Seattle Rental Market

Let's face it. With the exception of the high end of the market, the mainstream downtown condo mid-market is not really moving. In fact, increasing numbers of patient home buyers are worried prices will retreat further the moment after they buy. As a result, more and more sellers are tired of waiting for a buyer and opting to become these waiting buyers' landlords rather than raise the white flag and make huge price reductions. 

Moreover, those sellers who have experimented with dropping selling prices aren't seeing much change in buyer activity anyway. Much of the market is on lock-down mode and it seems most buyers have made up their minds that they're not getting in this year regardless of the numbers. It would appear as though there have only been 2 speeds in downtown Seattle condos for the last few years, fast and stop.  As an example, only one 2BR condo less than $500K was sold in Belltown in September and another one in October.

The optimistic owners are quietly taking their units off MLS and hoping buyers return to the market at the same time in the Spring to compete against each other for the most desirable units next year (probably in May/June). In fact, 15% of those who took the recent SCR poll as of the time of this post believed prices will rise in the Spring and another 15% believed prices will be steady but inventory will move more quickly.

Assuming all the would-be buyers are really stacking up and hiding out in the city's rental units, you'd imagine rental prices would be on the rise. And you'd be right. After years of stable prices for the last 5 years, rental rates have been on a steady rise since the end of 2006 -- up about 20% with vacancy rates at a 6 year low. For those who bought at lower price points a few years ago and can't sell now, rents are firm enough to let tenants cover most or all of their mortgage, home owner dues, and even taxes while landlords wait for the selling market to come back.

Personally, I think buyers who are looking for choice units may have been a bit more cautious than they needed to be and those who elect to defer their purchase too long may ultimately find that this winter may have been the best time to buy from a pricing flexibility and buyer competition point of view. Of course, a lot can happen in the next 6 months at a local and national level so we'll not know till we know but that's my gut feel.

-Wendy

Thanks to Dupre & Scott for the charts.  D&S is a local Seattle company that conducts apartment and investment research in the Puget Sound area and is a great resource to get market reports at a reasonable fee. They put together various types of reports covering the apartment market including investments, operating expenses, capital expenses, replacement reserves, rents, vacancies, concessions, new construction, absorption, renovation, financing, and more. Reports are published in March and September each year.

Comments

[Joseph Bridges]

Thanks for the graph it makes things easier to see. How long do you think the trend of renting will continue? We are located in Long Beach, CA and have a large supply of condos and they haven't started to rent out in mass yet.

[Jane]

You live in CA but have a large supply of condos in downtown Seattle? If so, it should be easy to rent out -- I put mine up on Craig's List and got a tenant the same day.

[Bill S]

Fortune Magazine Article on Housing and Rental Market; includes Seattle
http://money.cnn.com/2007/11/06/real_estate/home_prices.fortune/index.htm?postversion=2007110711

[Evan]

Just referred a friend to the Cosmo to rent. Renting at 60% the cost of mortgage/dues/taxes. He's thriled to half an owner subsidizing his housing

[Chris]

That's a win-win. Your friend gets to live at the Cosmo and his landlord gets to pay 40% of expenses and keeps ownership of the asset.

[Colin]

I wonder whether the landlord thinks of that as a win. One question is how much of a speculative overhang there is right now and how many people who bought units for speculative purposes are going to find themselves squeezed, with rents not covering payments and the asset price falling.

Plus there's a lot of unsold inventory out there and more coming on line, so it looks like us renters will have choice. Do the vacancy figures above include condos being rented out? And does the rent data control for the kind of unit?

Do brokers have a sideline in setting owners up with renters? Who handles that sort of thing these days?

[Colin]

http://lansner.freedomblogging.com/2007/11/14/are-rents-headed-down/