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Rental Market

Puget Sound Business Journal says Nearly 22% of Seattle's Renters are Qualified Homebuyers

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Puget Sound Business Journal says Nearly 22% of Seattle's Renters are Qualified Homebuyers

Marc Stiles reported in a recent Puget Sound Business Journal  feature that “More than a fifth of renters in Seattle could afford to buy houses,” a fact that is contributing to the seemingly ever-rising cost to rent in Seattle.

Seattle’s rent is currently growing faster than any other city in the U.S., this according to the Seattle Times as June 2015 vs. June 2016 rent comparisons revealed a staggering 9.7% increase. What’s more, “rents are soaring so fast that June’s 1.1 percent monthly price gain in the Seattle area beat out the growth that Chicago and Washington, D.C., have seen in an entire year.

As Stiles says, “there are various reasons why apartment rents are soaring in the Puget Sound region, and an overlooked one is that Seattle has a relatively high number of renters who could buy but are not necessarily looking to do so.” This statistic, as the article outlines, puts “Seattle fifth on a new Zillow list of markets with the highest share of renters who are qualified to buy.” And when these potential buyers choose to rent, it “increases competition for apartments,” which drives rents up, “hurting lower-income households the most.”

So why are qualified potential homeowners choosing to rent? The Puget Sound Business Journal points to low inventory and increasing home prices, but looking to the booming “Silicon Forest” in Seattle also provides some insight.

“The reality is that much of the demand for apartments in Seattle comes from newly transferred job seekers that prefer to rent for a few years before deciding to buy,” said Dean Jones, President & CEO of Realogics Sotheby’s International Realty. “They want to be comfortable in their new city and ensure the job is sustainable before making larger commitments. The result is that these downtown apartment towers where qualified homebuyers currently rent act as incubators for future condominium demand.”

A graph recently released by JLL reveals that millennials are drawn to Seattle for the abundant job prospects, relative affordability compared to other markets, and no state income tax, a vastly different climate than found in an area such as San Francisco. This allure is one of the factors contributing to Seattle’s fastest growing rents and second fastest growing median home prices.

While there are many potential buyers currently renting, those who do choose to leverage current market conditions are facing steep competition, as new condominium development projects slowed following the 2007 economic downturn. When the opportunity to reserve or purchase an in-city condo arises, consumers are jumping at the opportunity as NEXUS Condominiums, which will be delivered in 2019, are over 80% reserved.

There is still an opportunity to secure a home at NEXUS, and Michael Cannon, Director of Sales, welcomes all current and prospective homebuyers to visit the interim Preview Center at 2715 1st Avenue in Seattle for more information.

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Seattle Rentals Show Largest Increase in Nation

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Seattle Rentals Show Largest Increase in Nation

A Zillow report released on July 22 shows Seattle rents rising faster than in any other U.S. city, increasing 9.7% from June 2015 to June 2016. Average monthly costs have risen nearly $500 over the last four years and have now exceeded the $2,000 mark for the first time in Seattle’s history. Although there has been nearly constant construction adding thousands of new units, the rental market continues to grow undeterred. In 2011, Seattle’s rent was about $300 more than the U.S. average; now, in 2016, it has more than doubled to $620 above the U.S. average.

In a Seattle Times article, Svenja Gudell, Zillow’s chief economist says there are 3 main factors that continue to drive rental prices up. The first is the near-constant stream of new hires relocating to the region as Seattle companies continue to hire. Coming from out-of-area, these people are more likely to rent first before buying. Second, there is intense competition and low inventory in the home sales market, driving more people to rent when they would otherwise buy. Thirdly, many of the newest apartment developments are luxury or high-end and start at a higher average sales price.

In a market with such volatile rent prices, however, we believe that the intense competition in the home-buying market is actually an argument to make an even greater effort to buy. In fact, we will start to see a shift towards homeownership, particularly as new, for-sale condominiums are being developed in Seattle after a long run of developments intended for rent. NEXUS hopes to capitalize on the expectation that rental prices will continue to spiral out-of-control, forcing renters to take a good, hard look at buying. Doing so will dampen the risk of being priced out of the rental market by locking themselves into a fixed monthly cost through the long-term mortgage that homeownership provides.

