Condo prices continue to soar even faster than single-family-home costs, which kept up their historic streak last month. Even amid a construction boom, the number of new condos isn’t growing much because most developers are building apartments instead.
Amid all the other housing issues facing the Seattle area, the region is locked into a severe condo drought, depriving both first-time buyers and downsizers of a cheaper homeownership option that’s common in other pricey cities.
Going back two decades, King County on average has had more than 2,000 condos on the market for buyers to choose from this time of year. Now? It’s down to about 350, a record low.
And the local construction boom isn’t helping much. There are about 75 major projects being built in the core of Seattle, yet only three of them are condo developments. There are barely any other condos going up elsewhere across the county, either; construction just started on Bellevue’s first condo project in a decade.
That’s not going to change anytime soon. In downtown Seattle, the main market for condos, about 94 percent of the housing units in the pipeline for the rest of the decade involve apartments for rent, not condos for sale, according to Realogics Sotheby’s International Realty.
On its face, the condo-construction shortage doesn’t make much sense: Condos are in such demand that buyers have camped out a day before time to secure rare new units.
King County condo prices were up 17.1 percent in November from a year prior, as condo prices continue to rise faster than single-family- home costs, according to new monthly data released Wednesday by the Northwest Multiple Listing Service.
In Seattle, the typical condo now costs $453,000; just three years ago, it was under $300,000.
But developers and banks that finance construction see condos as the riskiest type of project, both in terms of direct financial payback (during the time when the last decade’s bubble burst, many condos plummeted in value and went unsold or were converted to apartments) and in legal terms.
Washington has an uncommon condo law that allows condo owners to more easily sue builders for construction defects — it allows suits for several years and uses a broad definition of what a “defect” is. That can tie developers up in court and lead to settlement payouts, and at the least, it has caused high insurance costs that can amount to millions of dollars.
And developers say the city of Seattle puts extra restrictions on condo construction, preventing them from converting the units to apartments for at least five years.
The result: Even though there’s a similarity in building condos and apartments, apartments are simpler and just as profitable so nearly all developers wind up building apartments.
“They just don’t want anything to do with it,” said developer Kevin Daniels, who is building one of those three condo projects under construction now, but isn’t sure he’ll ever do it again. “It’s just not worth the headache and pain and anxiety it causes you.”
That’s despite brisk sales at the condos that are going up.
At Daniels’ Gridiron condo project in Pioneer Square, three-fourths of the 107 units are sold out before its scheduled opening in February. Homes there cost about $500,000 to $700,000 for a one-bedroom — more than what you’d pay for a much larger, single-family house in the suburbs north or south of the city.
We are incubating thousands of well-heeled, upwardly mobile, equity gain-seeking millennials who are paying rents that look like mortgage payments, yet there is no product that they can buy.” - Dean Jones of Realogics
At the site of the future Nexus condo tower in the Denny Triangle, the sales team put a couple dozen new condos up for sale on a first-come, first-serve basis last month. Prospective buyers started camping out 18 hours ahead of time to reserve small one-bedroom condos that cost up to $668,000, just as they did when an earlier round of Nexus sales began last year.
“We are incubating thousands of well-heeled, upwardly mobile, equity gain-seeking millennials who are paying rents that look like mortgage payments, yet there is no product that they can buy,” said Dean Jones, whose Realogics firm is marketing sales for the Nexus condos.
“Our condo market has missed an entire (construction) cycle,” he said. “We went four or five years with nothing, and they built apartments instead.”
Many more condos in other cities
Most other pricey cities have a lot more condos than Seattle.
Overall, 18.8 percent of homes available for purchase in Seattle are condos, according to Zillow, as single-family-home neighborhoods still dominate most of the city.
By contrast, two-thirds of homes available for ownership in both Miami and Boston are condos.
The share of owned homes that are condos is also much higher in New York (52 percent), Chicago (48 percent), Washington, D.C. (41 percent), San Francisco (37 percent), San Diego (33 percent), Denver (23 percent), Los Angeles (22 percent) and San Jose (20 percent).
That means those cities have many more affordable condo-ownership options. A month ago, there were only five condos on the market in downtown Seattle for under $500,000. New York had nearly 400 condos under half a million dollars, while Miami had 560 and even San Francisco had 24, according to Windermere broker Jeff Reynolds.
However, Seattle does have a higher share of condos than Portland and Austin, two other hot, expensive markets.
Washington state’s condo-liability law explains part of the condo shortage here relative to other cities.
Officials in Seattle have lobbied for changes to the condo law, which was enacted in response to complaints from condo owners dealing with shoddy construction that led to water damage in units in the 1990s. A report from the University of Washington last year laid out changes that could ease some of the risk for developers and potentially increase construction.
But those efforts haven’t gotten anywhere. Daniels says state lawmakers have told him they have no interest in helping “the rich Seattle developers.”
The fact that Seattle has fewer condos than other cities is also a function of zoning, as single-family homes are all that’s allowed in most of the city.
On the other end of the spectrum from Seattle, nearby Vancouver, B.C., actually builds more condos than apartments (although officials there have complained that some of the condos wind up unoccupied as foreign investors park their money through condo ownership).
Two of the big condo projects in King County now are being built by Vancouver developers — the Burrard Group (Nexus) and Bosa Development (the One88 tower in Bellevue). Another international group, mostly from China, just started on another (The Emerald in downtown Seattle).
Single-family-home costs also rise
In addition to the price spikes and inventory shortage for condos, the monthly sales data released Wednesday showed similar, albeit slightly less dramatic changes for the single-family-home market. That’s become the norm as the region’s single-family-home prices have increased faster than in any other metro area in the country for more than a year.
The median single-family home in King County last month cost just under $631,000, up 14.7 percent from a year prior, similar to the increases seen throughout the year. Inventory is down another 18.6 percent, continuing a half-decadelong trend.
Last month, the median house sold for $741,000 in Seattle, up 20.6 percent from a year prior. That’s the largest increase since February 2016. But it’s still down from the record high reached in June.
The surge was driven by a 31 percent increase in home prices in the central Seattle area, which includes Capitol Hill, and 25 percent increases in both West Seattle and the southeast portion of the city.
Prices hit $851,000 on the Eastside, a 12 percent year-over-year increase. That includes a 33 percent jump in the area south of Interstate 90, and a 27 percent rise on Mercer Island.
In Snohomish County, the median price hit $445,000, up 11.3 percent year-over-year. The median home sold for $310,000 in both Pierce and Kitsap counties, with prices increasing 7.5 percent in Pierce and 9.6 percent in Kitsap.
In all local counties, prices are down a bit from their spring and summer highs, a normal seasonal trend as real -estate activity slows this time of year.