Seattle Real Estate Sees Surge In Chinese Interest After Vancouver Enacts 15% Tax

Ellen Sheng, Forbes, 3/2/17

Chinese buyers are flocking to Seattle after Vancouver, a former favorite of those looking to invest in property abroad, imposed a 15% tax on foreign investment.

According to Juwai.com, an online real estate listing site that is popular in China, searches for properties in Seattle more than doubled after the new tax went into effect in August, drawing more inquiries than any other American city and beating out past favorites Los Angeles, New York and San Francisco. Searches for Seattle on the site jumped by 125% in November.

Seattle area real estate agents say interest has been on the rise for the last two years, dovetailing with migrating tech workers from Silicon Valley. The result? Homes in upscale Seattle suburbs such as Bellevue and Redmond, which is home to Microsoft, and known for some of the best schools in the state, have seen home prices increase more than 16% last year. Home prices on Mercer Island, another affluent area on Seattle’s Eastside, rose more than 13% while homes in the Redmond and Carnation area rose 15.8%.

“Once Vancouver started talking about the tax, we started to see an uptick just then. Investors were seeing what was going to happen,” said Matt van Winkle, broker owner of RE/MAX On the Lake in Seattle. Now, van Winkle says, it’s common to see one or two all-cash offers among the numerous offers flooding in for properties in the $1.25 million and up range.

“The higher the price point, the greater the percentage of Chinese buyers,” said Dean Jones, principal and owner of Realogics Sotheby’s International Realty in Seattle. Chinese buyers made up less than a quarter of buyers in 2014 but to about 35% of buyers in 2015 and now about 50% or more in 2016 in the most popular neighborhoods.

Jones noted a sharp uptick in interest from Chinese buyers that started in 2014 when Canada abruptly reversed 60,000 applications for resident visas, mostly from Chinese applicants. At the same time, the Obama administration increased the multiple entry visa program from one year to 10 years for Chinese nationals and also increased the student visa program from one year to five. The more generous visa terms encouraged visitors to buy second homes, Jones explained.

Attractive But Still Affordable, For Now

The Seattle region has experienced the fastest-growing home prices for metropolitan areas in the U.S., according to S&P/Case-Schiller. Agents say Chinese buyers are drawn to Seattle’s schools, clean air and scenery as well as sizable Asian population (Bellevue’s population is about 30% Asian) as well as relative affordability and no state income tax.

The city also rose to prominence in Chinese popular culture after the 2013 box office hit Beijing Meets Seattle became one of China’s top-grossing movies of all time. In the film, the mistress of a Beijing business mogul travels to Seattle to give birth to their lovechild. The film is credited with boosted Chinese tourism to Seattle as well as property sales. Ironically, the film was actually shot in Vancouver.

“The Chinese know the influence the Chinese have–creating a self-fulfilling prophecy about a rising home market and healthy investment returns. They have seen the impact of other ‘discovered’ markets like Vancouver, San Francisco and Los Angeles so while Seattle was overlooked for years, it’s suddenly become the belle of the ball,” said Sotheby’s Jones.

Despite the price increases, Seattle is still relatively affordable when compared with other west coast cities such as San Francisco or Los Angeles.

Meanwhile, the influx of buyers has created a bustling market for new construction. For $900,000, buyers looking in Bellevue can buy a “tear down” generally meaning an 1,800 square foot home built in the 1950s that’s not been updated. In its stead, the average size of new homes being built is about 4,800 square feet. Developers such as JayMarc have started marketing in Mandarin Chinese and giving options for wok kitchens in their home plans. Builders have also started building second kitchens for smokier foods and second suites–ideal for visiting grandparents.

KIRKLAND, Washington (Feb. 6, 2017) – Western Washington’s “high velocity” market continued during January with the number of pending sales (7,745) outgaining the number of new listings (6,507), according to new figures from Northwest Multiple Listing Service.

“Properties are moving through the market at an unusually fast pace,” remarked John Deely, chairman of the board at Northwest MLS and the principal managing broker at Coldwell Banker Bain. “Although we have a high number of new listings, they are moving into a pending or sold status within the typical 30-day reporting period. This phenomenon causes a low active listing count,” he added.

Brokers added 6,507 new listings to inventory last month (163 fewer than during the same period a year ago), while year-over-year pending sales jumped by 492 transactions for a gain of about 6.8 percent. New listing volume was the highest monthly total since October when members added 7,591 properties.

