The Ascension of the Seattle Housing Market (Part 2)

We’ve come a long way from the “Will the last person leaving Seattle –Turn out the lights” era of the 1970s. From 2012 to 2013, the population of Seattle grew by 2.8. Fast forward to 2016, just four short years later, and the population growth rate shot up to 12.3%. With the sudden explosion in population comes an equally swift ascension of house prices. The demand is rapidly exceeding supply and those in the real estate industry are riding the cash wave. Let’s take a look at how this happened.

Back in January of 2016, CNBC had an article on the housing crisis that was beginning to grip the nation (http://www.cnbc.com/2016/01/13/the-new-housing-crisis-that-will-sink-american-middle-class.html). In the intro, it was explained that, in Seattle at least, tech jobs had jumped 21% and housing prices rose 12%. The problem with that is most people outside of the tech industry (which makes up the vast majority of King County and surrounding counties’ populations) were starting to feel the pinch. Only a third of Seattle home buyers outside of the tech industry were confident that they  would be able to afford to live there within the next decade. The same trend was starting to occur in other cities throughout the United States. Cities such as Austin and Dallas, where the tech boom was also occurring; as well as Seattle’s southern step-city: Portland. The biggest cause to the rapidly expanding chasm between income and cost of living was the sudden and drastic housing requirements that developers rush to meet and bridge the gap between supply and demand.

If you go back slightly further, back in 2007, Amazon began its consolidation of operations to the South Lake Union neighborhood of Seattle. The plan, which would take several years to accomplish, was to take its nearly 5,000 (at that time) employees and put them in one centralized location. Since then, Amazon has been on a massive hiring surge – hiring thousands of permanent employees every year and expediently even higher temporary numbers around the holiday season; just to meet demand. Business, you could say, is booming.

By comparison, the two other giants – Boeing and Microsoft, never experienced this kind of massive employment surge. Boeing experienced a hiring boom during World War II and then gradually increased its numbers throughout the decades. This was counterbalanced through countless union strikes and major layoffs that occurred during this time. Microsoft had a similar growth pattern; where there were large hiring periods – but they were stretched out and never to the same level as what Amazon has been doing. Even Starbucks, with it’s rapid growth since its inception,  was completely spread out geography wise in its demand for employees. There was no imminent need of massive amounts of new employees in a centralized location. Other than a scant few other times throughout Seattle history (the Klondike Gold Rush, for example) there really hasn’t been that much of a flood of new residents.

Fast forward to 2015. Amazon is now over 200,000 regular employees and still rapidly expanding. 106 new building projects began construction. Cranes started clogging the skyline overnight. The apartment market was on track to see 3,487 units built and opened in just 2015. It was the highest number of units delivered in a year since tracking began in 2005.

Just to give you a better idea of what I’m talking about, for the 40 years (prior to 2008), ground was broken on an average of nearly 1.6 million housing units per year. Starts over the past seven years averaged 788,000; even in 2015, a boom year, starts were only 1.1 million. However, now there were four times as many office spaces under construction as compared to two years prior (2013). With the flush of new business and the need for new workers, the cost of housing also shot up. With all the new construction, developers had the opportunity to recoup their costs and make previously unimaginable profit. Which led preexisting landlords to also raise their rates to keep up with the demand.  Occupancies began to evaporate at a much more accelerated pace than anyone had anticipated.

The Amazon Boom was in full force. Tech jobs were outpouring in need and popularity. The price for everything from a gallon of milk to a studio apartment shot through the roof. And those caught in the crossfire and hastily being left in the dust were people who didn’t work for a dot com. And thus began the trickle that became a stream of people leaving the Seattle city limits in search of affordable places to live.

The Ascension of the Seattle Housing Market (Part 1)

We’ve come a long way from the “Will the last person leaving Seattle –Turn out the lights” era of the 1970s. From 2012 to 2013, the population of Seattle grew by 2.8. Fast forward to 2016, just four short years later, and the population growth rate shot up to 12.3%. With the sudden explosion in population comes an equally swift ascension of house prices. The demand is rapidly exceeding supply and those in the real estate industry are riding the cash wave. Let’s take a look at how this happened.

For the longest time, the largest employer in the Seattle was the Boeing company. With it’s constant fluctuation of layoffs and hiring bursts, there wasn’t much variation in the expansion in the population base. When it did happen, it was in the suburbs and bedroom communities that constantly fed the two giants (Microsoft being the other) its needs for workers. Neither company had explosive hiring bursts, either.

