I'm curious to see if Real Estate history will repeat itself.
A century ago, America rolled into one of the most transformative eras of economic growth and lifestyle pursuits with the first world war over, a booming stock market, integration of consumer debt products (leverage) and new innovations. This was the birthplace of many personal liberties, good times and prosperity. A lot of the convenience was brought by the mechanical devices that made life better. American cities flourished.
Here we are again. The war against COVID may soon be over. The DJIA and S&P index are both at record highs, interest rates are at historic lows (but climbing), the Fed stimulus plan is in extended production (the economy, not banks this time, will be "too big to fail") and machines are being replaced by apps with handheld devices that make life more convenient. After a year of lockdown, we are going to see revenge travel and pent-up demand for social and cultural experiences that only the city can deliver. Clearly, the tech industry has replaced the manufacturing boom of the 1920's and there may be no better place to witness the prosperity than in the Seattle/Bellevue metro area. And while we saw a boom of exurban housing demand amidst COVID, we expect a rebirth of urban living ahead. The new economy industry plant is the tech campus, most of which are in urban centers.
As another overlay, the capital gains tax that will likely survive in Washington, means we could see a 7% tax on the sale of stocks and other gains (excluding real estate) in 2022. If we know that thousands of tech workers with restricted stock units are eying a real estate purchase before prices and interest rates jump higher, then it would make sense to harvest some stock in 2021 and plant the investment sooner than later. Knowing affordability is an issue, watch for condominiums to make a comeback. Many live in the city already and don't need to sell a home to buy one.
Our Executive Team discussed the opportunity that's very apparent in downtown Seattle. We know it's hard to see past the boarded-up retail, social challenges and political dysfunction but a new mayor and several new city council seats are coming and there is a lot of grassroots movement to change the trajectory. Major employers like Google and Amazon are announcing their repopulation plans for their offices and demand for in-city housing (both condominiums and apartments) are increasing. As the daytime population increases, we'll see slow but steady recovery of retail and lifestyle services.
Meanwhile in 2021, eager developers are offering extraordinary prices and incentives to get their presale requirements for FNMA conformance - basically whatever it takes to get to 30-percent presold with owner-occupied units (not investors) so mortgages can close in these buildings. When these homes are gone, so too are the deals. Overall, we are nearly at 50-percent presold or closed for new inventory built 2019-2023 and we don't see new projects breaking ground until they pencil (meaning presale values are about 20% higher than they are today).
A similar event is taking place in Manhattan as a bonanza of bargain hunters are snapping up condominiums: https://www.nytimes.com/2021/04/02/realestate/nyc-apartments-condos-sales.html?referringSource=articleShare
A Home Buyers’ Bonanza in Manhattan
Housing sales in New York City are finally picking up — along with deep discounts.
According to NWMLS data, the median price of resale condominiums so far in 2021 for downtown Seattle (NWMLS #701) is $627,500 compared $620,000 over the same period in 2020 – so the market prices are effectively flattening. While the total days on market is 84 compared to a year ago when it was 74, the bigger news is we witnessed 142 resale listings close so far in 2021 compared to 109 resale listings close over the same period in 2020, so that’s noted 30% increase in absorption! Pending sales in 2021 are up 66-percent year-over-year and some new towers have seen more sale in Q1-2021 than they saw in all of 2020. That's a clear sign that the market is rebooting.
Remember with high-rises, demand can rise much quicker than supply. I do think we'll see another dearth of inventory for a few years as some new towers take longer to come to market given nervous construction lenders. But the ones under construction today got through and present opportunities. I could be wrong, but I'll let you know in two years.
I encourage you to get to know our new development inventory and connect with me if you have questions.