Condo Expo: Matthew Gardner on Seattle area economics and forecast

Here are my notes from Matthew Gardner’s of Gardner-Johnson talk on Seattle area economics and real estate market forecast.

He started with a brief photo history of condos in Seattle. Things got started in 1982. In 1990 One Pacific Tower was built. Average unit size was 1,200 square feet. There were 4000 units in the pipeline. 1998 Concord building. Other notables: Meridian. Cristalla first building over $500/square foot. South Lake Union. Today there is more inventory and more choice.

Who is living in Seattle?

  • Retirees are staying in Seattle
  • Young urban workers: over 80% of households are non-family households
  • Few investors

Why are people moving downtown?

  • Retirement: Downtown living is more appealing than the suburbs
  • Traffic: People want relief from increasing traffic congestion
  • Capital improvements
  • Lifestyle

On conversions

Conversions have been popular in the last 6-7 years because apartments have been under performing. He thinks conversions will slow down because of the push for increased legislation to protect renters.

# of units in the pipeline

2005: 400
2006: Just Hotel 1000
2007: 1,000
2008: 1,800
2009: 1,800
2010: 3,250

Compare this to Miami which is projecting 30,000 units in 2008 or San Diego with San Diego 6,500.

Or Vegas which ahas 95,000 permits in the pipeline of which 15,000 to be built in the next year.

On bubble talk

Quite simply that bad press sales papers. He doesn’t think there is a bubble in Seattle.

Average project size

2005: 140 units, 3 buildings
2006: 45, 1
2007: 160, 6
2008: 160, 9
2009: 160, 10
2010: 300, 11

But yes, Seattle does have affordability issues.

On immigration. Seattle is continually growing. Only 1992 had more people leaving then coming in even though there were recessions in between.

Average unit price point

2005: below $500k
2006: $1.3 million (just Hotel 1000)
2007: $500k
2008: $800k
2009: $800k
2010: sub $700k

In the short term average price increase but long term will decline.

Average price per square foot

2005: $480/sqft
2006: $800
2007: $580
2008: $700
2009: $800
2010: ?

Sales velocity

He flipped through this slide too quickly for me..

How is inventory in the pipeline selling?

2007: 70% reserved
2008: 50% reserved
2009: 9% reserved

The market is showing “remarkable resiliency” to too much inventory.

But what about the flippers? There have been projects in Vancouver and Miami that were sometimes 80% to 100% sold to flippers. Contrast this to 30-40% flippers at 2200. But it is important to create stability and developers are making changes to limit the amount of investors.

Emerging trends

  • Life style differentiation echo boom gen y
  • Urban / suburban mixed use: I.e. Renton, Auburn, Lynnwood
  • Transit oriented development
  • Not just downtown
  • South Lake Union will become the densest neighborhood. Belltown is tapped out because there is less developable space.

Are we oversupplied?

“Not in any way shape or form”. We’re limiting speculators to 10-15% which results in less competing product when the building finishes.

  • Limited supply vis-a-vis economic and demographic fundamentals
  • Great job growth that will slow middle of next year. 30,000 new new jobs/year
  • Retirees stay here and don’t go south
  • 3,500 scheduled deliveries in 2010 are not all going to happen some will be apartments instead

Are we overpriced?

“It certainly is expensive”

  • Cannot correlate between new construction and resale
  • We did not go up as fast as other regions and therefore won’t go down as fast
  • Haven’t gone down since early 80’s. single digit is attainable
  • Capital markets want to be in Seattle

What to expect?

  • Transfer of wealth to kids. This will stop in 10-12 years. Retirees are living longer
  • Interest rates will remain benign. They will be steady this year and won’t go anywhere in an election year. Money is still relatively cheap.
  • Not following the path of other condo markets
  • Slowing velocity function of choice in the market

What else?

Downtown will head north to SLU.

Housing sales will remain buoyant but still no families. a lot needs to change for families to come to downtown.