Enter Amazon. Back in 2010, Amazon consolidated its massive operation to the South Lake Union area of Seattle. With that came a colossal hiring spree of thousands of new employees. Something that has continued to this day. On average, Seattle has gained 14,511 people per year, according to census data. There’s been variations, of course, not not much dip from that. With this, neighborhoods that once saw modicum of growth were quickly overrun with new residents. This brought about about the new Seattle housing boom. Cranes burst into the skyline almost overnight as developers scrambled to meet the demand for new places to live. For example, the number of buildings under construction in 2016 was 65. That’s a full 16 buildings more than just the previous year.

With this, the cost of preexisting homes also skyrocketed.  As of May 2015, the average rent for a one bedroom apartment in Seattle was just over $1,500 a month. Which was an 11% increase over the previous year. Compare that to today where it’s in the neighborhood of $2,000 a month. Sometimes higher – depending on the place and where it’s located. In fact, Seattlites are, on average, paying at least a third of their salary in just housing along. With rent prices that are basically equivalent to what you would pay for a mortgage (minus the equity you would get from actually owning a home), droves of people are looking outside the city limits for affordable housing.

The two main schools of thought (outside of relocating to Portland – which is also on the rise) is either move north to the Everett area – or further, or south to the Tacoma area. The Eastside, which did see an initial bump in the early 2000’s with the Dot Com Boom and again in the mid 2010’s with a growing number of startups popping up in the Kirkland area; is largely ignored and considered to be too expensive. While wages due to the surge in jobs has increase somewhat, it hasn’t been nearly enough to accommodate drastic escalation in prices. In contrast, you can rent an apartment in Tacoma for less than a thousand and even buy a house in that are for comparable and pay about the same in a mortgage as you would to rent a one bedroom in Seattle.

Essentially this, it is now no longer financial feasible to live in Seattle and still make ends meet.  Even with the escalating minimum wage increase to $15 an hour, the average person would still have to make a 46.15% increase (to $45,597.50) in annual income just to meet the standard of living there. For a snapshot comparison, just a short distance away in Tacoma, the average person would  only have to make a 9.38% increase (to $34,125.00) in annual income just to meet the standard of living there.

In the next few posts, I’ll break down just how we got to this place and what options future home owners actually have.

 

The Flip (Part 2)

Fixer Upper. Flip or Flop. Love It or List It. Property Brothers. Television today is inundated with shows where a property company comes in, buys houses in disrepair, restores them to better than new, and then provide them to new homeowners who (hopefully) fall in love with the re-creations. 

So, what exactly does it take to flip a house? What steps can you take to make sure that you don’t sink head first into an unforeseen money pit? How can you successfully tread the tightrope between prosperity and possible bankruptcy?

The first and most important step is to have a plan. I’m not talking about a vague idea that you might have gotten while watching HGTV. It needs to be both iron clad with enough wiggle room to factor in things that you would never expect to happen. Having a vision of the perfect house is one thing and the possible chaotic and even catastrophic events that may occur between outset and conclusion is something else entirely.

So, how do you go about developing a plan? Research, of course, is essential, but where would you even begin to look for information on flipping houses? Thankfully the Internet multiple pages dedicated to the subject – but, as with any other topic, be wary of the source. There are thousands of scam sites out there waiting for someone to fall into their trap and steal their savings. An example of a reliable source would be: http://www.investopedia.com/articles/mortgages-real-estate/08/house-flip.asp?lgl=myfinance-layout-no-ads The same goes to books that you would find at the library or magazine articles. It’s always a safe bet to try and verify information from three separate sources to ensure that it’s accurate and up to date. Remember, you’re going to be investing a large chunk of both your time and finances into this project. The more prep work you do in the beginning, the less headache you will have later on.

Once you have a plan, the second most important step is to budget. Yes, I’m referring to a financial budget, but also a time budget. How much work do you want done on the property you’re about to renovate? Are you starting from scratch or are you just doing some updating and cosmetic improvements? How much work needs to be done to make it not only up to code, but also livable? Have you budgeted for unforeseen problems that are most likely going to pop during the project? What about after the fact, when all the work has been done and the house is on the market – how much time are you planning on letting it sit there waiting to be sold?

