June, 2006

Dear Clients & Friends,

It’s time for a mid-year update on the Greater Seattle housing market.

Allow me to begin by acknowledging the sad loss of noted Seattle architect, Roland Terry. Earlier this month Mr. Terry passed away at the age of 89. His residential design work has been instrumental in defining the genre of northwest contemporary homes and has most certainly gained in stature, over time.

Mr. Terry's approach often employed the use of large windows and high ceilings in the main living areas with natural colors and materials that successfully tied the interior space to the exterior. His work reflected the ability to skillfully create uncluttered lines and dramatic or intimate spaces in a segment of the housing market that has shown its appreciation over the past three years by registering average prices in excess of $2.5 million ($500-600/SF) for homes that were typically built between the mid 1950’s and late 1970’s.

As proven by the test of time, Roland Terry has left our community a fine architectural legacy.

Another newsworthy item and something to contemplate for the not too distant future is Toyota’s activity in the residential construction market. Although it could be a while before they make a dent in the domestic housing market, some hybrid alternatives may appear in the next several years.

With a mix of assembly line robotics and craftsmen they create a cost-competitive home for the Japanese market that is 85% built when the metal-framed modules arrive at a construction site. Within six hours the modules are stacked in place by a crane and the roof is finished.

Their success in vehicle manufacturing has taught Toyota valuable lessons about resource/parts management and quality control that are already being implemented to produce 4,600 houses a year in Japan. The company is projecting an increase in their production to 7,000 homes, annually, over the next four years.

Toyota’s subsidiary homebuilding factory is located in Texas and has recently completed 50 units, allowing them to study US production methods.

Although there have been high quality modular homes available in the US for many years, there has been sufficient market resistance to the concept to relegate this option to a small market share.

However, it is my expectation that Toyota’s move has the potential to create a market shift within the next five years if energy, mortgage and land prices continue to rise disproportionately to income levels of home-buyers.

This brings us to the state of the market in the Greater Seattle area. The table below shows market stats for single family houses in five geographic areas, comparing figures for the past 30 days to those six months ago, at the beginning of the year.

Although the sale volumes are not seasonally adjusted figures, I’ve included them as a point of reference. However, increases in the median sale price of 6% to 14% (12% to 28% annualized) over the past six months, is remarkable.

Further, I noticed a recent sale for $375,000 for a non-view, 5,000 SF building lot in the Bryant neighborhood, and expect a 42% land to value ratio if the project is completed in the next year, bringing the new home list price to about $900,000, a figure that already has market support on the block.

Inflationary pressures are currently at play and in spite of mixed messages from the Fed, it is my belief that they will use their most effective tool to control inflation …. increases in interest rates.

It is possible that as increased fuel prices ‘mature,’ this, too, will have an impact on housing market dynamics. It is my expectation that the higher gasoline bills could make the neighborhoods with long commutes harder to sell. The result would be an even greater disparity in the rate of appreciation between close-in neighborhoods and their ex-urban counterparts.

Some sub-markets pose significantly greater or lesser risk than others. It has been a part of my work as a real estate broker (or appraiser in years past) to analyze and identify these risks for my clients.

Please feel free to call if you have a need for more risk-related information and consultation, or wish to bring a property to the market.

As always, your comments and questions are welcomed.

Respectfully,

Bob Rothstein
HousingUpdate.com
206-525-7267

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