Financing will continue to tighten. 7% in Seattle is sub0prime. 7% of that is in default. This is a small amount.

Developments will continue to limit investors.

67,000 millionaire households in king county.

“If the market wasn’t good I’d tell you. Seattle is growing up.”

We dont’ have a site like condoflip.com in Miami which let’s people re-sell their presales before closing.

Absolute price will be coming down, but size of units will be getting smaller.

3 bedrooms declining.

Large dining rooms declining

Everything has its place in a condo.

There will be increased demand for micro sizes. Witness Moda selling out immediately.

Traditional wide open studios giving way to open one bedrooms.

Built Green and LEED is a huge thing but expensive to do. Will the developer get their $40/square foot premium back? We can’t answer this today because we need more data show where the value is for green developments.

40% increase in construction costs due to increase cost of steel and concrete and a tight labour market.

HOA dues are reaching their peak at 0.60 square foot.

Gyms are on the out, developers would rather sell that square footage. But we will still see full amenity buildings.

Affordability incentive zoning south of downtown.

About Matt

Matt , Urbnlivn's publisher, has a love for lofts with industrial features and new construction condos that is only eclipsed by his passion for outdoor sports and urban living. Phrases such as “polished concrete” and “exposed brick” are music to his ears. You can also find Matt on Twitter or skiing.

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  • http://designlines.wordpress.com/ kh

    “Built Green and LEED is a huge thing but expensive to do. Will the developer get their $40/square foot premium back? We cant answer this today because we need more data show where the value is for green developments.”

    Earlier this year, GGLO released a Post-occupancy evaluation, How much energy are you really saving? (http://www.djc.com/news/en/11186808.html) “GGLO partnered with three long-term property holders to analyze utility cost and usage information for five urban multifamily projects to compare the performance of green buildings with conventional buildings.” They also point out that green projects save energy, but there’s more for us to learn.

    The cost of sustainable buildings may have a higher initial price tag, but like Matthew Gardner mentioned we are finally getting the data to prove to developers that it’s a valuable step to build green in the future.

  • http://designlines.wordpress.com/ kh

    “Built Green and LEED is a huge thing but expensive to do. Will the developer get their $40/square foot premium back? We can’t answer this today because we need more data show where the value is for green developments.”

    Earlier this year, GGLO released a Post-occupancy evaluation, How much energy are you really saving? (http://www.djc.com/news/en/11186808.html) “GGLO partnered with three long-term property holders to analyze utility cost and usage information for five urban multifamily projects to compare the performance of green buildings with conventional buildings.” They also point out that green projects save energy, but there’s more for us to learn.

    The cost of sustainable buildings may have a higher initial price tag, but like Matthew Gardner mentioned we are finally getting the data to prove to developers that it’s a valuable step to build green in the future.

  • Master Popular

    Wow, Matthew Gardner had upbeat things to say about Seattle real estate. Thats absolutely no surprise since he has been feeding off the fat of the developers for the past 10 years. Don’t get me wrong, I too believe in the puget sound market. Job growth, growth management act, geographical constraints, they all point to a robust market. It just kinda bugs me to hear someone so far intrenched in the pocket of one condominium marketing company spout off like he is unbiased. Just watch who is guarding the hen house. You will see in downtown, it is the same pack of snake oil sales people. Nyhus Communications, Matthew Gardner, REALOGIC, a regular triad of egos. Do you own research don’t be fooled into thinking that because you paid them to see their sales event, they are anything more than they are.

  • Master Popular

    Wow, Matthew Gardner had upbeat things to say about Seattle real estate. Thats absolutely no surprise since he has been feeding off the fat of the developers for the past 10 years. Don’t get me wrong, I too believe in the puget sound market. Job growth, growth management act, geographical constraints, they all point to a robust market. It just kinda bugs me to hear someone so far intrenched in the pocket of one condominium marketing company spout off like he is unbiased. Just watch who is guarding the hen house. You will see in downtown, it is the same pack of snake oil sales people. Nyhus Communications, Matthew Gardner, REALOGIC, a regular triad of egos. Do you own research don’t be fooled into thinking that because you paid them to see their sales event, they are anything more than they are.

