IREM Breakfast Forecast: Not Good!
I woke up early today to a dead car battery on my way to the IREM Forecast Breakfast at Qwest Field. I’m kicking myself for not taking a photo of the empty football field in the dawn light but I was late both arriving and in a rush to get back to work when it was done.
Overall the outlook was grim but the feeling was up beat as everyone tried to make light of the situation with a lot of humor.
I was going to go into detail about what we heard but I’m surprised how quickly the Seattle PI got a story up about the breakfast, Real estate a sore point in Seattle economy, and did a good job capturing the highlights.
My take away from David Legeay’s (SVP at Key bank) keynote was that while things nationwide may be in the final stages of bottoming Seattle is currently not so bad relative to other areas but things will get worse as a large part of our local GDP has been made up of construction and real estate both of which are in or moving into an oversupply condition in residential, multi-family and commercial (though not industrial.) He had many graphs that show we’re okay now but looking at other boom-bust cycles we will see a decline. And that it will take a decade for residential construction to stabilize. The upside is that Seattle has a very educated population, that our population is increasing and that we have less old people than other cities.
It’s interesting to note which indicators he pointed out – national & global savings rates, GDP, payroll, architecture billings, CPI.
As for the panel discussion…
Some notes that stood out, that are not in the above article, are that Matthew Gardner felt we’d have a V shape recovery as we aren’t that over built relative to other markets though I don’t understand why he’s saying that as he pointed out the over supply we have coming in apartments (6600 units in 2009, 8000 units in 2010 and 8000 more in planning) and the current over supply in condos (though currently no units will come online in 2010.) Many of the other folks talked about the unsustainable high construction costs we’ve had that are now coming down. Some said that in the last 90 days prices on some materials have been coming down 15-20%. Many also lamented the lengthy process of getting buildings approved and permitted here relative to other areas (though this likely prevented over building.)
The collective outlook for 2009 was not positive; instead wait for the opportunities to arise late in 2009 before getting back in.
Earlier in the week I meet with an investment manager for a local development firm. Unfortunately they didn’t want to go on record but I did get some insight into what they look at.
The drivers for development that they look at are job growth and in migration. In terms of jobs they look at Microsoft, Amazon, Expedia, Gates Foundation and Boeing (they had looked at Wamu.) They also follow transportation trends (light rail), capital investments by other firms and Case-Shiller. Some of their sources for data include the Urban Land Institute (Emerging Trends in Real Estate is supposed to be a good publication), Conway Pedersen, Bureau of Labor, and Impresa (here’s a Williams Marketing deck, the last half is from Impresa.)
What does this mean for Seattle condos? There is an end in sight for new supply, 2010, now through then and beyond we’ll need to work through that supply. Supply will move quickest for places priced below the conforming loan limit ($567,500.) It will move quicker as mortgage rates fall. That said, the number of transactions completed per month has hit an all time low in Seattle (down 50% from last November which was down from the November before that) establishing a new floor. This winter will likely set the new floor for transaction volume with prices declining more in the coming months as sellers realize that much less is selling than before.
