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Quick Hits: If you're planning to buy a home do it now, because prices are going up for the next few years. Investments in single-family properties that are split into rental units have good potential in King County and Bellingham. Apartment developments have the best potential in King County and Tacoma, where mortgages and construction loans have lower risk; risks are slightly higher in Snohomish County because of the high concentration of Boeing jobs. Best bets for investments in retail are King County and Tacoma; worst bet is Bellingham. Demand for office space is high in King County.
Stuck at the edge of America, with rain and clouds more than half the year, Seattle has managed over the decades to produce what the rest of America wants: first lumber and ships, then airplanes, then software, now e-commerce and trade with China. Without a hinterland to service, however, the Seattle economy depends a lot on demand that happens elsewhere, making it vulnerable to consumer cycles, tech cycles, and international trade politics.
Over the last ten years, growth has been strongest in Seattle itself, driven by new jobs the technology industry that now rivals Boeing in economic size, while manufacturing jobs have been flat. Overall growth has been slowest in Bremerton and Bellingham. The increase in high-paying tech jobs has driven up the value of real estate, especially because there isn't much land available for new construction in Seattle. I don't think the growth in technology can offset the decline in manufacturing in the long run, but it will push values higher for several years.
Home prices recovered quickly after the recession and increased by double digits in Seattle in the past year, a bit less in Tacoma and more modestly in Olympia, Bremerton and Bellingham. I expect prices to increase 30 percent in Seattle and Tacoma over the next three years, 25 percent in Bremerton, less in Olympia and Bellingham. The larger manufacturing presence will probably moderate price increases more in Snohomish County than in King County, where the tech industry is concentrated.
Because of high home prices, King County has a high proportion of renters, close to 40 percent. The price-to-rent ratio is too high to favor buying single-family homes to rent out, but encourages splitting single-family homes into rental units. Splitting single-family homes is also favorable in Bellingham, where there is also a high proportion of renters but for the opposite reason - low income. With much lower home prices, Bellingham may be an easier investment.
Investments in apartment buildings will probably be successful in the short run, as rents rise rapidly, but the heavy dependence on the continued growth of the tech industry makes longer term-investments questionable. Expected cash flows that incorporate endless rent increases are too optimistic.
Mortgages are a good investment now because rising home prices will quickly grow equity cushions. Default risk is average because home prices are largely in balance with local incomes; the largest risk is in Snohomish County because of the many jobs tied to Boeing. Construction loans for properties completed in the next couple of years also have modest risk, but large developments should be financed in careful stages. A future hit to Boeing or the tech industry has to be kept in mind.
I expect proportionately the largest amount of construction in King County over the next three years, the lowest in Bellingham. Single-family and apartment construction will be half-and-half. I expect 35,000 new homes in King County and 35,000 new apartments, 10,000 of each in Snohomish County and Tacoma; and 4,000 of each in Bremerton and Olympia.
Because of good population growth, investments in retail stores and restaurants are favorable in King County and Tacoma, less so in Snohomish County, and not at all in Bellingham. King County has a significant immigrant and Asian population and a high percent of college graduates. Bremerton, Bellingham and Olympia have an older population. The sharp growth of tech jobs has increased demand for office space in King County. Surprisingly, the healthcare sector - and its need for office space - has grown very little except in Bremerton.