  • jo

    Agree with you master

    Like Realogistics is going to hire a speaker to come in and give anything BUT a rosy picture of downtown Seattle.

  • jo

    Agree with you master

    Like Realogistics is going to hire a speaker to come in and give anything BUT a rosy picture of downtown Seattle.

  • Matthew

    It’s all about the money. As long as people can obtain financing, they will continue to buy. Once that dries up, all bets are off.

  • Matthew

    It’s all about the money. As long as people can obtain financing, they will continue to buy. Once that dries up, all bets are off.

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  • http://twitter.com/mattgoyer mattgoyer

    I’m curious to know who would provide a good contrarain view to counter the opinions of those who presented this past weekend. Does anyone know of someone?

  • http://blog.mattgoyer.com Matt

    I’m curious to know who would provide a good contrarain view to counter the opinions of those who presented this past weekend. Does anyone know of someone?

  • Matthew
  • Matthew
  • Dan

    “The Tim” seems to be wrapped up in his own renter vs. idiot buyer mentality. I find that “synthetik” seems to be a pretty intelligent, balanced guy over on seattlebubble.

  • Dan

    “The Tim” seems to be wrapped up in his own renter vs. idiot buyer mentality. I find that “synthetik” seems to be a pretty intelligent, balanced guy over on seattlebubble.

  • Dan

    oh crap, wups! Not Synthetik, I meant Eleua. He’s one guy whose message doesn’t get lost in the delivery.

  • Dan

    oh crap, wups! Not Synthetik, I meant Eleua. He’s one guy whose message doesn’t get lost in the delivery.

  • EconE

    ditto…Eleua

  • EconE

    ditto…Eleua

  • http://seattlebubble.com/ The Tim

    The Tim seems to be wrapped up in his own renter vs. idiot buyer mentality.

    Dan,

    I’m curious what you mean by that. Could you expand on that thought? I’m just trying to provide a useful source of information, analysis, and discussion. I wasn’t aware that I thought buyers were idiots, let alone that I am “wrapped up” in it enough to detrimentally affect the conversation.

    Please explain?

  • http://seattlebubble.com/ The Tim

    “The Tim” seems to be wrapped up in his own renter vs. idiot buyer mentality.

    Dan,

    I’m curious what you mean by that. Could you expand on that thought? I’m just trying to provide a useful source of information, analysis, and discussion. I wasn’t aware that I thought buyers were idiots, let alone that I am “wrapped up” in it enough to detrimentally affect the conversation.

    Please explain?

  • Dan

    Tim,

    Your site can be informative, and I’m glad it’s up and running. But, I think you can agree that there is a LOT of noise in there – mostly caused by people who try to ruffle the readership community. One thing I find lacking, however, is a balanced voice. I find it to be a somewhat hostile place to exchange opposing ideas…

    I wasn’t implying that you stated that buyers were idiots. I am under the impression however, that you believe that renting in this market is a most favorable solution. As the proprietor of the blog, I can only judge your opinion by what is written on the blog… and what I don’t get is a reasonable set of contrarian views. There tends to be a lot of sarcastic rhetoric, including the often used “Buy now or be priced out forever!”. My thought is that this has more to do with the delivery of, and less to do with the message itself.

    Personally, I’m undecided as to what to make of the market, and I enjoy reading the Seattle Bubble site as a contrast to this and other similar sites…

    Not as a knock to you, I simply felt like Eleua was a good candidate for delivering a message of reason as a contrast to the Matt Gardner piece.

