Buyers are repopulating urban areas. After the COVID-era slowdown, there is a surge in demand for resale, new construction condominiums, and waterfront homes.

Realogics Sotheby's International Realty (RSIR) executives saw a sharp increase in buyer demand as inventory fell dramatically in the first half of 2021 compared to the previous year. This fueled the trend in both the region's most inexpensive price points, such as in-city condominiums and the region's most expensive price points, such as beachfront mansions, which are setting new benchmark prices. According to Trendgraphix analysis, new build condo sales in downtown Seattle have increased by more than 600 % in 2021, while resales have increased by 67 % (and active resale listings fell by nearly 46 % ). Meanwhile, year-to-date in 2021, waterfront home sales in the popular Eastside submarkets have increased by more than 50%, while inventory levels have decreased by 60%. Not surprisingly, the volume of off-market purchases has surged significantly, including Realogics Sotheby's International Realty (RSIR)-brokered sales that set new records.

“High tech and likely, higher taxes ahead, are motivating savvy buyers to make their moves sooner rather than later in the Seattle/Bellevue metro area,” said Dean Jones, President and CEO of Realogics Sotheby's International Realty. “There’s a lot of job growth amongst tech titans and a repopulation of urban campuses has rebooted demand of in-city lifestyles.”

Jones argues that Washington State's recent announcement that it will implement a 7% capital gains tax in 2022 has prompted investors with large stock portfolios to contemplate selling stocks and focusing on real estate, which will be exempt from such increased taxation. It also helps that Amazon, Microsoft, Facebook, and Alphabet (Google), to mention a few significant employers in the region, are all experiencing record stock values. According to industry analysts, restricted stock units (RSUs) or stock grants can account for 60% or more of a tech worker's salary, with RSUs or stock grants accounting for even more in higher-level roles. As a result, a rising stock market and the resulting wealth effect have influenced local real estate patterns.

Michael Kropp has worked in the local computer business for 35 years, and he and his wife, Susan, have recently become empty nesters. They recently chose to sell their waterfront house in Medina, not only in preparation of anticipated changes to both the state and federal tax climates, but also in expectation of increased demand for summer lifestyles. The move-in ready and renovated 3,000-square-foot home with 70 feet of no-bank waterfront is marketed for $6,638,000 as-is on just over a half-acre of land. Alternatively, the Kropps are offering preliminary designs for an 8,000-square-foot new build estate on the property for $14,000,000 (pending plans and approvals).

“It’s time,” said the Kropps. “Between the impacts of proposed capital gains tax increases under the Biden Administration and the prospect of selling stock in 2022, the difference to consumers could be 17% or more if they wait too long, notwithstanding what the rising market conditions also dictate given the supply and demand imbalance.”

Kropp refers to the Seattle/Bellevue area as "Silicon Valley North" and declares it the "cloud computing center of the world," which he believes would sustain wealth growth and enhance demand for luxury lifestyles, particularly waterfront properties, which are intrinsically scarce. Others concur that the IT industry is booming. According to CBRE, the commercial real estate business, Seattle has the fastest-growing IT job market in the United States. Meanwhile, according to the Q2 Venture Monitor, a record-breaking amount of startup financing was raised in the first half of 2021, with 205 deals totaling $3.1 billion in funding, more than doubling what was raised at the same time in 2020.

“Both local and relocating buyers are seeing the relative value in residential properties, even as prices continue to escalate,” said Becky Gray, a Founding Member of Realogics Sotheby's International Realty’s Bellevue branch office and the listing broker for the Kropp property. “Those inbound buyers from pricier markets with higher taxes, like California, view our market as having a long runway of appreciation ahead. As affluence builds, so will sensitivity to income taxes and that bodes well for increased demand for Washington State residency.”

Gray also notes that the Seattle/Bellevue region has an unbalanced ratio of median household income and median home prices when compared to comparable West Coast gateways such as the Bay Area or Southern California. Some buyers are buying properties in the Seattle area as a primary residence, intending to live here for the bulk of the year, but keeping their previous property in California as a secondary residence, she added, in order to avoid paying income taxes in California.

“We’re primed to rise further,” adds Gray. “When factoring the tax considerations looming, I think we’ll see an even stronger second half to 2021. Consumers are settling into a post COVID-era reality and there’s a lot of liquidity and equal amounts of desire to live our best lives with the challenges of this pandemic now hopefully behind us.”

Jones concurs, remarking that Washington is living up to its moniker as the Evergreen State.

“Our region’s economy and favorable tax climate is helping to propel higher incomes and allow residents to keep more of it,” concludes Jones. “While the new capital gains tax is significant, at least it’s only triggered by the sale of capital assets, rather than income, and real estate is excluded. As a result, I think we’ll see a surge in property ownership, especially amongst Millennial tech workers that are currently renting and will be seeking tax advantages and capital appreciation ahead.”

Other factors weighing on savvy buyers include historically low, but rising, mortgage interest rates; general inflation in construction costs (including supply chain impediments for replacement housing); and land scarcity – all of which are driving up median home prices in the Pacific Northwest region.