Greater Seattle 2022 Mid-Year Update
As I sift through the mountain of data that I collect every 6 months, I look for trends that have developed or any outlying numbers that catch my attention. The first half of 2022 is no different and this time it relates specifically to how changes in the real estate sales market are impacting the residential rental market.
As we all know the real estate seller’s market has been red hot over the past couple of years, but a cooling effect began this spring with rising mortgage interest rates. I’ve spoken with REALTORS who saw deals fall apart because a buyer went under contract, and six weeks later right before closing they decided to walk away and forfeit their earnest money (sometimes up to $100,000) because they saw a similar home come on the market for $300,000 less than what they had already agreed to. They figure they can walk away from a huge earnest money deposit and still come out ahead. The forces of supply and demand at work, the way I see it.
So I wanted to quantify this somehow. I decided to look at the number of homes being sold compared to the number of homes that failed to sell. The NWMLS being my database, I found that in January through April 2022, for every 100 homes that sold there were about 5 that did not (the listing either expired or was cancelled) in King, Pierce, and Snohomish counties. That number jumped in May to over 10 homes failing to sell for every 100 that sold. It doubled again in June to over 21 listings cancelled or expired per 100 sold. And finally, at the press deadline for this article, through the first week of July there were an eye-popping 46 listings cancelled or expired per every 100 sold! That’s up (WAY UP) from 9 unsold per 100 sold during the first week of July 2021.
The impacts on the rental market began to materialize pretty quickly. For starters, it has been a while since we got calls about leasing a home that the owner hadn’t been able to sell. We did see quite a bit of that with Seattle condominium units in mid/late 2020, but with single-family homes often selling for over asking price in the first week, it wasn’t really a “thing.” But then in May we started getting the calls. A “stale” listing on the Sammamish plateau…beautiful 5-bedroom house… hadn’t sold after about 3 weeks on the market and the sellers were getting nervous. Suddenly buyers weren’t lined up around the corner. Had they missed their chance to sell for as much as their neighbor got the previous month? That certainly seems to be the case, and in the month of June alone our office fielded over three times as many such referral calls from REALTORS than we did last year.
Local legal regulations aside, it’s a good time to be a rental property investor. Good paying jobs continue to flood our market whether it’s Blue Origin (Kent), Meta (Redmond), Google (Kirkland), or any number of other major employers in the region. We are, however, talking to our clients about some balancing effects…it’s not all 100% great news all the time. Expanding a bit further on some of the current and near future challenges we’re facing…
A combination of rising property values and inflation has resulted in increased carrying and operational costs. Property taxes and insurance rates, each a product of property value, are climbing. The cost of fuel, labor shortages, and supply chain issues have led to vendor invoices trending higher, upwards of 15% in many cases. So we do what we can with our clients to help them manage expectations.
We also continue to advocate for what we feel is ultimately the preservation of rental housing supply in the region – particularly in the single-family house category. I’ve long held that most people don’t consider single-family houses when they think “rental housing” and that belief was reinforced twice very recently. My firm hosted a group of students from the University of Washington in early July. I went around the room and asked each of them to respond with the first word that came to mind when I said “rental housing.” Some said “limited”, others said “expensive.” We heard “flexibility” and not surprisingly, multiple people simply said “apartments.” Not one of them said “house.” Similarly, the Seattle Times recently put out a request for renters to write in about their experience with a recent rent increase. The form asked for name and contact information…and specifically “name of apartment building.” The media does it, and worse, lawmakers do it. They focus on large-scale apartment housing, and completely discount the very existence of the small “mom & pop” housing provider.
An organization called ARCH (A Regional Coalition for Housing) put out a memo to its members in April encouraging them to adopt policies similar to those recently passed in Seattle (caps on security deposits and late fees, among other things). Fortunately (to date) many the ARCH member cities have taken a wait-and-see approach while we continue to work with them behind the scenes through RHAWA to develop sound housing policy. They need only to look at the loss of over 2,500 single-family rental houses in Seattle between May 2021-April 2022 as their guide. In addition to finally ending the Seattle eviction moratorium at the end of February, Mayor Bruce Harrell also vetoed the first major piece of rental housing legislation that crossed his desk (an ordinance that would have dipped into the private affairs of both housing providers and their residents in the name of “data collection”). Add that to our success during the 2022 state legislative session earlier this year, we are feeling optimistic. ARCH, by the way (in case you were curious) oversees 1,843 rental units at last count. Unsurprisingly they are all, you guessed it, apartment units.
We continue our advocacy efforts to help illustrate the distinctions between the different types of housing, housing providers, tenants and their economic situations, etc., in a push toward more targeted solutions that will benefit those who need help without disproportionately impacting others, and ultimately without chasing housing supply right out of town. I think there’s a lot of common ground to be found, just different ways to get there.