    Also, he’s subtly hilarious. =)

  • Dan

    Tim,

    Your site can be informative, and I’m glad it’s up and running. But, I think you can agree that there is a LOT of noise in there – mostly caused by people who try to ruffle the readership community. One thing I find lacking, however, is a balanced voice. I find it to be a somewhat hostile place to exchange opposing ideas…

    I wasn’t implying that you stated that buyers were idiots. I am under the impression however, that you believe that renting in this market is a most favorable solution. As the proprietor of the blog, I can only judge your opinion by what is written on the blog… and what I don’t get is a reasonable set of contrarian views. There tends to be a lot of sarcastic rhetoric, including the often used “Buy now or be priced out forever!”. My thought is that this has more to do with the delivery of, and less to do with the message itself.

    Personally, I’m undecided as to what to make of the market, and I enjoy reading the Seattle Bubble site as a contrast to this and other similar sites…

    Not as a knock to you, I simply felt like Eleua was a good candidate for delivering a message of reason as a contrast to the Matt Gardner piece.

    Also, he’s subtly hilarious. =)

  • jo

    I’ve found out that 95% of the people screaming “bubble is coming in Seattle, rent rent rent!” can’t afford something in the area. Convincing themselves of the impending bubble allows them to think they are better off renting them owning when really they have no other choice to rent.

    I’ve seen this with several friends of mine. They scream “bubble bubble” but once they get a new job, or have enough saved up, they go out and buy a place. All of a sudden the bubble talk ceases. Morons.

    Similar with EconE and Tim. They’re both guys in their mid 20’s and can’t afford anything, or at least afford what they want. They’ve missed the boat and are bitter about it. What a better way to make yourself feel content about losing that opportunity than to convince yourself all those who’ve made a killing so far will lose that money. It’s kinda sad.

    If I would have listened to the bubble babblers I would have never bought my place a year ago. And just last month the same floor plan with no view sold for 35k more than I paid for mine. :)

  • jo

    I’ve found out that 95% of the people screaming “bubble is coming in Seattle, rent rent rent!” can’t afford something in the area. Convincing themselves of the impending bubble allows them to think they are better off renting them owning when really they have no other choice to rent.

    I’ve seen this with several friends of mine. They scream “bubble bubble” but once they get a new job, or have enough saved up, they go out and buy a place. All of a sudden the bubble talk ceases. Morons.

    Similar with EconE and Tim. They’re both guys in their mid 20’s and can’t afford anything, or at least afford what they want. They’ve missed the boat and are bitter about it. What a better way to make yourself feel content about losing that opportunity than to convince yourself all those who’ve made a killing so far will lose that money. It’s kinda sad.

    If I would have listened to the bubble babblers I would have never bought my place a year ago. And just last month the same floor plan with no view sold for 35k more than I paid for mine. :)

  • Dan Ji

    To be fair, I think there are LOTs of great reasons to rent – especially in this market. ESPECIALLY ESPECIALLY (2x!) if you’re looking to buy a place as a speculator/investor… you’re better off investing in other investment vehicles.

    If you’re looking to buy a place to live in and enjoy (and maybe reap some apprecation in the near future)… well, that’s another matter altogether.

    If I could find a great property at a great price right now, I see no reason not to buy it. They say you make money on the buy, and not the sell… if you plan to stay in a property for a couple of years, it might end up as a great buy.

    That said, there’s prolly still some money to be made as an investor (shorter term), but I’m going to bet these are harder and harder and harder (3x!) to come by.

    I think the above sentiment could be said for people on both sides of the bubble argument, regardless of their ability to afford a property.

    Jo, I don’t discount your experience, however… there are lots of people who read the popular news at face value and automatically assume there’s this huge bubble (or not). I have to believe that people’s financial situations make them interpret the written word to filter in those things that they most want to read.

    EconE and Tim (even if I don’t agree with them 100%) definitely are not in the “the newspaper said so, so it must be true!” camp.

