a war zone. Neighbhorhoods were tear gassed, mass rioting ensued, overzealous police beating on the citizens. It was not quite the image leaders wanted to project to the world.

Then, Boeing left. Portland became a model US city and Vancouver is now what Seattle always wanted to be, a gleaming world-class city.

Time heals. The engines of progress are churning again and Seattle is getting another chance. Developers are investing hundreds of millions to revitalize the urban core. But, in the process, are we losing our identity?

Though it’s highly unlikely those 49 proposed high-rise condos will be built, many will, forever changing the landscape and culture. But, who’s skyline is it? By all account, if you listen to the developers and look at the renderings, it’s Vancouver, BC being transplated south of the 49th parallel. The new buzz term being thrown around lately is “Vancouver-style”.

And South Lake Union? Vulcan’s grand plan is to transport Portland’s Pearl District to the shores of Lake Union, street car and all. Should the Sonics skip town, perhaps Mr. Vulcan will transfer his Trailblazers up I-5. Sound Transit’s light-rail & the failed monorail - both modeled after Vancouver’s Skytrain and Portland’s light-rail system.

Welcome to Seacouverland!

As Vulcan gears up for it’s residential developments, the South Lake Union street car broke ground today. The $51 million 1.3 mile project will run from the Westin Hotel to the Fred Hutchinson Cancer Research Center on East Lake Union, passing Vulcan’s Veer, Rollin Street, Enso and 2200 projects.The street car is based on Portland’s street car and the South Lake Union development after Portland’s Pearl district.

Unlike other hotly contested transportation projects - the Monorail and Sound Transit’s light rail - the street car is being paid by a private/public partnership. Half of the cost comes from a tax on properties in the area and the other half through regional/federal grants, advertising and sales of city-own land.

Predicitons estimate that South Lake Union will gain 20,000 jobs and 17,000 residents by 2020.

Read full article at Seattle Times.

An article in CNNMoney.com describes what we’re seeing in Seattle, people moving back to the city core after decades of migration to the suburbs.

Young professionals make up a big part of the trend. “It’s carefree living,” says Caparo. “Young professionals just want to put the key in the door and go to bed at night and lock it up again in the morning.” It’s also where the action is, professionally and socially. “For them, there’s lots of DNA to hook up with,” says McIlwain.

Retirees love the museums, restaurants and, most important, access to the best health care. Empty nesters get to live near work.

“For years people traded a commute for affordable housing,” says Jim Gillespie, CEO of Coldwell Banker. The further out in the suburbs, the more affordable the homes. But as suburbs expanded and got more crowded, road construction did not, could not, keep up. Congestion grew worse.

Of course this movement bodes well for Seattle’s exploding condominium renaissance. Fueled partially by the Growth Management Act, rising commute times and fuel costs, and lifesytle choices, urban centers are both practical and necessary to accomodate long-term growth.

And, I may become part of the statistic. Three years ago I left the city core to purchase an affordable home in North Seattle. From my apartment on Capitol Hill I lived a very pedestrian lifestyle - walking to the grocery store, movie theaters, restaurants, bars, Pacific Place and to the Pike Place Market every weekend to buy fresh fruits and vegetables. It was the epitome of urban lifestyle.

Now, I drive everywhere.

So I’ve been thinking about cashing out my nearly 40% appreciation and moving back to the city core and becoming pedestrian, again. Guess I’ll pull out my rabbit’s foot because I’ll need luck to get one of Vulcan’s lottery spots.

Last night at the Benaroya Hall was the inaugural Downtown Seattle Realtor Symposium + New Construction Condo Showcase. Sponsored/organized primarily by Urban Condominiums and Realogics, the event featured presentations & panel discussions by representatives the Seattle Times, Windermere Onsite, HomeStone Mortgage, Weber+Thomson, Downtown Seattle Association, The Justen Company, Gardner-Johnson and a few others. The Seattle-PI wrote an article about the event titled Booming development set to change Seattle’s look.

The reception featuring free wine and appetizers by Wolfgang Puck, provided Realtors, investors, developers and media an opportunity to mingle and view models of the various downtown projects including a 3-D model of downtown showing where the new projects will be located (similar to Vulcan’s South Lake Union model).

The Condo Showcase presentation was a bit bland in that very little information about the new projects were provided. Mainly, they just mentioned the expected construction and occupancy dates, location and number of units. Some of the speakers detailed design and building features. Most were tight-lipped or simply stated…”go to our website”. For such a hyped event, it was a bit anti-climactic.

There were bright spots and I found some of the speakers and topics about the future housing market for the downtown area fascinating. Keep in mind, the presenters are from the real estate, building, financing and marketing industries so naturally the view points may be a tad biased.

Where to Build?

A vast majority of the future projects will be constucted in the Midtown and Denny Triangle areas north of the downtown core. Available land and changes to the city’s zoning make the northend attractive to developers. Realogics and Weber+Thomson presented a nifty 3-D animation of the area and the Seattle-PI posted it on their website (note, it’s a large PDF file).

In the Year 2010

One speaker I found to be the most objective and knowledgeable was Matthew Gardner of Gardner-Johnson. Mr. Gardner whose background is economics, discussed the future housing outlook for the downtown areas and interest rates. By 2010 most development experts are asserting nearly 10,000 new housing units will be built in the downtown, Midtown, Belltown and Denny Triangle areas. Gardner provided a more realistic number of approximately 6,500 to 6,800 units will be added, noting there are forces that may constrict construction. These forces include rising labor and land costs, consumption of building materials (post-Katrina rebuilding and China’s rise) and lack of available labor and cranes. Apparently, there is a finite number of cranes and Seattle is in short supply.

Gardner touched on the “bubble” topic as well. He mentioned that Seattle should be able to absorb about 2,000 to 2,400 new units per year, but with the external factors noted above, housing supply will be constrained with only about 1,500 units available per year for the next 4-5 years. This combined with job growth and decrease of short term interest rates that’ll reduce rates on 3 and 5 year ARMS, Gardner predicts the downtown housing market will remain strong.

(On the job market, there are some shifting already going on, that will increase workers in the downtown core. Washington Mutual is completing it’s new office tower (retaining employees in downtown), Starbucks is building a new facility, and Safeco is relocating over 1,000 employees from the U-District & Eastide to downtown. Also, Amgen is adding 550,000 sq ft to it’s Pier 89 site potentially doubling it’s workforce).

Mortgage Rates - Where art thou going?

Another interesting speaker was Keith Tibbles of HomeStone Mortgage. Tibbles mentioned that on June 28th the Federal Reserve Interest Rate is likely to rise another .25% to 5.25%. Which, theoretically doesn’t bode well for housing sales. He did explain that the past 4 Fed cycles lasted 9 months each and at the end of those cycles, mortgage rates were cut. He suggested we are now overdue for a mortgage rate adjustment.

He also spoke about the yield curve inversion, stating that when long-term interest drops below the short-term rate, the economy tends to slow down, thus sparking the Feds to adjust rates to stimulate the economy. This writer doesn’t know very much about yield curve inversion, but a brief tour of Google suggests this is an oft debated topic.