The Tacoma News Tribune reported today that leases are in place for State Farm to occupy the Russell Building downtown and four floors at Columbia Bank Center. As I sit to write to you this month, the news raises questions about the likely impact on Tacoma real estate.
When Russell left for Seattle, some worried about the impact on high-end home values. There was some impact, but it was hard to isolate with values already declining as a result of the economy. Some of the local Russell employees, whose families were well entrenched here, commuted rather than sold their homes, so there wasn’t the mass exodus that some feared. It is possible that any negative effect Russell might have had on high-end home values will be partially offset by the 2,000 or so jobs State Farm will bring (as many as 300 will be hired this summer!) However, average salaries of these positions have not been reported. This is going to be a claims center. I speculate that this will mean jobs with down-to-earth salaries. I see this having more of an effect on homes priced in the lower to mid price ranges, as well as the condo market downtown, where people could walk to work.
Conditions are ripe for a condo resurgence. Prior to the real estate downturn in 2007, we were seeing a condo boom in downtown Tacoma. There were new buildings going up and old apartment buildings were being converted to condos to keep up with demand. People wanted to live downtown. There was, and continues, a spirit of renewal, with UW Tacoma, new restaurants and fabulous museums. There were rumors that an urban grocery store would open, meaning urbanites would not have to get into a car and drive to Stadium Thriftway or Hilltop Safeway. Tacoma City Grocer IGA opened in the fall of 2011. So the infrastructure has moved in to meet the needs of downtown residents. Prices of condos are down significantly from their highs in 2007. In the first quarter of 2007 there were 53 condo sales downtown (MLS areas 19,20 and 29) averaging $281,446 and $295 per square foot. In the first quarter of 2013 there were 11 (ELEVEN!) condo sales averaging $179,886 and $181 per square
foot. If State Farm employees want to live the urban lifestyle in a downtown condo, they are going to find (for now) low prices, low interest rates and probably good upside potential for values. I see this as the segment of the market most likely to be affected significantly by the State Farm lease, although I believe it is great news across the board and for reasons unrelated to real estate.
A couple of years ago I spoke to Julia, a woman whose family’s needs and wants had evolved beyond their home and neighborhood. Unfortunately the house was no longer worth what they owed. Like a lot of people, they felt shackled to their home. Every so often Julia emails. “How about now?” Although the market is improving, values are still quite low. It will be at least a year before Julia can get out without writing a big check. Telling people they are under water has become a part of our job these past five years and seven months. (But who is counting?) For some owners like me, who bought in 2007, it is going to take years to breathe air again.
Julia wrote back. Her family has decided to move anyway. They are working with a lender to qualify for a new mortgage with the plan to rent their current home. Julia was just one example among many of our clients who are fed up watching these low interest rates and attractively priced homes. Now that prices seem to be headed up again, they are betting on their current home appreciating. They are also locking in a low price and low interest rate on new homes. I think this phenomenon might help explain why there are so many buyers and so few sellers in our market today. The buyers we are seeing out there, after all, are not all first time buyers. We know this because even more expensive “move up” homes are selling these days. A lot of them already own a home, yet the offers they write are not contingent on selling it first. They are like Julia, Josh, Robin, Steven, Margaret, Tom, Bill and Jessica, and probably hundreds of others in Tacoma.
Each of these people adds to the pool of buyers but do not add a corresponding house to that pool. So this phenomenon is partially behind the inventory imbalance. But far from casting blame, I thank these people for igniting our market!
There are some things to consider if you are considering buying without selling first. Here are a few. Becky Thompson of Wells Fargo, says that if you don’t have a lot of equity in your current home you might not be able use rent as a debt ratio offset when applying for a mortgage, even if you have a signed lease. By and large you will have to qualify for both mortgages, but you might be surprised to find how much you can qualify for. Particularly if you do not have experience as a landlord, you might consider using a property management company in order to ensure you have qualified renters, that you don’t run afoul of landlord tenant laws, and that the call in the middle of the night regarding a plumbing leak does not go to your phone. You need to think about wear and tear on the home. A tenant will not care for things exactly as you would. If your home is in pristine condition you might consider what it will look like a year or two after becoming a rental. You will want to have cash reserves available for repairs or to cover the mortgage between renters.
Mark Melsness of Windermere Property Management says there is a strong market for rental housing between $1,400 and $1,800 per month, fueled by military families and people who had to short-sell their homes.
Before doing anything, it is worth gathering information. Call us to find out what your home is worth. As this market is hot, you might be pleasantly surprised.