  • Dan Ji

    To be fair, I think there are LOTs of great reasons to rent – especially in this market. ESPECIALLY ESPECIALLY (2x!) if you’re looking to buy a place as a speculator/investor… you’re better off investing in other investment vehicles.

    If you’re looking to buy a place to live in and enjoy (and maybe reap some apprecation in the near future)… well, that’s another matter altogether.

    If I could find a great property at a great price right now, I see no reason not to buy it. They say you make money on the buy, and not the sell… if you plan to stay in a property for a couple of years, it might end up as a great buy.

    That said, there’s prolly still some money to be made as an investor (shorter term), but I’m going to bet these are harder and harder and harder (3x!) to come by.

    I think the above sentiment could be said for people on both sides of the bubble argument, regardless of their ability to afford a property.

    Jo, I don’t discount your experience, however… there are lots of people who read the popular news at face value and automatically assume there’s this huge bubble (or not). I have to believe that people’s financial situations make them interpret the written word to filter in those things that they most want to read.

    EconE and Tim (even if I don’t agree with them 100%) definitely are not in the “the newspaper said so, so it must be true!” camp.

  • http://seattlebubble.com/ The Tim

    Jo, you’re so far off it’s funny. I can only definitively speak for myself, and I know that I’m not bitter in the slightest. Why should I be?

    In four years I was able to:
    – pay off nearly $50,000 in school loans
    – buy two nice used cars and two electric bicycles (with cash)
    – pay for my wife to go through a year-long program at the Art Institute (with cash)
    – buy myself plenty of digital gadgets and toys including a nice home theater system with a 76″ screen (with cash)
    – take nice vacations
    – and much more…

    I could have easily “afforded” to buy a home. It just didn’t and still doesn’t make any sense to spend that much money on a roof over one’s head when it can be had for so much less by renting.

    When I started the blog I was somewhat on the fence about the bubble. However, all the data I’ve analyzed points to the conclusion that we are in the midst of a real estate bubble, even in Seattle. Every time I run the numbers on an argument that home prices are supported by “fundamentals,” I come up empty-handed.

    You’re free to disagree about the conclusions, but if you think it’s some sort of pity party and nothing more than “bitter renters” “convincing themselves” then you obviously haven’t actually read the blog.

  • Kevin & Theresa

    We bought our home north of Seattle 2 years ago for 390k. Now similar products and resale are going for over 500k. We kept our old house and made it into a rental yet further north. At the time it was worth 260k. Now similar properties in our old neighborhood are listed for 358k. Velocity is certainly slower, basically off the “I sold my home in 4 days” market, back to the what used to be normal.

    We for two, are sure glad we are landlords and not renters!

  • Kevin & Theresa

    We bought our home north of Seattle 2 years ago for 390k. Now similar products and resale are going for over 500k. We kept our old house and made it into a rental yet further north. At the time it was worth 260k. Now similar properties in our old neighborhood are listed for 358k. Velocity is certainly slower, basically off the “I sold my home in 4 days” market, back to the what used to be normal.

    We for two, are sure glad we are landlords and not renters!

  • Ha

    Tim:

    Putting the tactical “renter vs. buy” comment aside, Dan is spot on with his overarching observations about your blog’s content and style; while interesting and mildly entertaining, you fail to provide a safe and objective forum for all sides of the story. I too have trouble really appreciating your work for anything more than another entertaining one-sided rant to sit alongside the rest of the bulls and bears out there. It is a shame because I think a slight re-focus in your energy and tact could much better serve the boader need in our community for awareness, education, transparency, etc. Until then you will continue preaching to an overzealous choir.

  • Ha

    Tim:

    Putting the tactical “renter vs. buy” comment aside, Dan is spot on with his overarching observations about your blog’s content and style; while interesting and mildly entertaining, you fail to provide a safe and objective forum for all sides of the story. I too have trouble really appreciating your work for anything more than another entertaining one-sided rant to sit alongside the rest of the bulls and bears out there. It is a shame because I think a slight re-focus in your energy and tact could much better serve the boader need in our community for awareness, education, transparency, etc. Until then you will continue preaching to an overzealous choir.

