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Condos appreciate strongly; studios lead
Seattle Times staff reporters
How much do Puget Sound-area condominiums appreciate compared with single-family houses?
Are they significantly more affordable than houses?
Which size condo is a better investment around here: a studio or one with two bedrooms?
Questions like these have long intrigued condominium buyers, but no comprehensive answers were available because there had been no in-depth analysis of condo appreciation and supply.
This year, The Seattle Times did such an analysis, based on data from the King and Snohomish county assessors. The Times analyzed condominium data in much the same way it has done for its annual report on single-family home values.
Some of the condo results are surprising.
Take appreciation. Lore relegates condos to default housing, if you will, for people who can't quite swing a house purchase. But buyers apparently don't feel that way.
Demand has caused condos to appreciate handsomely, thank you.
Since 2000, King County condominiums have outperformed single-family houses two out of five years. And even when they haven't, their appreciation has been strong.
In 2005, for example, the county's single-family houses appreciated 16.3 percent per square foot. Condos climbed a healthy 13.5 percent.
In the first six months of this year, condos in King County have appreciated 21.9 percent a square foot compared with the same period in 2005. That's slightly faster than the 19.7 percent that single-family homes appreciated in the first half of this year.
Who would have thought it?
And would anyone have thought that one-room studios would appreciate faster than every other condo size?
Last year condominium sales accounted for 25 percent of King County's total home sales, up from 22 percent in 1999.
"We're starting to understand multifamily living more than we ever did," said economist Matthew Gardner of Gardner Johnson, a Seattle land-use economics firm. "The old idea that it's a glorified apartment isn't true anymore, not when some cost $600 a square foot."
Gardner dates the metamorphosis to 1997, the year that new condo buildings started coming into their own in terms of improved design and construction.
"It's not a second-class form of living — no, not at all," said Marilyn Hill, who with her husband, Don, recently bought a one-bedroom-plus-den unit on the 22nd floor of Cristalla in downtown Seattle.
This was the couple's 29th move, one of several they've made since retiring. Their previous retirement home was a house on the island of Hawaii. Before that they had a condo in a different Seattle building; they've also had a house on Bainbridge Island.
"A condo is a different mentality than being in a home," Marilyn Hill said. "You have to think entirely differently."
She cites two examples: The couple's car is an elevator ride away from their living quarters. Decisions about the maintenance and appropriate uses of the building are made by committee, not by individual owners.
"But then we have the trade-off of having the whole city, which is very handy," Hill said. "We wanted to be downtown, so that meant condos."
She and her husband are avid walkers who love to explore downtown's restaurants and other attractions.
Having all of downtown Seattle as an amenity obviously resonates with many owners. Last year, the area with the second highest appreciation — behind the Central District/Madison Park — was Belltown, where condos appreciated 23.2 percent.
But look at the annual average appreciation trend over the past five calendar years, and there's a surprise: Some areas south of the city — places people wouldn't necessarily think of as having a lot of condos — have appreciated significantly.
Among them are Burien (9.5 percent) Des Moines (8.3 percent) and Federal Way (8.7 percent).
That's on par with single-family houses in Bothell, Issaquah/May Valley and Seattle's Magnolia neighborhood, which all rose at an annual rate of 8 to 9 percent a year over the past five years.
Half of the eight cities in the southern portion of Snohomish County saw condos post double-digit appreciation last year. The leaders were Mukilteo (23.8 percent) and Edmonds (20.7 percent). Condos in those towns appreciated more than neighboring single-family homes.
Philip Pinkstaff, owner of Pinkstaff Condominium Appraisal Service in Federal Way, has calculated that there are 104,000 condominium units in King, Pierce, Snohomish and Kitsap counties. Together, they account for one in 10 housing units (excluding apartments) in the region, and a significant chunk of smaller-sized housing.
Of the almost 14,000 condos that have sold regionally in the past 12 months, just 3 percent were 2,000 square feet or more, Pinkstaff found.
Roughly three quarters of the region's condos are in King County. They run the gamut, from older, recently converted apartments to upscale downtown high-rises, such as One Lincoln Tower adjacent to Bellevue Square, which typifies a new trend: a hotel — in this case, the Westin — topped by condominiums.
Several such projects are among the 49 condo projects planned for downtown Seattle. Their units are expected to be priced from the $200,000s to more than $5 million.
The neighborhoods that now have more than 3,000 units each are Belltown, Kirkland, Federal Way and Capitol Hill/Montlake.
Those with less than 800 each are Kingsgate, Burien, Mercer Island and Kenmore/Bothell.
Belltown can boast the highest median condo price last year — $359,990 (for all size units combined). That was roughly the cost of a median-priced single-family house in Lake Youngs or North Greenwood last year.
But make no mistake: 2005's condominium prices were far cheaper, in general, than single-family prices, giving a boost to middle-income buyers in affordability-challenged King County.
A Times analysis of King County detached-home sales found that just nine of 86 areas throughout the county and one within Seattle were affordable last year to buyers earning $59,718, the county's median household income. Virtually no neighborhoods on the Eastside or in North Seattle were within reach.
Contrast that with condos.
Buyers whose household income matched the median could afford the median-priced condo in 32 out of the 41 areas in the Times analysis. Among them was Magnolia.
To afford that pricey neighborhood, buyers needed to earn $55,622, which supported the median-priced condo purchase of $245,000. For a house (median price: $578,500) the household income required was $131,336.
Condominium data for Snohomish County could not be closely matched with single-family home data because the geographical areas differed.
Chris Mayer, director of the Milstein Center for Real Estate at New York's Columbia Business School, thinks "many young households don't view single-family houses the way their parents did."
"Many would be willing to live and raise a family in condos if they felt there were good schools and the neighborhood was safe," Mayer said.
In the Seattle area, there are three main categories of condo owners: first-time buyers, often singles; empty nesters ready to downsize; and investors. They'll have a lot more to chose from in the coming years, Gardner, the economist, said.
There is significant condo construction in Bremerton, Bainbridge Island, Everett, Federal Way, even Bellingham. Downtown Seattle is expected to add more than 8,000 units over the next four years.
Gardner thinks the county's strong job growth guarantees that the area won't be overbuilt.
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Copyright © 2006 The Seattle Times Company