We’ve been hearing for some time about the Elks building downtown being bought by McMenamin’s (brewer/distiller/hotelier) but prior to a few weeks ago I had zero concept of what that might mean. Then Nicole and I spent two nights at their Edgefield Resort just outside of Portland. It was a remarkable experience. Once upon a time that property was a poor farm. It morphed into an old age and convalescence home after WWII. The whimsical artwork adorning just about every surface at Edgefield celebrates this history. The rooms, decorated in a turn of the century style consistent with the building, lack telephones, televisions and bathrooms. As insane as this may sound, we did not mind not having a bathroom in the room. Walking to either end of the hall, toothbrush in hand, to the community baths was reminiscent of dorm life and lent a sense of a shared experience. Around the property there is a lot to explore. Even small farm sheds have been repurposed as cozy, miniature drinking establishments where you can order something delicious to drink, something brewed or distilled right on the property, then carry it around wherever curiosity leads you next. You can catch a movie in the theater at The Powerstation, go for dinner at a number of places or steep in the soaking pool which serpentines in a loop behind Ruby’s Spa. There is frequently live music to be heard. One tiny room serves as a Grateful Dead themed bar. Nicole and I left with the conviction that if something so fun and interesting existed in Tacoma we would visit regularly. That looks promising. I traded emails with people at McMenamin’s and was told they have not yet started construction on the Elks building; still working through some details. They anticipate a 2014 opening. Listed on the National Register of Historic Places, the Elks Lodge was officially purchased by McMenamin’s in 2012. The property will include approximately 45 guestrooms with private baths, space for live music, events, weddings and meetings; a ballroom that will feature a tiny indoor city with “cabins,” skylights, gardens, terraces and more; three restaurants, a McMenamin’s brewery, and a rooftop garden that will provide the restaurants with fresh, seasonal ingredients. I think it will provide yet another reason to love T-town.
We are helping many buyers sort through a thin assortment of listed homes in Tacoma. Reasonably priced new listings are drawing multiple offers. Here is a breakdown of what is now pending and active in each price category in the north end. To give a point of reference, a balanced market has about half as many pending sales as active listings (50%). Most categories are in north Tacoma are way out of balance. Check out a few in particular. Below $200,000… 232% pending! That is a lot more demand than supply. And another interesting price range is the $500,000 to $550,000 range, at 100%. I can’t tell you the last time I saw that. People, these are the conditions that drive prices up. I’m looking for an increase in values this year, perhaps significant.
Tacoma real estate 2013 (with gratuitous sports commentary)
We erroneously think of January 2 as being the day the new buyers come out and the market wakes from its holiday snooze. In reality there is a lag. Most years it is around the second week of the month when our phones start ringing and we begin the process David calls "getting busy getting busy", i.e. the time when we have a lot of those initial conversations with prospective buyers and sellers. This January, it was midweek last week that these calls and emails started coming in. I theorize that the loathsome flu virus going around delayed things. The virus took me down, but oddly enough, that couldn’t have happened at a better time; immediately after our holiday trip to Idaho and during that lag. It is always nice to hear from buyers, but at this juncture it is particularly nice to hear from sellers, since inventory is in short supply. We ended 2012 with about half as many north Tacoma homes as last year. This market needs good homes listed, the sooner the better. Buyers are ready, interest rates are favorable and the signs seem to point to improvement in values for 2013. If you have been considering selling Tacoma real estate, please call!
The other upside to being under the weather in early January was that I wasn't out showing homes or sitting open houses when the Seahawks were in the playoffs. I got to see the game against the Redskins in its entirety, as well as that breathtaking game against the Falcons in which the Hawks very nearly pulled off a historically improbable comeback in the second half. It is remarkable and stressful how fast fortunes can change with mere seconds on the clock. I am really looking forward to seeing Russell Wilson and this exciting team in the coming years. Speaking of sports, the interwebs are abuzz with talk that NBA basketball may return to Seattle. The family who owns the Sacramento Kings reached a deal to sell to a group intending to move the franchise to Seattle and dust off the Supersonics name. Like with a real estate purchase and sale, the purchase and sale in the case of the Kings has a contingency, which is basically a big “IF”. It's not contingent on inspection, or appraisal, like a real estate sale, but on approval from NBA Board of Governors. The mayor of Sacramento, Kevin Johnson, himself a former NBA star, plans to present his case to the NBA in April for keeping the team where it is. So it’s not a done deal. We can all relate to the people of Sacramento if they must bid farewell to the Kings, and yet one way or another it would be positive to see a franchise in Seattle again.