  • chris

    Kevin & Theresa,

    Congrats. You made the most of a booming market…. In a similar vein, I bought yahoo! at 8 and sold in Jan 2000. I would not have recommended doubling up at that time.

    As far as the Bubble blog, its a great source of info. If nothing else, ignore the poster comments and just read the links. When, say, the director of PIMCO comes out and explains how overvalued the market is, it eyeopening – and that perspective is not getting much coverage in the media otherwise…. I think The Tim is evenhanded but some of the other posters can get a little overzealous. There are some wickedly smart people with a little too much time on their hands who have invested a lot of energy into predicting a bubble, or at least a decline, and so the tone becomes a little confrontational at times. Contrary to Jo’s opinion, I think most of the zealous posters have an intellectual/emotional stake in a potential decline as much as a financial one.

  • chris

    Kevin & Theresa,

    Congrats. You made the most of a booming market…. In a similar vein, I bought yahoo! at 8 and sold in Jan 2000. I would not have recommended doubling up at that time.

    As far as the Bubble blog, its a great source of info. If nothing else, ignore the poster comments and just read the links. When, say, the director of PIMCO comes out and explains how overvalued the market is, it eyeopening – and that perspective is not getting much coverage in the media otherwise…. I think The Tim is evenhanded but some of the other posters can get a little overzealous. There are some wickedly smart people with a little too much time on their hands who have invested a lot of energy into predicting a bubble, or at least a decline, and so the tone becomes a little confrontational at times. Contrary to Jo’s opinion, I think most of the zealous posters have an intellectual/emotional stake in a potential decline as much as a financial one.

  • richard

    jo: “Ive found out that 95% of the people screaming bubble is coming in Seattle, rent rent rent! cant afford something in the area. ”

    It sounds like it’s been a few years since you shopped for a loan. Despite all the news about the subprime collapse, the fact is that just about anyone can still get a loan to purchase a home. As of yet there is no “affordability” problem when it comes to buying a home here or anywhere else – it’s a matter of getting a loan with the right terms.

    Sure, the bar has raised a bit, but if you’ve got 650+ credit you can qualify for 100% financing on a mortgage that allows you to pay whatever you can afford for the monthly payment.

    The simple truth is that anyone earning $15/hr can buy a place. Homeownership is far from the exclusive club that it was years ago when banks required proof of income, assets and repayment ability.

  • richard

    jo: “I’ve found out that 95% of the people screaming “bubble is coming in Seattle, rent rent rent!” can’t afford something in the area. ”

    It sounds like it’s been a few years since you shopped for a loan. Despite all the news about the subprime collapse, the fact is that just about anyone can still get a loan to purchase a home. As of yet there is no “affordability” problem when it comes to buying a home here or anywhere else – it’s a matter of getting a loan with the right terms.

    Sure, the bar has raised a bit, but if you’ve got 650+ credit you can qualify for 100% financing on a mortgage that allows you to pay whatever you can afford for the monthly payment.

    The simple truth is that anyone earning $15/hr can buy a place. Homeownership is far from the exclusive club that it was years ago when banks required proof of income, assets and repayment ability.

  • http://seattlebubble.com/ The Tim

    Dan & Ha,

    Thanks for the thoughtful comments. I appreciate the feedback.

    For what it’s worth, I’m not sure there is such a thing as an objective source of information, without any bias. At least I’m open about my biases, instead of trying to pretend I don’t have any.

  • http://seattlebubble.com/ The Tim

    Dan & Ha,

    Thanks for the thoughtful comments. I appreciate the feedback.

    For what it’s worth, I’m not sure there is such a thing as an objective source of information, without any bias. At least I’m open about my biases, instead of trying to pretend I don’t have any.