Third is having a lay of the land. Meaning, how well do you know the area around the property that you will be working with. Was it once a prosperous neighborhood, but it’s been showing signs of becoming rougher? On the flip-side, is it a neighborhood that has the potential to surge in both popularity and value within the next five years?   Will the crime rate and surrounding school districts impact on the value of the home in a positive or negative way? Having an estimator is a solid tool to have in your arena. Sites such a http://www.zillow.com with the fantastic Zestimator (which, if you haven’t used it, goes into everything from how many beds/baths it has and when it was built, to how much activity it’s had on Zillow, to the value and tax history of the property), http://www.redfin.com which gives you a snapshot of the value of the house and the last time it was sold (and for how much), http://www.homesnap.com which is very mobile friendly with its app, and https://www.neighborhoodscout.com/ which, at a glance, tells you property values, demographics, crime statistics, schools, and trends and forecasts. All of these are going to make you’re life significantly easier in the planning stages.

The fourth most important necessity would be a team of professionals to help you with everything from the demolition and reconstruction of the house; as well as the surrounding landscape and property. Again, research is vital in this process. It never hurts to check the BBB and other resources before agreeing to go into a project of this magnitude. Ask yourself if you would trust them to work on your house; and if there is any doubt, then continue the search for someone else. An amazing team will shave days, possibly weeks, off the projected timeline; and save you thousands of dollars. A bad team will decimate your project and deplete your funds.

The fifth and most vital tool is having ample patience. I cannot stress this enough. Trying to rush a project and/or cut corners is the fastest way to ensure disaster and self-sabotage. Without ample time, money, and patience, you will fail.

 

The Flip (Part 1)

Fixer Upper. Flip or Flop. Love It or List It. Property Brothers. Television today is inundated with shows where a property company comes in, buys houses in disrepair, restores them to better than new, and then provide them to new homeowners who (hopefully) fall in love with the re-creations.

This trend of buying houses, restoring and updating them, and then ultimately flipping them started heating up in the first decade of the 2000’s. When the dot-com bubble burst, Americans were looking for a different way to invest their funds and, in theory, reap the rewards. The two biggest unforeseen obstacles were the crashing of the housing market due to the massive collapse of the sub prime loan industry and all the effort it takes to truly flip a house. Vast amounts of people were caught completely off guard and suffered the consequences.

While television makes the transition from a dilapidated dwelling to an immaculate manor seem effortless, the fact of the matter couldn’t be further from the truth. As with any major project, the investment of both time and money is extensive. Not to mention the uncountable amount of setbacks you will experience on the road to completion. Television does not show the sheer amount of blood, sweat, and actual tears that goes into the restoration in a property. With each delay, with each obstacle, there is a continual drain of both time and finances.

To put it into perspective, let’s look at how much a project like this would truly cost. First you start with the acquisition of the property. Which means that you’re most likely going to need a realtor. The beginning range for the acquisition is easily in the tens of thousands. The next step is the demolition of the interior and parts of the exterior. Even the most well kept house is still going to need some form of renovation, updating, and personal touches. You could try and do it on your own; but honestly the less expensive option would be to hire a company (who has far more experience renovating homes than the average Joe). The good news is that you have multiple options (https://porch.com/ http://www.houzz.com http://www.homeadvisor.com for a few examples) where you can choose a professional home contractor – especially since sites like these have vetted their pros and there’s examples of their work for you to view. Once you’ve hired a crew, you’re going to have to factor in the length of the project. Bare minimum (depending on how much work needs to be done, of course), is going to be around two to four weeks. Possibly even eight weeks, if it’s an extensive renovation. If your lucky, you’ll find a crew that does landscaping as well a home renovation. This will save on your overall budget; but may lengthen the time of the overall project.

So, now that the project is over and you now have a house that is better than new, you now have to sell the property. The smart bet would be to keep the initial realtor that you bought the property through. Depending on what you had done, the value of the home could have skyrocketed and you’ll be able to sell it for a nice profit. However, there’s also the option of renting the property and keeping it as a continual profit. The issue with that is that you won’t have an immediate enough lump sum if you decide you want to move on and start the process over again. Not to mention all the new responsibilities you would now have as a landlord. The benefit, however, is that you may be able to fill the occupancy much sooner if you rent as opposed to full out sell. A good realtor will be able to unload it in a matter of weeks. A bad one and it sits on the market for months.

House flipping is hardly a get-rich-quick opportunity and honestly should be left to the professionals. While the market has improved significantly since the crash of ten years ago, there’s no absolute guarantee that a property that you’ve invested over a month’s worth of work and thousands upon thousands of dollars will be sold within a short time frame. So many circumstances must be considered before you even begin the process; and it’s often the things that you never thought of that will hinder you the most. It’s best to take the safe route with the professionals and reap the rewards of their hard labor.