Experts Report Owning Can Be Less Expensive Than Renting; Median Home Prices Rise in “Overcorrected” Market.
Executives of Burrard Group confirmed today the land closing at 1200 Howell Street in downtown Seattle and that the commencement of unit-specific reservations will begin effective June 4th for NEXUS, a new 374-unit high-rise condominium tower. Prospective homebuyers will be able to reserve an individual home for priority presale with a set range in exchange for a $5,000 fully-refundable deposit to be held in escrow. Reservations will convert to a Purchase and Sale Agreement during the Fall 2016 commensurate with the opening of a formal sales center and the ground breaking of the development. Occupancy forNEXUS is scheduled for 2019.
“This is effectively a presale of a presale so consumers can get in on the ground floor of this opportunity early,” said Christian Chan, Executive Vice President of Burrard Group, the developer of NEXUS. “We’ve observed robust interest for homeownership in recent months and thus decided to accelerate our sales and marketing process to meet the market demand. I believe this will spark a discussion amongst many renters to consider buying and NEXUS will be a catalyst for some much needed condominium development.”
Chan refers to the anemic supply of for-sale housing in downtown Seattle despite strong market fundamentals. Over the past five years some 10,000 new apartment units have been delivered within the downtown submarket compared to less than 1,000 new condominiums in development, most of which have already been presold. Among these new condominium buildings only 230 homes remain available to purchase over the next two years while the market awaits the delivery of NEXUS by 2019.
“Looking back, the condominium market overcorrected during the Great Recession and now we’re struggling to play catch up,” said Dean Jones, President and CEO of Realogics Sotheby’s International Realty (RSIR), the listing firm representing NEXUS. “This really had less to do with consumer demand and more to do with developer preferences. Unfortunately, that doesn’t bode well for homebuyers in what’s already a tight market with rising prices. If only 5% of those recent apartment dwellers decide to buy, we’ll be out of inventory into the foreseeable future. I think that’s likely to happen and that’s on top of other buyers moving up, downsizing empty nesters and second homebuyers returning to the market. With a rising market, discretional home sales are also making a comeback.”
Jones says high rents and low capitalization rates have made building apartments more attractive investments than building condominiums. With many national and international funds vying for Seattle real estate interests, developers have positioned themselves for significant returns with a single institutional buyer instead of the added costs and complexity of selling to hundreds of consumers let alone digesting the potential liabilities presented by a homeowners association (HOA), which are commonplace with new condominiums. As a result, many would be homebuyers are “incubating” in luxury apartment buildings, according to Jones, awaiting new condo supply to be built. Presales at NEXUS will provide renters an opportunity to stake a future claim within a market that’s increasing quickly. The most recent S&P/Case-Shiller Home Price Index pegs Seattle as the second fastest home price region in the nation rising 10.8% as of March 2016 year-over-year and eclipsing San Francisco with 2.4% gains month-over-month.
A joint report by RSIR and Caliber Home Loans revealed that it can be significantly less expensive to own a new condominium than it is to rent a similar apartment after only a few years once factoring in all the costs and benefits. The study found that a 650-sq. ft. one bedroom priced at $568,750 with a 5% down payment and prevailing interest rates, HOA dues and taxes had a cumulative housing cost of $106,236 over three years considering the income tax deductions. When adding a reasonable 5% equity gain for year two and three, however, the effective cost was really only $47,939. This compares favorably to a rental scenario where the deposits and rents totaled $104,033 over three years and there was no opportunity for income tax deductions or equity gains. The study assumed that both median home prices and rents rose at 5% per year.
To be sure, both rents and median home prices have been rising much more quickly in downtown Seattle. According to O’Connor Consulting Group, average rents have risen by 41.7% since 2010 or nearly 7% per year within the urban core market. Yet median condominium prices have more recently skyrocketed, rising 32% year-to-date over the same period last year and topped $600,000 in May 2016. Meanwhile, RSIR reports there are only 81 active resale listings in downtown Seattle for sale with a median asking price of $725,000. The number of days on market for an average listing has dropped by 76% year-over-year in May from 59 days in 2015 to just 14 days in 2016. This run on inventory is especially noted at price points below $800,000 where 75% of the homes sold in May 2016 closed at or above the asking price, suggesting a very competitive market for buyers.
“NEXUS will provide a dynamic lifestyle at attainable price points,” adds Chan. “We’re providing consumers with a choice and an opportunity to own a piece of the expanding Seattle skyline. We’ve also adopted a very approachable sales process to help homebuyers reach that goal. I’m confident our results will soon indicate that NEXUS is just what the market has been waiting for.”
For more information on NEXUS including a feature film on the development team visit