At month-end, there were 9,752 active listings in the MLS service area, which encompasses 23 counties. That total was 2,605 fewer than the year-ago volume of 12,357, a decline of 21 percent. Only three counties (Ferry, Jefferson and Kitsap) reported improvements in the number of active listings compared to the same month last year.

Measured by months of inventory, the selection is at historic lows in many counties. At month end, there was just under 1.7 months of supply system-wide, which compares to the year-ago figure of about 2.5 months of supply. Both King and Snohomish counties have less than one month of supply.

“If home buyers were hoping that January would start to bring more balance to the housing market, they’re going to be sorely disappointed. The number of homes for sale remains at record lows, and the growth in pending sales tells us that sellers are still firmly in the driver’s seat,” said OB Jacobi, president of Windermere Real Estate.

MLS director George Moorhead echoed Jacobi, pointing to five years ago when buyers could choose from 5,378 listings of single family homes in King County versus last month’s selection of 1,569 listings. “The real question is whether there will be relief in the near future, and the unfortunate answer is no,” said Moorhead, the designated broker at Bentley Properties, citing the combination of new jobs, a shortage of new homes, and a reluctance of sellers to list their home for fear of not being able to find their next one.

Commenting on “typical seasonal and beginning of the year adjustments,” one company president said he is encouraged by new listing activity. “There is no indication that the annualized trend of shrinking active inventory will reverse itself anytime soon, but we’re seeing momentary bubbles of increased inventory for buyers currently in the market” noted Mike Grady, president and COO of Coldwell Banker Bain.

“List it and they will come” is the new mantra as new listings come on the market, commented J. Lennox Scott, chairman and CEO of John L. Scott. Despite having more sales than new listings over the past few months, Scott said there is hope for homebuyers. “As the days start getting longer the future will look brighter for the backlog of buyers waiting to find a home.” Describing February as the bridge month between winter and spring markets, Scott expects to start seeing an increase in the number of new listings.

“Buyers who are properly positioned to make quick decisions, and who have the proper negotiation tactics and guidance are finding success in this high velocity market,” Deely reported.

Not surprisingly given the imbalance in supply and demand, prices continue to rise. Last month’s median price for the 5,874 completed sales of single family homes and condominiums was $327,175, up 9 percent from the year ago figure of $300,000. There were 889 more closed sales in January than for the same month a year ago for a 17.8 percent increase.

Single family home prices (excluding condos) increased 9 percent, rising from $309,950 to $338,000. The median price for single family homes that sold in King County last month was $525,000, up more than 6.9 percent from the year-ago sales price of $490,970. Several outlying counties reported double-digit gains.

“The softening of single family home prices in King County over the last few months, combined with the relatively large price increase in Snohomish County (8.2 percent) suggests buyers are migrating north in order to find more affordable housing,” said Jacobi.

Brokers in Pierce and Kitsap counties also reported price hikes larger than King County’s. The median price of a single family home in Pierce County jumped nearly 11.6 percent from a year ago while the year-over-year price in Kitsap was up 9.4 percent.

Condo prices rose 5.5 percent in January compared to a year ago, increasing from $255,750 to $289,900. King County condo prices surged more than 9.8 percent, from $282,250 to $310,000.

“For buyers, it is a good news/bad news scenario in Kitsap County,” reported MLS director Frank Wilson. “More houses came on the market last month than a year ago, but pending sales surpassed that number to keep the market tight. Brokers navigated these challenges and buyers endured, “but the tightness will likely be magnified during 2017,” said Wilson, the branch managing broker at John L. Scott in Poulsbo.

Wilson said open house traffic has “started off with a bang” as more buyers have decided now is the time to buy, believing that prices will only continue to rise.” He expects escalation clauses, multiple offer situations and backup offers to “be the norm during the first quarter. The hierarchy of purchasers: cash, conventional loan, VA loan, and FHA financing will continue to be the pecking order,” he stated.

“We’re seeing the frenzy change to a fanatical desire to own a home as buyers scramble to beat increasing interest rates,” reported Moorhead. He expects the Feds to increase rates two more times between now and April, “and that will only increase buyers’ aggressive tactics to secure a home,” he suggested.

Moorhead also noted sellers are able to “get away with putting homes on the market in conditions that historically would be rejected by buyers.” Now, however, Moorhead said buyers are willing to turn a blind eye to repairs and future maintenance.

