A Tale of Two Economies – March 2015 Seattle, WA Local Market Review

Much like Dickens’ wrote “this it is the best of times it is the worst of times”. This is the best of times for part of Puget Sound while the rest of the area is waiting for things to get better. Seattle, which is the corporate headquarter for Amazon, Starbucks, Nordstrom and other corporations, Redmond-Bellevue, which is headquarters for Microsoft, Costco, Expedia and Everett-Mukilteo where most of the Boeing aircrafts are built or finished have very strong economies, the rest of Puget Sound region is not so lucky. Home prices in Seattle and Bellevue-Redmond are at or above 2007 to 2008 prices. Home prices in Snohomish County (Boeing) are between 2006 and 2007 prices depending on neighborhoods.

However, the Puget Sound Region is a lot larger than just these areas. About 70% of the state of Washington population is made up of 5 counties around Puget Sound. By Population they are King, Pierce, Snohomish, Kitsap and Thurston. Seattle Bellevue Redmond are center of King County, Tacoma is largest City in Pierce County. Everett is biggest City in Snohomish County. Bremerton is largest city in Kitsap. And the state Capital of Olympia is largest city in Thurston.

The downtown core of Seattle, the suburbs of Redmond-Bellevue and immediate adjoining towns are experiencing the most economic growth. This is reflective in sales activity and lack of standing inventory in these communities. Downtown Seattle is talking about becoming “New Seattle” as an increase in population by twenty thousand over the next year is projected and new apartments and condo buildings can be seen by as many as 15 construction cranes in the “South Lake Union” and “Bell Town” areas of Seattle. This is because companies like Google, Facebook and Amazon are competing for more employees in downtown area. At the same time Microsoft, Expedia, and Costco are providing exclusive buses from downtown Seattle to their campuses across Lake Washington for employees.  Boeing has a backlog of orders for planes to be delivered over the next five years and is trying to convert their plants into more robotic systems for higher efficiency. These are all high income jobs that demand good education and skills. Prices for very small newer apartments have increased from under $2000 to over $4000 per month in Seattle.

At the same time Pierce, Kitsap and Thurston Counties have home prices between 2003 and 2005 price levels. The cutback in military spending has reduced employment at Joint Base Lewis-McCord (JBLM) by over thirty thousand both military and civilian employees. The ripple effect means over sixty thousand jobs gone mostly in Pierce and Thurston Counties. In Kitsap county both the navy ship yards and the Bangor submarine base have also seen decreases in military and civilian employment that has decreased demand for housing putting levels between 2005 and 2006.

What is somewhat puzzling is the amount of new construction in South King County (not part of the high demand area), Pierce, Kitsap and Snohomish county (away from Boeing). Most of this construction is single family detached and similar in size to homes built in 2007. National builders purchased foreclosed developments at prices 35% to 50% of cost of development. As the inventory of these lots is used up not sure how builders can afford to continue to build because most of their existing profits on sales is the reduced land cost.

While home owners that obtained HELOC loans in 2005 through first part of 2008 are just now starting to see these loans come due, this will have more negative effect in the areas where prices have not increased to levels to allow refinancing these to 30 year fixed loans. Homeowners who have been able to take advantage of the low interest rates to convert HELOC loans for most part have already done so. Any lenders holding HELOC loans should expect problems when the amortizations change.

Investors are still finding both fix and flip or rental homes as lenders flush out much of their inventory they have been reluctant to foreclose up until this year. Since we are an off election year, lenders will push more foreclosures to reduce non preforming loans. Investors are finding financing options in addition to cash as “non-banks” enter the lending market for investors with good track records and/or existing inventories of investment properties.

While I would not expect prices outside of the core area of Seattle Redmond to increase much over the next year we have seen rental prices increase about 5% to 7% over the past year in Pierce and South King County. Vacancy for rental properties remains very low despite the reduction in employment of the military bases.

Standing inventory of residential listings in Pierce, Kitsap and Thurston is slightly under a year ago while percentage of inventory that is distressed sales has declined significantly. The following are the five counties single family and condo numbers for end of February according to Northwest MLS stats.

Listings Pending sales Closed sales Months of Inventory
County New listings Total active # Pend Sales # closings Aver price Median price This month Last yr this mo
King 2919 3555 3217 1790 $473,846 $375000 1.99 2.55
Pierce 1220 2836 1475 789 $252,792 $233000 3.59 4.44
Snohomish 1221 1880 1406 740 $340,444 $319000 2.54 3.22
Kitsap 390 830 443 228 $287,875 $235000 3.64 5.10
Thurston 402 1050 409 243 $229,657 $219500 4.32 5.45

by Jim Clifford of Washington Realty Group