Residential Outlook from NAIOP’s March Breakfast Meeting

Skylar Olssen, Phd, senior economist with Zillow, spoke at NAIOP’s March Breakfast about the economic outlook for the rental and mortgage markets in the Seattle/Pacific NW and compared Seattle’s numbers to the nationwide outlook.
The gist is that Seattle remains a red-hot rental market in 2017.  Housing purchases would be ideal, but available inventory remains a factor. The greatest risk for 2017 appears to be an overheating of the market, as is occurring in San Francisco.  The best values for future rental growth are north and south along the I-5 corridor.  Highest rents are in Seattle, but the higher end is flattening as more inventory comes on the market.
Major points:
2016 National average Rental Growth = 1.5%
2016 Seattle Rental Growth = 8.4% (over 3% is considered ‘too hot’, by economists).
2016  San Francisco = 1% (seeing flattening in 2016 and contraction in early 2017).
Rent growth curves are slowing for 2017 nationwide; however Seattle (City) is projected to have the highest National Rental Growth in 2017 at 5.1%. San Francisco’s rental market is in contraction (“economic melt up”) mode as people are leaving for lower cost of living = – 8.1% projected for 2017.
2016 National average rent/month = $1403/mo.
2016 Seattle (City) average rent/month = $2,907/mo
2016 Share of personal income spent on Mortgage Nationwide = 16% (25% is healthy)
2016 Share of personal income spent on Mortgage in Seattle = 25% (a good thing; as 25% is healthy). However, numbers in Seattle may be misleading due to lack of inventory.
2016 Share of personal income spent on Mortgage in San Francisco = 42% (25% is healthy)
2016 Share of personal income spent on Rent Nationwide = 29% (24% is healthy)
2016 Share of personal income spent on Rent in Seattle = 32% (not so good; as 24% is healthy)
2008-2016 Housing Inventory/Demand Nationwide = – 41% (far fewer homes available)
2008-2016 Housing Inventory/Demand Seattle = – 71% (ditto)
2008-2016 Housing Inventory/Demand Everett/Tacoma = – 10/-11% (higher affordability)
Percent of Millennials living with their parents nationwide = 33.9% (highest ever)
Percentage of Single Family Homes used as rentals in 2016 = 19.2% (highest ever)
Single Family Housing Inventory just isn’t there anymore like it was 10 years ago.
Lifestyle choice is a myth when Millennials are actually surveyed.  The Millennial generation wants single family homes on par with all earlier generations (Boomers and higher-end buyers/renters want to live in the City and/or downsize).
Millennials are beginning to look outside of the urban centers for household formations which have been depressed for a number of years now.  We see this on a larger scale in San Francisco, where ‘job migrators’ are taking pay cuts in order to move towards affordable housing.  San Fran is the only city in the Nation where people are actively migrating to lower paying work (the opposite is true for all other job migration – which is the ‘norm’).