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership of nearly 2,100 member offices includes more than 25,000 real estate professionals. The organization, based in Kirkland, Wash., currently serves 23 counties in the state.

NWMLS, 2/6/17

During his State of the City address Tuesday morning, Seattle Mayor Ed Murray said he wants to increase property taxes this year to generate more money for the city’s homelessness crisis.

Murray said he formed an advisory group for how to raise $55 million for homelessness and he wants a funding package within two weeks.

That $55 million per year would be paid for by residential and commercial property taxes – about $156 a year for the median household.

Though the city budgeted $108 million for homelessness services combined over the last two years, Murray said it has not been enough.

“Not enough for those suffering from addiction. Not enough for those who have been victims of crimes, like the young teenage girls who have been trapped in encampments and trafficked for sex. Not enough for the three toddlers found without parents under the Spokane Street Viaduct. We must do more to address the dangers faced by those living in unauthorized encampments,” said Murray.

Murray said the additional money would allow the city to invest in mental health and addiction treatment and to get more people off the streets.

“For 3,000 people living unsheltered, our streets have become a default, inadequate and dangerous place to live,” said Murray.

The mayor said though raising taxes was not his first choice, he believes the residents of Seattle are ready to support such a measure.

“We had hoped for a vigorous partnership with the federal government, but we are on our own,” said Murray. “Developing a national housing and homelessness agenda is not a priority for the new president’s administration.”

He hopes to qualify the property tax measure for the August ballot and challenged Seattle businesses to raise $25 million over the next five years that will get more homeless into housing.

The plan comes as Seattle residents within the Sound Transit 3 boundaries are already facing hefty property tax and car tab hikes after the controversial ST3 measure passed in November.

Many worry about President Trump’s pledge to remove regulations relating to financial services and the rollback of the ‘Dodd-Frank Wall Street Reform and Consumer Protection Act’. For those who may be unware of this very substantial bill, it represented the most comprehensive financial regulatory reform measures taken since the Great Depression, and was a result of the financial crisis and housing crash of 2008/2009.

In effect, the Dodd-Frank Act created an agency to enforce compliance with consumer financial laws, introduced more stringent regulatory capital requirements, and made banking institutions retain some risk associated with home mortgage issuance.

While I believe that it’s safe to suggest that certain aspects of Dodd-Frank will be rolled back, there are four reasons why I don’t think the entire Act will be repealed.

1. Legislative action is needed to overturn any laws, and this includes Dodd-Frank. There is a very rigorous process to do this, and unsurprisingly, no consensus amongst lawmakers. Given these headwinds, and the fact that it took nearly 10 years to implement the rules that are contained within the Dodd-Frank Act, it will likely take the same length of time to roll it back.

2. A presidential executive order repealing Dodd-Frank would trigger a judicial review. An important point to understand here is that executive orders can be nullified upon judicial review if they are deemed unconstitutional or if they are not supported by statute (think of what we’re currently seeing with President Trump’s immigration ban). The courts could deem that legislative action is required if a major policy initiative is the subject of the executive order, and a reform as sweeping as Dodd-Frank is likely to be deemed a major initiative. If so, then it is back to Congress to do the legislative work, which as we all know, is never a quick process.

3. The legislative branch probably doesn’t have a strong desire to tackle another major rules overhaul concurrent with the Affordable Care Act (ACA). Given the focused public spotlight on health care, legislators may run short on bandwidth to address a second statute as massive as Dodd-Frank.

4. If financial markets continue to rise (think: Dow Jones 20,000), the focus on financial services deregulation will probably lessen. Wall Street is currently outperforming even the most bullish analysts’ predictions and bank stocks are surging in value against higher earnings and profits. As such, voices within the financial services arena that are crying out for deregulation may have less influence on Congress, and certainly less credibility with the American public.

From a housing perspective, Dodd-Frank addressed the high-risk lending practices that were once endemic amongst banks. Any changes to the Act are highly unlikely to allow Wall Street to go back in that direction. Rather, the moves will take place more around the edges, such as cutting compliance costs, freeing up community and regional banks from the same rules as their bulge-bracket peers, and helping out investment advisors who believe they’ve been targeted unfairly.

For some, any repeal of Dodd-Frank implies a return to the irresponsible lending practices of years past, but the chances of that are close to zero. We may see a modest drop in credit score requirements when it comes to applying for a mortgage, but all that will do is add more potential buyers into an already competitive housing market. As for a resurgence of sub-prime lending? I am confident that will not happen.

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.