Seattle’s Zero Lotline Boom-Bust…Boom?

5403 3rd NW Townhomes
5403 3rd NW Townhomes
It’s been like selling water in the Sahara these past few weeks in the townhome biz. 
RPA has processed 31 townhome sales in our office alone in the past 45 days, most of which are still pending for May and June closings.  This after a scary 4Q 2008 and 1Q 2009 where sales were incredibly hard to come by.  In the city of Seattle (excepting W. Seattle) there were 44 closed sales in March, and 45 in April.  Yes, this is well below the same period’s sales in 2006, 2007 and 2008, but it’s the highest volume we’ve seen in nine months..and the pending figures are such that I wouldn’t be surprised to see 60+ closings in this market area in May, and more in June. 
Current listed inventory is 225 units — four months supply and dropping.
Factors in play:
  • Prices have come down.  From peak pricing in mid-2007, there’s been a 15%+ drop in values.  For the normal developer, working off a 8-10% net margin, that makes current pricing a losing proposition at the values which they paid for the land.  This, and in many of the more marginal neighborhoods where there is a TON of product, the lenders are letting the builders short sale units, effectively subsidizing the buyers’ purchases at even lower prices;
  • Financing is incredible.  Not only are market interest rates low, but nearly all of this inventory is under the $506,000 FHA loan limit, making these a 3.5% down payment purchase.  Since these are NOT condos, there is no premium on the pricing, and no presale requirement for a complex.  It’s just like buying a house.  And many lenders are helping out by throwing cash to the buyers for loan buydowns and closing costs.  Sterling (which holds the construction loan on the units above) is paying nearly $20,000 to give the buyers a permanent fixed rate of 3.875% — over a point below current market pricing;
  • Supply is declining.  There have been nearly no new loan commitments made in the city for construction financing since early 2008.  Most of what is being built today are projects that had financing in place prior to that time.  Once these are built out, there will be almost nothing new brought to market until lenders start lending, AND townhome prices increase again to the point where the value of the developable land again exceeds the value of whatever’s on the property today – the little rental house, or run down duplex.  Could be years. 
  • Prices have upticked in the past 60 days.  In one project, the pricing between the first sales in early February, and the last sales, in late April, were up nearly 4%.  I’m not predicting that will continue, but I think it shows that prices have at least stabilized. 

Definitely encouraging to the beleaguered builder in this town. 


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