In addition to greater financial stability and established budgetary expectations, home ownership provides tax benefits as well as a tangible asset that has historically appreciated in value over time. While average rental prices continue to increase in Seattle, average home prices are increasing substantially as well, as those are up 11.8% year over year, fourth in the nation. While the rate of increases will likely not remain this high forever, we only see signs that overall growth will continue as companies keep hiring and attracting people to this region. Rather than paying a substantial amount of money in rent every month, garnering no equity or capital, many people will start to realize that home ownership is the more attractive option in this market. Driven by projects like NEXUS that satisfy the needs of consumers who prefer to live in an urban environment but are discouraged by an exorbitant rental landscape, home ownership should be everyone’s goal in the coming years.

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Buy Vs. Rent - It Can Actually Be Less Expensive to Own

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Buy Vs. Rent - It Can Actually Be Less Expensive to Own

NEXUS is certainly turning heads given its stunning lifestyle proposition, but its underlying economics are also changing consumer mindsets about renting.

A recent analysis conducted by members of the development, marketing and lending team at NEXUS revealed a typical one bedroom condominium at NEXUS could be considerably less expensive to own than rent, given the nature of low interest rates and a rising real estate market as well as the substantial income tax credits that only homeowners enjoy.

Here’s how a summary of how this scenario breaks down on a typical one bedroom residence (data subject to change):

This hypothetical condominium of 650-sq. ft. (gross architectural measurements) is priced for $568,750 ($825 per sq. ft.) and is purchased with a 5% down payment or $28,438. With a loan amount of $540,312 the principal and interest payments would be approximately $2,658 per month (assuming a 30-year fixed rate mortgage at 4.125% PAR rate) with a preferred credit score of 740 or better and provided this condominium is used as a primary residence by the borrower. Given the higher loan to value, the owner would require mortgage insurance, which is calculated at $265 per month plus there’s property taxes estimated at $427 per month and HOA dues estimated at $480 per month. This totals a monthly cost of $3,830 per month or $45,960 per year. A homeowner, however, also enjoys income tax deductions, which were factored at the 0.28% rate so the effective cost of ownership on an annual basis works out to about $35,412. Factoring the actual cost of the first year must include the additional earnest money deposit (a one time investment), so it is estimated that the total first year cost of housing for a condominium is $63,849.

Now take this math into the second year and the cost of ownership stays the same because the mortgage is fixed, but assuming a 5% median home price increase in the market (recent increases have been substantially higher) it’s fair to suggest this condominium appreciated $28,438 by the second year, which is an equity gain. Repeat this again in a third year and consider the cumulative investment would total $106,236 in cash while the cumulative equity gain could be $58,237 so the net housing cost with appreciation is more like $47,939. Furthermore, the down payment of $28,437 that was invested three years ago is still your money that you get back should you decide to sell and that capital appreciation experienced is likely not taxable given current IRS policies for principle residence gains (up to $250,000 for a single person and up to $500,000 for a married couple). This doesn’t include the cost of selling, which must also be factored.

As an apartment renter, the consumer would still provide a security deposit (typically one month of rent) and at prevailing luxury apartment rents of $4.00 per sq. ft., this 650-sq. ft. unit (gross architectural measurements) would likely rent for $2,600 per month plus parking of $175 per month so let’s say the total cost is $2,775 per month or $35,600 per year. Now remember that rent offers no income tax deduction so this same consumer is paying full taxes, and apartments don’t appreciate (at least not for the resident) so there’s no possibility for capital gains. Conversely, apartments typically experience rent increases annually (Seattle rents rose by at least 40% in the past five years) so if we apply the same 5% increase of rent as we presumed for the condominium appreciation above, then the same apartment would cost more and more each year. By the third year the renter will have paid $104,033 for an accommodation that offers convenience but no financial upside.

Of course, owning isn’t right for everyone. If you plan to stay in one place for more than a few years and the market continues to trend upwards as it has in recent years, however, then owning can provide significant economic benefits for the savvy consumer. And one primary benefit of presales is the price is set at the time the Purchase and Sale Agreement is accepted, so it’s not uncommon for values upon completion to be even higher still.

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