#27 – Market Predictions for Seattle, WA from the American Monetary Association

Seattle, WA: 2.9% Return on Investment (2011)

The Seattle market experienced a significant value increase during the real estate bubble, peaking at the end of 2007 and dropping sharply during the financial crisis of 2008.  Toward the end of 2009, values began to show signs of emerging stabilization.  However, the correction resumed after the expiration of government homebuyer subsidies.  We expect values to continue a modest decline into 2011 and stabilize, with a return to modest rates of value appreciation by the end of the year.  Currently, approximately 32% of listings are from foreclosures.

Long-term values in Seattle are still on a moderate compounded growth trajectory, even after factoring in the financial crisis and subsequent value correction.  It is unlikely that the past rates of appreciation will continue into the future, given the high average prices in Seattle relative to most other major markets.  Seattle possesses many similar characteristics to Portland, with many of them being more pronounced.  In the heart of the Pacific Northwest, Seattle sits in the nest of vast natural beauty.  However, its median values are also considerably higher than the national average, driven partly by the city land use regulations and partly by a relatively high number of residents in the area who have chosen to buy their homes instead of rent.

Investors will experience quite a bit of difficulty in the Seattle market, due to rents that trend low relative to market values.  As with most other cyclical markets, this will make it very difficult for investors to float properties while waiting for values to appreciate.  Our models predict that values will resume a trajectory of modest expansion in 2011.  Unfortunately, the cash flow characteristics of income properties in Seattle are not particularly attractive.  Investors should expect to absorb considerable negative cash flows for a significant period of time.  As with many other major metropolitan areas, Seattle has experienced too much price escalation relative to rents for it to be a premier income property investing opportunity.

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