Sunday, July 16, 2006
By Elizabeth Rhodes and Justin Mayo
Seattle Times staff reporters
Justin Mayo
As the residential real-estate market cools in other parts of the nation, one question is why Seattle’s market remains robust. Money magazine predicts homes in the Seattle-Bellevue-Everett area will appreciate 10.5 percent between this June and next. That’s twice the rate predicted for the country overall. Hoe prices are often described in simple terms as products of supply and demand, but several factors — land availability, job and population growth, and interest rates — make the housing market more complex.
Professor Chris Mayer, director of the Milstein Center for Real Estate at New York’s Columbia Business School, says Seattle outperforms other major cities because it’s relatively unusual.
“Seattle is one of a handful of places I’ve written about and referred to as a ’superstar city,’ ” Mayer said. “It’s not quite in the same league as San Francisco and New York, but if you look at census data, house prices in Seattle have grown faster than the national average for 50 years, from 1950 to 2000.”
So major home appreciation “is a pattern that’s been going on for a long time,” Mayer said. He defines superstar cities as people magnets because of their attractiveness and amenities. “But being attractive isn’t enough,” he said. “It’s also necessary to limit supply.” at’s happened here for two reasons. Limited land supply
Restrictions push housing prices higher.
First: Seattle is essentially out of land on which detached houses can be built.
Second: The state’s Growth Management Act effectively limits supply by restricting where homes can be built.
“When you restrict construction you inherently raise the prices of homes,” Mayer said. “So it ends up being the case that the only people who can afford to live there are people with higher incomes. I’m not saying this is good or bad or desirable, but it is an outcome of restricting new construction.”
Plenty of King County residents can afford houses. The percentage of households earning more than 150 percent of median income — that would be more than $90,000 today — grew faster than any other income category between 1990 and 2004. It now accounts for almost one-third of all households, a county study found. They number amost 250,000.
Newcomers abound Job market lures out-of-staters, who drive prices up. But Mayer says having well-off local residents isn’t the whole story.
“In superstar markets, including Seattle, you can tie the price of housing to the incomes of the wealthiest Americans — not just the people who live in those cities right now,” he said.
“This means house prices can grow faster than the incomes of existing residents if there are new residents from outside the metro area who can afford to move in and buy those houses.” That’s happening here. Puget Sound’s already strong economy is growing — a trend expected to continue at least through 2009 with the addition of 140,000 jobs, according to Conway Pedersen Economics. This growth has made Washington one of the top 10 states attracting more people than they’re losing, the state’s Economic and Revenue Forecast Council reports.
Caifornians account for roughly 30 percent of our newcomers. Their state’s housing prices make Seattle’s look like a fire sale and nearly guarantee that California homeowners arrive here equity-rich. Just one example: Late last year, San Francisco’s median home price was $825,000 — more than double Seattle’s. “In a regional sense, it’s job growth that’s driving housing demand and house-price growth the most,” King County demographer Chandler Felt observed. “The demand is there and continues to be there.”
Mortgage-rate factor-Higher interest adds yet another jolt to monthly bill. Rising interest rates are making the situation worse, said Glenn Crellin, director of the Center for Real Estate Research at Washington State University.
Crellin compiles a “housing affordability index,” which factors in housing costs, mortgage rates and local annual income. At the end of 2003, the King County index was 116.9. That meant a median-income family had almost 17 percent more income than the bare minimum required to buy the median-priced house. By the end of 2005, King County’s index had dropped to 80.1. That meant that a family fell almost 20 percent short of the income needed to buy the median-priced house.
In Snohomish County, late last year median-income families made 95 percent of what they needed to buy a median-income house; in Pierce County, they made 104 percent.
But first-time buyers everywhere were hammered. In 2003 King County novices had 65.6 percent of the income needed to purchase a low-priced “starter home.” By the end of 2005, that had fallen to 44.7 percent. “That tells me the typical household looking to purchase their first home has severe problems,” Crellin said. “It’s a long-term cycle we’re dealing with.” Thirty-year mortgage rates are now 6.81 percent, up from 2003’s record-low 5.83 percent. That rise translates, for example, to an extra $154 a month in house payments, presuming a $250,000 mortgage.
Plotting the hunt-Finding a home takes hard-headed planning. With affordability shrinking, real-estate agents such as Robin Tomazic find a big part of their job is helping buyers plan a strategy.
A John L. Scott agent, Tomazic begins by asking what areas they’re willing to live in, how far they’re willing to live outside the Seattle/Bellevue core, and whether they’re willing to take on a fixer.
“If someone is saying they have to live close in and can’t do work, I have to ask, are you being realistic in wanting a single-family home? You might have to look at a townhouse or condo,” Tomazic said. “Or they may have to move further out. I’m saying Tukwila, Burien are not so far away. Will you consider those?”
Even then, Seattle buyers whose budgets top out at $275,000 — last year’s affordable limit adjusted to reflect this year’s appreciation — will have a challenge.
To get a single-family house, they may have to go farther afield to towns where the median detached-home prices are below that figure, as reported by Northwest Multiple Listing Service data.
Copyright © 2006 The Seattle Times Company
